Sales to rental fleets aren't a losing proposition any more

For years, the practice of new vehicle sales to rental fleet companies was the poster child for what was wrong with the domestic auto industry:

Too many vehicles for which there was too little demand at retail. So they were shoved by the thousands through the rental revolving door. Unprofitable when they entered the market because they were sold at volume discounts. Unprofitable when they exited because they depressed used vehicle prices which, in turn, wrecked residual values.

Those days are behind us.

Sales to rental fleets last year increased 25 percent compared to the previous year driven by a legitimate business need by the rental industry -- not manufacturer push, said Tom Webb, Manheim chief economist, during a press conference at the convention. That means the industry is not losing money on those vehicles, he adds.

“The rental car companies need to make these purchases in order to maintain their fleet size and the quality of the fleet they operate,” Webb said.

There might be another small increase in rental car sales this year, too, but Webb says don't look for the industry to reach the 2.1 million unit level we saw in 2005 and 2006.

That's a good thing.

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