Upfitters Increase Prices 3%-8% Due to Higher Commodity Prices
August 14, 2008
By Mike Antich
The high cost of materials has caused price increases for truck bodies, trailers, van interiors, liftgates, and other upfit equipment. Prices have increased, on average, 3-8 percent. “Over the past several months, many major upfit suppliers have been forced to increase pricing due to the soaring costs of transportation, oil, and steel, along with other raw materials,” said Bill Byron, senior truck specialist – medium/heavy duty for Donlen Corp., a fleet management company in Northbrook, Ill.
Upfitting prices have risen multiple times and some truck equipment manufacturers are guaranteeing current prices for only 90 days. “This is the first time ever we are seeing some truck equipment manufacturers hold their prices for only 90 days, whereas in the past, they offered fleets pricing valid for the entire model-year,” said Dave Decker, manager – truck engineering for Wheels Inc., a fleet management company headquartered in Des Plaines, Ill. “It’s currently a very challenging time for fleets trying to control cost when it comes to acquiring both trucks and upfitting. With commodity prices rising, we’re seeing the truck manufacturers raising prices several times during a model-year, adding component surcharges, or both.”
Worldwide, prices have soared for commodities used in upfitting, such as steel and aluminum. “The price increases we are experiencing now, and which are most certain to continue, affect any and all types of upfitting from a simple cargo van partition, liftgate, service or utility body, crane body, and flatbed. Many component manufacturers who service upfitters have also increased their pricing. For instance, suppliers of service body door latches, overhead rear van body doors, and stakes for flatbeds have increased their prices,” said Byron. “The volatility of raw materials not only affects the large upfit suppliers, but this situation dramatically impacts smaller upfitters who have been servicing a local market, possibly for generations. We could experience some business closures should the economy not take a positive turn in the very near future.”
The increased cost of materials, along with the elevated cost of fuel, is driving up overall fleet costs. “The fact that commodity prices have skyrocketed is but one factor driving increased costs for upfitting and vehicle acquisitions,” said Wayne Reynolds, operations manager, truck and vehicle upfitting for LeasePlan USA, a fleet management company headquartered in Alpharetta, Ga. “The other primary factors of extremely high fuel and petroleum-derived material costs, as well as the weakening of the U.S. dollar, have combined to create the perfect storm, driving up both fixed and operating expenses.”
Strategies to Mitigate Price Increases
Upfitters are scrambling to try to offset increased material prices. “While recent price increases by upfit companies appear to be 3-8 percent overall, I believe they are working hard to negotiate the best price from raw material suppliers, as well as looking for internal cost-saving opportunities that can mitigate increased prices being passed onto their customers,” said Reynolds.
To minimize the impact of future price increases, fleets are looking to place as many orders as possible at the start of the model-year. “We are recommending that our truck fleet clients place most, if not all, of their orders for the model-year at the start of the model-year. This ensures that not only is the new truck on order and price-protected by the manufacturer, but that the upfitting purchase order is issued at the same time to lock in the pricing on the purchase order and avoid subsequent price increases affecting that order,” said Decker.
Another strategy is to alter components and/or upfit configurations by revising specifications to reduce costs. “In the short term, companies should work closely with their fleet management company and upfit providers to review their vehicle selection and upfit components,” said Reynolds. “If the upfit company is sourcing equipment for installation, one opportunity for cost savings may be to compare equipment providers for best value.” However, Reynolds cautions against vehicle downsizing as a cost-reduction strategy to minimize acquisition and fuel expenditures. “Under-spec’ing a vehicle may have several negative consequences,” said Reynolds. “The application need should ultimately determine if a particular vehicle is appropriate for that job function.”
The outlook for commodity prices is a continuing upward trend, especially for steel and aluminum, which, in turn, will exert further pressure on upfitting costs and chassis acquisition.
In the larger scheme of things, overall fleet costs, both fixed and operating expenses, are increasing, making it more expensive to operate a fleet. The challenge for fleet managers is coping with these increased costs in a flat budget environment.
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Author: Mike Antich | Posted @ Thursday, August 14, 2008 1:44 PM