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Detroit 3 slash sales to fleets

Chrysler's 17% cut sets pace; automakers shift strategy to protect residual values


Jesse Snyder

Automotive News | June 16, 2008 - 12:01 am EST




DETROIT — Despite a brutal retail sales slump, the Detroit 3 continue to cut the number of light vehicles they sell to daily rental companies and corporate fleets.

Through the first four months of 2008, General Motors, Ford Motor Co. and Chrysler LLC have reduced U.S. sales to fleet buyers, according to an analysis of data supplied by R.L. Polk & Co., an automotive data research firm in suburban Detroit.

Through April, Chrysler reduced fleet sales by about 45,000 units, or 17 percent, from a year earlier. GM cut fleet sales by nearly 40,000 units, or 14 percent. And Ford Motor's fleet sales fell 25,000 units, or 9 percent.

Automakers consider it important to limit such sales because heavy fleet sales can damage a brand's residual values. Fleet sales to corporate customers can be profitable, but sales to daily rental fleets typically are not.

In previous downturns, the Detroit 3 sometimes dumped unwanted vehicles into daily rental fleets, ruining resale values when Hertz, Avis and others sent their cars and trucks to auctions.

New approach

But the Detroit 3's business practices are changing, said Chrysler spokesman Stuart Schorr. "In the past, we would respond to slow sales by building dealer inventory or boosting fleet sales," he said. "But we are doing neither.

"Commercial and government fleet is good business," Schorr added. "Daily rental fleet is less desirable but still not bad business if managed properly. Chrysler is committed to reducing sales to daily rental fleets and lowering our overall fleet sales."

While Automotive News does not yet have fleet sales estimates for May, Ford analyst George Pipas said the auto industry maintained discipline last month.

Citing internal Ford sales data, Pipas said industry fleet sales fell 14 percent, outpacing the overall U.S. sales downturn of 10.7 percent.

Still big business

Sales to daily rental fleets declined more than sales to commercial or governmental customers, Pipas said. The fleets don't want low-mpg vehicles any more than consumers do, he said. "They want the same fuel-efficient vehicles as the public because that is what their customers are demanding."

Despite their discipline, the Detroit 3 are not out of the woods. Because retail sales are so weak, fleet sales still account for as much as 35 percent of total U.S. sales for Ford Motor and Chrysler LLC.

By contrast, fleet customers generate about 20 percent of total industry sales.

Among the Detroit 3, only GM has reduced fleet sales this year as a percentage of total sales volume. In the first four months, GM cut its fleet sales to 24 percent of total volume from about 27 percent in 2007.

As the Detroit 3 reduce fleet sales, other automakers are stepping into the gap. For example, Toyota's estimated fleet sales rose about 10,000 units to 85,000 in the first four months. That's 11 percent of Toyota's total sales, up from 9 percent a year earlier.

But GM is not going to reconsider its decision to reduce fleet sales, said Brian McVeigh, GM's general manager of fleet and commercial operations. Residual values have been rising since GM started cutting daily rental fleet sales three years ago.

Key vehicles such as the Chevrolet Malibu have a better image among customers because they no longer are considered to be rental cars. Said McVeigh : "We'd be foolish to go back to where we were."


SOURCE: http://www.autonews.com/apps/pbcs.dll/article?AID=/20080616/ANA06/806160357/1148&template=printart
 

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Jesse Snyder said:
Through April, Chrysler reduced fleet sales by about 45,000 units, or 17 percent, from a year earlier. GM cut fleet sales by nearly 40,000 units, or 14 percent. And Ford Motor's fleet sales fell 25,000 units, or 9 percent....

...Among the Detroit 3, only GM has reduced fleet sales this year as a percentage of total sales volume. In the first four months, GM cut its fleet sales to 24 percent of total volume from about 27 percent in 2007.

I'd like to know the actual percent of current sales - not versus last year - cuz I believe Chrysler had a way higher percentage last year and are still selling more to fleet than Ford or GM
 

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I have a couple of questions:

1. Are they cutting sales because companies are not buying new vehicles?

2. Are they cutting sales or are the cutting production?
 

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Discussion Starter #4
I'd like to know the actual percent of current sales - not versus last year - cuz I believe Chrysler had a way higher percentage last year and are still selling more to fleet than Ford or GM
There is a graph with this article in my print copy at home that answers your questions. It does not appear in the on line version, though. I'll scan it and try to post tomorrow.

You won't like it what it says. According to the chart, Ford sold more into fleets than any other automaker. 255K so far this year. GM was a close second at 250K. But, taking into consideration Fords lower (than GM) total sales that represents quite a chunk of the business.
 

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Discussion Starter #5
I have a couple of questions:

1. Are they cutting sales because companies are not buying new vehicles?
They are cutting sales becasue, at the levels of the last few years, residual values have been hammered. As the article says:

Automakers consider it important to limit such sales because heavy fleet sales can damage a brand's residual values. Fleet sales to corporate customers can be profitable, but sales to daily rental fleets typically are not.

In previous downturns, the Detroit 3 sometimes dumped unwanted vehicles into daily rental fleets, ruining resale values when Hertz, Avis and others sent their cars and trucks to auctions.

2. Are they cutting sales or are the cutting production?
Sales. But these sales cuts may indeed lead to production cuts. It depends on the retail market for each model. The automakers would rather sell fewer vehicles, but at a profit. I believe they prefer profitable retail sales to a bunch of at-cost transactions. On the whole this is necessary, especially for the domestics. The Asian brands sell to rental fleets too, by the way. I see a lot of Kias and Hyundais on lots.
 

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Discussion Starter #8
nevermind my PM, Megeebee
&
forgot to add to it, "I appreciate your efforts" :)
&
that looks like it's rather concise (tho not quite readable)
(if so) why don't you just type out the info
I trust you


By the way, the chart shows sales through April of 2008, not through May as I thought earlier. The percentages noted are as compared to the same period last year.

GM: 251,000, down 14%

Ford: 255,000, down 9%

Chrysler: 216,000, down 17%

Nissan: 44,000, down 15%

Toyota: 85,000, up 13%

Honda: 16,000, up 37%
 

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Discussion Starter #10
From Automotive News Data Center. Reported total sales January 1, 2008 through April 30, 2008:

Ford: 781,791

Chrysler: 601,622

GM: 1,058,014

Toyota: 789,600

Nissan: 345,600

Honda: 487,642
 
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