AFLA 2021 – Lessons Learned

 

AFLA 2021 – Lessons Learned

Life is full of “lessons learned”— hopefully, not acquired the hard way. Sharing industry wisdom at AFLA is one route to avoiding the fleet school of hard knocks. Being able to finally share in person was like coming home. It was exciting to see everyone in San Antonio and we seamlessly joined back in on exchanging perspectives, research, and experience. While the three days of meetings provided a wealth of viewpoints, perhaps the first lesson learned was how much we missed meeting our colleagues and making new connections in person!

Donlen was proud to play such a large role in AFLA this year. It was rewarding to welcome so many attendees to Donlen Blue Night to share a signature cocktail, greet everyone at the headshot booth, and listen to Donlen’s VP of Sustainability and Electrification share her perspectives in the “EV Assets and Calculating TCO” Panel Session.

AFLA 2021 revolved around learning, teaching and providing viewpoints on where the industry is headed during these challenging times—if there was ever an era for the need to exchange our acquired knowledge, it is now! And even with the long months away, we didn’t miss a beat! So, what did we share?

General Economic and Industry Forecast

Unemployment is going down and the expectation is that more workers will be returning to work. To date, the return has been slower than expected.

Even with the COVID unemployment supplements and stimulus checks ending, low wage workers are holding out for the right job. A lack of employment applicants has forced wages to rise at the fastest rate in the lowest-paid industries. While leisure, hospitality and retail have seen a rise in wages of 12%, September had the lowest monthly gain in payrolls for the year at 194,000 jobs. Beyond pay, additional issues still holding back workers are workplace COVID safety, the Delta variant, and childcare. Recovery in “high-contact services” has been most impacted.

Despite the hesitancy to return to work, consumers are spending. Spending has continued to rise since March, putting pressures on high-contact service, supply chain, and inflation.

New Vehicles

While people are driving more, they don’t believe it a good time to buy a vehicle. Sales were strong in April 2021, but have dropped due to historically low inventory, lack of incentives and high prices. On average, new vehicles are selling at 98% of MSRP with some vehicles selling above that. With auto loan rates remaining low and the job market recovering, the expectation is that there will be an increase in sales by mid-2022.

New vehicle shortages have had a huge impact on the rental industry as highlighted in main stream news outlets. While there seems to be some easing on those pressures, the industry is not expected to fully stabilize until sometime in 2022 or even 2023. The upcoming holidays will potentially be a challenging time for the industry.

Remarketing

The impact of low new vehicle supply has naturally cascaded to the remarketing industry. Many fleets are holding on to older vehicles even when replacements arrive due to fear of not receiving full order volume or the potential for cancellation of orders. This means that some of the equity previously accessed is not available, despite the historically strong resale environment.

The chip shortage has had a definite impact in driving up used vehicle prices, but many attendees at AFLA felt that remarketing peaked in May of 2021 and some normalization of the industry is happening. Sedans are performing well in the remarketing space, despite the fact that OEMs have cut their production. Some of the AFLA panelists suggested that sedans could be making a comeback.

Moving forward, the most important item of 2021 is to be informed on the market—especially your local market. Have the data to support pricing. Be prepared for a continuation of lean inventory and high prices all of next year. Unfortunately, this could be the new normal, so it may just be time to re-evaluate your remarketing program and see if it is still the best for your current situation.

Multi-modal

Have the recent news items on Shipageddon 2021 frightened you sufficiently? Add on supply chain discussions and it’s scarier than anything coming on Halloween. The panel on Multimodal Strategies provided some guidance on addressing the coming months and beyond. This may require some new approaches for your fleet.

Technology and data will be your friend through all the changes. Going forward, managers will need to use data to analyze which transportation modes are most effective. Data could also help determine the TCO impact of flipping vehicles to other methods of transportation. Fleet managers will need to be more savvy and adept at analyzing data in order to choose the most effective methods of transport. KPIs will need to be more in-depth for effective multi-modal strategies. The key concern will be getting the job done!

FMCs are examining their own role and business model. This includes reviewing infrastructure and the potential to offer rentals - perhaps such an offering that would allow borrowing of vehicles from other FMC fleets.

In the future, there may be mobility budgets which would impact leasing budgets. Maintenance and fuel budget mix will be evolving based on fleet mobility types. Looking forward there could also be the potential for retailing or moving vehicles to pool/shared use after the conventionally useful life has been met.

Companies will need the building blocks in place to take advantage of this new future, and an important component will be lining up the right partners.

Safety

With all of the attention given to chip shortages and supply chain delays, it can be easy forget the impact of ongoing concerns like safety. There have been many positive advances in vehicle safety technology. Today’s vehicles are more crash-worthy over previous models with forward collision warning and front auto-braking; rear auto-brake helps in reducing property damage claims. By September of 2022, autobrake will be standard on 99+% of new vehicles in the US market.

Over the past fifty years, motor vehicle deaths have been declining in the US. Yet, in the past year, despite less highway volume, fatalities have risen. Night and weekend crashes are higher with an increase in unbelted incidents. Matt Moore, Senior VP of the Highway Loss Data Institute provided an eye-opening overview of the current rise, and reasons for crashes. He told a compelling story through the data of marijuana usage, seat belt compliance and rising speed limits. Speed limits in many states have continuously increased and along with those increases come more tragic crashes. With all of the safety features on vehicles, it was the unsafe behaviors of drivers that caused traffic deaths to rise during the pandemic. Despite a drastic decrease in miles driven in the first quarter of 2020, the crash death rate rose by over 10% in that time period.

Driver Buy-in

No matter what aspect of fleet we explore, drivers can be our best allies. In the current job market, employees have developed a new-found independence knowing that jobs are more easily found. This independence might cause drivers to be disrespectful to company policies. Fleet departments need to think in terms of educating drivers and awarding good behavior in lieu of punishments that could incentivize drivers to leave.

For monitoring of driver behavior, fleet managers should set up notifications only for adverse events such as fast acceleration, hard braking, speeding, or excessive idling. Company policies need to be developed that balance the interests of the organization for economy against the comfort of the driver in weather extremes. To monitor all of this, each driver should have an individual safety score and be accountable for vehicle damage at turn-in. Additionally, if the company sets expectations through formal policies, the driver will not be taken off guard when remediation is necessary.

Keep in mind that in the coming years, drivers will be key partners in a successful fleet EV adoption. Charging procedures will need to be set that can work for both the driver and the company. Keeping the good drivers and improving the others will be necessary to keeping your program safe, profitable and on the road.

Electrification

Talk of EVs was in the air all over AFLA; you could say it was electric! It’s clear that the revolution has begun. This was reflected in the multiple sessions that addressed EV adoption.

To be sure, as mentioned above, drivers will be allies in this revolution. One means of getting driver buy-in will be their pride in the new vehicles. Companies have found that once a driver is issued an EV, one of the first things they like to do is drive it around the neighborhood and show it off!

Infrastructure development will delay the revolution a bit. We are still waiting for a final version of the bipartisan infrastructure bill—a key component of moving to EVs in the US. The current bill will provide for zero and low emission public transportation: school buses, ferries, and public buses. It would also include the start of a national charging network for EVs and funds for rebuilding the electric grid.

The good news is that utilities are investing in rebuilding the grids necessary to support the advent of EV vehicles. For instance, DTE Energy is investing one billion dollars to increase grid capacity. And they have developed a seven-step process to assist customers in transforming to electric vehicles as well as developing infrastructure programs. Rebates and incentives are being planned for residential charging.

In educating yourself on EV adoption, don’t forget to include the soft costs in planning: corporate communications, driver education, training, and fleet policy. Education will play a large role in the move to electrification. Not only do finance leaders and C-Suite executives need to be onboard, the CEO especially needs to believe in the commitment. Almost every department of an organization will be impacted from Finance to HR to Sustainability to Facilities to Legal to Fleet and especially the drivers themselves. As mentioned above, drivers will be important stakeholders in a smooth EV transition. Fleet policies will need to have guidance on when and how to charge vehicles, how personal use mileage will factor in, mileage ranges, and best practices that differ from ICE vehicles. This is an opportunity for a Fleet Manager to take the lead and become the organization’s expert.

Today there are many offerings for sedan and light duty EVs. With more EV supply and choices, now is the time to position your organization for the revolution; decide what your infrastructure will look like. While planning to acquire EVs, preparation is also needed for charging locations available on your routes. Perhaps you should consider PHEVs as a first step.

The AFLA Conference

The three day AFLA event was inspirational; it was a welcomed recharge after being away for almost two years. There was discussion of current industry challenges and a great deal of both wisdom and new perspectives were shared. But there was also an optimistic belief that the coming changes in the industry will be a once in a generation revolution. What a challenging, yet exciting time to be in fleet!

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