The strong economy in CY-2019 caused the overwhelming majority of commercial fleets to keep their vehicle acquisition volumes at that same level as the prior calendar-year, which was a strong year for commercial fleet orders.
However, there is emerging uncertainty as to how long this strong economy will continue before the inevitable downturn occurs. Currently, the economic data supports a continuation of a robust economy, plus, next year will be an election year, so count on incumbents to do all they can to maintain a strong economy, but there lingers the concern that this cannot go on forever.
The fleet market is a subset of the larger automotive industry, which is a cyclical industry that oscillates between strong sales and downturns. In turn, the automotive industry is a subset of the larger cyclical national macroeconomy that oscillates between growth and recession and back again.
Cyclical industries perform well when the economy is growing and contract when the economy stagnates or shrinks.Examples of cyclical industries are the automotive, construction, heavy equipment, and airline industries.
Boom or Bust?
When macroeconomic activity contracts so too do fleet buying volumes. Many cyclical industry segments are key buyers of commercial fleet vehicles, such as the construction market, which is a high-volume buyer of pickups and vans.
“As the demand for vehicles or vocational units increases or decreases this dramatically affects OE discounts via volume of the fleet buy. In big buy years most fleets experience above-average discounts. As the buy decreases or a reduction in fleet size occurs the discount per unit can swing dramatically; increasing costs,” said Mike Butsch, manager national accounts for Pro Haul Manufacturing in Gallipolis, Ohio, who in an earlier job was the global fleet manager for Joy Global, a multinational corporation that manufactured mining equipment.
Some fleet professionals are taking a cautionary approach acquiring new fleet assets. “Right now, the economy is doing great and lots of fleets are expanding to address current workloads. That said, there is so much talk about a serious and impending recession that some fleets should be very concerned about growing its fleet only to have a bunch of new equipment with the potential for no or less work,” said Dave Meisel, executive vice president – operations for Quanta Services, which provides infrastructure services for electric power, pipeline, industrial and communications industries.
One impediment to forward planning in any business is uncertainty about future market conditions. Currently, there are a growing number of variables that are causing uncertainty due to the unpredictability of their outcomes. The current U.S. economic expansion is now the longest in history.
The U.S. economic expansion, at 121 months and counting, became the longest on record in July 1, 2019, and it is continuing to grow. There have been mixed signals from the U.S. economy and markets about the likelihood of a slowdown or recession on the horizon, but economic indicators remain strong.
“The economic expansion appears to be slowing. When will the inevitable recession happen?” said Tom Callahan, president of Donlen. “There is OEM consolidation. Internationally, you have Brexit, growing nationalism, and the enactment of tariffs. What impact will all of this have on transactional costs?”
Severe Skilled Labor Shortage
One consequence to today’s strong economy is the widespread labor shortage, especially among skilled workers, which is exacerbated by the large scale retirement of aging Baby Boomers. For instance, the vehicle maintenance and repair industries are experiencing a skilled labor shortage as Baby Boomer technicians retire in greater numbers than those replacing them.
This is putting upward pressure on fleet costs. The skilled labor shortage is requiring shops to pay more for skilled technicians, which translates into higher shop labor rates that are increasing fleet maintenance costs.
“There is increased and intense competition from individual fleet organizations to acquire qualified technicians from a shrinking pool of retiring Baby Boomers. In addition, there is a limited ability to hire qualified fleet management professionals, such as managers, supervisors, and data analysts, who have the capabilities to use the myriad data produced by fleet management information systems, telematics, vendors, and ECMs,” said Steve Saltzgiver, BSBM, MAOM, CAFS, director business development and marketing for Mercury Associates. “Not only is there a labor pool gap, but retiring Baby Boomers are also creating a significant gap in the loss of institutional knowledge dealing with perfunctory or hands-on skills. New fleet professionals will be better equipped in analysis, but won’t possess the practical aptitude to hold vendors and technicians accountable.”
Employees with advanced technical skills have become highly sought after as more experienced technicians retire and fewer young adults enter the automotive maintenance and repair industry.
“There is currently a talent drain in the fleet industry. Loss through retirement or outsourcing of long-tenured fleet professionals at many organizations is causing these positions to be filled with inexperienced and less dedicated personnel than previously there,” said John Brewington, CAFM, CEM, president of Brewington & Company, a fleet asset and management consultancy in Mount Airy, N.C.
This observation was seconded by Jonathan Culp, director, fleet and leasing sales at Dejana Truck and Utility Equipment. “When I look around the room at an OEM preview or say at AFLA, I don’t see a lot of people in their 20s and 30s, I see people that in five years could step down and take all of their tribal knowledge with them,” said Culp. “The same thing is true on the dealer side. I think the average age of a commercial account manager at a dealership is pretty close to 60. These are the people who know how to spec trucks but there doesn’t appear to be another generation rising behind them.”
While new-vehicle technology improves vehicle safety and operating efficiency, it also requires advanced technician skills, more expensive shop equipment, and performance of additional steps in many diagnostic and repair processes.
“Finding qualified technicians continues to be a problem, but it seems like the rapid pace of technology changes are really going to tax the skills of even our best techs, much less the ones that we are still trying to find and hire,” said Meisel at Quanta Services.
This is especially true for fleets with in-house maintenance operations, A commonly heard refrain from these fleet operations is the difficulty in finding and retaining qualified mechanics. The skilled labor shortage is being exacerbated by increased vehicle complexity, which is requiring a higher skillset by automotive technicians and, in turn, is putting upward pressure on salary packages offered to qualified technicians.
“As a result, the need for technical skills is growing as the number of experienced technicians decreases, leading to very competitive wages among technicians. The increase in labor costs translates to higher shop labor rates. And as vehicles become more complex, the industry time standards for many repairs will increase,” said Kelley Hatlee, CAFS, national service department technical support supervisor for Enterprise Fleet Management.
“The shortage of qualified technicians is starting to put a strain on all companies that handle their vehicle maintenance in-house,” said Jim Bigelow, senior director, Enterprise Fleet at Cox Enterprises in Atlanta.
While there has been a longtime shortage in CDL drivers and automotive technicians, this labor shortage is expanding into other areas of the fleet industry, which previously did not have this problem. If a company is successful in recruiting employees, there is the subsequent issue in retaining these employees,
“Hiring qualified help and keeping them is becoming harder and harder. Every company is experiencing this problem, especially in the area where a specific trade or talent is required,” said Bob Martines, CEO for Corporate Claims Management in Ivyland, Pa.
With the generational transition from Baby Boomers to Millennials, there is a shift in how different generations value longevity at a particular company.
“It is difficult to recruit and retain top talent in this environment. There is an attitude among millennials where there are no style points for sticking with a company for a number of years. Many of them have never faced a real bad economic downturn,” said Callahan of Donlen.
This observation was echoed by Meisel of Quanta Services. “Professional fleet managers/executives are becoming harder to find. More and more companies seem to be rotating people through those roles versus hiring or growing a professional in this space. I have seen this cycle three or four times over my career and it never seems to turn out well.”
A growing number of employees view the company vehicle as a perk rather than a tool to perform their job. This view is more pronounced in certain generational groups. “Younger workers tend to have an entitlement attitude,” said one fleet manager. This entitlement attitude appears to be broad-based. Another fleet manager in completely different industry offered a very similar observation: “I definitely see a generation gap between drivers in their 40s and older and those in their 20s or early 30s.”
Many fleet managers echo the belief that attitudes about company vehicles differ by the age of the driver. “Drivers in their 20s and 30s tend to consider the vehicle as something they are entitled to, right down to the day they are supposed to return it, even if they have been terminated,” said a fleet manager.
This age group, referred to as the Millennial Generation or Gen Y, has been dubbed by critics as the “Entitlement Generation.” They grew up during the most affluent time of our nation’s history, which critics say has colored their outlook on life.
“There is a generational mindset among some drivers who believe they have a cultural entitlement for specific vehicle models, trim levels, and the right to get AWD over FWD,” said one fleet manager who asked not to be identified.
There are changing employee expectations. The idea of entitlement extends beyond fleet and is a broader societal issue. “Sometimes new-hires come from a certain socio-economic environment — whether it is at home or college — and they are used to a certain lifestyle. If certain things do not meet their ‘standards,’ they will quickly express their displeasure,” said a Midwest fleet manager.
The tight job market is prompting companies to look beyond their typical candidate pool. “One of the biggest problems is employee retention in a tough hiring environment. The job market is so tight, but we can’t hire felons, and require an initial drug screen,” said one sourcing manager at a Fortune 500 company.
Ongoing Driver Shortage
The driver shortage is not a new phenomenon. For the past several decades that I have been covering the trucking market, there has always been an ongoing driver shortage.
The primary catalyst was the deregulation of the trucking industry by the Motor Carrier Act of 1980 that triggered a proliferation of new trucking companies, which, in turn, increased the demand for drivers. The intense competition created by deregulation exerted downward pressure on trucking rates, which translated into lower driver wages and morale, ultimately causing fewer people to want to make a career as a CDL truck driver.
There is an industrywide deficiency in attracting and retaining drivers, technicians, and support personnel.
“There continues to be a shortage in driver supply,” said Joshua Chamuler, director, transportation/fulfillment at ThriftBooks in Seattle, Wash. “Skilled drivers who are able to meet DOT and FMCSA requirements are in short supply.”
As the retirement of Baby Boomer truck drivers grows with each succeeding year, the American Trucking Associations (ATA) predicts a truck driver shortage could reach as high as 175,000 by the year 2024.
“As the economy moves along at a normal pace, the driver shortage continues to worsen. However, there actually are plenty of drivers available. The actual shortage is in the area of well-qualified, good drivers,” said Tom Bray, lead editor for J.J. Keller & Associates Inc. in Neenah, Wis. “Hiring standards at fleets exist to reduce risk, however, they also constrict the useable driver-applicant pool at carriers that have standards, resulting in a shortage of qualified applicants. One problem here is that a good employee is a good employee (stable, responsible, and hard-working), making the industry’s best drivers attractive to other industries. As other industries are now seeing labor shortages as well, good drivers are being recruited out of the vehicle and into these other industries.”
But as the shortage continues, it is beginning to cause companies to rethink their compensation programs.
“The growing shortage of skilled and semi-skilled non-exempt labor in the general economy. The driver shortage extends well beyond the CDL-holder in many major markets. Many economists feel that the U.S. is at or close to ‘full employment,’ which will continue to challenge companies that are looking to attract, and keep, reliable people with good driving records. This will cause all employers to closely review their compensation packages, and recruiting and retention programs,” said one prominent vocational fleet manager who asked to remain anonymous.
Dealing with an Aging Workforce
Not all Baby Boomers are rushing to retire. Many cannot afford to retire, while others find enjoyment in their work and want to continue. As a consequence, at many companies there is a “graying” of the workforce. This is having implications on fleet operations.
“As we spec vehicles, we are giving greater consideration to ergonomics. We are looking to design vehicle layouts for an aging workforce,” said Larry Kellermeyer, global category manager at Crown Equipment Corp. in Lima, Ohio.
What is the secret to finding and retaining a great staff? “Technicians and fleet staff want the same thing. Staff are easier to hire and retain when an organization is well-managed. Well-managed fleets are metrics-driven and proactive. Training is just part of the job. Fleet automation systems replace mundane, repetitive tasks such as tracking fuel transactions, processing vehicle requests, scheduling maintenance, and generating reports. All stakeholders understand the financial aspects of the fleet,” said Ed Smith, president of Agile Fleet in Chantilly, Va.