Detroit 3 Banking on increased fleet sales to boost market share
07-28-2004, 07:22 AM
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Detroit 3 Banking on increased fleet sales to boost market share
Fleet sales hike puts automakers at risk
GM leads increase, but strategy that keeps plants running can erode profits, car values
By Ed Garsten and Eric Mayne / The Detroit News
DETROIT — U.S. automakers are increasing sales to rental car companies and other fleet customers — a strategy that can prop up overall sales, but erode a company’s bottom line and brand image.
Detroit automakers often tout the importance of selling more new cars and trucks at retail and minimizing less profitable fleet sales.
But at General Motors Corp., fleet and rental agency customers represent more than one-quarter — 26.1 percent — of all car and truck sales this year. That’s up from 21.3 percent of all sales a year ago. And 37.7 percent of GM’s passenger cars are sold to fleet customers — a 10-year high.
At Ford Motor Co., fleet sales account for 28 percent of all Ford, Lincoln and Mercury sales this year, up slightly from a year ago. Chrysler fleet sales are flat at 23 percent of all sales, according to J.D. Power and Associates.
By contrast, Honda sells less than 1 percent of its U.S. vehicles to fleet customers, and Toyota’s fleet sales are less than 10 percent of overall sales.
Despite pouring more cars and trucks into fleets, GM and Ford have lost U.S. market share this year. Chrysler’s market share is up slightly.
Exposing a car or truck model to rental customers is an important way to introduce buyers to vehicles, said Alan Baum, forecasting director at auto consultant Planning Edge in Birmingham. “But in terms of a long-term strategy, it’s not a good one, and yet we continue to see fleet volumes very high,” he said.
High fleet sales to rental companies have clear drawbacks. They can damage the brand value of a model if customers begin to think of it solely as a rent-a-car. And resale values can suffer when fleet vehicles are dumped back into the open market as used cars.
On the other hand, sales to commercial and government fleets tend to be more profitable. Commercial vehicle sales dropped 30 percent during the recent recession but have bounced back this year as evidence the economy is recovering.
“That’s very good business,” said Paul Ballew, GM’s top market analyst. “We want to pursue sales to governments and companies. It’s a very profitable business.”
Ford and Chrysler also have benefitted from improved sales to commercial customers.
“The commercial business, particularly, is valuable,” said Gary Dilts, Chrysler’s senior vice president of sales.
Sales to rental car companies are less lucrative, so GM strives to limit them to 14 percent to 15 percent of overall sales.
Fleet sales present Detroit automakers with a dilemma. If they limit sales to fleet customers, the companies surrender market share. And with high fixed costs, automakers prefer to keep plants running.
“In some cases, it’s more costly to shut the plant down than selling to fleet,” said Jeffrey Schuster, director of automotive global forecasting at J.D. Power and Associates.
Ford and DaimlerChrysler AG’s Chrysler Group also restrict rental car sales.
Ford has reduced fleet sales of the Ford Taurus, Focus and Lincoln Town Car sedans. So far this year, its share of the daily rental market is down 3.6 percentage points to 21.6 percent.
Wholesale auction prices for the 2003 Taurus are $400 higher than the 2002 model attracted last year. The price for a used Focus is $1,400 higher, while used Town Cars are going for $2,000 more.
Dumping too many units of a single model into rental car fleets affects how much the vehicle is worth when retail customers are ready to trade it in, Baum said.
The latest sales figures tell the story of why U.S. automakers need to find customers or risk costly and demoralizing factory shutdowns to adjust bloated inventories.
Combined sales at GM, Ford and Chrysler are off 0.3 percent this year, while overall new car and truck demand is up 2.3 percent.
At the same time, demand for vehicles produced by Asian automakers is up 8.4 percent, including a 23.2 percent increase in light truck sales.
While automakers prefer to downplay fleet sales, they can also use them to create a more rosy overall sales picture.
“Fleet business can be used to manage or manipulate your sales performance,” Schuster said. “A high number has an emotional value in the market and in the industry and with consumers. If you’re able to pump it up a little higher with fleet use, that kind of has a rippling effect.”
Some automakers produce vehicles solely for fleet sales to keep plants open that might otherwise be shut down and to protect the value of new models.
The Chevrolet Classic, for instance, is sold only to commercial customers such as rental car companies. It is based on the previous generation Chevrolet Malibu, which has been replaced with an all-new model.
GM also plans to keep making the Pontiac Grand Am through 2005 for fleet users, even after it is replaced in the consumer market this fall by the new G6.
Ford will continue producing the outgoing Taurus for fleets after the automaker launches the Five Hundred sedan in September.
Ford has said it is willing to sacrifice market share for a smaller, more profitable piece of the pie. Wall Street is skeptical, even though Ford has exceeded the earnings expectations of analysts for 10 consecutive quarters.
“This can’t continue indefinitely,” said John Casesa of Merrill Lynch. “In the short term, profits and market share can go in opposite directions. In the long term, they always move together.”
Ford’s strategy is temporary.
“The plan is not to lose share forever,” said Ford chief financial officer Don Leclair. “That’s unsustainable.”
You can reach Ed Garsten at (313) 223-3217 or egarsten@detnews.com.
http://www.detnews.com/2004/autosins...a01-223843.htm
GM leads increase, but strategy that keeps plants running can erode profits, car values
By Ed Garsten and Eric Mayne / The Detroit News
DETROIT — U.S. automakers are increasing sales to rental car companies and other fleet customers — a strategy that can prop up overall sales, but erode a company’s bottom line and brand image.
Detroit automakers often tout the importance of selling more new cars and trucks at retail and minimizing less profitable fleet sales.
But at General Motors Corp., fleet and rental agency customers represent more than one-quarter — 26.1 percent — of all car and truck sales this year. That’s up from 21.3 percent of all sales a year ago. And 37.7 percent of GM’s passenger cars are sold to fleet customers — a 10-year high.
At Ford Motor Co., fleet sales account for 28 percent of all Ford, Lincoln and Mercury sales this year, up slightly from a year ago. Chrysler fleet sales are flat at 23 percent of all sales, according to J.D. Power and Associates.
By contrast, Honda sells less than 1 percent of its U.S. vehicles to fleet customers, and Toyota’s fleet sales are less than 10 percent of overall sales.
Despite pouring more cars and trucks into fleets, GM and Ford have lost U.S. market share this year. Chrysler’s market share is up slightly.
Exposing a car or truck model to rental customers is an important way to introduce buyers to vehicles, said Alan Baum, forecasting director at auto consultant Planning Edge in Birmingham. “But in terms of a long-term strategy, it’s not a good one, and yet we continue to see fleet volumes very high,” he said.
High fleet sales to rental companies have clear drawbacks. They can damage the brand value of a model if customers begin to think of it solely as a rent-a-car. And resale values can suffer when fleet vehicles are dumped back into the open market as used cars.
On the other hand, sales to commercial and government fleets tend to be more profitable. Commercial vehicle sales dropped 30 percent during the recent recession but have bounced back this year as evidence the economy is recovering.
“That’s very good business,” said Paul Ballew, GM’s top market analyst. “We want to pursue sales to governments and companies. It’s a very profitable business.”
Ford and Chrysler also have benefitted from improved sales to commercial customers.
“The commercial business, particularly, is valuable,” said Gary Dilts, Chrysler’s senior vice president of sales.
Sales to rental car companies are less lucrative, so GM strives to limit them to 14 percent to 15 percent of overall sales.
Fleet sales present Detroit automakers with a dilemma. If they limit sales to fleet customers, the companies surrender market share. And with high fixed costs, automakers prefer to keep plants running.
“In some cases, it’s more costly to shut the plant down than selling to fleet,” said Jeffrey Schuster, director of automotive global forecasting at J.D. Power and Associates.
Ford and DaimlerChrysler AG’s Chrysler Group also restrict rental car sales.
Ford has reduced fleet sales of the Ford Taurus, Focus and Lincoln Town Car sedans. So far this year, its share of the daily rental market is down 3.6 percentage points to 21.6 percent.
Wholesale auction prices for the 2003 Taurus are $400 higher than the 2002 model attracted last year. The price for a used Focus is $1,400 higher, while used Town Cars are going for $2,000 more.
Dumping too many units of a single model into rental car fleets affects how much the vehicle is worth when retail customers are ready to trade it in, Baum said.
The latest sales figures tell the story of why U.S. automakers need to find customers or risk costly and demoralizing factory shutdowns to adjust bloated inventories.
Combined sales at GM, Ford and Chrysler are off 0.3 percent this year, while overall new car and truck demand is up 2.3 percent.
At the same time, demand for vehicles produced by Asian automakers is up 8.4 percent, including a 23.2 percent increase in light truck sales.
While automakers prefer to downplay fleet sales, they can also use them to create a more rosy overall sales picture.
“Fleet business can be used to manage or manipulate your sales performance,” Schuster said. “A high number has an emotional value in the market and in the industry and with consumers. If you’re able to pump it up a little higher with fleet use, that kind of has a rippling effect.”
Some automakers produce vehicles solely for fleet sales to keep plants open that might otherwise be shut down and to protect the value of new models.
The Chevrolet Classic, for instance, is sold only to commercial customers such as rental car companies. It is based on the previous generation Chevrolet Malibu, which has been replaced with an all-new model.
GM also plans to keep making the Pontiac Grand Am through 2005 for fleet users, even after it is replaced in the consumer market this fall by the new G6.
Ford will continue producing the outgoing Taurus for fleets after the automaker launches the Five Hundred sedan in September.
Ford has said it is willing to sacrifice market share for a smaller, more profitable piece of the pie. Wall Street is skeptical, even though Ford has exceeded the earnings expectations of analysts for 10 consecutive quarters.
“This can’t continue indefinitely,” said John Casesa of Merrill Lynch. “In the short term, profits and market share can go in opposite directions. In the long term, they always move together.”
Ford’s strategy is temporary.
“The plan is not to lose share forever,” said Ford chief financial officer Don Leclair. “That’s unsustainable.”
You can reach Ed Garsten at (313) 223-3217 or egarsten@detnews.com.
http://www.detnews.com/2004/autosins...a01-223843.htm
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