According to recent industry insight from research firm Frost & Sullivan, leasing companies will capture more business in the Class 8 truck market (which includes most tractor-trailers) during the next six years. Access to advanced business analytic software, new truck technologies that offer reductions in maintenance costs and fuel consumption, and corporate directives to equip trucks with the latest safety features are motivating factors supporting the move.
Fleet operators are not turning to leasing solely as a form of financing, but rather to address the need for a more flexible financing solution conducive with cost effective asset management. Leasing reduces operating costs by allowing fleets to operate shorter life cycles and upgrade trucks more frequently—enabling them to take advantage of the improved fuel economy of new models. At the forefront of the leasing resurgence are asset management lessors providing expertise in new truck specifications, real-time data analysis and precise management of a vehicle’s “all-in” costs to determine the optimum equipment lifecycle and used equipment disposition timing. By using shorter equipment life cycles fleet managers are experiencing greater cost savings, better driver retention and improved corporate image and overall productivity.
For years fleet operators have attempted to rein in overall costs using the logic that operating a truck until it becomes functionally obsolete will avoid incurring the replacement cost of a new truck. However, as noted in the Frost & Sullivan report, maintenance costs continue to escalate. There is a moment in each truck’s lifecycle where it reaches a point of economic obsolescence –a “tipping point” when the truck maintenance and fuel expenses are greater than the cost of replacing it with a new, more fuel efficient model that carries a new truck warranty and significantly reduces maintenance. Forward thinking fleet operators are leveraging technology and data analytics to gain insight into the total cost of ownership. By aggregating and analyzing real-time information, they can now prepare a cohesive profit and loss statement per vehicle and adjust their vehicle lifecycle strategy accordingly. Rather than continually purchasing new equipment and reselling used equipment, a well planned lease structure will allow fleet operators to seamlessly exchange the older model for a new more efficient model. Although logic may tell you that a new truck will cost more, the reality is that it is much less costly when compared to the ever escalating maintenance, repair and fuel degradation costs of continuing to operate the older vehicles.
Government mandates to reduce CO2 emissions and improve fuel economy in heavy duty trucks are adding to the demand for the flexibility a lease-finance solution provides. Exclusive of driver wages, fuel cost is 70% of the total operating cost of a vehicle and a chief concern of fleet operators. Even a seamlessly small improvement in fuel economy can yield large-scale savings year after year. At current fuel prices, every two-tenths improvement in MPG will save approximately $2,000 in annual fuel expense per vehicle. Across a large fleet, this can equate to millions of dollars in annual savings. Recent news coverage publicizing the decline in prices at the pump can be misleading to fleet operators. While the cost of gasoline has dropped by approximately 33% since July, the cost of diesel fuel has fallen only 10%.
Although this is good news for fleet operators in the short term, winning the long game will depend on the ability to cycle in and out of new equipment at the right time and with no penalty costs while remaining focused on their core business.
About The Author
John Flynn, is CEO of Fleet Advantage, a Fort Lauderdale, Fla. – based data and analytics company for the fleet trucking industry that offers EXchangeITTM, a proprietary leasing solution.