Lincoln dials back fleet business

NEW YORK — Lincoln has quietly curtailed its fleet business this year to protect residual values and follow through on Ford Motor Co. CEO Jim Hackett's orders to improve the company's operational fitness, according to executives.

The luxury brand, whose Town Car and Continental have long been associated with airport and hotel livery services, will continue selling to those commercial businesses, Robert Parker, Lincoln's director of marketing, sales and service, told Automotive News. But the brand has cut deliveries to daily rental companies such as Hertz and Avis and has dialed back on providing company cars, both internally and to other businesses, as part of its commercial fleet sales, Parker said.

"Those are very deliberate efforts to really focus on residual values as our new products come out," Parker said on the sidelines of the New York auto show. "What happens is those cars come back in six to 12 months. That's problematic on our residual values because that's when all the depreciation occurs. The longer they stay out, the better."

Lincoln's daily rental sales are down 27 percent through the first quarter, according to Ford data.

Last year, daily rental represented 9 percent of the company's overall sales. The brand's commercial fleet business represented 2 percent of sales, while sales to government agencies is virtually nonexistent.

"Fleet hasn't been a huge part of our business," Parker said. "But it's not insignificant."

The move to protect the brand's residual values is all the more important as officials see a rise in leasing rates as millennials opt for monthly payments over outright purchases, Parker said.

The fleet cutback, expected to pay off in the long term, has caused short-term pain.

Lincoln sales fell 2.1 percent in March and are down 17 percent through the first three months of the year, compared with a 2.9 percent rise for the overall luxury segment, according to the Automotive News Data Center. That's in spite of strong demand for the redesigned Navigator SUV.

But Parker argues that the underlying numbers are healthy.

Per-vehicle incentive spending in the first quarter declined $280 from the same period a year ago for Lincoln but rose about $790 for the overall luxury segment, Ford said.

Lincoln's average transaction price was up $6,200 in the first quarter, compared with a $460 rise for the luxury segment, according to Ford.

And more help should be on the way. The freshened MKX crossover, renamed the Nautilus, goes on sale this spring, followed by a freshened MKC crossover. The three-row Aviator will follow in 2019.

And Navigators continue to sell nearly as fast as the company can build them. Retail sales in March grew an eye-popping 101.6 percent from a year earlier to 1,711, and 80 percent of sales were of the top two most expensive trim levels. Transaction prices rose $25,600 from the same period a year ago, Ford said.

Beyond the U.S., Lincoln chief Joy Falotico said the brand is poised for its fourth consecutive year of growth in China, which should help its quest to reach 300,000 global sales by the end of the decade.

"The industry got off to a slow start, but we have a lot of new vehicles coming," Falotico told Automotive News. "It's really important for us to work on residual values. As we build up the brand, we're going to bring up the brand values with it."