Vol. 2 No. 11

The Growing Thunder of Small Fleet, Now 52% of the Fleet Business

In the February 3 entry, I did my best to define the composition of the total automotive fleet market, in aggregate, with the Commercial Fleet, Government Fleet, and Daily Rental Fleet components and their relative percentage of the total US fleet market. Now, I think I’ll drill down into the Commercial Fleet sector of the market, as my earlier definition of “non-fleet” might have been a bit confusing.

First, if you take a look at the “Census of the U.S. Commercial Fleet & ‘Non-Fleet’ Market” Pyramid displayed by the Bobit Business Media folks…you’ll see that the top four layers of the pyramid represent the Commercial vehicle market defined as Fleet – companies who have at least 15 or more vehicles in operation. They represent some of the large and mid-sized companies that own or lease vehicles in their corporate name and run between 15 and 20,000+ vehicles at any one time. You would expect these to be large companies and the aggregate of their vehicles to amount to millions of units.

It’s the smaller companies, represented by the foundation level of the pyramid that I want to focus on in this entry, those companies who have 5-14 registered commercial vehicles in their fleet. You might not suspect that they would amount to even more millions of vehicles than the combined companies represented in the top levels of the pyramid. Prepare to be surprised. The truth is “fleet,” by definition refers to those vehicles owned or operated by the 17,392 companies in the US that run at least 15 or more vehicles, a sector that amounts to 3,213,000 cars, light trucks, minivans and SUV’s. Non-fleet, on the other hand, are commercial vehicles owned and operated by the 433,000 companies in the States that have 14 or fewer company vehicles, but these add up to more than 3,420,000 total units in operation today. So you can see that the pools of fleet and non-fleet are roughly similar in quantity.

The Small Fleet Paradox
The irony is that virtually all of the personal attention and financial incentives from manufacturers, national vendors and others in the market have historically concentrated on only the “fleet” operators, particularly the 5,000 or so companies that have run at least 100 vehicles or more. The small fleet operators, then, the vast majority of US companies that operate a dozen vehicles or less, have received no special attention or privileges at all. Despite the fact that in many cases these companies buy multiple vehicles a year, they had been treated at local car dealerships with no more attention than your average consumer who comes in once every three or four years – and worse sometimes at the luxury brand and import stores.

Not that the manufacturers don’t want to focus attention in this area, especially after an industry study established that the “non-fleet” small company commercial buyers were more loyal to a brand than either large fleet buyers or average consumers. What’s more, the profit margins for both manufacturers and dealers on the non-fleet sales were much closer to retail consumer (one-at-a-time) sales. With this awareness, the problem became one of identification and reach. The small fleets were run by small local companies – the neighborhood dry cleaner, landscape company, travel agent, etc. - literally tens of thousands of small companies in every major market area, not easily reached through trade associations that the companies operating large fleets would join, such as NAFA, AFLA, etc., and almost impossible to reach without a local presence. To make matters worse, there was not usually anyone designated to fleet responsibilities; the person in charge of the “fleet” would also be the president, treasurer, office manger, etc.

Led by Ford Motor Company in the early 1990’s, manufacturers began to focus on the “non-fleet” business by educating their franchise dealers to reach out to small businesses for their commercial vehicle fleet business – it was local businesses reaching out and marketing to local businesses. Ford created a program called Mainstreet, which included a comprehensive three-day training program to educate franchise dealers on how to set up a commercial fleet department, a business within a business, to satisfy the transportation needs of small companies. Enthusiastic about this opportunity, having tapped into it myself as a dealer, I had a hand as a consultant, in developing the Mainstreet program into the current “Business Preferred” program for Ford, and piloted a similar program for General Motors, called Business Vehicle Services. To this day there is tremendous untapped opportunity in selling vehicles to small companies, and dealers who are willing to set up a “business within a business” to concentrate on it have been amply rewarded, as it has been proven that these small businesses value service over anything else, buy multiple units a year, and don’t have the time or inclination to shop price over everything (the way some consumers do).

The “Achilles Heel” of the Retail Car Business: Turnover
To this day too few dealers have been able to tap into this gold mine, and the reason to me is obvious: establishing and growing a client base of small commercial accounts requires sustained effort and a level of consistency in sales focus. In an industry where the average turnover in salespeople is over 51% a year (that was the average turnover last year), this is very difficult to nurture. That’s right folks, while it may or may not be common knowledge, the bane of the retail car business is the transient nature of the sales employee base – it’s one of the few businesses I know of in which a turnover rate of even 30% a year is considered good. Even the service end of business suffers this turnover malady, last year averaging 43%. It’s why follow-up at the salesperson level is difficult for retail customers, and why most stores are almost forced to neglect this opportunity.

Next entry, out of the non-fleet opportunity a whole other sector of commercial vendors grows…the NVLA…

Technorati Tags: Driveitaway, upstream remarketing, fleet sales, fleet manager, John Possumato, NAFA, AFLA, Business Vehicle Services

Vol. 2 No. 10

A Friendly Outpost in the Big Apple…or What Beach Reading Can Lead To ….

I’d like to tell you my career path was all thought out, based on calculated reason and business case study, but the fact is, I stumbled into the wild world of the commercial fleet business one day when I was a car dealer. To this day, I don’t know why some 20 or so years ago, during mid-summer I received in the mail a copy of Automotive Fleet magazine. I do know I set it down on a desk and didn’t pick it up until a month or so later, on the beach, when I grabbed for the pile of trade magazines I’d brought, and read my first issue cover to cover. That started it for me. I’ve been hooked ever since in one way or another.

Now, in that issue was a notice that the Automotive Fleet and Leasing Association (AFLA) was going to have its fall meeting in, of all places, Philadelphia. I knew nothing about the organization at the time, but the name sounded interesting, and as it was in my hometown and I was an enterprising young car dealer looking for some free drinks, I thought I’d stop in. (I had no idea that the Board meeting listed was a closed event, so I was a few hours early, probably the only time I’ve ever been early for a meeting).

Even as a newcomer who knew absolutely nothing about the industry, I was warmly welcomed into the group and noted then and many times since, how fleet groups are unique among other organizations to which I have belonged, in terms of the level of camaraderie and warmth extended to old and new members alike (a major contrast to legal trade associations, I might add). They feel more like large family gatherings than trade meetings, in that respect. [As an aside, at AFLA’s last conference in Phoenix last fall, I was really knocked out when a brand new attendee, Gordon Campbell from Tyco, not only gave a podcast testimonial on how good the conference was, but actually mentioned Driveitaway by name and how ours was one of the most valuable connections he made…he must have recorded it months ago, but I just discovered it when they put it up on their new Web site with a podcast a month or so ago…]

Anyway (and I will eventually get to the point of this little missive), the incoming president of AFLA back then was a fellow from New York by the name of Sal Giacchi, who managed the fleet of Lorillard Corporation located in New York City. As he welcomed me to AFLA, he also suggested I join NAFA (National Association of Fleet Administrators) as well, and, specifically, that I visit a New York City chapter meeting. Well, shortly after that, I did, and I (or a colleague if I can’t get there) have been a semi-regular at the New York City Chapter meetings ever since.

Now, the New York Chapter of NAFA has had its ups and downs over the years, and it’s a mite smaller than it was back then, with lots of company headquarters moving out of the city (Lorillard itself moved to North Carolina and its fleet is headed up now by my old friend Jim Anselmi and crew…all transplanted New Yorkers), but the group hasn’t lost its heart, nor the spirit of comaraderie with both the old timers and the brand new faces.. Just this Wednesday they had a special presentation for the group on remarketing, and I was asked by the New York Chapter Chair, Oleg Cytowicz, the Fleet Coordinator of Unilever, to sit on the panel along with a number of other affiliates from as far as Boston. I was truly glad they invited me , because amidstthe hustle and bustle of a new growth business, I don’t get enough time to sit down and talk shop with friends. Even at industry events, many gatherings are formal and “on stage,” so one rarely gets to relax in a truly friendly environment.

Bottom line -- for those who think you can’t find good old fashioned hospitality in New York City, I’ll introduce you to the “car guys” at the NY NAFA Chapter…. They’re tops in my book and have been for years…

Technorati Tags: Driveitaway, upstream remarketing, fleet sales, fleet manager, John Possumato, Automotive Fleet

Vol. 2 No. 9

NADA 2006 Part II – A Great Floor Show, Parties to Beat Oscar Night, and Car Guys United

What I like most at the annual National Automobile Dealers (NADA) Convention is the unique camaraderie of “car guys.” People come from all over the country and all across the world, from diverse walks of life, all races, religions, political affiliations (and both genders, as I hope you realize by now “car guy,” the way I use it, is a generic term encompasing woman and men). You see all specialities and professions - sales people, engineers, journalists, medical doctors, salvage operators, politicians, comedians… with views and perspectives as varied as they come, but, all united and focused for those few days, speaking the common language of “car guys,” steeped in every aspect of the automotive world.

Looking over the exhibition floor at a NADA convention never ceases to amaze me. The shear number of booths (I think there were over 650 ), and the elaborate nature of some of them (two floors and thousands of square feet with luxury carpets, kitchens and furnishings are not uncommon), is in a strange way, awe inspiring for an (admittedly) obsessive car guy like me. Most of Saturday and Sunday of NADA weekend (February 11-12) were devoted to walking the exposition floor. Even two days wasn’t enough time to get more than a sampling of some of the exhibitors’ new wares. The fact is, by the time I stopped at even a few of the booths of the “regulars,” such as Resource Automotive or Automotive News, and caught up with people I havn’t seen since last year’s convention, or just ran into old friends also walking the exposition floor, I burned up most of the time I had available. I tried to get to most of the newcomers but I’m not sure I succeeded. To give you an idea, I’ll just list the categories of the companies represented on the exposition floor:

• Advertising/Marketing/Promotion
• Aftermarket/Accessories
• Auctions
• Body Shop (Equipment & Finishes)
• Check Guarantee Service
• Computer Services
• CRM (Customer Relationship Management)
• CSI (Customer Satisfaction Index)
• Design/Construction
• Display & Signs
• Finance and Insurance
• Financial Planning/Consulting
• Floor Coatings
• Forms & Supplies
• Frame Straightening/Repair
• Furnishings/Storage
• Heating
• Insurance
• Internet Services (a category that didn’t even exist 10 years ago and now included over 89 companies)
• Leasing/Rental Services
• Lifts
• Lighting
• Management/Training/Education
• Motor Oils & Lubricants
• Parts/Service
• Protectants & Sealants
• Publications & Media
• Security
• Service Contracts
• Service Department Tools/Equipment
• Towing Equipment
• Vans/Recreational Vehicles
• Vehicle Manufacturers
• Washing, Waxing & Polishing
• Waste Management

I’m not sure how many football fields this year’s exposition floor spanned, but let’s just say I got my exercise.

Of course the NADA convention has both celebrity presentations for the full assembly (this year there were keynotes by Tom Purves, Chairman & CEO of BMW US Holdings; Frank Abagnale, on whom the movie “Catch Me if You Can” was based; and General Colin Powell. Dozens of individual, simultaneous workshops were grouped into five different topic tracks -- Strategic Business Management and Succession Planning, Business Development, Fixed Operations, Human Resource Management and Technology. When I was a dealer I attended almost everything, but I was much younger then….

Rounding out the days were “make meetings” conducted by the manufacturers exclusively for their dealers (one for every make of car sold in the U.S.…I heard a few were quite contentious this year), and press conferences by no fewer than a dozen different companies, from Manheim Auctions, who introduced this year’s much anticipated Manheim Market Report (its annual treatise on the prior year’s used car market) to DealerTrack, a relatively new dealer finance tech service company that just completed a successful IPO last fall, to F & I Magazine’s “F & I Dealer of the Year” presentation.

Give Me the Night

Of course, once the day’s activities are over, the best part of the convention, and where most of the the real work gets done, happens at night, at the many networking parties going on in dozens of convention hotels and, this year, in virtually all of the Orlando theme parks as well. To give you a sense of how this makes Oscar Night parties pale in comparison, I thought I would list the receptions and parties I knew about (there were probably double this number, as most go unpublished and/or I don’t get invited to them…and this doesn’t count the 23 different state auto dealer associations that also threw receptions...)

Friday, Feb 10^th

• Automotive Youth Educational Systems, Inc.
• General Motors and GMAC Financial Services
• NADA Dealer Academy
• Lanelogic/VB2
• EFS

Saturday, Feb 11^th

• Bank of America
• Edmunds.com
• General Motors Vehicle Divisions and GMAC Financial Services
• Mitsubishi Motors North America
• Northwood University
• O’Connor & Drew PC and Massachusetts State Automobile Dealers Association
• Premier Automotive Group
• Resource Automotive Group
• American Suzuki Motor Corp.
• Universal Underwriters

Sunday, Feb 12^th BMW

• CitiFinancial Auto
• Ford Motor Company
• Hyundai Motor America
• Mazda North American Operations
• Subaru of America
• Woolsey Performance Experts Inc.
• EFS
• DealerTrack
• WFS Financial
• Protective Group

So who threw the best party? I have to say, for shear expansiveness (not to mention expense), Resource Automotive puts on a hell of show every year, and this year was no exception. Taking out the entire grand ballroom of the Orlando Ritz, Resource had, I think, four working bars carved entirely out of ice (and a few standard ones as well), at least a dozen or so food kiosks, two alternating bands (jazz & rock)…unfortunately, with so much crammed into a couple of nights, I didn’t get to stay very long, but certainly wished I had…

This year’s best party I never got to attend even though I did manage to wrangle one of the numbered, RSVP invitations was the Premier Auto Group (Volvo, Jaguar, Land Rover, Austin Martin). This year it was held at a soundstage in Unversal Studios. Small and exclusive, it’s always one of the toughest to get into, because it usually is one of, if not the, best party to attend.

This year’s most frequented party venue: Disney’s Pleasure Island…went to four different events in four different clubs over two nights there and never payed one dime for anything (admission, drinks, food, etc.). That’s got to be a record, for a Disney locale.

Next Year, Vegas

As always, as tiring as it is, it ended too soon in my opinion, and I look forward to coming back and doing it all again next year, February 3-6, in Las Vegas.

A Car Guy Story

Having landed in the Orlando airport, I made my way to the car rental counter. Just ahead of me were two guys, obviously there for NADA (as were most people coming in that day) , who looked, shall we say, “intimidating.” Bikers clearly, sporting lots of tatoos, denim and leather, dark sunglasses, long beards, kind of what you would typecast in a movie, if the theme was “Hell’s Angels” (“Three can keep a secret, if two are dead”) meet the “Outlaws” (“God forgives, the Outlaws don’t”).

A little later on, when I found my car in the caverness indoor garage that is the Orlando car rental station, I again proved what most people say about my poor sense of direction, that I can’t find my way out of parking lot…I made a few wrong turns and ended up having to delicately back out of a narrow one-way lane, with cars all around waiting for me to unclog the only passage out... Just before that though, a car was coming the opposite direction, while I directly blocked things up which forced them to (almost illegally) yield to me, even though I was the one that snarled traffic. Now that would illicit honest road range in the most drivers, even if it was your typical American family visiting the “happiest place on earth,” and I was kind of expecting the worst in general, but when I recognized in the opposite car the bikers I’d seen a little earlkier, I was down right concerned (people have been shot for less in California, I hear). I needn’t have worried. Not only were these guys not upset, but they were gladly holding up traffic for me until I extricated myself out of my mess… Car guys, one and all, united.

Technorati Tags: Driveitaway, upstream remarketing, fleet sales, fleet manager, John Possumato, National Automotive Dealers Association, Resource Automotive, Automotive News

Vol. 2 No. 8

JD Roundtable & NADA 2006 Part I – Ford’s Mark Fields Gets It!

Definitely the largest industry event of its kind, and, indeed the one which I have attended the longest now (over 20 years), is the National Automobile Dealers Association (NADA) Annual Convention and Exposition. With more than 26,000 registered attendees (and that doesn’t count the folks that just slip into the parties), this annual event is so large there are only a few convention venues in the entire country that are big enough to host it. So every year it goes through a limited rotation, Las Vegas, San Francisco, New Orleans and this year, Orlando, Florida.

Once again despite lots of pre-convention planning, schedules, e-mails, etc., in total I didn’t catch up with everyone I intended , and went to only about half the events I was invited to. Honestly, as a dealer or a vendor, it’s all work all the time, even the parties are major networking events where lots of business gets done. Yet, once again this year, I enjoyed every minute of it and hated to see it end; this, despite developing a killer head cold by the end of it all which at least should have dampened the fun of it a bit, but didn’t really (I was born for this business, I think – not sure whether that’s good or bad, but it’s true).

Starting from the beginning…

Of course, for the last five years, I’ve always attended the JD Power Roundtable meeting that precedes the annual NADA Conference and have never been disappointed. This year, the first pre-NADA Roundtable hosted by my old friend Charlie Vogelheim, was, as expected, extra special and noteworthy. On top of the normal VIPs that speak at such things, including Governors from two different states (Bill Richardson, Governor of New Mexico and Mike Huckabee, Governor of Arkansas), Anne Belec, the President & CEO of Volvo Cars of North America and Susan Page, the Washington Bureau Chief, this Roundtable had presentations from maybe the two most visible car executives in Detroit – Mark Fields, Executive Vice President, Ford Motor Company; President, The Americas; and Mark LaNeve, GM North America Vice President, Vehicle Sales, Service and Marketing, General Motors Corp. Now, unless everything I’m reading isn’t true, these are the guys upon which the responsibility rests for the successful “turnaround” of both Ford and GM, respectively. Talk about more than a little bit of pressure. Regardless of how you feel about domestic v. foreign product, you have to be rooting for them, and each made a powerful presentation.

It really must be tough being Fields and LaNeve these days. As LaNeve said, it’s amazing how much free advice he now gets about how to do his job…from every sector, relatives, in-laws, classmates, even inmates from penitentiaries. I actually do remember hearing the same thing in a speech that Lee Iacocca gavewhen he turned around Chrysler in the early 80s (yes, I was there for the first Chrysler turnaround). [By the way, on an unrelated note I read in the trades that Mr. Iacocca just got involved with a small tech related company in the automotive retail sector…didn’t know he wanted to be involved in such a thing but if so, and he has a little extra time, I’d really wish he would have given us a call…any place, any time Lee…you are one of the few who are up there as living legends in this business; okay, I can’t resist -“if you can find a better automotive tech start-up, join it…”]

Now I have to note that a question came up from the audience to Mark Fields, after his presentation, asking about the fate of fleet sales for Ford, given the serious production cutbacks just announced under the new “Way Forward” program, and he proved in his answer, “all fleet is not created equal” that he really did know something about this side of the business… You would really be surprised how many at the very top of the food chain at the major car companies that I’ve met didn’t have a clue about fleet basics, as I noted in my Feb. 3 blog (Vol. 2 No. 6); but Fields does have a handle on it, and that’s encouraging, in my opinion.

“Tuners” Rule

If there was one surprise underlying theme to this JD Power Roundtable, it was the emphasis on the ever-growing influence and popularity of the “Tuner” set -- that is, the customization of mass produced vehicles – from buying a ground effects package for a Honda, to the $100K complete rebuilds masterminded by Chip Foose, of Foose Design, the nighttime key note speaker. His television show on TLA, “Overhaulin” where they literally steal someone’s “run of the mill” auto and completely rebuild it from the frame up, has become quite a hit since its debut in April 2004… Now that’s something I wouldn’t have predicted in Iacocca’s days at Chrysler, but the gross volume of aftermarket business has gone up consistently and dramatically for the last dozen years or so, and from a double-digit billion dollar sales base, that’s some growth record.

I wrapped up the very first full day in Orlando, after the JD Power Roundtable, at a networking party hosted by a brand new company called LaneLogic, formed by Copart and the former founder of American Auto Exchange, that has no less ambition than to become the world’s first used vehicle “market maker.” They took over one of the clubs on Disney’s Pleasure Island, then, of course, as soon as that was over, one of their affiliated partners, EFS Companies, took over another club a few doors down, so I could start a new networking process all over again. Didn’t pay for food or drink all night, but kind of wished I had as I did “pay” the next morning, when I had to get up just after 7am for a breakfast meeting.

So, took a rough tally, and for the literally my first 36 hours in Orlando, from Thurs night through Saturday morning, I’ve been attending automotive functions or programs for all but 10 hours or so of it so far…

To be continued…

Technorati Tags: Driveitaway, upstream remarketing, fleet sales, fleet manager, John Possumato, National Automotive Dealers Association, JD Power Roundtable, Charlie Vogelheim, Mark Fields, Mark LaNeve

Technorati Tags: Driveitaway, upstream remarketing, fleet sales, fleet manager, John Possumato, DriveTime, Used Car News, Carmart, JD Byrider

Vol. 2 No. 6

“Automakers Jan sales up, fleet sales surge” (Reuters)

There is fleet and then there is fleet and remember, “Of the 6.63 million commercial vehicles in operation, 52 percent belong to non-fleets” (Automotive Fleet Annual Fact Book)*

I planned to write something else for today’s entry, but when I saw the above headlined story just the other day by Reuters it sparked one of my favorite topics which is indeed the general confusion and/or lumping together of many sectors of the vehicle market that make up the term “fleet.”

Unfortunately or fortunately (depending on how you look at it), I can’t just say that journalists or car layman are the only ones that cause the confusion on this issue as many, many of my fellow car dealers (and I dare say even vendors and manufacturer folks not directly in this sector of the business) confound the issue all of the time.

What makes it doubly bad is that the three main sectors is normally defined in the term “fleet” have very different characteristics, although usually all are described as identical or equally bad for manufacturers. One good example of a clearly defined "fleet" can be found in Dee Ann Durbin’s article for the Associated Press on November 4, 2005, titled “Fleet sales give automakers a boost in October, but at a price”).

The closest thing I can think of in describing this kind of misnomer is with the term cholesterol… Up until very recently most everyone defined the term as a bad thing to have roaming around in your body, when, in fact, there are two types and one is beneficial…I’ll explain before you think I’m more off my rocker than usual…

The “fleet” business for the car industry, as popularly defined, consists of three broad types of vehicles. – Commercial, Government and Daily Rental.

Commercial Fleets
First, there are commercial vehicles, which are defined as both cars and light trucks (class 1-5)used by the nation's largest and smallest companies, registered in the company's name – anywhere from the 10,000 vehicle fleet of Sprint, to the dozen cars and trucks your local neighborhood flower shop may have in service. For larger companies, these vehicles are owned or typically on open-ended corporate leases, kept in service on average three and a half years and replaced at about 60-70,000 miles. In fact, commercial fleet vehicles are one-owner, one-driver cars that look and act remarkably like your normal retail vehicle, except maintained a little better and more regularly, as a corporate fleet manager oversees the driver to perform regular maintenance and routine safety checks.

The large commercial fleet sector is defined as those companies with at least 15 vehicles in operation, which totals roughly 3.2 million vehicles as of June 1, 2005 [Special Note: all of my statistics come from the fleet industry “bible” Bobit Business Media’s Automotive Fleet Annual “Fact Book”]

* Explanation of the quote at the top, from the Automotive Fleet, “Fact Book” - the commercial fleet sector of the market that operates 14 or fewer vehicles in operation represent another roughly 3.4 million additional units – which is where I get my intentionally “strange at first glance” phrase above. And, of course, the first time I paraphrased that quote in an office filled with non-car folks, and said that “the majority of the fleet market was made up of “non-fleet,” it raised even more eyebrows than usual.

Again, in terms of purchase frequency, single driver usage, etc., even the smallest fleet portfolios normally share retail vehicle characteristics.

Government Fleets
The second big sector of the fleet market is those vehicles used by the government – federal, state, county and local municipalities. This sector represents about 4.6 million units in operation and usually run in service a much longer time than normal commercial vehicles. To some extent, they also mimic retail type purchased vehicles, although in most cases they run a whole lot longer, and many times run to the end of the vehicle's useful life.

Daily Rental Fleets
The third big slice of the fleet business refers to daily rental car vehicles. Now although this slice of the market represents a lot less vehicles in operation than corporate fleet or government fleet, about 2.2 million vehicles (unlike retail purchased cars) of these units turn very, very frequently.

For instance, in 2004 rental companies registered (purchased) almost two million vehicles, while with almost three times the total number of vehicles in operation, commercial fleets only registered a little under 700,000 new units, and with more than two times the number of vehicles in operation, government fleet registered only 220,000 new units.

So the above stats tell you daily rental companies turn their cars a lot more frequently than any other sector of the fleet market, (on average once a year) but in total operating units are only 20 percent of the fleet market.

Why do they do this, and why do manufacturers complain that it is a “low profit” business? Because, as you may have guessed, Detroit gives daily rental operators strong incentives to turn vehicles quickly - the vast majority of rental cars are sold to rental companies with a guaranteed buy back provision, defined as “program” cars, where they are effectively leased out for a four to nine month period at a monthly rate and then turned back into the manufacturer. If that sounds like just another form of rebate for businesses to use and help manufacturers churn a lot of cars, it should, because that’s exactly what it is.

Now there are some residual benefits, particularly for a new model introduction. Putting a vehicle in daily rental operation exposes the new vehicle to a lot people who may not ordinarily visit a dealership for a test drive. However, that isn’t exactly the main reason why these “churn” programs flourish.

So, when you hear Detroit or a lot of the press complain that manufacturers lose a lot of money or made no margin selling “fleet” vehicles and/or are stimulating the market with these sales, what it usually means is that they are losing on daily rental sales. And, with the churn factor and “almost new” cars hitting the market from daily rental service at the same time new vehicles become available, you can see how that could be the case (and it doesn’t do much for resale values either, our little area of expertise).

The Impact of Rebates
Can’t really get too upset at the rental companies for this “money losing business” from Detroit any more than you can get mad at a retail buyer for accepting the latest rebate or “employee discount.” The fact is the rental folks didn’t create these “program” car guaranteed buy backs. Detroit willingly offered them (and continues to do so up to last month at least, as the headline above defines, even when they are already losing a whole lot of cash in operations).

The commercial end of the fleet business has always been a good, solid, loyal business where, year in and year out, in good times and in bad, corporate customers buy or lease vehicles in quantity on a regular basis and keep them just about as long as your average retail consumer.

Yep, the commercial guys get the equivalent of rebates as well. But it may be telling to note that even way back when I was a car dealer, the rule was that fleet (a.k.a. volume buyers) would get the higher of either the fleet or retail rebate. In many cases, the extra rebates for retail sales turned out to be more than the fleet rebate, which is usually established once at the beginning of each model year on a national basis and doesn’t change.

The “Natural” Bottomline
So, here at the end of my soapbox, I think the distinction in fleet sales is important to clearly understand its impact on the auto industry. But the fact is new vehicle sales bounced off a record high 17 million annually for more than two years running and that’s probably too high a “natural” number without “unnatural” market stimulation (rebates, program cars, employee pricing, etc.).

Rebates, etc. pump up the market then cause the leaders in the rebate game to be the same folks who are leaders in financial losses. That’s just a fact of the new car sales game today…


Technorati Tags: Driveitaway, upstream remarketing, fleet sales, fleet manager, John Possumato, Automotive Fleet Annual Fact Book, Dee Ann Durbin