John Flynn, president and CEO of Fleet Advantage, has spent decades studying the cost of operation for truck fleets, especially as it relates to truck lifecycle cost. Right now Flynn is seeing what he calls an “inflection point” in the truck market, a point after which the way fleets manage their equipment assets will be irrevocably changed from what came before.
Fleet Owner had the opportunity to talk with Flynn about the significant changes taking place and what they mean to fleets that own or lease trucks today.
FO: How would you describe the “inflection point” you are observing—the change taking place in the truck market as a whole concerning how fleets use and then trade equipment?
Flynn: There is a real paradigm shift taking place in how fleets look at the useful life of their equipment assets. In the past, companies focused on ‘functional obsolescence,’ on running a truck until it no longer performed as required—for any of a number of reasons. Today, the focus is shifting to ‘economic obsolescence.’ Fleets are asking, ‘How long should I run this truck to keep my operating costs as low as possible over its entire lifecycle in our fleet?’
The ability to move out of existing assets as those assets move out of the optimal operating cost range is how people will manage equipment in the future. Today, high credit-worthy fleets want low-cost miles and new vehicle reliability.
FO: What is driving this shift in perspective?
Flynn: The short answer is that new trucks are getting significantly better fuel economy than older trucks and their cost of maintenance is much lower, too. For example, in the first year of operation, a new truck’s maintenance costs are about 1.5 cents per mile. In year four, they are about 8-10 cents per mile.
By 2017, I also expect everyone will see 7 to 8 miles per gallon from their newer Class 8 diesel trucks in over-the-road operations. Some fleets are there already.
I have great confidence that we will hit the new fuel economy standards established for trucks. There are so many actions OEMs are taking to achieve these goals, including reducing parasitic loss by moving from belt-driven to gear-driven systems or using DC power [electricity] for things like power steering also battery technology is getting better and better.
Automated transmissions improve miles per gallon by 0.2 mpg, give or take. The growing popularity of 13L engines will also help to improve mpg with reduced engine size and weight.
Even when you take into account the higher upfront price for a new truck, keeping a truck more than three to four years or 300-400,000 mi. just does not make financial sense anymore, and this will be true through 2020 and longer.
FO: Is enhanced data analysis helping to enable this shift to a cost of operation perspective?
Flynn: Absolutely; it is all there in the data. Data is the thing that is driving all this. It is like the book “Money Ball” but with trucks. It is a day of transparency. Companies that can’t see their real costs simply will not thrive going forward. You have to know what to measure, what to track, however. If you track the right things and the data is standardized and organized, you have a treasure trove of useful information. If you don’t; you don’t.
Here at Fleet Advantage, for instance, we primarily make decisions based on cost data; we are agnostic about other things. Data is not emotional, although people do get emotional about the data sometimes. We do a fleet study within a month of meeting a customer and then we do audits by truck every year and monitor trucks in between.
We are taking trucks out to when the profit and loss statement for each truck hits a tipping point. That record of a truck’s performance then also becomes like a resume for how the truck will perform in the second user’s fleet.
FO: If you had one piece of advice to share about running and trading trucks what would it be?
Flynn: Whether you buy or lease equipment, you have to treat each truck as an individual investment and maintain flexibility through flexible financing.
