GM Rental-Fleet Business ‘Very Profitable’

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NADA Convention & Exposition

SAN FRANCISCO – Selling vehicles to rental fleets has become a good business for General Motors Corp., the auto maker’s North America sales and marketing chief says.

When GM made the move three years ago to trim sales to daily rental fleets, "we didn’t just sell less, we raised prices," Mark LaNeve tells attendees at the annual National Automobile Dealers Assn. conference here.

"This was a tough conversation. We had to go to some of our best customers – these guys buy hundreds of thousands of vehicles at a time – and say, ‘we’re raising prices and you’ll probably get less.’"

Calling GM’s rental-car business "very profitable now," LaNeve says the key is to keep supply in line with demand and work on the "overall economies" of the rental business.

However, when it comes to hot-selling products, such as the redesigned ’08 Chevrolet Malibu, if retail sales are high enough, rental companies might not get the vehicle.

GM’s rental sales peaked the 1990s at about 840,000 units annually, LaNeve says. But since then, the number has dropped dramatically. In 2007, the auto maker sold fewer than 600,000 units to daily rental fleets, equal in volume to an entire assembly plant.

Mark LaNeve

"The fleet business is really misunderstood by a lot of people, even inside GM," LaNeve says. "Inherently, the fleet business is good business."

He says he does not foresee a further reduction in GM’s fleet sales.

On the subject of General Motors Acceptance Corp., LaNeve says GM didn’t "have much of a choice" but to sell a 51% stake in the finance firm to a consortium of investors led by Cerberus Capital Management LP last November. "We needed to get our finances in order to get an investment-grade credit rating. Because if you don’t have one, your source of funds can be a big issue."

Cerberus, which owns 80% of Chrysler LLC, works with GM on decisions regarding GMAC, LaNeve says, acknowledging the subprime-mortgage fallout has taken its toll. "It’s been a struggle with the collapse of the mortgage market and all the liquidity problems."

Cerberus and GM are carefully monitoring the finance situation via a joint-operating committee that is working to ensure GMAC purchases "adequate ratios of the different credit scores."

GM dealers have had no complaints since the sale, LaNeve says, noting that says their relationship with the finance arm is "consistent to where it was before."

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