Unprecedented Supply Constraints Disrupt 2021 OTD

In many ways, order-to-delivery (OTD) delays for the 2021 model-year were a continuation of what was experienced in MY-2020, with the important distinction that there were additional disruptions caused by various supply chain disruptions. In particular, the unprecedent microchip shortage forced many plants to temporarily cease production until their parts inventories were replenished. Just like the 2020 model-year, the OTD averages for MY-2021 need to be divided into two segments: the period  from Oct. 1, 2020 to Feb. 28, 2021, and, from March 1 to Sept. 30, 2021 when vehicle assembly plants began to temporarily suspend production due to supply chain constraints.

“The 2021 model-year was among the most unprecedented in recent memory given the litany of OEM‐related ordering, production and cancellation challenges. Throughout the model-year there were large shifts in buildout times as well as a number of post‐buildout cancellations of accepted orders,” said Ted Davis, vice president, North American supply chain for ARI. “It is also important to note that this year’s volume dropped significantly as compared to last year. Overall volume is down nearly 17% this year while deliveries of ordered vehicles has dropped by more than 50% as manufacturers continue to navigate a host of supply constraints and other challenges. The lingering effects of the pandemic continue to severely disrupt the entire supply chain.”

While the shortage of microchips increased production variability, there were a number of other shortages that negatively impacted vehicle production in MY-2021. 

“In addition to microchip shortages, the industry is experiencing far-reaching impacts from shortages of raw materials, rubber, foam, shipping containers, and drivers,” said Charles Mathew, fleet operations manager for Merchants Fleet. The broad scope of supply chain constraints caused by material shortages and just-in-time (JIT) manufacturing practices were also cited by Eric T. Miller, director – business solutions for Element. Fleet Management.

“The average vehicle has over 25,000 individual parts. Each of those parts is either manufactured by the OEM or sourced from a third-party provider. A delay in just one section of the supply chain can slow down the manufacture and distribution of critical components, resulting in the production line getting shut down,” said Miller.

Another key factor impacting MY-2021 OTD was the ongoing strong demand for trucks in both the fleet and retail markets that shifted forward the buildout deadlines for these units. 

“Overall, we saw fairly consistent lead times year-over-year on sedans and SUVs, but there were extended lead times for trucks and vans. In both cases, orders were largely affected by assembly plant closures,” said Tim Cengel, senior procurement manager for Wheels Inc. “For model-year 2021, orders where plant shutdowns were scattered, sometimes unexpected, and came with a level of uncertainty that challenged the OEMs to maintain normal production levels throughout the model-year.”

As in previous model-years, truck and van assembly plants saw the greatest delays due to the more complex logistics of getting vehicles to and from upfitters and back into OEM traffic for shipment by rail. 

Another survey partner – Donlen – also reported consistency in OTD that was interrupted by episodes of production variability caused by various supply chain constraints. 

“From what I saw, OTD times were holding relatively steady for this timeframe. Although consistently creeping into the long end of OEM estimates (or sometimes a bit longer than that), but for the most part, the inconsistent production volatility had seemed to taper off,” said Matt Miller, vehicle status specialist for Donlen. 

While there were a myriad factors that contributed to longer OTD, most of the participating FMCs agreed that chassis availability was the biggest contributing factor resulting in the most delays. 
In hindsight, much of the disruptions in OTD for MY-2021 were a continuation of the disruption caused by the COVID-19 pandemic. 

“The industry continued to experience the impacts of COVID-19 and the downstream effects on the supply chain through the 2021 model-year. With plant shutdowns due to the virus, shortening shifts to increase safety protocols, and expanded logistical lead-times, the timeframes between order to delivery were still higher than the pre-pandemic levels,” said Mathew of Merchants Fleet.
These were among some of the many findings that were revealed by Automotive Fleet’s 22nd annual OTD survey, which is based on data and analyses provided by eight fleet management company survey partners that included: 

● ARI
● Donlen
● Element Fleet Management
● Emkay
● Enterprise Fleet Management
● Merchants Fleet
● Mike Albert Fleet Solutions
● Wheels Inc. 

The comprehensive OTD survey tracked deliveries of approximately 183,730 new vehicles in the 2021 model-year, representing 120 different models.

Due to the fact that supply chain constraints temporarily caused a suspension in new-vehicle production, fleet orders were tracked in two segments – pre-supply constraint deliveries and fleet deliveries after the various assembly plants were temporarily closed. The study surveyed 119,155 vehicles ordered during the pre-pandemic period of Oct. 1, 2020 to Feb. 28, 2021, while another 64,575 fleet vehicles were tracked during the pandemic from March 1, 2021 to Aug. 31, 2020. 

The survey methodology calculated OTD times for cars from the day an order was placed with a factory to vehicle delivery to a dealer (not driver pickup).

Truck OTD was calculated from order placement to delivery to an upfitter or, if no upfitting was required to a dealer. The days spent at an upfitter were not included in truck OTD times. 

Lengthening of OTD Cycles

All eight of the participating FMC survey partners reported an increase in OTD for MY-2021. 

“There was a material increase in OTD cycle times across all vehicle segments from 2020-MY to 2021-MY for vehicles ordered during the period between Oct. 1, 2020 and Feb. 28, 2021,” said Miller of Element. 

This observation was likewise reinforced by Mike Albert Fleet Solutions. “In many cases, we experienced a 30-plus day difference in the OTD  timeframe compared to this time last year,” said Carly Prather, director, purchasing & fleet titles for Mike Albert Fleet Solutions. 

Also agreeing with this assessment was Emkay. “As most have experienced in the fleet industry, the OTD times were longer than previous years. In recent months, they have gotten significantly longer due to allocations and shortages,” said Dean Peterson, vice president - vehicle acquisitions for Emkay.

 

 

 

According to Miller of Element, the top two factors that influenced OTD performance in MY-2021 were: 

● Increased Production Schedule Variability: “Order windows, estimated build dates and formal production schedules were all negatively impacted due to COVID-19 as OEMs were forced to shutter manufacturing processes for a substantial period while re-engineering their production facilities to implement plans for continuity of operations amidst a global pandemic,” said Miller.
● The Need to Better Align Production with Segment Demand: “OTD cycle times in the SUV/crossover, luxury sedan, ½-  and ¾-ton pickup, and cargo van segments materially increased year-over-year aligned with increased product demand,” said Miller of Element.

OEMs had strong demand for their products from both retail and fleet customers but sometimes struggled to keep up with demand. As a result, OEM production/capacity constraints occurred with select vehicle models.  

The primary segments susceptible to longer OTD times were light-duty pickup trucks and vans. The key reasons were that truck order volumes across all market segments exceeded plant production capacity, along with delays at upfitters, plant downtime and early order cut-offs. Upfitter delays were created by chassis shortages and inconsistent deliveries due to long chassis lead times.

“I had a suspicion that when GM stopped accepting orders for the 2021-MY ½-  and ¾-ton pickups and vans at the end of December 2020 after only about three months of production, there was something big on the horizon. Then Ford announced about two weeks later that 2021-MY Super Duty orders would be cut off soon. In my mind, this confirmed that there was something massive down the line that was going to heavily impact production across the industry,” said Miller of Donlen. “When the OEMs essentially turn off the spigot of the supply for some of their highest volume (and let’s not forget highest profit margin) units, there is a seismic quake happening within the industry.”

 

Minimal Railcar Constraints

Railroads are the primary long-distance transporter of cars and trucks to upfitters and dealers. In a departure from prior model-years, there were minimal rail-related or car hauler issues that impacted OTD.

“There were intermittent cases of congestion at ramps supposedly due to shortages of drivers because of COVID. In my opinion, there was nothing that I would call particularly out of the ordinary or specifically problematic with rail-related or car hauler issues,” said Miller of Donlen.

One benefit to the temporary production suspensions was a decrease in ramp congestion.

“Plant shutdowns reduced the number of vehicles being moved, which meant assembly plants, ramps and yards were cleaned out. As a result, we have seen a reduction in OEM transportation as fewer vehicles are moved through the system. We expect this trend to continue until production fully normalizes,” said Cengel of Wheels.

Miller of Donlen echoed this assessment. “I was fully expecting for there to be logistics bottlenecks after the plants resumed production in May, but in hindsight, that really didn’t seem to be the case,” said Miller. “I’m not sure if it was a combination of better logistics planning from OEMs in general or reduced volume overall, but in my opinion the logistics channels seemed to perform well. This was a small bit of good news in a year that was consistently fraught with issues all the way around.”

The largest rail-related delay occurred in August 2021 when a train carrying a shipment of F-Series pickup trucks derailed. “For the most part, transports were delayed due to not enough available transporters,” said Peterson of Emkay. 

The shortage of drivers with commercial driver’s licenses (CDL) needed to legally drive vehicles larger than Class 3 trucks continues to be an ongoing issue in the car-hauler industry.  

“The shortage of CDL truck driver was ubiquitous from the fourth quarter of   2020 to present,” said Miller of Element. 

These observations were likewise reinforced by Prather of Mike Albert Fleet Solutions. “We have experienced little to no rail restraints since the OEMs resumed factory operations; however, we are experiencing much more transit damage due to an influx of inexperienced drivers,” sad Prather.

 

Minimal Impact of Quality Holds

Unlike prior model-years, quality holds had less of an impact on 2021 OTD times. Quality holds played a minimal role in the overall increase in OTD times in MY-2021.

“Vehicle dependability is at an all-time high, and this has been manifested by a high level of quality in the manufacturing process amongst most major OEMs. The automotive sector has a very low tolerance and acceptance of non-conforming products entering production facilities. This is partially due to the aggressive expected daily capacity of OEM production but also is related to cost penalties for non-conformance being assessed to suppliers provisioning inferior materials,” said Miller of Element.

In addition to overall vehicle quality improvements, OEMs are negotiating with their suppliers’ service level agreements (SLA) on the quality of delivered components. 

“The evolution of SLAs in supplier contracts with OEMs is directly correlated to a decrease in quality holds observed,” said Miller of Element.

In relation to the volume of new vehicles produced, the number of quality holds with 2021 model-year production was negligible. 

“There were a few quality holds, but nothing of significant impact,” said Prather of Mike Albert Fleet Solutions. 

Emlay also said its vehicle portfolio was not directly affected by any OEM quality holds. Other supply constraints created quality holds. “Outside of microchip shortages, the lack of paint pigment available for silver paint resulted in quality hold. There were other quality hold impacts due to material shortages (i.e., foam, rubber, etc.) but those holds were short-term and did not have significant impact on OTD,” said Mathew of Merchants.

There were also other miscellaneous quality holds cited by the partner FMCs, but nothing that materially impacted OTD. 

“Fortunately, we did not experience any major quality holds during this model-year. The only quality hold of note was on a number of Mercedes‐Benz van brakes, impacting 2020‐MY units that were pending delivery throughout 2020‐2021,” said Davis of ARI.

A gray area emerged during the current supply constraints revolving around a strategy known as “build shy,” in which vehicles are built minus the constrained part. These vehicles were parked until the part became available to install. 

“I’m not sure if this can be quantified as a quality hold per se, but many OEMs had units that were impacted by ‘build shy’ or ‘missing part’ holds. These were basically vehicles that had been produced but were currently in storage awaiting critical components once they become available. The missing components would be installed at a later time prior to completion of the final QC process and then released back into shipping channels,” said Miller of Donlen. “We have seen some units that have been in these holds since March/April that still are awaiting to be completed and released. This by far was (and still continues to be) a factor in a good portion of the longer OTD timeframes for units on order.” 

Cengel also cited the OEM production strategy to build vehicles minus a part that was unavailable at the time of production.

“There were few quality holds as most MY-2021 vehicles were a roll-over from MY-2020. General Motors and Ford implemented a process to build vehicles and park them while they wait for semiconductors and other components to arrive. This process helps them keep production running but causes confusion for affected fleets in need of vehicles,” said Cengels.

 

Weather-Related Delays in OTD

Weather-related issues did not have a major impact on OTD as they typically have in earlier years. “We did not experience any significant weather-related delays in MY-2021. The OEMs did put a hold on shipments into Texas due to a winter storm but this event only caused a short delay,” said Cengel of Wheels. 

Like last year, there were not many weather‐related delays of note that impacted 2021-MY OTD. “One factor that influenced OTD performance were weather-related events that occurred last February, such as the winter storm in Texas that caused power outages that led to some plant shutdowns and transport issues,” said Angie Lauer, assistant vice president of vehicle acquisition for Enterprise Fleet Management. 

Mathew of Merchants also cited plant closures due to winter storms. 

“The Texas power outage and storms in the Midwest earlier this year caused OEM plants to shut down for 1-2 weeks and also had an impact on OEM logistics,” said Mathew. 

“Winter weather impacted production in January and February 2021, causing GM to idle plants in Indiana, Tennessee, Kentucky, and Texas for a period. This same weather pattern disrupted commercial trucking routes in addition to vehicle production,” said Miller of Element. “In addition, there were regional hailstorms in the spring and summer months and a record 14 hurricanes after Sept. 1, 2020, which also contributed to weather-related delays in OTD for 2021-MY vehicles.”

While these storms did impact the industry, it was “not to the scale that has affected our industry in years past,” said Peterson of Emkay.

 

Record-Low Dealer Inventory

A new factor in fleet OTD is  the impact to dealers of the current supply constraints and pent-up buyer demand. This has resulted in record low inventory at dealerships. This impacts fleet by limiting the availability of out-of-stock emergency purchases of fleet vehicles.

Peterson of Emkay cited the low dealer inventory as one of the key issues facing fleets. Others likewise agree.

“While OEM constraints are certainly the most noteworthy factor to influence OTD times this model-year, several other challenges throughout the supply chain contributed to delays as well. At the top of that list are disruptions at the dealership level,” said Davis of ARI.

Another impact on dealers due to the COVID pandemic is reduced staffing and difficulty to find candidates to fill open positions. 

“Without question, the pandemic has affected how most dealerships now operate with many still working to navigate local regulation and staffing issues that continue to hamper efficiency,” added Davis of ARI. “Further compounding this issue are lengthy processing times for licensing and compliance work, which is often completed by the delivering deal r or driveaway company. In many cases, the root cause of these delays is attributed to reduced access to state and local regulatory agencies.” 

Miller of Element sees this as an evolving situation that will result in the emergence of a leaner dealership model.

“COVID-19 had a substantial impact on dealership operations and the critical role that they play as the ‘end point’ in the OTD process. Many dealerships were forced to close for a period of 2020 while working with their local and state governments and municipalities to understand their respective requirements for continued operations. When coupled with a material decrease in daily driven miles by the general population, the pandemic directly influenced dealerships in moving to a ‘leaner’ resourcing model,” said Miller of Element.