The most significant fleet trend in the Class 3-4 truck market has been the increase in order volumes after fleets scaled back vehicle replacement schedules during the economic downturn of 2008-2010 and the years immediately following.
“A large number of fleets are increasing orders after the slow pace of replacements during the recession,” said Mark Stumne, truck engineer at GE Capital Fleet Services.
OEMs, likewise, are projecting sales growth in the medium-duty truck segment. “We see steady demand throughout the rest of 2014 and in 2015 for both Class 3-4 and Class 5-6 trucks,” said Brian Tabel, marketing director at Isuzu Commercial Truck of America. “We anticipate that Class 3-4 trucks will maintain approximately the same sales levels as in 2013, and Class 5-6 trucks will enjoy demand approximately 10 percent higher than 2013 levels. We anticipate that, in 2015, business investment and real GDP will see their largest increases since 2010.”
One reason for the uptick in orders is pent-up demand due to the recession’s impact on the replacement of existing truck assets, resulting in an increased number of units to age well beyond their normal service life.
One consequence to fleets keeping trucks in service longer is an increase in unscheduled maintenance costs.
“Fleets extending the lifecycle of vehicles (all classes), correlates to an increase in lifetime maintenance costs for vehicles and an increased total cost of ownership (TCO) for fleets,” said Chris Foster, manager, truck account administration at ARI.
In addition, rightsizing initiatives to eliminate underutilized units are also impacting new-model ordering. “We are witnessing a trend of replacements of older trucks that were kept in fleets beyond their replacement cycles. Fleet managers are increasingly focusing on rightsizing their fleet to make sure they do not manage any underutilized assets,” said Marcin Michno, project manager, strategic consulting at Element Fleet Management.
The forecast for new Class 3-6 truck sales beyond 2015 into 2016 is to continue on an upward trajectory. “Despite many projections by the ‘experts’ that 2016 will be a down year, we do not see any indication that the economy will slow or that truck sales will decline,” said Todd Bloom, president and CEO at Mitsubishi Fuso Truck of America.
Entry of ‘Euro-Style’ Vans
A number of all-new van models have entered or will soon be entering the U.S. market, replacing predecessor models that have been mainstays in the vocational van markets for many years. This product transition is causing some fleet managers to take a “clean sheet” approach to different fleet application possibilities.
“We are already seeing the move toward Euro-style vans, where some customers may find opportunities to move from a truck to a van for the same application; however, fleets have to be cognizant that it is not always an easy swap. Some applications require a truck and always will. Certain van specs allow a customer to stay under the weight limit for DOT regulations, but the van may not be appropriate for the application,” said Partha Ghosh, director, supply chain management at ARI.
Others, likewise, see the new Euro-style vans as an opportunity to meet the needs of fleet applications previously performed by pickup trucks.
“These new vans have brought opportunities by replacing some pickup trucks. For example, some box trucks are being replaced with vans. Bigger vans offer more choices in upfits, with better ergonomics. Also, bigger vans relieve complexities in cutaway builds,” said Joe Brightwell, truck operations manager at Wheels Inc.
The all-new, Euro-style vans are larger with varying roof height configurations and wheelbases requiring new upfit packages that is prompting many fleets to analyze how these new models will perform existing fleet applications. “As newer, Euro-style vans continue to be reviewed and evaluated, we see adoption of those vehicles increasing,” said Stumne of GE Capital Fleet Services.
A number of new upfit packages are being developed for the new vans entering the market, although not at the speed many fleet managers would like. In addition, a growing number of fleets are reevaluating the life of their existing upfit products and whether to transfer them to a new chassis.
“We are seeing more fleets ask about the lifecycle of their upfit and determining when to put an old upfit, such as a crane, bobtail, or service body on a new truck as a way to reduce costs,” said Megan McMillan, client consultant at Donlen.
As order volumes have increased, upfitters are working at capacity to fulfill orders, but the higher order volume is at a level that it is resulting in order-to-delivery delays.
“Upfit lead times are increasing because volume is up across the vendor base over the past year to year-and-a-half. We’ve also seen longer turnaround and production lead times as a result of a strong uptick continuing in industry demand,” said Brightwell of Wheels Inc.
As a consequence, some fleets are factory ordering items they previously had upfitted.
“We are seeing many customers choose bedliners and Bluetooth as factory-installed options rather than having upfitters install them. We are also seeing a move toward more driver convenience features, such as power group and Bluetooth,” said Ghosh of ARI.
Maximizing Fuel Economy
Driven in large part by falling crude oil prices, regular gasoline and diesel retail prices are anticipated to continue to decline in calendar-year 2015.
“The U.S. Energy Information Administration (EIA) expects U.S. regular gasoline retail prices, which averaged $3.51 per gallon in 2013, to average $3.46 per gallon in 2014 and $3.41 per gallon in 2015,” said Natasha Gonsky, manager, fuel at Wheels Inc.
Nonetheless, managing the fleet’s overall fuel spend continues to be the No. 1 challenge facing truck fleet managers.
“We are receiving more requests from clients to help them proactively manage fuel costs at the vehicle level and develop overall fuel-saving strategies for the fleet,” said Foster of ARI.
Fleets are also adopting a multi-pronged approach to decreasing fuel expenditures.
“A new technology that we see growing in popularity is the use of idle time limiter systems on diesel-equipped trucks,” added Foster.
The process to manage fuel expenditures starts at the time of vehicle specifications.
“Fuel economy is a key factor in all vehicle class segments. Customers are asking how to best spec a truck for peak efficiency, while OEMs are working to meet new government standards for fuel economy improvement,” said McMillan at Donlen.
There are a number of options available to fleet managers to increase fuel efficiency during the spec’ing process, such as specifying low-rolling resistance tires to increase fuel efficiency, said Mark Lowrey, fleet trucks marketing manager at Ford Motor Co.
There are a variety of other ways to maximize fuel efficiency during the spec’ing process, such as gear ratio offerings. “Gear ratio offerings that match engine and transmission performance will optimize fuel effectiveness within rpm range,” added Lowrey.
The lightweighting of trucks and upfits is another widespread approach adopted by OEMs and upfitters.
“We have seen increased efforts to reduce collateral weight to increase efficiency and to also increase payload across the truck industry. Most apparent is the use of aluminum by Ford in the F-150, as well as increased aluminum offerings by body manufacturers,” said Brightwell of Wheels Inc.
One question being asked by many fleets is whether they should specify a gasoline engine, when such an engine option is available, in lieu of a diesel.
“Some fleets are transitioning away from diesel to non-selective catalytic reduction (SCR) trucks. The delta between gasoline and diesel fuel has disappeared and the additional cost to purchase a diesel engine can’t be recouped in fuel savings. Buyback for diesel engines is just not as strong as it once was,” said Brightwell. “Also, additional weight of the diesel engines reduces payloads. We’ve observed an improving level of reliability and better capability in gasoline engines.”
Other interviewed truck subject-matter experts likewise report similar deliberations by fleet managers as to whether to spec a gasoline vs. diesel engine.
“Buyers who previously purchased Class 3-4 trucks with diesel engines are becoming increasingly comfortable with gasoline engines, especially due to the incremental up-charge for the diesel engine package. Additionally, since 2010, retail pump prices for diesel have averaged 30 cents more than regular gasoline prices, with a high degree of seasonal variation,” said Michno of Element Fleet Management. “Manufacturers are working on implementing new technologies in gasoline engines to improve fuel economy and performance. As the fuel economy of gasoline engines is improving, the price spread between diesel and gasoline remains constant.”
Gasoline engines are also attractive to fleets that do not drive excessive annual miles.
“Businesses are trending to gasoline in applications that are putting 25,000 or fewer miles per year, due to the initial cost difference of approximately $7,500,” said Tony Blezien, vice president, operations at LeasePlan USA.
This factor was also cited by other industry truck experts. “Across the Class 3-6 truck market, many operators with low-annual mileage profiles have a continued interest in gasoline-powered trucks as an alternative to diesel,” said Bloom of Mitsubishi Fuso.
Another consideration in the gasoline vs. diesel decision process is the increasing labor rate for diesel mechanics and there is a diminishing number of diesel mechanics. “Fleets are very concerned that diesel mechanics are becoming more costly and their maintenance choices are limited,” said Stumne of GE Capital Fleet Services.
However, the key reason for considering gasoline engines has been the cost differential between gasoline prices and diesel prices, along with the higher preventive maintenance costs to service a diesel.
“We have seen an increased use of gasoline-powered engines. We feel one factor for this trend is the consistent 10-percent difference between the cost of gasoline and diesel fuels throughout calendar-year 2014. Gasoline has averaged $3.45 per gallon versus diesel at $3.81 per gallon,” said Foster of ARI. “Another factor is the additional costs associated with the operation of diesel engine vehicles. For instance, the average cost of preventive maintenance is 300-percent higher for a diesel engine than it is for a gasoline engine.”
A corollary factor has been issues with diesel particulate filters (DPF), along with the growing need to educate drivers about the regeneration process, which has become an issue at some fleets.
“Increasing driver knowledge of the DPF regeneration process will ensure vehicles are allowed to properly regenerate. This will decrease vehicle downtime and operating cost due to dealership-needed repairs,” said David Jankiewicz, director, maintenance and repair management at LeasePlan USA.
The need to educate drivers about SCR-emission technology was seconded by Bloom of Mitsubishi Fuso.
“As emissions compliance technology on commercial work trucks requires a certain level of sophistication, more operator training will be needed and overall driver skill level will have to increase,” said Bloom.
The industry-wide trend to downsize to lower GVW trucks to reduce fuel expenditures, when the fleet application is not impacted, is also prompting OEMs to design their vehicles accordingly.
“Some customers are downsizing in regards to truck class to save money, yet they don’t want to give up on any performance numbers, such as torque and towing. This trend has the OEMs looking to continuously push the capability boundaries,” said Chris Thomas, fleet market requirements manager at Ram Truck. “OEM engineers involve the customer much more than ever, they rely on customer and field feedback for changes to the vehicle.”
However, some fleets are looking to migrate to larger GVWR trucks. “Customers that have historically utilized vehicles too small for the intended job application are moving to larger trucks to avoid increases in maintenance costs, excess wear-and-tear and lost productivity,” said Michno of Element Fleet Management.
Another ongoing issue has been the driver shortage. Since many younger drivers are unable to operate a manual transmission, there has been a trend for the past decade to shift to automatic and automated manual transmissions. “This opens opportunity for more diverse driver employment,” said Lowrey of Ford.
Safety is a Top Consideration
After fuel, safety is at the head of the list of factors that capture the focus of truck fleet managers.
“Safety is becoming more important and this is being manifested by increased spec’ing of Bluetooth, back-up cameras, sensors, and alarms,” said Brightwell of Wheels Inc.
This was reinforced by feedback provided by other fleet management companies.
“During Element Fleet Management’s client survey, we confirmed that driver safety continues to be one of the top fleet concerns,” said Michno. “While it’s important to prevent accidents through a comprehensive safety policy, driver training, and motor vehicle record (MVR) screening of employees, it’s key to put fleet drivers in the safest possible vehicles.”
This is demonstrated by the increase in the types of safety equipment that fleet managers are specifying in Class 3-4 trucks.
“Manufacturers are now including more ‘active safety’ features in vehicles. Where ‘passive safety’ describes features that are engaged during a crash (seat belts, air bags, and energy absorbing elements), active safety systems aim to prevent accidents,” said Michno. “Some active safety features more prevalent in trucks in recent years include reverse back-up sensors and back-up cameras that alert drivers to objects in a vehicle’s path when reversing, lane departure warning systems that alert drivers of an unintended departure from their intended lane of travel, and adaptive cruise control, which maintains a safe following distance from other vehicles.”
Renewed Interest in Alt Fuels
Interest in alternative fuels in the medium-duty truck market has ebbed and flowed over the years; however, there is currently a renewed interest in alternative fuels.
“We’re seeing companies increasingly interested in exploring and piloting vehicles capable of running on an alternative fuel. This is happening primarily in regions where infrastructure allows it. An organization’s sustainability programs and cost-reduction efforts are the driving forces behind this trend,” said Michno of Element Fleet Management.
OEMs, likewise, report growing fleet interest in alternative fuels. “We expect continued growth in alternative fuels, such as compressed natural gas (CNG) and liquefied natural gas (LNG), if government subsidies and/or concessions offered to fleet buyers continue and these fuels are supported by an increased growth in infrastructure,” said Bloom of Mitsubishi Fuso.
This observation was echoed by other OEMs. “There is a continued increase in demand for alternative-fuel vehicles, such as CNG and liquefied propane gas (LPG), as new emissions regulations are enacted and as the nationwide refueling infrastructure grows,” said Tabel of Isuzu Commercial Truck of America.
Although there may be an increased volume of inquiries about alternative fuels, not many fleets are actually “pulling the trigger” and ordering these units.
“There are several reasons for this including vehicle maintenance costs, fuel availability, and diesel fuel costs remain low. There has been a lot of discussion around alternative fuels, but the fleets are adapting slowly due to limited fueling choices for most of the country,” said Stumne of GE Capital Fleet Services.
Telematics & Connectivity Trends
More fleets are investigating the installation of telematics devices in medium-duty trucks.
“We’ve seen more fleets that normally look for cost cutting actually become willing to spend money to install Bluetooth, reverse sensing systems, and back-up cameras in the name of driver safety” said Brightwell of Wheels Inc.
This same trend is also being reported by other fleet management companies.
“Today, more than ever, truck fleets are empowered when they see telematics as a viable tool to gain deeper insight and visibility into fleet operations and to make strategic business decisions that go well beyond GPS tracking and vehicle routing,” said Michno of Element Fleet Management. “We’re seeing these fleets rely on telematics for idle-time reduction, monitoring policy abuse, route optimization, and PM scheduling. Manufacturers have been building trucks with GPS devices, Bluetooth connections, and entertainment features for years. Only recently did the fleet industry start looking at vehicles in the way consumers look at their smartphone — a platform for productivity and entertainment apps. This trend will open new applications for telematics in trucks.”
Similarly, OEMs are also reporting greater customer interest in telematics.
“As technology continues to grow, OEMs are looking for ways to improve the driver and fleet manager experience, while being sensitive to costs,” said Thomas of Ram Truck.
The biggest stumbling block encountered by fleet managers when attempting to implement telematic devices within their fleet is justifying the ROI to senior management.
“Increasingly fleets are interested in the potential savings and productivity gains of mobile intelligence, but they need to better define and prove these savings within their companies,” said Collin Reid, strategic consultant at GE Capital Fleet Services.
However, everyone agrees that telematics will become a mainstay in future fleet operations. “Longer term, we expect that advanced technology features such as telematics will become more important to fleet operators,” said Tabel of Isuzu Commercial Truck of America.
TCO is the Deciding Factor
Increasingly, total cost of ownership (TCO) is the final defining factor in determining the truck to select.
“The trend has been shifting away from focus on up-front acquisition cost in favor of lowering the total cost of ownership over the life of the vehicle,” said McMillan of Donlen.
This observation was seconded by Thomas of Ram Truck.
“Fleet management and procurement personnel for fleets are much more savvy, focusing on getting the right vehicle for the right job at the best TCO. They rely heavily on FMCs to provide TCO models for evaluation. They often choose a mixture of both gasoline and diesel, based on the usage of the truck. They also will use multiple OEMs, depending on their product offering. This has historically not been the case, it was either gasoline or diesel, one OEM, not two,” said Thomas. “Fleet managers and directors are challenging and pushing OEMs for constant improvement, pushing for more efficient job-focused vehicles. Gone are the days when a truck buy is based the lowest cost vehicles.”
But, initial cost continues to be a key factor for many other fleets, especially those operated by smaller businesses.
“Small to mid-size fleets will continue to demand low-acquisition cost as part of their buying requirements,” added Bloom of Mitsubishi Fuso. “In today’s economy, every dollar counts. Lower operating costs on medium-duty work trucks will continue to drive sales to high annual mileage operators.”
Isuzu voiced similar observations. “Increased demand for trucks offering a low initial investment, primarily gasoline-powered trucks, as gasoline prices drop over the next year and as smaller owner/operators begin to benefit from the gradual improvement of the economy,” said Tabel.
“Continued demand for trucks offering maximum uptime, ease and low cost of maintenance, driver efficiency, and fuel economy — in other words, a low cost of ownership.”
In addition to controlling costs, fleets are looking to increase productivity.
“There is an effort to improve truck productivity within organizations. The goal is to add customers without increasing the number of routes,” said Reid of GE Capital Fleet Services.