Fleet operating cost increases could leave your budget in the red

At the end of last year we ran a workshop on potential operating cost increases during 2010. At the end of the day it worked out to 18.2% by the end of 2010. And this is a trend that will continue over the coming years. There are four core areas of fleet operating costs that impact on your fleet – 1. Oil will very likely hit the $90 a barrel price. 2. Vehicle prices will continue to increase at 12% to 15%. 3. Resale prices will decline by about 4% on average. 4. Maintenance costs will continually increase on two fronts – the general inflation and your extended replacement cycles

Higher Oil Prices: I was in the Emirates recently. The common talk related to oil price increases was that they would reach $95 by the end of this year. Sound economic reasons were being put forward for this increase. We are at +R8 a litre at present and these increases could take us up to R10 a litre. The question – Can your budget accept this cost? And what about next year’s budget? The traditional 6% budget increase will just not work!

Vehicle prices: A manufacturing plant breaks even at about 65% of capacity. Two years back most plants were at 80% capacity. Today, many are running only at 50% of capacity. Commodity prices are always in an upward trend. The exchange rates work against us. AND sales are not very good. Maybe only 2014 before our manufacturers get back to the 750 000 sales level again. This all translates into constant price increases. Our message is – don’t delay your replacement cycles – it only adds up to higher purchase costs.

Resale prices: Some six years back the trade in price for an average 1.6 sedan, used for four years and 120 000 kms and about 65% of the retail price. Today it is only about 48%. By the end of the year it will be only 45%. A simple fact – your monthly cost of a vehicle in your fleet will increase by about 8% over this year.

Maintenance costs: How does a dealer cover its overhead costs? The answer is - through its workshop income. Generally, about 80% to 100% of overhead recovery is from the workshop. Dealer operating costs continually increase so it does not take much effort to work out that workshop charges will also continually increase. Just think about parts and labour costs. We estimate some 15% this year.

The other costs: Think about tyre costs, insurance costs, licences and road worthy certificates, AARTO and fines management, management costs, cost management and maybe a finance rate increase. And on top of it all – the new exhaust emissions tax.
So – maybe you thought that the 18.2% was way out of line. Well think again because it is a real fact. You cannot simply increase your fleet budget by some traditional percentage. The traditional 6% budget increase will just not work!

Your fleet operating cost increases could leave your budget in the red during this financial year. Can your budget accept this cost? And what about next year’s budget?

We would like to hear your opinion also.

Mike Crankshaw