Crossing Over to Crossovers

During the past few years the term, “crossover,” has represented a vehicle category that offers consumers something they want, albeit out of the mainstream. This year at auto shows across the country, “crossover” was the buzzword, demonstrating that the exception has now become the rule.

The rule has been tied to the SUV category, which has enjoyed consumer dominance in recent years. Traditionally, SUVs have been truck-based vehicles with body-on-frame construction. Moving in popularity from farmers and outdoorsmen to families and those who felt safer in heavier vehicles, the SUV category became a leader in meeting consumer needs.

The exception is the crossover category, which has been available since 1980 through vehicles such as the AMC Eagle. A crossover combines desirable points from one type of model vehicle with the base configuration of another model vehicle. The crossover category has been gaining in interest as family units have been looking for more features from the SUV category, which is reaching its limit on being able to meet those family needs.

Drivers like the idea of four-wheel drive traction, hauling larger items and larger numbers of people. Vans can accomplish this same thing; however, SUVs have the outdoor, sporty and independent feel. What SUVs have lacked is a car-like ride and smooth handling along with easy entry and better gas mileage. Enter the Lexus RX300 and the Subaru Outback, both crossover vehicles that have responded to what consumers desire.

Today, almost every automaker in the market has a “crossover” vehicle. In 2003, George Pipas, U.S. Sales Analysis Manager for Ford Motor Co., commented that “the best days” of the SUV category were over. Analysts are now predicting that the crossover model category will surpass the SUV category in sales for the first time during the 2007 model year. Selected highlights for the 2007 model year include:

• The Ford Motor Co. says it expects to sell more than 500,000 all-wheel drive vehicles annually by 2007. They will have five AWD models to choose from, and 400,000 of them will be crossover vehicles. The Edge is Ford’s latest car-based SUV; the Lincoln M-K-X and the Edge will come out later this year.

• Jeep will introduce its first car-based models in 2007 with the five-passenger Compass and Patriot. According to Consumers Reports, these vehicles will strengthen the crossover category and are the first Jeeps not designed for serious off-road driving.

• The Buick Enclave will replace the Ranier and the Rendezvous SUVs in summer 2007. The Enclave is a crossover that will have three rows of seats, a car-based chassis and the options of front or all-wheel drive.

All in all, the crossover category meets market needs in an industry that is starving for attention. The SUV allure - combined with the comforts of car-based handling, economy and cost - is what buyers want and need. Not surprisingly, the end result is increased choices for consumers.

With rising gas prices throughout the United States, many consumers will be joining the growing population of hybrid vehicle owners. The hybrid-powered vehicle saves fuel and the reduced engine emissions have positive effects on the environment.

Hybrid engines work on both battery and gas power. The motor automatically turns off when the vehicle is idling and automatically starts up again when needed. Hybrids are also equipped with a regenerative braking system that generates electric energy. This energy is stored in the battery pack until needed by the electric motor.

When first introduced for public purchase, hybrids were only available in limited models and were difficult to find. Since then, several types of vehicles (including SUVs and pick-up trucks) have been introduced to the hybrid market. Positive changes in body style and improved acceleration performance have helped boost the popularity of hybrids.

Car
The 2006 market offers a variety of cars ranging from two to five passenger options. Honda leads the market with the Insight, Civic and Accord. Toyota is also in this market with the Prius. The Manufacturers Suggested Retail Price of these cars range from $19,330 to $32,990.

The Honda and Toyota fuel economy range from 25 to 60 miles-per-gallon (mpg) for city driving and 34 to 66 mpg for highway driving. The Honda Insight, with a manual transmission, has the best performance in this category with a combined city and highway performance of 63 mpg. It's also the lowest cost hybrid car.

The selection of hybrid cars is growing; soon to come are the Lexus GS 450H, Nissan Altima, Toyota Camry, Chevrolet Malibu, Ford Fusion, and Mercury Milan.

Truck
Trucks were introduced to the hybrid engine market during the 2006 model year with the Chevrolet Silverado and GMC Sierra. The fuel economy of the trucks (as with all gas/diesel engines) varies depending on the drive train with the two- wheel drive models performing one mpg better than the four-wheel drive models. These two models (depending on drive train) have been rated exactly the same with a range of 17 to 18 mpg for city driving, and 19 to 21 mpg for highway driving. They are also similarly priced, from $27,900 to $32,125.

The truck market does not offer a wide selection of hybrids. General Motors will be adding additional models of the already introduced Chevrolet Silverado and GMC Sierra.

SUV
The SUV hybrid market really took off this year. Prior to the 2006 model year, the only SUV hybrid available was the Ford Escape. Lexus, Mazda, Mercury and Toyota introduced the RX 400h, Tribute, Mariner and the Highlander, respectively, to the market. Dodge, Saturn, GMC and Chevrolet will be joining the SUV hybrid market over the next few years with planned introductions of the Durango, VUE, Yukon, Equinox and Tahoe.

The performance of SUVs range from 31 to 36 mpg for city driving, and from 27 to 31 mpg for highway driving. Again, this depends on the drive train with front wheel drive performing the best. There is a good selection of price ranges to choose from with the Escape being the least expensive starting at $26,900 (MSRP) and the Lexus RX 400h starting at $44,660. Due to high demand, the amount you pay might actually be higher than the Manufacturers Suggested Retail Price.

Not only does the consumer benefit from lower fuel costs and engine emissions, there are also tax credits offered by the federal government and many states. The tax credit can be up to $3,400.

Sources: Consumer Reports, Environmental Protection Agency; Kelly Blue Book, Edmunds, Ford, Toyota, Honda, and General Motors

After reaching a high of over 30 percent, the percentage of vehicles that were leased had dropped into the teens by 2005. However, vehicle leasing appears to be heading back upward powered by rising interest rates and continued increases in the leasing of luxury vehicles.

In February 2006, leasing accounted for 23.2 percent of new vehicle transactions, compared to 19.3 percent in February 2005 and 15.2 percent in February 2004. According to David Mckay, Senior Account Director of Automotive Finance and Insurance for the Power Network (part of J.D. Power and Associates), the trend will continue. He predicts that lease rates will increase 3 to 5 percent in the next two to three years.

With the discontinuation of the “employee discount pricing” and a continuous upward creep in interest rates, leasing has surged in popularity - especially with luxury vehicles, which recently exceeded 45% of all new vehicle transactions.

What does this mean for The Runzheimer Plan driver? While leasing is allowed under the IRS FAVR guidelines, it usually is not the best choice for higher mileage drivers. This is because most leases are written with caps of 12,000 to 15,000 miles per year. The cost for exceeding your annual mileage can be anywhere from 10 to 20 cents per mile, with typical costs of 12 to 15 cents per mile.

Specifically, if you sign a four-year lease allowing for 12,000 miles per year, you can drive 48,000 total miles without penalty. However, if you actually put on 20,000 miles per year (80,000 miles total over the lease term) at 12 cents per mile, you would be responsible for paying an additional $3,840 at lease termination. This amounts to $80 per month and may offset any savings over purchasing the vehicle.

The Consumer Bankers Association reports that five-year plus loans for new vehicles are becoming more popular. These longer loans enable consumers to buy more expensive vehicles by keeping their monthly payments more reasonable. While this can mean a larger profit for the automakers, dealers and lenders, it also increases the length of time before the customer buys a new vehicle.

While it seems inviting to the consumer to be able to get a more expensive vehicle, in the end, the picture is not so enticing. Consumers end up paying much more in interest, and if they trade this vehicle in prior to the loan maturing, as many do, they may end up in a situation termed “upside down,” meaning they owe more on the trade-in than what the vehicle is worth. This would require even higher debt financing on their next vehicle purchase.

Rising interest rates and better built vehicles are two other factors that encourage longer loans. As the rates rise, consumers tend to stretch their loans out longer. And, better built vehicles make buyers more confident in a longer loan and possibly in keeping the vehicle longer than they normally would.

Automotive News also reports that many dealers would prefer not to resort to longer loans. They would rather have their customers buy new vehicles more often.

If you're a Runzheimer Plan driver and you opt for a longer loan and also decide to keep your vehicle longer, you will need to be on a longer retention cycle. Your monthly fixed reimbursement amount will be lower because the fixed costs will be spread over a longer period of time. If you trade your vehicle in prior to the loan maturing, you will end up in an “upside down” situation, and unfortunately, will owe more on the trade in than what the vehicle is worth.

The first study of its kind, Runzheimer International’s 1st Annual Total Employee Mobility Benchmarking Survey reveals market trends and statistics relating to all aspects of employee mobility. Selected survey highlights relating to business vehicle programs are summarized below:

Types of Business Vehicle Programs
Fifty-three percent of survey participants offer company-provided vehicles, whereas the remainder of respondents (47%) use an employee-provided business vehicle program or a combination of employee-provided and company-provided business vehicle programs. For those organizations that supply their employees with company-provided vehicles, 85% provide their employees with leased vehicles whereas the remaining balance of vehicles (15%) are company-owned.

For those organizations that use employee-provided business vehicle programs, 69% manage their program internally, and 31% rely on an outside firm for fleet management. The overwhelming majority (85%) of respondents pay a flat mileage (cents-per-mile) to reimburse their employees for use of their personal vehicles on company business. Eleven percent of participants reimburse their employees on a fixed and variable basis, and 4% provide a fixed allowance each month.

Table 1 Employee-Provided Vehicle Programs
Type of Reimbursement	Percent of Respondents
Flat Mileage	85%
Fixed and Variable Rate	11%
Fixed Allowance	4%

Anticipated Changes in Spend & Number of Drivers
When asked about their plans to change spend on business vehicle programs and/or fleet, 44% expect no change in their fleet spending in the coming year, whereas 26% expect to increase spending and 18% plan to decrease their spending. Twelve percent of respondents do not know how their spending will change.

 

Table 2 Anticipated Spend on Business Vehicle Program/Fleet
Anticipated Change in Business Vehicle Spend	Percent of Respondents
No Change	44%
Increase	26%
Decrease	18%
Do Not Know	12%

Similar to the statistics depicted above, when participating organizations were asked how their number of drivers was expected to change, 49% of respondents anticipate that their population of employee drivers will stay at its current level. Twenty-one percent of firms predict that their number of drivers will increase in the coming year. Fifteen percent of respondents anticipate a decline in their number of drivers and 15% do not know how this number will change.

Liability Concerns
Forty percent of respondents indicate that they are concerned with liability for company-provided vehicles whereas 33% are not concerned. The balance of the respondents report that they are either indifferent, do not know, or that the question of liability obligations relating to company-provided vehicles is not applicable to their operations.

Table 3 Level of Liability Concern
Liability Concern?	Percent of Respondents
Yes	40%
No	33%
Do Not Know	15%
Not Applicable	9%
Indifferent	3%

Responsibility for Business Vehicle Program
When asked about which department or function has responsibility for business vehicle program administration and management, 21% of respondents stated that their Human Resources Department “owns” this area of employee mobility. Approximately 18% of respondents have placed business vehicle services under the umbrella of Accounting/Finance, and another 15% have this function assigned to Purchasing/Procurement. An equal percent of responding organizations (9%) reported that Sales/Marketing or Administration divisions handle their business vehicle services. The remainder of respondents have the ownership of business vehicle services assigned to “other” departments.

Table 4 Department Responsible for Business Vehicle Program
Department Responsible for Business Vehicle Program	Percent of Respondents
Human Resources	21%
Accounting/Finance	18%
Purchasing/Procurement	15%
Sales/Marketing	9%
Administration	9%
Other	28%

Contact Cheryl Stang for more information regarding Runzheimer’s Total Employee Mobility Benchmarking Survey results, or for details regarding participating in Runzheimer International's 2006 study.