Two universal challenges faced by fleet managers in the 2021 model-year were longer lead times and tight product availability, particularly constrained was van and truck chassis availability. The COVID lockdowns in 2020 and the shutdown of all North American assembly plants from mid-March to mid-May 2020 triggered a domino effect resulting in delays with the new model-year bid process during a period of widespread budget constraints.
However, not all fleets experienced longer-than-normal order-to-delivery (OTD) times, especially those that primarily operate passenger car fleets. But in the van and truck segments, there were ongoing delays in OTD times, especially for units requiring upfitting. Another factor that impacted product availability was the early order cut-off dates for some 2021 truck and van models were accelerated due to greater than expected buyer demand. Consequently, many OEMs were challenged to keep up with buyer demand, necessitating earlier than anticipated build-out deadlines, which compressed the ordering window for many 2021 models. Another difficulty in sourcing vans was that cargo van production was being gobbled up by megafleets, such as Amazon, UPS, FedEx, and their numerous delivery service providers (DSPs), who are contracted to provide final-mile delivery. As a result, most fleets found it very challenging to source vans of varying sizes and obtain product with the right specifications.
Chassis Constraints Impact Upfitters
Another factor contributing to the longer lead times in the 2021 model-year occurred with upfitters. Due to the ongoing strong demand for trucks and vans, the tight inventory in the supply chain caused chassis constraints for upfitters. Lead times for some body companies and upfitters were double what they were before March 2020. Some fleets reported that it took a year to get an upfitted cab/chassis from the time an order was first place with an OEM. Common reasons cited for longer turnaround times at upfitters were due to delayed chassis deliveries, work force constraints, restrictive workplace COVID protocols, and ongoing parts shortages. Limited availability to acquire out-of-stock units from retail dealer stock was also a challenge due to COVID-related inventory constraints.
In prior model-years, some fleets that immediately needed units purchased them out-of-stock from dealer inventory. However, with dealer inventory so low it was difficult to find units with correct options and fleet pricing. Plus, many dealers were reluctant to sell to fleets, preferring to sell to higher margin retail buyers. Demand was so strong that vehicles were sold to retail buyers while in transit to a dealer’s lot.
An additional factor slowing new-vehicle orders in MY-2021 was the longer fleet funding approval process by corporate management caused by their uncertainty about the future course of the COVID pandemic and how long it will continue to affect their businesses. And even if budgets were restored, typically the dollar amounts were not at pre-COVID levels.
Unprecedented Microchip Shortage
A key factor creating inventory constraints in MY-2021 was the unprecedented microchip shortage. The root cause of shortage occurred when the pandemic forced all OEMs to temporarily shutdown all of their North American assembly plants from mid-March to mid-May. As a result, OEMs and their Tier 1 suppliers drastically cut their semiconductor purchases to avoid excess inventory when the plants reopened.
But at the same time this was occurring in the auto industry, chip demand from consumer electronics companies was dramatically increasing, which was a godsend for semiconductor manufacturers who could now reallocate chip production to them. When the auto factories did reopen, to everyone’s surprise the pent-up buyer demand for new vehicles was far greater than anticipated and the semiconductor manufacturers didn’t have the capacity to reallocate sufficient production back to the auto companies to meet their increased demand resulting in further product constraints. But the shortage of microchips isn’t just impacting new-vehicle orders, it also impacted the repair of accident-damaged fleet vehicles, especially when the needed replacement components contain these microchips, which ultimately delayed their repair and re-entry back into fleet service.
Resale Prices Soar for Used-Vehicles
During the month of June 2021, the auto industry had a 23-day supply of new vehicles on dealership lots, which was a record low. This compared to the prior month – May 2021 – when there was a 33-day supply, which revealed that the inventory of new vehicles was actually decreasing.
But the fleet industry is a very complex and what may be a challenge at one end of the industry presents opportunities at the other end of the industry. If today’s new vehicles are tomorrow’s used vehicles, then today’s shortage of new vehicles will represent tomorrow’s shortage of used vehicles. As buyers experience difficulty finding the vehicles they want as new models, they are buying a similar models in the used-vehicle market. The end result is that this increased demand has jolted used-vehicle prices to record levels. Plus, income tax refunds and government-issued stimulus checks, along with low interest rates, further stimulating used-vehicles sales, while the demand for used-vehicles was greater than the supply of vehicles.
Despite these challenges, fleet managers succeeded in keeping their fleets running smoothly while reaping the benefits of a strong used-vehicle market. Now it’s time to put MY-2021 in the rear view mirror and move on to the 2022 model-year.
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