Today's pent-up demand from fleet buyers continues to exceed model-year availability of fleet-configured new vehicles from most OEMs. Yes, fleet availability has improved in the past year but the volumes are still below actual market demand. Anecdotally, the rule of thumb cited by some fleet managers is that most fleets are now two to three years behind in vehicle replacements against the real needs of their fleets.
These multi-year fleet ordering constraints have forced companies to extend the service lives of vehicles that they are unable to replace, which, inevitably results in an uptick of unscheduled maintenance expenses.
Since fleet vehicles average 20,000 miles per year, this increased mileage typically takes them into their next PM cycle that necessitates the replacement of wear items such as tires and brakes, which in the past would have been avoided by taking vehicles out-of-service at their scheduled replacement intervals.
Sourcing Constraints Will Persist into MY-2024
Talk to any fleet manager and they will tell you it is becoming more and more difficult to maintain a scheduled replacement policy for fleet vehicles primarily due to the constraints of OEM pre-approved allocation systems that usually allow fewer vehicles to be ordered than what needs to be replaced.
There continues to be a tight supply of new vehicles that are fleet-configured. Nowadays, it is hard to find a traditional “work truck” that isn’t configured with many of the bells and whistles that cater to retail buyers. Also, medium- and heavy-duty commercial vehicles continue to be limited in supply due to end-user demand exceeding chassis production.
Plus, not only is it harder to source replacement vehicles, it is also much more expensive since today's fleet incentives are minimal or non-existent. In many cases, fleets are being forced to buy vehicles from out-of-stock dealer inventory. The reality of today's market is that pricing for dealer stock units does not start at invoice pricing, rather dealer prices tend to start at MSRP with supplemental market price adjustments tacked on top of MSRP. Invariably there is little or no room for price negotiations.
Of course, this is contingent on the fact that a fleet can even find a vehicle to buy out of dealer inventory.
Institutionalization of OEM Pre-Approved Allocation Systems
A key factor as to why sourcing constraints for replacement vehicles still persist into 2024 model-year ordering is because of the “institutionalization” of pre-approved fleet allocation ordering by most OEMs.
The creation of the fleet ordering allocation system was to create fairness in the fleet ordering system to ensure every company has an opportunity to order replacement vehicles and eliminate the prospects of inventory quickly being sold out as it did in 2020-2022 causing early closure of order banks, sometimes after a week of ordering and in a few instances closing a day after opening.
Another reason for the creation of a fleet allocation ordering system was to prevent mega-fleets from buying out major vehicle segments such as vans.
While the intentions were good for creating allocation systems, fleet managers complain that ordering through an allocation system is becoming more cumbersome to navigate due to changing rules such as the shift from quarterly allocations to semi-annual allocation or requiring a company’s fleet management company to follow verification processes that are viewed as tedious and time-consuming.
Another constriction with allocation ordering was shared with me by a fleet manager who works at a multinational corporation involving an individual business unit. “This group did not order replacement vehicles last year due to budget constraints and now needs more replacements that are beyond my allocation,” said the fleet manager.
Another ordering constraint carrying over into the 2024 model-year ordering is the shortage of compact vans as major OEMs exit this market segment. Fleets that previously sourced compact cargo vans, now have to acquire larger full-size vans or spec light-duty pickups with toppers or other aftermarket upfit equipment to provide secure storage of materials and tools previously carried in a compact van.
As the industry starts 2024 model-year ordering, Job One production of new models for some OEMs is starting much later in the calendar year. Plus, the start of production varies between OEMs making it difficult to coordinate fleet deliveries, especially as fleets are force to multi-source to meet their vehicle needs.
OTD Uncertainty is an Ongoing Challenge
Order-to-delivery (OTD) times continue to be longer than historical pre-pandemic norms. Plus there still exists the possibility that an accepted fleet order can be canceled at a later date, especially at OEMs that do not employ a fleet ordering allocation system.
This is especially problematic when companies are attempting to buy additional vehicle inventory for new hires or to accommodate business expansion. There is often inconsistency as to when vehicles are delivered with some models delivered quickly while other units are stuck in limbo status with an uncertain ETA.
One strategy employed by fleets has been to multi-source replacement units from different OEMs, but this can prove cumbersome since production schedules vary between manufacturers resulting in multiple delivery and replacement schedules. Plus, with vehicle availability continuing to remain constrained, many OEMs are hesitant to take on new fleet customers.
The reality is that flexibility of factory order options that were commonplace prior to the pandemic are starting to fade into distant memories.
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