By Gary Mott, President, FLD Remarketing
December 6, 2023
By all accounts, 2023 was a disruptive year for fleet. From continued challenges brought on by the pandemic, to supply chain issues and lingering shortages, it seemed at times that fleet just couldn’t get a break. And while it’s possible that 2024 could be a breakout year for our industry, we didn’t want to let 2023 slip away without taking a look at some of the disruptive factors that defined the year.
Likely one of the biggest hurdles most fleets faced all year, nagging vehicle shortages caused by the pandemic have led to a litany of additional problems including issues around upfitting and transport. And while it appears vehicle availability picked up towards the end of 2023, the UAW strike, and the need to retrofit plants to produce electric vehicles, has thrown a return to pre-pandemic production levels into question.
As it stands, we’ll be keeping an eye out to see if fleets – including those of our Customer Advisory Board members – receive anywhere near the vehicle allocations they were hoping for. In our opinion, it’s likely that nagging vehicle shortages will continue to be a drag on fleets well into 2024, and likely beyond.
With raw materials and parts hard to find, shortages and supply chain issues will continue to be a drag. Further, with inflation pushing up the cost of everything, 2023 was the year that sticker shock hit fleets right where it hurt the most – their pocketbooks. And while we’ve seen the economy continue to cool as interest rates rise and inflation begins to moderate, there’s little doubt that fleets have been hamstrung by a double-digit increase in vehicle prices, a situation we expect will continue in 2024, as fewer ICE vehicles are produced, and fleets pay heftier prices for EVs.
Undoubtedly one of the biggest disruptors of 2023, the move to electric vehicles caused growing pains we only expect to get worse in 2024. Why? Simply put, the road to EV adoption is long, winding and full of potholes, meaning fleets are feeling the pain the minute they make the plunge, leading to a lot of angst and a big learning curve.
This is a phenomenon we only expect to get worse in 2024, as fleets in the midst of adoption try to find their footing, and those without the desire or ability to adopt EVs continue to drag their feet. Look for 2024 to possibly be the year the rubber meets the road and the realities of corporate and government mandates hit the cold, hard reality that most electric vehicles might not be ready for their fleet debut.
With corporate mergers taking place across the business spectrum, there was little doubt that consolidation would eventually come to fleet, and boy, has it over the last few years. That’s included a spate of fleet management company mergers that peaked in 2023 with the mega-merging of Wheels, Donlen, and LeasePlan.
Meanwhile, firms like Holman and the Shyft group have also consolidated power under their own corporate banners, snapping up smaller entities and causing even more disruption to an industry that has faced more than its fair share over the last 3 to 5 years. Even our own Customer Advisory Board has recounted a number of challenges caused by consolidation.
This includes an inability to get timely answers to important questions, the need to familiarize themselves with new faces and processes, and a fear that this situation will continue, as we expect it will into 2024 and beyond, as the industry continues to contract.
Inflation has been the bane of not just the fleet industry, but the entire business world. According to government statistics, year-over-year inflation from 2022 to 2023 peaked early in the first quarter at slightly shy of 10% before moderating to a slightly more manageable 4.5% just last month. And while that may seem like a glimmer of hope, the truth is that very few businesses – and likely even fewer fleets – can prosper in the face of such daunting numbers.
This is a point we’ve made several times this year in our free, quarterly White Metal Market Report, emphasizing the potential reality that if inflation can’t slow to pre-pandemic levels, we expect more fleets – and the companies that own them – to buckle from the pressure of spiraling cost. And while there are encouraging signs that inflation could moderate in 2024, we don’t believe that is assured, so we’ll be keeping our eye on important economic indicators like the unemployment rate, the cost of crude oil and the Consumer Price Index to help us give customers the best advice possible.
Given that fuel costs are a full 40% of most fleet budgets, even the slightest increase can have a crippling effect on fleet, leading to an increase in the costs of goods and services, and making it hard for fleets to find the capital they need to efficiently run their operations. A scenario we expect to continue in 2024, as gas prices once again begin to spiral and oil producers around the world cut production, further driving up costs. And while it appears most fleets are learning to live with the scourge of rising fuel costs, there’s little doubt most would face significant hardships if fuel prices continue to soar the way they have in the fourth quarter of 2023.
Supply Chain Issues
While empirical data suggest the supply chain improved in 2023, anecdotal evidence and even feedback from our own Customer Advisory Board indicate that lingering supply chain issues have continued to nip at the heels of most fleets throughout 2023, albeit at a slower pace. And while this phenomenon is likely to continue in 2024, we believe the situation is fluid and could get markedly better as access to both parts, and the raw materials to make them, improves. Of course, while this is a scenario that could take a rapid about face, our opinion is that supply chain issues – and the shortages they caused – while still disruptive, were one of the bright spots in an otherwise challenging 2023.
The UAW Strike
By all accounts the UAW strike was an unwelcome – if not unforeseen – disruptor in 2023. As the year started, it was likely on no one’s radar, and while it was undoubtedly disruptive, it was probably not as bad as it could have been. Why? Because it happened at a time when many of the striking plants were already planning to shut down to install electric vehicle assembly lines or to accommodate rolling production schedules. And while this remains to be seen, we are confident that once new vehicles are delivered and production ramps up, the fallout from the auto strikes will be less negative than originally expected.
Have a Great Holiday, See You Next Year!
While 2023 was undoubtedly a challenge, the team here at FLD certainly sees better days on the horizon. That doesn’t mean there’s not still a mountain of disruption for us all to face, but rather that we are confident in the industry’s ability to meet these challenges head-on and to make 2024 the year that the fleet industry kicked off its next golden age.