Out-of-Control Acquisition & Repair Costs Batter Industry

As part of an ongoing series, Automotive Fleet magazine interviews subject-matter experts around the industry to get a pulse on the state of the commercial fleet market. In conversations with fleet managers, one of the top challenges identified is the relentless upward pressures on fleet costs.

To learn more about these market dynamics and their impact on the fleet industry, AF Associate Publisher Mike Antich reached out to Bob Martines, CEO of Corporate Claims Management Inc., a fleet and accident management company he founded in 1994. Martines is a 47-year industry veteran starting his career in 1977 with Salex, a company that pioneered the fleet services industry with the first nationwide collision and major mechanical programs exclusively for fleets.

AF: What are the current market conditions in terms of new-vehicle acquisition and repair costs for fleets?

MARTINES: The situation is ugly in many instances. The residual collateral damage, minimal work force to rely on, ridiculously higher repair costs, higher acquisition costs, extended repair delays all equate to a very difficult time in fleet management.

First is the out-of-control acquisition and repair costs. Automotive parts prices have reached unreasonable levels that no fleet or procurement manager could have ever fathomed compared to the recent past. We are staggered by the costs that are creating such havoc, including average repair costs increasing by thousands — not hundreds, thousands — of dollars more, which has over-maxed budgets. Add excessive rental costs and less recovery returns, fleet managers are being challenged more than ever.

As an example, how can a fleet manager finally accept delivery of a vehicle that he or she waited six to seven months to receive in inventory at a price perhaps $5,000 more than they should have paid, then face the cost of a repair that now equals 75 to 80% of the vehicle’s book value? Airbags, modules, sensors, and other safety features can add $8,000, $10,000, or more to a routine repair. Repairs of $15,000, $20,000, or more are becoming more routine due to the fact fleet managers have no choice. They cannot get a replacement vehicle quickly, so they decide to repair a vehicle that, in the past, was deemed a borderline total loss. Add the extended rental costs; no longer just two or three weeks, it is now six to 10 weeks in some instances. It is enough to break even the strongest-willed individuals.

AF: What other issues are you encountering in fleet maintenance and new-vehicle warranty work?

MARTINES: The use of aluminum parts are becoming more prevalent, and specific certification per vehicle model is surfacing more and more. While shops can handle the repairs, not all shops, including dealerships, are equipped with the training, the personnel and certification. Many certified shops are pushing repair appointments out two or three months due to the overload/backlog and unavailability of parts. That works for a safely drivable vehicle; however, for disabled vehicle, the extra rental costs can be extremely costly for a company.

The same holds true for warranty work. While the repairs should be covered, waiting six to eight weeks for the dealer to help is useless, so many fleet managers are getting work done where they can hoping to get reimbursement after the fact. Without solid proof of the delay, the money will not be returned.

AF: What are you hearing from your fleet clients about the transition to electrification?

MARTINES: Everyone know the EVs are becoming more popular; however, not every company can adapt to their usage. Senior management does not want to face the pushback from colleagues, so they go the path of the many rather than stand the ground of a fleet manager.

I spoke with a client who was mandated to include EVs in his fleet order. He ordered 25 units, and they are now garaged, not getting any use as the fleet he manages simply cannot use the vehicles. Some deeper thought must take place before placing massive orders for these vehicles.

Originally posted on Automotive Fleet