Improving Economy to Boost 2015-MY Commercial Orders
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Fleet ordering for the 2015 model-year will be fueled by ongoing improvements in the national economy. Early indications are that total commercial fleet orders, on average, will increase compared to the prior model-year. Among the key factors driving 2015 model-year buying decisions are corporate initiatives to acquire the most fuel-efficient models available for the fleet application, 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 2015 model-year buying inclinations survey of 400 corporate fleets conducted by Automotive Fleet in late May 2014. The majority of fleet managers responding to AF's survey reported they will increase their new-vehicle ordering volume compared to last model-year; however, the commercial fleet market is very diverse and there were a smaller number of companies that reported they will decrease the volume of their MY-2015 fleet ordering for various reasons. But, on an aggregated basis, the survey revealed the overwhelming majority of companies are predicting either an increase in fleet order volume or that they will maintain traditional ordering levels for model-year 2015.
The top reasons for increasing fleet orders are improving business conditions and company expansion. One example is fleets in the energy sector, which are experiencing robust growth.
"We will acquire more vehicles, as we are experiencing a 25-percent growth in West Texas," said Jared Hanis, manager of procurement-fleet services for Western Refining Wholesale.
Business expansion, especially through corporate acquisitions, is another factor contributing to increased fleet order volume.
"A key reason for our increased ordering is because of expansion, both internally and through acquisitions. Normally, we purchase the vehicles when acquiring companies, assess the fleet, and then replace vehicles, as needed, the following year. The 2014 calendar-year is becoming a very good year for acquisitions," said Paul Youngpeter, CAFM, managing director, fleet, real estate, and facility management for Rollins Inc.
For many companies, 2015-MY ordering is returning to the historical volumes that occurred prior to the financial crisis. "Ordering in 2014 was our highest year since 2008, and we expect to maintain the same level for 2015," said Charlie Szymanski, manager, global property casualty insurance & auto fleet for PPG Industries.
Another example is AmeriGas Propane. "We are acquiring approximately 24-percent more vehicles versus last year's purchase. This number is up approximately the same for both our unit count and budgeted dollars," said Jay Massey, CPIM, corporate fleet vehicle manager for AmeriGas Propane.
Another company experiencing fleet growth is Eaton Corp., which reports it will increase its 2015-MY fleet orders. "We expect to acquire 10- to 15-percent more vehicles in 2015," said Janet Horvath, manager, supply chain for Eaton.
As is the case with many companies, fleet ordering volumes year-over-year is cyclical, ebbing or growing from one model-year to the next.
"Although we will be ordering more vehicles, it's cyclical. We're not increasing our fleet size. We had a larger-than-normal order in MY-2013, so MY-2014 was consequently light," said Sam Besser, CoinStar fleet manager for Outerwall, Inc.
Strong Resale Market
One factor influencing fleet order volume is the still strong resale market.
"We will be replacing more vehicles in 2015. We 'flipped' our entire fleet in 2012 and 2013 to take advantage of the strong resale market. We had very few orders for the 2014-MY. We plan to replace approximately 60 percent of our fleet this year," said Kimberly Jamme, manager, fleet operations for Teva Pharmaceuticals.
The use of this remarketing strategy was echoed by other fleets that are continuing to accelerate their replacement schedules to take advantage of the ongoing strong used-vehicle market.
"We are currently looking to replace more cars than usual to take advantage of the still relatively good resale values," said one fleet manager, who asked not to be identified.
Many companies shortcycled vehicles in prior model-years, which is causing them to decrease their fleet order volume for the 2015-MY. Shortcycling is the practice of taking vehicles out of fleet service earlier than normal to sell them in the used-vehicle market to take advantage of the strong resale market.
"We will be acquiring fewer vehicles in 2014 compared to 2013. This is due to the amount of accelerated replacement in 2013," said John Dmochowsky, senior fleet manager for Mondelēz International. "In 2015, we plan to go back to our normal replacement volume."
This sentiment was echoed by another fleet manager, who asked not to be identified: "We will probably be ordering less because we turned a majority of our vehicles this spring to take advantage of the used-vehicle market."
This was also repeated by several other fleet managers. "I can only say that, due to shortcycling over the past two years, our volumes will be down significantly," said one fleet manager who also requested anonymity.
This was seconded by another fleet manager: "We will acquire fewer vehicles because we virtually replaced our entire fleet in the 2014-MY due to high resale values on the old vehicles."
Those fleets that shortcycled in prior model-years consequently have younger fleets. "The 2015-MY will likely have fewer orders, because my last two to three years were heavily based on a good resale market, so the average age of the fleet is younger than prior years," said another fleet manager, who wished to be anonymous.
Influencing 2015-MY ordering is the introduction of all-new models and the addition of new safety features as standard equipment.
"The 2015 models we are purchasing have been refreshed and include many new features and improvements, such as back-up cameras. We held off replacing our last group of 2014 models and moved them into the 2015-model buy to take advantage of the new enhancements," said one fleet manager, who wished to be anonymous.
The all-new, full-size "Euro-style" vans are prompting other fleets to look at increasing their 2015 fleet orders.
"I will buy more vans than anything else, and we will stick with that. We will be buying a lot of the new full-size Transits," said a fleet manager, who wished to remain anonymous.
The upcoming discontinuation of the Ford Econoline is prompting fleets to find a substitute model. "We have to change vehicles because the vehicle we always purchase — the Ford Econoline — is gone," said Julie Bromley, manager, credit and administrative services for Reedy Industries Inc.
Based on feedback from surveyed commercial fleet managers, this sourcing decision is impacting a number of commercial fleets. Many fleets cited moving to the new style full-size vans. "We are moving into the Transit full-size van from the Econoline van," said Stuart Olson, fleet manager for Tennant Company.
Another example is Genus PLC. "We will consider replacing trucks with Transit-type vans where possible to gain fuel savings," said Jeff Allspaugh, manager, North American Fleet Operations for Genus PLC.
Impact of Fleet Policy Changes
Fleet policy changes for some fleets are resulting in increased vehicle ordering.
"We will be purchasing more vehicles for MY-2015. We are having a greater amount of associates joining the company vehicle program due to tighter control of corporate expenses. It has become a much better value to join the company vehicle program than taking a fixed allowance," said Bill Forsythe, global procurement/fleet administrator for ADP.
In addition, other fleets are also looking to transition allowance drivers into the company vehicle program. "In 2015, we will order about the same. We had a slight decrease in personnel, but have a mandate for allowance drivers to move to fleet, so we expect to pick up the same amount," said Nancy Murray, manager, facilities, fleet & travel for Agfa Graphics.
A similar change in fleet policy occurred at another company. "We will give some managers less discretion to opt out of ordering and require replacement in some cases," said one fleet manager, who wished to be anonymous. "We will probably order more vehicles for the 2015-MY."
Status Quo Replacement Schedule
Many companies will place 2015-MY orders according to a set replacement cycle.
"We generally stay within 25 to 30 new vehicles each model-year," said Don Woloszynek, manager, fleet services for National Gypsum.
While some companies will be ordering the same volume, they anticipate changes in types of models acquired and the OEMs from whom they source.
"Sprint's contract with our current OEM has run its course, so I will be looking at all OEMs that can provide vehicles to meet our requirements. For sales, the vehicles we choose must be SmartWay certified and be NHTSA 5-Star crash rated. Another aspect of how I purchase vehicles is based on resale value. I look harder at projected resale than I do purchase price. I buy vehicles with the intention of how I think they will do end-of-term. There is so much more to be gained or lost on resale than what one negotiates on the purchase price," said Bret Watson, CAFM, manager – corporate fleet for Sprint. "Our fleet size is still 2,400 units, so we will buy about 800 units this year."