Chrysler, Ford dominate low-profit fleet market
Bradford Wernle
Automotive News
June 25, 2007 - 1:00 am
For automakers, fleet sales are like a rich dessert: Everyone wants to cut back, but it's hard to pass up one more helping.
Among major automakers, the Chrysler group and Ford Motor Co. have had the most trouble staying away from the dessert tray.
For the first four months of 2007, fleet sales accounted for 36 percent of the Chrysler group's total sales and 34 percent of Ford's total sales.
General Motors has displayed more discipline: Fleet transactions accounted for 24 percent of total sales.
Among import brands, Hyundai, Kia and Mazda generate substantial fleet sales, while Toyota and Honda do not. Nissan hovers in the middle.
The fleet sales data are estimates derived from a comparison of overall sales for the period to retail registration data obtained from R.L. Polk & Co. of suburban Detroit. Fleet sales include transactions in which the buyer purchases 10 or more vehicles at a time.
Sales to corporate fleets such as Wal-Mart or the post office can be profitable. But vehicles sold to daily rental fleets such as Hertz or Avis usually are heavily discounted, so profits are thin. When retail sales start falling, automakers sometimes dump excess inventory into the daily rental fleets.
Through April, fleet sales accounted for 21.1 percent of total U.S. vehicle sales, up from 20.6 percent a year ago. Jesse Toprak, an automotive analyst for Edmunds.com, says a realistic fleet sales target for domestic carmakers is 20 percent of total sales. For the import brands, he says, it's 10 percent.
Ford has gone on a crash fleet diet, but still has lots of pounds to lose. Through May, Ford has reduced its 2007 sales to daily rental fleets by 67,000 units, compared with the first five months of 2006, and plans to eliminate an additional 67,000 units later this year.
But since Ford's retail business continues to slide, fleet sales remain a significant percentage of total sales. Ford continues to lose overall market share, but company statistician George Pipas says he isn't going to lose sleep over that. Market share is declining in part because Ford is cutting sales to the rental fleets.
"Somebody's going to pick that up," Pipas said. "It doesn't matter if it's Toyota or GM or Suzuki. We have no interest in who picks up that business."
Meanwhile, General Motors has reduced fleet sales by 280,000 units since 2005, so it's already close to its target.
The change has been most dramatic for Pontiac. In some months last year, Pontiac's fleet sales sometimes edged up to 50 percent of total sales. But for the first four months of 2007, Pontiac's fleet sales are down to 32 percent.
While individual brands still need work, GM sales chief Mark LaNeve says he's pleased with the company's overall progress. "At this reduced volume, it's really good business,"
LaNeve said. "There's nothing inherently bad about the fleet business unless you've got an oversupply."
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Life on Fleet Street
Among the Big 6 automakers, the Chrysler group relies most heavily on fleet sales. Percentages are fleet sales as a percent of total sales, January through April.
2007 2006
Chrysler group 36% 33%
Ford Motor* 34 35
GM* 24 27
Nissan/Infiniti 15 10
Toyota/Scion/Lexus 9 7
Honda/Acura 3 0
*North American brands
Source: R.L. Polk, Automotive News Data Center
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Chrysler struggles
The Chrysler brand continues to rely on U.S. fleet sales more than any other high-volume brand. The Chrysler brand's fleet sales were estimated at 47 percent, while 37 percent of all Dodges went to the fleets. Jeep fleet sales hovered at 20 percent.
In an effort to trim inventory, the Chrysler group has allowed dealers to designate 2006 models as loaners for as little as one day before selling them as used vehicles at steep discounts.
Those tactics could become a thing of the past under private equity ownership. "You could see dramatic cuts in fleet and rental sales over the next few years," said Edmunds.com's Toprak. "They're going to take a profit approach rather than blindly going after market share."
Chrysler declined to provide an executive to discuss the fleet issue. But in a prepared statement, the company noted its plan to bring overall fleet sales down to 21 percent of total sales by the end of 2009.
Daily rental fleets would account for no more than 75 percent of the Chrysler group's total fleet sales, down from 80 percent this year. "While we see commercial or governmental fleet sales as good business for us, we plan to particularly focus on reducing sales to daily rental fleets," the statement noted.
While the Detroit 3 are trying to ease up on U.S. fleet sales, some import-brand automakers are expanding.
Among the Big 6, Nissan is the import-brand automaker that relies most heavily on fleet sales. Through April, Nissan/Infiniti sold 15 percent of its cars and trucks to the fleets, up from 10 percent a year earlier.
Nissan/Infiniti's increase - an uptick of 18,447 units - was due in part to the arrival of new models, said company spokeswoman Katherine Zachary.
Fleet customers often fill their inventories with new models when they arrive. Nissan's top-selling product, the Altima, began reaching showrooms late last fall, which triggered new fleet orders. Fleet sales will decline in the second half of the year, Zachary added.
Other Asian automakers with substantial fleet sales include Mazda, 27 percent; Kia, 24 percent; and Hyundai, 22 percent.
