The past year has been one of great change in the auto industry, change that affects fleets and the policies toward company-furnished vehicles. In little over a year, gas prices have hit the dollar per-gallon mark and currently have stabilized somewhere around $1.30 per gallon. Interest rates hit a high of 20 percent in late spring, only to recede to the 12 percent level by early summer.

The changes have been quick and vast in magnitude, causing fleet executives to make fast decisions on matters that will cost thousands of dollars. The wrong decision can have a profound impact on the operating costs of a fleet for years to come. Rather than evolutionary, the changes forced on the fleet market by the swings in the marketplace (from full-size to compact and subcompact cars, from eight to four cylinders) have been revolutionary, and long-standing fleet policies literally have to be rewritten overnight.

To gauge the impact of the past year's events on the industry, Automotive Fleet polled a number of its Top 100 fleets to find out if there had been any changes in fleet policy since the first of the year and, if so, how that has affected the replacement cycle, how much of the fleet is affected and how the drivers react to the change.

The responses garnered in this information survey seemed to be divided into two camps, those that had made changes since the first of the year or at the beginning of the 1980 model year and those that are keeping policy basically the same and waiting to see how smaller cars perform under their standard cycles.

One of the fleets that did change its policy at the start of the 1980 model was Eastman Kodak Company, according to the company's fleet administration manager, H. Scott Thomas, Jr.

"For the last several years we have been replacing vehicles at 65,000 miles or four years," he said. "We also have been in the downsizing process during the last three to four years." He said the first step in the process was from full-size V8-equipped to large-size intermediates also with V8 power. "This did create a morale problem when we bought those 'little' cars. When we again downsized, commencing with the 1978 model year, to intermediate six cylinder cars, there was even a greater morale problem."

At the beginning of the 1980 model year the company changed policy in an effort to cope with the morale problem. "In an effort to combat this, when we added the General Motors X-body cars to the car selector list starting with the 1980 model year, we decided to replace the four cylinder X-body vehicles at 50,000 miles or three years," Thomas said. "We did this in an effort to encourage our drivers to choose them over the intermediate six cylinder vehicles. As it turned out, that was entirely unnecessary as they (X-cars) were very well received by our drivers and we ended up ordering more than we would get."

While the response was favorable regardless of the new replacement cycle, Thomas said the company will retain the new policy. "We are not sorry that we changed the program on the compact to the 50,000-mile, three-year policy, however, as we feel they will bring a much better return on the used car lot when the time comes. We are staying with the 65,000-mile, four-year program on intermediate six cylinder vehicles."

The impact of the smaller cars has yet to be felt, as Thomas indicates that only 150 of the fleet's 3,600 units are X-cars. "The effect will not really be felt as far as fuel economy and depreciation are concerned for another year as we get more X- and K-body cars, and start selling them a couple of years from now."

While he anticipates greater economies from the more efficient front-drive compacts down the road, the initial reaction in the field "has been most favorable."

Ron Pink, fleet manager for Xerox, reports that his company has changed car policy since the first of the year. "We have decided to migrate toward a fuel efficient '81 model starting during October of 1980 and running monthly (the change in models) through May of 1981. In total, we will replace about 5,000 vehicles during this period. This means the vehicles being replaced will have had a service life of 18 to 24 months."

That shorter replacement cycle will continue even with smaller cars, according to Pink, as a function of the used car market. "We believe there could be a perception problem with future used car buyers towards the smaller but more fuel efficient vehicles," Pink said. "This could result in an accelerated trade-in of vehicles resulting in a 12- to 18-month life. Our feeling is a 40,000-mile-plus small vehicle will not have the resale appeal of a 20,000- to 30,000-mile small vehicle."

But that attitude may change. "The used car buyer will have to learn, however, that the smaller vehicles of tomorrow are durable and will offer a long and useful life," he said, adding that "our concern is, however, that this will take time to understand and for the used car buyer to get used to."

While some fleets are going to shorter replacement cycles on their small cars to retain the vehicle's attractiveness on the used car market, Bob Sumner, fleet manager for Georgia Pacific, said his company has changed its fleet policy and will run its vehicles longer.

"The driver must have 90,000 (on the car) before starting the ordering process," Sumner reported. The previous policy was a 75,000-mile cycle. "It will increase car life approximately nine months," he said of the move. The drivers' reaction has been positive, though they have voiced some disappointment.

Helen Bland, fleet administrator for Hallmark Cards, said her company is retaining the present policy of 60,000 miles, although by sticking to that policy the company had suffered some losses when it traded some of its large cars during the current used car market slump. "This current slump is worse than ΄73-΄74," she said. "Back then it lasted only one spring selling season. This one has lasted two now." In making the decision to go ahead and trade in the large cars now, Bland said she felt that the market isn't going to get better. As far as overall costs are concerned, a longer cycle on large cars is possible. "It does save (money) to go beyond 60,000 miles" she said. "Actual maintenance costs aren't that much. But," she cautioned, "you can't afford to have a lot of downtime." The downtime costs in the driver's productivity, and although the cost isn't readily apparent, it exists nonetheless. "You have to hit a happy medium" between getting the most miles out of a fleet vehicle and yet not going beyond the point where it costs in keeping the driver off the road.

As part of the program, Bland said her company is moving to the smaller cars with smaller engines. They are currently considering changing the policy for the small cars to 55,000 miles. However, before changing policy, Bland said she is waiting to see how the smaller cars hold up under the current cycle.

Floyd Piper of 3M reported that current market conditions have resulted in a change in their fleet policy toward vans and large station wagons. "We discontinued replacement unless absolutely necessary because of poor used (vehicle) market demand for these types of units," Piper said. "It is our intent to continue operating these units until condition dictates we replace (them)."

The used vehicle market has been under close scrutiny by Piper, and if current trends continue, yet another decision has to be made. "In the case of vans, we will continue to watch the used vehicle market closely, and if it continues to be soft, we may totally recondition and drive the vehicles an additional 50,000 to 75,000 miles."

This change in policy will result in approximately 500 to 550 units remaining in service that otherwise would have been replaced. "The reaction from the field was nil," Piper said of the policy change. "This was probably due to the fact that the full size wagons would have been replaced with compact or intermediate size (vehicles). Naturally, we will have to replace these units sometime in the future, and it is our estimate we will enter the market in 1981 or early 1982."

Among those administrators reporting no change in replacement policy was Doug McLeod, manager, corporate business travel for Honeywell. While the basic replacement policy is unchanged, model availability has caused some changes in the buying patterns at Honeywell.

"We still use 65,000 miles as the replacement guideline for cars and 100,000 miles as the guideline for light trucks," McLeod said. "That has been our policy for several years now. Our fleet administrators and myself have been more agreeable to early change-outs (trade-ins) on an exception basis, however, as a means to speed up the transition to more fuel efficient vehicles and continue the rise in our overall fleet miles-per-gallon rating."

However, new car deliveries have caused the company to shift new car ordering from spring to fall. "The extraordinary delivery times of the GM X-cars and most vans have influenced us to place more of our orders into the fall buy. That will also eventually influence our actual replacement mileage," he said. This situation affects approximately five percent of the fleet's cars, and some trucks are also affected by long delivery waits. "A switch to six cylinder engines as standard on trucks previously ordered with eights may add to the five percent figure as the smaller engines make 100,000 miles a 'stretch' (in other words, stretching the limit) target."

There has been little driver reaction to the changes brought about by the availability question. "Since we've had no appreciable change in policy, there has been little or no driver reaction noted," McLeod said. "I do hear some skepticism from the field about the ability of the six cylinder trucks to go the distance, but we won't be able to confirm or deny that for another year or so."

Two other fleets that have not changed their policies are Tenneco, handled by J.R. Gudelman, the company's purchasing manager; and State Farm Insurance, under the direction of Thomas D. Sours, superintendent of the company fleet.

"We are not presently planning a change in replacement policy for our fleet," Gudelman reported. "We stand at three years or 50,000 miles. We do plan to make certain changes in the size of vehicle, pending certain restrictions of the new model year."

"We have not changed our company car replacement policy since the first of 1980," Sours said. "We are formulating our plans for the 1981 model year and do not plan extensive changes in our current replacement policy. Our basic policy is to keep our cars three model years or until they reach a mileage in excess of 47,000 miles and under 50,000 miles. In addition we also sell or trade some cars prior to this time if they meet certain requirements."

Under this policy, Sours expects to replace approximately 45 percent of the company's 5,800 vehicles during the 1981 model year.

Also reporting no change in policy was Jack Lamb of Exxon, who added that the company has been moving to smaller, more efficient vehicles over the past several years.

"We have not significantly changed the cycling of our fleet for the past couple of years."Lamb said. "We did go 100 percent with six cylinder engines starting with the 1978 models. We also put in a small number of X-cars this model year, mostly in locations where we have a motor pool or in-plant operations. Otherwise our passenger fleet is composed of intermediate cars.

"For the past 10 years, our policy has been to replace all, or as much of our yearly requirements as possible, at new model introduction or as soon thereafter as possible. This has usually meant that the bulk of our orders go forward in June, July and August," he said.

Since the bulk of the vehicles are ordered and delivered in the fall cycle, Lamb said the current slump in the auto industry has not really affected Exxon's fleet operation. "We are acutely aware of the current economic conditions in the car business," Lamb said. "However, the greatest impact (on the auto industry) has occurred since we replaced 85 percent of our current year's requirement. For those occasional units required (additions to the fleet, replacement of wrecks, etc.), we have had to make some compromises in equipment and in some instances accept another make to fill our needs. Particularly critical for us this model year has been the unavailability of desired configurations in light and medium trucks. As with the cars we have ordered since the first of the year, plant closings and associated production delays have stretched our lead times significantly."

The slowdown in the used vehicle market has also been a problem, according to Lamb. "The used car market has been particularly difficult with disappointing price levels, especially for units with eight cylinder engines and the newer units with high mileage. Looking at 1981, we are currently reviewing our policy, but final decisions are not expected before June. Hopefully, by then there may be some clearer signs as to what we may expect."

W.M. "Mac" Wilson of United States Steel Corp. said his company hasn't changed policy because it has no fixed month/mileage replacement criteria. "Actually we embarked upon our present replacement policy some years ago when we came to the realization there really should not be anything sacred about a fixed number of miles and/or a fixed number of months as a replacement criterion," Wilson said. "It was then, and still is, our thought that cars, all aspects considered, should be operated as long as they economically and safely can be operated; much depending upon the driver, the individual vehicle and vehicle usage in our diversified operation.

"Our replacement policy is one of maximum flexibility. It is really quite simple," he explained. "When a vehicle becomes uneconomic or unsafe to operate, we remove it from service. If it has a good, safe, economic and useful life remaining, we continue it in service."

From a structured month/mileage policy to that of total flexibility, fleet administrators have a myriad of options to choose from. In the rapidly evolving car market, with so many variables changing so quickly, the challenge of the '80s will be choosing the policy that is best tailored to and reflects the needs of each individual fleet.

 

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