Alan Kies always plans for truck prices to increase. It is pretty much a fact of life when you run a fleet for a living, he will tell you. But what is catching him and many other city and county fleet managers by surprise is how fast truck prices are climbing — at almost triple the typical rate.

For the $70,000 medium-duty truck chassis his fleet buys, Kies says prices are up about $8,500. “I usually plan for about a 4 percent increase in chassis prices — that's my rule of thumb,” says Kies, division manager for Pierce County, Wash., equipment services. “But now we're seeing some pretty significant jumps, due to higher steel prices — which took off two years ago — and mandated emission control technology. Altogether, I'm looking at a 12 percent chassis price increase in one year.”

Dick Weston, fleet manager for Thurston County, Wash., is seeing a 20 percent increase in medium- and heavy-duty truck prices, pushing the average cost of the twin-axle dump trucks he buys from $106,000 to around $120,000 per unit. “This is all because of the new emission rules and the rise in raw material costs,” he says.

The increases caught many fleet managers off guard, and they are now figuring out how to alter vehicle life cycle strategies to compensate for higher costs. “We planned as well as we could financially, figuring that trucks would go up about $5,000 for light-duty [models] with diesel engines and about $10,000 for medium and heavy-duty [models] with new [low]-emissions diesel engines,” says Doug Weichman, director of the fleet management division for Palm Beach County, Fla. “The steel issue was not as easy to forecast.”

Reasons for the spike

According to New York-based Lehman Brothers, steel prices increased steadily over the last few years because of spikes in the cost of iron ore, a key ingredient in the steel-making process. Prices for iron ore tripled over the past five years and are poised to jump another 25 percent in 2008 because of worldwide demand for steel, especially from China. As a result, Lehman Brothers projects steel prices to increase 6 percent to 9 percent in 2008.

The rapid rise in oil prices last year also is pushing up truck prices. The 45.3 percent jump in oil prices from January to December 2007, according to the International Energy Agency, pushed up costs for a variety of petroleum-derived products, including tires, hoses and other products that use petroleum in their manufacturing.

In addition to oil, the market price for natural rubber continues to be high, and the price of petrochemical materials, such as synthetic rubber and carbon black, remain at high levels, forcing up the price of truck tires. Bridgestone/Firestone of Nashville, Tenn., for example, is raising its truck tire prices 7 percent in 2008.

Then, there are the Environmental Protection Agency emission rules for medium- and heavy-duty trucks that went into effect Jan. 1, 2007, targeting nitrogen oxides (NOx) and particulate matter (PM). Allowable levels of both are being reduced in three gradual phases — the first occurred in 2002, followed by 2007, and the last will be in effect in 2010 — to the point where NOx and PM will be almost non-existent in trucks' exhaust streams.

To meet the requirements, engine manufacturers need to use diesel particulate filters (DPF), which cost $5,000 to $8,000 each. Crankcase emissions now are regulated as exhaust emissions, so they must be filtered, as well. And, engine manufacturers must monitor the performance of the engine's emissions system, so most are using Engine Manufacturer Diagnostics to detect issues within the emissions control system.

Planning it out

To cope with increased truck prices, Weston is expanding the life cycle of Thurston County's dump trucks from 10 years to 15 years. “That includes pushing out our maintenance intervals, as well,” he says. “And we don't expect to see too much impact in doing that, because one thing we've noticed fleet-wide is that we're getting a higher-quality vehicle than we used to.”

To plan for a longer truck life span, fleet managers must review their operational costs, says William DeRousse, fleet manager for Everett, Wash. “The question of price increases for new equipment is not new to our industry. There is always a price increase, because of advancements in technology, federal regulatory requirements, raw material or whatever,” he says. “The question we have to answer for each of our individual agencies or companies is, ‘What would it cost us if we do not replace our equipment in a reasonable amount of time?’ Basically, at what point is the operation of our equipment not cost-effective?”