March 2008, Work Truck - Feature
Medium-Duty Truck Operating Costs Increase (Again)
By Mike Antich
Overall operating costs for medium-duty trucks in calendar-year 2007
increased compared to 2006 and earlier years. Key reasons for the
increase in operating costs were a more than 3-cents-per-mile (CPM)
jump in fuel costs and a 4- to 7-percent increase in the cost of
replacement tires.
This assessment is based on a study of the operating expenses of
6,560 medium- duty trucks in three fleet segments — service, utility,
and delivery fleets. The study, conducted by GE Capital Solutions Fleet
Services, tracked operating expenses between Jan. 1 to Dec. 31, 2007
for Classes 3-6 trucks rated 10,001 to 20,000 lbs. GVW in 16 fleets.
According to the GE study, fuel costs rose three or more cents per mile compared to 2006.
“This is a huge increase for any individual variable expense line
item,” said Kate Wesley, fuel product manager for GE Capital Solutions
Fleet Services. There has also been an indirect impact caused by the
high cost of fuel in related areas such as replacement tire costs,
mobile fueling, towing, etc.
“The rising cost of oil was also a factor in the 4 to 7-percent tire
cost increases for medium trucks,” said Eric Strom, maintenance product
manager for GE Capital Solutions Fleet Services. “The good news is that
preventive maintenance and repair costs are fairly flat overall,
although the individual incident cost per repair has risen moderately.”
One reaction to higher prices for replacement tires is a greater willingness to use retread tires.
“Fleets are more receptive to looking at using retread tires,
although there is not a huge shift. Fleets are becoming more aware of
tire casing credits, too, as this may be money left on the table,” said
Dave Mellon, truck customer specialist for GE Capital Solutions Fleet
Services. “Replacement tire costs are a common theme among many fleets.
Our studies have shown, depending on the fleet, that a higher price,
longer tread life maybe a better value as these tires may eliminate the
need for the last set of tires. The customer’s vehicle lifecycle
replacement policy may drive tire selection.”
Major tire manufacturers are developing fuel-efficient tires,
however the first step in reducing tire and fuel costs is a process to
monitor tire inflation,” adds Mellon.
Fleets are actively looking for ways to minimize fuel spend. “As a
result of the increases in fuel costs, more fleets are researching,
piloting, and implementing telematics solutions to optimize routes and
strategies to reduce or eliminate idling,” said Wesley. “We have also
seen more inquiries regarding driver training courses and use of
low-rolling resistance tires.”
Fuel costs are also having an indirect impact in other areas. “For
example, many mobile and towing vendors are billing a fuel or call-out
surcharge to cover their costs,” said Mellon. “The fuel impact chain
goes even deeper as truck dealers and independent garages are paying
their parts suppliers for fuel surcharges for delivery charges.”
Fuel prices are forecast to remain high for the foreseeable future.
“Global oil markets will remain tight with OPEC determining, in its
view, that worldwide supplies areadequate. Whether due to supply or
speculation, fuel prices will continue to rise to new record levels,”
said Wesley. “This means it will be imperative for fleet managers to
look beyond pump prices for fuel savings.
Truck engineering specs, control or monitoring of driving habits
combined with keen awareness of the fueling decisions the driver can
make will need to be employed in order to manage the fuel expense line.”
IMPACT OF 2007 DIESEL STANDARDS
The impact of the 2007 diesel emission standards on fuel
expenditures has been minimal. Likewise, the preliminary impact of the
new standards on preventive maintenance (PM) and other maintenance
expenses has been nominal.
“Fuel economy has been impacted slightly downward by the new diesel
standards. We are optimistic that PM costs will remain flat in 2008, as
they did in 2007. The cost of an oil change service is more, but
service intervals have been extended in many cases and have helped
control the costs,” said Dan Kratz, truck maintenance operations
manager for GE Capital Solutions Fleet Services.
Service interval (and cost) increases are largely due
to the engine manufacturers increasing the oil capacity of the engine
to cope with the additional demands imposed by the emission-related
changes. A secondary impact to PM cost relates to the new engine oil
formulation that’s more expensive and necessary for the 2007-compliant
engines.
In 2007, there was a minor shift in the Class 3 market from diesel to gasoline engines by a few fleets.
“The
cost of the 2007 emissions standards and the high cost of diesel has
some customers looking at gas engines. However, the lower acquisition
cost and fuel cost need to be balanced with power requirements,
longevity, and maintenance,” said Mark Stumne, truck engineer for GE
Capital Solutions Fleet Services.
Some fleets have switched to
gasoline engines on a selective basis. “More fleets are taking
advantage of total cost of ownership models to analyze the differences
between gasoline and diesel engines. These models will calculate the
differences between up-front costs, fuel, and maintenance expenses, as
well as life expectancy assumptions and resale estimations to determine
the best mix of gas and diesel trucks,” said Stumne. “This methodical
total cost of ownership analysis can assist in the gas/diesel decisions.
An
extra measure of caution should be employed in the analysis.
Traditionally, the gas vs. diesel analytical process revealed a rapid
return on the increased initial cost for the optional diesel. In
today’s environment, the option cost is exponentially higher due to the
2007 emission compliance costs and the per-gallon cost for the required
ultra low sulfur diesel is significantly more than gas. In an
application where the annual mileage is low the payback may not exist
for the higher cost diesel engine.
MODIFYING TRUCK SPECS
In an effort to reduce fuel expenditures, fleets are modifying truck specs to increase miles-per-gallon fuel economy.
“We
are seeing fleets in certain industries making changes to their truck
and upfit specifications to help improve fuel economy. We are also
recommending items that may help them improve truck fuel efficiencies,”
said Stumne.
According to Stumne, there are four areas to consider in improving fuel economy:
1. Truck transmission and drive axle ratio:
By gearing a truck so the engine is running at a slower RPM at a given
speed, less fuel is burned. This must be balanced with meeting
“startability and gradeability” requirements.
2. Engine horsepower and torque: When
taking advantage of the first point (gear fast, run slow), it may be
necessary to increase engine horsepower and torque to meet power
demands at lower RPMs.
3. Drivers’ influence on fuel economy: Fleets are using driver training, in-truck displays, and telematics reporting as tools to help reduce fuel consumption.
4. Aerodynamics:
Customers with van bodies are adding front domes to the bodies. These
domes can reduce wind resistance by up to 10 percent at highway speeds.
“Other
items that fleets are requesting to decrease fuel expenditures include
specific brand-model tires, aerodynamic mirrors, moving air filters
under the hood, dropping fender-mounted mirrors, and in-cab electronics
for drivers to monitor fuel economy performance,” said Stumne.
Overall,
the driver influences fuel economy more than all the other factors
combined. Sustainable improvements typically come as a result of
implementing a driver incentive program where the improvements garner
monetary rewards for the driver. To embark on an incentive program, a
fleet must first have a dependable means to collect and analyze mileage
and consumption data. A telematics product is one option fleets are
considering for a consistent means to gather the data.
SERVICE LIFE REMAINS STATIC
The average service life of medium-duty trucks, in terms of months-in-service and overall mileage, has remained static.
“While
most truck fleets continue to evaluate their replacement policies, many
private fleets still look to replace trucks between five to eight years
with 150,000 to 200,000 miles on the unit,” said Kratz. “Utility fleets
with significantly more upfit and low-mileage usage can sometimes
extend the life expectancy to 10–15 years with around 150,000 final
miles on the truck.”
The utility segment medium-duty truck fleets
had the highest incident ratio and CPM for tires and the lowest
per-incident cost when compared to service fleet and delivery fleet
segments. “These utility segment fleets tend to have upfit work trucks
and may be in off-road conditions that may cause tire damage,” said
Strom.
Another reason fleets continue to replace trucks on a
regular basis is to minimize the truck downtime caused by older,
higher-mileage trucks.
“As companies continue to improve
efficiencies and telematics solutions become more common,
consistent-running trucks are needed to remain competitive,” said Kratz.
“Companies find the cost savings of running an efficient delivery
processmore than covers the extra capital expenditures for
trucks.”According to Kratz, OEMs have made some changes to their
scheduled maintenance programs or the trucks themselves that impacted
maintenance expenses in 2007 and may impact maintenance expenses in
future years. For instance, PM schedules on medium-duty engines have
increased up to 15,000-mile intervals depending on the OEM.
“The
OEMs are not necessarily recommending traditional AB- C services. GE is
working with customers to extend B-PM intervals and not schedule A or C
PMs. Of course, we continue to complete annual DOT/BIT (biennial
inspection of terminals) inspections as well,” said Kratz.“
Future
years will require additional emissions-related maintenance, such as
particulate filter replacement and possible component wear due to
engine compartment heat. The engine maintenance indicators are
triggering more dashboard displays, which should help extend some
service intervals, yet the reliance remains on the driver to escalate
the issue,” added Kratz.
Several common service problems were experienced in Class 3-6 trucks during the 2007 calendar year.
“We
have seen a number of maintenance repair trends including fuelinjector
failures, de-laminating fuel tanks, premature diesel engine failures,
biodiesel-related fuel gelling, turbo failures, and oil leaks from
high-pressure oil pumps. These were primarily on 2006 model-year Class
3-6 trucks,” said Kratz.
Overall, the initial quality of 2007
trucks compared to prior years appears to be higher; however, it is
still too early to make a final assessment. “It’s too early to make
broad judgments on the 2007 model-year truck quality. Truck quality
will continue to improve, we believe, and the OEM technology
enhancements will challenge a reduced truck technician workforce. The
whole driver experience will improve in comfort and ergonomics,
reliability, and by providing more operating information via dashboard
displays,” said Kratz.
OTHER OPERATING COST TRENDS
A number of other key trends are impacting medium-duty truck operating costs besides the high cost of fuel.
"Operating
cost trends in 2007 also included flat PM costs, as some fleets are
stretching PM intervals and/or eliminating some services,” said Strom.
“The OEM manufacturing quality improvements are paying big dividends by
reducing the incident rate of component failures, which has offset the
rise in costs of the actual individual repair,” added Strom.
LOOKING AHEAD TO 2009-2010
What is the trend in overall operating expenses for the medium-duty truck market going forward into 2008 and beyond?
“The
next year or two will see continued increase in OEM service interval
recommendations and greater acceptance and adoption of these by truck
fleets,” said Kratz. “The extended intervals will help offset the
per-repair incident, rising cost of fuel, and increased labor and parts
costs. We also expect original truck purchaseprices will continue to
increase, so the 2010 models will not have as dramatic an increase as
the 2007 trucks.” Other future trucks in medium-duty truck operations
include:
2010 diesel emission standards. “The new
standards are looking to be less of an event than the 2007 emission
changes for Class 3-6 trucks. This is due to small-bore diesel
manufacturers finding ways to meet the 2010 emissions without the use
of urea injection into the exhaust,” said Stumne. “As technology
improves, the impact is looking to be less than first expected. Fleets
should review what impact this change may have on their specifications,
operations, driver training, and maintenance.”
Driver training. Fleets will continue to increase their focus
on driver training geared towards educating their drivers on how to
drive for improved fuel economy,” said Stumne.
More fleets will consider use of alternative fuels and hybrids. “Corporate clean air initiatives are requiring fleet managers to
consider environmentally friendly vehicles. Unfortunately, the current
lack of available alternative fuels and truck hybrids will make it
difficult for truck fleets to comply,” said Kratz.