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GM to cut fleet sales to boost profit

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Nov. 30 (Bloomberg) -- General Motors Corp. will cut lower- profit sales to rental agencies and companies over the next two years while it attempts to lure more consumers with new models and lower sticker prices.

``GM went through a very weak patch of new products the last few years,'' Paul Ballew, executive director of global market and industry analysis for Detroit-based GM, said in an interview last week. ``Now we're going through the meat of our product launches and we hope to be able to grow our retail side.''

About one-fourth of GM's U.S. cars and trucks were bound for fleets maintained by companies, governments and rental agencies this year through October. GM, the world's biggest automaker, wants to pare those transactions, which are less profitable than sales to consumers, to about 20 percent of the total by 2007, Ballew said.

The shift is part of Chief Executive Rick Wagoner's effort to stem North American auto losses that have totaled $4.8 billion this year. The automaker's U.S. market share fell to 26.2 percent through October from 27.5 percent in the same period last year, while the company's U.S. sales declined 3.5 percent. At the same time, rivals such as Toyota Motor Corp. have boosted U.S. sales and market share.

`Disparity'

The average fleet transaction price is about $15,000, said Rod Lache, an analyst with Deutsche Bank Securities Inc. in New York. That compares with an average price of $18,861 that GM charged for all wholesale transactions, including fleet sales and sales to dealerships, in the first nine months of 2005, Lache said.

Lache said GM's dependence on fleet sales is ``the largest source of the revenue disparity'' between the automaker and its rivals. Toyota's average wholesale price was $23,769 so far this year. The Toyota City, Japan-based automaker's U.S. fleet sales averaged 6.8 percent of total sales this year through yesterday, said spokesman Bill Kwong.

GM shares fell 70 cents, or 3 percent, to $22.30 at 1:45 p.m. in New York Stock Exchange composite trading. The stock is down 44 percent this year.

Ballew said GM's desire to cut fleet sales is partly why capacity reductions announced Nov. 21 included cutting a third work shift at its Oshawa, Ontario, car plant. That plant makes Chevrolet Impala sedans, the majority of which were sold to fleets until it was redesigned for the 2006 model year. Ballew said Impala fleet sales have since fallen to below 30 percent of its total sales.

Focus on Profit

Rob Hinchliffe, an analyst with UBS Securities in New York, said cutting fleet sales -- with the potential loss of sales volumes and market share -- may show GM is more focused now on profitability per vehicle rather than being the market share leader.

While a reduction in fleet sales is ``key to GM's North American strategy,'' the automaker will need to find a way to bolster demand among consumers to offset the decline, said Goldman, Sachs & Co. analyst Robert Barry.

``If they want to do less fleet volume, they have to make it up in retail volume and how are they going to do that?'' said Barry, who is based in New York. ``They can do it but they will have to cut price.''

GM's is expected to announce tomorrow that U.S. sales fell by more than 10 percent in November, according to a Bloomberg survey of analysts and economists. Analysts say GM's sales, while down from a year ago, will improve from last month's 26 percent decline.

Prices

Wagoner said this month that the company may lower prices to sell more of its profitable large sport-utility vehicles. GM's North American profits have declined with sales of the vehicles. Sales of its top-selling SUV, the Chevrolet Tahoe, fell 51 percent in October.

Wagoner said Nov. 21 that GM can retain its share of the U.S. SUV market when it introduces the next generation of the vehicles next year.

``As we get out the new products, we must get them priced at the right price, even if it means leaving some profit on the table,'' Wagoner said.

GM is already selling its biggest SUVs with large discounts. Its year-end clearance running through Jan. 2 cuts the price of a two-wheel drive Chevrolet Suburban by 20 percent to $31,724.


http://www.bloomberg.com/apps/news?pid=100...=top_world_news
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How about cutting incentives to boost profit. Resort to value pricing, as it should be, with real discounts, advertise it as such, and then boom better resale values, better sales, more people interested in the new friendly GM.
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This goal has been highlighted in articles discussing Buick's 2005 sales.

For the year Buick sales are down, but retail sales are up. Therefore the decrease in overall sales is due to the decrease in fleet sales. This is better for Buick's bottom line/profit & also for image.
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To be honest, I think it would be good if GM kept fleet sales about the same. Sure, it's not great for profit and maybe it's not always good for GM's image, but if GM starts making exceptional vehicles, then the rental fleets are a great way to get a Toyota or Honda driver that would never even think about a GM into a GM and change their opinion. Right now though, it's probably best to cut fleet sales until those better vehicles come, and let consumers' opinions of Ford and Chrysler sink.
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Gwtting rid of fleet sales is a double-edged sword. It helps out resale value, but on the other hand it's a form of advertising to tourists. A rental is essentially a no-commitment test drive that you have to pay for. I know quite a few people who have rented Impalas on vacation and were so impressed by the car that they either bought one or were waiting for their finainces to work out so that they could buy one.
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Unfortunately most people I know, their idea of GM is the 2000+ Impala base, 1998 Grand Am, Buick Century or Chevy Cavalier thanks to rental fleets. One of my employees had a Sunfire rental just 3 weeks ago, ughhhh.
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The old fleets are going. Not sure for the States, but I've seen tons of '06 rentals already. Spotted an '06 Malibu LT, and '06 G6 GT, both rentals.
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Unfortunately most people I know, their idea of GM is the 2000+ Impala base, 1998 Grand Am, Buick Century or Chevy Cavalier thanks to rental fleets.  One of my employees had a Sunfire rental just 3 weeks ago, ughhhh.

[post="50972"]<{POST_SNAPBACK}>[/post]

good point.

GM should forgo fleet sales except for the vehicles that are stellar, since rental customers are usually conquest targets. Shouldn't have them driving anything but the best GM has to offer.
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Chevrolet Impala sedans, the majority of which were sold to fleets until it was redesigned for the 2006 model year.


I beg to differ.... I find it VERY hard to believe that roughly 100,000 or 140,000 Impalas a year go into fleet use. ESPECIALLY since Ford has the law enforcement market secured and Nissan seems to have found as much favor with rental agencies.

Rob Hinchliffe, an analyst with UBS Securities in New York, said cutting fleet sales -- with the potential loss of sales volumes and market share -- may show GM is more focused now on profitability per vehicle rather than being the market share leader.


And that scares me....

If GM has to sacrifice market share to stay alive, then so be it. But I hope they're not just sacrificing presence to appease Wall Street.

``If they want to do less fleet volume, they have to make it up in retail volume and how are they going to do that?'' said Barry, who is based in New York. ``They can do it but they will have to cut price.''


Isn't that a little counter intuitive??? If the average retail price is just north of $18K and the average fleet sale is $15K, yet GM has to cut prices to get more retail sales, thus lowering the average retail price; then why bother in the first place? Does this man not believe that GM's new vehicles will sell on merit as well? Sure, they won't have the initial respect that Toyota gets (How deserved or UNDESERVED that may be) but I don't think hatcheting prices is the single answer.

Sales of its top-selling SUV, the Chevrolet Tahoe, fell 51 percent in October.


A very scary and sobering figure. Good thing we have that anti-SUV campaign in America! But, let's not kid ourselves. We all knew that the rising gas prices and payback from summer wouldn't be good for sales. Especially sales of out of style aging SUVs.

I think the truck side is MOST of Detroits sales probelms now. They're not selling enough trucks and their not even on most consumers car shopping lists.
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I'll believe this when I see it.

GM's fleet sales went up by over 20% in October, and even with that in mind, their overall sales still experienced a significant drop. That means GM's retail sales in October dropped by a very large amount, and fleet sales were increased it seems to somewhat bolster overall sales. Edited by gmrebirth
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What happened to the Malibu Classic? I thought that was a brilliant idea! Here's my thought: Why not just build a car off the W-Body specifically for the fleets? It wouldn't share a name with any other W-Bodies (it could be called something like the "Fleet Special"), but it could share practically every single part with other W-Bodies or other GM cars (for example, the engine could be the 3.4L. V6 & 5-Speed Auto. combo from the Equinox). It would be extremely cheap to build, would eat up some of the capacity at Oshawa, and it wouldn't affect the resale or anything on other GM models. ...Your thoughts?
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I can see the reasoning behind that, Petra, I'm liking it. Just don't make the car too bad or cheap because that would cause major problems. "GM makes that piece of crap, I'm not buying from them."
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Here's my thought: Why not just build a car off the W-Body specifically for the fleets?
<snip>

...Your thoughts?

[post="51237"]<{POST_SNAPBACK}>[/post]


Hey they could call it the Oldsmobile!
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I dunno if I agree with Petra's idea. I'd rather put cars that people can actually buy in fleets as long as their good vehicles and can change consumers' minds about GM.
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I dunno if I agree with Petra's idea. I'd rather put cars that people can actually buy in fleets as long as their good vehicles and can change consumers' minds about GM.

[post="51387"]<{POST_SNAPBACK}>[/post]

i agree
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i still don't get why folks get upset with fleet cars. if the car is good, it doesn't matter if its in fleets or not, if anything more folks get exposed to it and if its good it helps. my wife and i rented a car in 98 in CA and liked it enough that i bought one a couple years later.
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I find it funny that rental agencies said they're considering imports more and because of their higher resale value yet fail to acknowledge that they are one of the root causes of craptacular resale value among cars.

Its like the grim reaper wondering why people don't want to play tag with him.
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Also I find it very hard to believe that Toyota's fleet sales are just 8%. It should be closer to 18%.

[post="51691"]<{POST_SNAPBACK}>[/post]


I have a feeling the disparity comes from GM's commercial truck/van sales. That's a large part of GM's fleeting where Toyota is almost nonexistent. Most of Toyota's fleeting seems to reside in sedan rentals where GM is strong also.
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Also I find it very hard to believe that Toyota's fleet sales are just 8%. It should be closer to 18%.

[post="51691"]<{POST_SNAPBACK}>[/post]



Well, you know how Toyota works... I'm sure they've devised a clever, yet justifiable way to play the numbers and snow the media. Just like when they combine Corolla and Matrix sales or Toyota and Scion sales :rolleyes:

I have a feeling the disparity comes from GM's commercial truck/van sales. That's a large part of GM's fleeting where Toyota is almost nonexistent. Most of Toyota's fleeting seems to reside in sedan rentals where GM is strong also.


Yet this strength is played against GM on "the street"
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I can see the reasoning behind that, Petra, I'm liking it.  Just don't make the car too bad or cheap because that would cause major problems.  "GM makes that piece of crap, I'm not buying from them."

[post="51315"]<{POST_SNAPBACK}>[/post]


Ditto. When the Cobalt first came out, I had the idea to keep the Cavalier around for fleets to keep the Cobalt from being the rental fleet favourite and drive down resale values. But then a deeper thought it'll just do more damage to GM's image in general, and doesn't help the Cobalt's resale value too much.
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Well, you know how Toyota works... I'm sure they've devised a clever, yet justifiable way to play the numbers and snow the media. Just like when they combine Corolla and Matrix sales or Toyota and Scion sales :rolleyes:
Yet this strength is played against GM on "the street"

[post="51741"]<{POST_SNAPBACK}>[/post]


Actually Toyota should righlty add Vibe sales to Matrix and Corolla sales. Getting back to the topic of fleet sales - If GM cuts back, and Ford and Chrysler already have -- then what the hell do people drive when they go out of town on bussiness or pleasure. What do employers buy for employees who drive for work? It would seem to me that GM should try to raise the sale price of these cars slightly rather than decrease sales.
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