Fuel price rise in North America is fleet challenge for 2017
With the overall U.S. economy predicted to grow at a slow but stable rate of 2% to 3%, the fleet industry is expected to make further gains in 2017. But fuel prices look set to rise, thus posing a serious challenge to TCO.
“The forecast for slow, but stable growth, combined with strong employment reports, leads us to expect that the fleet management industry will see a continued movement away from de-fleeting and toward fleet growth”, says Dan Frank, president of Wheels, Inc.
Chris Conroy, president and CEO of ARI, agrees: “A report in March shows total vehicle sales up 1.6% and new-vehicle sales up 2.4%, year-over-year. Fleet leasing and management in the U.S. and Canada will remain strong in 2017 as well”.
But Chad Christiansen, senior strategic consultant at Element Fleet Management, sounds a cautionary note: “Our annual TCO index shows fuel cost was down 12% last year over 2015, enabling businesses to offset a 7% increase in net depreciation, due almost entirely to softening resale values for vehicles other than pickups and cargo vans. Last year's TCO Index reported only a 1% increase in depreciation. However, fuel is estimated to increase 11% this year to $2.38 a gallon. This means businesses will no longer be able to absorb other costs of vehicle ownership with fuel savings. The result: a higher TCO”.
But not necessarily: “There are other ways to decrease TCO, including replacing cargo vehicles with Euro-style cargo vans. The latter are more fuel-efficient, and the former are currently high in demand among trade contractors, making this a good time to sell”.
Driving forward the fleet industry in North America this year are not just market forces, but also technological change. “The evolution of Big Data and its on-going penetration into every area of fleet management continues to be the big game-changer”, says Chris Conroy. “It's no longer enough simply to collect data – smart companies are learning how to leverage their data into actionable insights on TCO”.
Those insights increasingly apply to specific fleet segments or even individual vehicles: “Increasingly, powerful analytics platforms allow management through outliers – in other words, identifying the assets in your fleet that don't perform up to benchmarked expectations, and create an an action plan to resolve the situation”.
Next to the ever-important drive to cut cost, Dan Frank sees another important trend emerging in fleet management in the U.S.: “As we move toward a fully-employed marketplace, employee satisfaction and productivity become critical as companies compete for talent”.
Dan Frank spots other pressures on TCO apart from fuel: “Cost increases will come from higher vehicle prices and maintenance costs, rising due to increased technology; from rising interest rates and – for tires at least – rising demands for global commodities; and from softening residual values”.
Will the Trump Administration have a significant impact on the fleet industry? “It is clear that tax reform is high in the Administration's agenda, but it is too soon to say what the impact will be. That said, the focus on domestic jobs and infrastructure should promote transportation requirements, which is good for our industry”, says Dan Frank. Chris Conroy does not anticipate any major fiscal or legal steps to influence the U.S. fleet industry, but points out that “despite the attention given to the new accounting standards as issued by the IASB and the FASB, these will have little effect on North American lessees, unlike their European counterparts. In Canada and the U.S., the focus will continue to be on managing owned residual values, and avoding closed-end risk premiums”.
Do's and Don'ts
Finally, some tips for international corporate fleet managers with responsibility for the North American region:
Heidi DiAngelo, global alliance development manager at Element:
“Do get to know your North American team, fleet, market structure and services before your begin the process of globalisation. There are key differences between the U.S., Canada and Mexico – and fleet culture differences between Europe and North America. Understand why, and how this can benefit your fleet”.
“Don't launch a global RFP or initiatives before getting a buy-in from your North American team. Missing this step can cost time and add confusion. But do keep in mind the lease and services structure when requesting quotes, to compare apples with apples”.
“Do listen and understand before you act'.
“Don't assume that the best practices in your country or region are the same over here”.
“Do take both a comprehensive, strategic view of your fleet and have an understanding of vehicle and driver performance on a granular level. Without both, it's hard to have a meaningful impact on operations or the bottom line”.
“Don't underestimate the complexity of the global marketplace. Issues include leveraging the supply chain, maximising capital funding, managing costs, increasing productivity and tackling safety and compliance. These realities are not local or regional, but in the truest sense of the word – global”.
| 17/05/2017 | Frank Jacobs