The 2014 model-year provides more evidence that the national economy is improving, with early indications that commercial fleet ordering, on average, will increase, compared to the prior model-year. Among the key factors driving 2014 model-year buying decisions are corporate initiatives to select the most fuel-efficient models available, downsizing to smaller displacement engines, and the incorporation of additional safety features and options into company-provided vehicles.
This market assessment is based on a 2014 model-year buying inclinations survey of 400 corporate fleets conducted by Automotive Fleet in early June 2013. Most fleet managers responding to AF’s survey reported they will increase their ordering volume compared to last year. However, the commercial fleet market is very diverse and there are also a smaller number of companies reporting they will decrease their MY-2014 fleet ordering for various reasons. But, on an aggregated basis, the survey revealed substantially more companies are predicting either an increase in fleet order volume or that they will maintain traditional ordering levels for model-year 2014.
Although overall new-vehicle ordering will increase, many fleet managers voiced a common and recurring complaint about the impact of staggered production schedules by OEMs for certain high-volume fleet vehicles.
“The staggered release of new models from various OEMs has gotten confusing. There currently are some 2014 models on the road, while other OEMs have not yet started to accept 2014 orders,” said Richard Corsetti, manager purchasing/car plans for FM Global.
This complaint was echoed by other fleet managers. “The OEMs are causing issues with our ordering process with all the changes to their model-year switch overs,” agreed Tom Grove, corporate delivery services manager for Ace Hardware Corp.
This concern was widespread among surveyed fleet managers, as exemplified by the following quote from a fleet manager, who wished to be anonymous: “Once again, I can’t do all of my ordering at one time because of exasperating staggered production schedules. I’ll be ordering for four months (from July to October) instead of one (August). When possible, OEMs should be more tuned to our replacement cycle and work more closely with us as a partner.”
Another perennial issue continues to be the lack of pricing information for certain key models at the time order banks are opened.
“I hate it when order banks open without finalized pricing. I’m not ordering anything until I know how much it will cost. Also, it is a challenge having to deal with different manufacturers’ order banks with different opening, closing, and production schedules. It makes it very hard to coordinate an order cycle internally,” said Lisa Adams, fleet manager for W. L. Gore & Associates, Inc.
However, OEMs have also received praise about changes made to the vehicle content and option packaging. “I don’t see any major changes to our ordering; however, I am really glad to see trim levels changing to fit more standard features, as opposed to nickel and diming the companies,” said Linda Ellis, corporate procurement coordinator for Boral Industries.
Fleet Buying on the Increase
Despite industry concerns about ordering schedules, most companies reported that they are acquiring more vehicles, primarily because their businesses are expanding.
“We will acquire more vehicles, mostly because of growth in our business, which will require more vehicles,” said one fleet manager, who wished to be anonymous.
Another reason for increased orders is due to corporate acquisitions, which has increased the overall fleet size at some companies. “We will acquire more vehicles in 2014, due to some recent acquisitions,” said Andy Coulter, director – global fleet and indirect procurement for Ecolab.
This was echoed by Mike Lahr, director of fleet operations for LKQ Corp. “We will acquire more vehicles than last year,” he said. “There are two reasons: Our company is growing and we are behind on ordering new trucks to replace some older ones in the fleet.”
The survey revealed a broad-based sentiment that business is good for many companies. “I can’t speak for what other firms may be experiencing, but we are having a strong start to 2013. If this continues, I would see our MY-2014 numbers up 15 percent over last year,” said Tom Krause, purchasing/fleet manager/financial services for West Bend Mutual Insurance Co.
This was reinforced by another fleet manager, who wished to be anonymous: “We have been pre-ordering vehicles to help decrease rental costs for our internal business groups that are expecting growth based on headcount projections.”
Impact of Prior Year Shortcycling
Of the fleets that are acquiring fewer units in MY-2014, many are doing so because they had pulled forward new-vehicle acquisitions due to aggressive shortcycling in earlier model-years. One example was ADP.
“Because of the strong residual market, model-year 2013 allowed us to replace older vehicles with much more fuel-efficient vehicles. As a result, we will be ordering significantly fewer vehicles in MY-2014,” said Michael Bieger, senior director – global procurement for ADP, Inc. “However, this year will set the stage for a return to a significant buy in MY-2015.”
Another company that aggressively shortcycled its fleet was a major Fortune 500 consumer product company that wished not to be identified.
“Our 2014 volume will be down, since we had accelerated our last two to three order cycles to take advantage of the strong used-vehicle market,” said the company’s fleet manager.
This sentiment was echoed by a fleet manager of a major pharmaceutical company, who also wished to remain anonymous. “I will be acquiring fewer MY-2014 vehicles. The reason is that I flipped 80 percent of my fleet in 2013, due to the strong resale market. As a result, we saved millions of dollars. The vehicles we are adding to our fleet have better TCOs,” said the fleet manager.
Another fleet that aggressively shortcycled its vehicles was a distribution company. “We shortcycled most of our fleet in MY-2012 due to the high resale values we were receiving. Right now, we average about 20 months-in-service.
With the used-vehicle market not as strong, we don’t expect to shortcycle again and will not replace as many vehicles, percentage wise, as we would have in a ‘normal’ year,” said the company’s fleet manager.
Fuel-Efficiency is a Key Acquisition Consideration
A key trend identified for 2014-MY ordering is the continuation of the ongoing acquisition of more fuel-efficient vehicles. This sentiment was concisely captured by Debbie Mize, fleet manager for Hallmark Cards. “We will be looking at more fuel-efficient vehicles.”
Fuel efficiency is the primary consideration for many fleets in determining which vehicles to add to the selector. “We went partially to four-cylinder engines in 2013 and plan to go totally four-cylinder in 2014,” said Greg Asadoorian, global fleet manager for Invensys.
Not only are fleet managers embracing fuel efficiency as a primary vehicle selection criterion, but there is also a growing acceptance and preference among drivers, who increasingly are selecting the more fuel-efficient vehicles on the company selector, when given a choice of vehicle.
“We will offer the same vehicle types, but noticed that more drivers are selecting four-cylinder small SUVs over sedans,” said Janet Horvath, manager, supply chain for global fleet and travel for Eaton Corp.
The focus on acquiring more fuel-efficient vehicles is also influencing OEM sourcing decisions. “We will expand into more models and manufacturers with a higher focus on increased mpg due to the unpredictable fuel prices. But, at the end of the day, the TCO analysis will determine our selector list,” said one fleet manager.
There is an ongoing trend to increase the overall mpg of the fleet as a whole. “We are evaluating more fuel-efficient models for each class,” said Gage Wagoner, senior manager, North American Fleet Management for Philips Electronics North America.
Other fleets are also moving in this direction. “We continue to seek more fuel-efficient vehicles that meet the requirements of our drivers. We will have 10 percent of our drivers in the Transit Connect by the end of the third quarter, up from less than 3 percent last year,” said the company’s fleet manager, who wished to remain anonymous.
Another fleet looking to downsize to four-cylinder engines is National Gypsum. “We are looking into the possibility of going to the four-cylinder models for our SUVs,” said Don Woloszynek, manager – fleet services for National Gypsum.
Likewise, Merck is continuing to choose the most fuel-efficient engines offered in the selected vehicle, said Scott Lauer, associate director, vehicle fleet management, North American Fleet Administration for Merck Sharp & Dohme Corp.
Although downsizing to smaller displacement engines in SUVs conforms to corporate fuel-efficiency initiatives, some fleets are reporting pushback from drivers, especially those assigned four-cylinder SUVs.
“For the most part, we will be acquiring the same types of vehicles as last year. We will again take a strong look at four-cylinder options to replace our V-6 models,” said Brett Switzky, fleet, trucking & record retention manager for American Family Mutual Insurance Co.
However, there is a limit to how much a fleet can downsize its vehicles. “We want to continue to add more fuel-efficient vehicles into our fleet, but, first and foremost, the vehicles on our selector must allow our drivers to do their job and not be a hindrance to their job,” Switzky said.
Safety a Top Acquisition Factor
Another key acquisition trend for MY-2014 has been the incorporation of additional safety features in vehicle specifications. “We are looking to incorporate more safety features as standard offerings on all of our vehicles.
We require hands-free cell phone usage nationally, and are only ordering vehicles that can support that technology. Safety features will be a key component in our selection process for our OEM provider in 2014,” said an anonymous fleet manager.
However, a continuing challenge for some fleets is the difficulty in specifying safety equipment. “This year, back-up assists (camera or sensor), automatic headlights, and daytime running lights are mandatory. There were vehicles we had to exclude because of the lack of daytime running lights. There were other vehicles that we were forced to purchase with upgraded packages,” said an anonymous fleet manager of a Top 300 fleet.
Driver distraction continues to be an issue, especially as company-provided smartphones are assigned to field employees. “We have been diligently working on putting together an updated safety policy to coincide with the deployment of iPhones into our field. We were looking at purchasing temporary technology to allow Bluetooth in the vehicles, but will now see it ordered in new vehicles with SYNC. We have seen a visible increase in the number of accidents since the deployment of the iPhones late last summer and are quickly trying to come up with some solutions that sales management will approve,” said one fleet manager.
Sustainability a Strong Factor
Sustainability continues to be a strong factor in new-vehicle ordering considerations for the 2014 model-year.
“Our company is kicking off a ‘Go Green’ plan to cut CO2 emissions by 20 percent by 2020. As a result, we will conduct more evaluations of hybrid and diesel options,” said Lee Miller, senior manager, fleet services for Boehringer Ingleheim Pharmaceuticals, Inc. “For us, total cost of ownership (TCO) will be a bottom-line decision-maker.”
Sustainability objectives also influence OEM sourcing. “Reducing emissions continues to be a significant influence on our decisions regarding OEMs,” said Wagoner of Philips Electronics North America.
Some fleets are actively encouraging the employee drivers to select hybrid models on their corporate selector when given a choice.
“We will be ‘marketing’ the two hybrids on our selector, trying to push ordering behavior towards the Ford C-MAX and Fusion hybrids,” said Sue Miller, CAFS, director, fleet program services for McDonald’s Corp.
Similarly, other fleets are giving serious consideration to adding a hybrid choice to their 2014-MY selectors. “We may be considering adding a hybrid as a choice,” said Shirley Collins, CAFM, director, North America fleet for GlaxoSmithKline.
Another fleet making this deliberation is Konecranes. “There will be no major changes to the types of vehicles we will be purchasing; however, I am hoping to introduce a hybrid or a diesel on the selector,” said Rachel Johnson, CAFM, fleet specialist, Region Americas for Konecranes, Inc.
Contributing to the increased interest in hybrids is the increased number of body styles available.” We are looking at more hybrids, since there are more vehicle styles available and some prices have come down,” said a pharmaceutical fleet manager.
In addition to offering hybrids, more fleets report interest in testing diesels in their fleets. “We will try to use more diesel vehicles where possible,” said one fleet manager who wished to be anonymous.
Despite the importance of increasing fuel efficiency, TCO still continues to be the primary determinant in selecting models.
“We’re continuing to focus on not only fuel economy, but overall TCO. Based on using both a hybrid and a diesel for our service fleet in 2013, the diesel is showing stronger mpg, so the TCO is looking good for that model. Our year-to-date fuel spend has decreased, even with the higher-priced diesel, so overall, we’re favorable in this expense category. This is why we will try to expand our diesel selection, if possible. We’ve found the hybrids are good, but only in specific areas, which is difficult to keep consistent since drivers are allowed personal use,” said one fleet manager.
Although sustainability continues to be a strong emphasis by corporate fleets, most fleets continue to buy only small quantities of hybrids and other alternative-fuel vehicles, as a percentage of the total fleet buy. There have been a handful of major fleets that have made large-scale swings in acquiring these types of vehicles.
[PAGEBREAK]Importance of Incentives
Another top consideration driving fleet acquisition decisions are the competitiveness of fleet incentive programs offered by OEMs, which has been a perennial factor in the fleet industry since time immemorial.
“Some manufacturers seem to be more competitive than others with incentives being offered, which will make a difference in deciding what vehicle selections we will choose for the 2014-MY,” said Debbie Struna, fleet manager for Rite-Aid Corp.
This sentiment was voiced by a number of other fleet managers, as exemplified by the following observation: “There may be possible changes on types of vehicles on our selector, it depends on who pushes for the highest discount and if any new tech is introduced that seems viable for our drivers,” said Craig Oliver, fleet administrator for Cooper Tire & Rubber Co.
Trend to Standardize Selectors
More fleets are seeking to standardize selectors and are eliminating or decreasing the number of fleet options offered to drivers. “We are working with our internal customers to refine and standardize our selectors. Also, we’re looking toward better fuel efficiency and lower maintenance costs,” said Mike Butsch, global fleet manager for Joy Global.
Another company seeking to streamline its selector options is LKQ Corp. “We will be changing some models and eliminating some to cut down fleet options,” Lahr said. “We may eliminate one or two of the OEMs we use.”
A corollary to selector substitutions is the normal driver dissatisfaction or low interest with particular fleet offerings and substituting a different replacement model for new model-year ordering or eliminating the option altogether.
Improved Overall Quality
One universal comment from surveyed fleet managers is the high quality level of today’s fleet vehicles. “I continue to be impressed with what is being manufactured today. The vehicles are stunning, yet practical for fleet needs,” said Paul Harrison, CPM, CAFS, CAFM, associate manager – esourcing & fleet for TDS Telecommunications.
Another fleet manager, who wished to be anonymous, made a similar observation. “The new vehicles are a noticeable improvement over prior model-years in styling, fit-and-finish, safety features, and fuel economy.”
This sentiment was echoed by another fleet manager: “There are many great vehicles to choose from for MY-2014, with fewer stand-out differences, making it difficult to rule anything out. We like to have a few choices, but not too many. With mpg, safety ratings, and overall TCO being so close among the offerings from the OEMs in MY-2014, it will be tough to narrow down the selector.”
Order Volume Will Remain Status Quo at Some Fleets
There continues to be lingering uncertainty among some fleet managers in the wake of the new model-year, such as concern about future resale values and the future price of gasoline and diesel.
Many fleets are maintaining their pre-existing vehicle replacement schedule. “Our plan is to replace one-third of our fleet with MY-2014 vehicles, we plan to purchase between 1,300 and 1,500 MY-2014 vehicles, which is very close to our purchase of MY-2013 vehicles,” said an anonymous fleet manager.
The same is true for Southern California Gas Co. “We plan to acquire approximately the same number of replacement vehicles in 2014 in comparison to 2013,” said Tony Orta, asset manager – fleet services for the Southern California Gas Co.
Most of these fleets state there will be no major changes in the types of vehicles they offer, primarily because their business requirements have not changed.
“There will be no changes in type of vehicles, it will be the same type based on business requirements,” said Brenda Davis, commodity manager for fleet COE & temporary services for Baker Hughes.
A key determinant is the capital budget. When it remains the same, ordering volume will likewise remain at the same or comparable levels. “We have the same amount of capital, therefore we will order about same number of vehicles,” said Steve Saltzgiver, VP, fleet operations for Coca-Cola Refreshments.
In addition, there is corporate pressure to keep fleet budgets flat. “We don’t anticipate any real changes. The budget needs to stay flat. Remarketing is a big question and gasoline prices are up,” said an anonymous fleet manager.
Reasons for a Lower Fleet Buy
Among fleet managers stating they will buy fewer vehicles, the common reasons are divestiture of business units, mergers, sluggish business activity, or that, they themselves, are acquisition targets, putting capital expenditures on hold, in addition to the pulling forward of new-vehicle acquisitions due to the widespread shortcycling that has occurred over the past several years.
One company buying fewer vehicles in MY-2014 is Cox Enterprises. “We will acquire fewer vehicles in 2014. We have bought a lot of vehicles over the past three years, as we were playing catch up from not purchasing many in 2009 and 2010,” said Mark Leuenberger, assistant VP, supply chain services and fleet management for Cox Enterprises.
According to Leuenberger, the downturn in the economy disrupted the vehicle refresh procurement schedule for Cox Enterprises. “As our fleet is now mostly newer vehicles, our need for new vehicles is lower,” Leuenberger added.
Another reason for a lower fleet buy is due to a company’s pre-existing vehicle replacement schedule. “We will be buying fewer vehicles in 2014. Our reduction in the number of units purchased is not economy-related, it is merely our planned replacement cycle,” said David Meisel, senior director – transportation & aviation services for Pacific Gas and Electric Co.
Although most companies report increased business, others are struggling and undergoing staff reductions to reduce overhead expense, which, in turn, decreases ordering volume.
Another factor contributing to fewer purchases is because of companies divesting business units. One example is Valero.
“Since Valero spun off its retail division, referred to as CST Brands, Inc., Valero will acquire fewer units in 2014,” said Randy Burwell, lead buyer and fleet specialist for Valero.
Extended Service Lives
Some fleets have extended the service lives of their fleet vehicles, which, likewise, is decreasing order volume. “We did not place any orders for the 2013-MY and will not for the 2014-MY,” said one fleet manager. “We extended our replacement criteria; therefore, it will be another one to two years before we replace a majority of our vehicles.”
One company that has extended vehicle service life is National Gypsum. “We will be acquiring the same number of vehicles as in model-year 2013. Our replacement mileage is 100,000 miles and has been that way for the past two years,” Woloszynek said.
Other commercial fleets are testing the reconditioning of truck chassis to extend service life. “For the first time, we are considering reconditioning chassis to extend the life. We have completed some test units with good success in terms of quality. Price is still being worked on. We are doing this primarily because, like many companies, we deferred some replacements in the past and had other years with large purchases. This creates ‘lumpy’ demand. By extending the life of some units, we can smooth the demand and associated capital needed from year to year,” said Mike Speer, senior director of facilities and fleet for Schwan’s Home Services, Inc.
Truck Downsizing Trends
Downsizing to lightweight truck chassis has been an ongoing trend, so long as the fleet application can still be accomplished. One of the many manifestations of downsizing occurring in truck fleets is the spec’ing of smaller displacement engines.
More and more fleets are looking to rightsize their vehicles. “We are seriously considering dropping at least one segment size in sedans and SUVs. If we decrease size, we are going to upgrade driver friendly features that hold residual value. Our service vehicles will upgrade driver friendly features, too,” said Harrison of TDS Telecommunications.
Besides reducing acquisition costs, another key reason to downsize is to increase overall fleet fuel economy. “We will stay with the small SUV. We have to hit the 26 mpg combined threshold,” said David McCauley, fleet manager for Red Bull.
Another factor driving fleets to downsize to smaller truck segments is to avoid DOT regulations. “We are looking to reduce some trucks in size not requiring commercial driver’s licenses (CDL),” said Saltzgiver of Coca-Cola Refreshments.
Another major fleet stated its initiative to focus on downsized vehicle options is to help achieve its goals to reduce corporate CO2 footprint.
One of the major product changes in 2014 (and later in 2015) are the new models in the van market being offered by Ford, Chrysler, and General Motors, which will impact the buying decisions of traditional minivan and full-size van buyers. “There are some significant changes that OEMs are bringing to the van market,” said Phil Schreiber, fleet manager North America for OTIS Service Center.
Another downsizing trend involves the “light-weighting” of vehicles and upfitted auxiliary equipment. “We continue to move toward lighter truck chassis. We worked with Johnson Refrigerated Truck Bodies to lighten our older truck bodies so that we could move from a medium-duty chassis to a light-duty one. Our bodies are used on two chassis, so they were originally purchased and placed on a medium-duty chassis. Instead of putting them on another medium-duty chassis for their second cycle, we lighten them and place them on a light-duty chassis,” said Speer of Schwan’s.