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MY-2014 Buying Inclinations Point to Improving Economy

Commercial fleet managers report improving business conditions, which will increase new-vehicle ordering in the 2014 model-year compared to the prior year. Fuel efficiency continues to be the primary selection criterion for fleets.

July 2013, by Mike Antich - Also by this author

The 2014 model-year provides more evidence that the national economy is improving, with early indications that commercial fleet ordering, on average, will increase, compared to the prior model-year. Among the key factors driving 2014 model-year buying decisions are corporate initiatives to select the most fuel-efficient models available, downsizing to smaller displacement engines, and the incorporation of additional safety features and options into company-provided vehicles.

This market assessment is based on a 2014 model-year buying inclinations survey of 400 corporate fleets conducted by Automotive Fleet in early June 2013. Most fleet managers responding to AF’s survey reported they will increase their ordering volume compared to last year. However, the commercial fleet market is very diverse and there are also a smaller number of companies reporting they will decrease their MY-2014 fleet ordering for various reasons. But, on an aggregated basis, the survey revealed substantially more companies are predicting either an increase in fleet order volume or that they will maintain traditional ordering levels for model-year 2014.

Although overall new-vehicle ordering will increase, many fleet managers voiced a common and recurring complaint about the impact of staggered production schedules by OEMs for certain high-volume fleet vehicles.

“The staggered release of new models from various OEMs has gotten confusing. There currently are some 2014 models on the road, while other OEMs have not yet started to accept 2014 orders,” said Richard Corsetti, manager purchasing/car plans for FM Global.

This complaint was echoed by other fleet managers. “The OEMs are causing issues with our ordering process with all the changes to their model-year switch overs,” agreed Tom Grove, corporate delivery services manager for Ace Hardware Corp.

This concern was widespread among surveyed fleet managers, as exemplified by the following quote from a fleet manager, who wished to be anonymous: “Once again, I can’t do all of my ordering at one time because of exasperating staggered production schedules. I’ll be ordering for four months (from July to October) instead of one (August). When possible, OEMs should be more tuned to our replacement cycle and work more closely with us as a partner.”

Another perennial issue continues to be the lack of pricing information for certain key models at the time order banks are opened.

“I hate it when order banks open without finalized pricing. I’m not ordering anything until I know how much it will cost. Also, it is a challenge having to deal with different manufacturers’ order banks with different opening, closing, and production schedules. It makes it very hard to coordinate an order cycle internally,” said Lisa Adams, fleet manager for W. L. Gore & Associates, Inc.

However, OEMs have also received praise about changes made to the vehicle content and option packaging. “I don’t see any major changes to our ordering; however, I am really glad to see trim levels changing to fit more standard features, as opposed to nickel and diming the companies,” said Linda Ellis, corporate procurement coordinator for Boral Industries.

Fleet Buying on the Increase

Despite industry concerns about ordering schedules, most companies reported that they are acquiring more vehicles, primarily because their businesses are expanding.

“We will acquire more vehicles, mostly because of growth in our business, which will require more vehicles,” said one fleet manager, who wished to be anonymous.

Another reason for increased orders is due to corporate acquisitions, which has increased the overall fleet size at some companies. “We will acquire more vehicles in 2014, due to some recent acquisitions,” said Andy Coulter, director – global fleet and indirect procurement for Ecolab.

This was echoed by Mike Lahr, director of fleet operations for LKQ Corp. “We will acquire more vehicles than last year,” he said. “There are two reasons: Our company is growing and we are behind on ordering new trucks to replace some older ones in the fleet.”

The survey revealed a broad-based sentiment that business is good for many companies. “I can’t speak for what other firms may be experiencing, but we are having a strong start to 2013. If this continues, I would see our MY-2014 numbers up 15 percent over last year,” said Tom Krause, purchasing/fleet manager/financial services for West Bend Mutual Insurance Co.

This was reinforced by another fleet manager, who wished to be anonymous: “We have been pre-ordering vehicles to help decrease rental costs for our internal business groups that are expecting growth based on headcount projections.”

Impact of Prior Year Shortcycling

Of the fleets that are acquiring fewer units in MY-2014, many are doing so because they had pulled forward new-vehicle acquisitions due to aggressive shortcycling in earlier model-years. One example was ADP.

“Because of the strong residual market, model-year 2013 allowed us to replace older vehicles with much more fuel-efficient vehicles. As a result, we will be ordering significantly fewer vehicles in MY-2014,” said Michael Bieger, senior director – global procurement for ADP, Inc. “However, this year will set the stage for a return to a significant buy in MY-2015.”

Another company that aggressively shortcycled its fleet was a major Fortune 500 consumer product company that wished not to be identified.

“Our 2014 volume will be down, since we had accelerated our last two to three order cycles to take advantage of the strong used-vehicle market,” said the company’s fleet manager.

This sentiment was echoed by a fleet manager of a major pharmaceutical company, who also wished to remain anonymous. “I will be acquiring fewer MY-2014 vehicles. The reason is that I flipped 80 percent of my fleet in 2013, due to the strong resale market. As a result, we saved millions of dollars. The vehicles we are adding to our fleet have better TCOs,” said the fleet manager.

Another fleet that aggressively shortcycled its vehicles was a distribution company. “We shortcycled most of our fleet in MY-2012 due to the high resale values we were receiving. Right now, we average about 20 months-in-service.

With the used-vehicle market not as strong, we don’t expect to shortcycle again and will not replace as many vehicles, percentage wise, as we would have in a ‘normal’ year,” said the company’s fleet manager.

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