Market Trends

High Fuel Costs Take Fleet into Uncharted Water

May 19, 2008

by Mike Antich - Also by this author

 By Mike Antich 

After 8,000 hours of research, more than11,000 facts pertinent to the fleet industry have been collected for thisyear’s Automotive Fleet Fact Book. Withinthis wealth of data, one overriding fact stands out with klieg-light intensity– the impact of the high cost of fuel. In recent years, many companies haveseen their overall fleet fuel expenses double. Especially hard hit are truckfleets as the cost of diesel has risen at a faster rate than unleaded gasoline.The nationwide average price of diesel, for the first time ever, surpassed $4per gallon. These fleets are also now paying more for diesel due to the higherprice of mandated ultra-low sulfur diesel.

The high cost of fuel has wreaked havoc onfleet budgets and caught the attention of senior management. Elevated fuelprices are an ongoing reality check of the need to reassess selector choices tominimize higher fleet expenses. Fuel economy considerations promise to play amuch greater role in selector decisions than in previous model-years. Ongoinghigh fuel costs are prompting fleets to establish minimum mpg requirements forvehicle inclusion on a selector list. However, the reality is that fleet applicationrestricts vehicle choices. Most fleets have limited options to change theirselectors and still get the right vehicle for the job.

Feeling the Pinch

The high cost of fuel has a domino effect in increasing prices ofother fleet-related commodities. All major tire manufacturers increased tirepricing due to rising oil costs. All fleets are adopting compensatorystrategies to reduce fuel expense. Many fleets are not only looking to minimizefuel costs, but they are also seeking to reduce their CO2 emissions as part ofa larger corporate initiative. Fuel management exception reporting is beingmodified to be more robust. Some fleets have been able to deflect the impact offuel increases by shifting to more fuel-efficient vehicles. A growing number offleets are seeking to increase overall fleet mpg by spec’ing four-cylinderengines instead of six cylinders. Other fleets are re-evaluating the use ofSUVs or have moved to smaller SUVs. Fleet policies have been changed so AWD and4x4 are allowed only where absolutely essential.

Other fleets are transitioning from minivans to crossovers toreduce fuel expenditures. Fleets across the board are looking to “right-size”cargo vehicles to minimize fuel expenditures, but are restricted by fleetapplication requirements. Increasingly, it is the lack (or future lack) of vanproduct that is prompting fleets to consider crossovers. Fleets that areenvironmentally conscious or have green initiatives are acquiring hybridvehicles. Although hybrid fleet sales volume continues to be negligible interms of the overall industry, it is a growing segment. Several fleets have alreadycommitted to becoming all-hybrid fleets.

To decrease fuel costs significantly, fleets have three options:switch to a smaller vehicle, specify a smaller engine, or both. The concernwith downsizing is that it will negatively impact driver performance, safety,and morale. For instance, smaller vehicles often can’t fulfill business needsdue to reduced room to carry samples, materials, and equipment. Vehicle downsizingalso raises liability concerns over driver ergonomics and safety.

A more promising strategy is telematic solutions to reduce fuelspend by optimizing trip routing and curbing unnecessary idling and speeding.Early pilot programs show the efficacy of telematic solutions. However, driverresistance to the perception of “Big Brother is Watching” presents realfriction (albeit a temporary one) that is slowing more widespread telematicfleet applications.

Shifting Costs to Employees

Reimbursement discussions are re-emerging in reaction to the highcost of fuel. The motivation behind this is pressure at some companies toreduce the overall number of company-provided vehicles. One area receivingincreased behind-closed-door scrutiny is driver eligibility. The high of costof fuel is prompting companies to reassess and tighten employee eligibility toreceive a company vehicle as a way to reduce fleet costs. Historically, onecriterion for a company vehicle assignment is if an employee drives more than12,000-15,000 business miles per year. Several major fleets are studying thefeasibility of increasing the annual mileage threshold. Employees unable tomeet the new criterion will be shifted to driver reimbursement.

The dramatic spike in the price of fuel has also increased thecost of allowing personal use of company vehicles. A growing number ofcompanies now question whether they charge employees enough for personal use tooffset the increased cost of fuel. As the cost to provide this benefitincreases, companies are deciding to share this increased cost with theiremployees.

Cost of Doing Business

As of press time, the cost of oil is at $127 per barrel and the nationwideaverage cost of gasoline is at $3.79 a gallon. Both are record prices. As comparison,in Europe, the equivalent price of unleadedgasoline (converting liters to gallons) is $8 a gallon. Even at thisstratospheric price, fleet continues to play a strong role in European businessoperations. Although everyone wishes the cost of fuel would be lower, the U.S. fleet market will continue to remain strong despite this ongoing cost pressure.Although selectors may change, in the final analysis, the cost of fuel willcontinue to be viewed as the “cost of doing business.”

Let me know what you think.

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Mike Antich

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Mike Antich has covered fleet management and remarketing for more than 20 years and was inducted in the Fleet Hall of Fame in 2010.

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