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Wednesday, December 19, 2007 

Vol. 3 No. 28


At Least for Detroit Automakers, Fleet Sales Still Represent a Make or Break (the Company) Percentage of Sales…and If Toyota Really Wants to be the #1 Automaker in the World, Fleet is Critical to them as Well…

A recent article last week in Automotive News, the weekly automotive trade newspaper that is mostly targeted to manufacturers and dealers, ran a story on page three, that very clearly identified the market power and effect fleet sales still have on the Detroit “Big Three” and even their Asian brethren these days. Program rental car sale buybacks may have been replaced by “risk” cars by Ford, GM and Chrysler, and, may have been reduced, in general, from 2006 numbers, but the first 9 month total sales results for 2007 indicate that the combination of retail sales falling farther and faster than fleet sales totals, and an increase in the commercial sales sector, served to actually increase the total percentage that fleet sales represent for most US vehicle manufacturers, especially the Detroit big three.

So here are the numbers: in the first 9 months of 2007, through September, Ford reduced fleet sales by 17.3% from the prior year, General Motors cut fleet sales by 5.7%, and Chrysler reduced fleet by 3.6%... On the other hand, Detroit’s retail sales fell by 7.4% in aggregate, so as it spins out, through September 2007:

- 31% of total Ford vehicle sales were to fleet buyers
- 30% of total Chrysler vehicle sales were to fleet buyers
- 27% of total General Motors sales were to fleet buyers

And, other manufacturers with significant fleet percentages:

- 21% of total Kia vehicle sales were to fleet buyers
- 11% of total Nissan vehicle sales were to fleet buyers
- 9% of total Toyota vehicle sales were to fleet buyers
- 3% of total Honda vehicle sales were to fleet buyers

Note: by definition, fleet is defined as any sale to an organization that buys ten or more vehicles at a time.

So Doing the Math…

Fleet sales still account for almost a third of everything Detroit sells in the US, which, to me indicates that fleet customers - commercial, rental, government sectors- large fleet buyers, small fleet buyers and everything in between, are vitally important tothe very survival of the automotive industry in the United States. Let me say that again, just because the impact of the statement, though rarely expressed in national financial publications, is so overwhelming – CONTINUED FLEET SALES SUCCESS IS VITAL FOR US AUTOMOTIVE MANUFACTURERS TO SURVIVE….

Now, I’m not saying that any manufacturer needs to do the silly, downright ruinous sub-vented guaranteed buy-back programs Detroit offered rental car companies throughout the last fifteen years or so… Those programs, in fact, were an unnatural market budget, killing creation first driven by misguided internal bureaucratic political motivations (see my blog entry on… for details), and then propagated and expanded through even more misguided union contract prescripts.This basically kept the expense of having plants running, whether or not there was any demand for vehicles. No, instead I’m talking about good old commercial, rental, and government buyers negotiating quantity vehicle multi-year purchases… If this group for some reason, in aggregate, decides one day to not “buy American,” and moves suddenly to Asian vehicle manufacturers to satisfy their transportation needs, unless Ford, GM & Chrysler can survive selling 1/3 less than their already reduced vehicle sales totals, well then, they collapse, right?

Why do I identify this, well, because I’ve been watching trends in this business for over 20 years, and I think I see a pattern here…and I also think that some misguided folks at the highest levels in the US manufacturer’s executive suites don’t realize how important their fleet clients are, and do not give them the attention they deserve as Detroit’s most important sector. So follow history and my reasoning here: in the late seventies and early eighties Detroit’s refrain to the Asian import/manufacturer threat was that, “they are good at building small cars but will never dominate the mainstream US car market.” Then later on in the eighties, it was a variation of, “they are doing well in small and midsized vehicles, but could never be taken seriously for luxury car sales by the American consumer” (I have to say the Europeans were echoing that sentiment as well). Then, somewhere around the time the eighties turned into the nineties, there was an echo of how the Asians couldn’t transplant their success using American
factories and American workers (somehow that their success was due to lower labor costs alone and so not a growing threat). Then finally, after the US manufacturers all but gave up, or more accurately, abdicated the car market in exchange for dominating and making all of their money in lucrative truck sales, it was, “well the Asian’s don’t want to and never will enter the US full size truck market.” That last one was the latest refrain, still faintly echoing now while the newly introduced full-sized Toyota Tundra, made in the US, has a better than excellent chance of hitting its first year sales goal in 2007 of 200,000 units… Okay, so the Ford F-Series sales, in aggregate, will still blow the doors off of the Tundra in total sales this year, but can anyone out there be trulyoblivious to the overpowering direction of the trend?

And Speaking of Trends…

…Getting back to issue of recognizing the value of “precious” fleet customers for the Detroit’s Big Three, judging from the chart that Automotive News posted in this article, I’m not the only one that has noticed the trend this year of Honda, Nissan and Toyota in total aggregate unit sales to fleet buyers in the US through September. Partially masked by their increased market share in retail sales, when you look at these manufacturers’ total increased unit volume to fleet buyers this year, the trend is clear and not accidental. Specifically, while the Big Three reduced the aggregate total number of sales to fleet buyers, the Asians increased them significantly: Toyota with a 31% fleet sales volume increase (an additional 42,000 units in 9 months), Nissan with 67% sales volume increase (an additional 37,000 units in 9 months), and Honda, which historically has done very, very little volume to fleet buyers at all, booked a serious 118% increase in fleet sales volume (an additional 19,000 units in 9 months).

It’s true the Asian manufacturers are starting from a much smaller base of initial fleet sale units, and yes, they may simply be “picking up the slack” of the buyer’s needs given the Detroit Big Three’s cut backs, and yes this could only be a “seasonal blimp.” On the other hand, it seems to me these same “explanations” could have been (and in many cases were) used to rationalize their initial success in their US car market in the ‘80’s, or their success in the luxury segment of the market in the ‘90’s, or their current infiltration of the full size truck market this year. The difference here, of course, is thatit would certainly seem that in the condition Ford, General Motors, and Chrysler are in today, there is not much more ground they can give up before they can’t “downsize” their way out of the problem. If the Big Three lose any significant fleet volume, given the lack of growth in the retail marketplace and the challenging economic times projected over the next year or two, it could truly lead to dire consequences. If I had any influence on the top brass of the Detroit manufacturers, I’d make sure they would be focusing their attention on fleet clients like never before, as if survival itself depended on it. I think preserving the market share in this, Detroit’s last market dominant stronghold, is no less than a necessity for self preservation.

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I am glad I came across your post. I didn't realize that a large percentage of sales for the Big Three were based on Fleet.

This is a tremendous opportunity. First build a superior product. Release it to the public through Fleet and then let the word spread. The problem is that the product needs work.

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