As ongoing supply constraints continue, current end-user demand and the growing volume of pent-up fleet demand will most likely exceed fleet allocation for the 2024 model-year.
The transition to a fleet ordering allocation system has truly been a significant milestone that’s never happened in the history of fleet management. The last time end-user demand exceeded production capacity was immediately after the conclusion of World War II, as auto manufacturers stopped production and switch back to the production of automobiles, end-user demand simultaneously spiked, primarily driven by the discharge of 12 million military personnel back to civilian life. End-user demand exceeded the production capacity of the vehicle manufacturers of that era.
General Motors Took the Lead
In today’s market, for the past few years, end-user demand has likewise exceeded fleet availability, frustrating fleet managers when fleet order banks close early and unexpectedly. In light of this recent history, General Motors took the lead by implementing a controlled allocation system in the 2022 model-year.
The purpose of the controlled allocation system is to bring order and a sense of fairness to the fleet vehicle ordering process, which had become a free-for-all as companies scrambled to submit orders to secure limited fleet inventory as soon as possible prior to order banks closing. The introduction of an allocation system also eliminated the fear that mega-fleets could buy out sizable segments of a manufacturers inventory, especially in vehicle segments that had limited model availability, such as the commercial van segment today.
Allocation Based Variety of Criteria
Almost all OEMs require fleet orders to be placed through an allocation system that’s based on a variety of criteria, ranging from past historical ordering volume to how long the fleet has been a customer of the OEM, along with other criterion developed in consultation with the OEM fleet account manager. So, one consequence to the allocation system is that many OEMs are reluctant to accept new fleet accounts because they need all their production to meet the needs of their long-time legacy customers.
In a fleet allocation environment, it’s important for a fleet manager to get internal approvals, in particular for fleet budgets. Approvals must get this done quickly so you can get the OEM allocation approvals as soon as possible. It’s important to order early to get orders into the pipeline as soon as possible.
The ordering environment we’re experiencing today (and have experienced for the past two years) will most likely persist in varying degrees for the next several years.
The existing volume of pent-up demand promises to impact future new-vehicle ordering. To put this in context, since 2020, the combined retail and fleet markets together have a backlog of approximately 5 million vehicles and the whittling down this accumulated industry-wide pent-up demand, which will be on top of the industry's normal replacement volume, will be a multiyear process.
Originally posted on Automotive Fleet