The majority of fleets need to order more vehicles during the 2023 model-year due to the difficulties in sourcing replacement vehicles in the past two model-years.
The stumbling blocks preventing many fleets from doing so are ordering constraints imposed by OEMs such as limiting orders based on a controlled allocation system. Some models are available on a free-flow basis but the pent-up industry demand is so great that early order cut-offs are instituted by OEMs as order volumes exceed the available fleet allocation for a specific model.
In addition to pent-up demand, the biggest hurdle is the increase in acquisition costs, production delays due to supply constraints such as the microchip shortage, and availability of vehicles from the OEMs.
Some fleets have not ordered new vehicles since fall 2019. Acquisition plans are contingent on replacement vehicle availability and many ordered vehicles were not built for the 2021 and 2022 model-years.
Other fleets are playing catch-up because the order banks closed before they were able to place their orders. In the wake of availability constraints, fleets are taking a more strategic approach to vehicle replacement by identifying the most pressing vehicles for replacement. Other vehicles in better condition or with lower miles are given extended replacement parameters. Sometimes fleet managers order more vehicles than needed, anticipating that not all orders will be filled.
The top issues are vehicle availability, higher acquisition costs due to reduced incentives, and longer order-to-delivery times. Many fleet managers say they have low confidence that they will actually receive the vehicles they order this year. While some fleet managers have higher confidence levels in getting the vehicles they order, they question is how long it will take to have them delivered. The issues that created the challenges in sourcing replacement vehicles that began in the 2021 model-year for the most part still exist and fleet managers are concerned that they will impact their 2023 orders.
Some fleet managers are cynical as to whether they will receive their entire order, especially those who have had orders canceled for the past two years in a row. The continued microchip shortage is a factor but there are also other supply constraints. In addition, transportation constraints impacts order-to-delivery times, and some commodity prices are volatile due to the war in Ukraine.
The shortage of fleet vehicles is beginning to impact the businesses of some companies. For instance, employee headcount is a factor in every company, especially during a time of labor shortages. If a company cannot hire an abled bodied person to fill important roles within their organization, the company will elect not to purchase or lease a vehicle if it will it unused. Similarly, if a vehicle is an integral part of an employee’s job, companies will not hire additional employees if they are uncertain as to whether they will be able to source additional vehicles.
Replacement vehicle availability varies by OEM, the type of vehicle, and vehicle segment. Manufacturers continue to have issues getting parts to build vehicles. Another issue is that the availability of “fleet”-level vehicles makes it difficult to get pickups that aren’t loaded with options for retail consumers.
One segment that is vulnerable to delays are vehicles that require upfitting or the installation of auxiliary equipment on the chassis. Since many vocational vehicles require upfitting, the additional time to get it through the upfitter makes fleet management even more difficult. Not only might there be shortages of equipment or chassis, but there are also other complications that can occur during the upfit process. A growing number of fleet managers are complaining that getting custom service bodies built with all applicable equipment has been a challenge due to supply chain delays. Installations take more time than they used to.
In general, fleets report that upfitting has been painful and is getting more expensive. These fleet managers report that there have been an increase in errors in the upfitting this past year, likely due to new hires or no hires.
Some fleet managers report they have to address more upper management concerns when asked, ‘Do we have to replace the vehicle now?’ For many fleet managers this is becoming a routine question.
Dealer out-of-stock purchases are still occurring; however, they are fewer in volume and the transactions are more expensive than in prior years. Many fleet managers complain that the mark-ups on out-of-stock units have become ridiculous. It continues to be extremely difficult to source new vehicles from dealer stock. It seems almost impossible to source new inventory and when successful it is very expensive, well over MSRP. Not only are costs higher, but more time needs to be invested in out-of-stock purchases. For instance, due to more extensive searches to locate an available vehicle, the turnaround times, on average, increased from one to two weeks to up to two months.
Extended Service Lives
The constraints on some vehicles has forced fleets to extend service lives of vehicles currently in operation. Extended service lives of vehicles that were scheduled to be taken out of service is also a topic of concern for some drivers. Some drivers have safety concerns about driving higher-mileage, aging vehicles. In most cases, companies will allow the driver to turn in their fleet unit and opt instead for a rental vehicle.
When vehicle service lives are extended, fleets advise all drivers to stay up to date on all maintenance and service to extend thelife of their cars. Unfortunately, unscheduled maintenance costs are rising and fleets have experienced a significant increase in routine services and more extensive repairs on higher-mileage vehicles for mechanical and body work than ever before.
Another challenge is the increased cost in parts and labor across the board at all shop levels, including national account shops. Each client’s pocketbook is suffering even more.
Likewise, fleets have increased the service lives of many vocational trucks primarily because they didn’t have a choice since they were unable to source replacement units.
Impact on Fleet Budgets
With anticipated higher invoice prices for new vehicles and reduced fleet incentives, some fleets estimate that they have experienced a 5% increase in overall total cost of ownership. Higher used-vehicle resale values offset these cost increases, however, as well as a generally robust employee purchase program found at most companies.
Most fleet budgets have remained the same, but many are under budget due to constrained availability. One impact was that some OEMs raised prices in the middle of the last ordering year, requiring 2022 budgets to be adjusted. Fleets are scrutinizing each vehicle to see if it really needs to replaced despite the potential for higher maintenance costs.
Fleet managers need to increasingly make the decision whether to pay higher acquisition costs or higher repair costs. If they are able to source replacement vehicles, many opt to have more reliable units in service.
While some fleet budgets increased, it was often not enough to compensate for total increases in overall costs. To compensate for these budgetary shortfalls, some hope to reduce the number of company vehicles that are not critical to the business applications.
In the final analysis, fleets are spending significantly more on vehicle acquisitions. The feeling is that factory orders are more expensive and that out-of-stock units are outlandish. In addition, higher rental expenses have impacted fleet budgets as vehicle turnaround time at maintenance shops has increased due to parts shortages.