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The Car and Truck Fleet and Leasing Management Magazine

2016 Buying Forecast for Commercial Fleets

July 2015, by Mike Antich - Also by this author

Photo courtesy of iStockPhoto.com.
Photo courtesy of iStockPhoto.com.

Fleet ordering for the 2016 model-year is forecast to be flat compared to the prior model-year. Many fleets have “caught up” with replacing aging vehicles due to extended services during the post-recession model-years slowdown in new-vehicle purchases.

These fleets have resumed their traditional cycling parameters resulting in a steady vehicle replacement schedule.

In addition, the lower cost-per-barrel of oil has caused a slowdown in the U.S. energy industry, which has prompted most companies to adopt very conservative replacement schedules.

Other factors driving 2016 model-year buying decisions are corporate initiatives to acquire the most fuel-efficient models available for the fleet application, downsizing to smaller displacement engines or different classes of vehicles, and the incorporation of additional safety features and options into company-provided vehicles.

At a Glance

A number of factors are driving 2016 model-year fleet buying decisions:

● Fleets “catching up” by replacing aging vehicles.

● Slowdown of U.S. energy industry caused by lower oil prices, prompting companies to adopt very conservative replacement
schedules.

● Corporate initiatives to acquire the most fuel-efficient models.

● Downsizing to smaller displacement engines.

● Incorporation of additional safety features and options into company-provided vehicles.

This market assessment is based on a 2016 model-year buying inclinations survey of 400 corporate fleets conducted by Automotive Fleet in late May 2015. The majority of fleet managers responding to AF’s survey reported that their new-vehicle ordering volume will be comparable to the last model-year; however, the commercial fleet market is very diverse and there were a smaller number of companies that reported they will either decrease or increase the volume of their MY-2015 fleet ordering for various reasons. But, on an aggregated basis, the survey revealed the overwhelming majority of companies will maintain traditional ordering levels for model-year 2016, with volumes similar to what was acquired in the 2015-MY.

“I am still going to cycle the same as previous years with the same selector and OEM,” said one fleet manager who wished to remain anonymous.

This was echoed by other fleet managers. “Our acquisition of new vehicles is forecast to remain consistent with MY-2015,” said J.J. Keig, CAFM, corporate fleet manager for CBRE Inc., who manages the Los Angeles-headquartered fleet from Dallas.

However, other companies, in reaction to slower economic growth, are tightening driver eligibility criteria to reduce overall fleet size.

“At this time, we will probably acquire fewer vehicles overall. Our business is taking away vehicles from folks who got them when we were fat and happy and profitable. We are now making the difficult decisions and taking some away,” said one fleet manager who wished to be anonymous.

However, those fleets that are ordering fewer vehicles are being offset by those increasing their fleet buy in 2016. One example is Mosaic. “We plan to acquire more vehicles in the 2016 model-year,” said Mike McDonald, director of asset management for Mosaic in Omaha, Neb.

While some fleets are tightening eligibility requirements, others are expanding the fleet program to include more employees.

“We are acquiring more vehicles than last year because we are rolling out company-provided vehicles to a large group of drivers who, in the past, were not eligible for the fleet program. In the past, a company car was only allowed for our sales force (800 fleet drivers). We are pushing forward with providing company vehicles for other drivers who drive greater than 1,000 miles per month (1,200 anticipated fleet drivers). In total, we expect to order approximately 1,500 vehicles for model-year 2016 (1,200 new orders and 300 replacement orders),” said a fleet manager who requested anonymity.

Improved Business Conditions

As the economy has improved in some economic sectors, these companies will increase their fleet buy due to growth in their businesses.

“We will acquire slightly more in MY-2016 than we had in MY-2015 due to business growth,” said Jeff Allspaugh, North American Fleet Operations for Genus PLC in DeForest, Wis.

Another fleet planning to expand its fleet buy in the 2016 model-year is Sempra Utilities, which is headquartered in San Diego. “We will be buying more vehicles with a heavy emphasis on AFVs in 2016 than we did in 2015 due to approved budgets and the need to maintain the target average age of our various class of fleet vehicles and green our fleet,” said Tony Orta, strategy & maintenance operations manager – fleet services for Sempra Utilities.

In addition to organic business growth, corporate mergers and acquisitions are also influencing new-vehicle ordering for 2016-MY.

“I believe we will continue to purchase a large number of light- and medium-duty trucks through next year. We have steadily been increasing the amount of work we are doing, recently purchased another smaller company, and have been lagging behind on replacement of our older vehicles,” said Lenny Green, equipment logistics coordinator for Miller Pipeline, LLC, which is headquartered in Indianapolis. “If we are able to increase our replacement of vehicles, then we will definitely be adding to the number of vehicles purchased. We currently have purchased or are committed to approximately 300-plus vehicles for 2015.”

Some large multinational companies may keep order volume stable in the U.S. market, but are increasing orders elsewhere in the world.

“We will order about the same number of vehicles in North America, but more in Europe,” said Michael Bieger, senior director – global procurement for Automatic Data Processing (ADP).

Some fleets will be acquiring more vehicles based on the vagaries of their cycling parameters and where they are in a multi-year replacement cycle.

“We will purchase more this year just based on our four-year cycle. More vehicles are coming due now than in the 2015-MY,” said Ryan Gittings, CAFM, fleet manager for St. John Properties in Baltimore.

Other fleets maintain a buy American acquisition policy. “We will be buying sedans that are all-American branded. We are an American ‘branded’ health insurance company, insuring American workers, and we own all-American-branded vehicles,” said Steven Franz, fleet manager for Highmark in Pittsburgh.

However, some fleets struggled in providing a forecast for 2016 orders for this year’s buying inclination survey. For instance, one factor making it difficult to get an accurate count of model-year ordering has been continued early introductions of new models.

“Whether my new-vehicle order volume will be up or down is hard to answer,” said Bret Watson, manager – corporate fleet for Sprint Corp., which is headquartered in Overland Park, Kan. “I have 300 MY-2016 Fords on order now. They came out early and will count on my 2015 program year through the end of June. Normally, these would be 2015 model-year cars. MY-2016 orders for the 2016 program year will be slightly more than last year as we are growing in size. I will finish the 2015 year with a little over 800 units. If I could count all 2016 orders for the 2015 program year and the 2016 program year, I will have far more 2016 vehicles than 2015 model-year vehicles.”

Replace Older-than-Normal Units

Many fleets are still looking to replace aging units that have been kept in service for longer-than-normal mileage guidelines.

“We plan on replacing more this coming year, as we let our fleet age quite a bit during the recession years and we are trying to play catch up and replace our older fleet vehicles,” said one fleet manager who wished to remain anonymous.

Other fleets also anticipate increasing their 2016 orders primarily to replace aging vehicles.

“Vehicle orders for my fleet fluctuate from year to year based on contractual requirements. ABM is a building and facilities maintenance company; therefore, much of our fleet is contract specified. For this reason, orders tend to ebb and flow as our contracts expand and contract. Although, for 2016, I do expect to order more vehicles, as our fleet is aging and I have been working with our executive team to replace older, high-mileage vehicles, citing safety advancements and increased fuel efficiency,” said Amy McAdams, corporate fleet manager for ABM in Houston.

Impact of All-New Models

Most fleets will not make changes in the types of vehicles acquired in 2016 compared to past model-years.

However, there are significant changes that have occurred in the large van segment, which has witnessed a dramatic transformation with the discontinuation of popular traditional models and the introduction of new Euro-style vans.

“Upfitting configurations on the new, larger Euro vans mean we are starting from scratch. We are applying extraordinary resources to this to get it right,” said one fleet manager.
This sentiment was raised by others. “We anticipate changes since there is more competition in the high-roof van segment,” said Greg Miller, head of fleet operations for DHL Express (USA), whose U.S. headquarters is located in Plantation, Fla.

Another area where fleet managers are vocal about model changes is with diesel-powered assets.

“Our vehicles are primarily work trucks, so we will be buying the same number, but much fewer diesels, as the cost and reliability of diesels is counterproductive,” said Kirk Herniman, fleet manager for MasTec North America, Inc. Transmission/Substation Group in Houston.

Downsizing Continues to Drive New-Model Sourcing Decisions

Downsizing is an ongoing factor influencing new-vehicle acquisitions at many corporate fleets.

“We are looking at mid-sized pickups as alternatives to large ones. We are also looking at smaller-sized SUVs,” said one fleet manager at a major pharmaceutical fleet.
Another fleet looking at downsizing is Pacific Gas & Electric, headquartered in San Francisco. “We will be exchanging about 500 ½-ton pickup trucks for the new GMC Canyon this year,” said David Meisel, senior director – transportation services for Pacific Gas & Electric.

Some fleets are looking to move away from SUVs back to minivans. “We have moved back to minivans again over small SUVs,” said Gregg Hodgdon, director of fleet operations for E.A. Sween Company/Deli Express in Eden Prairie, Minn.
Other companies are, likewise, making similar deliberations. “For MY-2015, we tried the compact car and the minivan segment (Chevrolet City Express). We found the cars won’t work because there are very few individuals who don’t carry parts. So, we are primarily staying in the minivan segment and possibly the full-size van or low-roof Euro-van. I think we are done experimenting,” said one fleet manager at a large multinational fleet.

Downsizing to a smaller class of vehicle continues to be an ongoing trend at many fleets. “Replacements will be in line with what we have now with the exception of downsizing several trucks from Ford F-650s to F-550s for operational purposes. We have 13 F-650s, which are all being replaced before next summer. Three of those will be downsized to F-550s; the rest stay the same,” said Bruce Ottogalli, transportation manager for United Water in Hackensack, N.J.

Focus on Increasing Fuel Economy & Sustainability

Selecting models with higher mpg than the predecessor model is driving many acquisition strategies.

“Reducing fuel consumption is continuing to be a heightened priority, beyond just its role in reduction of overall costs. More specifically, if we can break even on TCO by spending more on the vehicle costs, but getting that back in reduction of fuel consumption and fuel costs, then we want to do that. In addition to the responsibility of reducing our carbon footprint and consumption of foreign oil, we are also reducing our exposure to fuel price volatility,” said one fleet manager who asked to remain anonymous.

Concurrently, corporate sustainability goals are also a key factor in vehicle acquisition decisions at many corporations. “We anticipate always making changes in the vehicle lineup. Ingersoll Rand’s CEO, Mike Lamach, has committed the organization to a 35-percent reduction in greenhouse gas emissions by 2020,” said Jonathan Kamanns, fleet manager – North America fleet services for Ingersoll Rand in Davidson, N.C. “Fleet, obviously, has a role to play in the initiative, so we’ll be working with the field operations, safety, risk management, etc., through a vehicle rationalization project in tandem with GE Fleet to identify opportunities to introduce more fuel-efficient and safer vehicles.”

Other fleets are exploring the acquisition of alternative-fuel vehicles (AFV) to adhere to senior management direction.

“Although we have a diverse fleet of vehicle types (passenger cars, light- to heavy-duty vehicles, construction equipment, etc.), the primary focus for 2016 will be in the acquisition of AFVs,” said Orta of Sempra Utilities.

Another fleet looking to acquire more AFVs is DHL. “We want to acquire more alternative-fuel vehicles as larger-capacity vehicles become a greater focus,” said Miller of DHL Express (USA).

Selecting Vehicles to Comply with Corporate Safety Goals

Availability of safety equipment is increasingly playing a stronger role in determining which vehicles are added to a selector. “We’re committed to safety, total cost of ownership, and business-need. While our primary OEM offers us a broad range of vehicle options with good safety and TCO, other manufacturers are making significant strides to improve in the same areas. So, Jeep

Cherokee, Chevrolet Equinox, Nissan Rouge, etc., are being piloted so that we can better understand what that model brings to our business. In a service organization, downtime in any form is damaging to business,” said Kamanns of Ingersoll Rand.

Similarly, ergonomics is playing a greater role in vehicle selection, which is often driven by driver demands and pushback.

“In addition to the usual challenges of providing the best vehicle choices while remaining within our budget, including enhanced safety technology and improved sustainability (mpg and CO2 emissions), we have an extraordinary number of drivers seeking an ‘ergonomic exception’ vehicle in an attempt to acquire a larger vehicle with more comfort features than those offered in our ‘standard’ fleet. The reality is that a large percentage of these drivers simply want a vehicle upgrade and do not actually have any ergonomic or medical needs, which has been substantiated by the ergonomic review process. When no vehicle change is recommended, drivers are dissatisfied since their intent was to either acquire a larger vehicle, or simply a new vehicle when they are not yet eligible to replace their current fleet vehicle,” said one fleet manager who requested anonymity.

NHTSA and IIHS crash-test results also have an influence on types of vehicles being purchased.

“This year, we had to eliminate some vehicles due to the IIHS small overlap test. We are also spending more money on advanced safety equipment, which has significantly increased the trim level on one major vehicle,” said one fleet manager.

Shortcycling Continues to Impact Fleet Ordering in 2015-MY

Some companies shortcycled their fleet vehicles in 2014-2015 by accelerating vehicle replacement schedules to take advantage of the still strong used-vehicle market. The result is that these companies have relatively new fleets, minimizing the number of vehicles that need to be replaced.

“We will acquire roughly 30-percent less for the 2016 model-year, since we shortcycled for 2015 model-year,” said one fleet manager who wished to be anonymous.

A similar comment was made by another fleet manager: “We will acquire fewer vehicles in the 2016 model-year. We ‘early cycled’ about 300 of our company vehicles in 2015, so that will be the difference, even though our distribution group is still growing.”

Other fleets are considering implementing a shortcycle program in the 2015 calendar-year, which will increase fleet ordering for new vehicles.

“We are considering an accelerated replacement for approximately 10 percent of the U.S. fleet due to the strong resale market,” said Cathy Tillman, director, fleet, travel, and records management for AbbVie in North Chicago, Ill.

Another fleet that accelerated vehicle replacement in 2014 was Royal Cup, Inc.

“We accelerated replacements of passenger vehicles last year. So, our purchases will be down slightly for the 2016-MY. Subaru will remain our primary passenger vehicle supplier for 2016. I will continue to purchase Nissan commercial vans for our service applications. Mitsubishi Fuso and Isuzu will share the medium-duty business,” said Jim Collins, CAFM, manager, support services for Royal Cup, Inc., which is headquartered in Birmingham, Ala.

Selector Changes

There is a trend to decrease the number of OEMs at fleets that previously offered large selector choices.

“We have reduced the number of OEMs from seven to five,” said one fleet manager at a major pharmaceuticals company.

Other companies are adding OEMs to the mix for the first time. “We invited nine OEMs to bid on our business this year. This is the first year we’ve included Volkswagen and Volvo,” said one fleet manager who wished to be anonymous.

As of press time, some fleets were still in the RFP process. “Changes at our fleet would be dependent on the RFP process, which hasn’t been completed yet, so I cannot comment on this,” said Tillman of AbbVie.

Other fleets view their relationship with their OEMs as a partnership and do not anticipate making changes in the OEMs from whom they source vehicles.

“We have partnered with our vendors and manufacturers for a number of years and, for the most part, it has proven successful. There are always bugs to work out. We have tried to outsource more of the outfitting to our suppliers and that continues to be a struggle to keep the consistency and quality in the preparation of those vehicles. They also struggle to meet our demands for delivery,” said Green of Miller Pipeline, LLC.

Some fleets are moving away from sole sourcing.

“We also anticipate having a dual-supplier strategy moving forward. Currently, we have one OEM. There are a few reasons for this: First, it will allow employees to feel like they have a choice regarding the type of vehicle by being able to select the OEM (as well as paying a higher personal use for the vehicle type). Second, having dual suppliers will help the fleet department when dealing with factory downtime. Third, it will help diversify the risk that comes with factory recalls,” said an anonymous fleet manager.

Other fleets include all of the major OEMs in their acquisition choices and do not anticipate changes.

“Changes in OEM are typically driven by acquisition price and production timing. ABM has included models from Ford, GM, and Chrysler over the past few years and will likely continue,” said McAdams of ABM.

Some fleet managers have said they are so concerned about lengthy order-to-delivery times that it is starting to impact OEM selection.

“Order-to-delivery time is getting longer across the board and excessive in one of our models,” said Keri Moran, fleet administrator for J.R. Simplot AgriBusiness.

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