top What are the top trends facing lightand At a Glance

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1 top in Truck Fleet What are the top trends facing lightand medium-duty truck fleets? Work Truck assembled a panel of 13 truck experts and asked them their thoughts. Here s what they told us: 1.Managing Fuel Spend Ongoing volatile fuel prices have kept fuel spend a top concern for fleet managers, who, in turn, are constantly searching for ways to improve fleet fuel efficiency. A number of truck fleets are rightsizing or downsizing fleet assets. Rising acquisition costs have contributed to longer service lives for trucks. Upfit suppliers are engineering upfit materials that are lighter and stronger to increase fuel efficiency and minimize wear-and-tear. The wholesale market for used trucks is forecast to remain strong for the balance of the 2013 calendar-year. The cost of replacement tires is trending upward, which is increasing interest in recaps. More fleets are investigating the use of telematics to monitor and control fleet costs. As the largest component of operating costs, truck fleets have a relentless focus on fuel-reduction strategies, which are often part of corporate sustainability initiatives. Ongoing volatile fuel prices have kept managing fuel spend a top concern for fleet man- At a Glance agers, who, in turn, are constantly searching for ways to improve fleet fuel efficiency. As a result, many fleets are adopting multipronged fuel management strategies to control fuel spend, such as: Revising Vehicle Specifications: Many truck fleets are looking for alternative vehicle choices that are more fuel efficient, such as cargo vans, to reduce fuel costs and the fleet s overall carbon footprint. We ve seen many truck fleets decrease powertrains from a V-8 to a V-6 to save on fuel costs as well, said Matt Lichtenstein, manager of operations, upfitting for LeasePlan USA. lichtenstein Modifying Driver Behavior: Companies are implementing programs to train employees to drive their vehicles in a more fuel-efficient manner. Encouraging drivers to adopt good habits can significantly improve the fuel efficiency of almost any vehicle. This means eliminating fast starts and hard stops and avoiding excessive idling, said Jeff Robley, truck sales manager, railroad market for ARI. Some studies have shown that fuel efficiency can be improved by as much as 19 percent simply by reducing a vehicle s idling time. Encouraging drivers to drive within the posted speed limit, especially on highways, can also help with fuel efficiency. Estimates Robley show that every 10 mph a driver does over 60 mph reduces fuel economy by about 4 mpg. Managed Fuel Program: The best way to manage fuel costs, according to Steve Jansen, CTP, manager, regulatory compliance and truck services for Donlen, is with a managed fuel program that limits spending and gives at-the-pump controls. (Editor s note: The CTP designation stands for Certified Transportation Professional, which is a certification program offered by the National Private Truck Council.) Apps to Find Lowest Cost Fuel: Another tool being adopted by truck fleets is smartphone fuel apps to find the lowestpriced fuel. Drivers who access find fuel apps while on the road can find as much as a 20- to 30-cent difference in fuel prices within a three- or four-mile radius, Jansen said. More Fuel-Efficient OEM Offerings: In the light-truck segment, Ram, Ford, and Toyota have made notable enhancements in engine technologies in recent model-years. As new model-year data is captured, fleet leasing providers should be able to report measurable and hard dollar savings through strategic selector choices, said Brad Vliek, vice president, service solutions for Emkay. Engine Governors are Migrating to Light-Duty Trucks: Long a mainstay in heavy-duty trucks, engine governors are increasingly being used in medium- and lightduty trucks. Installing a maximum speed limiter on fleet vehicles is an effective solu- 24

2 10 The top challenge facing truck fleets continues to be managing fuel spend. Other challenges include rightsizing, rising tire costs, remarketing, and improving fleet efficiency. An emerging trend is the shift to lighter-weight upfits. By Mike Antich Management tion for eliminating speedrelated incidents, such as speeding tickets, aggressive driving, accidents, and complaints from the public, said Robley of ARI. It also increases a fleet s fuel vliek economy, makes a fleet run cleaner, and reduces a company s carbon footprint. With roller-coaster fuel prices, budget cutbacks/restraints, and increased pressure to lower operating costs, maximum speed limiters are an alternative to replacing a fleet with expensive hybrid or alternativefuel technology. Increased use of APUs & Two-Speed Engine Fan Clutch: Many fleets are installing an auxiliary power unit (APU) to provide driver necessities, such as heat or AC and electric power while the vehicle is idle to minimize fuel consumption, said Robley of ARI. A two-speed engine fan clutch will reduce noise, increase available horsepower for auxiliary systems, save fuel, minimize radiator abrasion from dust and debris, and increase an engine s performance. Proliferation of Anti-Idling Laws: As more municipalities and states adopt antiidling laws, fleet managers are looking for ways to address the issue to ensure they are in compliance, Robley said. This has led to an increase in the adoption and use of idle shutdown systems for light-, medium-, and heavy-duty trucks. 2.Initiatives to Rightsize Trucks & Engines A number of fleets are downsizing or rightsizing fleet assets, where possible. For instance, many fleets are moving from a 1-ton pickup down to a ¾-ton or from a ¾-ton to a ½-ton. Rightsizing not only reduces initial costs, but improves fuel economy over the life of the vehicle, said Jansen of Donlen. Greg Wilson, product manager for GE Capital Fleet Services, also cited the trend to rightsize vehicles. More companies are acquiring smaller trucks to do the same job. For example, fleets have placed a wilson higher emphasis on reviewing vehicle specs in relation to their jobs to determine the best design, he said. 3.Truck Acquisition Faced with doing more with less and making budgets stretch further, fleet managers are keeping trucks in service longer. While this means keeping up with preventive maintenance for vehicles that are already in a fleet, it has also resulted in new trucks being engineered or in some cases over-engineered to allow for a longer service life with lower overall maintenance costs, said Robley of ARI. There is also a trend toward refurbishing equipment in a fleet from truck bodies to cranes and other specialty equipment such as a hy-rail upfit rather than purchase new equipment. Jansen of Donlen, likewise, cited a fleet trend to jansen keep vehicles in service past their traditional replacement cycles in an effort to reduce fleet costs. We don t typically recommend longer cycles when you weigh the pros and cons. Increasing the length of time that a truck is in the field, and the additional miles, increases maintenance costs and the chance of a catastrophic failure. In addition, residual value is also reduced, Jansen said. More fleets appear to be getting the message. Data cited by Emkay, in the examination of its own vehicle portfolio, showed that truck service lives are starting to decrease with faster replacement cycles. In 2012, average light-duty truck remarketing statistics showed that the average cycling parameter had decreased compared to The average Emkay replacement for light-duty trucks in 2012 was 51 months in service and approximately 114,000 miles, a 2.63-percent decrease in mileage and a 5.56-percent decrease in months in service over 2011 data, Vliek said. One factor contributing to longer service lives is rising acquisition costs. Prices for new trucks are on the rise, march / april 2013 I work truck 25

3 given the dramatic technological advancements in truck design and engineering, along with the corresponding increase in government regulations, said Wilson of GE Capital Fleet Services. Another reaction to rising acquisition costs is that fleets are investigating financing alternatives. Many companies are looking for alternative lease and finance options to acquire assets. A number of fleets have moved to fixed-term leasing with lockedin lower interest rates to help improve cash flow, said Jansen of Donlen. As for vehicle spec ing, several trends are emerging in terms of engines and brakes. The new generation of 13.0L diesel engines are producing the horsepower and torque that was once reserved for the 15.0Lplus engine, said Wilson of GE Capital Fleet Services. Besides having the horsepower and torque many truck applications need, they also bring these added benefits: less weight than a 15.0L engine, fuel economy improvements, reduced costs, and B50 lives of over 1 million miles. (Editor s note: B50 calculations are done to estimate the expected life before required overhaul or replacement of engines and other rotating equipment.) There is also a trend toward greater specification of disc brakes instead of drum brakes. Overall, the industry has seen a migration from drum brakes to disc brakes in recent years in response to the stopping distance requirements of federal motor vehicle safety standard (FMVSS) 121, said Robley of ARI. An added benefit has been that the disc brakes are lighter. Drum brakes allow heat to build up inside the drum during heavy braking, and the rotor used in disc brakes is fully exposed to outside air. This exposure works to constantly cool the rotor, greatly reducing its tendency to overheat or cause fading. 4.Top Upfitting Shift to Spec ing Other Vehicle Types & Engines Among light-duty fleets, the departure of some OEMs from the compact truck segment is causing many fleets to reassess their vehicle options. With the departure of the compact pickup truck, fleet demand has forced manufacturers to find solutions to re-introduce viable assets into this segment. Many fleets made aggressive acquisitions in the final model-year, and are holding these vehicles longer in anticipation of future OEM product solutions, said Dan Hannan, director of strategic consulting for Merchants Leasing. This trend seems to be part of a broader shift in vehicle types used by truck fleets. Since November 2011, Emkay has experienced a shift in light truck active vehicle counts with a large increase in SUV leased counts over the same period, said Brad Vliek, vice president, service solutions for Emkay. The largest variance is occurring in the medium SUV segment. This trend demonstrates that fleets are more strategically rightsizing their fleets to combat fuel prices, while taking advantage of new fuel-efficient technologies. In fact, many truck fleet managers are asking, why use a truck at all? We have a great deal of interest and success with several aftermarket product lines in developing cargo management solutions for SUVs, crossovers, and even cars, said Erik Nelson, manager, North American truck & equipment consulting services for Wheels Inc. The passengertype vehicle may have obligations to carry passengers, such as clients, as well as bring tools, and even products to and from a job. The aftermarket solutions for this are easily removed for this purpose and are not invasive, and leave the vehicle looking just as it did prior to the equipment being installed. One alternative to the traditional truck is the van, which is growing in popularity in truck fleets. With the new full-size Ford Transit on its way and a redesign of the Transit Connect, coupled with the two Fiat-based large and small van offerings that Ram will have in the marketplace soon, the future for many work and service fleets is vans, Nelson said. There are rumors around about GM looking to make a similar move with a European-based van with one of its partners and there is even speculation about a similar move from Volkswagen, which has similar small and large van offerings in the rest of the world. We anticipate this trend will give fleets already using vans much more choice and, additionally, displace many of the mid-size and full-size pickup trucks that are currently being used. Another shift that has been occurring in some fleets is spec ing gasoline engines in lieu of diesel engines. Because of the strict government regulations around emissions for diesel trucks, which increase the acquisition and maintenance costs for these vehicles, we are seeing many fleets move to gasoline engine trucks to avoid these expenses, said Matt Lichtenstein, manager of operations, upfitting for LeasePlan USA. There are a variety of upfitting trends, ranging from the use of more light-weight materials to modular upfits and more flexibility in modifying upfits to meet driver requests. Fleets have been more flexible in upfitting options to better meet drivers requests, rather than using a one-upfit-fits-all approach, said Steve Swedberg, manager, truck engineering for Emkay. Another upfitting trend is being driven by corporate fuel-efficiency initiatives. Upfit suppliers are engineering upfit materials that are lighter and stronger. In some cases, this is reducing swedberg the overall cost of the components, and, with lighter loads, this is leading to more fuel efficiency and less wear-and-tear on the trucks, said Lichtenstein of LeasePlan USA. An additional upfitting trend has been the move to modular bodies. This provides an opportunity to optimize a chassis application by interchanging the upfit to match the required field duty over time, said Dan Hannan, director of strategic consulting for Merchants Leasing. 5.Truck Remarketing The wholesale market for used trucks is forecast to remain strong for the balance of the 2013 calendar-year. Demand for used trucks in the secondary market is a trend that is anticipated to continue due to the ongoing tight used-vehicle supply, coupled with falling fuel prices, said Hannan 26

4 of Merchants Leasing. On average, the increase in used-truck resale values is in the double-digit range. Based upon the average cycling parameter of lightduty trucks in the Emkay portfolio (114,000 miles), hannan average resale statistics show a 28-percent increase in 2012 compared to 2011 data, said Vliek of Emkay. Another factor that will drive future resale values is the vitality of the construction industry, which is a key buyer of both new and used commercial trucks and vans. LeasePlan has recently observed a slight increase in demand, resulting in higher secondary market prices for light-duty trucks for our fleet clients, said Paul Fortin, vice president, pricing & asset risk management for LeasePlan USA. This is likely due to an uptick in demand related to increased construction on the East Coast caused by Superstorm Sandy, along with increased construction in other areas of the country, and lower gasoline prices. fortin 6.Truck Maintenance In the 2012 calendar-year, there was an uptick in truck maintenance costs. Moderate year-over-year price increases have been observed over 2012 for preventive maintenance services, approaching 5-percent annually, said Brad Jacobs, manager of strategic consulting services for Merchants Leasing. Some upward pressure on maintenance prices has resulted from the OEMs migration to new engine motor oils for improved fuel efficiency and engine protections, but the overall impact to total spend has been limited as a result of corresponding policies to extend oil change intervals. The cost of lube, oil, and filters (L-O-F) has also increased. An increase in oil, raw material costs, and labor costs has increased oil change expenditures through On average, portfolio data shows an approximate $2 increase jacobs in oil change expenses, said Vliek of Emkay. Emissions regulations for 2010 and newer diesel trucks have also contributed to higher maintenance expenses. As a result, new components have been added that have a higher cost to maintain. Diesel particulate filters (DPF) are a prime example that can rapidly increase maintenance costs. Failure to strictly follow manufacturer maintenance and regener- doyle ation procedures can lead to a clogged DPF. In most applications, this means replacement and these costs can add up fast. To help prevent incurring these costs, fleets are having to train drivers to deal with the intricacies of operating and maintaining a diesel vehicle, said David Doyle, director of maintenance and repair management for Lease- Plan USA. The complexity of fixing diesel vehicles can create maintenance/repair issues as well. The technologies employed in these trucks require technicians to have a higher skill set since they are more complex to fix. And, these kinds of technicians are in short supply. This can lead to issues with maintenance turnaround and downtime as well. There is also an emerging trend toward predictive or proactive maintenance versus the traditional preventive maintenance approach. Proactive management of component failure rates is becoming a larger focus for forward-thinking fleets. By leveraging VRMS (Vehicle Maintenance Reporting Standard) codes down to the component level to understand what s failing and when, and leveraging that data to create and adopt a policy for replacing critical components before they fail, it s possible to reduce vehicle downtime, said Jacobs of Merchants Leasing. 7.Replacement Tires & Recaps The cost of replacement tires is primarily influenced by the cost of the raw materials used to produce them, namely rubber and oil. Also, manufacturers are utilizing larger tires to boost mpg, which is being correlated to higher repair/replacement expenses. On average, portfolio data shows an approximate $13 increase in annual pertire expenses, said Vliek. The industry forecast is for replacement tires to continue to have upward pricing pressures. Incremental price increases for the average cost of light-truck tires are anticipated to continue, with the major tire manufacturers announcing price increases ranging from 6-10 percent driven by increased demand for natural rubber and carbon black from emerging markets of both India and China, said Jacobs of Merchants Leasing. One beneficiary of the higher cost of replacement tires has been increased demand for recaps. With the average cost of new tires increasing 14 percent over the past three years, customers are looking at recaps as a way to reduce their overall tire expense. As an example, a new 11R22.5 drive tire will average $448, while a recap, including the casing, will cost approximately $315 or less. This is a 30-percent savings per tire, and with the perception of safety and reliability improving, recaps have become a viable option for truck fleets, said Wilson of GE Capital Fleet Services. 8.Telematics Fleet Applications A number of factors are causing fleet managers to take a closer look at the possible implementation of telematics devices into their fleets. This technology is increasingly looked to, or involved in, solutions for a number reynolds of issues facing fleets, including safety, fuel management, and maintenance, just to name a few, said Wayne Reynolds, manager, upfit design and consultation for LeasePlan USA. Fleets are increasingly looking to telematics to address multiple challenges, from identifying at-risk driver behavior to establishing more efficient delivery routes. Others likewise foresee a trend for the increased use of telematics. Fleet managers continue to increase the use of telematics as a way to gain efficiencies and monitor vehicles. From capturing diagnostics data and monitoring vehicle performance, to routing/locating vehicles, reducing idle time, and monitoring fuel economy, telematics help fleet managers address many of the con- 28

5 cerns they face in trying to manage a modern fleet, said Robley of ARI. Many fleets utilize telematics to manage fuel. Telematics can be used to manage drivers routes, monitor driving habits, and capture other key data, Robley added. Not only can telematics help routing by eliminating drivers constantly crossing over each other, but it also enables more efficient route assignments, said Jansen of Donlen. Telematics reporting has proven a valuable tool to reduce, and in some cases eliminate, idle time as well as identifying driving habits that impact mpg. There are a variety of other areas where telematics has proven useful in managing a fleet. The primary application of telematics in truck fleets has been focused on driver behavior, fuel tax reporting, and the ability to track vehicle location, enabling bill-back capabilities to their end-customer for vehicle use at a jobsite, said Hannan of Merchants Leasing. 9. in Truck Safety & Accident Management Fleet safety and accident management continue to be high priorities, not only for fleet managers, but also senior management. Both CFOs and fleet managers identified accident avoidance and cost reduction related to accidents as a top priority in 2012 and it will continue to be so through Fleets are looking for strategies to reduce accidentrelated expenses through aftermarket technologies, driver selection, and training, said Wilson of GE Capital Fleet Services. The increased focus on accident avoidance has been paying off, especially when comparing year-over-year statistics. Accident management costs for truck fleets have dropped approximately 39 percent from 2010 levels and nearly 49 percent from 2009 levels, said Vliek of Emkay. The utilization of telematics devices, motor vehicle reports, and driver training has contributed to these decreases. In addition, many fleets are utilizing new safety options such as Bluetooth, navigation, and reverse sensing. Another key factor in the reduction of accident rates has been the incorporation of invehicle safety technology by the OEMs. In an effort to reduce accidents, we are seeing a dramatic increase in the number of vehicles ordered with new technology, including rear-sensing devices, back-up alarms, and cameras. Reducing accidents, as well as the potential liability, is always a goal for fleet managers and technology can help in this area, said Jansen of Donlen. This assessment is shared by others, who likewise foresee it continuing throughout the 2013 calendar-year. Technology is having a significant impact on fleet drivers and their safety on the road. Companies are focusing on comprehensive programs that include strict policies prohibiting cell-phone use or operation of other electronic devices while driv- krueger ing, coupled with safety training programs and telematics, said Bob Krueger, operations, safety manager for LeasePlan USA. In 2012, LeasePlan had 71-percent growth with its MVR and safety products; for 2013, we see that growth trend continuing. 10.Growing Use of Alternative Fuels There is an increasing interest in the adoption of alternative-fuel vehicles in the nation s truck fleets. With fuel spend a top concern, more and more fleet managers are considering whether alternative-fuel vehicles are a viable option, said Robley of ARI. In addition to offering a less-expensive option when it comes to fuel spend, alternative-fuel vehicles also offer a more environmentally friendly option and can make it easier to comply with increasingly strict emissions regulations. There is plenty of room for the expansion of alternative-fuel vehicles among truck fleets. While alternative fuels and alternative drivetrains may not have as many adopters as some would like, the industry is still very much in the forefront of what fleet managers are discussing, said Erik Nelson, manager, North American truck & equipment consulting services for Wheels Inc. Some of the most innovative and creative solutions in the nelson truck industry are those that have come to market in this green segment. It is very exciting to see this sector develop and evolve into an even larger presence. However, there still continues to be uncertainty among fleets as to which alternative fuel will best meet their needs. What is the best selection for the fleet? Is it CNG, LNG, or propane autogas? Fleets are searching for expertise to help them decide which, if any of the alternative-fuel vehicles are right for their fleet. Understanding the choice from multiple perspectives, including cost savings, performance, and support infrastructure are critical to making the right decision for their business, said Wilson of GE Capital Fleet Services. Donlen is seeing a growing interest in fleets expanding CNG as an alternative-fuel option. More fleets are exploring whether CNG and other alternative-fuel vehicles are right for their application. At Donlen, we re seeing more fleets ordering pickup trucks with CNG, and the fleet managers are commenting not only on the reduced fuel costs, but also the cleaner running engines. Many are saying that the oil coming out during an oil change looks as clean as the new oil going in, said Jansen of Donlen. However, limited infrastructure continues to inhibit more widespread adoption of alternative fuels. While up-front cost and lack of infrastructure remain limiting factors, fleets continue to explore opportunities to utilize alternative fuels, particularly CNG and propane autogas with truck fleets. Infrastructure is expanding and conversion costs are decreasing. Petroleumbased fuel prices have stabilized with the slowdown in the global economy, but fuel price volatility is another driving force, said Reynolds of LeasePlan USA. An alternative to the infrastructure constraint has been to spec bi-fuel vehicles. Customers are adding more bi-fuel light-duty trucks to their selector list as viable alternatives to their gasoline counterparts. Utilization of the vehicles has been prominent in the Midwest, where established infrastructure exists, creating the opportunity for accessible fuel coupled with an emerging demand for used CNG- and propane-autogas-powered vehicles, said Jacobs of Merchants Leasing. WT 30