Ryder’s Scott Mishoe explains that leasing could prove to be a financially efficient strategy for companies as fleets become more technologically savvy.
The new and used truck markets have been quite hot over the past few years. Part of the reason was the pent-up demand from fleets that didn’t want to deal with the 2007 and 2010 emissions upgrades. Their fleets got old and dependability became an issue, so they had to find capital to replace those aging units.
To further complicate matters, the driver shortage persisted. In order to attract or retain drivers, companies have to put them in newer trucks. With newer technology came expensive maintenance, particularly after tractors had 500,000 miles on them, and not enough mechanics who had the technical expertise to work on them.
All of these technological improvements have been done for the right reasons – mainly our environment—but it does present a hurdle for many companies. Interest rates have risen slightly and diesel prices have dropped to unfathomable lows. Even so, the push for newer, more fuel-efficient tractors is still strong. There are still many fleets fighting to stay current and get out of really dated equipment. The biggest challenge for them is often capital availability without using up all their borrowing capacity. For those fleets, leasing in its many forms provides the solution.
The question for many fleets is: what is the return on the technology investment? Well, you first have to admit that diesel prices will not stay down forever. Expect that they’ll be back at $3.00 per gallon (or higher) before long. Over the past five years, we’ve seen almost a full mile per gallon improvement. That means, a tractor doing 100,000 miles per year, sees fuel economy go from 6.5 to 7.5 mpg saves over $6,000 per year. That upward trend will continue as OEMs target new Greenhouse Gas regulation upgrades in 2017, with additional estimated changes coming in 2021, 2024 and 2027.
Improvements are continuing in aerodynamics, weight reduction, low rolling resistance tires, idling and speed limiters, driver software, enhanced automated transmissions and driver training. There is no question that new trucks are more efficient, but for many, they are in the shop more often. However, as our diagnostic software and technician knowledge improves, so will uptime. Most fleets can’t afford to have extra trucks sitting around, so utilization is becoming paramount, as well. All of this means that the return on investment is a good one with a relatively quick payback period.
The technology revolution rolls on as people from my generation seek ways to be greener and more efficient with our transportation assets and employees. Sometimes you don’t even realize how far you’ve come until you stop and take a look back. Remember the flip phone? It wasn’t all that long ago that we all had those. Now we have smart phones that have proven to be a good investment for most. Smart trucks aren’t too different. Prototypes have been built that can exceed 12 mpg with an 80,000 gross vehicle weight. The target is out there. Who will get there first with a production truck? Yes, it will come at a price, but if capital is limited and you have a limited skill set, leasing with a maintenance package can provide the avenue to deal with an advancing transportation technology world, which I find quite refreshing. Accept it and find a way to get it.