Forecast of Order-to-Delivery Times for 2010-MY Fleet Orders

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October 23, 2009

To say the 2009 model-year was a difficult year for new-vehicle fleet deliveries would be an extreme understatement. The economy went into a free fall in fourth quarter 2008 and first quarter 2009, which resulted in extended plant downtime. The collapse of retail sales and a concurrent decline in fleet sales due to widespread corporate cutbacks in capital expenditures led to significant plant downtimes and transportation delays in creating full loads for vehicle shipments. In addition, the voluntary Chapter 11 bankruptcy filings by GM and Chrysler shuttered their assembly plants throughout the reorganization process.

With the 2009 model-year behind us and 2010 model-year ordering in progress, how will 2010-MY order-to-delivery times (OTD) fare? Some foresee the 2010 model-year being a challenging one for OTD (not as challenging as 2009-MY, however), but one that could result in longer than normal delivery times.

Concerns about 2010-MY OTD

If you break down OTD, there are four main parts: ordering, scheduling, production, and delivery. Fleet vehicles are particularly vulnerable to OTD delays because most fleet orders are concentrated among a handful of models. Delivery delays can occur because of component constraints for one of these high-volume fleet models. A single option can cause a delay.

"Certain segments of the commercial vehicle and truck market will experience some OTD increases in 2010, especially for fleets that desire diesel-powered GM light trucks," said Ken Gillies, manager truck operations for GE Capital Fleet Services. "GM won't be offering a diesel engine until third quarter of 2010 for their 2011 model-year lineup. GM made the decision in light of the federal EPA diesel exhaust emission regulation changes for trucks from 8,600 lbs. gross vehicle/combination weight rating (GVWR/GCWR) and up. We believe the full OTD cycle time for all truck OEMs will be impacted, and we expect that to vary based primarily on the configuration requirements of a fleet."

Another factor that will come into play with 2010 OTD is the economy. "I foresee some OTD challenges in 2010," said Rick Shick, vice president of purchasing for Donlen. "Much of this is dependent upon the timing of the economic recovery and the retail market. Cash for Clunkers may have pulled forward a significant number of retail sales, which may impact retail sales volume for 2010. Can manufacturers keep supplier and production lines up and running consistently if retail sales remain slow? Can they ramp up production should the economic recovery occur faster than expected?" asked Shick.

Conceivably, a decrease in retail demand allows OEMs to build fleet vehicles faster due to increased production capacity. But, as occurred with 2009 model-year OTD, transportation delays can occur due to slowness in creating full loads for vehicle shipments. Forming full vehicle loads was a significant factor in OTD delays during the 2009-MY. Some 2010 models may have longer shipping times if assembly plants have difficulty creating full loads for rail transportation and vehicle transporters in a timely manner.

An additional concern about 2010-MY OTD focuses on the dealer component of the fleet delivery process. Dealer closures continue to be a concern, as ordered vehicles will need to be diverted to different dealers. "Without an automated process or advance notification of dealership closing, the possibility for delivery delays continues," said Shick.

The Two-Edged Sword of OTD

Fleets can adjust to delays in OTD as long as there is ample communication between OEMs and themselves, so they can plan accordingly. However, there is a limit to how fast you want a vehicle built. In fact, building a fleet vehicle too fast is not desirable. "Improving OTD is a double-edged sword," said Jim Tangney, vice president - vehicle acquisitions for Emkay Inc. "Six- to eight-week OTD times are acceptable if proper planning and replacement cycles are monitored. Moving up OTD times too much will limit the ability to make clients' order changes and lead to customer dissatisfaction and potential orphan vehicles."

Tangney cites one example of how OEM initiatives to reduce OTD times can sometimes be a two-edged sword. "For 2010-MY, Ford is piloting its Rapid Inventory Advantage that will reduce the scheduled-to-production cycle on Focus, F-150, Escape, and Mariner," said Tangney. "The new system results in a scheduled-to-production cycle of approximately two weeks, thereby reducing the order-to-delivery time by one full week. But vehicles will be 'locked in' to production, thereby not allowing changes, the same day a VIN is assigned and the order is serialized. So, to gain one week in OTD, fleets lose one week of flexibility in modifying the order if a vehicle order needs to be changed."

Let me know what you think.

mike.antich@bobit.com