Looking to a Leaner, Greener Future:

Mark McGrew- Sales Market Manager Date: 5/10/13

Reducing Lifecycle Costs Through Cost of Ownership Cost Management

• Economic Pressure on Fleets

• Understanding Fleet Costs

• Using Current Fleet Costs to Benchmark Improvements

• Fundamentals of a Value Proposition

• RunWise Value Proposition Example

• Does Technology Make Sense for Your Fleet?

• The Bottom Line

• Questions

Looking to a Leaner, Greener Future

Understanding Fleet Managers Pain Economic Pressure on Fleets

Economic Conditions

• Diesel prices continue to escalate.

• Fleet under pressure:

• Lower fuel costs

• Reduce maintenance costs

• Increase Productivity

• Fleet operators need data to make informed decisions

Diesel Fuel Impact

• Diesel fuel costs since 2000 to 2012*

• In 2000 the average price was $1.5/gal

• In 2012 the average price was $4.0/gal

• Roughly an 8.5% increase per year

• What do you budget for in the future?

• Most fleet managers conservatively say 5.0%.

* US Energy Information Association

Refuse Chassis Key Indicators Based on Municipal and Fleet Interviews • Refuse Fleet Life: 5-yrs to 15-yrs

• Municipalities: Average is 7-yrs

• Private Fleets: Average is 10 to 12 years

Refuse Chassis Key Indicators Based on Municipal and Fleet Interviews • Diesel Fuel Consumption: 3 gal/hr - 5 gal/hr

• Operating hours per week: 35 hours to 55 hours

• Annual fuel consumption range: 5,400 to 14,300 gal/yr

• EPA average refuse fuel consumption is 9800 gal/yr

• Fuel costs at $4/gal range from: $21k to $57k per year per truck

Refuse Chassis Key Indicators Based on Municipal and Fleet Interviews • Engine Rebuilds: None to 1x over life

• Costs range from $10,000 to $20,000

• Private fleets tend to rebuild more often

• Transmission rebuilds: None to 1x over life

• Costs range from $7500 to $12,000

• Private fleets tend to rebuild more often

Refuse Chassis Key Indicators Based on Municipal and Fleet Interviews • Brake Relines (axles): 2 /yr to 7 /yr

• Averages for non brake life extension devices

• Brake changes costs range: $500/axle to $2000/axle

• Air Compressor Rebuilds: 1.5-yr to 4-yr

• Rebuild cost ranges from $500 to $700

• Private fleets tend to rebuild more often

Air Quality/Fuel Economy Standards Tightening • Not impacting today’s

ownership costs

• Impacts future fleet purchasing

• Cannot be ignored

2017 Heavy Truck Fuel Economy Standards

Low Roof Mid Roof High Roof Low Roof Mid Roof High Roof

Day Cab Class 7 104 115 120 10.2 11.3 11.8

Day Cab Class 8 80 86 89 7.8 8.4 8.7

Sleeper Cab Class 8 66 73 72 6.5 7.2 7.1

http://www.nhtsa.gov/staticfiles/rulemaking/pdf/cafe/Factsheet.08092011.pdf

EPA Emissions Standards

(g CO2/ton-mile)

NHTSA Fuel Consumption Standards

(gal/1,000 ton-mile)

Air Quality/Fuel Economy Standards Tightening • Pressure to improve air quality.

• Future fuel economy standards & OBD being mandated

• More pressure on operating costs.

• Fleet operators have multiple options:

• CNG/LNG

• Electrics and Hybrids

2017 Heavy Truck Fuel Economy Standards

Low Roof Mid Roof High Roof Low Roof Mid Roof High Roof

Day Cab Class 7 104 115 120 10.2 11.3 11.8

Day Cab Class 8 80 86 89 7.8 8.4 8.7

Sleeper Cab Class 8 66 73 72 6.5 7.2 7.1

http://www.nhtsa.gov/staticfiles/rulemaking/pdf/cafe/Factsheet.08092011.pdf

EPA Emissions Standards

(g CO2/ton-mile)

NHTSA Fuel Consumption Standards

(gal/1,000 ton-mile)

What variables require tracking, and why data collection is important

UNDERSTANDING FLEET COSTS

“ You cannot improve,

what you cannot measure”

W.E. Deming

Godfather of

Continuous Improvement

Get Yourself Organized!!!

1. Define the variables that impact your fleet.

• Fuel, Powertrain, Brakes, Body issues usually get you in the right direction.

• Identify the top 5 items that impact your operation.

2. Establish reliable data tracking for the important items.

3. Track your top 5 variables to an annual level.

4. Extend annual costs for each year for the life of the vehicle.

Get Yourself Organized!!!

With fleet costs identified & monitored…

• Start with the heavy hitters.

• Question if these costs can be reduced.

• Start identifying alternatives to save expenses.

• Technologies exist for reducing fuel consumption, reducing maintenance costs, as well as productivity improvements.

You are ready to explore value propositions.

A new technology promises to lower costs? Identify the fundamentals to develop a value proposition.

FUNDAMENTALS OF A VALUE PROPOSITION

Reducing Costs and Solving Problems

• Value has to be accepted by you!

• Generalities and averages do not count in high $$ capital purchases.

• Qualitative data does not matter in the ROI phase.

• Every fleet, every route is different for every customer.

• Quantitative data is the only accepted form when determining ROI and positive cash flow over the life of the vehicle.

Evaluating Alternative Technologies

Understand the Technology

• Contact customers.

• Request a demo.

• Summarize your fleet costs to compare the technology.

• Ensure proper alignment!!

Hybrid Target Markets

Electric Hybrid

Hydraulic Hybrid

Mainly electric based Light Food

& Delivery

Light Food & Delivery

Cutaway/Shuttle Van

Medium Transit

Heavy Parcel

Small Trouble/ Service Truck

Large Trouble Truck

Beverage and Regional Delivery

Medium Military FMTV1

Refuse

Light Military

Mainly hydraulic

based

Yard Hostler

Heavy Transit

Bus

High # Stops

10,000 14,500 17,000 19,000 22,000 26,000 33,000 40,000

Gross Vehicle Weight (lbs.)

Summary of Hydraulic Hybrids

Parallel Series Adv Series

Brake Recovery

Engine Management

High Speed Efficiency

Fuel Usage Reduction * 0-15% 25-35% 35-50%

Brake Life Extension * 1.5X 3X 15X

Productivity * Good Better Best

UNDERSTANDING THE TECHNOLOGY

RunWise® Benefits

• Up to 35-50%

Reduces Fuel Consumption

• 38-55 tons per year

Lowers Emissions

• Up to 5-15%

Increases Productivity

• Once in the life of the vehicle

Increase Brake Life

On average

RunWise saves up to

4900 gallons of fuel

per year = 980 5-

gallon gas cans!

Creating a Value Proposition

1. Establish the variables.

Creating a Value Proposition

2. Gather baseline data over controlled route.

• Discuss which routes make sense and why?

• Want the “worst case” scenario?

• If so, then also establish “best case” scenario.

• Question how accurate baseline data really is.

REMEMBER –

The baseline establishes a key outcome in the model.

Eliminate variables you can control.

For example, ALWAYS – have the same driver run both tests.

Creating a Value Proposition

3. Set the expectation of what is reasonable for your route profiles.

• Be conservative!

• Question factors that impact results

o Highway miles

o Number of can pick ups in a route.

o Driver fear of new technology.

o Driver motivation

• Has the presenter earned your trust?

• Insist on a multiple day test period.

o 3-5 days or longer …. It’s your reputation!

Creating a Value Proposition

4. Run the hybrid demo according to plan.

• Ensure the driver is comfortable with the hybrid.

• Let him drive in collection prior to starting the test.

• Ride with him.

o Monitor ABS events

o Number of dropped cans.

o Compare his can count per minute to baseline. If it’s less, find the root cause.

o Can you obtain acceptable performance without extraordinary effort?

Creating a Value Proposition

5. Analyze results. Question everything.

• Fleet Managers. Gather information.

• Drivers talk about impressions.

• Manage the situation accordingly.

• Day 1: Chance to correct situational occurrences.

• Talk with both the driver and salesperson to ensure everyone is on the same page.

• Ask for feedback on test results.

• Be looking for optimization opportunities…they are always present.

Creating a Value Proposition

6. The Value Proposition.

• Establish a comparison of your baseline data to the demonstration results.

• Do they share the data?

• Do your results match theirs?

o Discuss the good and the bad.

o Ask about the factors you observed during test period.

o Establish what “good” looks like, AND

o Establish what “better” looks like!

Using Parker Hannifin’s RunWise Hybrid to demonstrate a value proposition.

VALUE PROPOSITION EXAMPLE

ASSUMPTIONS

Year of Purchase 2011

Expected Vehicle Life 12 years

Operating Hours per Week 50 hours / week 2756

Price of E3 System (Incremental to Base Truck) $120,960 Current real Price with FET

Productivity Cost/Hour 75.00$

Productivity Increase 10%

Cost of Money 5.00% per year

Inflation Rate 3%

Fuel increase factor 5%

Baseline Fuel Consumption per Hour 4.60 gal / hour

Anticipated Fuel Savings with E3 42%

Cost of Fuel $3.46

Current AAA

diesel costs

.

Cost to Perform a Brake Reline $1,250

Baseline Number of Brake Relines per Year 9.00 per year

Anticipated Number of Brake Relines per Year with E3 - per year 7 yr brake change

Cost to Perform and Engine Rebuild $20,000

Baseline Engine Life in Years 10.00 years

Anticipated Engine Life with E3 10.00 years

Cost to Perform an Transmission Rebuild $10,000

Baseline Transmission Life in Years 10.00 years

Annual Cost of Transmission Maintenance $450 per year

Cost to Perform an Air Compressor Rebuild $650

Baseline Air Compressor Life in Years 2.00 years

Anticipated Air Compressor Life with E3 6.00 years

Cost to Perform an Air Dryer Maintenance $270

Baseline Air Dryer Maintenance Cycle in Years 0.50 years

Anticipated Air Dryer Maintenance Cycle with E3 3.00 years

Urea Consumption Reduction

Base Line ( 10,472 gal/yr = 314 x $3.5/gal) 1,331$ per year

E3 Reduction 559$ per year

Cost of Urea per Gallon 3.50$

Expected Carbon Credit $0.00 per ton

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

Initial Capital Expense ($120,960)

Cost of Money Capital Outlay ($6,113) ($6,113) ($6,113) ($6,113) ($6,113) ($6,113) ($6,113) ($6,113) ($6,113) ($6,113) ($6,048) ($6,048)

Cost of Money Expense Savings $1,468 $1,543 $1,543 $1,637 $1,655 $1,694 $1,588 $1,854 $1,869 $2,479 $2,014 $2,071

Productivity Increase $19,500 $19,500 $19,500 $19,500 $19,500 $19,500 $19,500 $19,500 $19,500 $19,500 $19,500 $19,500

Additional revenue for clean collection 0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

64,800

Assumed Fuel Consumption Savings $17,380 $18,249 $19,162 $20,120 $21,126 $22,182 $23,291 $24,456 $25,679 $26,963 $28,311 $29,726

Brake Reline Avoidance $11,250 $11,250 $11,250 $11,250 $11,250 $11,250 $7,750 $11,250 $11,250 $11,250 $11,250 $11,250

Engine Rebuild Avoidance

Transmission Maintenance Avoidance $450 $450 $450 $450 $450 $450 $450 $450 $450 $10,450 $450 $450

Air Compressor Rebuild Avoidance $650 $650 $650 $650

Air Dryer Maintenance Avoidance $270 $270 $270 $270 $270 $270 $270 $270

Urea Savings $527 $527 $527 $527 $527 $527 $527 $527 $527 $527 $527 $527

Projected Runwise Maintenance ($1,300) ($1,300) ($1,300) ($1,300) ($1,300) ($1,300) ($1,300) ($1,300) ($1,300) ($1,300) ($1,300) ($1,300)

Assumed Maintenance Savings $11,197 $11,847 $10,927 $11,847 $11,197 $10,927 $7,697 $11,847 $10,927 $21,847 $11,197 $10,927

Assumed Carbon Credit Value $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

Annual Cash Flows ($120,960) $43,432 $45,027 $45,019 $46,991 $47,365 $48,191 $45,964 $51,544 $51,862 $64,676 $54,974 $56,177

IRR Cash Flow ($120,960) $48,078 $49,597 $49,589 $51,467 $51,823 $52,610 $50,489 $55,803 $56,106 $68,310 $59,008 $60,154

Cumulative Cash Flows ($120,960) ($77,528) ($32,501) $12,519 $59,510 $106,875 $155,066 $201,029 $252,573 $304,435 $369,111 $424,086 $480,262

Internal Rate of Return 41.0%

Payback Period 2.7 Years

Know your customers pain and know when not to engage.

KNOWING WHEN TO PURSUE THE VALUE PROPOSITION

ASSUMPTIONS

Year of Purchase 2011

Expected Vehicle Life 7 years

Operating Hours per Week 35 hours / week 2756

Price of E3 System (Incremental to Base Truck) $108,000

Current real

Price

Productivity Cost/Hour $ 75.00

Productivity Increase 0%

Cost of Money 0.00% per year

Inflation Rate 3%

Fuel increase factor 5%

Baseline Fuel Consumption per Hour 3.60 gal / hour

Anticipated Fuel Savings with E3 40%

Cost of Fuel $3.46

Current AAA

diesel costs

.

Cost to Perform a Brake Reline $850

Baseline Number of Brake Relines per Year 7.00 per year

Anticipated Number of Brake Relines per Year with

E3 - per year 7 yr. brake change

Cost to Perform and Engine Rebuild $20,000

Baseline Engine Life in Years 10.00 years

Anticipated Engine Life with E3 10.00 years

Cost to Perform an Transmission Rebuild $10,000

Baseline Transmission Life in Years 10.00 years

Annual Cost of Transmission Maintenance $450 per year

Cost to Perform an Air Compressor Rebuild $650

Baseline Air Compressor Life in Years 2.00 years

Anticipated Air Compressor Life with E3 6.00 years

Cost to Perform an Air Dryer Maintenance $270

Baseline Air Dryer Maintenance Cycle in Years 0.50 years

Anticipated Air Dryer Maintenance Cycle with E3 3.00 years

Urea Consumption Reduction

Base Line ( 10,472 gal/yr. = 314 x $3.5/gal) $ 1,042 per year

E3 Reduction $ 417 per year

Cost of Urea per Gallon $ 3.50

Expected Carbon Credit $0.00 per ton

2011 2012 2013 2014 2015 2016 2017

Initial Capital Expense ($108,000)

Cost of Money Capital Outlay $0 $0 $0 $0 $0 $0 $0

Cost of Money Expense Savings $0 $0 $0 $0 $0 $0 $0

Productivity Increase $0 $0 $0 $0 $0 $0 $0

Additional revenue for clean collection 0 $0 $0 $0 $0 $0 $0 $0

64,800

Assumed Fuel Consumption Savings $9,068 $9,521 $9,997 $10,497 $11,022 $11,573 $12,152

Brake Reline Avoidance $5,950 $5,950 $5,950 $5,950 $5,950 $5,950 $2,450

Engine Rebuild Avoidance

Transmission Maintenance Avoidance $450 $450 $450 $450 $450 $450 $450

Air Compressor Rebuild Avoidance $650 $650

Air Dryer Maintenance Avoidance $270 $270 $270 $270 $270

Urea Savings $275 $275 $275 $275 $275 $275 $275

Projected Runwise Maintenance ($1,300) ($1,300) ($1,300) ($1,300) ($1,300) ($1,300) ($1,300)

Assumed Maintenance Savings $5,645 $6,295 $5,375 $6,295 $5,645 $5,375 $2,145

Assumed Carbon Credit Value $0 $0 $0 $0 $0 $0 $0

Annual Cash Flows ($108,000) $14,713 $15,817 $15,373 $16,792 $16,667 $16,948 $14,297

IRR Cash Flow ($108,000) $14,713 $15,817 $15,373 $16,792 $16,667 $16,948 $14,297

Cumulative Cash Flows ($108,000) ($93,287) ($77,470) ($62,098) ($45,305) ($28,638) ($11,689) $2,608

Internal Rate of Return 0.6%

Payback Period 6.8 Years

“THE BOTTOM LINE”

Summary

• Pressure to do something…

• Costs are rising.

• Improvements require analysis.

• Analysis requires tracking costs.

• Value propositions require facts.

• Technology can provide solutions.

• Know the whole story before signing the PO.

THANK YOU!

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Mark McGrew Sales Market Manager Parker Hannifin Corporation Hybrid Drive Systems Division 3885 Gateway Blvd Columbus OH, 43228 Cell: (508) 918-6352 mark.mcgrew@parker.com www.parker.com Visit Parker's Hydraulic Hybrid Website at http://parkerhybrid.parker.com

http://www.parker.com/http://www.parker.com/http://parkerhybrid.parker.com/