Fleet ordering volume for the 2010 model-year is shaping up to be higher than last model-year, but that's not saying much since 2009 was such an abysmal year. This assertion is based on responses from commercial fleet managers to an informal e-mail survey, conducted in early June by Automotive Fleet magazine, assessing 2010 model-year commercial fleet ordering intentions.
Many commercial fleets responded they will order more vehicles in 2010 than last model-year because they had deferred or substantially decreased 2009 ordering. Some fleets did not purchase replacement vehicles in 2009. One such fleet is Cablevision.
"We didn't purchase any vehicles in 2009 and have not yet started our budgeting process for 2010, but my feeling is that we will go back to our normal purchasing cycle of 400-500 vehicles for the 2010-MY," said Frank Felicetta, director - fleet operations for Cablevision in Bethpage, N.Y.
Another fleet that skipped the 2009 ordering cycle was Johnson Controls, Inc.
"Since Johnson Controls acquired no vehicles in 2009, I anticipate we will increase that number for the 2010 model-year," said Christy Coyte, global fleet manager for Johnson Controls, Inc., in Plymouth, Mich.
A significant number of commercial fleets reported decreased volume in 2009 ordering and are now "playing catch-up" to replace a larger pool of vehicles with higher than normal mileage in the 2010 model-year.
"The estimated level of vehicle purchases in 2010 will be 600-800 vehicles. We only replaced 500 units in 2009, and as a result, we are behind in our replacement schedule," said Phil Schreiber, fleet manager, North America for OTIS Service Center in Bloomfield, Conn.
Another factor that influenced the 2009 order volume decrease was the soft resale market. Some fleets elected to hold vehicles another year rather than take a resale hit in the wholesale market.
"Our average annual ordering volume is around 900 units. For 2009-MY, we only ordered 450 units due to postponing individual vehicle replacements expected to sell below book value. For 2010-MY, we are planning to order 500 units. The units we will be taking out of service will have over 65,000 miles, but are expected to show a positive return on sale," said Charles Szymanski, manager, Global Property Casualty Insurance & Auto Fleet for PPG Industries in Pittsburgh.
Another company looking to adopt a similar remarketing strategy is Iron Mountain. The resale market for commercial trucks continues to be weak. Boston-based Iron Mountain is looking to defer replacements until next year, hoping to weather the currently soft resale market for Class 3-6 commercial trucks.
Other commercial fleets decreased 2010 ordering because they changed replacement parameters and are keeping vehicles in service longer.
As a result of deferring 2009 replacements, many models taken out of service have much higher mileage. "We have higher than normal mileage on our vehicles because we didn't order in the 2009 model-year. I'm hoping to place my 2010 orders in July," said Suzanne Fischer, fleet administrator for Dreyer's Grand Ice Cream, Inc. in Oakland, Calif.
Another important influence on 2010 fleet ordering volume will be the strength of the economy.
One Fortune 100 fleet feeling the brunt of the recessionary economy indicated its 2010 fleet orders will "probably decrease by approximately 25 to 33 percent."
On the other hand, if signs of a strengthening economy appear later in 2009, many fleet managers indicated their companies will renew hiring. This will cause a corresponding need for additional company vehicles.
"Whether or not we acquire more vehicles depends on the economy. If we need to hire more, we'll buy more. Otherwise, we will only see a slight increase in our 2010 orders," said Julie Bromley, fleet director for Reedy Industries, Inc., headquartered in Glenview, Ill.
Another company whose 2010 ordering will be influenced by the state of the economy is Brown-Forman Corp.
"At the present time, it appears we will be ordering less. However, if economic conditions improve over the summer months, we may need to hire more, which will require us to order more vehicles to meet our needs," said Mary Pat Crabtree, fleet & relocation specialist for Brown-Forman Corp., headquartered in Louisville, Ky.
Despite the recessionary economy, some fleets anticipate substantial increases in 2010 fleet orders. One such fleet is Endo Pharmaceuticals, which reported it will acquire more vehicles in 2010. "This will probably be the heaviest order year yet," said Joe Niszczak, fleet manager for Endo Pharmaceuticals, headquartered in Chadds Ford, Pa.
[PAGEBREAK]Sourcing Contingency Plans
As of press time, the OEM Chapter 11 bankruptcy protection filings were a consideration, but many fleet managers reported no plans to change their vehicle sourcing.
"I'm not planning on any changes. As long as the OEM can supply the vehicles we need, we'll honor our contract," said Shelly Lofgren, fleet manager for Honeywell International in Minneapolis.
Many other fleet managers similarly reported current restructuring among OEMs will not affect 2010 ordering. For instance, some companies' upfitting requirements preclude an easy OEM change. "Because of our upfitting requirements, not just any OEM can meet our fleet needs," said Marion Crow, fleet coordinator for Hilti North America, headquartered in Tulsa, Okla.
However, other companies are restricted from doing business with companies in Chapter 11.
"We won't buy if an OEM is in bankruptcy. As a result, we will be buying fewer vehicles," said Bret Watson, national fleet manager for Sprint Nextel Corp., headquartered in Kansas City, Mo.
Some fleet RFPs specifically preclude participation by Chapter 11 companies.
One recurring comment in the AF buying intentions survey was fleets planned to maintain their current sourcing partners, but were looking to expand the number of OEMs from which they acquire vehicles. A comment from Forest Pharmaceuticals, headquartered in St. Louis, was representative. "We will most likely diversify more this year," said Theresa Belding, senior manager - fleet services for Forest Pharmaceuticals, headquartered in New York City.
Many fleets have adopted a "just-in-case" sourcing strategy to cope with a wide variety of scenarios.
"Valspar will likely stick with our current provider; however, we will have a back-up plan in place 'just in case,' " said Virginia Kodet, fleet/corporate services supervisor for Valspar in Minneapolis. "We are keeping a very close eye on what is happening in the industry and will have plans in place to handle any disruptions accordingly."
Others have formally moved to a dual sourcing strategy. "We did move away from sole sourcing in 2009-MY because of problems we were anticipating, and I will definitely continue to use multiple sources of vehicles in 2010-MY. We will be monitoring the situation with the manufacturers closely and have plans 'B' and 'C' waiting in the wings as contingencies," said Donna Bibbo, manager, Fleet and Employee Services for Novo Nordisk, headquartered in Princeton, N.J.
Another company following a multiple sourcing strategy is Hallmark Cards. "We are in very uncertain times and having dual sourcing is probably more important than ever," said Debbie Mize, fleet manager/relocation manager for Hallmark Cards, headquartered in Kansas City, Mo.
Most companies, at the time of the survey, were still deliberating on their 2010 buying decisions.
"It is still undecided as to whether there will be any changes in the OEMs from whom we source our vehicles. We are exploring a wider range of manufacturers, but haven't made final decisions as yet," said Michael Bieger, senior director - ADP Shared Services Procurement, headquartered in Rosewood, N.J.
Because of the uncertainty caused by OEM Chapter 11 bankruptcy protection, some fleets are delaying finalization of their 2010 selectors.
"Normally by June, the selector has been decided and we are in preliminary negotiation with the OEMs for incentives," said Crabtree of Brown-Forman. "This year, we will be pushing back finalizing our selector to July. We hope to learn more about the production and financial circumstances surrounding the OEMs before we make any final decisions. We still intend to start our ordering cycle in August."
Some fleets are electing to skip the fall ordering cycle and place orders in the spring.
"We did not place any orders for 2009-MY, so we'll need to place orders for 2010-MY. We will probably place orders in the spring as opposed to placing any orders this fall," said Kim Brown, manager, fleet & insurance of Heidelberg USA, Inc. in Kennesaw, Ga.
Fleet managers also expressed concern about product availability, especially for specialized units. "A concern is whether extended and/or sudden plant closures will severely restrict product availability, especially if a factory buyer has unique specs for their fleet," said Steve LaPorte, business manager, North American Transportation Operations, for Iron Mountain.
Some commercial fleet managers wondered aloud whether vehicle downtime would increase, especially if availability of replacement parts is restricted during long periods in which parts manufacturing plants are closed.
Some fleet managers expressed concern over incentive payments. Some fleets are electing to take off-invoice credits instead of end-of-year lump sum payments.
As in prior model-years, incentives will continue to heavily influence 2010 selector decisions. "We will use the same OEMs as last year unless incentives are less," said David Anderson, fleet manager for Pamlab, L.L.C., headquartered in Covington, La.
[PAGEBREAK]Impact of Corporate Layoffs
One factor influencing 2010 orders is fleet downsizing due to the volume of layoffs in sales and service staffs that eliminated the need to order as many vehicles as in the past.
"At this time, we still have many unassigned trucks and do not see a need to purchase more. I do not see much real growth in our business until late spring or early summer of 2010," said Bob Adamsky, fleet manager for Del-Air Heating & Air Conditioning, which operates a 500-plus truck and van fleet.
Other companies are right-sizing their fleets, minimizing the number of needed replacement vehicles.
"Based on the economy, we are taking steps to right-size our fleet - moving vehicles around and running them a little longer. Therefore, the net effect should be fewer orders for the 2010 model-year. For the most part, it is business as usual; therefore, the reduction of orders for the 2009 and 2010 model-years should produce a spike in orders at some point," said Tom Armstrong, director of fleet for ThyssenKrupp Elevator, headquartered in Tamarac, Fla.
In addition, some major fleets reported tightened company car eligibility requirements in 2009, which will decrease 2010 ordering volume.
"Last year, we reduced our fleet size by 5 percent due to fleet policy changes around eligibility requirements based on business miles and job function," said one fleet manager who wished to remain anonymous.
2010 Diesel Emission Standards
Another factor that will influence 2010 diesel truck orders is the 2010 diesel emission standards.
Some fleets are electing to sit out the 2010 model-year to see if any issues with the new diesel engine emissions technology arise. "We buy a lot of diesels and are concerned how the new regulations will affect truck performance, pricing, and fuel economy. If we don't buy 2010 trucks produced before the new regulations take effect, we may prefer to lay low and observe," said Catherine Crewson, vehicle fleet manager for United Rentals in Charlotte, N.C.
Some fleets are shifting away from diesels, based on lifecycle-costing analyses.
"Iron Mountain is moving away from diesel in vans and toward gas. The lifecycle costs are slightly more favorable, Ford's decision to drop the diesel, and the impact of the 2010 emissions requirements all play a role," said LaPorte of Iron Mountain.
Fleet managers said they are apprehensive about order-to-delivery times for 2010-model vehicles.
"Our concern is with order-to-delivery with Chrysler and GM because of their situation, or Ford due to excessive demand," said Keith Scolan, manager, global fleet for Illinois Tool Works Inc. in Glenview, Ill.
This concern was also voiced by State Farm Insurance. "Order-to-delivery times could remain somewhat of a mystery or a constantly moving target. There are still many unanswered questions about the industry, and I hope this will clear somewhat before Sept. 1, our order start date," said Dick Malcom, fleet manager for State Farm Insurance, headquartered in Bloomington, Ill.
Another fleet manager concern is the overall downsizing of OEM dealer networks and trepidation in using other OEMs that have smaller dealer networks without a comparable national footprint.
"I am beginning to see a lot of problems (more than usual) at the dealer level with courtesy deliveries. More and more dealers are not doing these kinds of deliveries, and my drivers have to drive 60-80 miles one way to pick up a car," said Julie Bergs, senior fleet operations specialist for Solvay Pharmaceuticals in Marietta, Ga. "I had several cars that had to be re-routed because the dealer refused to accept the car from the transporter. The reason I was given is that the dealer is no longer handling courtesy deliveries. I can see this becoming the next hot problem for my kind of fleet."
This concern was echoed by Shire US Inc. "My concern is with deliveries of new vehicles and our drivers having to drive further to pick up the new vehicle. I am exploring alternatives," said Josie Sharp, CAFM, manager, fleet & speaker programs for Shire US Inc. in Wayne, Pa.
Shift to Four-Cylinder Engines
The shift to four-cylinder engines is continuing despite the decreased price of fuel. Many fleets switched to four-cylinder engines in 2009 and will continue spec'ing four cylinders in 2010.
"Through our RFP process, we have emphasized the intent to purchase vehicles with four-cylinder engines as compared to six-cylinder engines. Previously, the volume of the purchase has put pressure on the OEMs to deliver the four-cylinder product in a timely manner. With auto sales slow, we expect to obtain the smaller engines without any constraints," said one fleet manager who wished to remain anonymous.
Another fleet switching to four-cylinder models in 2010-MY is Henkel of America. "The challenge will be combining maximum fuel economy, maximum passenger room, and cargo room in a four-cylinder vehicle," said Vinnie Fugaro, purchasing agent for Henkel of America in Rocky Hill, Conn.
Many fleets made the switch to four-cylinder engines last model-year.
"We made the switch to four-cylinder vehicles last year and will stay with that platform," said Kodet of Valspar.
Despite lower fuel prices, fuel economy continues to play a role in selector decisions. "We are definitely considering fuel economy to be a major driving force in our purchasing decisions for 2010," said Felicetta of Cablevision.
Part and parcel with the shift to four cylinders and improved fuel economy are corporate sustainability initiatives.
"As a global company, sustainability is very important to us and we are taking steps to reduce our emissions," said Armstrong of Thyssenkrupp Elevator. "Our challenge is finding green vehicles for the service industry that make sense. Hybrids offer no benefit to us; electric vehicles lack the range necessary to perform our duties. At this point, our best solution is to reduce the vehicle and engine size. Near-term, we are hopeful the new Ford Transit Connect is a worthy vehicle - the Connect has a four-cylinder engine averaging about 24 mpg. Current service vehicles operate at about 14 or 15 mpg," he added.
Fleet Composition Changing
The vehicle segment makeup at some fleets has been changing for the past several years. One example is Brown-Forman. "Two years ago, the SUV was the major vehicle in our fleet. Last year, we started to downsize to the crossover (large-, mid-, and small-size). We are taking a different approach to the type of vehicle required for our field usage," said Crabtree. "After months of discussion with management, it has been concluded a mid-size sedan is the most appropriate vehicle. Starting with 2010 models, we will be adding more sedans to our fleet selector. We are also looking at the possibility of including a four-cylinder model."
Fleets have become more productive, allowing the use of smaller vehicles. Such is the case with OTIS.
"We started the vehicle down-sizing process two years ago. This process will continue, and any opportunity will not be ignored for vehicles that can be downsized," said Schreiber of OTIS.
One reason for downsizing vehicles is meeting overall corporate fuel economy targets.
Red Bull North America reports it will downsize its fleet for the 2010 model-year. "We have downsized the vehicles and put a minimum 23 mpg combined restriction," said David McCauley, fleet manager for Red Bull North America, Inc. in Plano, Texas.