By Mike Antich The May/June timeframe was an extremely busy time in the fleet industry with the NAFA and GFX conferences; GM, Ford, and Chrysler holding 2009 fleet previews; and a WEX fleet technology summit. During the past 60 days, I’ve had an opportunity to talk “fleet” with literally hundreds of fleet managers. There is a growing belief among fleet managers that today’s high fuel prices are not a temporary phenomenon, but a new reality. Almost everyone is looking for ways to downsize vehicles (where possible) or opt to four-cylinder engines as part of either a corporate sustainability initiative or fuel spend / GHG reduction program.
Examples of companies shifting more vehicles to four-cylinder engines are Bausch & Lomb, Owens Corning, Kraft Foods, Johnson & Johnson, Merck, Abbott, Infinity Insurance, etc. This isn’t just a fleet phenomenon. In May, as nationwide gas prices climbed to $4 per gallon, vehicles with four-cylinder engines accounted for more than 45 percent of all U.S. retail sales of new cars and trucks, according to J.D. Power & Associates. In May 2004, only 28 percent of all vehicles were equipped with four-cylinders.
Coupling Fuel Reduction with Green Initiatives
A pioneer in the trend to four-cylinder engines is John Dmochowsky, sales fleet manager for Kraft Foods. He was instrumental in getting his company to switch its sales fleet from six-cylinder to four-cylinder engines in 2007. (What makes his move prescient was back then, the nationwide average per gallon price for unleaded gas was only $3.02.) Today, Dmochowsky projects the fleet will see a 9-percent decrease in lifecycle costs due to the change to four-cylinder engines. Kraft Foods’ current model-year selector consists of the four-cylinder models of the Chrysler Sebring, Dodge Caliber, and Dodge Avenger. (Six-cylinder minivans and SUVs still account for about 10 percent of Kraft’s fleet for drivers who need larger vehicles.)
The high price of gas was just one reason Kraft switched 90 percent of its sales sedans to four-cylinder models. The other reason was to reduce vehicle emissions as part of a green fleet initiative to conform to Kraft’s corporate-wide sustainability focus. Likewise, many other major fleets are seeking to reduce CO2 emissions as part of a larger corporate initiative in addition to minimizing fuel spend. For instance, Johnson & Johnson (J&J) has a U.S. fleet of more than 11,000 vehicles. Today, 3,000 of these vehicles are four-cylinder models. In the past, J&J’s fleet operated almost entirely on six-cylinder engines. The company’s fleet goal is to achieve a 36.4 mpg average in 2010.
Another example is Merck. According to Joe LaRosa, director, global fleet services, the Merck global fleet is following a corporate initiative to reduce GHG emissions by 12 percent in 2012 from base year 2005. One prong of this multiprong strategy is to increase the number of four-cylinder models in the U.S. fleet.
Reducing Fuel Spend without Downsizing
Switching to a four-cylinder engine allows a fleet that is primarily automobiles to maintain the same size vehicle necessary to meet its fleet application without downsizing to a smaller model.
A mid-size sedan equipped with a four-cylinder engine achieves, on average, a 10-percent improvement in combined city-highway fuel economy. There is a reduction not only in fuel spend, but also in cap cost. The cost of a four-cylinder engine in mid-size cars is $1,000 to $2,400 less than a V-6.
Another benefit to four-cylinder engines is that they currently enjoy high demand in the wholesale resale market. Although this has been occurring for the past several years, it is a historical anomaly. In the past, vehicles were penalized in the wholesale resale market if they were not equipped with six-cylinder engines. No more. Another reason for spec’ing six-cylinder engines in past years was driver morale. In years past, many drivers complained about underpowered four-cylinder engines. However, powertrain technology has evolved to the point where many unsophisticated drivers may have difficulty discerning a four-cylinder from a six-cylinder. Today’s four-cylinder engines provide better performance than the six-cylinder engines of yesteryear.
Whether this trend to four-cylinder engines will continue beyond the next several model-years will be entirely dependent on the cost of gasoline. One sobering assessment (albeit informally) was given to me by one senior-level manager at a major OEM. I asked what his economists were telling him as to the future cost of gasoline. He replied that the consensus is that gasoline prices will fluctuate; however, they will continue on an upward trend. The internal forecast was for $6 to $7 a gallon gasoline. He did not elaborate as to the time frame. Although these forecasted stratospheric fuel prices are within the realm of possibility, they are not a certainty. Economists do not have a failsafe ability to forecast future price trends. As a case in point, after each of the two oil crises of the 1970s, the trend to smaller vehicles was quickly reversed after gasoline prices stabilized to a lower price. I don’t remember one economist who predicted this. Right now, fleets need to roll with the punches and adapt to the here and now.
Let me know what you think.