Acquiring AFVs

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The financial decision weighs on whether or not the investment in the truck equipment will generate a higher return than alternative investments, often referred to as the ‘rate of return’ on investment.” –Olen Hunter, director of sales & marketing, Paccar Leasing (PacLease)

Switching over to alternatively fueled vehicles (AFVs) isn’t easy on many different levels for fleets. For starters, unless the AFVs are hybrid trucks, there’s the refueling infrastructure to consider: natural gas, propane, electricity, and even biodiesel all require new refueling and fuel storage procedures. Then there are maintenance issues to consider, both from safety, procedural, and parts procurement angles to consider.

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Yet perhaps one of the biggest issues when it comes to dealing with AFVs is how to acquire them. Make no mistake about it: whether a fleet is looking at buying hybrid cars or natural gas-powered refuse trucks, the sticker price is a LOT steeper than comparable gasoline- or diesel-only equipment.

Take Chevrolet’s new Volt, for example (seen above at right). This is a pure-electric four-door sedan that’s equipped with a small gasoline-fired motor for recharging the batteries in case a recharging station isn’t available. The sticker price starts at $41,000, which drops to around $34,000 via a variety of federal tax breaks. Compare that to Chevrolet’s new Cruze – a gasoline-only sedan that shares the Volt’s chassis – which can be bought for $17,000.

The batteries alone jack the price up for both electric and hybrid vehicles pretty significantly, costing anywhere from $8,000 to $20,000 depending on the size of the vehicle.

[Here’s a short video of a diesel-electric hybrid refuse truck rolled out last year in Europe.]

Then there’s natural gas – a fuel that can readily power heavy trucks via modified diesel engines. Here, too, though the sticker price difference can be steep. Take refuse trucks: The medium price tag of a conventional diesel-powered refuse truck is around $170,000, according to a survey conducted by Inform Inc., a New York City-based environmental research and consulting firm several years ago. A similar CNG or LNG powered truck, however, costs between $210,000 and $225,000, the group found.

At the end of the day, that means a company will need to expend a lot more capital upfront to bring AFVs into their fleet. Take Waste Management, for example: it spent $29 million to buy 106 CNG-powered solid waste collection trucks and a further $7.5 million to build a compressed natural gas (CNG) refueling station for its operations in Seattle just last year. Within five years, WM said all 180-collection trucks in its Seattle-based fleet would be fueled by CNG.

That’s why, for any fleet on the cusp of making a big commitment to AFVs, it might be a good time to review what acquisition options are available to them.

“We have found that fleets that are considering adopting new technology of any kind, be it hybrid equipment, alternative fuel technology powered equipment or new emissions technology, making a ‘lease’ or ‘buy’ decision focuses on both the financial decision as well as operational decision,” Olen Hunter, director of sales & marketing for Paccar Leasing (PacLease), told me recently.

“The financial decision weighs on whether or not the investment in the truck equipment will generate a higher return than alternative investments, often referred to as the ‘rate of return’ on investment,” he explained. “On the operational side, fleets often weigh the risk associated with taking maintenance responsibility for the new technology.”

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Hunter (seen at left) added that part of that maintenance impact revolves around what he calls the “three T’s,” short for “tooling, training and technicians.”

“Adopting new technology carries costs associated with upgrading or adding new tools, training drivers and fleet operators how to use the new technology and ensuring fleet mechanics are up to speed on the new technology,” he noted. “Last, the ‘unknowns’ associated with re-sale value of new technology often presents additional risk that most lease structures can help eliminate.”

Hunter told me that, with a lease, fleets only pay for the use of the equipment over the lease term, as opposed to paying for the full value of the vehicle and selling the equipment at some point in time – usually when the equipment has reached its economic useful life.

“We define ‘economic useful life’ as the point when the vehicle’s value is less than the maintenance expense – meaning a company is investing more in the asset than it is worth, thus meaning they’ve got a stranded asset,” he explained. “In most cases with AFVs, federal grants and subsidy programs can be extended regardless of how the equipment is financed. Lease customers can take advantage of local, state and federal programs to help offset the cost of alternative energy powered equipment”

Hunter pointed out that PacLease has have several customers in California that have taken advantage of the Hybrid Truck and Bus Voucher Incentive Project (HVIP) to reduce the initial cost of their leased hybrid equipment, which results in a lower lease payment.

Is leasing then a “silver bullet” solution for the AFV acquisition issue? Nope – not by a long shot. However, it does offer fleets an option, giving them flexibility in how they approach acquiring certain types of AFVs. And having options is often times a very valuable advantage when fleets are contemplating wholesale vehicle technology shifts.

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Trucks at Work: Sean Kilcarr comments on trends affecting the many different strata of the trucking industry.

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