2 factors changing landscape of fleet sales

CARY, N.C. - 

Dumping sedans into fleet sales is certainly a path-of-least-resistance option leveraged by automakers in the past, but experienced used-car market observers understand the severe damage that strategy can do.

However, in light of technology advances and consumer preferences — not only in the United States but also globally — pulling the fleet lever doesn’t quite have the keep-the-metal moving impact that automakers experienced, especially when it comes to those sedans.

Cox Automotive senior economist Charlie Chesbrough and Autotrader executive analyst Michelle Krebs explained why during a conference call earlier this month.

“Consumers are clearly indicating that they love crossovers, and they can’t get enough of them,” Chesbrough said.

“We don’t see an end to this shift,” said Krebs, who later added, “There has to be a lot of contemplation going on in product planning meetings about how many car models and how much car production capacity each automaker has versus their utility lines and those capacities. I’m sure those discussions are going on.”

Perhaps those discussions are happening particularly within the meeting spaces in Michigan where domestic automakers have a noticeable presence in fleet sales. Here’s a quick rundown of what the Big 3 reported in the fleet department for January:

— Ford: Fleet sales of 45,956 vehicles were down 12.0 percent due primarily to a planned change in delivery timing of daily rental sales.

— General Motors: The automaker indicated 23.8 percent of January sales went into the fleet segment, representing a 2.9-percent lift year-over-year.

— Fiat-Chrysler: The OEM reported fleet activity accounted for 16 percent of total January sales.

The reported metric from Chrysler struck Chesbrough, who said, “That’s a fairly healthy range to be in, if you had to pick a number for fleet.

“Early indications are that there may be some agreements between the OEMs on who they’re supplying. Whether this trend carries through the rest of the year, we don’t know. Fleet was a big story last year. Cutting back in fleet by a couple hundred thousand units basically took us back from being close to another record sales level to seeing sales come in a little bit below,” he continued.

“So if fleet is weak again, it does suggest the market is going to have a hard time hitting even the high 16 million that most forecasters have right now,” Chesbrough went on to say.

And when even fleet sales are soft for a particular new model, Chesbrough explained that automakers now have limited options to retail those units beyond the United States, previously a viable choice.

“As much as we see here in the United States this shift away from cars and more toward this crossovers, this is a global phenomenon,” he said.

“This is happening in every major market around the world. Consumers love the crossover vehicles. They’re not that interested in cars anymore,” Chesbrough said.

“It makes the strategy for all OEMs to say, ‘How much do we invest in these cars?’ They have a lower margin. Before you could always say, ‘Well after we satisfy demand here we can ship it somewhere else and that will be the play.’ But because there is not a lot of demand for these vehicles anywhere, that’s not a viable option,” Chesbrough added.

Perhaps the advancements automakers have made to enrich profitable CUVs are coming at the cost of the value proposition sedan could offer.

“Another factor is we’ve made such advancements in fuel technology for these bigger vehicles. It was always the case that higher gas prices or the threat of higher gasoline prices always brought buyers back home to cars. They had a lower operating cost,” Chesbrough said.

“But now there’s not that big difference in fuel economy. There’s really no savings to be had but getting into the car version of a platform over the CUV version. I think it’s going to be a tough road to hoe for cars. I don’t see them coming back anytime soon even if gas prices spike, I see them coming back only a little bit,” he went on to say.

Krebs shared an example of a specific vehicle that’s often turned first in the fleet segment and then being impacted by the appeal of utilities. She added how the matter is compounded with an off-lease surge of popular models.

“With the (Chevrolet) Cruze, that’s a car that has significant fleet sales. When GM cuts back on fleet, it’s going to hit vehicles like the Cruze,” Krebs said.

“There’s are going to be a lot of off-lease utility vehicles coming back into the market so someone might be thinking about a brand new Cruze because that what’s they can afford — and I’m not picking on the Cruze — but they really want a sport utility. And now they’ve got more choices with more 3-year-old utilities in the market,” she went on to say.

Also during the call, Krebs interjected to a consumer-facing media participant about why avoiding fleet-heavy sales — in the United States or anywhere — is prudent no matter what vehicle segment is popular.

“Part of the strategy of some of the automakers to move away from fleet so they can keep their resale values up. It’s not a total negative across the board,” she said.

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