November 2010, Business Fleet - Cover Story
New Strategies for Managing Diesel Fleets
Soaring pump prices and new emissions controls have made running trucks and vans on diesel an expensive proposition. Learn how fleet managers and OEMs are responding to the high cost of lower emissions.
Idaho Youth Ranch’s Gregg Crow says leasing new trucks was the best way to facilitate the nonprofit’s plan to expand its distribution network.
Choosing between diesel and gas used to be a no-brainer for truck fleet managers. The one-two punch of better fuel economy and higher torque from a diesel powerplant - not to mention greater engine durability - made it the fuel of choice for commercial applications.
That began to change with the introduction of ultra-low sulfur diesel (ULSD) fuel in 2007. The switch produced substantial environmental benefits; however, its per-gallon cost has remained high ever since, and the spread between gas and diesel pump prices has widened. To further eat into the bottom line, the latest diesel emissions standards, effective Jan. 1, 2010, have driven up diesel engine premiums by $5,000 to $10,000.
Fleet managers are adapting to these developments in a number of ways. Some are switching to fleet leasing programs to head off future costs. Others are considering gasoline or alternative fuels such as propane and compressed natural gas, and manufacturers and suppliers are responding with new engine options. Still others are investing in new technology to reduce emissions from or increase the efficiency of their existing diesel units.
Leasing Defrays Future Costs
Gregg Crow is the director of distribution for Idaho Youth Ranch (IYR), a Boise-based nonprofit that gives troubled children and their families the opportunity to live and work on a 500-acre rural ranch. Most of the ranch's operating funds are generated by a network of 27 thrift stores across the state, which are supported by a fleet of 33 trucks.
When Crow joined the organization in 2007, he was handed the keys to a hodgepodge of makes and models. They all came to the ranch used; some purchased, others donated by businesses. The organization wanted to expand its network of stores, but Crow couldn't make the numbers work with so many dilapidated trucks in the fleet. The cost to maintain them was up to 60 cents per mile for some units.
"The trucks were dying in the field," Crow says. "We knew we couldn't just go out and buy [new] trucks, so leasing made a lot of sense."
IYR partnered with Trebar Pac-Lease, the Boise franchise for PACCAR Leasing (PacLease), a division of the company that manufactures Kenworth, Peterbilt and DAF trucks. IYR now leases 13 trucks, including 10 medium-duty Kenworth T300s.
For Crow, fewer maintenance headaches and reduced downtime were attractive near-term benefits to leasing over buying. And through leasing, IYR is only paying for a fraction of the premium for the new diesel engine controls. As well, leasing offers a hedge against how those new diesel emissions systems will fare in the years ahead.
"Now is a good time to try leasing, especially with all the unknowns on the new [diesel] vehicles such as the urea tanks and other systems," says Steve Musgrave, Crow's account manager at Trebar.
Working with Trebar gives Crow the ability to crunch the numbers for multiple scenarios. "No matter which emission reduction system we choose to go with [to meet] the 2010 standards, there's no doubt it will add more dollars to the lease price," Crow says. "But we're looking at how those added costs can be captured back, in fuel savings and other ways. PacLease has been helpful to me in providing that data to make highly technical decisions."
As IYR's distribution network grows, Crow hopes to one day divide the fleet's miles between highway and in-town driving. That would give him the opportunity to add smaller vehicles, possibly including hybrids or alternative fuels. "If we're close to the distribution point, the lighter we can get, the more fuel savings we'll have," he says.