Each year, Element Fleet Management releases its Total Cost of Ownership (TCO) Index, a study that looks at major cost categories affecting vehicle fleets.
The index is designed to help fleet managers and businesses understand fleet and vehicle expenses in the context of a changing economic landscape.
The TCO Index found that 2016 was a good year for fuel cost savings – with a 12 percent reduction in spend, driven by lower prices than in 2015. In addition, those savings enabled businesses to offset a 7 percent increase in net depreciation, almost entirely due to a softening resale market for vehicles other than pickups and cargo vans. In contrast, last year’s TCO Index only reported a 1 percent rise in depreciation costs.
But these fuel savings may be short-lived.
While average U.S. fuel costs fell 12 percent year-over-year, projected per gallon fuel costs for 2017 is estimated at $2.38, an 11 percent increase. This means that businesses will no longer be able to absorb other costs of vehicle ownership with fuel savings, resulting in a higher annual TCO.
“For companies hoping to save at the pump in 2017, it’s not great news,” said Chad Christensen, senior strategic consultant, Element Fleet Management. “However, there are other opportunities to decrease TCO, including choosing your new vehicles wisely. For example, fleet managers looking to replace cargo vehicles should consider the new Euro-style cargo vans. They’re more fuel efficient, and there’s a strong demand for used, older-style vans among trade contractors, making this a good time to sell your old vans.”
Other recommendations for fleet managers and businesses for the remainder of this year include the following:
- Evaluate investments in new sedans and compact SUVs carefully. An anticipated influx of sedans and SUVs coming off retail leases continues to soften the resale market for these vehicles. Ask your fleet management partner to provide an updated report on the current resale outlook before finalizing your decisions.
- With fuel costs rising, look for opportunities to reduce factors, such as drive time or vehicle weight, and make sure your routing is up to date to reduce unnecessary vehicle mileage or out-of-scope usage.
- In 2016, combined maintenance was up 10 percent, including 6.5 percent higher oil change costs due in part to the rising use of synthetic oil, and 15 percent on fleet vehicle repairs costs driven by the cargo van segment.
- Service fleets that switch to the new Euro-style vans may be able to take advantage of the strong resale market for older style vans, while decreasing repair costs and realizing fuel efficiency gains.
The Element TCO Index calculates TCO for fleet vehicles by looking at major cost categories. These include depreciation, interest expense, fuel and maintenance costs. The index uses 2013 as the base year with a starting value of 100. The index showed a drop in TCO for fleets to 96.8 in 2014 and then to 83.3 in 2015, a 14-point year-over-year decline. It remained unchanged at 83 in 2016. The index includes five vehicle categories, including pickup trucks, cargo vans, sedans, SUVs and minivans.
