By Mike Antich
Fleet ordering for the 2010 model-year is shaping up to be higher than 2009-MY, but that's not saying much since 2009 was such an abysmal year. Many commercial fleets deferred 2009-model ordering. Some fleets purchased no replacement vehicles and skipped the 2009 ordering cycle altogether. A large number of commercial fleets decreased the volume of their 2009 ordering and are now playing catch-up with the 2010 model-year.
Another factor that decreased 2009 order volume was the soft resale market. Some companies postponed vehicle replacements out of concern they would sell below book value in the wholesale market. Companies were looking to weather then-current soft resale market by stretching service lives. This was especially the case for fleets remarketing Class 3 and larger commercial vehicles. The secondary market for these vehicles is very soft due to the sluggish economy, and these fleets were trying to limit their residual risk exposure.
In addition, many fleets reported they had changed replacement parameters and were keeping vehicles in service longer. As a result of deferring 2009 replacements, many models taken out of service for 2010 will have much higher mileage.
A key influence on the volume of 2010 fleet ordering will be the strength of the overall economy. One Fortune 100 fleet feeling the brunt of the soft economy told me it is planning to decrease its 2010 fleet orders by approximately 25 to 33 percent.
An improvement in the economy will mean renewed hiring and a corresponding need for new vehicles. "Whether or not we acquire more vehicles depends on the economy. If we need to hire more, we'll buy more. Otherwise, we will only see a slight increase in our 2010 orders," said one fleet manager. Another fleet manager likewise told me her 2010 ordering is contingent upon the state of the economy. "At the present time, it appears we will be ordering less. However; if the economic conditions improve over the summer months, we may have the need to hire more, which will require us to order more vehicles to meet our needs."
2010 Sourcing Strategies
Many fleet managers report current restructuring among OEMs will not affect 2010 ordering. For instance, for some companies, upfitting requirements preclude any easy OEM change.
"Because of our upfitting requirements, not just any OEM can meet our fleet needs. We have no plans at this time to change," said one fleet manager. With both Chrysler and GM in Chapter 11 bankruptcy protection, many fleet managers reported there would be no change in sourcing as long as the OEM can continue to supply vehicles. However, other companies have restrictions about doing business with companies in Chapter 11. Some RFPs specifically preclude participation of Chapter 11 companies.
While looking to maintain current sourcing agreements, more fleets are looking to expand the number of OEMs from which they acquire vehicles. "We will most likely diversify our purchases more this year," said one pharmaceutical fleet manager
However, most companies, at the time of the survey, were still deliberating on their buying decisions. "We are exploring a wider range of manufacturers, but haven't made final decisions as yet," said the fleet manager of an East Coast Fortune 100 company.
Because of the uncertainty caused by GM and Chrysler's Chapter 11 bankruptcy protection, some fleets are delaying finalization of their 2010 selectors. "Normally by June, the selector has been decided and we are in preliminary negotiation with the OEMs for incentives. This year, we will be pushing back finalizing our selector to July. We hope to learn more about the production and financial circumstances surrounding the OEMs before we make any final decisions. We still intend to start our ordering cycle in August," said a Midwest fleet manager.
One concern focuses on product availability, especially for specialized units. "A concern is the extended and/or sudden, plant closures that severely restrict availability if you are a factory buyer, due to the unique specs you need for the fleet," said a fleet manager managing a large specialized truck fleet.
Another concern voiced by fleet managers has been order-to-delivery times for 2010-model vehicles. "Order-to-delivery time remains somewhat of a mystery or a constantly moving target. There are still many unanswered questions," said the fleet manager of a large insurance company fleet.
Some fleets are electing to skip the fall ordering cycle and place orders in the spring. "We did not place any orders for 2009-MY, so we'll need to place orders for 2010-MY. We will probably place orders in the spring as opposed to placing any orders this fall," said a fleet manager in the Southeast.
Another concern is incentive payments. Some fleets are electing to take off-invoice credits instead of end-of-year lump sum payments. As in prior model-years, incentives continue to influence selector decisions. "We will use the same OEMs as last year unless incentives are less," said a pharmaceutical fleet manager.
Another concern voiced by fleet managers is the overall downsizing of dealer bodies or the use of other OEMs who do not have a large dealer body.
"I am beginning to see a lot of problems (more than usual) at the dealer level with courtesy deliveries. More and more dealers are not doing these deliveries, and my drivers have to drive 60-80 miles one way to pick up a car. I have had several cars that have had to be re-routed because the dealer has refused to accept the car from the transporter. The reason I have been given is that the dealer is not longer doing courtesy deliveries. I can see this becoming the next hot problem for my kind of fleet," said a fleet manager managing a 1,000-plus vehicle fleet.
One factor influencing 2010 orders is that some fleets have downsized due to the volume of layoffs in their sales and service staffs, eliminating the need for as many vehicles as in the past.
"At this time, we still have many unassigned trucks and do not see a need to purchase more. I do not see much real growth in our business until late spring or early summer of 2010," said a fleet manager of a large A/C and plumbing company.
Other companies are right-sizing their fleets, which minimizes the number of required replacement vehicles. "Based on the economy we are taking steps to right-size our fleet — moving vehicles around and running them a little longer. Therefore, the net effect should be fewer orders for the 2010 model-year. We are running business as usual; therefore, the reduction of orders for 2009 and 2010 model-years should produce a spike in orders at some point," said a service fleet manager.
In addition, some fleets tightened eligibility requirements in 2009, which will decrease 2010 ordering. "Last year, we reduced our fleet size by 5 percent due to fleet policy changes around eligibility requirements based on business miles and job function," said a fleet manager of a high-tech company.
Another factor that will influence 2010 truck orders is the 2010 diesel emission standards. Some fleets are electing to sit out the 2010 model-year to see if any issues arise with the new diesel engine emission technology. "We buy a lot of diesels, so we are concerned how the new regulations will affect truck performance, pricing, and fuel economy. If we can't buy diesels produced before the new regulations take effect, we may prefer to lay low and observe," said a fleet manager headquartered in the Southeast.
Contingency Sourcing Plans
Many fleets have adopted a "just-in-case" sourcing strategy to cope with a wide variety of scenarios. "We are keeping a very close eye on what is happening in the industry and will have plans in place to handle any disruptions accordingly," reported one Minnesota-headquartered fleet.
Others have formally moved to a dual sourcing strategy. "We are in very uncertain times and having dual sourcing is probably more important than ever," said a fleet manager, who manages a 1,000-plus vehicle fleet.
The fleet vehicle composition has also been changing for the past several years. "Two years ago, the SUV was the major vehicle in our fleet. Last year, we started to downsize to the crossover (large, mid, and small size). We are taking a different approach to the type of vehicle is required for our field usage. After months of discussion with management, it has been concluded a mid-size sedan is the most appropriate vehicle. Starting with the 2010 models, we will be adding more sedans to our fleet selector. We are also looking at the possibility of including a four-cylinder model," said a Midwest fleet manager.
As one fleet manager told me: "I think 2010-MY is going to be a very challenging one for fleet managers. Between the financial shape of the auto manufacturers and what might happen with them and the government mandates and where that will go, we will certainly need to be on our toes. It will be a great time to prove just how valuable fleet managers are to our companies!"
Let me know what you think.