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2009 Order-to-Delivery Times Battered on Multiple Fronts

September 29, 2009, by Mike Antich - Also by this author

By Mike Antich

The multitude of factors buffeting order-to-delivery (OTD) times for commercial fleets during the 2009 model-year were breathtaking and historic.

First, the economy went into a freefall in fourth quarter 2008 and first quarter 2009, depressing retail sales. Initially, this benefited fleet OTD by freeing production capacity to build fleet units faster. However, commercial fleet sales volume also decreased more than 40 percent in the 2009 model-year. The low sales volume for both the retail and fleet markets caused shipping delays by increasing the time required to assemble full loads of vehicles for shipment by railcars and truck transporters.

Second, the voluntary Chapter 11 bankruptcy filings by General Motors and Chrysler shuttered their assembly plants during the reorganizations. In turn, these assembly plant closures caused many component suppliers to temporarily suspend or slow production, resulting in decreased supplier parts availability.

Another factor impacting 2009 OTD was the large number of dealer closures, which required rerouting some vehicles to other courtesy delivery dealers.

These were among some of the findings from Automotive Fleet's 10th annual OTD survey. Seven fleet management companies provided data for this year's study:

● Automotive Resources International (ARI).

● Donlen Corporation.

●Emkay Inc.

● GE Capital Fleet Services.

●LeasePlan USA.

●PHH Arval.

●Wheels Inc.

The survey tracked deliveries for 114,323 new vehicles in the 2009 model-year, representing 92 models. The models selected were those with more than 1,000 units registered to commercial fleets the prior model-year.

OTD time for cars was calculated from the day an order was placed with a factory to vehicle delivery to a dealer (not driver pickup). Truck OTD was calculated from order placement to delivery to an upfitter or, if no upfitting was required, to a dealer. The days spent at an upfitter were not included in truck OTD times. An industry average was calculated for each model tracked, based on information provided by participating fleet management companies.

Factors Influencing 2009 OTD

To say the 2009 model-year was a difficult year for new-vehicle deliveries would be an extreme understatement.

"It was a challenging year  for our clients as we helped them maneuver through the effects of high fuel cost, manufacturer bankruptcies, assembly plant closures, shipping delays, and dealer closures. We took great care to identify potential risks, as well as build and execute strategies to minimize any disruptions to us and our clients," said Jan Freund, director, manufacturer relations for Wheels Inc.

This sentiment was echoed by Jim Tangney, VP - vehicle acquisitions for Emkay Inc. "The 2009 model-year was a difficult year for everyone. The beginning of the 2009-MY started very similarly to the end of 2008 with order volumes somewhat moderate. As the year progressed, the economy set the stage for what would turn out to be a very challenging year for manufacturers, fleet management companies, and end-users."

On April 30, when Chrysler filed for Chapter 11 bankruptcy protection, it shut down production at all assembly plants, some for up to 12 weeks. GM, likewise, closed its assembly plants during its Chapter 11 reorganization. Earlier, the OEMs extended their holiday plant downtimes beyond December into January. These multiple plant closures caused extended delivery delays for the tail-end of the 2009 orders. 

Carolyn Edwards, director of operations for LeasePlan USA, cited plant closures as a key factor affecting OTD.  "The 2009 model-year vehicles, primarily with our domestic partners, presented a challenge due to plant shutdowns caused by Chapter 11 bankruptcies." 

However, the fact the voluntary Chapter 11 reorganizations by GM and Chrysler occurred late in the model-year helped mitigate the impact of the closure of all their manufacturing plants.

"Overall, the order-to-delivery times were about the same or perhaps even a little quicker in 2009 as compared to 2008. The two OEM bankruptcies did delay a few units' OTD times due to plant shutdowns," said Marnie Korlath, manager of manufacturer and dealer relations for GE Capital Fleet Services.

In addition, GM, anticipating the voluntary Chapter 11 filing, moved up its fleet production, which further helped mitigate the impact of the extended plant closures.

"Leading up to its bankruptcy filing, General Motors cut retail production and prioritized fleet production in an effort to get as many vehicles as possible built and shipped prior to the filing. And as soon as Chrysler filed, we also began tracking and expediting GM vehicle orders at every step in the manufacturing and delivery process. Due to the coordinated efforts and actions taken by our operations and account management teams, GM, equipment upfitters, and clients, we had very few vehicles in the pipeline," said Freund.

However, the impact of the plant closures varied by manufacturer.

"Chrysler's plant shutdowns were immediate, and GM's plant closings were sequential for the most part. We worked closely with both GM and Chrysler to produce and ship as many vehicles as possible before the plants closed. GM, in particular, was able to build most fleet vehicles prior to plants shutting down.  In most cases, customers were provided the option to cancel orders that could not be built and alternatives for consideration," said Rick Shick, vice president of purchasing for Donlen Corp. 

Another key factor impacting 2009 OTD was the collapse of retail sales and a concurrent decline in fleet sales due to widespread corporate cutbacks in capital expenditures.

 "A decrease in demand for vehicles, both in retail and fleet segments, combined with the financial difficulties experienced by manufacturers and parts suppliers, led to significant plant downtimes, permanent plant closures, and/or production shifts to alternative plants. In addition, some transportation delays occurred due to challenges assembly plants experienced in creating full loads for vehicle shipments," said Linda Tiberi, manager of motor company relations for PHH Arval.

 The decrease in retail demand allowed OEMs to build fleet vehicles faster due to increased production capacity.

"The timing of the Chrysler and GM bankruptcies along with low new-vehicle demand lessened the impact. By communicating up-front with our clients, most understood the issues and options and were patient with the process," said Tangney of Emkay. "In those emergency situations where truck or SUV units were really needed, GM stepped up and offered a one-for-one out-of-stock replacement program that allowed price protection on a stock purchase that replaced a delayed factory order.  GM, in turn, would take the factory order into its inventory if the vehicle could not be cancelled. Chrysler put in place up-front restrictions and did not allow orders to be cancelled unless the client's Chrysler rep approved it. If a client needed stock inventory, we had access to some of Chrysler's produced vehicle inventory to offer clients a vehicle at factory pricing. Both manufacturers did a great job communicating with our mutual customers and us as they went through the process," added Tangney.

One common reaction to the economic downturn was for fleets to extend the service lives of fleet vehicles.

"The combination of the recession and high fuel prices significantly increased fleet operating costs and led to extended cycle times. Additionally, the bankruptcies of GM and Chrysler, plant closings, and dealer closings all played a part in a very challenging and unprecedented model-year," said Dave Nagy, senior VP fleet assets for Emkay Inc.

All fleet management companies worked closely with fleet managers in advance of the bankruptcy filings, encouraging client fleets to order early.

"The impact of plant shutdowns was significant. Working closely with the manufacturers, we identified delayed vehicles and communicated any delays to our clients. In most cases, we found the manufacturers to be flexible with their cancellation policies. If a client chose not to wait for a factory order to be built, we found vehicles on the ground through bailment pools and out-of-stock purchases through dealers. Similar to a new plant starting up for the first time, plants reopening after an extended shutdown take time to ramp up, and vehicles go through a quality hold coming off the line. The most important thing we can do is keep our clients informed so they can plan accordingly," said Bob White, VP operations for Automotive Resources International (ARI).

In addition, GM and Chrysler worked closely with fleet management companies and fleet managers prior to the actual bankruptcy filings.

"GM and Chrysler spent a significant amount of time advising all fleet management companies of production delays and status of the bankruptcy filings. The overall impact resulted in delivery delays and a reduction in factory orders. The manufacturers were very proactive in working with LeasePlan to accommodate our clients' immediate inventory needs from out-of-stock dealer inventory. The key to managing through the plant shutdowns and Chapter 11 bankruptcies was communication from the manufacturers," said Edwards of LeasePlan USA.

Impact of Shutdowns on Upfitters

The plant downtimes also caused vehicles to be delayed in reaching upfitters.

"The Chapter 11 shutdowns forced the upfit suppliers to coordinate placing vehicles back into manufacturer transportation (traffic). This caused a delay in getting vehicles assigned to delivery dealers. Currently, there is a marked improvement in this area because both manufacturers have exited Chapter 11 and resumed standard transportation procedures," said Edwards.

 In addition, plant closures and reduced production delayed transporters in making deliveries to dealers. 

"Forming full vehicle loads was a significant issue in transporting vehicles.  Additionally, extended downtimes at certain plants created challenges for upfitters in scheduling their work," said Tiberi of PHH Arval.

The impact on upfitters increased as plant closures continued into subsequent weeks, increasing lead times.

"Initially, we experienced faster than normal turnaround times on upfits because body companies were better staffed. But, later in the year, lead times increased as body companies adjusted staffing and production line rates to meet lower demand. Body company pool inventories depleted quickly as client fleets opted for pool vehicles rather than placing factory orders that had uncertain lead times/production dates," said Tangney of Emkay.

Ultimately, upfitters were forced to reduce staffing due to decreased volume.

"Many upfitters had to adjust overheads through layoffs and shift reductions due to the lack of volume," said White of ARI. 

One alternative exercised by many fleets was increased use of upfitter pools.

"GM ship-through/bailment pool suppliers realized a slight uptick in pool inquiries. The GM Wentzville plant continued to ship cargo vans to the upfitter as a result of the significant order volume in place prior to the filing. Other GM product lines had order volume low enough where the impact was minimal. We believe some customers decided early in the process to simply wait for GM's emergence from the filing in anticipation of it being relatively short-lived," said Ken Gillies, manager truck operations for GE Capital Fleet Services.

"Dodge trucks and cargo vans had a bit of a different experience. Since the news reports of their impending filing preceded the actual event by more time than in GM's case, customer order plans were modified further in advance, lessening the impact," added Gillies. "Coupled with a relatively low inventory level at truck bailment pool suppliers, overall OEM activity was correspondingly lessened."

Reduced Dealer Footprint

The downsizing by OEMs of their franchised dealer networks also negatively influenced fleet OTD times.

"To combat a shrinking dealer network, GE created a robust process to divert in-bound units from going to closing dealers and encouraged our customers/drivers to pick up their vehicles as soon as possible. This process helped keep the increase to OTD times to a minimum," said Korlath of GE Capital Fleet Services. 

Finding new dealers to replace closed dealers to take ordered vehicles, especially cargo vans and light trucks, lengthened OTD times.

"Cargo vans and light trucks that required completion of ship-through upfitting by a dealer prior to final delivery experienced some additional complications. Finding a replacement dealer in these cases extended some of the overall cycle time," said Gillies of GE Capital Fleet Services. "In other cases, additional time was required to provide drawings and instruction for installation of ladder racks and other equipment. On average, these situations added only one or two days to the OTD cycle time."

The downsizing of the dealer network influenced OTD times in other ways.

"In some cases, dealer closings required the set-up of new dealers before orders could be transmitted to the motor company. Also, dealer closings frequently required diverting units to alternate dealers, which meant additional delays when units had already been delivered to dealers who were going out of business," said Tiberi of PHH Arval. 

All of the fleet management companies developed plans to deal with vehicles diverted to other dealers.

"We managed through dealer closings by re-routing vehicle deliveries to a more stable dealer network. Identifying those dealers that are fleet-minded while providing a solid delivery experience for the fleet drivers is an ongoing initiative," said Edwards at LeasePlan USA.

In some cases, fleet management companies had to work with the manufacturers as vehicles were held at final delivery ramps awaiting a new delivering dealer.

"Some manufacturers were not providing communication from their delivery ramps to the Detroit fleet offices so we could be alerted promptly the dealer was on hold. Once recognized, the change of ship-to dealer to a replacement dealer was expedited," said Tangney of Emkay.

However, diverting vehicles in transit to other dealers lengthened OTD times.  "It can take several days for a manufacturer to process a dealer-divert if the vehicle is already scheduled or in-transit. To minimize dealer-diverts and mitigate the risk of delays during the restructuring, we closely monitored each vehicle and enhanced our everyday practice of reviewing dealer conditions and updating our delivering dealer network to reflect the most recent information," said Freund.

The biggest disruption occurred when Chrysler announced the termination of 789 dealers. "We had to make arrangements to divert some vehicles on order rather quickly. We took every action available to mitigate the effect of sudden dealerships closing on clients. The other domestic manufacturers have been reducing their dealer networks more gradually, which has had little impact on OTD times," said White of ARI.

Delays in Transportation

Other segments of the supply chain stressed by the disruption in production were railroad and vehicle transport companies.

"Some vehicles had longer shipping times due to the challenge that plants had in creating full loads in transporting vehicles to upfitters and/or dealers," said Tiberi of PHH Arval.

In addition, the ongoing shortage of railcars persisted in model-year 2009.

"Over this past year, many railcars have been removed from the system as transporters try to 'right-size' railcar needs with vehicle order volumes. Fewer railcars, inconsistent plant production, and down weeks led to situations where railcars were not always available and times when railcars were waiting on full loads before shipping," said Nagy of Emkay.

Railroads, in particular, had difficulty adjusting to the decreased demand and delayed shipments until full loads were assembled.

"In the past, a decline in retail demand for goods and services loosened up the availability of railcars. This time, the severity of the downturn resulted in manufacturers being unable to build full loads and carrier companies reducing shipments," said Freund of Wheels.

ARI's White cited a similar factor. "Railcars are not moving unless they have enough vehicles to fill out a complete load. This caused shipping delays."

Despite these issues, OEMs did an admirable job in minimizing the disruption. "There were a few rail-related issues in transporting new models to market, but those issues generally were results of plant closings/downtime. The manufacturers and their logistics personnel worked with us to minimize the delays," said Shick of Donlen.

Models with Increased OTD

The vehicle segment experiencing the greatest delays was trucks.

"Most of our delays were related to GM vans, trucks, and large SUV models as well as select Chrysler models. The delays were mainly attributed to low order volumes that led GM and Chrysler to extend their holiday plant downtimes in December and January. Additionally, both manufacturers stopped production in late spring as they began to transition through their bankruptcy process. The bankruptcy process also led GM to expedite several assembly plant closings," said Nagy.

Another vehicle segment experiencing delays was hybrid models.

 "Some hybrid vehicle orders required special approval, and consequently, delivery took upwards of four to six months. One of the reasons for the delay was due to limited battery availability," added Freund of Wheels.

Korlath of GE Capital Fleet Services cited the same factor. "The Escape Hybrid went from 111 to 234 days as a result of Ford holding fleet orders until fourth quarter 2008 or first quarter 2009. The Chevrolet Equinox also doubled in OTD time due to plant downtime; GM's plant in Ingersoll, Ontario, was shut down from Oct. 20, 2008 to Dec.1, 2008 with the exception of one week in November, and was also shut down the first six weeks of 2009 calendar year."

In addition, demand for some hybrids exceeded production capacity.

"The model with the largest increase in order-to-delivery was the Escape Hybrid, due to demand exceeding production capacity. We also experienced significant increases on Toyota Camry and Sienna, attributed to specifications not matching commercial pool specifications," said Shick of Donlen.   

OTD for Import-Badged Models

OTD times for import-badged models did not differ significantly from those in 2008.

"There were no significant changes for import-badged models," said Tiberi of PHH Arval.

Transit time from overseas factories continues to be the key reason for longer OTD times for import-badged models.

"Vehicles produced outside North America always present longer lead times due to the sheer distance of travel. To offset this, some import manufacturers have a pool of the more popular models and trim levels to draw from. The vehicles produced in North American plants have maintained consistent OTD times in 2009," said White of ARI.

However, the volume of import-badged models used by commercial fleets built in the U.S. continues to increase, resulting in faster OTD times.

"The order-to-delivery timeframes for import-badged models had some improvements. Contributing to the improved order-to-delivery is the shift in producing more models in the United States," said Edwards of LeasePlan USA.

In addition, import-badged OEMs improved utilization of vehicle pools.

"Toyota OTD decreased based on better pool availability; other vehicle types had no significant changes," said Korlath of GE Capital Fleet Services.

Another OEM with improved pool capabilities was Volvo.

"Volvo S60 improved considerably this past year as a result of increased pool availability. Toyota reduced order-to-delivery times on Camry Hybrid and Prius by adding them to the commercial pool," said Shick of Donlen.

What Still Needs to be Done

Although many processes have been implemented by OEMs and fleet management companies to decrease OTD and improve vehicle tracking, much more still needs to be done.

"In addition to OEM production and logistics initiatives, an increased emphasis on planning, communication, and coordination would improve OTD," said Shick of Donlen. "Forecasting is a great idea, but difficult to implement. If each OEM would provide accurate lead times including communicating changes, it would be extremely helpful. Providing status electronically and incorporating logistical data that would flag delayed vehicles, such as at a ramp, would be a welcomed enhancement. Expanding pool availability and increasing pool utilization will further improve OTD. Increasing prioritization of fleet orders would also positively impact OTD." 

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