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Market Trends

Will High Demand for 4-Cylinder Engines Increase OTD?

July 11, 2008, by Mike Antich - Also by this author

 By Mike Antich Although fleet is extremely important to automakers, the realityis that retail sales and retail considerations drive many OEM decisions.Currently, retail buyers are demanding four-cylinder engines in what appears tobe a knee-jerk reaction to paying, on average, $4.03 per gallon for gasoline. Franchisedealers just don’t have enough four-cylinders in inventory to meet this demandand they are clamoring for more product.

Fleet managers planning 2009-model ordering are wondering whetherthis spike in demand for four-cylinder engines will adversely affectorder-to-delivery (OTD) times for four-cylinder units they are planning toorder.

In June, vehicles with four-cylinder engines accounted for morethan 50 percent of all U.S. retail sales of new cars and trucks, according to J.D. Power & Associates.This percentage has been increasing each month since February. For instance, inMay, 45 percent of all vehicles sold were equipped with four-cylinders.

All of the major automakers are scrambling to meet increaseddemand for four-cylinder engines. They are shifting production from six- tofour-cylinder engines as quickly as possible.

However, current demand is outstripping current capacity. In a July1 article on www.Bloomberg.com and in the July 7 edition of Automotive News, Mark LaNeve, VP ofsales and marketing for GM North America, is quoted as saying in a conferencecall: “In some cases, we've been outright constrained where dealers were justout of cars.”' He said the industry's June sales would have been 40,000 higherhad there been more cars available with four-cylinder engines.

What promises to compound this capacity constraint is that manyfleets are also looking to increase their percentage of four-cylinder models. Traditionally,fleets primarily bought six-cylinder, but nowadays, all fleets are looking forways to decrease fuel spend. Like retailbuyers, they too are looking to downsize vehicles (where possible) or opt tofour-cylinder engines. For more on this, see the June 30 Market Trends Blog – www.automotive-fleet.com. Oneinteresting observation is that if you look at some of the 2009-MY fleet incentiveprograms, the same model with a V-6 has a higher fleet incentive than whenequipped with a four-cylinder engine.

There are a number of reasons why fleets are gravitating tofour-cylinder engines. Fleet managers (who manage car fleets) tell me switchingto a four-cylinder engine allows them to maintain the same size automobilenecessary to meet its fleet application without downsizing to a smaller model. However,the key reason is increased fuel economy. A mid-size sedan equipped with afour-cylinder engine achieves a higher combined city-highway fuel economy overa six-cylinder. Not only is there is a reduction in fuel spend, but also a reductionin cap cost since the cost of a four-cylinder engine is less than a V-6. Inaddition, lifecycle cost analysis currently favors four-cylinder engines sincethey command higher resale values in the wholesale resale market. This willmost likely remain the case for the foreseeable future or as long as gasremains over $3.50 per gallon.

Since the June 30 Market Trends Blog hit the blogosphere, fleetshave e-mailed me to voice concern about order-to-delivery times, especially if thehigh demand for four-cylinder engines continues to outstrip current productioncapacity. One well-respected industry veteran e-mailed me: “I’m willing to betthat order-to-delivery time for four-cylinder vehicles to fleet buyers willgrow 12-plus weeks.”

However, OEMs are confident about being able to produce anadequate supply of four-cylinder engines. “GM has the production capability toadjust to the changing mix of engines. In fact, we are reviewing our trimpackages on cars such as the Malibu and Saturn Aura to ensure they are compatible with four-cylinder engines. Inthe past, some trim levels might have spec'ed a V-6 engine,” said Dave Spence,director commercial product & specialty vehicles for GM Fleet & CommercialOperations. “If there are OTD issues, they are not related to four-cylinderengines, but rather to things such as the flooding in the Midwest that shutdownrail traffic crossing the Mississippi River.”

Let me know what you think.

[email protected]

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Mike Antich

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Mike has covered fleet management and remarketing for more than 20 years and entered the Fleet Hall of Fame in 2010.

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