By Mike Antich Although fleet is extremely important to automakers, the reality is that retail sales and retail considerations drive many OEM decisions. Currently, retail buyers are demanding four-cylinder engines in what appears to be a knee-jerk reaction to paying, on average, $4.03 per gallon for gasoline. Franchise dealers just don’t have enough four-cylinders in inventory to meet this demand and they are clamoring for more product.

Fleet managers planning 2009-model ordering are wondering whether this spike in demand for four-cylinder engines will adversely affect order-to-delivery (OTD) times for four-cylinder units they are planning to order.

In June, vehicles with four-cylinder engines accounted for more than 50 percent of all U.S. retail sales of new cars and trucks, according to J.D. Power & Associates. This percentage has been increasing each month since February. For instance, in May, 45 percent of all vehicles sold were equipped with four-cylinders.

All of the major automakers are scrambling to meet increased demand for four-cylinder engines. They are shifting production from six- to four-cylinder engines as quickly as possible.

However, current demand is outstripping current capacity. In a July 1 article on www.Bloomberg.com and in the July 7 edition of Automotive News, Mark LaNeve, VP of sales and marketing for GM North America, is quoted as saying in a conference call: “In some cases, we've been outright constrained where dealers were just out of cars.”' He said the industry's June sales would have been 40,000 higher had there been more cars available with four-cylinder engines.

What promises to compound this capacity constraint is that many fleets are also looking to increase their percentage of four-cylinder models. Traditionally, fleets primarily bought six-cylinder, but nowadays, all fleets are looking for ways to decrease fuel spend. Like retail buyers, they too are looking to downsize vehicles (where possible) or opt to four-cylinder engines. For more on this, see the June 30 Market Trends Blog – www.automotive-fleet.com. One interesting observation is that if you look at some of the 2009-MY fleet incentive programs, the same model with a V-6 has a higher fleet incentive than when equipped with a four-cylinder engine.

There are a number of reasons why fleets are gravitating to four-cylinder engines. Fleet managers (who manage car fleets) tell me switching to a four-cylinder engine allows them to maintain the same size automobile necessary to meet its fleet application without downsizing to a smaller model. However, the key reason is increased fuel economy. A mid-size sedan equipped with a four-cylinder engine achieves a higher combined city-highway fuel economy over a six-cylinder. Not only is there is a reduction in fuel spend, but also a reduction in cap cost since the cost of a four-cylinder engine is less than a V-6. In addition, lifecycle cost analysis currently favors four-cylinder engines since they command higher resale values in the wholesale resale market. This will most likely remain the case for the foreseeable future or as long as gas remains over $3.50 per gallon.

Since the June 30 Market Trends Blog hit the blogosphere, fleets have e-mailed me to voice concern about order-to-delivery times, especially if the high demand for four-cylinder engines continues to outstrip current production capacity. One well-respected industry veteran e-mailed me: “I’m willing to bet that order-to-delivery time for four-cylinder vehicles to fleet buyers will grow 12-plus weeks.”

However, OEMs are confident about being able to produce an adequate supply of four-cylinder engines. “GM has the production capability to adjust to the changing mix of engines. In fact, we are reviewing our trim packages on cars such as the Malibu and Saturn Aura to ensure they are compatible with four-cylinder engines. In the past, some trim levels might have spec'ed a V-6 engine,” said Dave Spence, director commercial product & specialty vehicles for GM Fleet & Commercial Operations. “If there are OTD issues, they are not related to four-cylinder engines, but rather to things such as the flooding in the Midwest that shutdown rail traffic crossing the Mississippi River.”

Let me know what you think.

mike.antich@bobit.com