Kelley Blue Book senior analyst Alec Gutierrez said the fleet process leveraged by automakers “has really matured considerably” during the last three to five years.
That development is all the more important since so many new vehicles are leaving franchised dealership lots as leased units nowadays.
During a conference call on Tuesday, Gutierrez acknowledged, “There is healthy fleet and there is unhealthy fleet. Either way you look at it, the higher your fleet penetration there is an expectation that you could see a detrimental impact to your brand’s residuals, which in turn can influence your ability to lease in the future. And we know that leasing has become so important today.
“It impacts your ability to really move metal,” he added.
Many OEMs don’t disclose specifics in terms of exactly how many units land in fleets when they highlight their monthly sales totals. One company that does is General Motors, which reported that 20 percent of its January new-vehicles sales were in the fleet space, down from what it called its “historical” range of 22 percent to 24 percent.
In a separate analysis sent to the media, Kelley Blue Book senior analyst Karl Brauer noted, “While General Motors’ overall sales were flat last month, it made big strides in retail volume, delivering a much higher level of overall profit compared to last January.
“GM has been focused on reducing fleet sales and capturing retail share in recent months, and the trend continued in January,” Brauer continued. “If General Motors can maintain, or even grow, its total volume while depending less on fleet, the bottom line numbers will substantially improve. Mary Barra and the executive team appear committed to not chasing volume numbers, preferring overall profit as the benchmark of corporate health.”
On Tuesday, Gutierrez was asked to compare GM’s fleet strategy to what’s being implemented by its domestic counterparts at Ford and Fiat Chrysler Automobiles.
“I think what we’ve seen in recent years is that while GM is doing a great job of managing their fleet mix,” he said, “Ford is a little more comfortable keeping it higher. And I think to a certain extent FCA has had to maintain higher fleet sales than the other two.”
Autotrader senior analyst Michelle Krebs, who also participated in Tuesday’s call, made a point about the fleet activities of two Asian OEMs in light of the rising popularity in SUVs and the softening sales of compacts and other sedans.
“We saw that Kia and Hyundai get more active in fleets, too,” Krebs said. “You see that happening with brands that are heavier in cars and they need a place for them to go.”
No matter whether foreign or domestic, these analysts aren’t seeing automakers revert back to perhaps the unwise strategies of the past where OEMs eventually dumped their excess manufacturing capacity and inventory into the fleet space.
“I think all manufacturers in general have done a pretty good job of ensuring those vehicles that go into fleet represent their product in the way that they want,” Gutierrez said. “What I mean by that is they’re not putting cars with vinyl seats and roll-up windows into rental fleets; which ultimately when those come back into the lanes at the auction and we start to analyze them, we see that as relatively detrimental impact to the overall value of that product line as a whole.
“It’s important to manage that mix,” he continued. “More importantly whatever that mix you decide is — if it’s 20 percent fleet, if it’s 40 percent fleet — you better make sure those vehicles you’re putting out there are going to positively impact those products in the marketplace and not negatively impact the perception.”
Gutierrez went on to mention that automakers are able to manage the perception challenges because the volume of data and the quality of that information have both improved significantly, too. He explained OEMs watch shopper activity, eventually sending vehicles into fleets that are similar to what might already be in franchised dealer inventory.
“There’s a focus on contenting those vehicles right so when they come back into the marketplace there’s going to consumers out there who don’t necessarily look at them in a detrimental way,” Gutierrez said.
“With all this access to data, they have more options at their fingertips to be able to unload that fleet inventory as it comes back so you’re not overloading the market as a whole,” he added.
Furthermore, Gutierrez pointed out that wholesale channels are much more advanced now to handle fleet disposal. For example, a large amount of convertibles or hybrids don’t sit idle at the auction; rather they flow into the lanes in places such as California where dealer — and eventual consumer — demand likely resides.
“(Automakers have) been able to not necessarily drastically change their fleet mix. You’re still talking 20 to 30 percent fleet mix for some of the domestics,” Gutierrez said. “But even with that target mix, they’ve been able to protect their residuals through various strategies.”