Most Commercial Fleet Orders for 2021 Models to be at Pre-Pandemic Levels

Despite the disruption caused by the COVID-19 pandemic, most commercial fleets indicate that they will maintain the same vehicle replacement schedule for model-year 2021 as they did prior to the pandemic. This covers a wide cross-section of fleets, ranging from insurance companies to pharmaceuticals to agribusinesses, to name a few.

● “We have plans to acquire about the same amount of vehicles as our forecast for this year unless we find that the OEMs have significantly increased the price.  Then we may extend contracts and lower our number of replacements,” said Steven Bair, global fleet services manager for Abbvie Inc. “We have acquired Allergan, our U.S. fleet has more than doubled in size and we will need to align synergies and share ‘best practices’ for those areas where we have gaps.”

● “We will acquire about the same number of vehicles – 25-40 units,” said John Maggio, fleet operations manager for GFA International, Inc. in Port Saint Lucie, Fla.

● “We are planning to acquire about the same number of vehicles as we did last year,” said Kyle Loussaert, category manager – Car Fleet and ICT for KONE Americas in Moline, Ill.

● “Our plan is to order about the same number of vehicles in the 2021 model-year,” said Steven Anderson, procurement operations manager for Sentry Insurance in Stevens Point, Wis.

In many cases, fleets have no choice but to continue with their pre-existing vehicle replacement schedules. 

“Our fleet is ‘aged’ and replacements will be about the same as 2020-MY,” said Lisa Kneggs, fleet manager for FleetPride in Dallas, Texas. “We need vehicles on the road, not in the shop so capital replacement is still on track.” 

In other cases, the cyclicality of the replacement schedule is dictating that fewer vehicles are acquired in 2021 compared to the prior model-year.

“We will be acquiring fewer replacement vehicles than we have in the past four years. This is not due to the pandemic, but more a function of acquiring very few vehicles from 2012-2014,” said  David McCauley, North America fleet manager at Service Experts Heating & Air Conditioning in Dallas. 

This survey of commercial fleet buying inclinations for model-year 2021 was done the last week of May 2020, so many companies have not fully finalized their vehicle replacement plans. 

“We are reviewing this now, but it should be the same or more.  Our 2020 orders were cut short; therefore, we are expecting some pent-up demand,” said Tom Armstrong, director of fleet at thyssenkrupp Elevator. 

In many cases, fleets are committed to pre-existing purchase agreements with an OEM.

“We have a three-year manufacturer incentive plan we intend to stick with,” said Anderson of Sentry Insurance.

This is also the case with KONE Americas. “We delayed the ordering by two months to ensure we still hit bonuses and not have to pay back penalties for missed minimum order quantities. Still moving forward with a spring and fall order cycle,” said Loussaert of KONE Americas.

While fleets have preferred suppliers, OEM production capacity will also be another consideration.

“OEM production capacity could play a part in our 2021 buying decision. However, we would still likely choose preferred suppliers. For our service vehicles requiring upfitting, we are fairly particular on the cargo configurations and measurements,” said Abe Stephenson, fleet and administration manager at DISH Network in Meridian, Colo. 

Another key factors that will influence 2021 model-year ordering are additional OEM fleet incentives.

“Our order will be at least the same as last year.  However, if I can get more incentives in 2021 from the OEMs, then I’m willing to accelerate replacements on some of our vehicles,” said a fleet manager at a medical supply company, who wished to remain anonymous.

The topic of incentives was also brought up by another fleet manager who likewise wished to remain anonymous. “I am hoping that since the auto industry will once again need fleet orders, that will be reflected in shorter order to delivery (due to lack of retail) and better off-invoice incentives. If that occurs, I may try to encourage adding to our normal replacements.”

A new consideration coming into play and which is directly related to the pandemic, is uncertainty about customer receptivity to face-to-face sales meetings.

“We plan to purchase the same number of service vans and trucks, but we will mostly likely buy fewer sales/salaried vehicles due to my company’s restrictions on business travel,” said a fleet manager for a service fleet who asked to remain anonymous.

This uncertainty was also expressed by another fleet manager. “Pre-COVID-19 we were expecting to order more vehicles than the previous year as many vehicles were going to be due for replacement. At this time, no changes to forecast have been made. Some vehicle replacement depends on how long reps are restricted from in-person meetings,” said a fleet manager working for a pharmaceutical company. 

Fleet Buy to Increase in 2021

There are some fleets that anticipate actually increasing their fleet order volume in 2021, primarily because many of their 2020 orders were never built and will be added to the 2021 orders.

“We anticipate buying at the same levels as we did this year, if not more.  We actually backed off a little on our spring 2020 order due to the virus, but anticipate getting back to the same level in the 2021 model-year,” said Alex May, senior manager, fleet at Rollins Inc.

Another fleet cited a similar reason as to why it felt its 2021 order will be larger. “Basically, we will acquire more vehicles in 2021 because some of my spring 2020 plans got pushed back,” said a fleet manager who wished to be anonymous.

“We expect to see an increase in the MY-2021 orders compared to this year.  The change is primarily due to a delayed order-cycle for MY-2020 and an already projected lower order volume based on current months-in-service and mileage,” said Jonathan Kamanns, fleet program manager - strategic sourcing for CTE (Carolina Tractor and Equipment Company) in Charlotte, N.C. “Buying decisions will be largely based on OEM availability and  manufacturer and upfitter lead times, against customer demand.  For MY-2021, we have a specific focus on recruitment and the availability of talent that may not be immediately prepared to operate large commercial motor vehicles.”

With most companies embracing social distancing guidelines, many fleets have moved away from transporting work crews to a job site in a single vehicle, which may have a positive impact on order volumes. 

“We now have a policy where only one person is permitted to drive in our vehicles. Therefore, we have added additional vehicles to our fleet for a temporary period, as we wait for additional information from our government on guidelines for social distancing,” said Charlie Stevenson, CAFM, vice president, fleet and supply chain for Aqua in Springfield, Pa. “We are extending the service life as we had to place vehicles back into service in efforts to comply with the one passenger per vehicle in our utility trucks.” 

For companies that have been deemed by the government to be an essential service, their businesses are growing. 

“Our service fleet will be expanding. We are also stocking additional PPE/sanitizing products on our trucks,” said one anonymous fleet manager who manages the fleet at a major HVAC company.

Deferring 2021 Until Next Spring

At the time of the 2021 buying inclination survey, some fleets were just starting the replacement planning process and were considering pushing some orders to the spring 2021 due to current resale market concerns. 

“We are moving some 2020 orders to later in the year and early in 2021,” said Jim Bigelow, senior director, enterprise fleet for Cox Enterprises, Inc. in Atlanta.

With fleets that use mileage as the replacement criteria, the decreased number of miles driven during March through June 2020 timeframe has extended vehicle service lives at some fleets.

“The pandemic has delayed the replacement process for us, by reducing our total mileage driven it pushed the replacement targets out slowing the process,” said Oleg Cytowicz, global automotive fleet lead— senior analyst at Unilever North American Fleet Operations in Englewood Cliffs, NJ.

This observation was also made by other fleets. “It is likely drivers who would have normally replaced in fall will be pushed to spring because their vehicles will not meet the months on road or mileage criteria,” said Lee Miller, associate director, Fleet Services at Boehringer Ingelheim in Ridgefield, Conn.

Other companies are waiting for their customers to reopen their businesses before they finalize 2021-MY vehicle orders. 

“We had made the business decision fairly early to pause any future vehicle ordering and closely monitor maintenance spend and downtime.  We will reassess a fall order cycle in the coming months as our customers begin to return to more business as usual,” said Kamanns of CTE. 

Ordering Fewer Vehicles in 2021

A number of companies have extended leases wherever possible due to the inability to get replacement units because of the plant shutdowns and also to avoid the soft used-vehicle market. 

Another factor is how quickly the economy recovers from its shutdown to dampen the spread of the COVID-19 virus. “We will be acquiring fewer vehicles, but the challenge is going to be determining the rate, timing, and degree that business activity returns,” said Steven LaPorte, vice president, Transportation & Engineering at Iron Mountain Information Management Services, Inc. in  Boston, Mass.

For non-essential fleets, the pandemic brought a decline in business activity, which will be reflected in the number of replacement vehicles they will order.

“We have cancelled everything for the remainder of this year that was already ordered, which was possible to cancel. For next year, the vehicle budget is probably going to be 25% to 50% less than normal,” said a fleet manager who asked not to be identified. 

Another perspective was offered by Nancy Murray, CAFM, senior manager, General Services & Travel for Agfa Corp. in Elmwood Park, NJ. “I will acquire slightly fewer vehicles due to attrition in my fleet,” said Murray.  

Some fleets will have a substantial reduction in their 2021 fleet orders. “We will acquire fewer vehicles this year, driven mostly by the capacity constraints of our vendor partners” said John Adkisson, director, fleet services for Asplundh Tree Expert, LLC. “These constraints  are making us take a harder look at the operational impact of acquiring or not acquiring a vehicle or piece of equipment than in previous years.” In the case of Asplundh, it is seeking to maximize fleet utilization of underutilized units. “Retirement schedules have not been impacted at all during this time. Our fleet is scrubbing our list of underutilized units and relocating them in more operationally critical areas,” added Adkisson.

Likewise, distressed industries will decrease their fleet ordering for the next model-year. One distressed industry segment is the oil and gas industry, which has been particularly hard hit by the decline in crude oil prices. 

“We will be acquiring less vehicles in MY-2021. For us this is a double whammy, COVID-19 and oil is in the tank,” said Kimberly Fisher, global manager travel & fleet for National Oilwell Varco in Houston, Texas. “We are de-fleeting as we lay off employees and take a closer look at who really needs a fleet vehicle and moving more towards tool of the trade and less assigned.” 

Some fleets recognize they will order fewer vehicles in 2021, but say it is still too early to quantify the actual decrease in unit volume.

“It will most likely be significantly less than the 2020 model-year. How much less, we can’t tell right now,” said a fleet manager from a parts distribution company that asked not to be identified.

Ordering Plans Still Undecided

A smaller percentage of surveyed commercial fleets have decided to take a wait-and-see approach before committing to their actual 2021 ordering volumes. The management at these companies want to see how the overall economy will recover before making capital expenditure commitments to acquire replacement assets.

“We really can’t tell yet. We will have a need to buy some units, but it will depend on headcount needs and how economic conditions may influence our customer base and their need for our services, which so far has been above expectations,” said one fleet manager.

This sentiment was echoed by other fleet managers. “It is too early for me to contribute at this point. We’ll be making these decisions much later in the year this year,” said a fleet manager representing a Top 300 fleet. 

Still other companies are currently preoccupied on developing and implementing back-to-work protocols with fleet now becoming a secondary consideration.

“Right now, we are working diligently on a return to the workplace plan.  We will be reviewing fleet budgets later in the fall. We are a well-capitalized company with a small fleet. We are fortunate that being a small fleet we will not have the huge impact that larger fleets will on the financial stability of our organization. Coming back to work will create challenges and that is our focus right now. We will not make any buying decisions until later in the year,” said one fleet manager who wished to remain unidentified. 

Pandemic Impact on Budget 

Many fleet budgets are being cut due to the fewer miles being driven. Companies saw fleet savings as their fleets were idled during the peak of the pandemic due to savings related to fuel, deferred maintenance, and fewer accidents. 

“So far the pandemic has had a positive impact on the fleet budget because of less maintenance and accidents. We also acquired fewer new vehicles, which had a positive impact on the fleet budget,” said Jim Petrillo, manager of accounting services/ fleet manager for FujiFilm Holdings America Corp. in Valhalla, NY.

For many fleets, the shelter-in-place mandates that idled fleet vehicles lowered operating costs. 

“The impact on the budget has been positive from a fuel cost perspective – both in gallons consumed and cost per gallon. However, resale values are lower than anticipated, so we will closely monitor replacement timing,” said Anderson of Sentry Insurance.

Most fleets report that they have experienced lower resale prices during the pandemic.

“The only impact we have had is the auctions were closed and the manufacturers were closed, so our replacement vehicles have been delayed. None of our vehicles have been sold through the physical auction drive lanes so far. We did have some go through online auctions, but did not fare as well as we normally do. This is because the drive lanes are where dealers can see, touch, and feel our vehicles,  which brings us more money,” said Clay Gaudet, fleet manager for AutoZone.

Many fleets continue to be cautious about remarketing vehicles into the wholesale used vehicle market due to soft resale values. 

“It has not impacted the fleet budget significantly. Fuel volume is down, the cost of fuel is down, but collisions remain an area of opportunity. We are currently in a holding pattern for vehicle remarketing, but most signs point to just a slight down market when we expect to sell,” said Kamanns of CTE. 

This concern was also voiced by Stephenson of the Dish Network. 

“Based on what’s happening in the wholesale auction markets, we’ve held back on some retirements with resale prices being lower since OEM production was halted.  We will expect to do more planned retirements once we see results of new production and increasing resale prices,” said  Stephenson.

Other fleets likewise extended vehicle service lives to keep them out of the wholesale used-vehicle market, waiting for resale values to strengthen in the traditionally strong fall resale market. 

“The pandemic has forced us to keep many vehicles longer than we would have. We’ll need to watch the resale market to decide our next steps for the fall replacement cycle,” said Petrillo of FujiFilm Holdings America Corp. 

Several fleet managers were adopting similar strategies. “We have not adjusted our replacement criteria; however, would consider extending months in service due to resale market conditions. Our replacement forecast will naturally extend vehicles due to the fact that our vehicles have not been used much during the pandemic,” said one fleet manager who asked to be anonymous.

As of press time, most employees continue to work remotely from their homes. There is a hiring freeze at many companies, travel is restricted to business-critical situations and it has to be approved by corporate leadership.  Most companies have implemented initiatives to increase or conserve cash flow.  

At many companies, fleet operating costs were down 10%. “We project to see savings from the pandemic mostly due to fuel costs.  Unfortunately, new vehicles have been delayed which could cause my maintenance costs to increase,” said Rita Harris, senior manager global fleet operations for Vertex Pharmaceuticals in Boston, Mass.

This observation was also made by Service Experts. “We are definitely running less miles, which along with lower fuel prices, has decreased our fuel spend. We are also seeing a lower maintenance spend due to the reduced miles. We are not replacing totaled vehicles or vehicles with high cost maintenance items, Instead, we are looking to centers with excess fleet and transferring vehicles to replace them,” said McCauley of Service Experts.

Some companies have seen even more dramatic fleet savings. “We have seen a 70-75% reduction in fuel costs and accidents are down 80%,” said Miller of Boehringer Ingelheim.

Operating cost savings were also reported by AGCO Corp. “We archived moderate savings in fuel spend,” said Ralf Wessel, manager, Global Security, Global Fleet & Corporate Facilities for AGCO Corp. in Duluth, Ga. 

Other companies reported that the pandemic has not negatively impacted their fleet budget. 

“COVID-19 has not yet negatively impacted Gilead’s North America fleet program budget,  However, we did increase the replacement mileage for all current and future vehicle orders to align with industry standards,” said SuYvonne Bell, sales operations manager, Commercial Operations – North America for Gilead Sciences, Inc. in Foster City, Calif. “Also, in 2020, we added EV vehicle options for our service fleet, which includes on-campus pool vehicles.”

Some fleets have extended service lives prior to the pandemic and intended to stay within these replacement parameters. 

“We already extended our replacement schedule to four model-years and/or 85,000 miles and do not anticipate change to order cycle timing,” said  Murray of Agfa Corp. “Although our order cycle parameters have already been extended, vehicles  returned still get good resale prices.”

A similar observation was made by McCauley of Service Experts. “We are already at seven years, 200,000 miles for most of our vehicles so we are not looking to extend them.

Originally posted on Automotive Fleet