Commercial Fleet Buying Intentions for the 2006-MY
Business is good at many companies. In a survey of 80 commercial fleets, 83 percent said their 2006-model year fleet buy will be the same or greater than what they purchased in 2005-MY. Of these 80 fleets, almost one-third, (29 percent) said they would be buying more vehicles, primarily due to favorable economic conditions at their companies.
One example is Norfolk Southern Corp. “I am hoping to purchase more vehicles in 2006 because business levels are strong and we are currently behind in our replacement schedule,” said Lee Ann Brooks, manager of fleet for Norfolk Southern Corp. in Roanoke, Va.
Of the 17 percent of commercial fleet managers who said they would be buying fewer vehicles than 2005, the majority said the reason was that 2005-model year purchases were greater than normal.
“We will probably purchase considerably fewer vehicles in 2006 than we did in 2005, but not because of business concerns,” said Jim McCarthy, director, vehicle management services for Siemens Shared Services in Iselin, N.J. “Due to the recent departure of the
Astro/Safari van, we accelerated turn-in parameters and re-filled our bailment pool so that we could cover the immediate and short-term needs of our Siemens Building Technologies fleet. These two strategic decisions drove our purchase volume up 32.7 percent higher than usual in 2005.”
Another reason commercial fleets give for smaller buying volumes in 2006 is the cyclicality of their fleet buy. One example is McDonald’s Corp. “We are planning to buy slightly fewer vehicles in the 2006-model year. The reason is cyclical – approximately every third year is a larger purchase than the previous two,” said Sue Miller, senior manager – domestic fleet for McDonald’s Corp. in Oak Brook, Ill.
Other reasons given were decreases in fleet size due to reorganizations and post-merger integration of separate fleets. Also, several significant fleets have put their 2006-MY fleet buys on hold as they undergo merger negotiations.
However, the overwhelming majority of the surveyed commercial fleets report they plan to buy the same volume of vehicles as last model-year or more. Here are 15 factors that are influencing 2006-MY fleet buying decisions.
1. Business is Good
The majority of the surveyed companies report that business is good. One example is Baker Hughes. “If business stays as positive as it is currently, I anticipate buying more in 2006. We will be adding new vehicles to our fleet as opposed to just replacement of older
vehicles,” said Brenda Davis, strategic sourcing commodity manager, fleet & temporary services for Baker Hughes Business Support Services in Houston.
Likewise, ABM Industries will acquire more vehicles due to the expansion of its business, said Ellie Walsh, vice president and director of administrative services for ABM Industries Inc. in San Francisco. Similarly, Labcorp reports it will acquire more vehicles due to a sales force expansion.
2. Fleet Incentive Programs to Influence Magnitude of Fleet Buy in 2006
As of press time, no manufacturer has released its 2006-model year fleet incentive program. But many fleet managers said the amount of new vehicles purchased in 2006-MY would be contingent on bids by manufacturers. They say if bids are similar to last year, then buying for 2006 will be about the same as 2005.
“If the manufacturer bids for our business are similar to last year, then our buying should be the same. If someone gets aggressive, then all bets are off,” said one fleet manager of a Top 100 fleet who wished to remain anonymous.
Shelly Lofgren, fleet manager – North America for Honeywell International Inc. in Minneapolis, Minn., agrees. “At minimum, I don’t see a change in 2006-MY orders. However, if the incentives are enough to justify replacing more quickly, then my orders could increase.”
3. Finding a Replacement for the Astro/Safari Minivan
Many fleets are struggling to find a replacement vehicle for the discontinued Astro/Safari minivan.
“This is a major issue considering that 36 percent of our active Siemens Building Technologies fleet is Astro/Safari, and that 31 percent of our annual purchasing volume for all of Siemens was Astro/Safari,” said McCarthy. “Since there is no replacement for the Astro/Safari, we are grappling with a series of alternative choices, though nothing has been finalized.”
Other fleets, likewise, made early replacements of the Astro/Safari models in their fleets in 2005, similar to Siemens.
“Because the Astro was to be discontinued after the 2005 model, we did early replacements for those drivers who absolutely had to have a mini cargo van,” said Lofgren.
One alternative choice of vehicle for the Astro is a pickup. “We are switching to the Colorado pickup to replace the Astro van,” said Jack Woods, director of purchasing for Inter-Tel in Tempe, Ariz.
Other fleets are examining the Dodge Sprinter as a replacement to the Astro/Safari. “Since the Chevy Astro has been retired, that puts a wrench in my vehicle selection,” said Leigh Blake, fleet manager for Sugar Loaf/Folz Vending (American Coin Merchandising) in Louisville, Colo. “I will have to find a suitable replacement and there isn’t one that I’ve found yet. I’m looking at the Dodge Sprinter and have five on order to check them out. If they prove to be what they say they will be, then I foresee myself going with Chrysler.”
However, many fleets, as of press time, are still undecided on an Astro replacement vehicle.
“Currently, two-thirds of my fleet is Astro vans, so I need to find a suitable replacement,” said Marianne Stewart, sales planning & communication ad-ministration for Swedish Match North America in Richmond, Va. “As of yet, we haven’t found one.”
Tom Armstrong, director of fleet for ThyssenKrupp Elevator, has the same dilemma. “We are looking for a replacement to the Astro cargo van and are currently testing a few vehicles, but, at this time, we have no indication as to what our choice will be.”
4. The Impact of the High Cost of Fuel on 2006 Fleet Selectors
Fuel is fleet’s second highest cost and the dramatic run-up in fuel prices is impacting many fleet operations.
“Fuel cost has a high impact on Labcorp due to the size of the fleet. MPG will be considered for each model chosen. We will use four-cylinder engines, when possible. SUVs will no longer be offered. AWD and 4x4 will only be allowed in very limited instances,” said Lynda Dinwiddie, director, national fleet operations for Laboratory Corp. of America (Labcorp) in Burlington, N.C.
However, not all fleets feel the same pressure. “The high cost of fuel will not have much impact on the types of vehicles we acquire for 2006,” said Charles Bowen, director of fleet for Rollins, Inc. in Atlanta. “The majority of our fleet is already very fuel-efficient due to our use of four-and six-cylinder engines.”
Agreeing is Debbie Mize, fleet/relocations manager for Hallmark Cards in Kansas City, Mo. “Although higher fuel costs are impacting us, we do not plan to downsize at this point.”
To decrease fuel costs significantly, fleets have three options: they can switch to a smaller vehicle or specify a smaller engine or both. As a result, there is concern among fleet managers that downsizing to smaller vehicles or smaller engines to improve fuel economy will negatively impact the performance and morale of the sales force.
“Keeping fuel cost to a minimum is desired, but not at the expense of our drivers in not being able to attain their performance goals,” said Miller of McDonald’s. “Unfortunately, higher fuel prices are an increased cost of doing business.”
Lofgren of Honeywell agrees. “Downsizing to smaller vehicles would be difficult for most of the business needs of our employees. However, since 2001, we have used the Impala, which gets better gas mileage than most mid-size cars.”
Reduced cargo-carrying capabilities is another concern about downsizing. “The drawback is the lack of room to carry samples and materials,” said Stephen Levine, fleet manager, operations for Pfizer Inc. in New York City. “The current cost of fuel is an issue, but our reps have to perform.”
Still another concern to downsizing is driver safety. “The higher cost of fuel is definitely a factor,” said Gerald Cumby, manager, transportation/materials for Lockheed Martin in Ft. Worth, Texas. “However, we will continue to purchase the larger vehicles for comfort, as well as for safety. We have to weigh the alternatives of purchasing smaller vehicles versus larger vehicles. Safety always wins out.”
5. Fleets Struggle with Pros and Cons of SUVs on a Fleet Selector
Higher fuel prices are prompting many fleet managers to reassess the viability of having SUVs on their fleet selectors. Some fleets, such as the Chubb Group of Insurance Companies, are encouraging drivers to switch to hatchbacks from SUVs. Others, such as Wyeth Pharmaceuticals and Dreyer’s Grand Ice Cream, are looking to acquire fewer SUVs in 2006. GlaxoSmithKline removed full-size SUVs from its selector in 2005. With discontinuation of the Aztek, Labcorp will no longer offer SUVs as a selector choice. “We will only offer sedans in 2006,” said Dinwiddie.
Endo Pharmaceuticals dropped SUVs from its management selector and
replaced them with the Pacifica in 2005. “In addition, we dropped TrailBlazer and substituted it with Equinox,” said Joe Niszczak, fleet manager Endo Pharmaceuticals in Chadds Ford, Penn.
Ecolab is also reassessing the use of SUVs in its fleet. “We will review the number of SUVs and associated costs, setting the stage for potential future changes,” said Gayle Pratt, fleet manager for Ecolab Global Operations in St. Paul, Minn.
The trend also seems to be fewer SUVs for the executive fleet level. “We are moving away from SUVs for the execs,” said Gordon Campbell, director of corporate services for Tyco Fire & Security Services in Westminster, Mass.
However, many fleets have decided to continue to offer SUVs. These fleets say that the higher residuals for SUVs continue to outweigh the increase in fuel costs. “The improved resale of $5,000 per unit with SUVs outweighs the added fuel costs,” said Ray Apel, manager of sales administration for Solvay Pharmaceuticals in Marietta, Ga. “We just ran the numbers on all 450 vehicles sold in 2004. The total lifecycle costs on compact SUVs was 9.6 cents per mile less than the Taurus, Impala, and Stratus. There is no doubt that the reduced
depreciation of the Jeep Liberty and Ford Escape outweigh the additional fuel cost. These were all-inclusive – fixed and variable costs. In cycling our fleet over 36 months, we are on track to save more than $6 million.”
Brown-Forman has eliminated minivans from its fleet and substituted hem with SUVs to get better return at resale. “We have small and mid-SUVs in our fleet now and at this time will continue to use this type of vehicle to accommodate our fleet needs. We have eliminated the minivan. We are looking for the SUVs to bring us better return in the remarket to offset the additional cost of fuel,” said Mary Pat Crabtree, relocation/fleet specialist for Brown-Forman Corp. in Louisville, Ky.
6. More Crossovers are Added to Fleet Selectors
There is an emerging trend among companies to increase the number of crossover vehicles to their fleet selectors. One option is to replace vans with cross-over vehicles.
“In model-year 2005, we added crossovers to the mix. Performing a total cost of ownership analysis indicated that it was economically advantageous to do so, plus it provided drivers with additional choices,” said Tina Kourakos, manager, fleet & safety for sanofi-aventis in Bridgewater, N.J. “Vans are our most expensive offering, so if we convert any employees from a van to a less costly crossover vehicle it is a win-win situation. Additionally, and contrary to popular opinion, the lifecycle cost analysis revealed that SUVs and crossovers were actually less expensive than sedans.”
7. Extended Service Life Mileage Impacting Replacement Vehicle Ordering
The ordering of replacement vehicles by some fleets is being delayed due to fleet policy decisions to extend replacement mileage parameters. For instance, Pfizer extended the service life mileage of its vehicles from 55,000 to 65,000 miles, which will decrease its 2006 fleet buy.
Likewise, Johnson Controls made a similar policy decision. “After some analysis, we have changed the service vehicle replacement parameters and will keep them in service for a longer term,” said Christy Coyte, global fleet manager for Johnson Controls, Inc. in Plymouth, Mich.
Boehringer Ingelheim Pharmaceuticals is deliberating a similar change. “We are recommending to increase replacement by 10,000 miles, going from 60,000-65,000 to 70,000-75,000 miles,” said Lee Miller, field services manager, fleet for Boehringer Ingelheim
Pharmaceuticals in Ridgefield, Conn.
8. Pre-Buying of Medium-Duty Trucks to Avoid 2007 Diesel Regulations
Medium-and heavy-duty truck orders will increase in 2006 due to the upcoming 2007 diesel emission requirements mandated by the U.S. Environmental Protection Agency.
Many companies are rushing to buy new trucks before more stringent federal emission regulations covering diesel engines take effect Jan. 1, 2007. The new EPA regulations promise to raise the price of
diesel-engine trucks in 2007, due to the installation of costly emissions equipment. As a result, the medium-duty truck market is expected to grow by 37 percent in 2005, growth that is also being fueled by a cyclical upturn in overall truck sales. The growth is anticipated to continue well into the 2006 calendar year.
“Our medium-and heavy-duty truck volume will increase due to the 2007 diesel emission requirements,” said Gene Kendall, fleet manager for Hughes Supply in Orlando, Fla.
Some major fleets, traditional users of diesel-powered vehicles, are evaluating gasoline engines as an alternative to diesel in certain vehicle types.
“Both fuel economy and 2007 diesel emission rules are of concern and for the first time in many years we are looking very hard at cost-benefit analysis of higher efficiency gasoline-powered step-vans as an alternative, and/or limiting our commitments to a single year versus three years,” said Greg Miller, vice president, fleet Americas for DHL Worldwide Express in Plantation, Fla.
9. Consideration of Shorter Fleet Purchasing Agreements
As with DHL, other fleets are also considering going with shorter purchasing agreements. “Volatility in the marketplace, the cost of fuel, new models, (UAW) labor issues, aggressiveness of manufacturers with incentives, and the availability of hybrids is forcing us to look at one-year deals rather than long-term contracts,” said Levine of Pfizer.
10. Increased Interest in Hybrids
There is more interest in hybrids among commercial fleets; however, the choice of models is limited and acquisition cost is high.
“We are looking at the possibility of adding hybrid vehicles in our fleet. We hope to add one or two hybrids in the 2006-model year, and then wait to see what other options manufacturers will provide in the following model-years. At the present time, the choice of hybrids is slim and the cost is high for us to commit to only a few hybrids based on a ‘best-fit’ in our fleet,” said Crabtree of Brown-Forman.
Some organizations are actively looking to increase the size of their hybrid fleet. “We purchased five hybrids this year and plan on purchasing more next model-year,” said Alan Binstein, direc-tor, logistical services for the University of Medicine and Dentistry of New Jersey in New Brunswick, N.J.
Another fleet giving serious consideration to a hybrid pilot program is sanofi-aventis. “For model-year 2006, I intend to seriously consider hybrid vehicles for some pilot programs. Many of our drivers have inquired about them and volunteered to participate in an evaluation,” said Kourakos.
State Farm Insurance, as a result of its pilot program, expects to increase the number of hybrids in its fleet. “We tested hybrid electrics in 2005, and I look for these numbers to increase in 2006,” said Dick Malcom, fleet manager for State Farm Mutual Automobile Insurance in Bloomington, Ill.
Another company that introduced a hybrid pilot program is
GlaxoSmithKline. “We introduced a voluntary hybrid pilot for the Ford Escape Hybrid during model-year 2005 in Los Angeles and New York City,” said Shirley Collins, manager, U.S. fleet for GlaxoSmithKline in Research Triangle Park, N.C. “We plan to expand the availability of the program to additional metro areas. Currently, we are in the process of collecting feedback from the drivers.”
Similarly, AstraZeneca Pharmaceuticals, Ecolab, and Lockheed Martin are testing hybrids in their fleets.
“The Toyota Prius and Honda Civic were added to the Intel selector in model-years 2003 to present. Due to the size of these vehicles, only a small percent of employees have chosen the hybrid models,” said Jan Preble, fleet manager for Intel Corp. in Santa Clara, Calif.
“However, I am estimating an increase of hybrids this year due to current gasoline prices and the addition of the Ford Escape Hybrid to our selector. I believe we will have increased employee interest since the Escape Hybrid is a full-size vehicle. However, due to the higher cost of the Ford Escape in comparison to our standard selector choices, we will consider the Ford Escape a ‘premium upgrade’ vehicle, which will require employees to pay an out-of-pocket upgrade fee when ordering.”
Another fleet, Bristol-Myers Squibb, is positioning itself for future use of hybrids.
“I ordered 100-plus Malibu sedans in order to test out the utility of these vehicles in the sale force, and also in a pre-emptive mode for having this vehicle on our selector in 2008 as a hybrid-engine vehicle,” said Joe LaRosa, global fleet manager for Bristol-Myers Squibb in Princeton, N.J.
McDonald’s is also considering adding hybrids to its fleet, but for other reasons, in addition to fuel economy. “We are considering the addition of the Escape Hybrid,” said Miller of McDonald’s. “Hybrids will aid in managing fuel costs; however, I must stress that adding the hybrid engine is a matter of social responsibility versus a response to higher fuel costs. We would do this no matter what the cost of fuel reaches,” said Miller.
Many other corporations are also actively seeking to transform their fleets to be more “green.” One fleet that has been in the forefront of this movement is DuPont.
“We have been actively looking at vehicle options to ‘green’ our fleet for some time,” said Barbara Banks, fleet manager for DuPont in Wilmington, Del. “DuPont will continue to add additional hybrid vehicle technology to its fleet for model-year 2006.”
However, other fleets do not see hybrids as viable vehicles to meet their fleet application.
“We probably won’t add hybrids since most of our drivers travel long distances and do not drive in stop-and-go traffic, which is where hybrids get their primary benefit,” said one fleet manager who wished to remain anonymous.
11. Changing Eligibility Criteria for Executive Fleet Vehicles
There is a trend to change the eligibility criteria to be assigned an executive vehicle, with the intent to reduce the size of this fleet segment.
“We are reviewing the executive vehicle program and considering changing the eligibility criteria. This will result in a reduction in the size of the executive fleet,” said Coyte.
In the wake of over $2 per gallon fuel prices, some fleet managers are targeting executive fleets to lower fleet fuel expenses by moving away from less fuel efficient SUVs.
“The cost of fuel is always an issue. I am looking at changing our selection of vehicles for mid-to upper-level management to see if we can’t drive a vehicle that gets better gas mileage,” added Blake of Sugar Loaf/Folz.
12. Earlier Issuance of RFPs for 2006 New-Model Orders
The increasing involvement of purchasing councils and strategic sourcing groups is driving earlier issuance of requests for quotation (RFQ) and requests for proposals (RFP), which was the case with the 2006-model year. Also contributing to the earlier RFPs were the earlier Job 1 dates for key 2006 models, and, as a consequence, earlier buildout dates for current model-year vehicles.
13. High Number of Discontinued Models Affecting Fleet Selectors
The large number of discontinued fleet models is impacting some fleet selectors. “With the discontinuation of the Buick LeSabre, Park Avenue, Century, and the Pontiac Bonneville, our management selector list is going to shrink to just a few vehicles,” said Jan Cornell, fleet manager for E.M.C. Insurance Co. in Des Moines, Iowa. “We can add other vehicles, but we try to stay within a price range, which can be a challenge!”
14. Growing Penetration of Import-Badged Nameplates in Certain Fleets
Some fleets report an increased order volume for import-badged vehicles.
“We introduced Camry and Altima to our selector in 2004. The purchase numbers were decent, but in 2005 we have seen them increase considerably,” said Malcom of State Farm Insurance.
Siemens is another fleet acquiring more import-badged vehicles. “We will continue to look at and work with foreign automakers, specifically Nissan,” said McCarthy.
15. High Purchase Volume in 2005 Will Decrease 2006 Buy
Some companies report that they will acquire fewer vehicles in the 2006-model year, but only compared to high purchase volume in 2005. For instance, the Wm Wrigley Jr. Co. will be purchasing fewer vehicles in 2006, but only because it made a larger-than-usual buy in 2005.
“We delayed major purchases from 2004 to 2005 to take advantage of certain new vehicles such as the Equinox, 300, Magnum, and Caravan with the Stow ’n Go seating. As a result, our 2005 purchase was larger than normal,” said Rob Parham, marketing support manager for Wm Wrigley Jr. Co. in Chicago.