Acquisition Strategies to Work Around Replacement Vehicle Shortages

The pandemic-induced demand suppression of 2020 and supply constraints of 2021 have created an unprecedented one-two punch to the fleet industry. The microchip shortage has disrupted new-vehicle production, limiting the availability of replacement units, forcing vehicle lifecycles to be extended. This situation has contributed to a 3%  increase in unscheduled maintenance repairs and roadside services in 2021. As a result, many companies are now implementing a fleet preservation strategy to extend vehicle service lives. beyond optimal replacement. This dynamic has increased the importance of adhering to PM and scheduled maintenance for vehicles in operation to keep them safe and operable.

The 2022 model-year ordering cycle gives every indication that it will be an extremely difficult time to acquire fleet vehicles, especially trucks and vans. In addition, OEMs are feeling immense pressure to replenish dealer inventories, which are at historic lows. The demand for all sizes of  full-size vans, SUVs, and pickups is through the roof. Also, strong retail demand and record-low dealer inventories are pressuring fleet allocation to be even tighter. End-user demand continues to outpace vehicle supply and, in all likelihood, 2022 promises be a short model-year due to this ongoing imbalance between demand and allocation.

 These supply constraints are also impacting OTD times. Upfitters are challenged with supply chain disruptions for pre-fabricated components, pricing volatility and the availability of materials, such rubber, wood, steel, and even paint pigments, all of which can delay the upfit process. Plus, there are labor shortages leading to longer upfit installation cycle times. Upfit prices are rising due to local labor labor shortages, higher labor rates, higher commodity prices, freight cost tripling due to container shortages, and port congestion. This situation unfortunately seems like it will continue well into the 2022-MY.

6 Acquisition Strategies to Mitigate Constraints

Fleets need to be more flexible with the type of vehicles they order in the next couple of cycles. In the past, it may have been a specific color, option or trim caused delays or added time to the process. Is there anything that we as fleet managers can do to mitigate the impact of these supply constraints? Well fortunately, the answer is yes. I’d like to share with you six vehicle acquisition strategies that I have been aggregated from industry subject-matter experts on work arounds to inventory constraints by being proactive in vehicle acquisition planning and budget allocation.

Strategy 1: Order Early. While a straight-forward strategy, it is not as easy to implement. It takes proactive advanced planning to be able to order early. Today, fleet managers need to order earlier than in prior years and be flexible with their vehicle choices.

Strategy 2:  Flexibility in Assets Ordered. In the past, when vehicle supply was plentiful, many fleets demanded specific colors, options, or trims that in today’s environment may cause delays or add time to the order-to-delivery process. Today, it is important to be flexible as to the class of vehicle you need to acquire. For example, would a crossover be a suitable substitute for someone who normally drives a pickup truck, but doesn’t need the cargo-carrying capabilities? Most pickups are in high demand in both the fleet and retail markets, there may be less demand for crossover models, which may have a greater product availability.

Strategy 3:  Simplify Vehicle Specifications. If practical, and if it doesn’t impact the fleet application, simplify vehicle specs to increase the number of sourcing options available to you that will allow you to order industry-wide from various manufacturers. Also, by streamlining vehicle specifications  – again, where appropriate –  it will help to move your vehicles quicker through the upfit process. Be proactive in your planning and budget allocation.

Strategy 4: Be Decisive When Making Acquisitions. It is important to be quick in pulling the trigger when an opportunity arises. Today’s new-vehicle market has limited inventory so when vehicles are located or found to be available, you should have acquisitions pre‐approved or have management approval to make immediate buying decisions. This is critical, especially when buying units out of dealer stock. You need to be prepared to make quick acquisition decisions otherwise you will lose the vehicle to a retail buyer. Remain agile and be prepared to make quick acquisition decisions with pre‐approved purchase orders.

Strategy 5: Balance Mileage Utilization. Move high-mileage vehicles to low-mileage applications in order to extend their service lives. Practice fleet utilization strategies by moving higher-mileage vehicles approaching the end of their useful life to less demanding or lower capacity jobs to cost-effectively stretch out their service lives. By cascading vehicles that are approaching the end of their useful life to less demanding or lower capacity jobs, you can save costs, while ensuring optimal utilization.

Strategy 6:  Explore Alternative Acquisition Strategies.  Explore alternative procurement strategies other than factory ordering or buying out of dealer stock. B flexible to alternative methods of procurement to acquire vehicles than traditional factory ordering and dealer stock. For example: short-term rentals can be used to fill gaps while waiting for replacement vehicles to arrive. While admittedly this may be expensive in today’s market, it is less expensive than being without a revenue-generating vehicle. Also, investigate the purchase of pre-owned commercial vehicles. Trust me, there are a growing number of fleets are starting to investigate this option with the rationalization that it is still newer and have fewer miles than the vehicle it is replacing.

Let me know what you think.

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Originally posted on Global Fleet Management