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Analysts: Fleet sales mask low demand

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Analysts: Fleet sales mask low demand

Car purchases likely up from last June but down since May

Robert Snell / The Detroit News

Fleet sales are expected to once again prop up June car and truck sales when figures are released Thursday, masking weak demand among retail customers.

Industry analysts believe June sales will outpace June 2009 as businesses and governments replenish their aging motor pools after delaying purchases amid the recession.

But overall sales are expected to fall from May, due to a volatile financial market and wary consumers.

Jeff Schuster, executive director of global forecasting at J.D. Power and Associates, predicts this month's sales will total 971,000 cars and light trucks, up 13 percent from a dismal year-ago pace. That was the month that General Motors Corp. filed bankruptcy, and the auto industry was struggling with historically low sales.

"With the recovery not progressing as expected, it's gut-check time for the automotive industry," he said.

Schuster forecasts June's selling pace dipped to 10.9 million vehicles on an annualized basis, down from 11.5 million in May but up from 9.7 million a year ago.

Pricing firm TrueCar.com expects the seasonally adjusted annualized rate (SAAR) of sales will total 11.1 million vehicles. TrueCar.com forecasts June sales at 985,266, up 14.8 percent from a year earlier but down 10.5 percent from May. Edmunds.com, meanwhile, forecasts an 11.2 million SAAR and a 16.6 percent increase in June sales.

The boost from moribund 2009 levels is largely attributed to fleet orders by rental car companies, but that demand is expected to ebb later this year, putting increased importance on a resurgence in consumer demand.

Yet all automakers are better-positioned this year to benefit from a slow recovery in retail orders after cutting costs last year and, in the cases of GM and Chrysler Group LLC, receiving tens of billions in federal aid, according to a new report from Standard and Poor's.

Fleet sales are serving an important purpose for GM, in particular, which is loading rental cars with more options like DVD players and navigation systems, which are helping fetch higher prices and boosting resale values.

Detroit's Big Three automakers, in particular, have learned not to inflate market share numbers by flooding rental markets with poorly equipped vehicles that leave a bad impression on renters and depress resale values, said autos analyst Joe Phillippi of AutoTrends Consulting in Short Hills, N.J.

"They recognize the advertising, brand and reputational value in putting products out in front of a whole lot of potential customers every day," he said.

GM's four core brands sold 83,305 fleet vehicles in May, a 44 percent spike from a year earlier. Fleet sales of Chevrolet, Buick, GMC and Cadillac are up 64 percent this year, largely driven by higher rental sales. Fleet sales represented about 38 percent of GM's total sales in May, but the Detroit automaker expects that percentage to drop to about 25 percent by the end of the year.

Ford Motor Co.'s fleet sales rose 32 percent last month, a spike largely tied to increased sales of trucks to commercial customers.

Improvement in the used-car market this year is allowing companies to offload older vehicles they kept on in leaner times.

Verizon has ordered 576 Chevrolet Silverado Hybrids, part of a broader move to add 1,600 alternative-energy vehicles this year.

Verizon's fleet has shrunk from about 60,000 vehicles five years ago to about 50,000 today. The smaller motor pool will be more fuel-efficient, however, as Verizon this summer is ordering hybrids from GM and 501 Ford E-250 cargo vans that run on compressed natural gas.

Verizon timed the purchase to meet stricter fuel-efficiency standards, said Ken McKenney, Verizon's engineering lead who works in fleet sustainability.

"We're not broke, we know we're in this for the long haul, but we also realize we can't just stop buying fleet vehicles and letting them age," he said.

The fleet orders indicate the economy is improving, said Brian Small, GM's general manager of fleet and commercial operations.

"They're obviously starting to land new contracts and deals, and that enables them to make purchases," he said.

From The Detroit News: http://www.detnews.com/article/20100630/AUTO01/6300324/1148/Analysts--Fleet-sales-mask-low-demand#ixzz0sLVSlXWb

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