The 2013 model-year is shaping up to be a carryover year with commercial fleet ordering volume comparable to or slightly above 2012-MY orders, according to a buying inclination survey of 400 corporate fleets conducted by Automotive Fleet. Most fleet managers responding to AF’s survey reported the same amount of dollars are being budgeted as last year, which assures a carryover year for many fleets in terms of ordering volume.
“We are in a status quo year,” said Dean Yerem, purchasing manager for Nestlé Business Services North America.
One side note is that many of the fleet managers participating in the survey cited a longing for a return-to-normal fleet ordering conditions.
“With all the changes the OEMs have made over the past few years, such as early cut-off dates, short notice of cut-off, and early introductions for the upcoming model-year, it has become more difficult to plan ahead, especially when the vehicle you have been using has an uncertain introduction date back into the market and there is little else that meets your requirements of higher mpg plus payload,” said Marion Crow, fleet coordinator for Hilti North America.
Making a similar observation was Theresa Belding, senior manager – fleet services for Forest Pharmaceuticals, Inc. “I am hoping for a more ‘normal’ model-year without too many early build-outs,” Belding added.
Others believe the 2013 model-year will be a buyers’ market. “This is an exciting year to be in the industry as many of the manufacturers have finally begun to produce more fuel-efficient vehicles. Additionally, Chrysler is beginning to hit its stride from a product standpoint and will, along with VW, really challenge others for fleet volume,” said Michael Bieger, senior director of global procurement for ADP. “I feel it will be a buyers’ market and those manufacturers who don’t aggressively work with their current and prospective clients will see market share walk. While not the ‘Wild West,’ it will be close.”
One drag on new-model ordering is the continued economic uncertainty among corporations, which is directly or indirectly impacting the strength of their new model-year fleet ordering.
“With the upcoming fall election and the unfolding economic uncertainty in Europe, the outcome of MY-2013 will be anyone’s guess. Hopefully, fleet managers are in a position to capitalize on today’s robust resale market, while preparing for the uncertain future of FY-2013,” said Mike Butsch, global fleet manager for Joy Global.
But, the overwhelming majority of responses to the buying inclination survey were epitomized by Brett Switzky, fleet services administrator for American Family Mutual Insurance Co. “We are going into this year business as usual,” Switzky said.
Most commercial fleet managers anticipate that 2013 ordering will be similar to 2012. “Our buy will be about the same number of vehicles for MY-2013,” said Paula Bucklad, manager, fleet operations for H. J. Heinz Co.
This sentiment was shared by numerous fleets responding to the AF survey. Another example was OTIS. “Most likely, in 2013, we will acquire about the same number of units we did in 2012,” said Phil Schreiber, fleet manager North America for OTIS Service Center.
Another fleet indicating 2013 will be a carryover year is Valspar. “We turn over roughly one-third of our fleet each year,” said Virginia Kodet, fleet manager for Valspar. “I expect the number of vehicles ordered will be in line with what was acquired last year.”
Many fleets are in the middle of pre-existing multiyear sourcing agreements, which will determine 2013-MY ordering. “We signed a two-year contract for model-years 2012 and 2013, so we do not anticipate any changes this year,” said one fleet manager who wished to remain anonymous.
This is also the case with Merck. “It is not likely we will make any changes in 2013 as we are still within our contract period,” said Joe LaRosa, CPA, MBA, director, global fleet services for Merck.
However, some fleets will be acquiring fewer vehicles in 2013 and a key reason is that many companies have taken advantage of the strong used-vehicle market and have been shortcycling vehicles by accelerating replacement schedules.
“We will acquire fewer vehicles in 2013, because we shortcycled in the 2012-MY,” said one fleet manager who wished to remain anonymous.
Another business segment decreasing its fleet buy are companies relying on federal government defense spending. “We will acquire fewer vehicles for MY-2013 compared to last model-year. Government spending is being cut and we replaced much capital in 2011,” said one fleet manager who wished to remain anonymous.
On the other hand, there are a number of fleets that will be acquiring more vehicles, primarily due to improving business conditions. As business incrementally improves, companies are hiring new employees, which will require adding additional vehicles to the company fleet.
“We will be acquiring more vehicles as we are expanding our sales force and other field groups by about 600 more people, meaning 600 more vehicles,” said Donna Bibbo, manager, fleet and travel for Novo Nordisk.
Another company expanding its sales force is ChemTreat Inc. “We will probably be acquiring more vehicles because we have plans to hire up to 40 new salespeople in the U.S., and are replacing some company-owned vehicles with leases in Mexico,” said Fran Genovese, fleet administrator for ChemTreat, Inc. and ChemTreat International.
Likewise, Konecranes has started hiring, which will influence its fleet buy. “We will be acquiring about the same or slightly more vehicles. We are hiring, which is a positive thing,” said Rachel Johnson, CAFM, fleet specialist, Region Americas for Konecranes, Inc.
Iron Mountain Information Management is also looking to increase its fleet buy. “We will very likely acquire more in MY-2013 than in MY-2012, even though last year was a very busy year, much more so than the previous three years,” said Steve LaPorte, director, business operations for North American Transportation & Shred Operations for Iron Mountain Information Management.
Some vehicle order volume increases will be double-digit, as will be the case with Valero. “We will acquire approximately 20-percent more vehicles in MY-2013,” said Randy Burwell, lead buyer and fleet specialist for Valero.
The list of companies acquiring more vehicles also includes General Mills.
“We are expecting to replace around 700 units this fall, which is 75 percent over our usual 400-unit cycle,” said Shawn Dusosky, manager-fleet financial services for General Mills.
Illinois Tool Works (ITW) is also increasing its fleet buy. “We will be acquiring more vehicles this year than we have in each of the previous two years,” said Keith Scolan, manager, global fleet for ITW. “The past couple of years, our new-vehicle orders were down about 25 percent for various reasons, from extending the lifecycle on some vehicles to the economic situation.”
One unknown factor that could potentially stimulate new-vehicle sales would be the introduction of aggressive fleet incentive programs by some OEMs.
“We are not contemplating any changes in OEMs this year, unless someone executes a crazy mid-year pricing strategy or product availability runs too low,” said LaPorte of Iron Mountain.
For instance, current aggressive pricing in the medium-duty truck market has been influencing buying decisions. “I am changing from International to Freightliner on medium- and heavy-duty trucks, based on some aggressive pricing,” said a utility fleet manager who wished to be anonymous.
Other fleet managers likewise cited OEM incentive programs as a factor that will influence their 2013 fleet buy. “Our purchase volume remains at a level that we need to partner with one OEM to obtain the maximum amount of manufacturer incentives. If we were to make a switch, the OEM would have to provide a full range of SUVs and trucks to accommodate our off-road needs. Our current supplier provides the vehicle options that we require, and, as long as dependability is not an issue, we don’t forecast a need to seek out a replacement OEM at this time,” said an anonymous fleet manager.
However, many fleets were still analyzing their 2013-MY fleet buy and had not made a final decision.
“Although Philips does not anticipate a change of OEMs, we are currently benchmarking current selections against 2013 alternatives to ensure that our current selector will meet our toal cost of ownership (TCO) and sustainability initiative goals,” said Gage Wagoner, senior manager, North America fleet management for Philips Electronics North America.
As fleets plan their 2013 buys, there seems to be an increasing willingness to examine non-traditional fleet OEMs. “We are evaluating all suppliers, both domestic and foreign. Fuel efficiency, safety, and overall value will be key decision-making metrics. At this point, no decision has been made on what will be offered on our selector,” said Kodet of Valspar.
Another example is Pfizer. “We will RFP the Big Three, Nissan, VW, and Hyundai,” said Rahul Bhardwaj, senior manager, North America fleet for Pfizer.
The same was true for ChemTreat. “It is possible that we will have some new OEMs in the mix as we are looking at Nissan and possibly Honda for mid-sized cars,” said Genovese.
This was echoed at Ingersoll Rand. “We’re now operating from a TCO model, and although a bulk of our purchases will most likely stay with the current OEM, there is much more opportunity for alternate OEMs to supplement our vehicle sourcing. We’ve recently ordered Subaru Legacys for an AWD-territory vehicle,” said Jonathan Kamanns, fleet services manager for Ingersoll Rand.
The increase in new-vehicle transaction prices is causing some fleets to re-examine their purchasing decisions. “We will be looking to keep pricing similar to our previous model-year. With OEMs wanting higher transactional pricing, we will be evaluating all models including the foreign market, which, in the past, we did not entertain,” said one fleet manager who wished to remain anonymous.
Other fleets will not consider switching OEMs because of their familiarity with the existing product line. “We will stay with the same OEMs due to knowledge of our mechanics on their products and our current relationships,” said Carl Nelson, fleet manager for AM - Liner East, Inc.
Strong Used-Vehicle Market Influences New-Model Orders
The strength of the used-vehicle market is influencing 2013 model-year purchasing decisions.
Currently, there is a shortage of used-vehicle inventory in the wholesale market, which is driving up resale values. The shortage of used vehicles is projected to persist through 2013, and, perhaps, into 2014. The impact of the ongoing robust strength of the wholesale used-vehicle market on new-vehicle ordering was best summarized by one fleet manager who wished to be anonymous: “Because of the strong used-vehicle market, we are accelerating our replacements again this year.”
This sentiment was also voiced by Dusosky of General Mills. “With the prospect of the remarketing values peaking in the near future, we are trying to maximize our asset value and take advantage of the hot markets.”
A number of commercial fleet managers stressed they will focus on future resale potential when selecting vehicles in the 2013 model-year.
“I believe this year will be pivotal for companies in laying the groundwork for their future resale base. Manufacturers are introducing (some would say that it is about time) a large variety of fuel-efficient vehicles and technologies; alongside the standard four- and six-cylinder vehicle offerings.
There exists a chance to shift a fleet’s makeup in a significant way to these lower emissions, higher-mileage new vehicles. Those who make this move will shift their future residual position to a much stronger baseline; three years out, how well will six-cylinder and significantly lower mpg vehicles fare?” said Bieger of ADP. “There is, however, an upfront barrier to entry: the price of the new technology. But, I believe the upside potential for the future is stronger than any short-term downside risk.”
Another fleet contemplating a short-cycling strategy for MY-2013 is Toshiba America Medical Systems.
“Due to the high return on resale right now, we will be looking at replacing vehicles at a lower-than-normal mileage provided the return outweighs the other costs associated with earlier replacements,” said Jeff Berg, manager, fleet & travel administration for Toshiba America Medical Systems.
Some fleets have shortcycled vehicles in 2011 and 2012, which pulled forward their new-vehicle orders.
“We plan to buy roughly 20-percent fewer than last year, mostly because we pulled cars ahead last year to benefit from the higher-than-normal residual values,” said Charlie Szymanski, manager global property casualty insurance & auto fleet for PPG Industries.
Another example is Thermo Fisher Scientific. “We will acquire fewer vehicles because of our shortcycling last year,” said Rick Odell, CPM, global senior category leader, fleet & indirect services for Thermo Fisher Scientific.
The increase in resale values is allowing some fleets to acquire more new vehicles. “We are trying to secure more capital to purchase more vehicles this year versus last year due to the expected gains on residual values, so we are trying to shortcycle within a few months in order to take advantage of it. Additionally, we have fully turned over our fleet to four-cylinder engines and are expecting to replace some four-cylinder vehicles in order to gain approximately 15 percent on mpg with the current fleet engine offerings on some very new models,” said LaRosa of Merck.
The trend to shortcycle in order to acquire newer, more fuel-efficient models is a widespread trend among commercial fleets, many of whom have shortcycled vehicles during multiple model-years.
“We’ve been utilizing the current market conditions to shortcycle the portions of our fleet where we can gain from both the vehicle resale market and increased fuel efficiency in manufacturer offerings. Most of these replacements are MY-2012 vehicles and therefore our MY-2013 replacements will be close to equal, but, perhaps, a bit less than MY-2012,” said Kamanns of Ingersoll Rand.
Yet another example of a company shortcycling its fleet is Joy Global. “The 2012-MY was unusually high in replacement volume. Due to the high resale values and an acquisition, we replaced more than 450 units. MY-2013 will be back to a normal range of 200 to 250 units,” said Butsch of Joy Global. “I believe that 2013 will be fairly strong resale and buying years. Folks are still cautious with their buying. As such, in the used markets, especially for medium and heavy service trucks, the supply is very stressed. Resale for these products, and good used Class 8 tractors, are going to command a premium.”
Since the AF buying intentions survey was conducted during the preparatory planning phase of the 2013 buy, multiple fleets reported that they were still investigating the viability of shortcycling, but had yet to reach a final decision.
Ongoing Importance of Fuel Efficiency in Selector Decisions
One ongoing trend manifested in 2013 model-year ordering is vehicle rightsizing and the shift to smaller displacement engines, in particular, switching from six- to four-cylinder engines. Many companies have already gone through multiple replacement cycles converting their entire fleets to four-cylinder vehicles.
The dramatic increase in fuel prices during calendar-years 2011 and 2012 will have a big influence on MY-2013 selector deliberations.
“We are looking at mpg without sacrificing performance, which is a big priority of mine, along with educating my drivers of that fact,” said Linda Ryzewicz, manager, fleet operations for Anixter Inc.
This buying philosophy was echoed by Schreiber at OTIS. “Any vehicle that can reduce gasoline consumption will have the priority. Any vehicle that has an EcoBoost engine will get this option. It is a relatively inexpensive option with a very fast and large payback,” Schreiber said.
A growing number of fleets have established fleet-wide average fuel economy goals, which are driving acquisition decisions. To accomplish these goals, there continues to be an ongoing trend to downsize to four-cylinder engines.
“We are looking to acquire more fuel-efficient and eco-friendly engine choices in the new product offerings from Ford,” said LaRosa of Merck.
The fleet initiative to increase overall fleet mpg is a broad-based trend occurring throughout corporate fleet management. The widespread trend to spec smaller displacement engines has been ongoing for the past five model-years.
In addition to downsizing engines, some fleets are downsizing to smaller vehicle segments. Downsizing initiatives are often linked to corporate sustainability goals. “We will be looking at vehicles that have a turbo-boost or at hybrids to increase our fuel mileage and decrease our CO2 emissions,” said one fleet manager who wished to be anonymous.
Another example is Tennant Company. “I will be putting EcoBoost engines in all vehicles where possible,” said Stuart Olson, fleet manager Americas for Tennant Company.
The trend to increase fuel efficiency also involves shifting to different classes of vehicles.
“I will continue my mission to switch sales fleet drivers with ‘special territory’ requirements from pickup trucks to more fuel-efficient SUVs. I started this for the 2012-MY,” said Ryzewicz of Anixter.
Another key initiative with many fleet managers is to increase the fuel efficiency of the truck segments of their fleets. A case in point is Joy Global. “We are continuing to follow through with our plan to rightsize our vehicles,” Butsch said.
Industry-wide, there is a growing trend, facilitated by new OEM models, to migrate to smaller classes of vehicles to decrease fixed and operating expenditures. Fleet downsizing (or rightsizing) initiatives are often tied to a company’s sustainability program. One example illustrating this downsizing trend is Deli Express.
Although Deli Express will acquire about the same number of cars and trucks in MY-2013, most of the trucks will be smaller and equipped with smaller displacement engines to reduce long-term costs. “The cars will be similar to prior years, but the medium-duty trucks will be smaller in size,” said Gregg Hodgdon, CAFM, fleet operations for Deli Express/E.A. Sween Co.
The trend to rightsize is an ongoing industry trend, which started in prior model-years, and will be continued into MY-2013.
“Last year, we broadened our selector in some businesses to include compacts and subcompacts as options for our drivers. The original issue was introduced by a driver requesting a small car. It was immediately endorsed, not only for capital/lease savings but also for the improvement in gas mileage,” said Szymanski of PPG Industries. “Once again, for 2013, we plan to include these compacts and subcompacts for drivers who choose smaller vehicles that get high gas mileage.”
Another company in the multiyear process of rightsizing its fleet is ITW. “We continue to rightsize our fleet. This project was started a couple of years ago; it takes more than just a change in vehicles, but a change in what and how we carry equipment,” said Scolan of ITW.
Growing Impact of Sustainability on New-Vehicle Orders
Corporate sustainability initiatives to meet specific fleet-wide CO2 emissions levels is a major factor that will influence new-vehicle acquisitions at a growing number of companies. These companies are incorporating CO2 emissions as a criterion in vehicle selector decisions.
“We plan on ordering, for the most part, high-output four-cylinder vehicles. We are looking into putting a CO2 cap limit on all future vehicles, but that cap level has not yet been agreed on by the global fleet team,” said a fleet manager of a major multinational company, who asked not to be identified.
This sentiment was echoed by another European-headquartered fleet operating several thousand vehicles in the U.S.
“There is more focus on reducing greenhouse gas (GHG) emissions due to company policy to reduce emissions 20 percent by 2020 and working this into TCO analysis,” said a fleet manager who wanted to be anonymous.
Some corporate sustainability targets are very aggressive. “We will make changes where more fuel-efficient vehicles are available. We have an aggressive goal for North America of only using vehicles with emissions of 160 grams per kilometer or better, where economically feasible, and finally this year the manufacturers have models that move towards this goal,” said Bieger of ADP.
However, some fleet managers are finding it difficult to justify the increased acquisition costs to go green. “We are evaluating many options. To go green is costly. So, for a smaller sedan fleet, it makes it very tough to recommend a 20- to 25-percent cost increase to go green. We try to accomplish this by offering flex-fuel models on all our offerings. We also will look to the higher performing four-cylinder engines as a way to cut GHG emissions, and still provide vehicles that will not break our expense plans,” said a fleet manager of an insurance company fleet who wanted to remain anonymous.
Due to ever-increasing fuel prices, more fleets are looking at hybrids and diesels for 2013, as well as the standard gasoline-powered engines.
“We are taking a close look at hybrids, as well as diesel-fueled vehicles, for a small subset of our fleet. We have no plans to make a major shift on what we offer, which is mid-sized, four-cylinder vehicles. No firm decision has been made regarding our 2013 selector,” said Kodet of Valspar.
A number of companies are struggling to incorporate alternative-fuel vehicles into their fleets, which can fulfill the fleet application. One such example is LKQ Corp.
“We are really working hard on getting alternative-fuel vehicles into our fleet,” said Mike Lahr, director of logistics for LKQ Corp.
This is echoed by another fleet manager who wished to be anonymous.
“This isn’t a popular subject, but the difficulty in proving out the ROI for alternative-fuel vehicles is a challenge we continue to face.”
Concerns about Order-to-Delivery Times for 2013 Models
Fleet managers are increasingly concerned about longer order-to-delivery (OTD) times and their impact on new-vehicle deliveries and future residual values.
“Given the state of the industry, now, more than ever, we need to integrate order-to-delivery timeline expectations into our model used to evaluate competitiveness. As OEM lead times increase, ordering matrix complexity increases and residuals are impacted,” said Wagoner of Philips Electronics North America.
Concern about longer OTD times for 2013 models was cited by a number of other commercial fleet managers.
“I hope the OEMs can improve their lead times. It’s been very frustrating to explain the long lead times and delays,” said Johnson of Konecranes.
Some fleets are being proactive about educating drivers about longer OTD times. “We need to prepare drivers for the slow ramp-up on new Fusion orders, which are way out there from an OTD perspective. Therefore, upfront communications, as well as interim reminders, are at hand,” said LaRosa of Merck.
Another ongoing concern is limited dealer inventory for out-of-stock orders. Many fleet managers say they continue to struggle with a lack of dealer inventory in being able to quickly react to project needs or to fullfill out-of-stock orders.