By Mike Antich
The ongoing difficulty to fund retail buyers and the dramatic decrease in vehicle sales has prompted automakers to make significant adjustments to production schedules. Chrysler closed all of its 30 North American plants, beyond the normal two-week holiday shutdown, to at least Jan. 19. General Motors will temporarily close 20 factories in January and some into February. Ford will close 10 of its North American assembly plants for an extra week in January. The company’s normal two-week holiday shutdown will be extended to Jan. 12 at all assembly plants, except those in Claycomo, Mo., and Dearborn, Mich.
For many fleets, the extended plant shutdowns will have no impact because they have already placed 2009 orders or have decided to make no purchases in 2009. However, a number of other companies are affected by the unanticipated, longer-than-normal, plant shutdowns. These fleet managers expect order-and-delivery (OTD) times to increase in 2009 due to revised production schedules and the shuttering of many dealerships. These fleet managers say the extended plant shutdown schedules, for all intents and purposes, shortens the 2009 model-year, which early-order cut-off dates will only aggravate.
One response has been to extend vehicle services lives, postponing the need to buy replacement vehicles in 2009. (Frankly, I was surprised by the number of fleets that have placed moratoriums on ordering new vehicles for the 2009-MY.) One fleet extended its PM interval schedule to cover vehicles to 120,000 miles. Its previous turn-in parameter was 85,000 miles. Other fleets have resorted to short-term rentals.
Buying Out of Dealer Stock
If a vehicle is urgently needed, the majority of affected companies are buying vehicles out of dealer stock, but at a higher cost. Fleets requiring specialized units are buying out of upfitter pools. Fleets fear the extended plant shutdowns will ultimately cause a backlog at upfitters, further lengthening OTD.
A few fleets are bypassing the entire issue by buying from import-badged companies that have not scheduled extended plant shutdowns. “More than likely I’ll need to change my selector and use the manufacturers who are still building vehicles. My ETA for January orders will probably be pushed back,” said one pharmaceutical fleet manager.
Impact on Resale Values
The biggest concern is reduced resale values for vehicles kept in service for longer periods until replacement units can be built and delivered. “The biggest impact the plant closures will have for us is higher mileage on the vehicles being replaced. We typically like our vehicles to come back to us with 60,000 miles. With the higher mileage comes less at resale. The vehicles recently ordered will probably take close to three months for us to get, hopefully,” said Brett Switzky, fleet services administrator for American Family Mutual Insurance Co.
Another concern is that unanticipated shutdowns make replacement planning and cycling difficult. “The old numbers for order-to-delivery used to be 8-10 weeks for non-upfitted vehicles and 14-16 weeks for upfitted vehicles. These numbers are now out the window. The problem is no one knows what the new numbers are,” said Phil Schreiber, fleet manager, North America for OTIS Service Center. “The cost potential can be enormous. Every month a new vehicle is not in service lowers the resale value of the old vehicle. Mileage is going up and we are facing more repairs and maintenance waiting for new vehicles to arrive. We are also forced to rent more vehicles when old vehicles are in the garage for repairs. The damage to a fleet the size of mine can be in the tens of thousands or maybe hundred of thousands of dollars by the time you take everything into consideration. As of now, I continue to push orders out as I receive them, with the hope that I will be ahead of other fleets that held up their orders. Only time will tell if this was a good decision.”
Uncertainty about Incentives
Another planning uncertainty is whether to take advantage of volume incentives in 2009 or wait until 2010, which fleet managers’ anticipate will be an uncertain incentive environment. “With the state of the U.S. auto industry, I am very concerned that CPA incentives for 2010 may be very limited if offered at all. We had planned on placing a larger order for 2010 to take advantage of some of the technology that should be available on the vehicles we order. My dilemma is whether I should push to order 2009 vehicles to receive the CPA we know we will receive, or wait for the 2010 models as planned and hope the incentive is still available,” said a fleet manager who wished to be anonymous.
In the final analysis, the key concern voiced by fleet managers is OTD uncertainty. “The real issue here is the unknown – no one really knows how bad the production cutbacks will affect specific vehicle OTD times, nor does anyone know if any of the logistical systems (carriers) responsible for moving the vehicles will be adversely affected by shutdowns. We are in uncharted waters for sure, and every decision is, by and large, a gut feeling or best-guess decision. As of right now, our spring buy strategy will probably encompass only 25-35 percent of those vehicles originally targeted for replacement,” said one prominent fleet manager.
Let me know what you think.