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Fleet sales buoy Big 3 comeback

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Fleet sales buoy Big 3 comeback

Mixed blessing for automakers can hurt profits, resale values

Christina Rogers / The Detroit News

Fleet sales made a comeback this year for Detroit's Big Three, but it's not a trend the automakers are trumpeting.

As the industry continues this year's slow retail recovery from last year's dive, fleet sales have rebounded more strongly, helping bolster overall sales numbers for automakers, especially in the first half of 2010.

Car rental companies, businesses and government agencies have helped drive the uptick in fleet sales, as they look to replace aging motor pools after postponing purchases last year due to the recession.

"As we started the year, we started to see some replenishment of those fleets," said Jeff Schuster, executive director of automotive forecasting at J.D. Power and Associates.

Even so, the stepped-up buying of fleet vehicles has tapered off since summer. And that's actually good news for automakers that have struggled for years to keep fleet sales in check.

Fleet buyers serve an important purpose: They offer automakers steady volume business. But too many fleet sales can cut into profits and damage resale values by glutting the market with used vehicles.

An overabundance of rental car sales, too, can tarnish a brand's image, indicating a model isn't selling well in dealer showrooms, analysts say.

"They're really trying to turn the page, of course," said Jessica Caldwell, senior analyst at Edmunds.com. "But it's really hard in an economy that's down not to use fleet as a sales booster."

Fleet sales accounted for about 32 percent of total sales generated last month by the domestic automakers — still up sharply from last year, but down from May, this year's best month, according to data provided by Edmunds.com.

Early forecasts expect them to have tailed off further when October sales figures are released Nov. 3.

J.D. Power and Associates, for instance, expects fleet sales to hit a year low in October, representing about an 18 percent share of all light-vehicle sales industrywide.

Balancing fleet sales

James Bell, an analyst with Kelley Blue Book, said that's partly because American automakers are doing a better job of managing this segment of their business.

In the past, they would often turn to rental car sales to pad lackluster sales figures and unload overbuilt models they were unable to move off dealer lots, Bell said. But now, they're much better at matching production to demand, he added.

"Fleet business is a good thing to have in balance," Bell said.

Already, better management is helping boost resale values of certain domestic vehicles. For instance, each year Kelley Blue Book gives awards for vehicles that command the highest resale values.

In previous years, foreign automakers dominated, but several American models are nearing the top of the list, Bell said.

"I do give them credit for exercising restraint," he said.

Fleet sales for General Motors Co. account for 30 percent of the automaker's total sales for the year, up from 24 percent from 2009.

GM hopes to finish the year with a fleet sales mix of about 25 percent of its total business. It's working to match production with retail buyer demand, to avoid relying on rental car companies to pick up the excess.

"In the old GM, we weren't as disciplined as we are today," said Brian Small, general manager for the automaker's fleet and commercial operations. Now, the company limits the number of models sold to rental car fleets, so they don't become heavy with one brand or type of vehicle, Small said.

Ford monitors rental sales

Ford Motor Co. officials expect its year-end fleet mix to settle at about 30 percent of total sales, which is on the higher end of the industry.

But Ford sales analyst George Pipas is quick to note the majority of its fleet buyers are businesses and government agencies — not rental car operators.

The Dearborn-based automaker has been aggressive in reducing its reliance on rental company sales, which today account for about 43 percent of all fleet sales.

The rest of the industry is closer to 66 percent, Pipas said.

Ford monitors the cars it sells to individual rental car companies, to make sure not too many of the same model collect in their fleets — a move that helps preserve resale values, he added.

If managed correctly, Pipas said, rental car sales can help expose new customers to vehicles.

Chrysler LLC declined to comment on its fleet sales. The automaker, however, has repeatedly said that fleet sales were strong earlier in the year, but it expects to end the year at 25 percent of total sales.

Its lack of new models has hobbled Chrysler's retail sales, so it has relied heavily on fleet sales to rental companies and other businesses. Auburn Hills-based Chrysler has many new or substantially updated vehicles on the way.

Some automakers are trying to capitalize on the upside of rental car sales.

GM, for example, has begun adding new products, such as the redesigned Buick LaCrosse, to its lineup of cars sold to rental companies. The idea is to give customers a chance to try out their new vehicles, Small said.

The automaker also is bulking up its rental vehicles with added features, such as DVD players and satellite radio, to make a better first impression on drivers and help increase the car's value at resale.

"No longer are there plastic mats and crank windows in our cars," Small said. "They now very closely mirror the vehicles in dealer showrooms."

From The Detroit News: http://www.detnews.com/article/20101025/AUTO01/10250338/1148/auto01/Fleet-sales-buoy-Big-3-comeback#ixzz13NtzwW1p

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