Original equipment manufacturer (OEM) production delays and supply chain disruptions posed record-breaking challenges for fleets in 2021 and 2022. As the industry ramps up for model year (MY) 2024 ordering, anticipating and managing expectations, proactively preparing for vehicle acquisition challenges, and remaining agile in the event of shifting production environments remains of the utmost importance.
Element Fleet Management experts learned a lot from the challenges of the past several years and gained deep understanding of the ever-changing OEM production environment. Our guidance ensures you have the resources needed to navigate and prepare for the upcoming ordering cycle.
Built-up demand Over the past two years, short-notice and unexpected ordering cut-offs, limited fleet vehicle allocations and overall reduced production forced fleet managers to make compromises, keeping units on the road longer than expected or selecting vehicles from alternate OEMs. After two years of inventory challenges, the need to replace vehicles that are beyond their usual fleet lifecycle is resulting in significantly pent-up demand.
Used vehicle prices During 2021 and 2022, when new vehicles were the hardest to come by due to production and supply chain restraints, used vehicle prices skyrocketed from the demand to replace vehicles with better ones when new vehicles were unattainable. January 2023 saw used vehicle asking prices fall to the lowest average since spring last year, due to factors such as improving inventory and decreased sales. Additionally, used vehicle values will likely see above-normal depreciation, especially in first half of 2023 according to Cox Automotive2.
Staffing shortages, increase downtime and inflationary costs Extended replacement cycles of fleet vehicles increase the likelihood of unexpected maintenance. Inflation is causing a 11% increase in maintenance costs. This, compounded by longer repair cycle times for maintenance and accidents due to shop staffing shortages, can make unforeseen maintenance cost far more in vehicle downtime than the inflationary increase. This makes its even more critical to stay on top of preventive maintenance to avoid costly repairs of aging vehicles.
AutoForecast Solutions3 estimates automakers to cut 2.7M vehicles from production in 2023. Though far from a full rebound, this is still a major improvement over vehicle production cuts in 2021 and 2022 caused by OEM production delays related to the global microchip shortage and supply chain interruptions. This significant improvement to vehicle production volume in 2023 will bring some levity to the fleet industry during upcoming acquisition cycles.
Some newly-release EVs have not been made available to fleets or in such limited quantities that certain models are hard to come by and some OEMs are postponing new EV model introduction dates and production goals into 2024.
However, production and inventory impacts to EVs are expected to normalize along a similar path as internal combustion engine (ICE) vehicles. Element’s experts anticipate improvements in the second half of 2023, with additional fleet-focused EV options expected to be made available more readily in the market in calendar year 2024. Despite these challenges and setbacks, 66% of fleets are considering EVs – up from 43% in 2021 – and have additional considerations to take into account to achieve their goals.
Supply chain challenges remain top-of-mind for many in the fleet industry as they prepare for MY 2024 ordering. Set your strategy to ensure you’re prepared with these recommendations:
Start model year planning early and prepare to place orders as soon as ordering banks open.
Leverage the current, strong resale market to sell assets as prices begin to normalize in the coming months.
When keeping vehicle longer than usual fleet lifecycles, adhere to preventative maintenance schedules to help mitigate repairs and downtime.
Contact Element to gain expertise and guidance for an optimal acquisition strategy for both ICE vehicles and EVs.
Sources:
2. Cox Automotive Makes 10 Top Predictions for 2023
3. Automotive News – Latest numbers on the microchip shortage: 2.7M vehicle cuts forecast for 2023
