Ready, Set, Replace: Vehicle Production Leaves the Pit Stop

The assembly lines are rolling, but fleets will still need to navigate hazards

In the three weeks since Automotive Fleet hosted a webinar on how COVID-19 has impacted fleet ordering and deliveries, manufacturers have started taking their positions at the (re)start line. That means good things for fleet management companies and upfitters like ARI and Auto Truck Group.

Starting engines in May…literally

At the beginning of this month, the global auto industry took its first steps toward restarting production as China announced it would start manufacturing auto parts again. This news was promptly followed by Michigan Gov. Gretchen Whitmer giving parts makers the go-ahead to restart their factories on May 11.

When it comes to the supply chain, timing is everything. By kicking off the reopening process with auto parts, the OEM assembly lines will have critical supplies in hand as they roll forward. Accommodating that one-week head start, Ford Motor Company, Fiat Chrysler Automobiles and General Motors reopened plants on May 18. Also opened the first half of the month: BMW, Honda, Hyundai, Kia, Mercedes Benz, Toyota, and Volvo.

On all accounts, the factories have implemented United Auto Workers (UAW) employee safety protocols and screening procedures using CDC and OSHA guidelines. Some corporate personnel continue to work from home while some plants are operating with reduced shifts. So while factories are opening, production capacity will be lower than normal as employee and customer health remains top priority.

What happens once the green flag waves?

The good news is that vehicles will soon be rolling off the line, and Auto Truck Group will have their chassis inventories replenished; this also means that managing your replacement cycle will get better from here. The bad news (well, maybe just “not-so-good” news) is that you’ll still have to be aware of any caution flags on the track ahead. Let’s take a closer look at the current factors, how they may impact your timing and budget, and when to consult with your fleet management pit crew:

Ordering

  • Fleets are top priority. Knowing the commercial demand will be greater initially than retail demand, the OEMs have expressed their commitment to prioritize fleet orders. This would be a good start, with conditions in your favor.
  • Model years are in flux. The OEMs’ goals are to build all orders received, but with new model year changeover approaching so quickly, there’s a chance that your 2020MY orders could be cancelled and replaced with 2021 models. If that happens, be prepared for these potential outcomes:
    • You could be facing longer lead times due to high demand, possibly up to 5-6 weeks.
    • Your volume incentives may be impacted. Depending on your OEM agreement, you could experience a shortfall for 2020 incentive but a windfall for 2021.
    • New model year prices typically increase two to three percent. You should carefully evaluate 2021 vehicle and options prices compared to 2020 models. If there is a larger than standard price increase, will the OEMs release options from packages to offset the increases prices?

Upfitting

  • Upfitters are ready to build. With OEM production ramping up, upfitters like Auto Truck Group are getting an influx of vehicles and chassis to build on.
  • Filling the pools. Bailment pool inventories for producing standardized vehicles will be replenished.

Transportation

  • Transport is moving again. The backlog of stranded vehicles produced prior to the plant shutdowns are slowly, steadily being transported for delivery. You can track them via delivery status updates. The same goes for upfit vehicles waiting to be transported.
  • Make time to talk. Communication is key as many new parties are stepping in to carry the load.

Licensing

  • Extensions are ongoing. For the most part, expiration dates on vehicle registrations and temporary tags continue to be extended 30-60 days, depending on the state.

Delivery

  • Continue planning ahead. If a dealership is open, it’s mostly service staff onsite, so getting pre-delivery inspections completed or finding someone who can facilitate a delivery is a chore. The best strategies are tenacity and continuous follow up, but even then might not be enough if your drivers can only step foot inside a dealership with an appointment.

Important tools to keep close at hand

Until OEM production, upfitting, transportation, licensing and delivers are operating at a normal pace, you may still need some mid-term recovery strategies. Avoid reactive maneuvers and instead regroup with your strategic partners like ARI and Auto Truck to use your own data to plan temporary solutions. Here are some things to keep in mind along the way:

  • Out of stock purchases may not be available due to dealership closings or low inventory. If demand goes up while inventory is down, prices may increase.
  • Buying low-mileage used vehicles that are still under warranty is a potential recovery tactic.
  • Short-term rentals could also get you over the hump.
  • Be cautious when liquidating vehicles. You may wish you retained them as demand rebounds.
  • If the used vehicle market remains soft, look at extending your leases.
  • If you leave vehicles in service past their scheduled replacement date, keep a close eye on their operating costs.
  • Review your fleet for underutilized vehicles to replace older, higher cost ones.

Keep your eyes on the finish line

The best attitude for a positive outlook is knowing all of this is temporary, and we’re already seeing signs of recovery. Don’t get bogged down in the short-term difficulties – stay focused on your recovery plans and long-term measurements for winning.

If you need more help evaluating your fleet needs, ARI and Auto Truck are here for you. We can help you track order status and adjust upfitting approaches to ensure you have the vehicles and operational strategies needed to get your company past the checkered flag of recovery. Also, continue to stay informed with the latest industry updates on ARI’s COVID-19 Resource Center, and subscribe for weekly or daily updates via email.