Auto & fleet industry: What to expect through 2025

The auto sector and fleet world are undergoing significant changes, but we may see a return to a new normal this year. What trends and updates are we seeing—and can we expect to see—through the rest of 2024 and into 2025? We talked to our fleet experts, Lars Nielsen, Regional Vice President of Fleet Sales, and Jason Kraus, Director of Vehicle Acquisition & Lease Structure, to find out.

Supply chain issues—are we back to pre-pandemic conditions?

*updated 11/7/2024

Since COVID-19, shortages of vehicles, parts, and aftermarket equipment have left many fleet managers scrambling to source (and upfit) new vehicles, repair existing ones, and keep fleets operating efficiently. Some positive signs are pointing towards a return to pre-2020 availability conditions:

• Production levels continue to improve. According to Cox Automotive, incentive spending in July was 60% higher than a year ago on passenger cars and pickups. Meanwhile, Work Truck Solutions reports that new box and service trucks are back to or doing better at average days-to-turn (DTT) than before the pandemic.
• Cargo vans are no longer out of stock everywhere, though DTT hasn’t entirely returned to the levels it was at in 2019.
• Light-duty vehicle prices have been on a downward trend due to discounted EVs, but prices for commercial vehicles are expected to remain high. Even with supply climbing, prices still haven’t yet returned to pre-pandemic levels.

For more information on model year 2025 forecasts and the current state of production, hear from Kraus in these Fleet Studies Lab articles:

• Electric Vehicles: What to Expect in the Auto & Fleet Industry for MY2025
• Fleet Vehicles: What to Expect in the Auto & Fleet Industry for MY2025
• Medium & Heavy-Duty Commercial Vehicles: What to Expect in the Auto & Fleet Industry for MY2025

Operating costs and tax credits are still in flux.

*updated 11/7/24

The economy has been topsy-turvy the last four years, but it seems as though things will begin to even out. The slight decrease in unemployment, decreased inflation and rising GDP, suggest that the economy is starting to reach a new high. With inflation on its way to the 2 percent mark that the government is looking for, the Fed made the bold decision on September 18 to cut interest rates from 5.5-5.25% to 4.75-5%. Experts expect the Fed to make a second rate cut before the end of 2024.

Even with these economic changes in the pipeline, fleet owners are still dealing with increased operating costs, especially when it comes to maintenance and insurance. This means that businesses are coping with higher total costs of ownership and depreciation to keep their fleets on the move.

There is some expected relief on the way, though, as used prices are expected to even out due to a lack of lease maturities. With fewer vehicles on the lot, dealers will look to the market for replacement units. Cox Automotive Chief Economist Jonathan Smoke explains the reasoning: “My hypothesis is that as franchise dealers come up short on what they are used to seeing returned to them monthly, they are going to the market to find units to replace. It’s incremental, but it’s enough to cause the days’ supply at wholesale to tighten, and we’re seeing retail used supply tighten too.”

It is also essential to be aware of the Inflation Reduction Act of 2022, which extends the EV tax credit through 2032, allowing millions of people and companies to benefit. This is big news, as the previous tax credit had already ended for “trailblazer” EV manufacturers like Tesla and General Motors. With the tax credit back in play, “it gives fleet owners a competitive edge from a TCO perspective,” Nielsen says.

However, be aware—new restrictions will affect the EV tax credit. As of January 1, 2024, fewer EVs qualify for the total price. To receive the full $7,500, EVs must follow these rules:

• Assembly must be in North America, including the battery.
• Be under a specific price point—for cars, it’s less than $55,000, and for SUVs and trucks, it’s less than $80,000.
• A certain percentage of battery materials must not be mined or processed from countries hostile to the United States, such as China, Russia, North Korea, and Iran.

Vehicles that adhere to the price and one of the two other requirements will only be eligible for half of the tax credit, or $3,750.

Some popular vehicles, like the Chevrolet Bolt, the Ford F-150 Lightning, and most Tesla Model Ys, still qualify for the full credit amount. Others, like the Rivian R1S and R1T, can only claim the partial credit. Many other popular vehicles didn't make the cut, including the Ford E-Transit, the Nissan Leaf, and all of Volkswagen’s EVs. For a complete list of qualifying EVs, visit here.

In response, some manufacturers have lowered prices to maximize the opportunity for consumers, while others have increased prices on EVs that don’t qualify. Fleet owners should remember that “decreases in vehicle pricing often hurt residual values,” says Jason Kraus, Director of Vehicle Acquisition & Lease Structure.

EVs—here to stay or slowing to a crawl?

*updated 11/7/24

While state and federal governments are still interested in making dedicated efforts for full zero-emission fleets, carmakers and companies are stepping back from current EV plans. Most recently, Ford announced it would reduce the number of workers at its Rouge Electric Vehicle Center in Dearborn, Michigan, pulling back on its F-150 Lightning. Other OEMs (original equipment manufacturers) that once had aggressive plans, like General Motors, Volkswagen, and Volvo, are scaling back production to suit consumer needs. The main reason for this is declining gas and diesel prices—EVs were more appealing when gas was $5 a gallon, but now that it's back down to $3, it doesn’t seem “worth it” for the average consumer to purchase an EV. The lack of infrastructure and slow market movement is also stunting the electrification industry as a whole.

At the same time, though, EVs had their best-selling year ever in 2023, with a record 1.2 million units sold in the United States. Analysts predict that 2024’s numbers will beat out 2023's, with Cox Automotive calling 2024 “the Year of More.” Another study from the International Energy Agency, which looks at EV trends, forecasts that electric car sales in the United States will rise by 20%. Discounts and price drops on new and used EVs are helping fleets push ahead with electrification.

So, what does that mean for fleets? Kraus urges fleet managers to recognize whether a shift to EVs suits their company.

“Just as your investment advisor would recommend having a balanced portfolio, I’d suggest you consider this approach to your fleet operations,” he says. “There is a lot of talk about EVs, but it’s more important to recognize the different types of powertrains and consider what may or may not be an appropriate addition to your fleet.”

However, whether it’s sticking to ICE or switching to electrification or one of the alternatives like hybrids or hydrogen, fleets using heavy-duty vehicles may have to make a choice soon—new “Phase 3” greenhouse gas pollution standards were published by the EPA at the end of March, building on the Heavy-Duty Phase 2 program from 2016. These new standards will require truck manufacturers to reduce emissions in 2027 to 2032 model-year vehicles by choosing one of the clean alternatives.

As the push toward electrification continues, there’s another interesting opportunity to keep an eye on: the data that can be harvested from charging stations. “We already have telematics partners and charging infrastructure partners that can pull some really interesting data from EV charging stations,” Nielsen says—including things like duration of charge, miles and kWh added during a session, and amount of CO2 avoided. That data can be used to make critical business decisions that improve efficiency, productivity, and decarbonization efforts.

The compact van is officially gone.

Compact cargo vans have been a staple of many commercial fleets for decades. Still, the segment has disintegrated in recent years as OEMs remove small vans from their offerings due to declining sales. The last participant in this segment was the Ford Transit Connect van, which ended production in the model year 2023. While many of these vans remain popular in Europe, Asia, and Australia, the North American market must continue searching for a suitable replacement.

With compact cargo vans having driven off into the sunset, fleet owners must get creative in sourcing and upfitting replacements—especially as supply shortages make it difficult to source other viable options. “Some people are opting to go for larger but more expensive vans, while others are considering trucks with special toppers, which can take 12 to 18 weeks of lead time,” says Nielsen.

Some fleet owners are pursuing a creative option—upfitting SUVs and minivans. These are attractive options for companies that don’t need the entire payload of a full-size vehicle and also provide improved fuel economies. Of course, a mid-size or full-size pickup truck may be the way for companies needing large storage sizes or carrying unique cargo.

For companies pursuing the full-size cargo van, Kraus reminds fleet owners that demand will exceed supply for several years, so they should keep an alternative plan in their back pocket.

Rise of embedded telematics and AI.

Anyone in the world of fleet management knows that telematics are critical for making data-driven decisions—and OEMs are starting to join the trend, as well, with more and more of them embedding telematics systems into their vehicles. One research firm estimates that the rate of vehicles with embedded telematics units will rise from 72% in 2022 to 94% in 2027.

For fleet managers, that means more data to collect and analyze for the improved operation of their business—and “it can lower the cost of your telematics program since you won’t have to purchase plug-and-play devices,” notes Nielsen.

AI is another technology that the fleet industry expects to become more prominent in 2025. One study found that the Fleet Technology Index (FTI) involving AI increased 75% from 2020 to 2024. Technology vendors plan to utilize AI to automate admin tasks, monitor driver behavior, and make predictive analytics more accurate and rapid.

Regarding the auto and fleet industries, “the only constant is change”—so we can expect the landscape to shift even more in the months and years ahead. Want to stay ahead of the curve? Stay up-to-date on fleet resources and news by following Mike Albert on LinkedIn.