The Car and Truck Fleet and Leasing Management Magazine

The U.S. Commercial Fleet Market Continues to be Strong

June 2016, by Mike Antich - Also by this author

Photo of Ed Peper courtesy of GM.
Photo of Ed Peper courtesy of GM.

Despite contraction among energy sector fleets, the overall assessment of the U.S. commercial fleet market is upbeat with forecasts that there will be a continuation of today’s steady pace of business activity.

“The market continues to be strong,” said Ed Peper, vice president of General Motors Fleet & Commercial Operations. “The market looks good for this year and into next year. We don’t see it diminishing at all, particularly for trucks, utilities, and vans.”

Industry-wide, new-vehicle sales are also strong with retail buyers, with the automotive industry experiencing record sales. “When the economy is strong; it is key to strong retail sales, along with readily available credit to buyers,” said Peper.

Although small business fleet sales are only one-tenth the size of the overall retail market, this segment is growing at a faster pace.

“Growth in vehicle sales to small businesses is up significantly more than retail,” said Peper. “Fleet sales to small businesses are through an OEM’s franchised dealer body. GM’s Business Elite dealer fleet business is up 17% this year.”

The one weakness in the U.S. economy is with corporate profits in some industry segments. “Corporate profits are mixed,” said Peper. “But this is offset by a big appetite of people looking to buy vehicles.”

Fuel Prices Forecast

One factor driving strong retail and fleet sales has been the ongoing low cost of fuel. The forecast is that fuel prices will most likely remain low through the 2016 and 2017 calendar-years. Some economists, for the first time, are now forecasting that fuel prices will remain low into the 2018 calendar-year.

One consequence to lower fuel prices is pressure from user groups to lobby for larger vehicles and use the fuel spend reduction as an offset to the higher acquisition prices.

Despite this, the majority of fleets continue to have strong fuel management programs even though fuel prices are low and are continuing to strive for higher average fleet-wide mpg.

Lower fuel prices are prompting fleets to reassess fuel consumption management and strategies. Typically, these consumption reduction strategies are long-term based on the use of telematics, driver behavior management, vehicle spec’ing, and lightweighting. These fuel consumption strategies are coupled with larger corporate strategies to reduce the carbon footprint of the fleet.
“We have had many larger companies who have expressed keen interest in our new Malibu. They are interested because of the Malibu’s looks, the value and the fuel economy of the standard 1.5L, 4-cylinder turbo engine. With a combined city and highway fuel economy of 31 miles per gallon, we have a huge advantage to sell over the competition,” said Peper.

Cost Containment Mandates

While fuel costs have decreased, the costs for most other fleet categories have increased, resulting in upward pressure on a fleet’s total cost of ownership.

Higher vehicle acquisition costs are resulting from government safety and fuel economy initiatives.

“Our strategic and focused approach for the commercial and government segments is centered on selling value. This approach is based on great products, innovative business solutions, and providing the most exceptional customer experience we can provide. In other words, the customer is at the center of everything we do,” said Peper.

Ongoing Concerns about Safety

Concerns about the safety of both the driver and the vehicle is a perennial top issue for almost all fleet managers. In particular, the lack of compliance by drivers with safety policy, specifically with cell-phone usage while driving.

In the connected world in which company drivers live and work, it is becoming increasingly challenging to enforce safety measures/policies aimed at reducing distracted driving.

This concern about driver safety is translating into the types of vehicles that fleets are buying.

“I see fleets ordering more safety equipment on vehicles,” said Peper. “The top safety options are backup cameras, lane departure warning, front-end collision avoidance, and blind spot monitoring.”

Another growing trend is the convergence of safety and sustainability, in that safer driving results in better fuel economy, which produces fewer emissions. Safety and sustainability are playing a larger role in fleet considerations because they are being driven by directives from corporate senior management, who recognize the value of both to their employees, customers, and shareholders.

Companies are continuously seeking ways to lower collision incidents and provide adequate training for drivers without increasing cost.

Fleet Decisions by Procurement

Today, procurement or strategic sourcing is very influential in vendor selection, contract negotiations, service-level agreements, and ongoing supplier management.

As the years have passed, procurement is now the new engine of change in fleet management, which has resulted in dramatic changes in the fleet purchasing and supplier selection process. There has been an ever-expanding influence and role of the sourcing/procurement in the fleet-specific decision-making process.

Not all procurement influences are bad, but sometimes the traditional fleet management factors, such as total cost of ownership (TCO), are not considered when making decisions.

Model Preferences are Shifting

Among U.S. fleets, there are shifting fleet preferences in vehicle segments. For instance, there is a growing acceptance of crossovers as a commercial fleet vehicle. Once crossovers were considered an upgrade, but these vehicles are now in fleets in representative numbers similar to the retail industry.

“Fleets are buying crossovers in big numbers, and they’re being offered on selectors. Crossovers continue to be a very popular choice for many fleets,” said Peper. “They’re not a luxury model, they simply make good TCO sense because of their versatility and strong residual values.”

Another ongoing trend in the U.S. is downsizing to smaller classes of vehicles and to smaller displacement engines. One example of the downsizing trend has been the fleet purchases of the Chevrolet Cruze.

“We have a brand-new Chevrolet Cruze that is coming. We’ve sold thousands of Cruzes during the past few years. It’s a very good vehicle for the health and healthcare industry. Even some pharmas have gone from mid-size cars to smaller cars, such as the Cruze,” said Peper.

Another challenge has been the decreased number of “minivan-sized” vehicles available for fleets — both in cargo and passenger models. Despite product availability constraints, the minivan and full-size van market continues to experience strong fleet demand.

"We’ve had really steady sales with Chevrolet City Express. The City Express has been a solid addition to our portfolio. There are a variety of different companies buying the City Express, such as delivery services, catering companies and bakeries,” said Peper.

Photo of a Chevrolet Cruze courtesy of GM.
Photo of a Chevrolet Cruze courtesy of GM.

Strong Fleet Demand for Trucks

In the U.S., truck sales are strong in both the fleet and retail market. One consequence to that strong buyer demand for trucks sometimes exceeds chassis availability for commercial vans and mid-size trucks.

“We do not foresee a shortage of trucks. We have made significant investments to many of our assembly plants. For example, Wentzville assembly is running three shifts and working six days a week,” said Peper. “We are continuing to look at every way that we can increase our commercial van and truck production.”

In addition to ordering concerns, truck fleets are constantly scrambling to stay current with the ever-changing safety and environmental regulations to ensure compliance.

Increasing regulations, in general, at the jurisdictions below the federal level has been a trend for years and is continuing unabated. States and local municipalities continue to add (or revise existing) regulations, to address public safety or otherwise exert control over segments of the industry for the public good, or to increase local tax/fee revenues without affecting the local voting citizens. These efforts add direct costs to the companies in the form of compliance fees and expenses, and indirect costs in decreasing driver efficiency.

Other legal and regulatory issues are broaching new ground, leaving fleet managers confused as to how to handle various situations. One example is the medicinal use of marijuana or the legal recreational use of marijuana in the state of Colorado, Washington, and Oregon.

In addition, if a company operates a Class 3 or larger truck fleet, there is a never-ending series of changes to federal motor carrier safety regulations (FMCSR), with the new hours-of-service (HOS) rules being the most recent example. These regulatory changes cover a wide variety of fleet management functions ranging from environmental to privacy to compliance issues.

One regulatory change that will impact the management of commercial vehicles is the 2017 electronic logging device (ELD) implementation and management.

One growth area that GM is forecasting is in the medium-duty truck market, which the company recently re-entered with the announcement that Chevrolet now offers seven low-cab forward medium-duty trucks in the U.S.

The seven new models — Chevrolet 3500, 3500HD, 4500, 4500HD, 4500HDX, 5500HD, and 5500HDX — are based on the Isuzu N-Series, which General Motors will procure from Isuzu and distribute through Chevrolet dealers.

“The Low Cab Forward product is a very good vehicle for use in urban settings. Delivery and service fleets will love this product. In addition, you will see a lot of landscaping companies, particularly in major markets, wanting this Low Cab Forward truck. The maneuverability and driver visibility of this product is absolutely great,” said Peper.

In addition to the new Low-Cab Forward trucks, Chevrolet’s fleet and commercial choices include the full-size Silverado lineup; the Silverado 2500HD and 3500HD full-size chassis cab models, and the mid-size Colorado, as well as the City Express small van and Express/Savana full-size vans.

“Within the full-size van segment we continue to see increased demand for our cutaways. We have several major customers that continue to consistently purchase from us, for many of the reasons I previously mentioned; dependability, durability and total cost of ownership,” said Peper.

Telematics Makes Inroads

The amount of new technology being introduced to fleet vehicles in the U.S. is daunting, especially if a company operates an in-house maintenance facility.

One challenge facing fleet managers is keeping up with technology. Every year, more and more technology is added into vehicles. If a fleet manages its own fleet repair shop, techs need to keep up with training.

As the cost for telematics declines, both for hardware and the monthly service expense, the usage of telematics is growing among fleets. More fleets are utilizing vehicle telematics to improve driver behavior and operational efficiencies.

Telematics and the software embedded into a vehicle allows tracking a vehicle’s whereabouts, and even the driver’s driving habits.

“There continues to be a strong focus on telematics,” said Peper. “GM has a special offer with Telogis providing the telematics service free for 30 days on GM products.”
Another trend in the U.S. fleet market will be the generation of predictive information through telematics connections with engine diagnostics.

Softer Resale Values

The fleet industry has enjoyed a strong used-vehicle market for several years as demand in the wholesale market has exceeded inventory supply. However, the increase in used-vehicle supply due to the high volume of trade-ins resulting from record new-vehicle sales and off-lease vehicles returning to the market will cause prices to soften.

New-vehicle sales are soaring, and many of those sales are retail leases, in which the off-lease retail units will find themselves much quicker back in the wholesale used-vehicle market than they would if owned by the consumer.

In addition, the record number of new-vehicles sold is increasing the number of trade-in vehicles that enter the wholesale used-vehicle market.

Many companies have been adjusting their depreciation downwards over the past few years based on the very strong used-market potentially pushing fleets to extend their lifecycles as the used-market weakens.

Editor's note: This article first appeared online in the Q1 - Q2 Global Fleet Market Conditions supplement magazine June 2016.

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