During the course of assembling the data for the 2017-2018 Automotive Fleet Fact Book, the top story, in my mind, is that calendar-year 2017 starts the fourth consecutive year that overall fleet operating costs have remained stable when compared to the preceding year. The stability of fuel pricing over the past 36 months, along with ongoing improvements in vehicle fuel economy, have been the key factors keeping fleet operating costs relatively flat. Since fuel spend makes up, on average, approximately 60% of a fleet’s total operating costs, the trajectory of the price per gallon of fuel has a huge impact on overall operating costs.
The second highest fleet operating expense is the cost for replacement tires. Replacement tire pricing for CY-2016 were flat compared to CY-2015. A key reason was less volatility in the price of commodities used to manufacture tires, namely oil, rubber, and steel. These lower materials prices kept replacement tire costs flat. With commodity prices remaining low – particularly oil – material costs have not shown much fluctuation. In addition, increased imports of low-cost replacement tires from abroad has helped keep average prices down.
The third highest operating expense, fleet maintenance costs, has also remained flat due to increased overall vehicle quality. Also, contributing to this decline has been increased engine protection by new motor oils, improved component engineering for engines and transmissions, onboard diagnostics, and faster OEM response time to component failures.
Impact of Fuel Prices on Vehicle Acquisitions
It is well documented that fuel prices influence vehicle acquisition decisions. Buyers in the new- and used-vehicle markets base their acquisition decisions on fluctuations in fuel prices. When fuel prices are high, there is increased interest in hybrids and smaller vehicles. Likewise, when fuel prices are low, buyers are more willing to consider larger, less fuel-efficient vehicles. In recent years, lower fuel costs have created an upward pressure on truck and compact SUV resale values, resulting in a lower cost per mile and making these vehicle classifications more affordable to operate. Conversely, lower fuel prices have impacted the sales of hybrids and alternative-fueled vehicles by decreasing demand for these types of vehicles.
The commercial fleet market is very diverse covering all segments of the U.S. economy, which sometimes creates contradictory market forces. For instance, one factor driving acquisition decisions, especially at multinationals, is corporate sustainability initiatives. Since higher fuel efficiency translates into lower emissions, meeting sustainability mandates forces acquisition decisions to focus on smaller displacement, more efficient engines. These acquisition decisions have contributed to increased average fleet fuel economy and a reduction in overall fuel consumption. For instance, fleets are rightsizing their vehicle selectors to take advantage of more fuel-efficient engine technologies, weight reduction measures, and higher-speed transmissions to meet sustainability initiatives. The use of data analytics is helping to further refine fuel management and sustainability strategies.
But, there is a limit as to how much fuel savings can be wrung from the types of vehicles acquired without impacting the fleet application. Once asset limitations are reached, the best way to reduce fuel expenditures is to modify employee driving behavior.
Beware of Complacency
Most fleet management companies use the U.S. Energy Information Administration (EIA) of the U.S. Department of Energy forecasts for internal planning and external fuel price forecast dissemination. The EIA forecasts an uptick in gasoline prices in CY-2018 to an average of $2.45 per gallon, compared to an anticipated average of $2.34 in CY-2017. The biggest danger from today’s lower fuel prices is complacency, on the part of both drivers and fleet managers, and the mistaken belief that fuel reduction initiatives do not require the same emphasis as in the past.
Despite the actual price of a gallon of fuel – whether it is high or low – minimizing your fuel spend should remain a top priority.
Let me know what you think.
Originally posted on Automotive Fleet