21st century’s non-stop rise in fleet costs

Fleet budgets are under pressure like never before after two decades of steady inflation culminated in eye-watering cost increases over the past 18 months. Since Russia's invasion of Ukraine, pandemic-induced supply shortages and a spike in oil prices have driven up fleet costs for vehicles, parts and fuel. 

Model Mix: Like-for-like comparisons of vehicle prices are tricky because the model mix has changed, with more expensive SUVs replacing hatchbacks. In addition, the technology in new cars has improved dramatically – fleets are arguably enjoying better value in 2023 than in 2000. Headline prices also fail to consider fleet discounts. At the same time, the critical measure is depreciation rather than the acquisition price. If residual values outstrip new prices, then depreciation falls, as the market has seen over the last two years. 

Remarketing: Looking ahead, the relationship between new and used prices of electric vehicles is critical, given the substantially higher prices of EVs and smaller fleet discounts. 

Interest Rates

Funding these higher prices has become more expensive, with the Eurozone interest rate now standing at 3.5%, after over a decade below 1.25%.

Fuel costs have risen significantly, albeit with wide variations depending on national taxation. According to the EU, in 2005, one litre of petrol cost €1.04 and one litre of diesel cost €0.94 – in April 2023, the average price of petrol in the EU27 was €1.77 per litre, and €1.65 for diesel. 

Electricity: Comparing fuel prices to the cost of electricity depends very much on where drivers can recharge the batteries of their EVs. Home charging offers massive savings compared to diesel; ultra-fast public charging can be more expensive than fossil fuels.

Tyres: In terms of service and maintenance budgets, the increase in the size and weight of vehicles, a trend accelerated with EVs, has driven tyre costs skywards. The UK Government has tracked a 37% increase in tyre prices between 2015 and 2023, while last year, epyx’s TyreServe, part of FLEETCOR, reported a 33% rise in fleet tyre prices in just 24 months.

Rising Fleet Costs Highlights

From an economist’s perspective, these price rises must be viewed through the lens of general inflation. Still, there seems little doubt that fleet costs demand careful attention to avoid sharp increases in expenditure.

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Authored by Jonathan Manning

Image: Shutterstock