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Economic Outlook and the Impact to Fleet Budgets. Greg Corrigan, Vice President, PHH Strategic Consulting February 9, 2010. Presentation topics. Year in review Economic outlook for 2010 and beyond Overall economy Fuel/Energy Inflation, interest rates Manufacturers - PowerPoint PPT Presentation
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Economic Outlook and the Impact to Fleet Budgets
Greg Corrigan, Vice President, PHH Strategic
ConsultingFebruary 9, 2010
Presentation topics
•Year in review•Economic outlook for 2010 and beyond
– Overall economy– Fuel/Energy– Inflation, interest rates– Manufacturers
•Other cost considerations•Fleet strategies
Economists…
•Two economists, three opinions
Measures of Economic Activity
Moving 12-Month Total on ALL Roads
2,800
2,850
2,900
2,950
3,000
3,050
3,100
2005 2006 2007 2008 2009
Year
Veh
icle
-Dis
tanc
e T
rave
led
(Bill
ion
Mile
s)
Source: Department of Transportation
Measures of Economic Activity
Source: Bureau of Economic Analysis
Source: Bureau of Labor Statistics
Source: Bureau of Labor Statistics
Source: Bureau of Labor Statistics
Gross Domestic Product
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
Q1
04
Q2
04
Q3
04
Q4
04
Q1
05
Q2
05
Q3
05
Q4
05
Q1
06
Q2
06
Q3
06
Q4
06
Q1
07
Q2
07
Q3
07
Q4
07
Q1
08
Q2
08
Q3
08
Q4
08
Q1
09
Q2
09
Q3
09
% a
nn
ual ch
an
ge
CPI - New and Used Vehicles
-12%
-9%
-6%
-3%
0%
3%
6%
Se
p-0
8
Oct
-08
No
v-0
8
De
c-0
8
Jan
-09
Fe
b-0
9
Ma
r-0
9
Ap
r-0
9
Ma
y-0
9
Jun
-09
Jul-
09
Au
g-0
9
Se
p-0
9
Oct
-09
No
v-0
9
% a
nn
ual
ch
ang
e
All itemsNew vehicles Used cars and trucks
CPI - Maintenance, Repairs, Insurance
-4%
-2%
0%
2%
4%
6%
8%
Se
p-0
8
Oct
-08
No
v-0
8
De
c-0
8
Jan
-09
Fe
b-0
9
Ma
r-0
9
Ap
r-0
9
Ma
y-0
9
Jun
-09
Jul-
09
Au
g-0
9
Se
p-0
9
Oct
-09
No
v-0
9
% a
nn
ual
ch
ang
e
All items Motor Vehicle Insurance
Maint. and repair Vehicle Body Work
Looking ahead
•What’s good– Leading indicators turning around:
• ISM• Consumer confidence• Hiring intentions
•What’s worrisome– Falling value of dollar– Exploding federal and state deficits– Inflation potential– Stimulus going away– Real Estate, residential & commercial– Global debt fears
Looking ahead
The Positive
• Money supply growth
• Lower housing prices
• Government spending
• Stock market – a leading indicator
• Yield curve – steep curve is bullish
The Negative
• Money supply growth
• Lower housing prices
• Government spending
• (un)Employment – a damper on consumer spending
• Banks still slow to lend
• Pending tax increases and regulation
Source: http://money.cnn.com
Survey says…
•Forecasters surveyed by WSJ:– Improved confidence to lead consumers to spend more– Employers to slowly increase hiring over next 12 months– Unemployment rate to climb some more before falling mid-
2010– Job-market weakness expected to keep Fed from boosting
short-term interest rates until at least August 2010
Fuel/Energy
• For 2010 futures market and the Energy Information Administration currently
forecast $2.85 for gas and $2.96 for diesel, an approximate increase of 17% over
2009. It is possible the forecast may increase in their next update, as commodity
prices have risen and the economic outlook begins to improve
• Recommend budgeting for $3 a gallon this year
• Diesel will probably just stay ahead of regular gasoline
Oil and Gas Prices
$1.50$1.75$2.00$2.25$2.50$2.75$3.00$3.25$3.50$3.75$4.00$4.25$4.50$4.75$5.00
Jan-09
Feb-09
Mar-09
Apr-09
May-09
Jun-09
Jul-09 Aug-09
Sep-09
Oct-09
Nov-09
$/g
all
on
$30
$40
$50
$60
$70
$80
$90
$100
$110
$120
$130
$140
Cru
de o
il $/barrel
Regular Gas $ per gallonDiesel $ per gallonCrude Oil OPEC $/barrel
Manufacturers
• What is the new reality for production?
– 10MM? 13MM? 15MM?
– Fuel prices?
– Interest rates?
– Credit availability?
• Adjusting to new production schedules, staffing
• Still erratic demand at retail level
• The Michigan-based Center for Automotive Research predicted deliveries will climb to 12.4 million from 10.4 million in 2009. They believe U.S. auto sales will rise 20 percent in 2010, buoyed by pent-up demand and stronger credit markets. The forecast exceeded other projections by consultants and analysts for domestic industry deliveries which range from 11.3 million to 11.8 million light vehicles.
Manufacturers
Source: Bureau of Economic Analysis
Other expense items
• Maintenance / Tires• Insurance / Accidents• Regulatory and Tax – Look out
• Fleet composition (age and mileage) is large determinant of total repair costs
• More vehicles are falling outside warranty coverage window
• Occasional parts supply shortage for newer vehicles
Budget Expectations for 2010
•Expect base interest rates to start climbing in the second half of the year
•Expect vehicle prices to increase in MY 2011 and beyond
•Expect continued strong resale market•Expect higher fuel prices•Expect normal inflation for maintenance, however remember the age of your fleet
•Expect higher taxes and violations collections•Expect total budget impact to be 5-7% increase over 2009, largely due to fuel
Retrospective: Fleet Strategy for 2009
•Recommended deferring replacements– Economic uncertainty– Manufacturing uncertainty– Corporate downsizing– Used vehicle values were at all-time lows– No credit for retail buyers or new or used vehicles
•How did that work out?– Case studies showed a savings of $600-$1,500 per
vehicle, net of all expenses•What about 2010?•How about…the opposite
Fleet Strategies
•Manage for the upside•“Size up” your fleet•Fall replacement – order early•Plan for evolving production schedules
•Change MPG profile of fleet before fuel prices soar
•Get ahead of costly vehicle repairs•Spec for future resale market
Questions?