There are many dynamics influencing today’s fleet budgets. As we all know, fleet costs have increased across the board - driven by escalating fuel prices, higher acquisition costs, decreased or no fleet incentives, unscheduled maintenance expenses, and volatile upfitting costs, all of which are negatively impacting fleet budgets.
Despite increased cost pressures, many fleet budgets remain the same size as the year prior, but this doesn’t concern many fleet managers because most budgets include funds for replacement vehicles, which remain unspent due to sourcing difficulties.
“My budget hasn’t increased but then again I haven’t exceed my budget because 60% of my vehicles have not been delivered,” said one fleet manager.
Reduced Incentive Monies
An additional negative impact on fleet budgets has been the decrease or outright elimination of fleet incentives, which for all intents and purposes increases the net acquisition price of a vehicle.
On the other hand, OEMs argue that fleet incentives are designed to lower prices but to stimulate buyer demand, but when buyer demand exceeds production availability (as they do today), there is no need to offer incentives. However, the reduction in fleet incentive programs, which has been a fixture in fleet acquisition strategies for a half century, has been negatively perceived by many fleet managers.
Silver Lining is Higher Residuals
While the decrease in fleet incentives is increasing fleet acquisition costs, they are being offset by today’s higher resale values. Fleets have experienced cost increases for acquisition costs, fuel pricing, maintenance expenses, and parts availability. The only good news in fleet continues to be high resale values.
Other fleet managers likewise cited higher resale values are offsetting the impact of lower incentives. Many believe that if resale values remain elevated for the foreseeable future, the lack of fleet incentives will be made up on the back end. Some fleets are estimating the significant return at resale will offset price increases and the decrease in incentives.
In past years, some OEMs used fleet incentives to increase fleet market share especially for vehicles that were not in high-demand. This made it difficult for non-traditional fleet OEMs to compete against aggressive, high-dollar incentive programs from competitor OEMs. However, today’s reduced fleet incentives have assisted some non-traditional fleet OEMs to make inroads into fleet.
“With incentives not as favorable as in the recent past, it basically levels the playing field. Today, what drives the market is the best price for the best vehicle in the right timeframe,” said Bob Martines, CEO of CCM, whose company over the years has been increasingly sought out by clients to help manage their fleets.
Higher Rental Expenses
At many companies, fleet budgets have increased but not enough to compensate for the across-the-board cost increases. This is prompting some companies to reduce vehicles in the sales fleet to offset the higher unbudgeted costs.
Another dynamic impacting budgets is increased vehicle rental costs as vehicles kept in service beyond their scheduled replacement begin to experience higher incidents of unscheduled maintenance. This coupled with the ongoing shortage of spare parts is increasing vehicle downtime.
Originally posted on Automotive Fleet
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