The fleet market for Class 5 and Class 6, medium-duty work trucks is heavily dependent on vocational buyers, with construction being one of the key segments. As the construction industry continues to languish, it has placed a drag on Class 5-6 sales; however, other vocational segments have increased orders for these trucks, which contributed to a net sales gain in 2014 over 2013 sales.
To learn more about the Class 5-6 truck market, Work Truck magazine interviewed 11 truck subject-matter experts to identify the key trends occurring in this vehicle segment.
Here’s what they told us:
Fuel is the Top Challenge
The No. 1 challenge facing all fleet managers in this segment is the cost of fuel.
“Fuel economy is a key factor in all vehicle class segments, and fleet managers 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 Megan McMillan, client consultant at Donlen.
One noticeable trend cited by most of the surveyed subject-matter experts is the increased interest by fleets in spec’ing a gasoline engine, when available, in lieu of a diesel engine.
“As with Class 3 and Class 4 trucks, we have seen an increased use of gasoline-powered engines to avoid higher costs associated with fuel and maintenance,” said Chris Foster, manager, truck account administration at ARI.
This trend was also cited by other subject-matter experts. “In an attempt to capture market share, manufactures are trying to position gasoline-powered units in classes traditionally running diesel,” said Tony Blezien, vice president, operations at LeasePlan USA.
“Even though diesel fuel prices have crept down, there is an ever-increasing focus on fuel economy from the medium-duty customer — similar to what is occurring in the passenger car market, specifically pickup trucks,” according to Mary Aufdemberg, director of product marketing for Freightliner Trucks. “Customers are employing fuel-saving technologies in their vehicles that are similar to the on-highway Class 8 market, such as economy-focused engine ratings, efficiency-minded transmission programming, or low-rolling resistance tires.”
Wesley Slavin, marketing manager – medium-duty products at Peterbilt, noted that some fleets are downsizing the powertrain itself for fuel efficiency purposes. “Fuel economy continues to be important. We’re seeing a growing trend toward downsizing the powertrain. In the past, customers would spec the largest, most powerful engine available. Now — to save weight, fuel and purchase cost — customers are choosing the engine that meets their application needs, rather than going with more engine than they really need,” he said.
Impact of Driver Shortage
Many of the trends that have traditionally driven the medium-duty markets continue to impact it today and, in some cases, to a greater degree.
“For instance, while the driver shortage is taking a greater toll on Class 8 fleets, it is also affecting medium-duty fleets. These businesses tend to have multi-purpose operators — rather than dedicated drivers — so it’s important that the trucks are easy to operate and designed for maximum driver comfort and productivity,” said Slavin of Peterbilt.
Based on this shortage, fleets are reviewing other potential options. “We’re finding our customers are doing whatever they can to recruit good professional drivers,” said Aufdemberg of Freightliner Trucks.
Some segments of the medium-duty market are analyzing how they can work with non-commercial driver’s license (CDL) equipment in their applications.
“This greatly expands the number of potential drivers and makes hiring a much easier task,” Aufdemberg said. “So, while some segments of the market have leaned toward a Class 7 or Class 8 product, customers are now exploring the business case for operating a Class 6 product.”
One ongoing trend that has been driven by the driver shortage is the transition from manual transmissions to automatics and automated manual transmissions.
“In the past, Class 5-6 trucks almost exclusively featured manual transmissions. We are seeing that the demand for manual transmission dwindling, as the available pool of drivers is increasingly unfamiliar or uncomfortable with this option,” said Marcin Michno, project manager, strategic consulting at Element Fleet Management. “Additionally, manufacturers have made significant strides in perfecting the automatic transmission in larger trucks, which, in many cases, has resulted in gained fuel efficiencies.”
This trend was also cited by McMillan of Donlen.
“Our clients are moving to automatic or automated manual transmissions. The benefits of these include increasing the driver pool of younger drivers and females, lower driver fatigue, and higher fuel economy,” said McMillan.
The ongoing shortage of drivers is also prompting other trends among medium-duty truck fleets, such as spec’ing chassis under 26,001-pounds GVWR, if the vehicle can still fulfill the intended fleet application. The reason is that drivers do not need a CDL to operate trucks under 26,001-pounds GVWR.
“We are increasingly experiencing fleets’ desire to build trucks with the GVWR of 26,000 pounds or lower. The need for a commercial driver’s license for vehicles of 26,001-pounds GVWR and higher costs deter fleet managers from acquiring such assets, if not absolutely necessary,” said Michno of Element Fleet Management.
Downsizing is an industry-wide trend that all fleet management companies are reporting. “Some larger truck clients are becoming more cognizant of GVWR and GCWR. They will try to keep their vehicles below 10,000-pounds GVW, which is the DOT cut-off, and are being more careful about the weight of the trailers they are pulling with the units,” said Partha Ghosh, director, supply chain management at ARI.
Additionally, driver “creature comforts” are coming more into play than ever before.
“As older drivers retire, younger and less experienced drivers are entering the workforce. These drivers — especially non-CDL — expect more creature comforts and automotive-style technologies in their work trucks,” Aufdemberg said.
Truck Funding Trends
Medium-duty customers are taking a more holistic view at the truck purchase.
“While purchasing a medium-duty truck is a necessity for many fleets, they are now realizing the value in investing the time and energy in researching the best option for their business,” noted Aufdemberg of Freightliner Trucks. “They’re taking a closer look at the real cost of ownership and all the truck purchase entails — not just the purchase of the vehicle itself, but all of the lifecycle costs associated with the vehicle.”
As fleets extended the service lives of trucks, it has created pent-up demand for new Class 5-6 assets.
“The aging fleet is a major trend impacting truck fleets,” said Mark Orth, remarketing services manager at GE Capital Fleet Services.
One impact to the dramatic increase in acquisition costs has been the willingness of fleets to look at alternate funding methods. One beneficiary appears to be full-service leasing.
“We are seeing a trend towards customers in the Class 5-6 market looking for full-service lease, or adding a maintenance contract to their purchase. This helps them to plan and schedule at a higher level,” said Glenn Ellis, VP – marketing, dealer operations & product planning at Hino Trucks, a Toyota Group company.
In terms of maintenance trends, there appears to be a growing shortage of replacement tires. As OEMs design tires specific to a vehicle or vary diameter sizes, this has resulted in a shortage of replacement tires. This appears to be occurring again.
“The tire shortage is back with limited availability in many sizes by most brands,” said Mark Stumne, truck engineer at GE Capital Fleet Services.
While new truck sales are increasing, there continues to be a shortage of good quality, used Class 5-6 trucks available in the used market. As a consequence, this has influenced fleet buying decisions and upfitting considerations.
“Due to the lack of good used trucks in the market, many companies are choosing to purchase chassis and transfer existing bodies from an old truck to new,” said David Jankiewicz, director, maintenance and repair management at LeasePlan USA.
One promising growth area is sales to public sector fleets.
“Government entities and municipalities are and will continue to be a market that is highly desirable. This is due to the fact that they haven’t purchased in recent years because of the economy,” added Jankiewicz.
An additional trend noted by Slavin of Peterbilt is order-to-delivery time for Class 5-6 trucks.
“Another trend that’s getting even more important is reducing the time it takes between ordering a truck and having a work-ready vehicle, which means equipped with a body and ready to hit the road or jobsite,” he said.
TCO Becomes More Vital
As product variations between OEMs diminishes, fleet managers are making sourcing decisions based on total cost of ownership (TCO), which is often driven by initial acquisition cost.
“When making purchasing decisions, we’re seeing that more and more medium-duty customers are considering TCO over the lifetime of their vehicle,” noted Aufdemberg of Freightliner Trucks. “We’ve found that medium-duty customers are prioritizing ease of upfit and customization options, proven powertrain options, durable chassis, and a strong dealer network.”
Buyer confidence is also up. “Companies are showing a greater confidence to make the decision to update their medium-duty fleets. They seek trucks that offer them greater value, and they’re finding that excellent, high-quality medium-duty conventional and cabover trucks deliver,” said Kurt Swihart, marketing director at Kenworth.
However, price is still a concern.
“Manufacturers — IHC, Freightliner, Hino, Peterbilt, and Kenworth — are now very similarly spec’d, so price becomes more and more important,” said Blezien of LeasePlan USA.
The sharp increase in acquisition costs that occurred with the implementation of the 2010 diesel emissions standards has caused fleets to eliminate underutilized assets.
“There is growing trend in the Class 5-6 market for customers to manage their fleet more efficiently and precisely. Because of the higher price of vehicles, fleets are not able to carry excess inventory of vehicles to compensate for vehicle downtime, so they must manage the maintenance and services of their vehicles to a precise schedule,” said Ellis of Hino.
In the final analysis, the best way to reduce maintenance costs is to practice the basics of truck fleet management, especially in getting drivers to adhere to a designated preventive maintenance schedule.
“Good maintenance with proper PM inspections can drive cost of ownership down by avoiding violations, downtime, major mechanical cost, rentals, and tow cost,” said Mark Malanca, lead truck coordinator at LeasePlan USA.
While many fleet managers report to procurement, in recent years there has been a shift at many companies to broaden their focus from initial acquisition cost to overall TCO.
“The trend we see has been a shift 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.
Truck Downsizing Trends
Downsizing is a major fleet trend, regardless of the vehicle segments that comprise a fleet. The driving factor is a desire to decrease fuel spend, but other factors also come into play.
“We are seeing modest growth in customer preference of cabovers versus conventional-styled models. One of the factors behind this, particularly for customers operating in urban environments, is stricter truck length laws. Pick-up and delivery customers are almost always looking to spec vehicles that are as compact and maneuverable as possible with maximum cargo space,” said Slavin of Peterbilt.
In addition to environment, job application also comes into play when spec’ing Class 5-6 trucks today.
“Fleet managers continue to pay close attention to the job application of their trucks to identify downsizing opportunities in their fleets. They’re focused on the reduction of vehicles’ operating costs and administrative expenses related to managing and hiring drivers with a commercial driver’s license,” said Michno of Element Fleet Management.
A key factor behind wanting to downsize is to address the driver shortage and move to trucks that do not require drivers to have a CDL.
“There is a continued push to move trucks from Class 7 to Class 6 or less (under 26,001-pounds GVWR). Customers continue to struggle to find CDL drivers for their Class 7 and 8 trucks,” said Stumne of GE Capital Fleet Services.
Not only are truck fleet managers identifying opportunities to downsize to a smaller class of vehicle, they are looking to rightsize the size of the fleet to maximize utilization and eliminate underutilized assets.
“There was widespread rightsizing of fleets during the economic downturn,” said Orth of GE Capital Fleet Services.
Telematics Gaining Momentum
A long-time technology trend that appears to be gaining momentum is the use of telematics systems as a fleet management tool. “The adoption of new technology is a trend in the Class 5-6 market,” said Orth of GE Capital Fleet Services.
Often onboard technology first makes inroads in the medium- and heavy-duty markets. “Once again, we’re seeing telematics plays a larger role with Class 5-6 trucks than in the past. Telematics devices are used for idle-time reduction, monitoring policy abuse, route optimization, and PM scheduling,” said Michno of Element Fleet Management.
As fleet management increasingly evolves into data driven management, telematics is being viewed as a conduit to data specific to a vehicle and driver.
“There is a growing interest in mobile intelligence and how to improve the business productivity; however, companies are struggling with what the data can do to improve productivity,” said Stumne of GE Capital Fleet Services.
What makes telematics attractive to fleet managers is that there are a variety of applications for telematics, which makes it a potentially powerful fleet management tool.
“We are seeing more fleets implement telematics solutions for asset tracking and to expand their abilities to review daily operations and identify cost savings opportunities,” said Ghosh of ARI.
Truck OEMs are also bullish on the future of telematics in fleet operations.
“Telematics are playing a bigger role in helping the customers to manage vehicle performance, diagnose issues (remotely in some cases), schedule services and manage vehicle uptime more efficiently,” said Ellis of Hino Trucks.
Growing Interest in Alt-Fuels
All of the interviewed truck subject-matter experts cited a growing interest on the part of fleet managers to investigate the use of alternative fuels for their Class 5-6 trucks.
“Natural gas fuel in heavy-duty products is creating a ‘halo effect’ for the medium-duty customer,” according to Aufdemberg of Freightliner Trucks. “As natural gas grows in popularity on the Class 8 side of the business, more and more medium-duty customers are starting to research natural gas options, and many times are learning that natural gas is an excellent option for their shorter hauls.”
Michno of Element Fleet Management also sees the impact of natural gas on the medium-duty truck industry.
“Similar to Class 3 and 4 trucks, fleet managers are more often turning to alternative fuels for Class 5 and 6 trucks when economically and operationally feasible. In the case of larger trucks, compressed natural gas (CNG) tends to be the fuel of choice for companies with sustainability and cost-savings goals,” said Michno.
Another example is biodiesel. “This is an excellent alternative to conventional diesel and the initial cost is a minimal investment for a green initiative. However, the availability of biodiesel fuel sources limits the effectiveness of the application until a true supply ‘pipeline’ can be established,” said Pat O’Connor, regional sales manager at Wheels Inc.
Certain fleet environments lend themselves to possible use of all-electric vehicles. “Electric is great for a dedicated location, such as a campus, where minimal travel is required and recharging locations are plentiful. Since initial cost is expensive, it would need to be considered a longer-term investment as the mileage would not necessarily fall in line with other conventional on-road trucks,” said O’Connor. “It remains to be seen whether or not the secondary used-truck market will have any degree of demand for used electric trucks in the future.”
Trucks with hybrid powertrains offer a middle ground for fleet applications that require greater travel.
“Hybrid, using both electric and diesel sources, where in low-speed conditions the electric motor is the primary source of power, has the best approach in urban environments where heavy traffic and stop-and-go routes are quite common. This source may have the most success due to the conventional aspect of operation and few restrictions for fuel sources. Cost may still be an issue with initial investment; however, the realization of fuel savings will be the main benefit over time,” said O’Connor.
Other popular alternative-fuel applications, in addition to CNG, include the use of propane autogas.
“Both of these alternative sources prove to be beneficial depending on vocational aspect of the truck and the location and infrastructure of fuel sources. Here again, campus or dedicated logistic routes are needed as the somewhat limited range will affect how the truck is used,” said O’Connor.
In addition to battery constraints, a common hesitation involves the strength of buyer demand for used vehicles powered by alternative fuels.
“The question remains how the secondary user market will accept these alternative-fuel sourced units and where their benefit will be achieved,” added O’Connor. “However, the initial purpose and vocational use over an extended period of time may far outweigh the sale of the asset at time of disposal. As the green market keeps growing and gaining more momentum from the general public and the cost of technology from other sectors becomes more manageable, the interest will increase with these trucks as well.”