Automotive Fleet magazine enlisted the brainpower of 10 subject-matter experts to take a deep-dive analysis examining the key factors that influenced order-to-delivery (OTD) for 2017 models. Representing nine different fleet management companies, these subject-matter experts identified the top variables that influenced OTD during the 2017-MY.
Here’s what they told us.
Softening of the Retail Market
One of the key factors contributing to faster fleet OTD in 2017 was a softening of buyer demand in the retail market. Last year, stronger retail demand competed with fleet allocation, especially for hot products, such as trucks and SUVs.
“In 2017, there was a decrease in retail demand, which created additional allocation to fleet sales,” said James Crocker, director of fleet operations for Merchants Fleet Management.
All of the subject-matter experts agreed that the softening in retail automotive sales helped to improve fleet OTD times.
“Retail auto sales seems to have peaked. Last year’s strong sales rally continued through early spring 2017, but weakened during the summer months. It is now expected that 2017 SAAR (seasonally adjusted annual rate) will come in below 17 million units, ending a record seven-year streak of increasing U.S. auto sales. As a result, some plants have taken extended down periods or have cut back on production. This has helped ease OTD times as fewer vehicles are in the transportation network,” said Jessica Krams, manager, vehicle order management for Wheels Inc.
Agreeing was Partha Ghosh, director, vehicle supply chain – North America for ARI. “Fleet OTD has been positively impacted by softer retail demand trends, which have been easing from recent years,” said Ghosh.
Another factor has been the shifting consumer preferences away from traditional sedans to crossovers and SUVs. In terms of OTD, the increased retail demand for trucks and SUVs and subsequent production increases contributed to rail constraints at some plants.
“Larger SUV and trucks are taking up more space in transportation than the industry may be accustomed to seeing,” said Crocker. “There were several times that bottlenecks occurred at the Kansas City vehicle distribution center. This resulted in constraints in car hauler transport from vehicle distribution centers.”
One issue is the increased ratio of trucks sold, which puts greater demand on rail resources because fewer numbers of trucks, due to their larger size, can be loaded on a rail car than cars.
According to Crocker of Merchants Fleet Management, there were situations when medium- and high-roof vans were not accepted back into transportation via rail by manufacturers. “You cannot fit as many larger size vans on a carrier compared to smaller vehicles,” said Crocker.
The popularity of SUVs and pickups continues to put pressure on lead times.
“We experienced substantial delays with production, upfit completion, and transportation of small trucks. Delays were attributed to larger than anticipated demand causing stress via the entire process,” said Greg Carson, vice president, operations for Union Leasing.
While strong retail demand for trucks and SUVs put strains on fleet OTD, one converse benefit is that fleet OTD for sedans improved.
“Several sedan models including the Ford Taurus, Chevrolet Impala, and Nissan Altima have decreased order-to-delivery timeframes, as both fleet and retail customers are moving toward SUVs,” said Krams of Wheels.
Fleet OTD is very much influenced by market supply and demand. “OTD timeframes significantly improved the Dodge Grand Caravan as this has become more predominantly a fleet vehicle,” said Krams of Wheels.
While retail demand has tempered in the last several months, these subject-matter experts advised fleets that they must strive to avoid complacency.
“Fleet managers are cautioned to continue to have flexibility and contingency plans as the landscape can shift one way or the other on short notice caused by weather, demand, and other factors that can play an unpredictable role in OTD times,” said Ghosh of ARI.
In addition, shifts in end-user demands can create scheduling issues and longer upfitting lead times based on vehicle orders. “This can affect parts and supplier availability for customer-specific upfitting items and create ship-thru delays,” said Bill Gooden, vehicle upfit consultant for LeasePlan USA.
Shipments from Mexico
In the past decade, there has been a significant expansion of automotive assembly by major manufacturers to Mexico, which was cited by participating FMCs as a contributor to OTD delays experienced in the 2017 model-year.
Today, many fleet vans are imported to the U.S. from other countries, such as Mexico. This has resulted in the “offshoring” of upfitting infrastructure to Mexico to be in proximity of the actual assembly plant. Fleet managers cite inefficiencies and inaccurate status updates from Mexico-based upfitters.
“There has been inefficiency with upfitting at the FCA assembly plant in Saltillo, Mexico,” said Crocker of Merchants Fleet Management. “Upfit suppliers expressed concerns with communication from Saltillo upfit assembly. Status updates were often not accurate and push backs were not explained.”
One issue in the past has been rail congestion. To minimize rail congestion, manufacturers assembling vehicles in Mexico have begun shipping vehicles by sea to the U.S. However, vehicle transport by ship has increased OTD in 2017 due to longer inspections at the port of entry in the U.S. In addition, there has been customs issues with parts exported from the U.S. to Mexico causing significant delays.
“The manufacturers who moved to shipping all of a certain model via vessel from Mexico had longer order-to-delivery timeframes as larger numbers of vehicles sat at ports waiting to be processed and shipped to the end destination,” said Krams of Wheels.
This issue was also cited by Nick Erculiani, VP, acquisitions for Element Fleet Management.
“FCA addressed shipping delays for vehicles coming out of Mexico with the use of shipping vessels to ship the ProMasters. This seemed to cause more delays in the process versus helping the situation,” said Erculiani.
Crocker of Merchants Fleet Management similarly cited issues with port performance on international shipments for both customs and final assembly. “Vans produced overseas, such as the Transit and ProMaster City, experienced the most notable delays,” said Crocker.
For compact vans that are produced in Europe and shipped to the U.S., they must clear customs and complete modifications, which lengthens OTD. Other fleet management companies likewise cited the discrepancy in OTD between vehicles produced at U.S. assembly plants versus those imported from aboard.
“Union Leasing experienced some issues with transportation based on where vehicles were produced (U.S. or abroad) and due to capacity versus demand with a select few models,” said Carson of Union Leasing. “For non-U.S. produced vehicle, some models took longer than expected to arrive at port locations causing OTD delays.”
More Railcars Available in 2017
One positive aspect to 2017 OTD was that there were fewer railcar shortages, especially for the transport of trucks and vans, which was an issue in prior years.
“The availability of additional railcars to accommodate larger vans avoided gridlocks at the plants and logistics yards,” said Rick Smith, manager, vehicle acquisition for LeasePlan USA.
Steve Armstrong, manager, vehicle purchasing for Mike Albert Fleet Solutions likewise agreed that there were minimal disruptions due to railcar constraints.
Although there were more railcar resources available to transport fleet vehicles, the increased number of high-roof vans ordered by fleets restricts the number that can fit in a railcar.
“Larger vans are still somewhat of a challenge due to railcar sizing and relative inefficiencies in the number of units that be can shipped per car, but again, nothing that should be construed as a major concern or impact,” said Ghosh of ARI.
One reason for the greater availability of railcars was due to the softness of retail sales, which freed up railcar resources. “As with the 2016-MY, we didn’t see any rail-related delays for the 2017-MY. This is partly due to declining rail loads and more railcars being available in storage for the rail companies to use,” said Jamie Wallace, manager, vehicle acquisition for LeasePlan USA.
Most rail constraints occurred at plants producing high-demand vehicles, primarily trucks.
“In addition to the shipping delays experienced on vehicles coming out of the Mexico plants, we also saw some railcar shortages particularly at truck assembly plants.” said Krams of Wheels. “Despite these delays, the manufacturers were able to keep the overall order to delivery timeframes relatively stable.”
Crocker also cited bottleneck at vehicle distribution centers. “Sometimes the pickup of vehicles from upfitter was delayed because it was not being marked appropriately as complete or because shipment labels were not being assigned on time, all of which resulted in delays.”
One concern was the increase in damage claims to vehicles during the shipping process either by rail or by car carrier. “With the increase of independent car carriers moving vehicles right from the plant to dealerships, this process may have caused unintentional increase in damaged vehicles as they are driving vehicles longer distances,” said Erculiani of Element.
Seconding this assessment was Merchants Fleet Management. “There was a noticeable increase in vehicle damage on delivery,” said Crocker.
Fewer Quality Holds
Another key factor that improved 2017 OTD times was that there were fewer quality holds issued by OEMs. “The overall number of lengthy quality holds was down during 2017. On average, the quality holds were lifted within a week or two resulting in stable or decreased order to delivery timeframes,” said Krams of Wheels.
Ghosh of ARI also reported fewer quality holds for the 2017 model-year.
“Generally, new-vehicle models can be delayed a couple of weeks for initial quality holds/inspections, but the impact for this model-year was less than in previous years and was not a significant factor,” said Ghosh of ARI.
For the 2017 model-year, quality holds primarily impacted trucks and vans.
“There were quality holds on several truck and van models that resulted in delays moving vehicles to the upfitters and subsequent railcar shortages once vehicles were released for shipping. The most recent quality hold and stop ship on the Transit van issued at the end of June is not reflected in the current order to delivery timeframes (published in this article); however, it caused vehicles to sit for nearly two months waiting for parts and rework and contributed to some production delays at the end of the model-year as well,” said Krams of Wheels.
Other contributing factors that prompted quality holds revolved around changes that occurred after production had started.
“Quality holds were not that big an issue this year; however, model spec changes, and color changes in the middle of production for most core Nissan fleet products created a lot a of client dissatisfaction,” said Armstrong of Mike Albert Fleet Solutions.
One example of specification changes was the change in chassis for the F-550. “This resulted in delays in upfits as upfit engineers had to reengineer certain components,” said Crocker of Merchants Fleet Management.
There were also quality hold issues with new options or new parts. “One example was the new diesel engine offered by FCA. In the end, the issue with the diesel engine prevented it from being released, which caused us to cancel all orders with that engine selected,” said Erculiani of Element.
One concern voiced by FMCs about quality holds has been the lack of proactive communication from the OEMs.
“Quality holds were in line with past years, but there is still a lack of communication from OEMs as to when these occur and what is affected. It would also be beneficial to receive proactive communication to when a quality hold occurs, what vehicles are affected, and the anticipated duration of a quality hold. One notable quality hold in 2017 involved the drive shaft for the Ford Transit,” said Crocker.
But, on the whole, the 2017 model-year experienced a minimal number of quality related issues.
“Union Leasing did not experience any significant delays due to quality control holds for 2017 orders,” said Carson.
Increased Vehicle Recalls
During the 2017-MY, the most noticeable OTD delays cited by Ghosh of ARI were related to vehicle recalls and repair delays caused by a shortage of replacement parts.
This was seconded by Erculiani of Element. “With the increase in recalls since OEMs started to tighten quality measures, there is a disconnect after recalls are issued and ‘ownership’ of the recall,” said Erculiani. “Dealerships continue to be confused or lack direction for next steps on how to handle recalls. Many do not understand how to handle fleet vehicle recalls and it ends up becoming an issue the fleet management company has to deal with.”
LeasePlan USA agreed that recall campaigns played a major role in impacting 2017 OTD times.
“Tightened regulations by the government in recent years have led all OEMs to demonstrate a higher level of caution and proactively implement recall campaigns to correct safety issues and avoid penalties,” said Smith of LeasePlan USA.
A perennial factor impacting fleet OTD has been weather-related disruptions of the transportation system. The data collected from this year’s survey was prior to the impact of hurricanes Harvey and Irma, both of which occurred at the tail end of the 2017 model-year.
Prior to Hurricanes Harvey and Irma, calendar-year 2017 experienced relatively milder and warmer weather.
Fewer weather-related events resulted in fewer uncontrollable OTD delays. For instance, with a relatively warmer winter across most of the country, there were fewer snow-related delays at ramps and plants.
“This year, shipping delays due to weather were mainly a result of flooding in various parts of the country,” said Krams of Wheels. “California was particularly hard hit with rainfall and extensive flooding during winter, leading to congestion at ramps in the region for several weeks before railways and roadways were cleared and vehicles could start shipping again. Some vehicles experienced weather-related delays of 30 days or longer.”
One of the more significant weather-related issue impacting OTD was hail damage, especially to vehicles awaiting driver pick up at dealership.
“There were significant spring rain storms in the southern region, which delayed deliveries to drivers due to hail damage and dealers impacted by local flooding. The hail storms that swept through the southern states in the spring were the most impactful for the year,” said Erculiani of Element.
Making a similar observation was Ghosh of ARI. “There were flood issues in Kansas City market, which slowed shipping in and out of the area for a brief period of time. Additionally, there were a number of areas where hail had a notable negative impact on OTD waiting for hail-damaged vehicles to get repaired.”
Jim Tangney, vice president of vehicle acquisitions for Emkay, also cited hail-related issues impacting 2017 OTD. “Hail damage to vehicles at dealerships and occasionally while in transit resulted in significant downtime at dealerships,” said Tangney.
At the start of the 2017 model-year, there were OTD delays due to Hurricane Matthew.
“We experienced some delays because of Hurricane Matthew in October 2016. A combination of flooding, power outages, and impassable roadways caused some delays throughout Florida, Georgia, and the Carolinas,” said Tangney. “Fortunately, there was little-to-no damage to actual inventory, so the issues were resolved rather quickly once the roadways were cleared and safe for travel once again.”
Weather-related issues are accepted by most fleet managers as the cost of doing business, but milder weather conditions in 2017 were welcomed by fleet managers.
But, on the whole, all FMCs agree that it was a relatively quiet year for weather-related delays.
“As with almost every year, we have seen slight delays in delivery due to the occasional winter storm, local flood or everybody’s favorite late-spring, early-summer hail storms. Although our usual seasonal delays occurred for the 2017-MY, we have not had any major weather events heavily impact order-to-deliveries,” said Wallace of LeasePlan USA.
This was seconded by Carson of Union Leasing. “Overall weather was fairly tame this past model-year. As a result, Union did not experience any noticeable delays.”
The consequence of weather-related delays on 2017 model ordering was best encapsulated by Armstrong of Mike Albert Fleet Solutions, who summarized the impact as “nothing substantial."