Rethinking the low-cost truck

Aug. 8, 2012

Thirty years ago, fleet owners wrestled with the concept of the so-called “vanilla truck.” And no, the discussion wasn’t about saving money by ordering bare-bones “stripper” trucks. Rather, vanilla was shorthand for a Class 8 linehaul truck built with streamlined, if not simplified, specs selected by a given truck builder to match up with the general operational needs of numerous fleet customers.

The idea behind the vanilla truck was straightforward. By writing a single spec based on its extensive experience building and servicing trucks for a large number of customers operating in a similar fashion, an OEM could offer trucks at a lower purchase price. And, what was more, they could assure the fleet owner that these trucks would perform at least as well as trucks built—more expensively—to the fleet’s own custom specs.

Alas, the vanilla truck was so ahead of its time that the idea made no headway with fleet owners and truck builders soon stopped talking about it.

But today’s fleet owners are experienced at managing the dizzying demands of this era—including everything from onerous regulations to stubborn driver shortages to high fuel costs to green trucks to advanced technology of all sorts. By necessity, they are very open to change. And nowadays, truck makers go to great lengths to work as closely as possible with fleet customers—starting from well before the sale. Yet they are also exceedingly mindful of individual customer requirements.

The upshot is that fleet owners today are far less wedded to previous specs. And that requires truck OEMs and their dealers to be at the top of their game putting together trucks spec’d to deliver the lowest possible total cost of ownership (TCO). TCO includes not only initial purchase price and residual value, but everything that comes in between—including such “hard” costs as fuel and maintenance and such “soft” ones as optional safety and driver-comfort features.

“Fleets may start out looking to get the lowest truck purchase price, but they tend to end up [buying] on the total cost of truck ownership,” points out T.J. Reed, director of product marketing for Freightliner Trucks. “As an OEM, we work to present truck buyers with real-world examples—with bona-fide results—of how various spec choices and modular packages will deliver the lowest TCO in a given trucking operation.”

Reed says concerns over fuel costs are a “huge factor currently” that drives fleets to examine TCO when they spec and purchase trucks. He points out that to address this, Freightliner has developed modular fuel-efficiency spec packages. One of these might include aerodynamic devices, a specific transmission and other equipment that “when integrated together, delivers a 5 to 6% mpg improvement.” Reed notes these packages are applicationspecific, such as by sleeper type.

He also relates that discussing the total lifetime cost of fuel-saving as well as all types of spec choices vs. buying on purchase price alone “often pivots on the trade cycle—with a typical trade cycle of three to five years, fleets want to see a payback [on spec choices] within two years to realize value over the long term.

“The conversation the customer has with the truck dealer reviews all the possible choices and looks at the potential results in the aggregate to enable the fleet owner to make the right decisions for his or her operation,” he adds.

Reed says spec tradeoffs must be “weighed individually as every fleet’s operation is different. For example, if a fleet is seeking maximum fuel efficiency, a lot of questions need to be considered—such as operating speed, whether it runs coast-to-coast or regionally, and the terrain encountered— to determine which specs and options will pay back the most over time.

“Residual value is another key factor in building a low TCO truck,” he continues. “But bear in mind, spec’ing with an eye on the return gained at resale will result in a higher upfront price for the new truck.

Boosting uptime

Uptime is also a huge factor in any TCO equation,” says Reed. “One way to boost it is to spec extended-life components, right down to the level of seals. Another way to cut downtime is to take advantage of a telematics solution, like our Virtual Technician, which helps avoid unplanned maintenance events. It comes standard on our Detroitpowered trucks for the first year of ownership and can be picked up from there for a charge.”

Reed advises fleets seeking the lowest TCO on their next order of new trucks to “keep an open mind as so many things have changed in just the past few years. Sit down with your dealer—you can also ask that corporate experts help, too— and really discuss what will work best in your operation.” David McKenna, director of powertrain sales & marketing for Mack Trucks, says the question of whether it’s more advisable to buy trucks based on their initial purchase price or their projected TCO “has as many answers as customers have expectations—and each [fleet] business model is very different from one to the other.”

Nonetheless, he contends that a large differentiator is how long a given fleet plans on running its new trucks. “Typically, the fleet that accumulates a very high number of miles annually and trades in trucks in 30 months, usually considers capital costs first and operating expenses a close second. The only time that a customer [of this description] will agree to pay a premium for a truck is when that model is demonstrably better than the competition,” McKenna explains.

“Fleet operators that run about 100,000 mi. per year look more closely at the operating costs as these costs will be amortized over a longer period of time,” he continues. “These customers will keep the truck for around eight years and so they become much more sensitive to the actual operating costs on a per-mile/per-load basis.”

Regardless of which of these broad profiles a given fleet best fits, McKenna says Mack is willing and able to assist them in developing the most cost-efficient specs for their operation.

“We study the operational duty cycle of the fleet’s current vehicles,” he relates. “We ask if there are any known [operational] changes in the future, such as longer runs, maybe heavier loads or new extended operating areas. The way the truck currently operates may not remain the best specification going forward.

“Working closely with the customer, Mack works to tailor a complete vehicle to improve on existing performance,” McKenna continues. “In doing so, we advise fleets on all new applicable products and vehicle electronic settings, including new ideas since their last purchase, that offer a clear advantage to the customer.”

He adds that Mack offers buyers access to its Pedigree Uptime Protection, an integrated suite of aftermarket solutions that “provides customers with total business solutions that minimize vehicle downtime and maximize their profitability.”

Residual value

Bill Kozek, general manager of Peterbilt Motors and vice president of its parent firm Paccar, says that “the acquisition [price] is part of attaining the lowest total cost of ownership” but points out that “as a premium brand, we are not going to [offer] the lowest acquisition cost.

“On the other hand,” he continues, “resale value is also extremely important and we believe Peterbilts deliver the highest in the industry as we design our trucks for higher residual value. We want the secondary market to be waiting for our [new] trucks.”

Kozek reports that a spec that pays back very well in terms of residual value is a detachable sleeper, which he says can benefit a second or even third owner. He also notes that the more fuel-efficient choice of a 13L engine is now getting the same value on the used market as a 15L, adding that “today’s 13L can do everything that a 15L does but is lighter in weight.”

In general, suggests Kozek, “fleets can control how efficiently they operate by spec’ing trucks for saving on operating costs and for residual value.”

As to spec’ing for lowest TCO beyond just residual value, Kozek recommends that fleets focus on specs that affect fuel use, driver satisfaction and truck uptime. “Anything that can be done to cut fuel use and maintenance expenses and make the truck safer and better to operate for drivers should be considered, so long as an acceptable return on investment (ROI) can be demonstrated.”

Regarding truck maintenance, Kozek advises looking into specs that can “ease maintenance procedures and lengthen maintenance cycles” to lower operating costs. “Also, in terms of serviceability and reliability, it’s important to consider what services the truck dealer may provide as well.”

He also recommends that both the powertrain and aerodynamic devices be optimized for the truck’s duty cycle. “Making sure we understand the truck’s application is very key,” states Kozek. “When the buyer gives us all the information he can on his operation, we can put together the best truck specs, by bringing both applied engineering and supplier software to bear.

“Most fleets are sophisticated enough to know what the specific ‘sweet spot’ for their engine is and we have the software to assemble the [powertrain] specs to put the truck right in that sweet spot,” he continues.

Kozek concedes there is still a lot of spec decisions the fleet must make based on weighing the potential ROI and residual value in their operation against acquisition cost. These include selecting manual, automated or automatic transmissions and whether to move to disc brakes.

As for how much impact driver comfort and convenience specs may have, he says it can be “very difficult to gauge ROI on driver-friendliness but it can be measured in terms of driver feedback and whether the fleet spends less on finding and keeping drivers.”

Safety pays

Turning to safety, Kozek remarks that while operating safely has always been a number- one priority for trucking, “we are fielding a lot more questions today on various safety systems. Decisions regarding making a truck safer may come down to how the accident you avoid is also the one you don’t pay for.”

“We tend to assume that most fleets are buying on total cost of ownership, but we still run into customers who say— or give the impression—they are buying on initial price,” says Frank Bio, Volvo Trucks’ product manager. “In any event, we try to instill in customers that they must first truly understand their operating costs before spec’ing a truck.

“For example, a fleet may not be using the right figures to measure fuel economy,” he continues, “such as including the fuel consumed by idling. For our part, we want our fleet salesmen and dealer personnel to really understand customers’ operations to recommend specs that will reduce costs. And that point is often missed if the discussion is only about the purchase price of the truck.”

Bio contends that “when it gets down to a ‘commodity buy,’ then the truck buyer is not fully considering operating costs—and will not get the full value of all the OEM can do to help.” He notes that fleets often also “do not see the full cost of accidents and so may miss out how they can mitigate accident costs via safety options.”

Looking back, Bio says that in years past equipment managers primarily did the spec’ing and then “shopped the specs around” to the OEMs. “Then we started seeing the accounting/purchasing departments getting involved and shorter trade cycles meant newer technology was coming into fleets faster.”

He says the result of those developments is now fleets are “less likely to seek highly specific specs—sometimes right down to the nuts and bolts—that they wrote in favor of discussing specs with us based on how the vehicle will be operated.”

With fuel economy being a “large cost area under constant scrutiny that can be improved often with small changes,” he says sophisticated calculators are used by Volvo salespersons to show ROI on various choices.

As to keeping maintenance costs low, Bio notes that Volvo recently introduced its Remote Diagnostics telematics solution. He says it monitors vehicles on an exception basis rather than solely through scheduled preventive maintenance “to help keep down the cost of unexpected maintenance.”

Fleet focus

Regardless of the spec being discussed, Bio says getting the lowest TCO comes down to “really focusing on what the specific customer needs and matching that with products and services from our portfolio. The OEM should be able to spec trucks better than the individual fleet can,” he adds, “as each fleet has only a small sample of vehicles with which to compare.”

“Almost without exception, and even though initial price is always a factor, most fleets say they base their purchasing on total cost of ownership,” says Steve Gilligan, Navistar’s vice president of product marketing.

“TCO includes initial price, operating costs and resale value but also the cost of financing and its availability,” he continues. “Those factors can change based on the size of the purchase, the type of specs chosen, and the fleet’s historic relationship with the OEM. And there’s no OEM that every time can provide the lowest TCO for the variables of every given fleet. If one of us had a lock on this, the others would be out of business.”

Gilligan adds that “all OEMs are probably correct [in their spec recommendations] if a fleet takes advantage of all the recommendations made—but not every fleet does. It’s also important to have a strong relationship with the OEM and your dealer so sales personnel have the opportunity to develop a proposal that meets the fleet’s needs. But ultimately, the buyer has to decide what will work best in his operation.”

He also points out that even a fleet that buys trucks yearly will discover from the OEM or dealer that “there may be something new available that will positively affect their operating costs.”

According to Gilligan, some truck buyers want to know what to spec to raise resale value and then make spec decisions based on the acquisition costs of those features and the residual gained.

“If they’re going to wholesale the trucks when they leave the fleet vs. selling [them outright], then it may not make sense to pay that much attention to resale value,” he advises. “And it’s hard to see what spec will fetch what at the end of the average trade cycle that’s now over five years.”

Expert advice

Reviewing various spec considerations is essential to putting together a truck that will deliver the lowest TCO, says Preston Feight, assistant general manager-sales & marketing for Kenworth Truck Co.

“Key areas, although all specs are important, to look at closely include fuelsaving specs, bearing in mind fuel is the largest truck ownership cost; specs that enhance driver comfort and convenience; any spec that reduces downtime so fleets can best serve their customers; specs that impact residual value, and of course, the initial purchase price,” says Feight.

“Customer usage—the fleet’s operating specifics—is the variable driving specs so we offer a range of products to meet their needs,” he continues. “These include three cab families distinguished by their width as well as different sleeper lengths, various engine displacements, from 11L to 15L, etc.”

Feight advises that Kenworth is “seeing some movement from 15L to 13L engines, with choice depending on how much weight savings the truck customer needs. Our 13L covers the vast majority of 80,000-lb. over-the-road tractor applications.”

He contends that “there are very intelligent people managing truck fleets and they often make [spec] decisions for very solid reasons, such as to boost resale value, but by conversing with the OEM and dealer they will get expert advice on everything from residuals to reducing maintenance and maintenance intervals to improving safety.”

As for how quickly fleet owners are moving to embrace all the cost-cutting specs now available to them, Feight sees “customers scattered all along the technology-adoption curve. That’s we try to provide them with as much information as possible to inform each aspect of their purchase decisions.”

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