Model Availability Derails Standardization

Today’s ongoing sourcing constraints have disrupted fleet standardization strategies industrywide, curtailing what has proven to be an effective tool in cost containment.

Operating standardized service trucks or vans improves fleet efficiency, reduces maintenance complexity and enhances employee productivity since these vehicles typically carry an identical inventory of parts and tools.

However, the sourcing environment of the past two years has made it difficult to standardize fleet assets.

Observations from the Field

Here are comments from fleet managers on their struggle to maintain a standardized fleet.

“I needed to place an order for full-size pickups but was told I could only get them in crew cabs.”

Another fleet manager’s observation: “When ordering my work trucks, the only ones I can get are those spec’d for retail customers with options that I do not need for my fleet application.” 

This complaint was seconded by another fleet manager.

“There may be full-size pickups available, but they are spec’d with all the bells and whistle that a high-end retail buyer would want — not a fleet buyer.”

When businesses such as these are forced to source different models, it creates inefficiencies produced by running an irregular fleet of service vehicles. Additionally, when vehicles are spec’d at different trim levels, the potential arises for employee morale issues.

Operating a variety of service trucks or vans also adds complexity to the fleet operation since it means managing a variety of maintenance schedules.

Glimmers of Hope

And while sourcing constraints promise to be with us in one form or another for years to come, there are glimmers that we might be seeing our first glimpses of fleet sourcing improvements.

One example is a published report from the recently held Chevrolet National Dealer Council. The report indicates GM expects to return to nearly full production — nearly 100% — sometime in calendar-year 2023. That is an enormously positive sign.

Another encouraging sign of an improving sourcing environment is the dramatically decreasing number of “build-shy” units — namely vehicles built with missing some parts — pointing to an easing of component constraints.

New-Vehicle Dealership Inventory

One more positive sign is the increasing number of new vehicles in inventory at dealerships.

A recent decline in retail customer traffic at dealerships may be one reason for the increased dealer inventory. The decline has been caused primarily by higher interest rates and the sticker shock of today’s retail prices.

This reality is illustrated by the increase in the volume of seven-year finance contracts. The purpose of these seven-year contracts: lower consumers’ monthly payment.

This is positive news for fleets looking to buy units out of dealer stock, including many fleet in the mid-market segments that lack fleet allocation from OEMs.

Many people might not know this, but not everyone gets a fleet allocation. While prices aren’t back to wholesale levels, nowadays, most fleets can buy dealer stock units at MSRP. The vehicle markups or market adjustments prevalent in the past two years are beginning to recede.

OEMs Restart Fleet Sales

In another optimistic sign of improving fleet sourcing, manufacturers who previously scaled back or curtailed fleet sales now are starting to take fleet orders, primarily because inventory at their dealerships has improved.

For instance, the increased dealer inventory at Hyundai Motor America has prompted the company to recommence fleet sales.

Hyundai halted its fleet deliveries for nine months in calendar-year 2022. However, according to its CEO Randy Parker, who spoke at the National Automobile Dealers Association conference last October, Hyundai is selling vehicles again to fleet customers.

Likewise, Nissan announced additional MY-2023 allocation for the Nissan Rogue and has reopened its fleet order banks. In fact, the 2023 model production of the Nissan Rogue has been extended to January 2024.

Despite the positive signs, it’s still too early to say how big an impact Hyundai and Nissan return to fleet sales will have in the short term.

Fleet order allocations are still in effect at most OEMs, plus many have stated fleet allocation ordering will continue into the 2024 model-year.

Improvements Vary Vehicle Segment

Improvements in sourcing constraints continue to vary by vehicle segments.

For example, the van segment promises to remain extremely tight for the next several years following the recent announcements that three popular models in the small van segment will be discontinued.

Vans were already in limited supply, and their availability will become even more limited in calendar-year 2024 now that these three models will be discontinued.

Likewise, light-duty full-size pickups continue in very tight supply because strong demand persists in both the fleet and retail markets for these trucks.

Finally, Class 5-7 trucks continue to have extremely long order-to-delivery times, and no one sees this situation improving in the near-term future.

One cause is the huge and growing pent-up demand for a large volume of replacement vehicles fleets were unable to order in prior model years.

Despite these headwinds, the industry may be starting to see the light at the end of the supply chain tunnel.