Market Trends

Time to Add a New Component in Calculating Total Cost of Ownership

April 1, 2011

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The U.S. fleet industry can learn much from its European counterparts. Vehicle asset management in the European Union (EU) is very sophisticated and, in many cases, on the cutting edge of best practices in fleet management. I enjoy staying abreast of European asset management trends, and my favorite publication is Fleet Europe, which does an excellent job in covering the pan-European fleet market.

There are many similarities between the U.S. and European fleet markets. However, there are also key differences. While green fleet initiatives are common to both markets, the concept originated with European fleets. One early reason sustainability was embraced by European fleets is because the EU was a signatory of the 1997 Kyoto Protocol, which set binding targets for reducing greenhouse gas (GHG) emissions.

Embracing Green Fleet Initiatives
As European corporations scrambled to quantify their carbon footprints, it was discovered that fleet vehicles were often the key contributors to corporate CO2 emissions. Many European-headquartered companies established benchmarks to reduce their carbon footprint. One example, among many, is the Danish-headquartered healthcare company Novo Nordisk, which is using its calculated carbon footprint as a baseline from which to reduce its future fleet emissions. The company set a goal in 2007 to reduce emissions by 5 percent per year annually through 2012.

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Another example is Schindler, a Swiss-headquartered multinational operating a worldwide fleet of more than 17,000 vehicles. Early on, Schindler discovered its vehicle fleet was responsible for 64 percent of its global carbon footprint. This realization prompted it to calculate total cost of ownership (TCO) in an entirely different way. As with all fleets, Schindler had TCO targets to reduce the cost of operating its fleet; however, it modified its TCO calculations by adding an “ecology target.”

In addition to specific reductions in CO2 emissions, Schindler also targeted NOx emission reductions. As a global fleet, Schindler implemented a worldwide program to reduce fleet CO2 emissions on a country-by-country basis. Each country operation is given a goal of 10-percent per-year reduction for the next three years. The current 10-percent reduction program, which is the minimum goal, will continue until 2013. As Schindler attains each goal, a new target is set to lower annual carbon emissions even further.

Assisting European fleets in quantifying their carbon footprint are European domestic OEMs, which include GM, Ford, and Toyota. All European OEMs publish the grams of CO2 emitted by their vehicles per kilometer in their spec guides. Fleets factor this data in their acquisition decisions and TCO calculations.

Another fleet incorporating CO2 emissions as a criterion in vehicle selector decisions is Philips Electronics North America. “CO2 emissions must have independent weight beyond fuel economy inclusions within TCO,” said Gage Wagoner, senior manager NA fleet for Philips Electronics North America.

Turning Point Fast Approaching with U.S. Fleets
Senior management at many U.S. companies continues to support corporate sustainability and green fleet initiatives despite the slow economy. The number of fleet managers who are measuring fleet emissions has soared — from 28 percent in 2008 to 49 percent in 2010, according to a study by PHH Arval.

There are many U.S. fleets implementing world-class sustainability programs, such as AT&T, PepsiCo, Coca-Cola, Johnson & Johnson, FedEx, Johnson Controls, and UPS, to name but a few. Globally, one of the fleet sustainability leaders is Abbott, which over the past six years has been striving to become a carbon-neutral fleet. Abbott has reduced emissions by using hybrids and more fuel-efficient vehicles. Abbott is the “poster child” illustrating that going “green” can result in significant fleet cost savings.

In the past, “green” was difficult to “pencil out” when calculating vehicle lifecycle costs, but those days appear to be ending.

Here’s what a fleet manager of a U.S. Fortune 50 company said: “The green initiatives (in the U.S.) are approaching a turning point. Past environmental progress always needed to be cost neutral, or to encompass savings, in order to proceed. We are rapidly approaching a point where the roadblock of cost-neutral options may not hold sway as they have in the past. A reduction in GHG may be its own reward. We are not there yet, but I believe it is fast approaching.”

To calculate the true cost of ownership, you also need to calculate your fleet’s environmental impact. The time has come to incorporate a sustainability criterion in lifecycle costing. Critics may view cost reduction goals and sustainability goals as contradictory targets. However, European fleet managers will tell you a green fleet program lowers TCO by decreasing fuel consumption. They’ve proven it works and have been doing so for years.

Let me know what you think.
[email protected]

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Author Bio

Mike Antich

Editor and Associate Publisher

Mike has covered fleet management and remarketing for more than 20 years and entered the Fleet Hall of Fame in 2010.

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