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Downside to diesel drop

Dec. 12, 2008
As the economy keeps deteriorating and diesel fuel prices keep dropping, fewer fleets are looking at alternative fuel technology. That’s the opinion of Matt Bowles, partner of Grant Thornton, a billion-dollar tax, audit and advisory firm

As the economy keeps deteriorating and diesel fuel prices keep dropping, fewer fleets are looking at alternative fuel technology. That’s the opinion of Matt Bowles, partner of Grant Thornton, a billion-dollar tax, audit and advisory firm. Bowles focuses on transportation issues, advising a range of clients from small automotive fleets to large trucking firms on the advantages of alternative fuel technology.

“From a green perspective, what I’m seeing is that six months ago companies were saying they were interested [in alternative fuels] and now, they’re saying ‘I’m not interested,’” Bowles told FleetOwner.

Bowles said he expects current incentives, which are set to expire at the end of 2010, will be extended to 2017. While he believes they are acceptable, he also says more could be done to make alternative-fuel vehicles more cost-competitive. “You have to have that carrot out there for fleet managers,” he said. “I think as we get more economic data and see what is happening over in Europe, we’ll see the maintenance costs go down.

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“I’m a believer in government policy changing behavior and if you let [fleets] make money, they will,” he said, echoing a recent study by professors Dorothy Thornton and Robert A. Kagan of the University of California and Neil Gunningham of the Australian National University. That study concluded that companies will embrace green technologies only when it’s economically advantageous to do so.

Right now, there are three primary credits available for buyers of alternative-fuel vehicles. The purchase price of the vehicles, which is generally higher than a comparable diesel vehicle, is offset by credits that vary by fuel type and gross vehicle weight. In addition, if buyers are interested in propane or compressed natural gas trucks, there is an excise credit, up to 50 cents a gallon, available as well as financial credits to build an infrastructure.

Still, Bowles sees the demand for alternative fuel slowing as diesel prices have dropped from their mid-summer high of above $4/gal. to around $2.60/gal at the beginning of the December. “The drop in fuel prices has hurt the value of the credits,” he said.

According to Bowles, for fleets looking for that perfect alternative to diesel, CNG may be the ultimate answer. “I really favor compressed natural gas because it’s really economical because of the credits,” he said, adding that propane is another good fuel, but he is not high on ethanol-based fuels or hybrid-electric alternatives except in particular applications. “If you’re a big fleet and can put in your own infrastructure, it makes sense.”

Bowles pointed out that even small fleets can take advantage of green technology, and in many cases, benefit more than a larger fleet. “I don’t view them as being at a competitive disadvantage” because they tend to hold on to their vehicles longer, he said. For example, if the return-on-investment is three years, that is the typical timeframe when a larger fleet would be trading in its tractors for newer models. But, a smaller fleet may hold on to its tractors for five or six years, giving them three years of cost savings on the technology.

Propane is another viable option in Bowles’ mind, but because of infrastructure concerns, it remains an option primarily for those fleets that can afford to install their own fueling systems.

“The downfall of ethanol is, at the end of the day, not only is the fuel more expensive, but there are often food concerns,” Bowles said, pointing out that as more ethanol is produced, the price of the feedstock used goes up, impacting every American. “[And] the fuel overall is very difficult to handle and it tears up the engine which drives up maintenance costs.”

With few exceptions, such as utility uses, Bowles is not a proponent of diesel-electric hybrid options. “Unless you have a special purpose like a bucket truck, it winds up costing you money plus you have the disposal issue with the batteries,” he said.

Most fleet managers Bowles advises are concerned about warranty issues in switching to alternative fuels. But there are other concerns that should be addressed before switching. Bowles said any manager should ask themselves three questions before switching: Will it save me money? Is there a conversion kit readily available for my type of engine? And is there a public supply of the fuel?

About the Author

Brian Straight | Managing Editor

Brian joined Fleet Owner in May 2008 after spending nearly 14 years as sports editor and then managing editor of several daily newspapers.  He and his staff  won more than two dozen major writing and editing awards. Responsible for editing, editorial production functions and deadlines.

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