Auto industry now sees fleet sales as source of profit

Article by Anita Panait, on September 6, 2013

Fleet sales of cars and trucks used to be unprofitable transactions for carmakers, earning it a reputation as an unpleasant aspect of the industry. But that perception is changing as carmakers are starting to make good money from fleet sales, which account for $65 billion of annual vehicle purchases in the United States and for a fifth of the industry’s total.

Carmakers had been losing money on fleet units – first when they sold them too cheaply, and second when they repurchased them back and resold them. But as carmakers shut down unnecessary sites and bring in vehicles that appease both retail and fleet buyers, they exercise more restraint in doing too many sales to fleet customers and now see profits out of fleet sales. Maryann Keller, an auto industry consultant and former director at Dollar Thrifty Automotive Group, remarked that fleet and even rental fleet are “no longer dirty words deserving of blanket criticism.”

She said that fleet sales are not unprofitable transactions, “or at least for the manufacturer, they don’t have to be.” According to analysts at LMC Automotive and Goldman Sachs Group Inc., vehicle sales to rental-car companies, utilities and governments are expected to account for around 15 percent of the auto industry’s total in August.

LMC expects August 2013 to be the best month for industry-wide sales since May 2007, citing “consistency in the fleet environment.” The industry is expected to post a 14-percent jump in overall sales in August 2013 to 1.47 million, according to the average of 10 analyst estimates surveyed by Bloomberg News. Carmakers are expected will report August results tomorrow. The annualized industry sales rate, adjusted for seasonal trends, is seen to surge to 15.8 million, according to the average of 17 estimates. [source: automotive news - sub. required]

Topics: profit

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