By Mike Antich Although fleet is extremely important to automakers, the reality
is that retail sales and retail considerations drive many OEM decisions.
Currently, retail buyers are demanding four-cylinder engines in what appears to
be a knee-jerk reaction to paying, on average, $4.03 per gallon for gasoline. Franchise
dealers just don’t have enough four-cylinders in inventory to meet this demand
and they are clamoring for more product.
Fleet managers planning 2009-model ordering are wondering whether
this spike in demand for four-cylinder engines will adversely affect
order-to-delivery (OTD) times for four-cylinder units they are planning to
order.
In June, vehicles with four-cylinder engines accounted for more
than 50 percent of all U.S. retail sales of new cars and trucks, according to J.D. Power & Associates.
This percentage has been increasing each month since February. For instance, in
May, 45 percent of all vehicles sold were equipped with four-cylinders.
All of the major automakers are scrambling to meet increased
demand for four-cylinder engines. They are shifting production from six- to
four-cylinder engines as quickly as possible.
However, current demand is outstripping current capacity. In a July
1 article on www.Bloomberg.com and in the July 7 edition of Automotive News, Mark LaNeve, VP of
sales and marketing for GM North America, is quoted as saying in a conference
call: “In some cases, we've been outright constrained where dealers were just
out of cars.”' He said the industry's June sales would have been 40,000 higher
had there been more cars available with four-cylinder engines.
What promises to compound this capacity constraint is that many
fleets are also looking to increase their percentage of four-cylinder models. Traditionally,
fleets primarily bought six-cylinder, but nowadays, all fleets are looking for
ways to decrease fuel spend. Like retail
buyers, they too are looking to downsize vehicles (where possible) or opt to
four-cylinder engines. For more on this, see the June 30 Market Trends Blog – www.automotive-fleet.com. One
interesting observation is that if you look at some of the 2009-MY fleet incentive
programs, the same model with a V-6 has a higher fleet incentive than when
equipped with a four-cylinder engine.
There are a number of reasons why fleets are gravitating to
four-cylinder engines. Fleet managers (who manage car fleets) tell me switching
to a four-cylinder engine allows them to maintain the same size automobile
necessary to meet its fleet application without downsizing to a smaller model. However,
the key reason is increased fuel economy. A mid-size sedan equipped with a
four-cylinder engine achieves a higher combined city-highway fuel economy over
a six-cylinder. Not only is there is a reduction in fuel spend, but also a reduction
in cap cost since the cost of a four-cylinder engine is less than a V-6. In
addition, lifecycle cost analysis currently favors four-cylinder engines since
they command higher resale values in the wholesale resale market. This will
most likely remain the case for the foreseeable future or as long as gas
remains over $3.50 per gallon.
Since the June 30 Market Trends Blog hit the blogosphere, fleets
have e-mailed me to voice concern about order-to-delivery times, especially if the
high demand for four-cylinder engines continues to outstrip current production
capacity. One well-respected industry veteran e-mailed me: “I’m willing to bet
that order-to-delivery time for four-cylinder vehicles to fleet buyers will
grow 12-plus weeks.”
However, OEMs are confident about being able to produce an
adequate supply of four-cylinder engines. “GM has the production capability to
adjust to the changing mix of engines. In fact, we are reviewing our trim
packages on cars such as the Malibu and Saturn Aura to ensure they are compatible with four-cylinder engines. In
the past, some trim levels might have spec'ed a V-6 engine,” said Dave Spence,
director commercial product & specialty vehicles for GM Fleet & Commercial
Operations. “If there are OTD issues, they are not related to four-cylinder
engines, but rather to things such as the flooding in the Midwest that shutdown
rail traffic crossing the Mississippi River.”
Let me know what you think.
mike.antich@bobit.com
