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Market Trends

Forecast of Commercial Fleet Buying Intentions for 2008-MY

July 9, 2007, by Mike Antich

A survey of 475 commercial fleet managers gauging new-vehicle buying intentions for the 2008-model year revealed that fleet volumes should be comparable to the preceding model-year. The majority of survey respondents indicated that there would be no change in their 2008-model orders. One example is Bristol-Myers Squibb in Princeton, N.J. “I will be ordering about the same amount of vehicles this year as last, approximately 1,300 in the U.S.,” said Joe LaRosa, associate director, worldwide fleet administrator.

Another example is Unilever. “This year (2008-MY) is status quo for us as we are in the second year of our two-year agreement with our current vehicle provider,” said Oleg Cytowicz, automotive fleet coordinator for Unilever HPC U.S.A. in Sad-dle Brook, N.J. “The buy looks like it will be on par with last year.”

The AF survey did reveal an up-tick in the number of fleets that planned to increase their fleet buy in 2008 compared to the number of companies that indicated as such in last year’s buying inclination survey. One example is Gordon Food Service in Wyoming, Mich. “The Gordon Food Service fleet is experiencing organic growth as our business continues to penetrate existing markets and expand to new markets,” said Chad Roberts, fleet administrator. “As a result, I am planning to purchase more vehicles in the 2008-model year.” Gordon Food Services currently operates a 1,200-unit fleet.

Also, at the time of the survey – end of May – many fleets were still uncertain on their actual fleet buy. One example is Endo Pharmaceuticals in Chadds Ford, Pa. “There is a good chance that our 2008 order will be larger than the past two years; however, that is predicated on a pending FDA approval,” said Joe Niszczak, fleet manager.

However, those fleets planning to increase the volume of their fleet orders were offset by other fleets planning to decrease their fleet buy. One example is Reliant Pharmaceuticals in Liberty Corner, N.J. “I am planning on buying fewer vehicles this model-year due to an extremely large buy last year at this time,” said Susan Freeman, fleet manager for Reliant Pharmaceuticals.

Market Forces Influencing 2008-MY Fleet Acquisitions
An analysis of survey responses revealed five key factors will influ-ence the types of vehicles that com-mercial fleets will acquire in the 2008-model year.

    1. Fuel-efficiency considerations will be a much greater factor in making selector decisions.
    2. Corporate “green” initiatives are prompting placement of hybrids on selectors at an increasing number of companies.
    3. Companies are looking to “right-size” cargo-carrying vehicles and SUVs in reaction to high fuel prices and corporate cost-cutting initiatives.
    4. Companies are searching for a van replacement vehicle as manufacturers begin to exit this market segment.
    5. The amount of CPA monies available from manufacturers will influence the volume and make of models acquired.

The Impact of Fuel on Selectors
A growing number of fleet managers report the price of fuel is influencing selector decisions. Although concerns about fuel prices have been heightened for the past several model-years, it appears that a growing number of fleets will be acting on this and substituting more fuel-efficient models to 2008 selectors.

Of the surveyed commercial fleets, the overwhelming majority voiced comments similar to those by Charles Stevenson, CAFM, manager of fleet operations for Aqua Pennsylvania in Springfield, Pa. “The biggest change to our fleet for 2008 is adding more vehicles with better mpg,” said Stevenson.

Another fleet looking to make the same change to its selector is USG. “We are changing the selector to smaller, more fuel-efficient vehicles,” said Maria Williams, fleet operations supervisor for USG in Chicago. Another company making similar deliberations is Henkel Corp.

“We will be making changes in our 2008 buy to include new models that provide improved fuel economy,” said Vinnie Fugaro, purchasing agent for Henkel Corp. in Rocky Hill, Conn.

One fleet manager after another responding to the survey cited increased scrutiny given to more fuel-efficient vehicles to their 2008 selectors. Another example is Bausch & Lomb. “My strategy is to deploy additional fuel economy-type models, such as hybrids and smaller, more fuel-efficient sedans,” said Mark Dennis, fleet operations specialist for Bausch & Lomb in Rochester, N.Y. The sentiments of responding commercial fleet managers were best summarized by Debbie Mize, fleet/relocations manager for Hallmark Cards in Kansas City, Mo. “Fuel economy is playing an even larger role than normal,” said Mize. “Fuel has always been important, but even more so now that prices are so high.”

However, there is a limit to how much fuel efficiency you can wring from a vehicle and still have it capable of fulfilling the fleet application. Despite higher fuel costs, some fleet applications do not allow the luxury of being able to change vehicles. One consequence is that fleet managers are bearing the brunt of environmentally-sensitive employees advocating the selection of more fuel-efficient vehicles. Here’s one example: “The ever-increasing fuel prices have prompted drivers to become more vocal. I have had a number of people come up to me to express their concerns that we have not elected to build our fleet around vehicles capable of achieving 45 mpg,” said Tom Krause, purchasing/fleet manager for West Bend Mutual Insurance Company. “What they don’t realize is that the vehicles we drive today are significantly improved in emissions, safety, and reliability standards from the vehicles of only 10-15 years ago.”

Proliferating ‘Green’ Initiatives
A growing trend starting to exert influence on vehicle selector development is corporate “green” initiatives to reduce a company’s carbon footprint and greenhouse gas emissions. One company “greening” its fleet is Ecolab.

“The major challenge facing our fleet is reducing our greenhouse gas emissions, setting up a plan to do so, while keeping in mind the cost,” said Gayle Pratt, director of fleet and indirect purchasing, global operations for Ecolab in St. Paul, Minn. “We will be evaluating models that provide the best opportunity to reduce CO2 emissions. That includes changing some vehicle types to smaller vehi-cles or different engines.”

This strategy is echoed by Novo Nordisk. “Our biggest challenge is developing an environmentally friendly fleet, while still keeping the reps satisfied with our offering,” said Donna Bibbo, CAFM, manager, fleet and employee services for Novo Nordisk in Princeton, N.J. “All makes and models will be scrutinized more closely for their eco-friendliness, namely their fuel economy and whether they are equipped with flexible-fuel engines. I definitely will be adding some kind of hybrid in 2008,” said Bibbo.

Many fleets are in the early stages of establishing baselines on overall fleet emissions. “We are in the process of establishing our baseline emissions and fuel consumption based on our current fleet selector and will track improvements based on vehicle changes,” said Williams of USG. One change being considered by USG is switching its trucks to diesel engines.

The shift to monitoring fleet emission baselines is unknown territory for the overwhelming majority of fleets and a concern for fleet managers. “Green initiatives are going to cause a panic sooner than we want,” said Charlie Szymanski, fleet manager for PPG in Pittsburgh, Pa. “Many fleet managers are starting to track CO2 emissions or track the number of hybrid vehicles. But when or how soon will we be forced to make quick changes? What fleet policies do we need to get in place now?” asks Szymanski.

Corporate green initiatives often go hand-in-hand with fuel reduction initiatives. “We are dropping some vehicles with poor fuel economy and adding hybrid-electric vehicles (HEV), along with evaluating four-cylinder engine choices,” said Dick Prettyman, senior fleet administrator for Cephalon, Inc. in Frazer, Pa. However, adding hybrids is not an easy decision. “What keeps me up at night is future HEV residual values,” added Prettyman.

An increasing number of commercial fleets will introduce pilot programs to test hybrid vehicles in the 2008-model year. “I will be offering a pilot program of hybrid vehicles this next year,” said Elsie Lucia, director, fleet services for The Estee Lauder Companies in New York City. “The major challenge is providing green vehicles at a competitive price.”

Another fleet adding hybrids to its selector is Cooper Tire & Rubber Co. “We are going to change the selector (for 2008) to include some hybrids and more fuel-efficient vehicles,” said Kathy Jebbett, purchasing card & fleet administrator for Cooper Tire & Rubber Co. in Findlay, Ohio.

DuPont likewise plans to increase the number of hybrids and alt-fuel vehicles in its fleet. “We are currently planning to order approximately the same number of vehicles; however, we plan to continue to add hybrid and alternative-fuel vehicles into the fleet,” said Barbara Banks, fleet manager for DuPont in Wilmington, Del.

Hybrids are also a growing portion of the PepsiCo fleet due to the company’s sustainability strategy. “The major challenges facing our fleet are how to accomplish our corporate sustainability objectives by improving miles per gallon on delivery and large trucks,” said Pete Silva, director, fleet procurement for PepsiCo Global Procurement in Plano, Texas. “Hybrid autos will continue to be a growing portion of our corporate sustainability strategy,” added Silva.

Other fleets are substituting hybrids when possible. One such fleet is State Farm Mutual Automobile Insurance. “We have been pretty progressive in looking at flexible-fuel vehicles and hybrid vehicles, when either fits our business need. I expect this to continue as we move for-ward,” said Dick Malcom, fleet manager for State Farm Mutual Automobile Insurance in Bloomington, Ill.

Several fleets have made the decision to become all-hybrid fleets. One such fleet is SECURA Insurance in Appleton, Wis. “Our fleet will eventually be Ford Escape Hybrid only, until a good hybrid mid-sized car comes on the scene.” said Jean Ayotte, fleet administrator for SECURA Insurance. “For now, we have gone strictly to Ford Escape models, we will be purchasing more of those vehicles in 2008. Our upper man-agement is totally committed to SECURA being environmentally friendly.”

One difficulty for fleet managers in complying with corporate green initiatives is the limited model diversity.

“In terms of trends, green is in. But it is difficult to find ‘green’ product choices that seat seven to 15 passengers,” said Steven Pederson, vice president, fleet and risk management for VPSI in Troy, Mich. “The E-85 Dodge minivan seems to be the only available product in this class of vehicle.”

Green initiatives typically originate with senior management, who often does not have a good understanding of fleet. “Increases in fuel prices have a ripple effect. It tends to cause management to jump up and say ‘Hey, let’s use hybrids!’ which, in turn, becomes a headache for fleet managers. Management thinks we can just wave a wand and, poof, hybrids are the answer without understanding the pros and cons of hybrids, as well as understand the automotive and fleet industry with regards to availability, cost, etc.,” said one fleet manager who wished to remain anonymous.

Right-Sizing Vehicles
Many fleets responding to the survey said they are looking to reduce the size of vehicles, when possible.

“We will likely purchase smaller trucks that are more fuel-efficient,” said Gregg Hodgdon, CAFM, manager of fleet operations for E.A. Sween Company in Eden Prairie, Minn.

Another fleet looking to right-size its vehicles is Honeywell. “I am currently considering adding the Chevy HHR panel version for small cargo needs to supplement the uses of our Pontiac Vibes,” said Shelly Lofgren, fleet manager – North America for Honeywell International in Minneapolis. “If I can get a ladder rack, which sounds promising, then I might be able to further right-size some of the technicians’ vehicles. This will reduce costs and improve our fuel economy.”

One fleet vehicle segment prone to right-sizing considerations is SUVs. This is what is currently occurring at Solvay North America. “We are evaluating downsizing the SUV portion of our selector due to the high cost of fuel,” said Scott Crain, senior manager for Solvay North America in Houston.

Other fleets are considering switching from pickups to sedans and crossovers, when possible. “Typically, my fleet consists of full-size, four-door pickups in the field,” said Margret Huval-Neal, fleet services manager for PoolCorp in Covington, La. “I will be trying to eliminate some of the excess trucks and replace them with sedans or cross-over vehicles. Also, I will be reviewing the engine size of the current trucks, switching from a V-8 to V-6.”

Weyerhaeuser likewise is looking to shift drivers away from SUVs. “We are moving drivers to AWD Taurus and Fusion sedans, instead of large SUVs, or promoting a smaller SUV such as the Escape,” said Robin Robinson, key supplier manager for Weyerhaeuser in Federal Way, Wash.

Decreasing Minivan Choices
Fleets are still reeling from the discontinuation of the Astro minivan, two model-years later. One such fleet is InterTel in Tempe, Ariz. “The major challenge facing my fleet is finding a replacement for the Chevy Astro Van,” said Jack Woods, fleet manager for InterTel. One consequence is that fleets are keeping their aging Astro vans in service longer until a replacement model is identified. This is leading to higher operating costs. “The fleet-related issue keeping me up at night is the increasing CPM for older vehicles that still need to be used until an Astro Van replacement can be determined,” said Woods.

This product void will be compounded in future years, according to fleet managers. “We plan to switch from the Chevy Uplander cargo van to the Chrysler van when GM will exit the market in early 2008,” said Phil Schreiber, fleet manager, North America for Otis Service Center in Bloomfield, Conn. “This will make Chrysler the sole American provider to fleets of small cargo vans. We will also add the new Chevy HHR panel van to the portfolio,” said Schreiber.

This sentiment is echoed by Pat Turner, fleet manager for Alcon Laboratories in Ft. Worth, Texas. “One of the biggest questions we face is what will GM use to replace the Uplander minivan,” said Turner. “In the Nestle family of companies, of which we are a part, we are single-sourced with GM. If they do not provide a very similar vehicle, it will really put us in a bind. We face the challenge of redesigning the way we do our job,” added Turner.

This concern is shared by Nicki Carrick, fleet manager for RGIS LLC in Auburn Hills, Mich. “I can’t stop thinking about what we are going to do once GM discontinues the Chevrolet Uplander. The majority of our fleet is minivans, and crossover vehicles will not work for our company,” said Carrick. Another fleet centered around vans is VPSI. “With Dodge abandoning the large passenger van market and with Ford and GM abandoning the minivan market, will there be an acceptable, safe, and comfortable commuter vanpool product in the future?” asked Pederson of VPSI. PPG is another fleet pondering the future of the minivan. “The nature of our business is service-related and requires drivers to haul more than the average sales driver. Therefore, our mix of vehicles is weighted to the minivan,” said Szymanski of PPG. “As minivans become more difficult to acquire, either because manufacturers have replaced minivans in their lineup or because production volumes or releases do not match the timing of our replacement cycle, we are investigating replacements for the minivan. Our drivers need the hauling capacity of minivans. The market is now moving to crossovers and retiring many of the minivans. These have higher sticker prices and are more costly to operate,” said Szymanski.

In light of this trend, other fleets are looking to reduce their dependency on minivans. “We are always looking for ways to reduce our dependency on minivans and trucks,” said Jim McCarthy, director, vehicle management services of Siemens Shared Services in Iselin, N.J. “As such, we are definitely looking at replacement alternatives.”

Incentives Still Sway Decisions
In the final analysis, the bottom-line acquisition cost of a vehicle influences many buying decisions in the commercial fleet market. The trend seems to be to more conservative CPA programs. “The price of new vehicles is growing dramatically and nameplates are being turned more quickly. While this may assist manufacturers in weaning consumers off retail incentives, a similar goal seems to be in place for commercial fleets,” said Roberts of Gordon Food Services.

The amount of CPA dollars can sway fleet buying decisions. One example is IES. “I would like to order more vehicles for the 2008-model year, but, in all likelihood, we will probably order about the same,” said Kirk Herniman, manager, equipment & leasing for IES in Houston. “If there is a reduction or an increase in CPA incentives, I am sure this will impact how many vehicles our 30 companies are willing to order.”

Echoing this sentiment is Thyssenkrupp Elevator. “Whether there are any changes to my buy will be up to the manufacturers and how they structure pricing for 2008,” said Tom Armstrong, director of fleet operations for Thyssenkrupp Elevator in Pembroke Pines, Fla.

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Author Bio

Mike Antich

Editor and Associate Publisher

Mike has covered fleet management and remarketing for more than 20 years and entered the Fleet Hall of Fame in 2010.

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