Maintenance costs have steadily trended upward over the past 12 months as a result of more complex vehicle technology, the ongoing skilled labor shortages, increased replacement tire prices, and the proliferation of engines that require higher cost synthetic motor oils.
“Maintenance and repair costs have increased faster than the rate of inflation year over year,” said Mark Lange, CAFM, technical services consultant for Element Fleet Management.
However, these cost increases have been somewhat mitigated by ongoing improvement in vehicle build quality and longer-lasting components.
“Overall, per unit spend has remained flat from 2018 to 2019, in spite of slight increases in both part prices and labor rates,” said John Wuich, vice president of strategic consulting for Donlen. “In general, the trend in better built vehicles continues. Catastrophic repairs are occurring on average later in a vehicle’s life while less frequent replacement of some parts, such as air and cabin filters are being seen. Also, there has been a slight shift upward in network utilization with favorable network pricing.”
In addition, dealers are becoming more price competitive with the services they are marketing to fleets.
“There has been an increased focus by manufacturers attempting to become more competitive with their prices for preventive maintenance services,” said Mark Donahue, manager of fleet analytics for EMKAY. “This has created a different cost structure at many dealerships to the point where they are now as competitively priced as a typical national account provider.”
With each successive model-year, fleets are operating better-built vehicles that may be driven longer without reaching catastrophic system failures. Nowadays, these failures are fewer and trending toward later in life.
“In addition, for the third year in a row a shift in total spend from unplanned to scheduled repairs is about 3% over the last four quarters. Better built vehicles and increased emphasis on scheduled maintenance compliance continue to result in reduced unplanned spend combined with increased preventive spend,” said Wuich of Donlen.
Another trend is a continuation of fleets extending service intervals for oil drains, which has resulted in longer periods between preventive maintenance services. This is attributed to improvements in engine refinement and synthetic oils, as well as more sophistication of vehicle oil monitoring systems.
“Similar to 2018, both OEMs and fleets are continuing to extend their preventive maintenance intervals as vehicles become more technologically savvy and engine oils and lubricants become more refined,” said George Albright, director of fleet maintenance for Merchants Fleet.
Severe Skilled Labor Shortage
The vehicle maintenance and repair industries are experiencing a skilled labor shortage as technicians in the Baby Boomer demographic retire in greater numbers than those replacing them. The skilled labor shortage requires shops to pay more for skilled technicians, which translated into higher shop labor rates.
“The key differences impacting maintenance costs today are skilled labor shortages combined with advancements in vehicle technology. Employees with advanced technical skills are becoming more difficult to find in the job market as more experienced technicians retire and fewer young adults enter the automotive repair industry. In addition, new vehicle technology is improving vehicle safety and operating efficiency with each model-year, but requires advanced technician skills, more expensive shop equipment, and additional steps in many diagnostic and repair processes,” said Kelley Hatlee, CAFS, national service department technical support supervisor for Enterprise Fleet Management. “As a result, the need for technical skills is growing as the number of experienced technicians decreases, leading to very competitive wages among technicians. The increase in labor costs translates to higher shop labor rates. And as vehicles become more complex, the industry time standards for many repairs will increase.”
One trend that is gaining momentum among commercial fleets is the use of mobile maintenance vendors.
“There has been a substantial uptick in fleet requests for mobile maintenance solutions. Fleet managers are looking to minimize downtime and the administrative burden of taking their vehicle to a repair shop and having the driver wait,” said Albright of Merchants Fleet. “A mobile maintenance solution allows the vehicle to be serviced during off-hours and avoids many fleets from paying the costly expense of renting. Many providers can also perform warranty work, avoiding a lengthy visit to the dealership.”
Other FMCs likewise cited the growing use of mobile service providers.
“There’s a growing interest in mobile service providers and an increasing number of vendors are moving into this business niche. Mobile service offers many benefits, such as overnight service and minimized downtime, but convenience often comes at a higher price. For example, mobile service vendors may charge higher hourly rates and travel time; however, as the market matures the prices should become more competitive,” said Dawn Schremp, national service department director for Enterprise Fleet Management. “It’s important for fleets to weigh the hard costs against the soft costs before choosing to use a mobile vendor. For some fleets, it makes sense from a business perspective. As the mobile service space grows, these factors will play a larger role in overall fleet maintenance costs.”
Tech Increasing Repair Costs
New technologies such as Advanced Driver Assistance Systems (ADAS) require special equipment and training when service is needed, which create additional maintenance costs.
“One factor that emerged in 2018 and continued to gain momentum in 2019 is the growing number of fleet vehicles featuring ADAS, such as collision avoidance and lane departure warning,” said Chris Foster, manager, truck & equipment maintenance for ARI. “This technology is now included as standard equipment on a wide-range of popular fleet models and these systems include expensive components that are pushing repair costs higher.”
A minor collision that used to only require a bumper cover replacement can now involve bumper cover and radar replacement, along with pre- and post-system scans and ADAS recalibration.
“The introduction of ADAS has made the greatest impact on vehicle repair costs and is a great step forward for vehicle safety because it helps prevent many accidents. Some collision repair costs are saved through the prevention of accidents; however, this new technology adds new components to vehicles, such as cameras, proximity sensors, and radar/lidar,” said Hatlee of Enterprise Fleet Management. “It also adds additional steps to common repair procedures that didn’t exist previously. For example, many minor body repairs, windshield replacements, and steering and suspension repairs now require ADAS recalibration. This adds to the complexity of the repair, increasing labor costs.”
ADAS sensors built into windshields and rearview mirrors are adding complexity and cost to windshield replacements.
“For example, the replacement cost of a windshield in an ADAS-equipped vehicle is typically higher than that of a non-ADAS unit,” said Foster of ARI. “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.”
In addition, ADAS systems add many new technologically advanced components to vehicles, such as cameras, proximity sensors, and radar/lidar.
“As vehicle specifications and parts become more technologically advanced, the cost to repair and/or replace becomes much more expensive in parts, labor, and downtime,” said Albright of Merchants Fleet. “Advanced safety features and creature comfort setting on vehicles can be costly to repair, including but not limited to seat features, windshields, side view mirrors, driver displays/screens, cameras, sensors, and more.”
Labor Rates are Increasing
In the past several years, many repair shops have raised labor rates and this trend is expected to continue. Skilled technicians are exiting the trade at a rate faster than entering. This will put more pressure on shops to increase wages to attract the best talent.
“While parts pricing is up slightly, increasing labor costs have been the primary factor driving the increase in maintenance/repair costs in 2019,” said Lange of Element Fleet Management.
Increases for maintenance/repair costs have been slightly more than inflationary costs especially in the lower skilled services, such as oil change, tire rotations and other preventive maintenance services. The push to increase wages for low skilled positions will impact labor cost associated with these types of services.
“Labor costs have risen, causing an increase in maintenance spend for routine repairs. While the overall cost for maintenance is only up slightly, when repairs are required on the new technologies the costs can be shocking. Instead of just replacing a part, you may now have to add the cost to recalibrate the vehicle, potentially adding hundreds of dollars to the repair. Thankfully, the failure rates for these components are relatively low,” said Donahue of EMKAY.
Most corporate fleets have sustainability initiatives they need to adhere, which has an impact on overall fleet maintenance costs.
“Fleets continue to consider light-duty diesel vehicles as part of their companies’ green initiatives. Before making the decision to incorporate diesel into your fleet, you need to consider several factors including: how the vehicle will be used, whether the vehicle will primarily be operating in an urban environment (short trips) or long distance highway driving, and your drivers,” said Brian Simek, director – maintenance, repair & workforce management for Wheels Inc. “Modern diesel engines include emission systems in order to comply with emission regulations. These systems need to be regularly maintained to keep them operating properly and to avoid expensive repairs.”
Two components in diesel emission systems that requires ongoing maintenance are the diesel particulate filter and diesel exhaust fluid.
“Emission systems include a diesel particulate filter (DPF) designed to capture soot and prevent it from being released into the atmosphere. This soot needs to be burned at very high temperatures at certain intervals using a regeneration process also known as a ‘regen’ to avoid clogging the DPF. This regen process is required more frequently when vehicles are used for short trips and cannot reach the required temperature to complete the regen process,” said Simek of Wheels Inc. “Drivers are alerted of the need to regen by warning indicators, and if these indicators are ignored the driver will experience a reduction in power called a derate. Drivers not familiar with this process may be alarmed by the reduction in power especially when merging in traffic or making a left turn in from of oncoming vehicles. Recurrence of a derate or clogging the DPF will cause expensive future repairs. In addition to a DPF, diesel exhaust fluid is injected into the exhaust system to further breakdown harmful exhaust gases. DEF fluid is contained in a separate tank and needs to be filled to avoid the vehicle derating. It is not uncommon to see drivers filling the diesel tank with DEF fluid contaminating the diesel fuel, filling the DEF tank with diesel, or ignoring the need to regen clogging the DPF. All are costly errors in both downtime and hard dollars. Driver education on proper maintenance of these systems is critical in keeping diesel vehicles functioning properly.”
While there is a continued trend of fewer catastrophic events occurring later in life, premature component failures still continue to happen.
“One challenge of note in 2019 was a higher-than-normal failure rate for a particular engine used in several popular fleet vehicles. As a result of the relatively high failure rate, there was a shortage of replacement options in the marketplace. This shortage had a slight influence on prices, but the greater impact was felt in terms increased downtime, which for some fleet operators is certainly more costly to their business,” said Foster of ARI. “We continue to examine repair data in an effort to forecast to what extent this trend will impact customers in 2020 and beyond to help them plan and, when necessary, adjust accordingly.”
2020 Maintenance Cost Forecast
Higher labor costs will continue to increase the maintenance spend for routine repairs in 2020, especially at service facilities located in high-cost-of-living metro areas.
“Labor costs, whether associated with aftermarket or OEM parts suppliers, will be important to follow. Our expectation is that labor costs will be the primary cost driver for the foreseeable future,” said Lange of Element Fleet Management.
In addition to higher costs, the skilled labor shortage could translate into extended downtime as wait time at repair shops increases, impacting driver productivity.
“Due to skilled labor shortages and other factors, the increased cost of labor and parts in the automotive service industry has outpaced inflation for the past several years. With the current job market outlook for automotive technicians, machinists, and other technical fields, this trend will likely continue in the near future,” said Hatlee of Enterprise Fleet Management.
With the growing skilled labor shortage affecting labor rates, commodity prices remaining high, and vehicle technology increasing in complexity, it is likely that maintenance costs will continue to trend upward.
“We see the impact of rising labor costs as minimum wages increase. Historically, quick lube oil change facilities and tire retailers have been a good starting point for individuals interested in being automotive technicians or working in the industry while attending a technical college,” said Chad Christensen, strategic consultant for Element Fleet Management. “Wages at these types of facilities are typically comparable to other low skilled positions or entry level positions in other service industries. These types of positions are most likely to be impacted by increases in minimum wage with the larger metropolitan areas passing ordinances for $15 or higher hourly wages. For that reason, labor cost will be the driving factor increasing oil change, basic preventive maintenance services and tire installation costs.”
These increased labor costs are passed through to consumers and fleets in the form of rising shop labor rates.
“Looking ahead to 2020, one particular factor we’re keeping a close eye on is tariffs on glass. Many in the industry expected an immediate price spike due to trade tariffs on glass but the vendors in this segment of the industry worked incredibly hard to minimize the cost impact. Our strong, long-standing partnerships with leading glass providers helped us work through this challenge together in 2019, but at some point, as material costs continue to rise, consumers will likely begin to see a more noticeable increase,” said Foster of ARI.
Greater Reliance on Data
On the whole, technology is helping fleets to better manage maintenance. One technology that is making a positive impact on fleet maintenance is telematics.
“While fleet managers have been leveraging data for many years relative to the vehicle, a focus has shifted more on using data for behavior monitoring and tracking, which of course can impact operating costs dramatically” said Brad Jacobs, director of fleet consulting for Merchants Fleet. “These available data systems include cameras, sensors, onboard computers and more that keep track of the vehicle, the driver and materials being transported. Many of these systems are OEM supplied now or installed through an upfitter. Fleet managers are increasingly seeking predictive analytics and proactive exception reporting to better manage their fleets.”
As telematics devices proliferate within fleets, there is an increase on the reliance of telematics data for maintenance. “Maintenance scheduling and checking for parts availability are a few features many fleets are already leveraging today by using telematics data to help controls costs and limit downtime. This will only continue to rise in 2020 and beyond,” said Albright of Merchants Fleet.
Fleet managers are increasingly seeking predictive analytics and proactive exception reporting to help better operate their fleets and manage maintenance spend.
“In one case, predictive models are now being used to predict vehicle odometer. In turn, more accurate odometer forecasting allows models that predict repair needs and prescribe where and when to seek service to run more efficiently. These models collectively work to drive up scheduled maintenance compliance and network utilization,” said Wuich of Donlen.
In addition, modeling is also being used to understand the impact to TCO from downtime due to maintenance repairs. “Modeling is being used to manage and reduce downtime associated with repairs. Here, dashboards are used to identify which assets are down and the length of downtime, allowing for intervention to find needed parts, replacement assets and for communications,” said Wuich. “Finally, analytics are being used to prescribe preventive services on parameters such as fuel consumption and engine life – something other than simply looking at mileage and / or days intervals.”
According to fleet management companies, the number of fleets employing telematics systems is on the rise. A key advantage to telematics systems is the ability to spot maintenance issues at their inception before they become larger and more expensive problems using telematics diagnostic trouble codes (DTC).