GM sacrifices rental sales to nab higher-margin business

DETROIT -- For a long time, General Motors relied on rental sales to make its monthly totals look better. Now, it has a new problem: how to convince market watchers to pay more attention to its retail sales -- deliveries to individual customers -- than those monthly totals.

That's because GM is in the midst of a big cutback in sales to rental fleets, an effort executives say is aimed at improving the bottom line, even if it stunts revenue or market-share growth in the short term.

GM already was keeping a tighter lid on rental sales following its 2009 bankruptcy. But it has been making deeper cuts lately, reducing rentals by 11 percent last year, or nearly 50,000 vehicles. In January alone, its rental sales sank by 13,000 vehicles vs. a year earlier.

The company's rationale is that rental sales are low-margin and tend to harm residual values and brand image. The Chevy Impala, for instance, is still regarded by many consumers as the quintessential rental car, even after a 2013 redesign that drew raves from Consumer Reports and others.

With GM's manufacturing capacity much tighter than it has been in the past, the company wants to tilt its production toward more-profitable business, CFO Chuck Stevens said last week.

"We're not going to chase share for share's sake. We want to see profitable growth," Stevens told reporters while discussing GM's fourth-quarter earnings report. The rental business "is not an overly profitable segment."

GM said last week that it expects the rental cutback to reduce its overall fleet business -- which also includes sales to businesses and government customers -- to about 20 percent of its total sales in 2016, down from 22 to 24 percent in recent years.

That means GM must manage the message every month on sales reporting day, when the headlines blare each automaker's overall percentage growth for that period.

Last year, for example, the reduction in rental sales trimmed Chevrolet's market share to 12.2 percent, from 12.3 percent. But Chevy's retail market share rose 0.4 percentage point, the biggest move among mainstream brands, GM said.

The company began topping its monthly press releases by touting Chevy's streak of retail market-share gains -- 10 straight as of January.

Stevens told Bloomberg TV last week that GM wants to "reallocate" that rental volume "to more profitable channels," such as retail sales or the other fleet segments, such as commercial, which includes vans, pickups and other vehicles sold to small businesses and big corporate users.

January marked the 27th straight month of growth for GM's commercial sales. Overall fleet sales fell 23 percent, while retail sales grew 8.9 percent.