Back in roaring 20s (or thereabouts), TTAC highlighted American automakers’ tendency to use fleet sales to keep expensive factories running. The practice eroded vehicle quality (why bother making better fleet fodder?), eroded margins (a little profit on a lot is better than nothing!) and corroded brand equity (badge it up and send it out!). As The Big Three became The Big 2.8, as GM headed for bankruptcy, we gave the automakers grief for claiming they were abandoning fleet sales to address these issues when, in fact, the fleets were abandoning them. Point of clarification: the “look at us we’re so responsible” BS was a bad thing, even though fleet reductions are a good thing—provided the automakers switch to retail-competitive products, meaningful brands and, thus, larger margins. Which hasn’t happened. And the domestics’ fleet sales continue to disappear. In other words, whichever way you look at the fact that Detroit’s share of fleet sales has slipped from 80 percent to 48.4 percent, they lose.
The stats come from the Chicago Tribune. “Agencies increasingly want cars their customers prefer rather than the cheapest vehicles available and, as important, ones that will hold value over time.” While the paper provides little in the way of compelling evidence that rental customers are turning up their noses at domestic products, it’s certainly true that rental car companies can’t get enough money from the sale of low mileage pre-loved Ford, Chrysler and GM products to make it worth their while to buy them in the first place.
Ford is, apparently, down with that.
“For some models, we’d find ourselves selling 50 percent to 60 percent of our production into rental,” George Pipas, chief sales analyst at Ford, said, citing the last generation of the Taurus in particular. “That’ll kill you.”
George should talk to Chrysler. Soon. (Last rites?) Meanwhile, GM is caught between a rock and a hard place. Again. Still. [Thanks to FloorIt for the link.]
Mazda is guilty of this, too. However, that just means a great buy for me when it comes time to replace my 17 year old Sable station car with a Mazda 6.
Hyundai is definitely picking up the slack on rental fleets. There is an endless supply of 30k miles 2008/2009 Sonatas and Santa Fe’s at the auction. They are not always cheap for us to buy, though. Overall supply is down at the auction. A lot of other brands’ dealers are snapping them up at stupid prices.
Elantras too. There are plenty at the auction, but they often get bid up over $12,000 for a 2008 GLS automatic with 20k on it. By the time it gets back to the dealer and all the auction fees/shop charges get added, we own them for well over $13k and there is no pricing gap between a used 08 and a new 09. Unreal.
Hyundai is definitely picking up the slack on rental fleets. There is an endless supply of 30k miles 2008/2009 Sonatas and Santa Fe’s at the auction. They are not always cheap for us to buy, though.
Funny how Hyundai seems to be grabbing all this fleet business while its resale value actually strengthens.
I was blown away by the lease residual offered on my 2008 Santa Fe (42% after 5 years… take that Toyota), and note that even in plentiful supply used ’07s are fetching 50-70% of their original MSRP in 2009. It turns out that fleet vehicles are not necessarily the bastards we take them to be.
Chicago Tribune claims that “Agencies increasingly want cars their customers prefer rather than the cheapest vehicles available” … which is bunk. Very few customers will choose an agency based on the car models, especially as they are not guaranteed in advance.
However, “as important, ones that will hold value over time” is more credible. It’s all dollars and cents: if Chrysler dumps the PT Cruisers cheaply enough, it makes the low resale tolerable; if not, the higher resale wins the day.
The additional factor at play is Hyundai’s and Kia’s quest for additional market share; at this point in time, the Koreans are willing to buy that share, with the expectation that they can retain the share in the future, and profit from it.
There is a hidden irony in all this… and that is Hyundai and Kia may have finally decided to focus on the ‘features’ side instead of offering the premium vehicle in a given class.
In a recession it can work very well. But when more folks begin to aspire to ‘the better car’, Hyundai may find it very difficult to convert those customers.
Hyundai and toyota is picking up the slack. They’ll learn just like we did. Pay me now and pay for it later.
They are, but the key is that they don’t appear to be doing it the way the domestics did. Back in the bad old days of the mid-2000s, the rental-mules-du-jour of the domestics would constitute something like 40-60% of total model sales for a given period. These would most often be strippers sold at or just-above cost, and would have the predictably disastrous effect on resale for the suckers who paid for these models new.
Whereas, Toyhyusan have held the line on fleet sales to the 20-25% range and typically move a better balance of trims at better prices. Honda doesn’t do fleet sales, so their vehicles are typically in the 1-3% range. It’s not so much that the domestics are losing the fleet business, but that they’re adjusting to reflect their share of the retail market, instead of using it as a form of legalized dumping.
I disagree. Their picking up in the same way GM DCX and F left off.
I’ve done enough southeast asia non automotive business to know they think the USA is the great panacea. Their attitude is build it to capacity. we’ll sell them all no matter who pays the price in the end. Load em up and move on to the next dupe
Import something fom China, Japan Taiwan, Korea Etc. You’ll find out. The hard way. Been there done that to the tune of a personal loss of over 50 G
Both my wife and I are frequent renters, for business. We don’t usually get to rent Jags on our company cards.
But the only things among cheapies we rent are Ford Focus. If not avail, we upgrade Corolla, Mazda, heck, even Prius if one must.
Malibus et al. are just not an option!
vww12: But the only things among cheapies we rent are Ford Focus. If not avail, we upgrade Corolla, Mazda, heck, even Prius if one must. Malibus et al. are just not an option!
Is that the US-spec Focus on the 10-year-old platform that you are referring to?
There’s an Avis just down the street from my office. During the week there are maybe 20-25 cars on the lot. Most are Nissans and most of those are Altimas.
Years ago I had this explained to me at a major car rental agency. I asked for a Camry, and was told, “Oh, no, sir. We only have one of those and it’s always the first to go!” Although it sounded obvious to me, I asked, “Then why don’t you buy more of them to rent?” “Well, we’d sure like to, but we can’t,” I learned. “Ford owns 50% of the company, so we have to buy 50% Fords for our fleet. Toyota only owns 10%”
I rented a Camry last week that had 33,000 miles on it, by far the most miles I’ve seen on a rental. It was also a total beater with tons of little dents, paint chips, dirty seats, etc. And this was Enterprise through their captive rental counter at a car dealer.
Times are rough for the rental industry as well, so they are buying fewer cars and keeping them longer.
No, I didn’t choose the Camry, and, no, I didn’t like it.
Hyundai loads up on features, sure, and it makes me realize the rental Elantras are better equipped than most everything else I can afford.
Hyundai has me considering them, if only for the stellar iPod and USB hookups, and pretty-darn-good sat radio integration.
Whereas, Toyhyusan have held the line on fleet sales to the 20-25% range
Toyota tends to keep fleet to about 10-12% of a given model. Definitely lower than Nissan or Hyundai.
Detroit has sold to fleet large numbers of cars because their sales projections have been ridiculously optimistic and could almost never retail as much as they forecast. It’s a symptom of their real problem, which is making cars that retail consumers don’t want.
Toyota uses fleet to help smooth out production, so there is no detriment. The levels are low enough to not harm resale.
Hyundai is a different animal. Its plan for North America was to first build the capacity, then hope over time to conquer more retail buyers who would purchase that inventory. The fleet sales must be an interim step of that plan — they have to build the cars to keep the factories running, and they have to sell them to somebody. If their strategy works, they will be able to fleet lower percentages of cars; if the strategy fails, they’re going to have a problem.
The rental agencies had fleet programs with the automakers that made domestic vehicles quite cheap for them. It’s not surprising for them to keep the cars longer now that there are fewer buyback programs and they have to pay something closer to a retail price for their inventory.
bryanska, my wife and I are on our 3rd new Hyundai Sonata in a row, and Hyundai just keeps getting better and better. Unlike even Toyota and Honda, where it’s becoming apparent that quality is slowly slipping (though they are trying to stop the rot, I believe). The interiors on the new generation Corolla were shockingly cheap and nasty, when I went looking; I checked the Elantra and it was light-years better. I even preferred the Elantra to a buddy’s new Honda Civic, to some extent – certainly for the money it’s 99% of the car for what, 80% of the price?
But given that the Sonata was so improved, we went with that again. We’re pulling 31 mpg on commuting with some highway miles out of an automatic 4 cylinder ’09 Sonata, that’s got to be a 5 mpg improvement over the ’07 four cylinder.
I do not mind manual window cranks but manual door locks on all four doors and manual trunk release is a real annoyance.
A key-fob release is the norm in our daily life and super handy in a rental when your hands are always full. A rental without one is totally inexcusable.
Driving rain. Four people on the way to an important meeting. It takes over 30 seconds to get everyone in the Hyundai because of the trunk and door locks. All four people are now drenched. Those four and the people they relate this to will now drive past every Hyundai dealership without stopping, regardless of product or price.
The wisdom lost on Hyundai: A rental is hands-on advertising for your product. The renal agency could give a rip what car a renter may shop for in the future but you as the car manufacturer certainly do. Using some of that advertising budget to ensure the car leaves a favorable impression on the several hundred that will be exposed to your product during the life of the rental is money well spent.
If I recall correctly, about a year ago Allan Mullally laid down the law that Ford was ending the practice of selling cars into rental fleets that drove people away from Ford dealerships. No more “rat fur” upholstery.
Hyundai and others need to follow this same advice.
Aha, this post and the Tribune article cleared up a lot of questions I had after reading a bunch of articles and comments about the Big 3 here.
I kept reading things like “GM’s sales on this model look OK at first glance, but bear in mind that 60% of that is fleet sales.”
I then kept wondering, “Well, OK, but why would fleets want to buy crappy GM cars any more than I do?” And “Hmm, and, thus, why doesn’t Toyota or Honda or whomever try to grab more of this market?”
Sounds like I was asking myself the right questions.
Thank gawd for flooding the market with fleet cars.
Their 1st year depriciation makes them my “Best Buy”.
1 year old Marquis’ for 18 grand?
Town cars for 20?
Best deal in the country.
You can get one year old Marquis for 18k… new.
Town Cars actually have a pretty fierce plateau after the first couple years. The trick with those is to get a really cheap older one with low miles from the late 1990’s.
A rental is hands-on advertising for your product.
Agreed. I had a rental Mazda 6 sedan about 2 years ago and walked away very impressed. Mileage wasn’t great but everything else about the car was. The wife was so impressed we considering buying the Speed version. Before this rental I never put a Mazda on our shopping list before.
I’ve also rented Dodges and they confirm what everyone says: cheap interiors with buzzy, rough engines. Had a Caliber for 3 days and the co-worker who I was traveling with remarked “my chainsaw revs smoother and has more power then this”, plus it had terrible sight-lines and the hatch was troublesome. On the other hand a rental Camry I drove for a week was as advertised: boring but comfortable, easy to get in and go, no issues at all.
Emerald Isle (pick your own car for business folks) at National in Detroit was running about 50/50 between domestics and foreign cars when I visited in June.
The main difference from normal was the age and condition of the cars. They were well worn with mileages over 30k. Emerald Isle usually gets the “fresher” cars, so I hate to see what the normal counter cars look like. I ended up in a RAV4 with stained seats and very basic equipment, and it was one of the nicer choices.
Times is hard… Times is hard!
This brings up an important question. If GM, on average, loses money on every single sale, how much money was GM losing on fleet and rental car sales?
Of course, while getting out of rental car fleets is a good long term strategy, it causes a huge issue in the short term (and for GM and Chrysler, their short term is the most important term). The domestics didn’t choose to leave fleet sales, rental car companies forced their hands. So they are going to have a huge glut of cars that normally would have been sold to the Avis’s of the world. They are still going to have to somehow sell these cars since they were part of sales plan, which brings down the prices for almost all their cars (only those that aren’t sold to fleets aren’t impacted). They already sell their cars at loses. Now they’ll sell their cars at even bigger loses.
I supposedly have a reservation for a Mazda 6 rental. Not sure what I’ll actually get. Hertz uses strange groupings of cars based almost solely on passenger volume with no regard to vehicle driving experience.
Noticed my Aunt had a rental Camry earlier this month in place of the typical Impala in the “large” rental car catagory. Not that impressed with the current Camry, but maybe its the right appliance for the job of moving 4 or 5 people from point A to point B.
The domestics didn’t choose to leave fleet sales, rental car companies forced their hands.
No, that isn’t the case. If anything, the rental agencies liked the low prices and buyback programs that helped them to hold the line on their rental rates in a competitive industry.
It was really Wall Street’s doing. A couple of years ago, the analysts suddenly discovered that fleet sales were low margin sales. Low margins are bad. Detroit responded by talking up the cutbacks on fleet, and how wonderful it would be for operations.
Of course, the analysts were wrong and the Detroit PR was a lie. The fleet sales were a symptom of the lack of retail sales — they overproduced the vehicles, then had no choice but to put them into fleet.
Cutting fleet should have never been the goal. Instead, they should have endeavored to make a better car that could be sold at retail. The fleet problem will work itself out if the car is popular at retail; the prices will go up, and the fleet operators won’t be as interested.
All GM did with its efforts to cut fleet was to erode margins, because they had to amortize their fixed costs over fewer units. But I’m reasonably sure that Rick Wagoner had no interest in informing Wall Street that they had misdiagnosed the problem and missed the more salient problem of the cars not being good enough.
I have been refusing domestic rental cars simply based on preference.
Reading this post makes it clear that if done in sufficient numbers it can be an additional way to boycott welfare gov motors.
When I was living in the USA, I’d rent with Enterprise about once a week, giving me many one week review opportunities.
I was stuck in a few different cars not of my choosing, but the worst were:
* Aveo. HATE HATE HATE.
* Dodge Nitro. Unroadworthy @ 3000 miles old. I’ve written about this one before.
* Challenger V6. Hopeless blind spots. Smaller than I expected trunk. Pretty good hwy fuel economy. Blah everywhere else.
* Nissan pretty much everything, with the exception of the Maxima. I liked the Maxima. The Altima was so-so particularly in CVT form, but the Versa sedan was bottom scraper, boomy, and terrible at taking even my small amount of luggage.
Cars I loved and asked for again and again
Ford Focus Hatch. Best driver car in a rental fleet bar none. Might have 10 year old fundamentals, but those fundamentals beat all the other cars I drove in the USA.
Prius. Had to drive a lot of long distances occasionally, and during the days of $3.50 gas, this car made a lot of sense. Not a great interior (although I do like the instrument cluster), it’s a very reasonable upgrade from a compact if you’re Enterprise Plus. Just ask. Most of the time on a Sunday night, it’s free or about $5. It has remote central locking, cruise, and climate control and a huge luggage compartment. It’s also has a pretty good stereo and AUX port for the iPod.
Mazda 6. Good all round car, if a little noisy at 70 mph. Sedan version had only moderate trunk space.
I once managed to hire my own car, a VW Golf. I owned the 2.5 model with a sunroof and ESP whilst I lived in the USA. The rental was the bottom scraper 2.5. The driving experience was basically the same, but missing all the bits and pieces that make you want to OWN a car.
Here in Australia, the fleet situation is interesting. A Holden CEO once said, it’s better to be in the police car fleet business than in the taxi fleet business. I think a lot of folks could learn from that.
thanks,
Andrew
I am not sure what was the problem but I tried to rent a minivan this week end in Houston and they had NONE, outside the airport… I need it for Monday and I have to pay extra and go to the airport to pick it up… because they didn’t have any in the city…