5 Factors Driving Higher Maintenance Costs

As any fleet manager will tell you, there has been an ongoing, across-the-board increase in total fleet expenses. 

These expenses runs the gamut from higher acquisition costs to decreased incentive monies and from record high fuel prices to an overall increase in almost every single line item in a fleet operating cost budget. I’d like to drill down and focus on why maintenance costs (on a cents-per-mile basis) have been increasing for most fleets. In particular, I’d like to examine five key industry trends exerting upward pressure on fleet maintenance costs, and at the end of each examination, I’ll provide a forecast of the cost trends that fleet managers should anticipate for the balance of calendar-year 2023. 

Trend No. 1: Longer Vehicle Service Lives

The first trend I would like to examine is longer vehicle service lives, which has been occurring for the past two ordering cycles.

Many vehicles that were scheduled to be taken out of service weren’t because of how difficult it’s proven to source replacement vehicles. So as a consequence, these vehicles – scheduled for replacement — were kept in service for another model-year.

With a typical fleet vehicle averaging 20,000 to 24,000 miles annually, extending a vehicle’s service life by another year or two results in an inevitable uptick in the amount of unscheduled maintenance.  

Operating older units with higher mileages has been a key factor in contributing to higher maintenance expenses due to an industry-wide uptick in unscheduled maintenance incidents.

Because of the ongoing difficulty in sourcing replacement units, many fleets are more likely to invest in high-dollar repairs such as repairing drivetrain components because they may not have a choice. It is necessary to spend the money to keep the vehicle in service which increases a company’s overall maintenance spend.

In addition to unscheduled maintenance, delaying a vehicle’s replacement has a huge impact on scheduled preventive maintenance expenses. This additional 20,000 or more miles of usage invariably takes it into  a new PM cycle of replacing expensive wear items such as brakes and tires, which would not have occurred if they vehicle were replaced as scheduled.

Prediction: Expect difficulties to continue in sourcing 2023 model-year replacement vehicles due to the carryover of large pent-up fleet demand for ordered units that were not produced in model-years 2022 and, in some cases, 2021.  

Trend No. 2: Higher Replacement Tire Prices

The increased cost of replacement tires, (which was already trending higher throughout calendar-year 2021) has remained elevated, extending into calendar-year 2022. On average, replacement tire prices rose approximately 3-7% in calendar-year 2021. 

Tires are the third highest fleet expanse after depreciation and fuel.  As a consequence, the higher price of replacement tires is one of the largest contributors to the increase in fleet maintenance spend that fleets experience today.

The primary reason for the higher price of replacement tires is due to the higher cost of the raw materials used in their manufacture , such as crude oil, rubber, and steel. The higher prices for these commodities has increased production costs for tire manufacturers and who – in order to o maintain margins - pass the extra cost to end users by raising the prices of replacement tires. 

In addition to higher commodity prices, the logistics costs to transport tires from the factory  or port to distribution centers and retail stores has increased due to record high fuel prices for transport trucks. And these costs are being passed on to end users.

In addition, many low-cost replacement tires are imported and the cost for these tires is likewise increasing due to a spike in ocean freight rates that occurred in 2021, adding further increased the shipping costs for tires imported from Asian countries.

Prediction: Expect more of the same. The elevated prices for commodities used to manufacture tires will continue through calendar-year 2022 and these costs will be passed on to end users. 

Trend No. 3: Spare Parts Availability 

Since calendar-year 2021, supply constraints of automotive components has continued to be an issue with lead times for back-ordered parts ranging from days to months.

The bottom line is that these parts constraints are causing repair jobs to take much longer to complete, thereby lengthening fleet vehicle downtime and, in some cases, adding an additional expense for a short-term rental vehicle.

Prediction: Prices for the raw materials used to manufacture spare parts will continue to remain elevated for the balance of calendar-year 2022. 

Trend No. 4: Higher Labor Rates

Labor rates continue to increases and have been since 2021 driven by the shortage of qualified technicians and the need to offer competitive wages to attract this limited pool of candidates. In addition, this has been further aggravated by inflationary wage pressures that emerged with start of CY-2022.

There is an intense competition between dealerships, independent service providers, and fleets that operate in-house maintenance facilities for the limited number of skilled technicians. This competition exerts further upward pressure on labor rates.

As Baby Boomers continue retiring in large numbers while less young adults entering the automotive service industry, the technician shortage will continue to be a long-term challenge for the automotive industry.

Plus, as vehicles become increasingly dependent on electronics and software, their technology has begun to stretch the skillset of some technicians at independent service providers. 

Prediction: The technician shortage is nothing new - its origins started decades ago and this shortage will continue for the foreseeable future. 

Trend No. 5: Increased Vehicle Complexity

Vehicles are more complex than ever. And one consequence of that is that the average transaction cost has increased. As vehicles become more complex so do vehicle diagnostics and repairs when malfunctions occur. 

While these systems are usually reliable, when an issue occurs it has a major impact on fleet maintenance spend due to the increased diagnostic expense to identify the source of the problem and the subsequent recalibration of advanced driver-assistance system – ADAS – system. And today, we are entering a new level of vehicle complexity with the transition to vehicle electrification.

Prediction: Vehicle complexity is going to necessitate even greater reliance on diagnostic tools in isolating the source of malfunctions. There will also be more pressure on advanced training and technical skillsets of the next generation of technicians.

Originally posted on Automotive Fleet