Automotive Fleet, November 2018

ue to unfold it is certainly a subject that is top of mind for many businesses said Chris Foster manager truck account administration for ARI Tire Prices Increase Replacement tire prices are experiencing upward pricing pressures due to higher prices for the commodities used to manufacture tires in particular crude oil Raw material prices increased 5 to 10 year to date in calendar year 2018 The trajectory for replacement tire prices in 2018 is upward due to the forecast of ongoing higher commodity pricing which exert pressure on tire OEMs to maintain margins as their production costs increase Maintenance Costs Increase Fleet maintenance costs have increased over the past 12 months Other areas in the fleet maintenance spectrum are also exerting upward pricing pressures such as rising labor rates especially in high cost of living markets But maintenance still represents a relatively small segment of overall operating costs accounting for just 10 of total operating costs In order for higher maintenance costs to have a dramatic impact on total operating costs it would require far more significant increases than what occurred in 2018 and is anticipated in 2019 Flat PM Cost Trends Preventive maintenance PM expenses in calendar year 2018 were stable compared to 2017 primarily due to improvements in engine design onboard vehicle technology and improved oil quality which is allowing fleets to extend oil drain intervals However the price of finished lubricant products did increase due to the higher cost of crude oil which is the foundation of these products Most subject matter experts anticipate that PM costs will continue to remain stable in 2019 contingent upon the price of crude oil which has an impact on the price of finished lubricant products However AUTOMOTIVE FLEET I NOVEMBER 2018 26 SPECIAL REPORT OVERVIEW 2018 OPERATING COSTS LIGHT TRUCKS 24000 MILES 24001 48000 MILES 48001 80000 MILES 80001 100000 MILES CENTS PER MILE DOLLARS PER MONTH CENTS PER MILE DOLLARS PER MONTH CENTS PER MILE DOLLARS PER MONTH CENTS PER MILE DOLLARS PER MONTH GAS 01993 25135 01850 26766 01809 28328 01851 34372 OIL 00126 1027 00130 1871 00170 2388 00190 3007 TIRES 00256 1547 00354 2787 00459 3057 00450 3316 REPAIRS 00327 2239 00425 3692 00624 6527 00727 9358 WARRANTY RECOVERY 00001 003 00260 062 00100 052 00090 044 TOTAL OPERATING COSTS 02701 29945 02499 35054 02962 40248 03128 50009 2018 OPERATING COSTS SUVS 24000 MILES 24001 48000 MILES 48001 80000 MILES 80001 100000 MILES CENTS PER MILE DOLLARS PER MONTH CENTS PER MILE DOLLARS PER MONTH CENTS PER MILE DOLLARS PER MONTH CENTS PER MILE DOLLARS PER MONTH GASOLINE 01450 18197 01430 21664 01370 24592 01320 28076 OIL 00119 1095 00130 1856 00140 2045 00140 2277 TIRES 00135 1643 00186 3167 00262 2929 00280 2774 MAINTENANCE REPAIR 00192 1734 00293 2422 00466 5158 00488 8132 WARRANTY RECOVERY 00032 003 00016 102 001 138 0009 103 TOTAL OPERATING COSTS 01864 22666 02023 29007 02138 34586 02138 41156 2018 OPERATING COSTS CROSSOVERS 24000 MILES 24001 48000 MILES 48001 80000 MILES 80001 100000 MILES CENTS PER MILE DOLLARS PER MONTH CENTS PER MILE DOLLARS PER MONTH CENTS PER MILE DOLLARS PER MONTH CENTS PER MILE DOLLARS PER MONTH GASOLINE 01078 16175 01038 18925 01113 20082 01073 23276 OIL 00066 1022 00081 1629 00090 1763 00096 2354 TIRES 00031 667 00056 1466 00108 2347 00093 2602 MAINTENANCE REPAIR 00046 692 00048 1101 00134 2650 00198 4826 WARRANTY RECOVERY 0001 0015 0001 02976 00002 01261 00007 175 TOTAL OPERATING COSTS 01211 18555 01213 23091 01443 26829 01453 32883 Tire prices increased 3 to 4 in calendar year 2018 following a 5 to 7 increase in 2017 It is anticipated that replacement tire prices on light vehicles will continue to increase in 2019 to compensate for higher raw material costs Furthermore there is upward price pressure on truck tires due to tariffs on tires imported from China Although tire prices are continuing to rise tire OEMs are manufacturing a better quality of tire For example tires today generally last 10 longer than they did 10 years ago In the past price increases for replacement tires impacted retail consumers more so than fleets which tend to buy from national account vendors based on pre negotiated prices However many national account programs are indicating that they are no longer willing to absorb the majority of price increases for replacement tires There upward pricing pressures on replacement tires due to higher prices for the commodities used to manufacture tires in particular the growing cost of oil There is a growing acceptance of crossovers as fleet vehicles Once crossovers were considered an upgrade however today these vehicles are now in fleets in representative ratios as the retail market The total cost of ownership TCO of crossovers is strong primarily due to their high resale value In addition to TCO crossovers have comparable fuel efficiency to sedans offer higher levels of driver protection provide more ergonomic ingress and egress with increased cargo carrying capabilities extended drain intervals and the continued acceptance of synthetics will help keep PM costs stable One concern on the horizon is the potential impact of higher labor rates at quick lube shops and whether these increased overhead costs will be passed on to fleet customers The following articles provide an in depth examination of 2018 operating cost trends for maintenance and tire replacement prices along with a forecast of expenses for the 2019 calendar year AF FOSTER ARI