Fleet Numbers Remain Strong In All Facets Of The Business

On January 25, I had the opportunity to speak to members of the automotive press about the highlights of Manheim’s 2014 Used Car Market Report, our nineteenth annual look at the data and trends in each segment of the industry.

The report covers everything from rental to repo to leasing; here’s a quick summary of some of what I shared with the press when it comes to the piece of the business that matters most to you: fleets.

Fleet Depreciation Trends Stable in 2013 - Wholesale pricing for end-of-service fleet units in 2013 was not as strong as in either of the previous two years, but it was not weak. Wholesale supplies grew, but they were still relatively low given the strong dealer demand created by the greater availability of both retail and wholesale financing.

Straight dollar averages over a long period of time show that the average price for a midsize fleet car is now higher than that of the overall average auction unit. It used to be considerably lower. That change occurred as auction sales shifted toward more dealer consignment sales, which are typically older, less expensive units.





With the average fleet unit now priced right in the mix with many other types of auction units and sellers, the fleet reseller faces more competition in attracting buyers. Additionally, since the average wholesale price of a fleet unit has risen so much over time, it is important for fleet remarketers to recognize that their buyer base has also changed.

In 2011, 2012, and to a lesser extent 2013, fleet managers availed themselves of opportunities to cycle out of fleets early to take advantage of higher wholesale prices. Interestingly, at the same time, some fleets were extending the service lives of their vehicles. As a result, the mileage on fleet units being remarketed has become more dispersed.

On average, however, mileage has continued to trend up. The average end-of-service fleet car sold at auction now has more than 75,000 miles, whereas a decade ago the average mileage was 65,000 miles. For pickup trucks, the average mileage has risen from 100,000 miles to more than 115,000 miles.




New Vehicle Fleet Purchases Increase Slightly in 2013 - New car and light-duty truck purchases by commercial and government fleets increased less than one percent to 795,000 units in 2013, and that gain was largely driven by a thirteen percent jump in December truck purchases as businesses took advantage of the accelerated depreciation tax incentive that was set to expire at the beginning of 2014.



Although commercial and government fleet purchases in 2013 increased for the fourth consecutive year (from a trough of only 588,000 such purchases in 2009), they were still well shy of the million-plus units that were sold into fleets in both 2006 and 2007. Given ongoing employment shifts between industries, the changed occupational distribution within industries, and the continued tight rein on both private and public fleet budgets, it is expected that new vehicle sales into fleets will start to level off below the 900,000 level by 2015.

For 2014, several surveys indicate that fleet managers have a heightened interest in refreshing and expanding their fleets. Offsetting that demand will be reduced purchases from companies that cycled their fleets out early in 2012 and 2013 to take advantage of high wholesale prices and, in some cases, attractive fleet incentives.

Even excluding businesses that operate fewer than fifteen vehicles, commercial and government fleets had more than 6.4 million vehicles in operation in 2013, according to Automotive Fleet. That’s a foundation for steady, and healthy, replacement demand.

Fleet Operating Costs Improve in 2013 - Most surveys indicate that fleet managers had flat fleet operating costs in the first half of 2013. With fuel prices declining in the second half of the year, it is likely that many fleets had reduced per-vehicle costs for the full year.

Fleet expenses have been kept in check by reduced maintenance and repair costs associated with today’s higher-quality vehicles and, in some cases, extended powertrain warranties. When repair incidences do occur, however, they are significantly more expensive than in the past as the diagnosis is often more complex and the part prices are higher.

Similarly, the prevalence of synthetics has made oil changes more expensive, but it has lengthened service intervals. Additionally, fleet operators, like retail consumers, have benefited from manufacturer programs that cover first-year oil changes and tire rotation.

Tom Webb is chief economist for Manheim Consulting. Contact him at Thomas.webb@manheim.com, follow him via Twitter at www.twitter.com/TomWebb_Manheim and read his blog at www.manheimconsulting.typepad.com.