A convergence of multiple factors triggered by the COV-19 pandemic has increased scheduled and unscheduled repairs costs for fleets in calendar-year 2021.
“Fleets are keeping units in service for longer periods due to the delay in new replacement vehicle production and delivery. Today, fleets are more likely to invest in high dollar repairs like drivetrain components due to the lack of replacement unit availability. In addition, part and labor prices have increased, while part and labor availability have decreased. All of these factors, along with an increase in vehicle usage, have caused an increase in repair spend in 2021,” said Dale Jewell, senior director – fleet service operations for Emkay.
The biggest increase in maintenance spend was with unscheduled repair incidents. “Overall, there has been a shift from planned (down 3%) to unplanned (up 3%) spend. One reason is that vehicle startups after elongated periods of sitting inactive during the pandemic resulted in unplanned spend associated with extended inactivity,” said John Wuich, CAFM, vice president, consulting services for Donlen.
Additional reasons for the uptick in unscheduled maintenance, according to Wuich, have been caused by extended service lives of fleet vehicles and parts shortages at repair facilities resulting in an increase in soft costs due to longer vehicle and driver downtime.
“Extended cycle times resulting in average vehicle age increasing and unplanned spend associated with older vehicles is increasing. Also, part shortages and staff shortages at repair facilities are resulting in longer downtime periods and wait times,” added Wuich.
In addition to reduced availability of parts, prices have increased, on average, approximately 6% for an individual part and labor. “We have observed pricing increases on parts and labor among national and independent vendors throughout the year ranging between 4% and 8%. The impacts of labor shortages and parts availability have also drastically affected repair turnaround times, contributing to increased utilization of rental vehicles,” said Joe Shinn, manager of fleet maintenance for Merchants Fleet. “As fleet vehicles have been reactivated throughout the country, we have unfortunately observed an uptick in mechanical failures and road service requests throughout 2021. Overall, labor costs increased, which can be partially attributed to the continued labor shortage trends that the pandemic has exacerbated.”
The shortage of parts, especially those on back order, has decreased fleet vehicle utilization. “Parts shortages have increased repair times, leaving some vehicles significantly under-utilized due to waiting for items that are on long back order. There has been a knock-on effect from the microchip shortage and OEM production delays, leading some fleets to extend replacement cycles, thus we are seeing an uptick in scheduled preventive maintenance (PM) to keep these vehicles on the road healthy and safe,” said Tony Blezien, senior vice president, operations for LeasePlan USA. “We also continue to see new-model vehicles utilizing synthetic motor oils that continue to raise the cost of a standard oil change as OEMs look for ways to reduce engine friction to increase fuel efficiency and longevity for internal engine parts.”
The anticipation is that higher maintenance costs will continue for the foreseeable future into calendar-year 2022.
“We expect the current trend of higher labor rates and cost of parts to continue,” said Chad Christensen, senior strategic consultant for Element Fleet Management. “In addition, we expect increased repair spend with many clients due to the new-vehicle shortage. Clients are fixing older vehicles due to lack of new ones and pulling older vehicles back into service.”
SOURCING REPLACEMENT UNITS
The No. 1 maintenance cost pressure is that fleets are keeping vehicles in service for longer periods, which is increasing the frequency of unscheduled maintenance incidents and costs as aging components fail.
“Over the past year we’ve observed modest price increases exceeding a pre-COVID-19 U.S. inflation rate of approximately 2% (annualized) on per vehicle/month basis across most vehicle classes,” said Christensen of Element Fleet Management.
Operating older units with higher mileages because of missing early buildout deadlines or difficulties in sourcing replacement vehicles has been a key factor in contributing to higher maintenance expenses and the uptick in unscheduled maintenance in 2021.
“Fleets have faced challenges with new-vehicle availability throughout 2020 and 2021 due to the chip shortage and already high end-user demand,” said Jamie Grams, national service department manager for Enterprise Fleet Management. “As a result, fleets have had to implement a fleet preservation strategy and extend the normal lifecycle of their vehicles. This has increased the importance of keeping up with preventive maintenance and repairs to keep existing vehicles safe and operable.”
As shown by industry data, the microchip shortage has dramatically decreased the number of new vehicles built, which is making it difficult to source replacement units.
“If you anticipate your vehicles are going to remain in service longer due to limited new-vehicle availability, you need to adjust your maintenance strategy — and budget forecast— to account for this additional utilization during the costliest portion of a unit’s lifecycle. Also be sure to reconsider what maintenance services may now be required as vehicles remain in service longer. For example, if you typically cycle vehicles out at 60,000 miles, your PM schedule may not include a transmission service, but you should add this important preventive maintenance to your schedule if your vehicle now needs to remain on the road longer,” said Chris Foster, manager, fleet management services for ARI.
The shortage of replacement vehicles from either the factory or out-of-stock purchases from dealers is causing constraints in sourcing replacement vehicles for those units scheduled to be retired from fleet service.
“The supply chain issues are causing delays in the production of new-vehicles; and used vehicles are difficult to find or may not meet application requirements causing fleets to keep vehicles in service longer than expected. It’s critical to maintain the vehicles you have; however, as vehicles reach higher milage intervals, additional maintenance and repairs are inevitable. When repairs are needed, we have been quoted longer lead times at repair facilities due to labor shortages especially in certain specific locations. Similarly, there are more frequent parts delays and increased costs for parts and tires,” said Brian Simek, director – maintenance, repair, & workforce management for Wheels Inc.
One of the biggest factors impacting maintenance costs are rising labor rates needed to attract qualified technicians.
“The ongoing technician shortage will likely continue to drive up shop labor rates and increase repair turnaround time. As baby boomers continue retiring with fewer young adults entering this field, the technician shortage may be a long-term challenge,” said Erin Mills, national service department manager for Enterprise Fleet Management.
The overwhelming majority of today’s maintenance increases are rooted in the COVID-19 pandemic, creating a detrimental impact on fleet operations with either over-utilized or under-utilized vehicles.
“In some scenarios, you have vehicles that are now utilized more as business demand spikes or companies stagger shifts to adhere to social distancing measures and minimize employee contact. In other scenarios, you have units that are being driven far less or even sit idle for extended periods of time as business levels decrease. Both ends of this spectrum present unique challenges since most maintenance strategies are built on a foundation of miles driven and/or time intervals, both of which have likely been significantly altered for many fleet operators,” said Foster of ARI.
SUPPLY CHAIN CONSTRAINTS
The pandemic disrupted global supply chains causing parts shortages that have suspended new-vehicle production or lengthened repair times for units at repair facilities awaiting back-ordered parts.
“The increased downtime creates additional soft costs in lost productivity, lost revenue, and rental expenses. This is a greater focus among fleet managers,” said Tim Brockschmidt, maintenance client partner for Element Fleet Management.
In the final analysis, fleet managers need to be proactive and develop fleet maintenance strategies that will mitigate these current supply chain constraints.
“For example, there are some fleets that have been managed well by being able to utilize less used units in their inventory as replacements when needed due to part delays or accidents. This can dramatically reduce the rental costs for a fleet and mitigate productivity loss,” said Jewell of Emkay.
According to Wuich of Donlen, other significant costs impacting maintenance spend in 2021 are:
- Increased lifetime PM and unplanned spend as vehicle lifecycle is extended.
- New technology and greater vehicle complexity working to drive up cost.
- Greater emphasis as the year progressed in preventive maintenance, corresponding with the need to extend vehicle life.
- Greater emphasis in e-notifications to alert drivers/fleets of when maintenance is due, what services are needed, and prescribing where to take vehicles for services.
- Greater emphasis on managing vehicle downtime, as the threat of vehicles sitting idle due to parts or service technicians being unavailable.
- Increased interest in mobile services with service fleets.
Extended vehicle downtime is becoming a more prominent issue on the minds of fleet managers during the COVID-19 pandemic.
“Fleets that held inactive vehicles for extended periods during the pandemic experienced some unscheduled repairs once those vehicles returned to service, including the replacement of items such as dead batteries, and resurfacing or swapping out of rusted brake rotors,” said Dawn Schremp, assistant vice president of fleet operations for Enterprise Fleet Management.
Other fleet management companies likewise reported an uptick in unscheduled maintenance.
“The demand suppression of 2020 and supply shortages of 2021 have created an unprecedented one-two punch in our industry. The semiconductor shortage, which has limited the availability of replacement vehicles, has led to vehicle lifecycles being further extended. This dynamic has contributed to an increase in unscheduled maintenance repairs and roadside services,” said Shinn of Merchants Fleet. “Simultaneously, the replacement parts shortage has resulted in repair delays and increased vehicle downtime. We have recommended that our clients plan for additional downtime when major mechanical repairs need to be performed on vehicles.”
According to Brockschmidt of Element Fleet Management, additional factors that have impacted maintenance/unscheduled repair cost in 2021 including constrained availability of major powertrain components, such as transmissions.
“Other factors impacting maintenance spend are the higher cost of replacement parts and the challenges of sourcing. We’ve noted that engine and transmission components across various OEMs have been very difficult to obtain this year. Some vehicles can be down for months waiting for parts. The increasing use of chips in parts has also resulted in delays and higher prices,” said Brockschmidt. “Another factor is the higher cost of labor, which is more pronounced in urban areas. The pandemic has only increased this issue.”
FORECAST OF MAINTENANCE COST
The industry anticipation is that the strong headwinds that caused fleet maintenance cost-per-mile expenses to increase in 2021, will continue into CY-2022.
“Everyone is well-aware of the supply chain issues impacting almost every segment of the economy. Specific to the auto industry, the most talked about shortage is microchips; however, the problems are broader and include everything from raw materials, transportation, and the labor market. All this adds up to increased maintenance, repair and tire costs, and potential of extended downtime to repair vehicles,” said Simek of Wheels. “There is no consensus on when the supply chain issues will subside and things will return to normal. Various sources report it will last anywhere from the second quarter of 2022 to through 2023. We will likely be operating under these conditions for a long period of time and now is the time to keep your vehicles proactively maintained.”
Likewise, labor costs will continue to rise as the availability of qualified technician remain scarce and in high demand.
“Finding qualified techs who are able to transition between past, present, and future technology will be increasingly difficult. Part prices will rise as technology changes; however, all indications are that production and transportation issues should ease over the next 12 months,” said Jewell of Emkay.
Another maintenance-related issued caused by the pandemic is a shortage of replacement parts that is extending downtime for some vehicles waiting for delivery of out-of-stock component that are on back offer. In addition to these high-profile issues, there appears to be an across-the-board increase in most fleet costs.
“This includes an increase in parts cost, continued increase in labor costs, increased per unit costs, and increased PM costs,” said Wuich of Donlen.
The frequency of backordered parts increased throughout the pandemic and became a major factor that has impacted repair turnaround time and vehicle uptime in 2021.
“We work with vendors and partners to find alternative solutions for our clients to minimize these factors and continue to meet their needs,” said Schremp of Enterprise Fleet Management.
One impact from the pandemic has been an increase in catalytic converter thefts as the price of the precious metals in them skyrockets. But sometimes the bigger issue is downtime for a revenue-generating vehicle that is waiting for a back-ordered replacement catalytic converter to arrive since it is illegal to drive a vehicle without a catalytic converter.
“Catalytic converters are on national backorder. There are many thefts due to the high value of underlying metals,” said Brockschmidt of Element Fleet Management.
Also citing the impact of stolen catalytic converters was Enterprise Fleet Management. “The rise in prices of precious metals used in catalytic converters created a trend of catalytic converter thefts. This problem was often compounded by parts shortages. The thefts that did occur increased the frequency of unscheduled repairs and impacted overall maintenance costs for fleets,” said Schremp of Enterprise Fleet Management.
Without the reliability of getting replacement vehicles some fleets are finding it advantageous to repair vehicles that they would not have repaired in pre-pandemic times.
“We expect unscheduled repair costs to gradually increase in 2022. Labor shortages and parts availability will continue to challenge the industry. With limited new vehicle inventory impacting replacement cycles, the ability to navigate the semiconductor shortage will continue to be a key factor driving unscheduled maintenance,” said Shinn of Merchants Fleet.
However, the feeling is that the forthcoming increase in the number of EVs in fleet service will help reduce overall fleet maintenance spend and due to the fewer number of components they will make it feasible to extend vehicle service lives.
“The proliferation of electric vehicles throughout fleets will be a key factor in driving lower preventive and unscheduled repair costs in 2022 and beyond,” said Shinn of Merchants Fleet.
The automotive parts shortage, in particular the microchip shortage has resulted in temporary suspensions of new-vehicle production until the factory’s microchip inventory was built up again.
“It appears that the chip shortage will likely continue to challenge new-vehicle deliveries throughout 2022, so fleets will continue holding vehicles longer than usual. To maximize fleet uptime, fleets should continue focusing on preventive maintenance and avoid delaying repairs so that little problems do not become big problems that will lead to more downtime,” said Schremp of Enterprise Fleet Management.
“Given the limited number of new vehicles currently available, a situation that will likely continue well into 2022, fleet operators will need to account for higher maintenance costs as vehicles remain on the road longer than originally anticipated. In addition to budgeting accordingly, you’ll also want to assess and prioritize your maintenance strategy to help mitigate costs as much as possible,” said Foster of ARI. “Additionally, as new vehicles become available, you’ll want to be sure to be extremely strategic about which units you replace and when. While age and mileage are certainly important metrics, be sure to consider all the variables as you determine your replacement strategy. Know your vehicles, understand their application and criticality to your business, and let your data guide your decisions. With the limited number of units currently available, it is more important than ever to make fact-based, data-driven decisions rather than simply relying on feeling or intuition.”
Another factor putting upward pressure on maintenance spend is the adoption of new automotive safety technology, which permeates many new vehicles. While these systems are very reliable, when an issue does occur, it has a major impact on fleet maintenance spend due to the increased diagnostic expense to identify the source of the problem and the subsequent recalibration of an advanced driver-assistance system (ADAS) system.
“As vehicles continue to evolve and ADAS become more sophisticated, the cost associated with repairs involving this technology is becoming more expensive as well. Technology such as collision mitigation, blind spot detection, and lane departure warning are now standard equipment on a wide-range of popular fleet models and these systems include expensive components that are pushing repair costs higher,” said Foster of ARI. “For example, the replacement cost of a windshield in an ADAS-equipped vehicle is typically much higher than that of a non-ADAS unit. In addition to the increase cost of the windshield itself, the vehicle also often requires a recalibration of the entire system which is an additional cost factor. Also, in many cases, if the windshield in an ADAS-equipped vehicle is chipped, it often means replacing the entire windshield rather than simply repairing the chip damage.”