Filed under: Trends, GM, Earnings/Financials
Lutz claims GM will cut fleet sales by 100k in 2007
Dang, it looks like everyone will have to dream up a new way to insult the four-door Cobalt. GM's Bob Lutz has announced that sales to fleet companies will be curtailed to the tune of 100,000 vehicles this year. The reduction is part of an ongoing effort to boost the resale value of General Motors cars. Reducing sales to fleet customers opens the door for some other automaker to deal with the stigma and doesn't ding the bottom line as much as it would seem. Low-margin sales to fleet customers are less helpful to automakers than retail sales, and the perception that comes along with being a fleet powerhouse dings the perception further.
Lutz doesn't sound overly concerned with short-term hits in the bottom line, preferring to take the uncommon long view and even admitting that there will be bloodletting before GM is fully realizing its potential. He's been refreshingly candid about making the product good enough that it requires no excuses or incentives to sell, and changing the sales mentality at GM from one of panic to true competition for the foreign makers that have cleaned the domestic industry's clock. Product is no longer the hurdle for GM to clear, there's lots of great stuff for 2007, and we look forward to the day when people strike up excited conversations about domestic product with us.
[Source: Automotive News sub. req'd]
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Reader Comments (Page 1 of 1)
Jim 8:38AM (1/10/2007)
Go CTS go!
Now strip the CTS and make a $20,000 version of it!
Screw the Malibu!
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wetstuff 8:40AM (1/10/2007)
".....and we look forward to the day when people strike up excited conversations about domestic product with us."
So, you think Japan, Korea or Germany can't move the bar forward?! Besides, it takes years - not one model year - to make a bad impression ..and longer to correct it. The example of the E85 scam is where GM is headed: government bailout.
j i m
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TBSS_in_the_D 8:41AM (1/10/2007)
This is great for GM re-sale, but I hope it does not raise rental rates too much. I think the new Sebring and Avenger will keep the rates down. Enterprise needs to get some car haulers lined up at the Sterling Heights assembly plant. This is where you are going to get the majority of your cheap rental fleet cars now.
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ThriftyTechie 8:58AM (1/10/2007)
Mr. Lutz's perspective isright on (" there will be bloodletting before GM is fully realizing its potential.")
I agree that short term, GM's sales slide - as long as it's mostly accounted for by the decrease in fleet sales - is a very good thing.
The only question is whether or not GM is liquid enough to survive this sort of revenue shrinkage. Only time will tell.
If GM can get through 2007 and 2008, Nissan, VW, Chrysler and Ford had better look out, because the continued body blows they're sustaining from Toyota may be followed by a knock-out punch by a stronger GM.
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Bill 9:25AM (1/10/2007)
The automakers would be smart to think of a way to turn a rental car experience into a marketing opportunity, and extended test-drive.
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greg curran 9:27AM (1/10/2007)
#2 before you call E-85 a scam you should check out the news about where congress is headed. They're going to mandate all vehicles will have to accept E-85 by 2012. all gas stations will have to have it available by 5-7 years after. As for people who say there could never be enough corn, if the profit it right you'll see how fast someone will find the land. Remember the idea is not cheap fuel, the idea is to end dependance on foreign oil.
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Phil L. 9:42AM (1/10/2007)
Bill -
Well, that's tough to do when the rental companies want lots of poorly-optioned, low end models to help keep their prices down. When's the last time you chose a more expensive rental car company in order to get a higher quality car?
And if a car maker subsidized a fleet program to get their best efforts out there for renters to then consider buying, we'd accuse them of dumping product into the market to pad sales figures.
It's a tough market out there...
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What do I know? 10:00AM (1/10/2007)
If GM is serious about resale value, why don't they badge engineer a couple of platforms and call it an Oldsmobile?
It won't hurt the resale value of retail cars, and could keep their fleet sales to maintain production lines.
Daimler-Chrysler could do the same with the Plymouth brand. They could upmarket their Chrysler and Dodge brands with options not available on the rental fleets.
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Robert 11:43AM (1/10/2007)
There are two sides to resale value. One is the supply versus demand of used cars (which selling to rentals fleest obviously hurts because there is a glut of used vehicles in the market), but the other is perceived quality.
The resale on Toyota's Corolla hasn't been hurt that much by being sold at much higher numbers recently to rental fleets because people perceive that a used Corolla is a better buy than a used, say, Cobalt. Why? Because of perceived quality. Back to this whole quality perception thing. The reality is that the Corollas probably aren't worth that much more extra money when they leave the rental fleet, but that's a stigma GM has to deal with above and beyond rental fleet sales.
Hopefully this will have a net positive effect of boosting resale, but until perceptions line up with reality, the resale of GM and Ford cars cannot approach Toyota or Honda even if they stop all sales to rental fleets.
Personally, I don't think fleet sales are bad. It's not that terrible if long term rental fleet mix was 15% of sales (and fleets overall 20-25%) if they are sold closer to MSRP. If you can make a profit or at least break even, that is the ideal situation with rental fleets. You get the numbers without the loss of hundreds of millions of dollars. Those sales need to happen, so you might as well have them but negotiate them wisely.
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KT 12:51PM (1/10/2007)
Ford has cut more than 200k from their sales to rental companies in the past 2 years. And now with the Taurus and Freestar gone from the mix the reductions will be even more.
The only rental companies out there that "ask" for and buy a majority of stripped models is Enterprise (Avis to a lesser extent). The other companies will usually mix their purchases with some higher-end models or mid-level ones with some options. They are required to take a percentage (usually 30-50%)of the higher-end or optioned (DVD, leather, sunroof etc) vehicles. This is to help resale and to give people a "test drive" of the new models.
GM is actually a little late to this strategy. The real loser is DCX who are increasing their fleet sales (mostly rental). They are in this pickle because they refused to cut production in the 3rd and 4th quarter and are stuck with a LARGE amount of cars.
These steps (reducing rental sales) will help GM/Ford but it will take awhile to realize it on the bottom line.
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Richard 12:59PM (1/10/2007)
There seems to be an impression here that fleet sales are the rolling stock for car rental agencies. Sales to rental companies resell those cars one year later as used cars. This is not the problem. The problem is sales to police departments, other government agencies, corporate fleets, and such like. These cars are purchased from the lowest bidder. From the manufacturers' side, they are sold at virtually no profit. Some are sold at a loss.
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Phil 1:15PM (1/10/2007)
#8 - Good idea but I think it would be simpler to just have different enough front and rear fascias, rims, seat upholsery, and a FLEET BADGE on the doorsill and back of the car! This would be a trim level only available to fleets, as well as clearly identifiable to customers on used car lots. Cadillac/Hummer would not participate, though they would have cars available for custom coachworkers.
That way all the bad resale value accrues to this specific trim line, which could be called 'F' across all of GM. Many GM cars added up to 8 points of 3-year
resale value recently. Automotive lease guide can then add ANOTHER 8 POINTS due to the massive improvement in the hardware and materials of launch vehicles such as the new Malibu, Enclave and CTS. That would mean near-parity with the best imports, and that saves subsidizing money on leases.
Please get at Bob Lutz and Rick Wagoner at fastlane.gmblogs.com to push the idea!!
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Jim 2:16PM (1/10/2007)
Toyota, Nissan, Honda, are all into fleet sales.
Their rental Camrys, 4Runners, Corollas, Altimas, Quests, Accords, Civics have the same interior quality materials as their general public version. What they lack is powered convenience features.
They do make quite good advertisement.
I don't get why the Ford Fusion, Dodge Caravan have to make rental versions with crappier materials. Who thought of this dim idea? Does GM do the same?
When I got into a friend's Dodge Caravan, I was shocked.
I thought the Caravan was complete junk before, because I had only been in the rental version, with its interior covered in junk quality materials. Again, who's dim idea was this... it lowers the perception of American cars even more.
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NRM 2:45PM (1/10/2007)
"Product is no longer the hurdle?" Heh - jumping the gun a bit there. There are definitely some signs of life lately, but there's still a long way to go.
Regarding earlier comments about "Perceived Quality". Lets drop such cute phrases that suggest lack of responsibility or lack of control on GM's part and call it what it is - REPUTATION. The domestics (both the dealers and the manufacturers) have fought long and hard for decades to minimize their spending on the consumer in order to earn their reputation of being terrible ownership experiences, and they should wear their crown of thorns properly until they forge a new reputation for themselves.
People gave them the benefit of the doubt or loyalty that wasn't reciprocated for many years, but eventually wised up. Regaining lost market is possible but there's the matter of overcoming their self-abused reputations first - which means properly wooing the customers. After all, once you switch brands, why in the world would you switch back unless the old brand brings something much better to the table?
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Jeopardy 3:08PM (1/10/2007)
To #9
Hertz is selling corollas at a much higher price than Cobalts. Believe it or not, the price for a Corolla LE is even higher than a much better equipped Malibu LT.
Check out the price at www.hertzcarsales.com
The price differential is not justified IMO, but that's the reality.
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motorman 3:21PM (1/10/2007)
the only reason for the "fleet sales" is because the car companies have to keep the production lines running. if they shut down due to no regular sales orders they must pay the UAW line workers 95% of their wages so they might as well keep the lines running and sell the surplus to the car rental companies. some of you have no idea how much the UAW has to do with what these car compamies do
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Matt 3:35PM (1/10/2007)
Don't worry, we'll always be able to crap on the Sedan Cobalt. God I hate that thing. Gives my Coupe a worse name than it already has. ;)
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wetstuff 4:04PM (1/10/2007)
#6 - Greg: Here's some info from the Heritage Foundation (not your avg. Commie men's club..)
In 1999, the average farm household earned $64,437--17 percent more than the $54,842 average for non-farmers. Incomes were even higher among the 136,000 households with annual farm sales over $250,000--and who also receive the largest subsidies. Their 1999 average income of $135,397 was two-and-a-half times the national average. Farmer incomes are not only high, but also quite stable from year to year, despite agricultural market fluctuations.
.
Greater wealth. The average farm household had a net worth of $563,563 in 1999--well above the $88,000 national average.
......and it's a crock that boosting the price of corn because General Mills will compete with Exxon ethanol buyers will be good for the country. It only means that your V-8 Mustang will get fewer MPG and Corn Flakes will double in price ...all the while Willy Nelson will still have concerts for 'poor' farmers. Drill off FL, NC and Martha's Vineyard if you want to punish Venezula.
j i m
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mranton89 7:27PM (1/10/2007)
Why don't they just sell their cars to fleets at a price closer to MSRP...just like anyone of us buying a car, say take it or leave it. If they take it good, sales are up, if they don't oh well they apparently don't want to sell the cars to them anyways so they won't care.
And about the fleet badge, they already have those in the form of the malibu "classic" (old body style fleet only malibu) and dodge charger fleet.
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uncle john 5:41PM (1/11/2007)
12. #8 - Good idea but I think it would be simpler to just have different enough front and rear fascias, rims, seat upholsery, and a FLEET BADGE on the doorsill and back of the car!
Not a bad idea at all. Years ago Cadillac sold a Fleetwood (75 series, I believe) that was meant for Limos, Hearses, and Ambulances. Your idea runs along the same line. The only other alternative would be to buy the rental car companies, this way you can control what goes to the rental lots. Think of it, push out a bunch of HIGH END optioned vehicles for people to rent, this way they "test drive" the car while on vacation. Instead of having local rental offices, have people who aren't renting from the airports rent from the dealerships.
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