ARI Annual Industry Outlook: Ever-Tighter CAFE Requirements Loom Large in Shaping 2014 Fleet Trends

In 2012, the Oba­ma admin­is­tra­tion enact­ed aggres­sive new CAFE reg­u­la­tions. Now, “so many of the 2014 trends can be traced back to [this] sin­gle ini­tia­tive,” says ARI’s Direc­tor of Strate­gic Con­sult­ing Chris Mor­gan.  “This pub­li­ca­tion will help fleet man­agers under­stand the rip­ple effect of these and oth­er com­pli­ance issues, such as stricter vio­la­tions enforce­ment, on their cost-con­trol efforts. With this insight, they’ll be bet­ter pre­pared to make it a suc­cess­ful year through proac­tive and strate­gic plan­ning.”

CAFE reg­u­la­tions require OEMs to increase fuel econ­o­my an aver­age of 3.5% annu­al­ly for five years, begin­ning with mod­el year 2017. After that, for four more years, the OEMs must increase fuel econ­o­my an aver­age of 5% per year. By the 2025 mod­el year, all OEMs must achieve a CAFE of 54.5 MPG.

Accord­ing to ARI, the increased fuel sav­ings at the pump will increase vehi­cle pur­chase prices as well some oper­at­ing costs. This process has already begun. For exam­ple, OEMS are using lighter mate­ri­als, such as alu­minum. Increased demand for these mate­ri­als could increase prices and dis­rupt estab­lished sup­ply chains. Sim­i­lar cost increas­es are like­ly to be seen among upfit­ters and after­mar­ket sup­pli­ers.

The report also cov­ers some of the pos­i­tive ways CAFE is influ­enc­ing the indus­try, such as the evo­lu­tion of the car­go van seg­ment and the expand­ing mar­ket for alter­na­tive-fuel vehi­cles. ARI finds that OEMs are diver­si­fy­ing their pro­duc­tion of hybrid, elec­tric, CNG and LPG vehi­cles. All of these trends, accord­ing to the report, will give fleet man­agers more vehi­cle choic­es in order to best meet their company’s per­for­mance needs as well as meet­ing their objec­tives for sus­tain­abil­i­ty.

In addi­tion to the CAFE stan­dards and their con­tin­u­ing effects on fleet man­age­ment, a crit­i­cal issue for 2014, notes the ARI’s Indus­try Out­look, is that gov­ern­ment and tolling author­i­ties are mak­ing aggres­sive efforts to col­lect unpaid tolls, vio­la­tions, and fees. In some cas­es, the author­i­ties are will­ing to lock down non-com­pli­ant fleets until the accounts are set­tled. Texas and New York are lead­ers in these wor­ri­some trends.

ARI pre­dicts that this year, fleet man­agers will increase their use of advanced sys­tems to track and mon­i­tor the effects that fuel effi­cien­cy, com­pli­ance, and pol­i­cy changes will have on their fleets. These advanced sys­tems will allow the trans­for­ma­tion and visu­al­iza­tion of some­times seem­ing­ly lim­it­less data, easy-to under­stand alerts, com­put­er-dis­play dash­boards, and reports that will help fleet man­agers tar­get key items for change.

ARI’s 2014 Indus­try Out­look begins with a thor­ough expo­si­tion of the cur­rent and future CAFE require­ments, details of how OEMs, upfit­ters and after­mar­ket man­u­fac­tur­ers are adapt­ing their design approach­es to com­ply with the new stan­dards, fol­lowed by an analy­sis of how these changes will affect fleet man­age­ment.

A sec­tion of CAFE’s effects on the Sup­ply Chain con­cludes that order-to-deliv­ery times could be length­ened. The increased of alu­minum will add pres­sure all along the sup­ply line, reports ARI, “as the OEMs’ changes force changes to the asso­ci­at­ed upfit­ters design and instal­la­tion, all of which require test­ing to ensure they meet intend­ed use require­ments.” Fleet man­agers may be pres­sured to intro­duce new Euro­pean-style com­pact car­go vans into their fleets, and at the same time man­age order-to-deliv­ery chal­lenges that are like­ly to occur.

Alter­na­tive fuels and pow­er sys­tems con­tin­ue to present oppor­tu­ni­ties and pit­falls to fleet man­agers. ARI con­cludes that fleet man­agers are find­ing that hybrids are reduc­ing emis­sions and yield­ing oper­at­ing sav­ings. All-elec­tric cars still require care­ful analy­sis before they are put into fleet ser­vice. Per­haps with an eye to recent low­er gaso­line prices, ARI sug­gests that fleet man­agers should con­sid­er a num­ber of fac­tors, includ­ing types of vehi­cles avail­able, acces­si­bil­i­ty of infra­struc­ture, rebates, grants, and gaso­line prices before choos­ing alter­na­tive-fueled (or pow­ered) vehi­cles. The report pre­dicts that CNG and LPG will con­tin­ue to grow, as infra­struc­ture becomes more avail­able and OEMs and after­mar­ket sup­pli­ers con­tin­ue to offer more CNG and LPG options.

With vehi­cle oper­at­ing costs increas­ing (despite bet­ter fuel econ­o­my and cur­rent­ly low­er fuel prices), ARI says that more com­pa­nies are seek­ing com­pen­sa­tion for employ­ees’ per­son­al use of cor­po­rate vehi­cles. The aver­age per­son­al use charge per month was $121 per month in 2013, up $5 from the pre­vi­ous year. Many com­pa­nies are now using telem­at­ics to auto­mat­i­cal­ly record per­ma­nent mileage, mak­ing IRS report­ing sim­pler and faster. At the same time, many fleets are encour­ag­ing dri­vers to choose more cost-effec­tive vehi­cles.

Fleet depart­ments should be pre­pared for stricter enforce­ment of com­pli­ance reg­u­la­tions and require­ments in many states. In part, this results from the states look­ing for addi­tion­al rev­enue to ease their bud­get dif­fi­cul­ties, but recent improve­ments in tech­nol­o­gy is the key dri­ver because it enables this enforce­ment and col­lec­tion. These new tech­nolo­gies include mobile weigh-in-motion instal­la­tions, which can include checks for prop­er inspec­tion, reg­is­tra­tion and insur­ance doc­u­men­ta­tion. Texas and New York are poised to increase enforce­ment efforts with severe penal­ties, includ­ing loss of vehi­cle use. Address­ing these prob­lems, says ARI, requires that key fleet per­son­nel are orga­nized to meet com­pli­ance and keep up to date on rel­e­vant leg­isla­tive changes. Dri­vers must also be edu­cat­ed on the need to keep their vehi­cles in com­pli­ance.

ARI’s 2014 Indus­try Out­look is avail­able for down­load.

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