The Automotive Fleet assessment of the 2018 model-year indicates it will be a strong asset acquisition year based on a survey of the buying inclinations of more than 350 corporate fleets. The survey was conducted by Automotive Fleet in late May 2017.
By a two-to-one ratio, the majority of commercial fleet managers responding to AF’s annual acquisition survey reported that their new-vehicle ordering volume will be either larger or comparable to the prior model-year. However, the commercial fleet market is diverse and there were a smaller number of companies that reported they will decrease the volume of their 2018-MY fleet ordering due to a larger than normal fleet buy in 2017-MY, downsizing pressures, and corporate reorganizations.
But, on an aggregated basis, the survey revealed the overwhelming majority of companies will either increase or maintain their traditional ordering levels for model-year 2018, with volumes similar or greater to what was acquired in the 2017-MY.
The top factors driving 2018 model-year buying decisions are similar to those that drove 2017 vehicle selections. These include corporate initiatives to acquire the most fuel-efficient models available for the specific fleet application; downsizing, when possible, to smaller displacement engines or different classes of vehicles; and the incorporation of additional safety features and equipment options into company-provided vehicles.
Factors Driving Volume Increases in 2018-MY Vehicle Orders
The primary reasons cited by companies reporting an increase in new-vehicle ordering for 2018-MY are to accommodate business growth — both organic and by acquisition — and to replace aging fleet inventory.
A key example of pent-up fleet vehicle demand is in the oil and energy sector. After a long period of depressed fleet purchases, the energy sector appears to be ramping up its orders for the 2018-MY. Examples of the pent-up demand to replace aging assets is occurring across the board in the upstream, midstream, and downstream segments of the energy sector. The oil and gas industry is typically divided into three major sectors: upstream (the extraction of resources), midstream (the movement of resources to refineries, such as pipelines), and downstream (refineries that create products for sale to end-users).
In the upstream market, one indicator of next model-year buying inclinations is exemplified by National Oilwell Varco. As a major multinational corporation, headquartered in Houston, Texas, it is a provider of equipment and components used in oil and gas drilling and production operations, oilfield services, and supply chain integration services to the upstream industry. National Oilwell Varco reports it is anticipating a larger fleet buy in 2018-MY compared to last model-year.
“Our hope is that as our market recovers a bit so that we will purchase more vehicles than we did for MY-2017,” said Kimberly Fisher, global manager, fleet and travel services for National Oilwell Varco. “Our vehicles are getting quite a bit of age on them.”
In the midstream sector, there is similar pent-up need to acquire new vehicles to compensate for reduced orders in prior model-years.
“We are looking at a higher number of units due to minimal purchases in 2016. Those units are extremely high in mileage and repair costs,” said Lisa Kneggs, fleet specialist for EnLink Midstream in Dallas.
In the downstream market, one indicator of future buying inclinations is illustrated by Valero Energy Corporation, a Fortune 500 company, which operates a total of 15 refineries and 11 ethanol plants.
“We anticipate ordering about 5% more vehicles than 2017,” said Randy Burwell, lead buyer and fleet specialist for Valero in San Antonio, Texas.
In addition to improving business environment in the oil and gas industry, other segments of the economy are likewise experiencing an increase in business activity. One example is the uptick in new construction, both commercial and residential. The increase in new commercial construction is creating additional demands for elevators, which companies have been experiencing for the past several years. Many of companies in this segment made significant new-vehicle investments in the 2017 model-year. Although new-vehicle orders will decrease in the 2018-MY, they will still remain strong.
“Last year was a banner year with almost 800 units ordered. I do not know if we will get to that number; however, I think we will be at our regular number of 600 units or so,” said Phil Schreiber, fleet manager North America for Otis Service Center in Bloomfield, Conn.
Similar feedback was provided by ThyssenKrupp Elevator when asked about their 2018-MY ordering forecast, which will be smaller than its traditional annual ordering volume.
“For us, 2017 was a record year regarding volume purchased due to a number of reasons. We put 1,200 new units on road when our average is around 500 to 600. Therefore, we will definitely be less, around 500 vehicles,” said Tom Armstrong, director of fleet for ThyssenKrupp Elevator.
While farm commodity prices remain flat, exports remain strong. The agribusiness industry, like others, has strong pent-up demand to replace aging vehicle inventory.
“We anticipate an increase in vehicle orders due to expansion and some conservative ordering for the past couple of years,” said Michael Gates, fleet department manager for Crop Production Services (CPS) in Loveland, Colo.
Likewise, some pharmaceuticals are increasing fleet buy to accommodate business growth and to provide company vehicles to new hires.
“We will be acquiring more vehicles in the 2018 model-year due to increased headcount,” said Tracy McCann, senior fleet manager for Mylan Inc. in Pittsburgh. Mylan is a global generic and specialty pharmaceuticals company.
Also experiencing growth in today’s economy is Ingersoll Rand. “We will likely acquire more vehicles as our diversified businesses continue to gain market-share and the organization continues to look for opportunities in M&A activity,” said Jonathan Kamanns director, supplier relationship manager for Ingersoll Rand in Davidson, N.C.
While merger and acquisition activity can lead to larger fleet buys, in terms of overall industry sales, it is often volume-neutral.
“We acquired a company last year and we are bringing both fleets together in the coming months. As a result, we will be acquiring more vehicles, but only because the acquisition brought these new vehicles into our normal vehicle cycling. In effect, our purchase levels are staying the same, but because we are now combined, it only looks like we are buying more,” said one fleet manager who wished to remain anonymous.
As a baseline, many fleets anticipate making a comparable buy as last year, but increased business activity creates the possibility of a further increase later in the model year.
“Our goal is order at least the same number of vehicles as last year, but hopefully it can grow to 10-20% more than MY-2017,” said Scott Darling, director of fleet for TruGreen in Memphis, Tenn.
In addition to business growth, a recurring theme is that many fleets are seeking to replace aging units that have been kept in service for longer-than-normal mileage guidelines. The need to replace older inventory was repeated by many companies responding to the survey.
“We will be acquiring more vehicles as we are reintroducing a cycle policy that was suspended several years ago,” said Amy McAdams, CAFM, corporate fleet manager for ABM Industries.
Another company increasing its 2018-MY orders to weed out long-in-the tooth models is AmeriGas Propane.
“We are purchasing new assets, as we recognize the vehicles they will replace will be another year older. However, we are building at less than last year’s pace in overall new build vehicle count and dollars spent,” said Jay Massey, CPIM, corporate fleet vehicle manager for AmeriGas Propane.
Other companies are cycling out some medium-duty diesels ahead of schedule and replacing them with gasoline-powered trucks. Fleet managers report that reliability of diesel trucks continues to significantly impact cost, productivity, and driver morale.
Another reason for acquiring more vehicles is due to the timing of a company’s standard replacement cycles for light-duty vehicles. Still another reason is due to internal reorganizations and the reclassification of additional employees to be eligible to receive company-provided vehicles.
“We will be acquiring more vehicles in model-year 2018. We are rolling some people in from allowance programs to company vehicles,” said Peter Belloli, CAFM, associate manager, sourcing - fleet - USA/Canada for MilliporeSigma.
Factors Putting Downward Pressure 2018-MY Fleet Orders
The U.S. economy is diverse and, while current economic conditions may be generating growth for some, there are other industry segments experiencing slow or static growth.
There were a variety of other reasons given for reduced, or for no-change, in new-vehicle orders for the 2018 model year.
For instance, many larger fleets have multi-year purchasing agreements, which sets the parameters of what will be acquiring during the next several years.
Another reason is shortcycling, which accelerates vehicle replacement cycling. Although this is occurring less due to the softening resale prices.
Last year, General Mills replaced its entire sales fleet, which will result in a substantial decrease in its 2018-MY fleet volume. “I will acquire a much smaller amount of units this year. I replaced my entire U.S. sales fleet in 2016, so my oldest sales vehicle is a 2016,” said Adam Orth, CAFM, manager of fleet services for General Mills Inc.
Another company that recently shortcycled its fleet was Liberty Mutual Group, which will impact 2018 model-year ordering. “We will be acquiring fewer vehicles due to the previous year’s accelerated replacement initiative,” said Kate Duffy, fleet program manager for Liberty Mutual Group.
Internal reorganizations will also influence new-vehicle purchasing volumes. This can sometimes result in no vehicles being ordered.
Some companies are studying vehicle utilization and are looking to downsize overall fleet size.
“We will be buying close to the same number of vehicles for 2018 model-year. Maybe 20 fewer due to downsizing.” said Michael Swenson, fleet coordinator for McDonald’s Corporation.
Another factor was the massive recalls, especially with Volkswagen diesel models. “We had to replace 2,000-plus VW diesels in 2017 due to the buyback emission issue in addition to our regular buy so next year we should have much less vehicles to replace,” said one fleet manager who wished to be anonymous.
Corporate reorganizations are another factor exerting downward pressure on 2018 fleet buy at some companies.
“We will be acquiring fewer vehicles due to some reorgs and bringing fleet drivers in from the field, which eliminates their eligibility to have a company vehicle,” said a fleet manager who requested anonymity.
Fleet Purchases will Remain Unchanged at Many Fleets
The majority of the surveyed companies will not make dramatic changes to their new-vehicle orders and will keep acquisition volumes at that same level as the prior model year, which was a strong year for fleet orders.
“We will be acquiring about the same as last year, maybe a couple more,” said Jim Bigelow, senior director, Enterprise Fleet for Cox Enterprises, Inc.
Corporate mergers and acquisitions of other companies is also playing a role in keeping purchasing volumes relatively static, year-over-year.
While the majority of companies are taking a “steady as you go” vehicle acquisition strategy, some companies are looking to make dramatic changes to their replacement cycling parameters.
“We will acquire about the same number of vehicles, with a caveat that we have been slowly reducing our fleet of commercial motor vehicles (CMVs) and expect that to continue,” said Sam Besser, fleet manager for Coinstar, LLC.
Factors Influencing Model and Engine Selection
Most fleets do not anticipate changes to vehicle types, as choices of vehicle segment types are driven by business requirements. However, there are market forces that favorable changes to type of model acquired. The key reasons given for changes in the types of vehicles to be acquired in the 2018-MY are:
Switch to Different Vehicle Segment: An ongoing trend is the shifting fleet preferences between vehicle segments. Today, a growing number of fleets are considering and choosing crossovers instead of mid-size sedans, which is causing a shift in the type of vehicles found on corporate selectors. Today, there is a growing acceptance of crossovers as a fleet vehicle. Once crossovers were considered an upgrade; however, today, these vehicles are now in fleets in representative ratios as the retail market, which promises to continue with 2018-MY ordering. Today, as a percentage, fleet registrations of crossover models are beginning to mirror the market share found in the retail market.
Other factors stimulating fleet acquisition of crossovers are ergonomics, an all-wheel-drive option, and increased cargo-carrying capabilities. More commercial fleets are migrating from sedans to CUVs and SUVs for the same reasons that retail customers have migrated toward utility vehicles. The ingress and egress is easier and there is more cargo room for equipment, products, and samples. The interiors are also roomier for those fleets that transport personnel. Another very important feature of utilities is all-wheel drive. Fleets in Northern states with significant snowfall select crossovers because of their capability in inclement weather and ground clearance that comes with these vehicles.
Downsizing to the Next Vehicle Segment: There is a continuation of the trend to downsize to a smaller class of vehicle (or different vehicle segment). This ongoing trend at many fleets will continue with 2018-MY ordering.
Downsizing is an ongoing factor influencing new-vehicle acquisitions at many corporate fleets. The decision to downsize to smaller vehicle is typically determined by TCO and fleet application. “Our build mix will be concentrated on core trucks with less focus on specialty builds,” said Massey of AmeriGas Propane.
This was echoed by Genus PLC. “We are downsizing where we can, such as from four-door crew cabs to extended cab or regular cabs trucks to gain more fuel savings, and to reduce the personal (non-business) use,” said Jeff Allspaugh, business process manager - Fleet Management Services of Genus PLC in Rockford, Ill.
Switch to Smaller Displacement Engine: Fleets are reducing engine displacement size from V-8 to V-6 or V-6 to four-cylinder engines with turbos.
“We will order the same models, but look at more V-6s in place of the V-8s for some positions,” said Gates of CPS.
Addition of Hybrid Models to 2018 Selector Lists: Selecting models with higher mpg than the predecessor model is driving many acquisition strategies. Some fleets have elected to expand on this fleet initiative by acquiring hybrid vehicles.
One fleet in the forefront is ADP. “In the past 12 months, the ADP fleet has gone 100% hybrid in 2017,” said Michael Bieger, senior director global procurement for ADP. This will continue with its 2018 model-year ordering.
Hybrids are a growing segment at many other fleets. “We are always looking for the most efficient and cost effective models and as a result our passenger car fleet is 100% hybrid. Right now we are acquiring Toyota Priuses, with the Chevy Malibu Hybrids coming in second,” said Besser of Coinstar, LLC.
Major fleets, such as McDonald’s, are shifting entire models to hybrids. “All FWD Fusions will be hybrids instead of gasoline engines,” said Swenson of McDonald’s.
Another company acquiring more hybrids is Cox Enterprises. “We will acquire more hybrid sedans, as all of our business-use sedans will be hybrids,” said Bigelow of Cox Enterprises, Inc.
In addition, sustainability continues to be a significant influence in the types of models acquired. Hybrids will be added to some 2018 selectors to help meet corporate sustainability goals, which, over the years, has become a factor in vehicle acquisition decisions at some corporations, especially multinationals.
“Ingersoll Rand has significant initiatives aimed toward reducing our overall environmental impact; both in product and operations. I’m anticipating that while the types of vehicles we acquire might not change too significantly, we’ll continue to look for offerings that drive down our CO2 impact,” said Kamanns of Ingersoll Rand.
Concerns about Delays in Getting Replacement Units when Truck Inventory is Tight: With the popularity of light-duty pickups in both the retail and fleet markets, demand is creating tight inventory situations, especially when replacement units are unexpectedly needed, such as replacements for accident-damaged units.
“One of my biggest concerns is the lack of inventory for truck fleets right now. With the lack of inventory it means that in emergency situations where we have to purchase out of stock we are paying far more than our standard spec and we are getting trucks with options we would not normally pay for,” said Fisher of National Oilwell Varco.
Initiatives to Standardize Fleet Assets: Many fleets are continuing their long-term initiatives to standardize the types of fleet assets they deploy.
“We are consolidating the types of vehicles we are ordering to create better consistency across the fleet. We are also moving to more vans as a percentage,” said one fleet manager who wished to be anonymous.
Another standardization initiative is being implemented by ABM Industries. “We are attempting to standardize our fleet to allow for more flexibility,” said McAdams of ABM Industries.
Growing Market Share for Euro-Style Vans: Many fleets have entirely switched over to Euro-style van bodies.
In 2018-MY, some fleets plan to downsize to smaller vans. “We are moving some field service technicians from minivans to small, city cargo van/wagon,” said Belloli of MilliporeSigma.
Switch from Diesel Engines to Gasoline Engines: What started in 2016 and continuing into the 2018-MY, some fleets have stopped buying diesels.
“We’re still deciding if we should go with a diesel vehicle again (Chevrolet Equinox diesel) or stick with gas. We’re also seriously looking at the Chevy Bolt EV to see how we can work it in to the fleet in specific positions. Still a ways to go with that one but hope to be able to use it in some capacity for MY-2018,” said one fleet manager who wished to be anonymous.
Sustainability and safety are two key factors that will drive CBRE fleet sales for the 2018-MY. “There will be continued emphasis placed on OEM safety offerings and a continued pursuit of emission-reduction strategies, either by OEM or aftermarket resources,” said J.J. Keig, CAFM, corporate fleet manager for CBRE in Dallas.
Other multinational corporations are likewise looking to increase the percentage of hybrid vehicles in their fleets as a replacement for diesel-powered vehicles. “We are introducing hybrid vehicle choices into many markets, and some gasoline vehicles into Europe that were previously 100% diesel,” said Ross Harris, associate director of global fleet for Bristol-Myers Squibb.
Some fleets are attributing their desire to move away from diesels specifically to the revelation that Volkswagen was skewing emissions and the suspicion that this may extend to other OEMs.
“Our decision to move away from diesels was due mainly to the VW emission issue, but also due to the expense of repairing diesels once they reach 120,000 miles. Diesels can definitely run a long time – longer than gasoline engines – but the maintenance is very expensive,” said one fleet manager who wished to be anonymous.
Sometimes long order-to-delivery times are influencing whether to eliminate a model.
“We eliminated the one Asian truck from our choices due to its long lead times and added the Chevy Equinox LT as a replacement,” said a fleet manager who wished to be anonymous.
Availability of Safety Packaging Influencing Selector Decisions: Most fleet will be spec’ing greater safety options during the 2018-MY fleet buy. The availability of safety packages will have a direct bearing on what will be ordered for the 2018-MY.
This strategy was reinforced by similar comments from other fleet managers. “We are adding safety features on all trim levels and buying the safest vehicles available. Minimizing distracted driving and creating driver accountability has become a huge factor in our buying decisions,” said one fleet manager, who asked not to be identified.
Expansion of Non-Traditional OEMs into Fleet: One trend has been the inclusion of more non-traditional fleet OEMs into a company’s fleet program. “We always look to introduce new innovative OEMs that provide the best TCO. We use a lot of Nissan and Subaru product today, and will continue to look at new OEMs, such as Hyundai and Kia specifically, as well as Mazda, Honda, and Toyota,” said one procurement VP at a Fortune 500 fleet who wished to remain anonymous.
Changes in OEM Sourcing
Many companies are in multi-year purchasing agreements with specific OEMs, which precludes shifts in OEM sourcing.
“We are in the middle of a three-year contract with current OEM and therefore there will not be any change,” said Schreiber of Otis Service Center.
Another factor influencing OEM selection is the necessity of smaller-sized fleets to focus volume with a single OEM to be eligible for volume discount incentives. “We will remain with only one OEM since we don’t purchase enough vehicles annually to earn CPA/CAP/VIP incentives from the Big 3 if we split the business with another OEM,” said a fleet manager who wished to be anonymous.
This same strategy was voiced by National Oilwell Varco. “We are reducing the number of OEMs in our selector to concentrate our spend more wisely,” said Fisher of National Oilwell Varco.
In addition, incentives can sway purchasing decisions. “It is possible that we can change our OEM depending on pricing and incentives offered,” said McAdams of ABM Industries.
At the time of the survey, many companies were still out for bid or yet to issue an RFP, which may (or may not) result in changes from which OEMs they source new vehicles. “We will have a RFQ in June/July 2017 to determine our OEM for 2018,” said Armstrong of ThyssenKrupp.
Others likewise said it was too early to make a definitive conclusion. “We are currently in an RFP, so it is possible there will be changes,” said Harris of Bristol-Myers Squibb.
This was echoed by other companies.
“We are working on the OEM RFP now. Initial indicators are there could be changes,” said David Haslerud, fleet manager, administrative services for 3M in St. Paul, Minn.
Most fleet managers anticipate that their incumbent OEMs will continue to be competitive and win the RFP.
At many companies currently not out to bid, the OEMs used will stay the same due to earlier changes. “We made a change in our OEM providers two years ago, so there will be no changes this model year,” said McCann of Mylan Inc.
This was repeated by AmeriGas Propane. “We plan to utilize the same core mix of OEMs,” said Massey of AmeriGas Propane.
This was reiterated by other fleets. “We will source from the same OEMs we did last year,” said Brett Switzky, Fleet, Trucking, & Records Retention Manager at American Family Insurance.
While many fleets are not considering shifts in OEM sourcing, there is a trend to decrease the number of OEMs at fleets that previously offered large selector choices. “I plead the 5th, but we will drop one,” said one fleet manager who requested anonymity.
However, most fleets are continuing to source new vehicles with the same OEMs. “We utilize two OEMs and will continue to do so,” said Kneggs of EnLink Midstream.