Panicking over petrol prices
September 1, 2008
Smaller vehicles, onboard tracking devices and higher labor rates are just a few of the ways HVAC and sheet metal contractors are grappling with the price of gasoline, which seems to hit a new record daily. The national average price for a gallon of regular unleaded reached $4 in early June, according to the U.S. government’s Energy Information Administration. Few experts - or anyone who just drives to work or uses vehicles in their businesses - expect it to drop anytime soon.
The gas spikes have been blamed on everything from a booming Chinese economy and Iraq war-related instability in the Middle East to speculation by investors. Regardless of the causes, it’s led to anxiety for many contracting companies.
“I tell you what scares me,” says George “Butch” Welsch, whose family has owned Welsch Heating and Cooling Co. in St. Louis for 113 years. “They’re talking about $7 a gallon.”
But even at $4 a gallon, Welsch says “it hits every angle of the business.” That’s why many contractors are already re-evaluating the way their companies do business and looking for potential savings.
New ratesRobert Wilkos of Peaden Air Conditioning Inc. in Panama City, Fla., didn’t wait until rumors of $7 a gallon surfaced before his company chose to react. It has raised the flat-rate prices the company charges for most services by $10. For Wilkos, hikes in the standard labor rate are preferable to the fuel surcharges many companies now use.
A May survey at www.snipsmag.com said 73 percent of Snips Web site visitors were planning to pass along their companies’ extra gasoline expenses.
“I hate that. I’ll never do that,” Wilkos says of surcharges, adding that when one of the company’s vendors institutes added fees, he starts looking for a new one. “It’s an immediate turnoff to me.”
Wilkos says the company expected gas to average $3 a gallon when it made its 2008 budget.
“We were low on that guess,” he acknowledges.
It’s not expected to drop that low again for the foreseeable future. The EIA says gas will have a nationwide average of $3.78 a gallon when this year is done, and should cost around $3.92 per gallon for 2009.
But some experts say gas will only get more expensive - much more expensive.
An oil industry analyst at investment firm Goldman Sachs predicts oil could head to $200 a barrel within two years. That would mean $6 a gallon in much of the United States.
Prices change mindsEven if gas doesn’t reach that level, current prices are enough to turn companies that once shunned devices such as vehicle-tracking systems into fervent boosters of the technology.
Welsch once said he believed the price of tracking systems was too high and was worried Welsch Heating and Cooling “would look like the Gestapo” if it monitored workers’ whereabouts so closely (See “Somebody’ watching,” September 2004). But last winter, company officials changed their minds, installing global positioning systems on all service trucks.
“That’s been extremely helpful,” Welsch says, adding that GPS has made dispatching much more efficient and has helped track technicians’ driving habits, potentially saving fuel.
“With the GPS, if a guy is idling for two minutes, you know it,” he says.
Welsch operates a 65-vehicle fleet, most of which are Chevy service vans, along with some full-size pickups, box vans and delivery trucks. The company typically replaces seven to 10 of them each year. For the first time, it is going to look at hybrids or other vehicle types that may use less fuel.
Another place the company may look to cut costs is in its reimbursement policies for sales staffers. Currently, Welsch Heating pays for all gasoline used by sales representatives, many of whom drive large, fuel-hungry trucks and sport-utility vehicles. The company is considering scrapping the system for a flat monthly fuel allowance.
‘Draconian' steps to saveSan Francisco Bay area company Arrow Heating and Air Conditioning officials made similar changes to worker polices on truck use after monthly fuel costs for its 20 vehicles went from an average of $2,500 in 2007 to $9,500 in June.
Gas there costs about $4.50 a gallon, among the highest prices in the nation.
Dave Milano, operations manager for the Novato, Calif., firm, says Arrow took the “Draconian” measure of forbidding technicians to take their vehicles home with them each night. The only ones that are still allowed to do so are the service technicians who are routed to calls from their homes at the beginning of the day.
Unlike Peaden and Welsch, Arrow has added a $5 per service call fuel charge to each bill. For jobs that are up to 30 miles away, the company has created a gas allowance that figures fuel costs into the bill.
To further reduce costs, the company recently decided to install GPS units in each of its vehicles, dismissing any privacy concerns officials may have once had.
“It’s not like Big Brother is watching you,” Milano says. It’s just something the company needs to do to save on fuel costs.
Of course, added gas expenses are easier to handle if you’re staying busy. And that’s been the fortunate situation at Gastonia Sheet Metal in Gastonia, N.C., where Joel Long, vice president of the company’s commercial roofing and air-conditioning division, says that volume is actually up despite the current economic climate and price of gas.
That doesn’t mean things are easy, however. Although business is up, Long says the company is “working harder to get it.”
The company is also making sure it factors rising gas costs into every bid.
“We work very hard to pass (gas costs) on to customers,” Long says.
Unfortunately, for projects where the bids were signed more than a year ago, the company has to accept some losses, he adds.
For reprints of this article, contact Jill DeVries at (248) 244-1726 or e-mail email@example.com.
Government Web site suggests ways to saveBesides driving a smaller car or truck, there are a lot of ways to save on fuel, some of which you may not know.
At www.fueleconomy.gov www.fueleconomy.gov, the U.S. Department of Energy gives visitors tips on choosing an energy-efficient vehicle and ways to save at the gas pump. Visitors can compare vehicle miles per gallon using the Environmental Protection Agency’s newly revised and more accurate estimates.
Among the tips listed on the Web site:
Lighten up. Carrying less weight in a vehicle saves gas. Just an extra 100 pounds of cargo cuts fuel economy by 2 percent. See if technicians really need everything they’re carrying in service vehicles.
Slow down. The most efficient speed to drive is around 60 mph. Every five mph above that is like paying an extra 20 cents per gallon for gas.
Choose the right vehicle. If you don’t need the extra capacity of a truck or SUV to visit a jobsite, driving a sedan could save substantial money. Think about what would make the most sense to drive for each task. Have a variety of vehicles available.
Inspect the air filter. A clogged air filter can cut fuel economy by up to 10 percent. Cars and trucks also run better when air filters are clean. This is a very inexpensive way to improve gas mileage.
Check the tire pressure. Many people drive around on underinflated tires, sacrificing mileage. Properly inflated tires not only boost mpg, they make vehicles safer to drive. However, don’t inflate tires to the “maximum” pressure printed on the tire’s wall. That’s usually too high for most driving conditions. Use the pressure recommendation in the car or truck’s manual or what’s printed on the driver’s side door.
Use the right oil. Using the wrong grade of oil not only wastes money when you buy it, it can cut fuel economy by 1 percent to 2 percent, which adds up over time.
Avoid idling. When a car or truck isn’t moving, it gets zero mpg. And typically the larger the vehicle, the more gas it wastes standing still. Shut off the engine when possible.