Even after posting a $3.25 billion loss, General Motors won't resort to fleet sales to ease their pain. In the automotive industry, fleet sales typically represent the lightly equipped, and heavily discounted, vehicles sold to rental companies or corporations. The numbers are significant, and fleets sales of a particular model may even exceed the volume sold at retail. Often laden with special financing incentives, the sales are less profitable for the automaker, and they hurt the used-vehicle market when a large number of the same model are dumped into the marketplace simultaneously.
Last year, GM sold about 700,000 units to fleet sales. In 2008, that number is projected to drop to about 575,000 units. By 2009, it will decline even further with a sales projection of just over 500,000 fleet units. GM isn't the only automaker following this path. Ford's sales to rental companies are down 16 percent from the same quarter last year. Chrysler LLC also curbed their sales, but they have declined to offer specifics. Automakers are also taking steps to increase used car values. Instead of selling "stripped" vehicles to rental fleets, the cars are equipped more with consumer-friendly options such as sunroofs and upgraded audio packages.
[Source: Automotive News, subs. req'd]
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Reader Comments (Page 1 of 2)
Detfan @ May 19th 2008 6:17PM
That is great news for GM. They should see much better resale value as a result of the reduction of fleet sales. The 2008 Malibu already has about the same residual value after 5 years as a Camry according to KBB Residual Value Guide.
montoym @ May 19th 2008 6:21PM
OK, so Ford and GM won't be selling as many fleet vehicles, then who will? It's not like fleet sales will just go away.
While this is good news for both Ford and GM since they have a reputation of being the primary source of rental cars and the like. But, that business has to go somewhere. other companies will be taking the hit that GM and Ford endured for so long.
SeattleJeremy @ May 19th 2008 6:35PM
If you look at the rental lots today you'll see more Japanese and Korean cars. There are a lot more Kia and Toyota's now.
benzaholic @ May 19th 2008 6:27PM
I would think the rental companies would balk when they have to pay much more for their vehicles.
If the car rental companies are sufficiently independent of the auto manufacturers, shouldn't they still be able to pretty much define the deals? Just tell the manufacturers, "I'll by this big number of cars if you can give me nice cheap stripped-down models."
upthewazzu @ May 19th 2008 6:37PM
Having worked for the big green "E" for a long time I can tell you that the rental car companies are getting the shaft in this deal. Most rental companies are now in-fleeting used cars (Enterprise buys a ton from Hertz, Avis/Budget buy from Enterprise, etc). In 10-15 years most rental cars will be Chinese.
geo.stewart @ May 19th 2008 8:58PM
been seeing a lot of hyundais, toyotas, kias, and chryslers.
and with what I've seen in Chryslers and Toyotas, Hyundai is leapfrogging them both.
oby @ May 19th 2008 7:26PM
Who are GM expecting to sell them to if not the rental car companies.
oby @ May 19th 2008 7:27PM
"The 2008 Malibu already has about the same residual value after 5 years as a Camry according to KBB Residual Value Guide."
That's funny! Somebody is doing a bit of unauthorised time travel it seems.
Bryan @ May 20th 2008 12:18AM
haha......
KT @ May 19th 2008 7:29PM
The big difference in fleet sales to rental companies is the switch from what's called repurchase sales to risk sales.
In the past most rental fleets were repurchase sales. This is when the mfgr. sales a fleet of cars for a certain price with the agreement to "repurchase" them at a predetermined price depending on time in service and mileage. This was usually beneficial to the rental companies for various reasons. Also, they "sold" the cars back to the mfgr who would then be responsible for wholesaling the vehicles at auction.
Now more rental fleet sales are sold as "risk" sales. This is when the rental company buys the vehicle from the mfgr with no guaranteed repurchase from the mfgr at the end of it's service. Basically, the rental company takes the "risk" of the resale loss. These vehicles are usually kept in service much longer in order for the rental company to get the most money out of it before time to retire it and send to auction or sale through other outlets.
Also, the mfgr are putting more optioned cars into service. This helps residuals not take such a big hit on vehicles with higher rental sales volumes.
Fleet sales aren't bad sales if managed right. It's a great way to move alot of product and it gets people in the seats of new models. Like someone else said, somebody has to sell to them to the rental companies. And right now it's the Japanese and Koreans (as mentioned in earlier post).
BOB @ May 19th 2008 8:19PM
WAY TO GO!!!!
Instead of letting the business and vacation traveller experience that American budget sedans are no longer pieces of cheesey crap to drive.....
LET'S LET THEM GET USED TO THE HYUNDAIS AND KIAS instead
BOB @ May 19th 2008 8:24PM
THIS IS THE PREDICTED VALUE, USED TO FIGURE A LEASE ---
in reply to..........
I have learned that it helps to have an idea about whether I understand, before I make my smarty remarks
wettlaufer @ May 20th 2008 12:51PM
THIS IS THE PREDICTED VALUE, USED TO FIGURE A LEASE ---
in reply to..........
---------
First of all, the comment was hilarious.
Second, "predicted value" is the key word there. Every lease that went down the crapper 5-6 years ago had a predicted resale value, every home home loan made in the housing bust had an appraisal, and every structured financial product that has blown up Wall Street is a big bundle of predicted values based upon the estimates of highly-qualified PhDs, analysts, bankers, and the link. Let's not get too huffy in reaction to a remark everyone probably enjoyed except yourself.
stratojet @ May 19th 2008 9:49PM
The Fleet cie have extorted enough money from GM. It is high time that this grand theft stops. This created a parrallel Dealers network who are dumping the vehicles for a ridiculous price. Toyota will have a taste of this, sooner or later.
gmcbob @ May 19th 2008 10:14PM
I think this is a bad strategy. A sale is a sale, and I think the more your product is out and about on the streets, the better. My strategy would be to sell as many cars as possible, whether it be fleets or dealers, I don't think it would matter.
C.W. @ May 20th 2008 7:50AM
in theory that is a good strategy, and one the U.S. OEMs employed for many years. the problem however is that when these cars then go to auction, the miles and wear and tear bring the price it fetches way down, and thus the residuals of the new car drop. Ford started weening off fleet about 2 years ago because when you do that it not only brings your residuals up, but it also right-sizes your demand and allows you to run the company smarter. which is one of many reasons we are seeing Ford in the midst of one of the greatest corporate turn-arounds in history.
sjg @ May 20th 2008 10:31AM
Agreed. The key here is that the product needs to be good. I rented a Mazda6 5 door and it was a great car and a positive experience. Ford and GM were hurt by fleet sales because the Taurus, Lumina, etc. were uninspiring vehicles built on aging platforms. I would say that fleet sales are an opportunity to get some of these business travelers into a Fusion or a Malibu. If these cars are any good, it's an opportunity to make a good impression.
mroverlord @ May 19th 2008 10:32PM
I agree a a sale is a sale, so long as it is profitable, especially considering higher sales usually mean lower unit costs for parts from suppliers.
But many rental fleets were dumping their cars after only 20-30,000 miles. Wny buy a NEW car, when I can buy a used one cheap? That is the resale problem. My Dakota is worth squat (1 year old, worth 10K less than sticker now) because most of the Dakotas went to rental and fleet sales. To someone like me, resale means nothing...I usually keep my vehicle for 8-10 years.
I have noticed that most of the fleet WORK trucks we are getting have all the power options and the better engine packages.
Judy Zik @ May 19th 2008 11:07PM
One of the biggest problems with fleet sales were that the car makers used them to dump huge volumes of their worst models that consumers were not buying. So you ended up with a ton of base model old Malibu's and Taurus's that the travelling public were forced to drive. When they got home they thanked god for the Camry in their driveway. Now with some of the new products the domestics are putting out there fleet sales might have actually helped them to get more drivers in seats noticing the difference. Travellers might have gone home and looked twice at their old Camry after driving a new Malibu. Besides sales are sales. No company should be allowing sales to fall through their fingers.
Egisto Soldi @ May 20th 2008 2:59AM
Ok, anyway, GM sells a lot of car for fleet: also citycars, and gas in the future. In Italian: http://www.fleetblog.it/?cat=82