Preventive maintenance (PM) expenses were slightly higher in 2018 because of the increased cost of crude oil, but this was offset by improvements in engine design, onboard oil monitoring technology, and improved oil quality, allowing fleets to extend oil drain intervals.
 - Photo courtesy of Duxx via iStockphoto.

Preventive maintenance (PM) expenses were slightly higher in 2018 because of the increased cost of crude oil, but this was offset by improvements in engine design, onboard oil monitoring technology, and improved oil quality, allowing fleets to extend oil drain intervals.

Photo courtesy of Duxx via iStockphoto.

Editors note: This article is part of a seven-part package dealing with operating costs in 2018. Read related articles that offer and in depth look at fleet maintenancewarranty recovery, tire prices, rising fuel prices, fuel spend strategies, as well as an overview of operating costs.

Preventive maintenance (PM) expenses were slightly higher in 2018 because of the increased cost of crude oil, but this was offset by improvements in engine design, onboard oil monitoring technology, and improved oil quality, allowing fleets to extend oil drain intervals. Oil drain intervals will continue to lengthen as older vehicles are retired from fleet service.

While there are regional differences in prices, when averaged out on a national basis, PM costs in 2018 have been relatively stable. 

Putting upward pressure on PM costs is the maintenance policies of some OEMs adopting more stringent motor oil requirements for new models. As a result, total oil costs have increased slightly, year-over-year, as more vehicles are utilizing synthetic oils, which are higher in cost than mineral-based oils. The increased cost of using a synthetic oil is balanced out by the decreased frequency of services, resulting in less downtime for oil services. 

Also, contributing to the industry-wide trend of extended oil drain intervals is onboard oil life monitoring systems that are installed as standard equipment in some popular fleet models. Onboard oil monitoring system reflects actual driving patterns, which often allows for longer oil change intervals. More OEMs are using onboard oil life monitors to define PM frequency. From a PM compliance perspective, a defined PM interval is still required in order to properly measure compliance across a vehicle fleet. When using an onboard oil monitoring system, careful consideration to application, usage, terrain, PTO usage, and idle time should be given before a PM interval is defined. 

With improvements in engine technology and engine oil, fleets have seen a lengthening between oil changes. This will become greater in the future as older models are retired and the replacement vehicle will transition into the longer interval schedule. 

The extended service intervals has increased the importance of regular oil level checks by drivers. What’s important to remember, especially in the commercial and vocational markets, is that tires may need to be rotated more often than the oil is changed.

“We’re seeing oil and oil-related services increasing in cost at a higher percentage than other non-oil related services over the past year. Fleets have been able to mitigate some of this cost increase by adopting maintenance polices such as following OEM recommendations for oil-related services,” said Chad Christensen, strategic consultant for Element Fleet Management.

Increased Cost of Lubricants

The cost to produce motor oil is increasing because of the increased cost of crude oil, which is the foundation of finished lubricant products. 

“Oil costs increased in 2018, causing more fleets to compare oil types and interval changes for the most cost effective solution to suit their fleet application. While the overall increase in oil lifecycles has helped to reduce the impact of the increase in cost, it’s still vital to identify the most cost-effective solution for different fleets,” said Sara Schingen, business analyst for EMKAY. “With raw material and transportation costs continuing to increase, the cost of the end product, the oil, is also rising.” 

A key reason for the increase in crude oil prices is due to geopolitical dynamics. For instance, there have been dramatic disruptions in crude oil production in both Iran and Venezuela.

“Additional sanctions on oil in Iran have kept crude oil prices elevated. This has trickled down to continued increased prices for fleet,” said George Albright, assistant director of maintenance for Merchants Fleet Management.

Venezuela is another major oil-exporting country that has witnessed the collapse of its domestic oil industry. “The collapse of Venezuelan oil production was accompanied by increased demand growth in non-U.S. and Asia economies, which drove a spike in crude oil prices. The pending sanctions in Iran have kept prices elevated in 2018 and are expected to continue into 2019,” added Albright. 

All of these factors have impacted the cost to manufacture finished lubricants and the end-user price of these products.

“Throughout 2018, many major manufacturers of finished lubricants announced price increases ranging from 5% to 8%. These companies cited increasing costs for raw materials as the reason for the price increases,” said Kelley Hatlee, CAFS, national service department technical support supervisor for Enterprise Fleet Management.

However, the longer drain intervals are offsetting the higher per-transaction price, making PM costs, on average, flat for CY-2018 when compared to CY-2017. “Extended oil change intervals cushion the impact of rising oil prices on total maintenance costs,” said Mark Atchley, senior supply chain manager for Enterprise Fleet Management.

More Expensive Synthetic Oils

The proliferation of smaller displacement engines in fleet applications is putting pressure on OEMs and fleet managers to use synthetic oil, which provides 50% better engine protection, to maximize engine life.

More automotive manufacturers are recommending more stringent motor oil requirements for their new vehicles, such as the use of more expensive synthetic motor oils, which is increasing the cost of each preventive maintenance service. But, the higher quality motor oil allows the intervals between these services to lengthen, which is offsetting some of the additional per-transaction costs. 

“The shift from use of regular oil to semi-synthetic and synthetic blends noted over the past few years continued in 2018, but at a slower rate. Increased oil change prices are offset by fewer scheduled maintenance visits,” said John Wuich, vice president, strategic consulting services for Donlen.  

One of the greatest influences in this category is the trend by manufacturers to move toward lighter weight oils (0W16, 0W20, etc.) in an effort to improve fuel economy.  These oils are more expensive in the marketplace, therefore driving up the average cost of oil changes; however, improvements in oil quality have resulted in an industry trend toward extended drain intervals. Greater time and mileage between oil changes translates into reduced driver downtime and shop visits. 

One additional factor is that with some models oil capacity has increased necessitating the use of more quarts of oil than what was used in the past. Engine oil capacities among new model vehicles have trended upward, increasing the average prices of oil changes.

“Industry trends such as increased engine oil capacities among new model vehicles and an increase in the number of vehicles requiring lighter weight, synthetic oil are driving up the average price of oil changes. Despite the higher oil change prices, these trends offer the benefits of improved fuel economy, extended drain intervals, and reduced driver downtime,” said Mike Emmons, national service department manager for Enterprise Fleet Management. 

This observation was also cited by Mark Lange, CAFM, managed maintenance consultant for Element. “It is becoming more prominent for new vehicles to require extra quarts of oil, more oil required than the standard five-quart oil change,” said Lange. 

Not only are more quarts used, but the “additional” quart comes at a higher price. Many vehicles use more than five quarts of oil so most advertised oil change prices that only include five quarts may not apply. 

“Additional quarts of oil are costing more than one would expect. As an example, if a five-quart oil change price is $30 and the vehicle uses seven quarts of oil, the two additional quarts of oil needed may be charged out at $6-$8 per quart so now the oil change is $42-$46. Another factor adding to the cost of draining oil is new oil filters. Cartridge oil filters have become more common and may cost more than the typical spin-on filter,” said Lange.

The increased use of hybrids is also influencing PM costs. Hybrid and alternative-fuel solution development from a marketing perspective has decreased due to a lesser demand for alternative solutions.

Truck fleets have also seen the introduction of new motor oils. In 2017, the industry saw the introduction of two new oils developed by the American Petroleum Institute (API) designed to help address high temperature issues tied to newer diesel engines (from 2007 and going forward) and those with SCR equipment installed. They were also a response to calls for longer drain intervals, better fuel economy, lower emissions, and increasing horsepower. The new oils are ‘“backward-compatible,” meaning they were designed to work with oils that are currently on the market. 

Forecast of Motor Oil Prices

The ongoing trend of increased costs per service will continue as more and more vehicles requiring conventional oil are taken out of service and replaced with models that require synthetics. 

In the long-term, the forecasts show moderate price increases generally following the price of crude oil.

“We should see oil changes and oil-related services continue to increase in cost as most indicators are projecting crude oil cost to increase significantly in the foreseeable future,” said Lange of Element.

Another concern on the horizon is the potential impact of higher labor rates and whether these increased overhead costs will be passed on to fleet customers. The economy is strong in many regions and there is market pressure on employers to offer salaries that would be competitive in a tight labor market.

“It appears as though the increases will continue throughout the coming years, though the amount the costs actually climb will determine the overall impact on fleets. Regardless of the amount costs increase, it’s warranted to review alternative approaches to each fleet’s oil guidelines, such as oil type and change parameters,” said Schingen of EMKAY.

It is expected that pricing will increase slightly due to higher labor rates, but there will be no volatility and incremental pricing will be stable. The increased drain intervals will partially help to offset the higher PM cost of the continued transition to synthetics across more vehicle applications.

“Oil prices will generally follow the price of crude oil, which is expected to remain somewhat high but stable. External factors such as economic sanctions and increased demand resulting from improved GDP could drive oil prices beyond forecasted levels,” said Hatlee of Enterprise Fleet Management.

Geopolitical issues weigh heavy on the future price of finished lubricants.

“The oil supply is comfortable for the time being, but a shortfall of oil has been predicted that has caused eyes on China and India to determine impacts in 2019. The U.S. will dominate supply growth into 2019 due to technology improvements and better production in areas of West Texas, North Dakota, and Oklahoma. As of now, prices are expected to remain elevated and level. However, threats to current prices in 2019 for fleets will be determined by the strength of the dollar, global GDP and trade wars,” said Albright of Merchants Fleet Management.  

Originally posted on Automotive Fleet

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