The number one issue facing fleet managers is vehicle supply issues resulting in vehicles not being replaced when scheduled and drivers kept in vehicles longer than the stated corporate fleet policy.
“The top challenge facing fleet managers is getting new vehicles. It is hard to grow in a business if you cannot get the additional vehicles to meet your growth needs,” said David McCauley, North America fleet manager for Service Experts Heating & Air Conditioning in Richardson, Texas.
Here is another fleet manager’s perspective. “It has become a serious challenge to find replacement vehicles and if you do, it is with longer OTD times and limited model selections. These are extraordinary times,” said Jim Petrillo, manager of treasury services/fleet manager for FUJIFILM Holdings America Corp. in Valhalla, New York.
The difficulty in sourcing vehicles was a recurring theme among all respondents as to the top challenge facing their businesses.
“Global supply chain disruptions, which includes the microchip shortage, has been devastating to production of vehicles. Chip shortages have cost the automotive industry billions of dollars in 2021. Presently losses are being offset by higher prices of vehicles and reduced expenses as almost every major automaker has been forced to make production cuts,” said Rick Sauter, vice president – operations for Allstate Leasing in Towson, Md. “This has negatively affected fleet as fleet factory orders as well as dealer stock orders were cancelled or reduced. The few vehicles at dealers now command a market adjustment over MSRP at many dealerships. Fleet orders are taking a back-seat to consumer factory orders. Many manufactures are not taking fleet orders but will take a consumer order only with a signed agreement at a set price, in most cases at MSRP. Fleet CPA and CAP programs are not active due to limited vehicle production and low vehicle inventories.”
Here is another perspective from a fleet services provider. “The top challenge faced by fleets today is the supply chain for commercial vehicles being disrupted by issues arising from the pandemic. Whether it was production delays due to worker availability, chip shortages, or shortages of other materials, such as plastics and resin, it created a perfect storm when combined with increased demand for vehicles,” said Dave Nagy, senior VP North America sales & service for Emkay.
Fleet managers wonder whether new-vehicle ordering constraints will continue into the next model-year resulting in a new series of early buildouts and specification changes.
“A key issue for me is the availability of vehicles – namely, will manufacturers build the vehicles we need?” said Bob Mossing, director of fleet administration at STERIS.
New-vehicle sourcing constraints was a common concern voiced by most fleet managers. “My top concern is supply chain issues for replacement vehicles,” said Ralf Wessel, manager of fleet services for Wallenius Wilhelmsen. “Due to the ongoing chip shortage many fleets continue to experience delays of replacement vehicles. The impact of chip shortage was originally forecasted through 2022, but is now forecast to extend into calendar-year 2023. The lifecycle of vehicles scheduled to be replaced will need to be extended, which creates an additional cost factors resulting from increased maintenance and upkeep expenses,” added Wessel.
This adversity is creating necessary adaptations to the new reality. Here’s a case in point.
“The number one challenge all companies have had to deal with is supply chain inventory shortages. The best way to circumvent this is to have a fleet strategy in place that allows you to take advantage of factory ordering as soon as order banks open. Companies that have taken advantage of this have experienced the fewest business interruptions to date, but even that will not insulate them entirely. Even when they are able to plan ahead, order cancellations can still occur. In some extreme cases, clients have had more than half of their orders cancelled,” said Lars Nielsen, business development manager for Mike Albert Fleet Solutions. “Companies will need to adjust their budgets and be open to other manufacturers if they have immediate needs. If they can find vehicles in dealer stock, most are in for a rude awakening as limited supply and increased demand have pushed prices through the roof. Companies used to buying at invoice minus their incentive are now paying MSRP-plus.”
What has made today’s supply situation so difficult is that no one has experience in dealing with this unprecedent chain of events. “It has been an interesting challenge for the manufacturers and their dealer network, one where I think all user segments feel somewhat alienated or are being taken advantage of in terms of pricing or even acquiring what they need when they need it,” said Grant Chitty, account manager for Foss Leasing, who is based in Vancouver, British Columbia. “On the other hand, dealers revenues have suffered greatly to the point they need to take some aggressive action just to stay afloat. From my position I understand the dealers need to stand their ground and also understand the manufacturers need to make adjustments to the disbursement of product to the various market segments. For fleets, I see them forced to the back seat with some traditional fleet manufacturers, which could prove very interesting as we move through this crisis and who remains as preferred suppliers going forward. Have some manufacturers burned longer bridges than they estimated? Time will tell on this.”
Difficulties in sourcing replacement vehicles was the most common refrain among survey respondents. “A concern is the ability to procure vehicles in a timely manner that coincides with an existing planned replacement schedule,” said Chad Fay, vice president – fleet for Lewis Tree Service, Inc. “Having strong relationships and lines of communications with OEMs and our upfitters have helped tremendously in gathering information that helps us better forecast and know when we will have access to inventory and ultimately delivery.”
If you are lucky to get your replacement unit delivered, most fleets have had to contend with longer than normal order-to-delivery times.
“Given the long lead times for vehicle deliveries, it creates challenges for operations. In today’s political and supply chain climates, we have to be agile in how we manage our fleets. Will business increase or decrease during the time we are awaiting new vehicles? Will they even arrive then? How do we respond to maintenance issues while we wait. It’s tough to plan when it’s even more difficult to predict how business will change,” said Alex May, director of fleet management for the Goldberg Group in Atlanta, Ga.
The challenge created by the supply chain constraints is if there aren’t enough assets, how do keep employees in vehicles because unless they are moving, they are not generating revenue.
“The major challenge is OEM chassis shortages, in particular new build. This is mostly due to availability of slotting and supply chain parts and rising production cost,” said Jay Massey, corporate fleet vehicle manager for AmeriGas in King of Prussia, Pennsylvania.
Sourcing Replacement Vehicles
The question asked by many fleet managers is how long will sourcing constraints continue? “Hopefully, this is a short-term constraint with supply chain issues with fleets not having access to the vehicles they desire. On the positive side, how long will the seller’s market last for fleet operators with surplus assets?” said John Brewington, CAFM, CEO of Brewington & Company, a fleet asset and management consulting company.
Fleet managers understand that OTD can be delayed for a variety of reasons, but what makes the current situation difficult is that there is no predictability of when a vehicle will be built and arrive at the delivering dealer.
“One of my biggest challenges is the predictable access to supply of new vehicles and parts, This includes OEM allocations or limited annual build counts, or very shortened and last minute cutoffs of model-year ordering windows, which compromises our forecasting. We’re also seeing supply constraints due to labor shortages, COVID lockdowns, or transportation shortages and delays,” said Abe Stephenson, fleet and administration manager at DISH Network in Denver, Colo.
Another issue is order cancellations after they have been accepted by an OEM. “Manufacturers are cancelling part of our new fleet orders we cannot rely on orders at all to replenish the fleet,” said Rich Nowacki, fleet, environmental, and safety manager for UScellular Business in Chicago, Ill.
Related to the supply chain shortages is the need to plan for a shorter order cycle caused by earlier ordering deadlines and early buildouts. “What complicates this issue is misaligned dates. Manufacturer new-model order cutoffs that fall prior to the release of funding in the upcoming fiscal year. These missed opportunities result in significant order/replacement delays and unknown future costs. Dates are moving targets and sometimes it seems once you think you’ve got them nailed down a new ‘crisis’ appears and that date has been moved up,” said Mark Brochtrup, CAFM, fleet manager at the City of Coppell in The Colony, Texas.
Delays Due to Microchip Shortage
Another major contributor to sourcing difficulties is the shortage of microchips slowing or disrupting the vehicle assembly process. “The chip shortage is affecting the agreements we have with the manufactures; the incentives are very small and it hurts our bottom line,” said Nowacki of UScellular Business.
One consequence of the microchip shortage is that it has created the situation where buyer demand is greater than vehicle supply. This has minimized the need for OEMs or dealers to offer incentives, since there is not need to stimulate dealer demand, which is already extremely robust.
“The supply chain shortage of computer chips for the automotive industry is obviously having a major impact on the ability to acquire new vehicles as well as the substantial price increases,” said Brett Quigley, president of Quigley Transportation Management Solutions in Ft. Myers, Florida.
The microprocessor shortage is impacting fleets globally as is the case with Microsoft. “One of the biggest challenges is overcoming the semiconductor (and other) shortages. The semiconductor crisis outlines the issues of modern production: everything just in time, minimum number of parts on stock, and purchasing at the lowest price somewhere in the world. Looking at this from the distance tells me that multiple elements have failed and the result is that we are now waiting on ‘normal’ cars for 12-plus months, just because some tiny parts are missing – some of them might have the value of a few cents,” said Michael Pohl, senior HR benefit program manager, MS Fleet of Microsoft. “Whilst the OEM are in charge to redesign their procurement strategy, we as clients need to find ways to steer successfully around the current roadblocks. The only way to overcome that is collective understanding of the issues between each other (suppliers and clients) and collective search for solution, sometimes on individual car level. We need to go the extra mile, but it is worthwhile. And it's strengthening the business relationship.”
Consequences of Supply Issues
There are a number of consequences to these industry disruptions that are complicating the new-vehicle ordering process and making fleet management extremely difficult.
“The current situation has created an inventory nightmare making many vehicles unavailable to the fleet market by OEMs. Fleet managers are required to change replacement parameters and it appears will be restricted in vehicle offerings through 2023,” said Steven Bair, global fleet services senior manager for AbbVie Inc.
One of the greatest impacts is the uncertainty it creates in the budgeting process. “One of the most challenging issues I face is budgeting for new-vehicle acquisitions when you really have no idea what is available, if you will get your factory orders, or if you can get stock orders, will the dealer work with your FMC, and so on. This is a first time in my 30-year career where I really do not have a clue how to budget for my fleet,” said Jeff Hill, CAFM, CEFS, manager, Construction Equipment & Fleet Services (CEFS) for Black & Veatch Corporation.
If a fleet runs an in-house maintenance facility with an internal parts department, there are other ramifications that make fleet management difficult, such as is the case with the City of Columbus, Ohio.
“The supply line for OEM and after-market parts is no longer reliable. Most if not all contracts for the city have timeline clauses for delivery of parts – these clauses have now been rendered useless as we sit in the parts department hoping and praying for delivery of a part or parts to put a critical piece of equipment and/or vehicle back on the road,” said Kelly Reagan, fleet administrator for the City of Columbus, Ohio.
Painful Out-of-Stock Purchases
During normal times, out-of-stock orders from dealer inventory was a quick way to fulfill an emergency need for a replacement vehicle, but those days seem like a distant memory. While out-of-stock orders were always more expensive, today they are outrageously expensive.
“Out of stock vehicles are a painful option for individual vehicles due to low dealer inventory and high cost. (MSRP pricing),” said Nagy of Emkay.
Today’s vehicle availability issues and higher costs has created fleet management situations that are unprecedented. “Our response to manage our fleet is becoming unprecedented. Our creativity is stretched as we calculate the impact of new options for managing new vehicle delivery, out-of-stock (OOS) are not necessarily OOS, since dealers are quoting stock units that are still scheduled to be built,” said one fleet manager who asked not to be identified.
Longer Order-to-Delivery Times
The supply chain constraints have created situations where it is difficult to schedule for the arrival of the replacement vehicle. “Unfortunately, this has led to inconsistent or shortened production schedules by all manufacturers, all the while demand increases,” said Nagy of Emkay.
This was echoed by a number of fleet managers. “Obtaining vehicles (factory or stock) is the biggest challenge at the moment. Having to tell drivers who are used to three to four choices that they only have one choice is not pleasant,” said Peter Belloli, fleet manager for MilliporeSigma in Burlington, Mass.
It is even worse with trucks. “Vehicle delays are averaging four months late, even if pre-ordered well ahead of time as a factory build,” said Yogi Shivdasani, vice president, Norther American supply chain for LKQ Corp.
Here’s another example of the average for truck OTD from time of order with the OEM to delivery to the end-user fleet. “Trucks that used to take six to eight months to get are now over 12 to 18 months. I have several medium- and heavy-duty chassis that were ordered a year ago and are just getting built now, and that’s just the chassis. Next it has to go to the upfitter for the body, which will take another month or two, and that all depends on the complexity of the body build. It can take even longer for a more complex body. Vans, light-duty pickups, and SUVs used to take two to three months to get – now pickups are six months out and vans — forget about it, I’ve had van orders cancelled four months after I placed the orders, SUVs are four to five months,” said Bruce Ottogalli, transportation manager for Veolia North America, based in Hackensack, NJ. “It’s extremely difficult to try and budget for new vehicles every year when you have no idea when they will show up if they show up at all. I can deal with the four to six month lead times, it’s the 12 to 18 months that are killing us. We are looking into adding more crews for field repairs that means more trucks. With lead times being what they are it would delay these additions by a year or two.”
Similar situations with longer than typical order-to-delivery times are being experienced in the European fleet market. “The current delivery problems at various manufacturers have led to the fact that the price reductions for fleets for certain brands have been massively reduced in recent months. Another major problem is the sometimes extremely long delivery times for certain models. The buyer’s market became a seller’s market again,” said Balz Eggenberger, co-owner of fleetcompetence International GmbH based in Rebstein, St. Gallen, Switzerland. “The consequences of this are not yet definitively foreseeable, but it can be assumed that existing partnerships will at least be put to the test.”
In a constrained ordering environment, it is important to order early.
“The single largest opportunity is for companies to be forward-thinking and plan. Companies need to understand that they need to be looking two to three times longer than they are used to for replacing existing vehicles and for the need for new equipment. In addition, they should anticipate that they may not receive anywhere close to 100% of what they ordered,” said Joe Pelehach, vice president of Motorlease, a fleet management company based in Farmington, Connecticut.
However, not all is doom and gloom in the market. Where there is adversity, there is also creative solutions that can lead to opportunity. Here’s an example. “For service vehicles, what work can be done without the service unit? Can tools equipment be moved to a job site for temporary time periods, and employees use personal vehicles to get to/from site? Does this mean changing methodology of schedule appointments? What about used cargo vans/trucks, without costly upfit? Toss the tools in the back without an upfit. Use an MVP (minimum viable product) methodology,” said one fleet professional wished to remain anonymous.
All of the ordeals endured by fleets during this time of supply chain disruption has reinforced the truism of the benefits of advanced planning. “Fleets (especially those centrally maintained) often balance JIT (just in time) versus inventory to ensure maintenance can support uptime on their fleet. Similarly, fleets have had established cycles and planning horizons to buy replacement vehicles. Supply chain challenges don’t seem to be letting up anytime soon, fleets will have to plan better and be more creative to deal with the impact of shortages both for vehicle purchases and maintenance,” said Ken Jack, vice president – fleet operations for Verizon in Basking Ridge, New Jersey.
Forecast for MY-2023
Due to the large pent-up demand of orders that were rescheduled to the next model-year, the anticipation is that sourcing constraints will continue into model-year 2023. “This continues to be a challenge. Ongoing disruption from supply chain constraints re expected to last at least through Q1 2023,” said one anonymous fleet manager.
Likewise, the microprocessor shortage will most likely also extend into 2023 ordering. “The chip shortage is predicted to remain throughout CY-2022 and will by most accounts impact MY-2023 production when factoring in commercial demand. This shortage of vehicles will last until at least until MY-2024,” said Nagy of Emkay.