With changes in technology coming ever faster, Corcentric’s Patrick Gaskins offers fleet managers and equipment lessors some advice on how they can both move with and take advantage of technological advances.
There is no arguing that the pace at which change is occurring is quicker than it has ever been before. It used to be that when new technology was introduced it was on the market for some time before it was readily accepted and adopted by consumers. In today’s environment, the time from introduction to acceptance is shrinking every year.
Moore’s Law says that computer processing speed doubles every 18 months. But computer-processing speed is not the only place where rapid changes are occurring. It seems like every week, there is some new development in electric vehicles, autonomous vehicles, block chain, 3D printing, etc.
While a truck is a vehicle for hauling freight, it is also chock full of computing, safety and fuel efficiency technology. Fleet managers are asking themselves how they can get value out of these various improvements, especially in light of the fact that the cost of a lease or purchase payment was up 11% between 2015 and 2016 alone, according to the American Transportation Research Institute. Competition for capital expendittures is becoming more challenging each year because technological advances are taking place in all areas of business.
While it is true that many of the improvements made to vehicles in recent years have in fact made them safer and more efficient, the jury is still out on what that means in the secondary market. Will the used truck buyer demand these new technologies, and more importantly, will they pay for them?
Companies that operate commercial transportation fleets should consider some of the more tried and true technologies like lane departure warning systems, active cruise control and collisions avoidance systems — all of which will become standard specifications in OEM data books. Once these systems become standard, the residual values will be pulled along and people in the secondary market will expect the technology on the used vehicle. A truck without the technology will take a hit in its residual value, like a car with manual roll-down windows and an 8-track tape player.
However, with some of the more advanced and less developed technologies, patience is the watchword.
In terms of investment and financing of new technologies, it is critical that fleets understand what the return-on-investment is so they can determine where to best direct their dollars. With some of this technology, fleets are still trying to decide the best time to make the investment.
Given all the technology options on the market today and the things that are out on the near-term horizon, leasing becomes a more attractive option for many fleets. Leasing helps fleets avoid technological obsolescence and eliminates the chance of getting hurt in the secondary market if the bet on a particular technology does not result in a higher resale value. Leasing allows fleets to consistently take advantage of new technologies while insulating them from residual value exposure, especially given the volatility in the supply of used trucks. Who wants to try to sell a truck into a market that may have to absorb 400,000 to 500,000 trucks in a two-year period?
Leasing lets fleets keep their trucks in the operational “sweet spot” since leases are usually shorter than ownership cycles. Having a truck for a shorter period of time means the fleet can take advantage of new technology on a rolling basis. As trucks come off lease, they can be replaced with trucks that have the latest iteration of software and the most recently upgraded components.
So what’s the key to being successful in a market that is releasing new products and/or improved products, components, sensors and systems at a break neck pace? Be sure to have a measured year-over-year replenishment program making incremental changes in asset life cycles based on market conditions and asset performance.
If a fleet tries to make wholesale changes to its vehicle specs, it may either win big or lose big. However, if fleets make incremental changes, they have a measured approach to asset management where they are in-and-out of vehicles year over year; they will save big money in the long run.
This measured approach means deploying new technology in some of your assets each year to see how they perform. Utilizing data and detailed analytics, companies can determine if the ROI on their investment is competitive with other areas of the business. Investing too early can put you on the bleeding edge of technological advances (the Osborne Portable Computer), and investing too late can reduce your ability to compete (Blackberry vs iPhone). In essence, a fleet can’t wait for a technology to have widespread adoption before jumping in or it will not be able to take advantage of competitive advantages that technology yields. However, the fleet doesn’t necessarily want to be the guinea pig for new technology that is completely unproven in real world.
A fleet never wants to be playing catch up, but also never wants to be the one that sticks its neck out only to have it chopped off should a technology fail. Commercial fleet operators need to take a nice easy approach when it comes to new technology, testing technologies on a limited number of vehicles and turning to leasing to have a steady supply of vehicles with the technological advances they need to operate at peak level and attract the best talent.