Over the past 59 years that Automotive Fleet magazine has been published, there have been many events that have significantly disrupted the fleet management industry, such as the OPEC oil embargoes of 1973 and 1979, the terrorist attacks of Sept. 11, 2001, and the Great Recession of 2008-2009.
All of these events starkly demonstrated the fragility of the fleet industry. However, today’s COVID-19 pandemic has the dubious distinction of being greatest-ever disruption of fleet in the history of our profession.
For the first time after World War II, all OEM assembly plants in the U.S., Canada, and Mexico shut down, one after the other, between the period of March 18 to the closing of the last plant in March 29, 2020.
The shutdown of the entire automotive ecosystem comprised of OEM assembly plants and their component supply chain brought an abrupt halt to vehicle build and new-vehicle deliveries. Fleet orders were not built and many assembled vehicles were stranded somewhere in the product pipeline.
The halt in OEM new-vehicle production cascaded to upfitters who started to experience chassis shortages and the inventories at most bailment pools were quickly depleted. Even when fleet units were delivered to end-users, they were difficult to register since all DMV offices were either closed or operating on an appointment-only basis.
Sales operations at dealerships were closed impacting courtesy deliveries and out-of-stock vehicle purchases, with only service departments allowed to remain open. Due to the decline in consumer demand, used-vehicle retail sales decreased by 50%.
This minimized the need for dealers to attend auctions to replenish their used-vehicle inventories. Auctions, out of concern of contagion by their employees and customers, shut down brick-and-mortar facilities, solely remarketing vehicles via online auctions.
Car-rental demand collapsed with the economic shutdown and the dramatic decrease in airline travel. Under-utilized rental vehicles were idled and parked at vacant venues around the country such as racetracks and sports stadiums.
On May 22, 2020, Hertz Global Holdings filed for Chapter 11 bankruptcy protection for its Hertz, Dollar, and Thrifty brands operating in the U.S. and Canada. One week later, Advantage Rent-A-Car, the fourth largest car rental company, also filed for Chapter 11 bankruptcy protection.
Similarly, the economic shutdown created a decline in tax revenues resulting in severe budgetary shortfalls at all governmental fleet operations. This lack of funds for capital expenditures will impact next model-year orders by government fleets, which is expected to extend beyond the 2021 model-year into 2022.
The Pandemic’s Positive Impacts on Fleet
With the issuance of shelter-in-place mandates, most employees started working remotely from their homes. This resulted in a dramatic drop in fleet operating costs. Many fleet vehicles were idled or parked in storage during the shutdown.
Fuel, tire, and maintenance costs were down because vehicles were driven fewer miles. The shutdown of the economy segregated companies into two segments – essential businesses and non-essential businesses. Fleets operated by essential businesses thrived during the pandemic. Essential businesses were those that support critical infrastructure, such as health care, logistics/transportation, food processing, financial services, and medical supply chain.
Another positive impact was the surge in last-mile deliveries as entire states implemented shelter-in-place mandates. Last-mile fleets were already the fastest growing fleet segment due to changing customer buying habits and demands, but COVD-19 has been the catalyst triggering an even stronger surge in final-mile deliveries not only for merchandise deliveries but also for grocery and restaurant home deliveries.
Whatever the final impact of the pandemic on fleet management, one legacy that promises to endure is the creation of an expanded base of new customers who are comfortable with e-commerce transactions that will be serviced by a growing number of final-mile delivery fleets.
The pandemic also exposed fleet policies to be woefully inadequate in addressing the needs of a health crisis. Fleets were forced to improvise policies and procedures to minimize the risk of contagion.
What’s emerged is the need for new safety protocols to reflect the realities of today’s business environment. Sanitization and disinfectant procedures are now an integral part of fleet safety programs, driver protocols, and pool vehicle operations. In an era of social distancing, companies are limiting the number of employees per vehicle when transporting work crews to a job site.
Today, every company is looking to prioritize technology implementation. As social distancing becomes ingrained, there is uncertainty as to customer attitudes about in-person sales meetings.
And This Too Shall Pass
Even though the fleet industry still has a big hole to climb out of, there are many positive signs on the horizon.
- Almost all states have started to re-open their economies.
- Factories have recommenced new-vehicle production,
- Fuel prices and interest rates remain low.
- And there is a tremendous amount of stimulus monies flowing through the economy, both through OEM retail incentives and government stimulus monies.
I am reminded of a saying used by late George Frink, the legendary General Motors fleet director, who when discussing the industry challenges of his era would say, “And this too shall pass.”
This likewise applies to our situation today.
Let me know what you think.
Originally posted on Automotive Fleet