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Fleets told to get ready for cost surge

Visiting: Mike Antich, the editor of Automotive Fleet magazine and past president of the United States Automotive Fleet and Leasing Association.

Expert warns of across-the-board cost rises for fleets as oil, steel prices soar

General News logo22 Mar 2011

A VISITING American fleet expert has warned fleet managers to get set for spiralling costs because of a broad range of price pressures on oil and other commodities, higher levels of onboard technology and other factors.

Mike Antich, the editor of Automotive Fleet magazine and past president of the United States Automotive Fleet and Leasing Association, said the rising costs would force fleets to continue the trend to vehicle downsizing – one of the few options still available to cut expenses.

Speaking in Melbourne at the Australasian Fleet Managers Association national fleet conference yesterday, Mr Antich said cars would not only become more expensive to replace but also to run and maintain.

He cited the higher cost of the base commodities used to make vehicles and the higher levels of technology in the latest models as two factors that would not only make cars more expensive to replace but also repair.

“Fleet vehicles will continue to become more complex with the addition of more onboard electronics and telematic devices,” he said. “All these advances, although beneficial, put upward pressure on acquisition costs.”

As well, such technology was costly to repair. “Greater vehicle complexity is increasing both repair and labour costs when vehicles are involved in an accident,” he said.

Mr Antich said such repair costs had already been driven up by the proliferation of airbags in cars, adding between $2000 and $4000 to the repair cost of a similar vehicle with just two airbags in a similar crash a few years ago.

80 center imageLeft: Higher technology levels make new cars more costly to repair. Bottom: Toyota Camry hybrid and Toyota Prius are among the hybrid alternatives in the brand's portfolio.

He said that in the US, many fleet operators were also tending to replace all airbags in a damaged vehicle, even those that had not discharged, for fear of litigation.

Mr Antich said that although cost containment was the number one priority of company fleet operators, this was becoming increasingly difficult.

“There will be diminishing opportunities to reduce cost and enhance efficiency, especially if you are running a well managed fleet,” he said. “The low-hanging fruit has been picked long ago.”

Mr Antich said the volatile price of oil could be expected to continue, with China consuming ever larger proportions of world supply.

He said China’s current fleet of 88 million vehicles was expected to rise to 200 million vehicles by the end of this decade, a situation that could double that country’s oil requirement from the current 10 per cent of global supply.

Mr Antich said the oil price rise would have a domino effect with fleets also facing rising costs of components and services from suppliers passing on their own cost increases.

“For instance, tyre costs are increasing due to the high cost of oil, since the main ingredient is entirely manufactured from oil,” he said, adding that tyres were the second greatest fleet expense after fuel.

Mr Antich said that even the growing size of tyres, from 16 inch to 17 and 18 inches, also made them more expensive, while fleets needed more of them because they were extending their vehicle replacement cycles.

Fleets were hanging on to fleets longer in an effort to reduce their costs, but that could raise maintenance costs, he said.

Mr Antich said there was every likelihood that the upward trend of oil and other commodity prices would continue.

“We are witnessing across-the-board increases in the cost of commodities, from the price of fuel to the cost of rubber, the cost of steel to manufacture vehicles. All these price rises will impact acquisition costs,” he said.

Mr Antich said the trend to vehicle downsizing would continue as fleet managers attempted to rein-in costs.

“The engine technology of today is allowing fleets to downsize to smaller engines without impacting fleet applications,” he said“The four-cylinder engines of today are the equal to the six-cylinder engines of yesterday.”

Mr Antich said that despite costs pressures, many fleet operators were maintaining their push for more sustainable fleets, setting voluntary fuel consumption and CO2 targets.

He said that this was driving growth in hybrid vehicle sales – a trend that would be encouraged in the US by tighter corporate average fleet economy (CAFE) limits that would force motor companies to increasingly push sales of hybrids.

Companies such as Toyota were promising hybrid alternatives of all its models, making hybrids more readily available.

“This proliferation of hybrids will remove one of the stumbling blocks for hybrids to gain greater acceptance in fleet,” he said.

However, Mr Antich said there was a cost attached to greening fleets, due to the higher levels of technology.

“Sustainability isn't cheap,” he said.

Mr Antich said that despite an increase in safety technology in cars, US fleet operators had noticed an uptick in avoidable accidents caused by driver distraction due to mobile electronic communication devices being used in traffic.

“The bottom line is that drivers are being asked to do more in same amount of time which is causing them to multi-task behind the wheel,” he said.

Mr Antich said fleet operators were responding with stricter rules on operation of such electronic devices behind the wheel to not only safeguard drivers but to cap costs of repairs and insurance.

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