Today, OEMs introduce new models throughout the calendar-year. Year-round new-model introductions are facilitated by the National Highway Traffic Safety Administration (NHTSA), which allows vehicles to be designated the next model-year if manufactured by January 1 of the preceding calendar-year. For instance, a vehicle produced Jan. 1, 2014 could be designated by an OEM as a 2015 model-year vehicle. Other reasons for year-round introductions include the need to influence CAFE averages, competitive leapfrogging, keeping the lineup fresh, maintaining year-round floor traffic at dealerships, and parts availability.
However, for many fleet managers, the staggered release of new models from various OEMs has become confusing and frustrating. Each model-year, I hear fleet managers voice a recurring complaint about the impact of staggered production schedules, especially when it occurs with high-volume fleet vehicles. In particular, year-round new-model introductions complicate fleet planning and the ordering process. Not only that, but, due to multiple plant assignments and model configurations, some model lines may have variable final order and startup dates.
This frustration is exemplified in the following lament by one fleet manager: “I’m tired of the staggered model-year production schedules. I used to be able to place all orders at the same time, now I seem to be placing orders throughout the calendar-year, because of these production schedules.”
There are also budgetary ramifications, depending on how the corporate fiscal year is set up, along with incentive payments. “Fleet managers also need to factor in mid-year model changes when negotiating their OEM volume incentive programs,” said Jan Freund, director, manufacturer relations for Wheels Inc. “I know Chrysler uses a date parameter program, but Ford and GM are still on model-year programs. Fleet managers should touch base with the OEMs on this aspect of mid-year changes.”
Although there has been much discussion about the impact of staggered production schedules on fleet managers, there is also an adverse impact on drivers. “A change in a model-year selector list creates dissatisfied drivers and much noise in the process. So, unless there is a compelling reason, I leave these models off the selector until the next full cycle,” said Charlie Szymanski, manager, global property casualty insurance & auto fleet for PPG Industries in Pittsburgh. “Another issue is that the new releases typically cost more and have fewer incentive dollars. That means that all of the work that went into communicating the cost of the selector list becomes invalid. This ultimately translates into a lack of trust with the fleet manager. For instance, VPs can perceive fleet managers as only relaying messages from the OEMs rather than managing the process. Lastly, new roll outs often have unforeseen delays in order to delivery. This only creates further frustration.”
Sometimes, early introductions, if not managed properly, can result in negative unintended consequences for lifecycle costs.
“Due to improving fuel economy, early launches of a strong retail vehicle, where production volumes are managed, will generally have a positive impact on depreciation and fuel spend. Of course, this is providing there are no challenges or delays with the launch and the vehicle being replaced is coming off-lease at the appropriate time,” said Rick Shick, VP vehicle acquisition & strategic sourcing services for Donlen. “If not, you could potentially offset some or all of the gain from the early launch of a vehicle. It’s important that you’re in a positive equity position on the vehicle being replaced.”
Viewing Fleets as Partners
The history of early introductions goes back to the 1980 model-year with the introduction of the then all-new, front-wheel-drive GM X-Platform cars, such as the Chevrolet Citation, which was one of the top-selling fleet vehicles of its day. The Citation was released in April 1979 as an early 1980 model. There was hand wringing at the time as to the possible negative residual impact of the early introduction. However, this didn’t happen and the serendipitous April 1979 release was just prior to the second gasoline shortage later that year. As a result, the more fuel-efficient 1980 Citation sold around 800,000 units. Since then, many OEMs have varied their new model release dates. This trend became more formalized with mid-model-year introductions during the January to March time frame, but slowly proliferated to introductions now occurring throughout the calendar-year. The advantage of mid-year vehicles for fleet is the benefit of 16-18 months of use, but with the vehicle depreciated for only 12 months.
While fleet is important to automakers, the retail market dictates new-model introductions. From a retail perspective, staggered introductions allow OEMs to spotlight a new model without the “clutter” of numerous other models competing for consumers’ attention. The auto business is very complex with lots of moving parts. There are many factors that dictate when a new vehicle will be released and when buildout will occur for the predecessor model. Although today’s OEMs are very sensitive to the voice of the customer and are attentive to advice received from fleet advisory boards, there is frustration about staggered production schedules. This frustration is best exemplified by one fleet manager: “Once again, I can’t do all of my ordering at one time because of exasperating staggered production schedules. When possible, OEMs should be more tuned to the fleet replacement cycle and work more closely with us as a partner.”
The fleet-minded OEMs have been terrific partners to fleets and, together, there should be a way to mitigate the impact of staggered production schedules for their largest customers.
Let me know what you think.