May 2008, Automotive Fleet - Feature
Trends in Commercial Fleet Management 2008-2010
By Mike Antich
Trends in Fleet Safety
Over the past several years, safety has re-emerged as a hot issue for many fleet managers. Concern has increased about vehicle and driver safety and minimizing liability exposure.
Although the cost of fuel is cited as the number one fleet challenge, fleet safety is a close second. With some fleets, it is the primary challenge. One reason for the heightened interest in fleet safety is management pressure to minimize corporate liability exposure.
In addition, more cars are totaled today due to the high cost to repair vehicles.
A third reason for the increased interest in fleet safety is that driver distraction is causing an uptick in preventable accidents. The key reason for the uptick is that drivers are being asked to do more in the same allotted time, causing them to multitask behind the wheel.
In an effort to minimize driver distraction, fleets are tightening cell phone usage policies, and/or eliminating texting and electronic devices in company vehicles to keep employees focused on driving.
Safety concerns are exerting even greater influence on selector decisions. There is more involvement by risk management in influencing vehicle selection. For instance, some fleets are putting increased emphasis on National Highway Traffic Safety Administration (NHTSA) crash test ratings. Only vehicles with high safety ratings are allowed on some fleet selectors. Compounding this is some fleet managers’ reluctance to acquire vehicles not advised by the risk department out of concern if something should happen, it not be blamed on their recommendation.
Wholesale Market Conditions
For the first three quarters of 2007, inventory of used fleet vehicles was in balance with buyer demand in the wholesale market. Prices were stable and buyer demand was good.
However, fourth quarter 2007 saw wholesale market prices decline, on average, 8 percent compared to same time last year. And this softness has extended into first quarter 2008. Normal seasonal decline was part of the reason for the market slowdown. Also contributing to this decline was the tightening of credit for subprime buyers.
Most buyers of used fleet vehicles are subprime buyers, who are now finding it increasingly difficult to get funding. Also, home equity loans have dried up, eliminating a source of vehicle funding.
In addition, the housing and construction slowdown has decreased demand for work trucks and full-size vans.
Vehicles continue to sell at auction; however, they tend to be priced to current market demand.
Art Spinella of CNW Marketing predicts a soft resale market for used-vehicle sales due to increased inventory of retail off-lease vehicles. This volume will increase from 2008-2009.
In addition, the 2005 model-year was a higher than normal year for commercial fleet purchases, and these vehicles are entering the wholesale market in 2008.
A softening in retail demand for used vehicles is predicted because many potential retail buyers are “upside down” in their vehicles. Also, consumers are holding onto vehicles longer as quality has increased.
Resale values for intermediate sedans were stable for the first three quarters of 2007. However, since the fourth quarter 2007 and first quarter 2008, resale values for intermediate sedans were down compared to sales same time last year.
Resale prices for compact models continue to be strong, but most fleets do not include many of these vehicles. Compact cars with higher fuel economy are not as hard hit by higher fuel prices.
Resale values for passenger minivans continue to remain in the doldrums due to changing consumer preference to crossover-type vehicles. Minivan prices have been soft for the past six years, indicating a broader consumer preference change. Despite decreases in the number of minivan models, prices continue to remain soft. The minivan market must be viewed as two segments — extended wheelbase and short wheelbase models. Resales for extended wheelbase, seven-passenger models are doing better than short wheelbase models.
The cargo van market for most of 2007 was stable. Cargo vans continued to sell quickly, especially when equipped with a V-8 and painted white. However, slowdown in construction and housing markets decreased wholesale demand for cargo vans in the fourth quarter 2007 and first quarter 2008.
Resale values for cargo vans and work trucks remain uncertain because of soft demand from seasonal labor companies such as contractors and landscapers.
Pickup trucks have been perennially strong sellers in the wholesale market reflecting strong demand in the retail market. However, resale values are softening. Pickup truck sales were stable for most of 2007. However, prices have softened with the slowdown in the contractor market.
The pickup truck market is segmented into two categories: work trucks and trucks used to haul passengers, such as the better-equipped extended-cab models.
Resale for large SUVs continues soft as high gas prices impact resale prices.
SUV resale values for compact models are stronger than large SUVs. SUVs need to be well-equipped and appropriate to the region (i.e. no 2WD models in the Snow Belt, but okay for Texas and Florida).