Auto Industry Fleet Sales Get New-Found Respect

TROY, MI – “Fleet” no longer is a dirty word.

In the past, the auto industry had deemed fleet sales as second-class citizens compared with individual retail deliveries carrying higher profits.

For automakers then, high fleet numbers were seen as signs of weakness and near-desperate ways to prop up sales and dispose of bloated inventories through volume discounts.

Although overreliance on fleet business remains questionable, it is gaining respect. And market share.

“Bad fleet is less bad today,” says Michelle Krebs, a Cox Automotive senior industry analyst.

Of 17.2 million light vehicles sold in the U.S. last year, fleet units were up 4.3%. In contrast, new-vehicle retail sales and leases fell 0.4% and 0.2%, respectively, according to Cox.

Year-to-date, fleet sales are up 6.9%, retail purchases down 5.2% and retail leases off 2.9%.

“Fleet is the new normal,” Jonathan Smoke, Cox’s chief economist, says at the company’s annual midyear review here. “It keeps on growing.”

That’s not alarming news, he adds. “Fleet is not the foreshadowing of a negative trend. This is the new fleet. This is not dumping. This time it looks different. Overall, it looks like a healthier environment. There’s less discounting. Fleet buyers are spending more money.”

Those customers range from big businesses, to tradespeople, to family operations.

“Fleet will expand as mom-and-pop businesses see the tax advantages,” says Charlie Chesbrough, Cox’s senior economist. Regarding the so-called “new” fleet, he says, “We’re in the early stages of this.”

Many industry prognosticators see the coming age of autonomous vehicles as a time when fleet operations – because of the sheer cost of those impending technology-laden modern marvels – will own the bulk of them.

Daily rental companies are among automakers’ biggest fleet customers. They once had the option of returning their out-to-pasture vehicles to the automaker of origin who took on the job of remarketing them.

That’s no longer the case. Rental companies now remarket their out-of-service vehicles. They often short-term lease them to ride-sharing operators, Smoke says.

Other trends Cox is following include rising MSRPs (averaging $39,500 this year) and higher transaction prices (averaging $36,950).

Those cost levels create consumer affordability issues, Chesbrough says. They also send many would-be new-car shoppers to the used-car lot.

The average new-vehicle purchase payment now is $563 a month. It is $469 for the average lease, he says. “Some folks just don’t have the money to make these expensive car payments.”

But some folks do. The lion’s share of industry profits come from pickup trucks and big utility vehicles with hefty sticker prices, Chesbrough notes. “People are clamoring for these vehicles, and the industry is pricing them accordingly. The industry is focused on people with deep wallets.”

That could be a problem if and when a recession occurs, he says.

For now, the auto industry keeps on rocking, posting $680 billion in revenues last year in the U.S, he says. “No one is complaining about that.”