The auto industry is relying more heavily on fleet sales to rental car companies and other commercial fleets to prop up the U.S. market.
In the first three months of 2003, new vehicles registered by fleet customers amounted to 18.6 percent of the U.S. total, according to R.L. Polk, a research company in Southfield, Mich.
That's up from the year-ago period, when fleet customers accounted for 15.9 percent.
Three brands - Buick, Mitsubishi and Suzuki - have been especially reliant on fleet sales in the first quarter, the most recent period for which data is available. Fleets accounted for 42.6 percent of Mitsubishi's sales, 38.6 percent of Suzuki's sales and 36.1 percent of Buick's sales. All percentages were higher than year-ago levels, sharply so at Buick and Mitsubishi.
The Polk data highlights the brands that may be most vulnerable to softness in the retail market. Commercial fleets are not expected to make up the difference as they have in the past.
In the recession of the early 1990s, automakers relied on daily rental fleets such as Hertz, Avis and Budget to soak up excess inventory.
But the rental industry, which typically accounts for half of total U.S. fleet sales, has become too weak to expand significantly. Following the terrorist attacks of Sept. 11, 2001, the rental companies downsized their fleets as the travel industry shrank.
Those companies have not recovered. "The travel industry is weak," says Bob Schnorbus, an analyst for J.D. Power and Associates. "It's a much tougher (situation) than in the early 1990s."
Fleet sales in the United States,The following chart lists first-quarter fleet and retail sales by make. The brands are ranked according to fleet sales as a percentage of total sales.
January to March 2003
|Make||Total sales, Jan.-March||Retail, Jan.-March||Fleet, Jan.-March||Fleet percent|
|Source: R. L. Polk & Co.|
|Note: The chart is based on new-vehicle registration data compiled by R.L. Polk. Commercial fleets include any customer who buys ten or more vehicles per year.|
Import makes are starting to claim a bigger share of the fleet market. Imports account for 20 percent of U.S. fleet sales, up from 10 percent in 1998.
But the Big 3 still dominate fleet sales. According to Polk data, commercial fleets accounted for 29.5 percent of Ford Motor Co.'s first-quarter sales. General Motors sold 21.8 percent of its vehicles to fleets, and Chrysler group sold 24.0 percent.
By contrast, commercial fleets accounted for only 1.4 percent of Honda division's first-quarter sales.
Among import makes, Mitsubishi has been especially aggressive, quadrupling its fleet sales in the past five years.
The balance between Mitsubishi's fleet and retail sales came unglued early this year when the company trimmed customer incentives. Fleet held steady, while retail demand plunged.
Mitsubishi hopes to restore the balance, says Pierre Gagnon, CEO of Mitsubishi Motors North America. He predicts that Mitsubishi's fleet sales will be 25 percent of total sales this year, down from the 43 percent first-quarter figure.
Like Mitsubishi, GM hopes to reduce its reliance on the daily rental fleets. In the first quarter, GM marketed vehicles aggressively to its rent-a-car customers. According to Polk, rental companies registered 147,217 new GM vehicles, up nearly 38 percent from the year-ago period.
Although GM has aggressively pursued rental fleet customers, company officials say year-to-year comparisons are somewhat deceptive. In 2002, GM suspended vehicle deliveries to a financially troubled car-rental company for four months.
GM's rent-a-car sales for that period were unusually low, says Brian McVeigh, GM's general manager of fleet and commercial operations. In the first quarter of 2003, GM's rental sales were high, McVeigh acknowledges.
The automaker has backed off on fleet sales since then. McVeigh says GM expects to sell 550,000 rental vehicles this year, down from 630,000 last year.
Bearing the brunt
Buick will bear the brunt of that downturn. But the automaker plans to cut production of the Century and Regal this year when it launches production of the new Pontiac Grand Prix.
Buick does not expect to find enough retail customers to make up for the loss, says Buick spokesman Pete Ternes. "You will see lower sales numbers for Buick," Ternes says.
Another factor behind GM's total is Oldsmobile, where fleet sales accounted for 55.1 percent of volume. That figure is understandable, given the division's phase out.
Despite Buick's realism - and McVeigh's assurances - it is unclear whether the Big 3 can resist the rental fleets for long.
A key test of fiscal rectitude will be the auto industry's resistance to the sale of program cars. Automakers sell these vehicles to the rental fleets, then repurchase them after six to nine months of use.
Because automakers must repurchase them, program cars can be money losers. In 1991, 95 percent of all vehicles sold to the rental fleets were program cars. Last year, only 60 percent of all rental vehicles were program cars, according to Auto Rental News, a trade publication in Torrance, Calif.
As the market softens, will automakers revive that gimmick? Keep an eye on the daily rental fleets' turnover rate. Normally, the rental companies unload their vehicle fleets approximately twice a year. If they start recycling their fleets three times a year - watch out.
It is too early to tell whether automakers will pack vehicles into the rental fleets on a wide scale. But it's clear they will be tempted. As retail incentives lose their appeal, automakers may have few alternatives, says industry analyst Susan Jacobs.
"I think they are desperate," says Jacobs, who is the principal of Jacobs & Associates, a consulting firm in Rutherford, N.J. "The Big 3 are trying to produce as close to capacity as they can."
You can e-mail Arlena Sawyers at [email protected]