Hyundai Aims to Limit Fleet Sales in 2014

DETROIT – Hyundai this year is vows to limit deliveries to non-retail customers, after its U.S. fleet sales rose in 2013.

“We like fleet (as a percentage of total sales) in a 10%-12% range and we historically had been at 23%,” Dave Zuchowski, Hyundai Motor America President and CEO tells WardsAuto in a recent interview here. “We brought (our fleet mix) down to 10% (in 2012), but last year it went back up to 17%. This year our business plan is somewhere between 13% and 14%.”

New product due in 2014, including the next-generation Sonata midsize sedan, should redirect units from fleet to retail customers, Zuchowski says.

The Sonata was Hyundai’s biggest fleet model last year, as midsize sedans traditionally are the most popular vehicle type among mass-quantity buyers.

Since Hyundai started reporting its monthly fleet mix in 2010, its mix of non-retail deliveries has been as low as 3% in December 2011 to as high as 21% last month.

Zuchowski links the late-year spike, which included an 18% fleet mix in both October and November, to rental-car companies stocking up in anticipation of the spring vacation season.

But those companies filled their lots later than usual, as Hyundai started builds of new-model-year vehicles later than usual.

“The timing of the second-half orders, due to our production timing on the start of the ’14-model production, was later in the fourth quarter,” he says.

Hyundai has a lower fleet percentage than most of its domestic competitors, with non-retail sales typically comprising a third of Ford’s and General Motors’ volume. However, Hyundai’s fleet ratio is higher than most of its Japanese competitors, including Toyota, which had an 8.7% fleet mix in 2013.

Zuchowski parrots a long-held Hyundai philosophy when he says fleet sales are somewhat beneficial to the brand.

“It serves a particular purpose for us, because we still (have) lower awareness than many of our competitors,” he says. “Our dealers tell us how many of their customers come into the store saying, ‘I never would have bought a Hyundai, I went on a business trip, I leased a Sonata or Santa Fe (CUV), it was good, and I want to take a look at it.’”

However, the brand is aware of the harm fleet sales can do to residual values.

Through bulk-buying, fleets typically pay less per unit than retail customers and therefore can sell a vehicle for less, which reduces the used-car pricing power held by retail consumers. And vehicles with higher residual values allow an automaker to offer lower monthly lease payments.

“We have a strong leasing portfolio, and we want to protect that portfolio. (But) as we add fleet volumes, we put that portfolio at risk by dropping the residuals,” Zuchowski says. “(Fleet is) one of the key drivers of residuals, and we are very cognizant of that and keep a really close eye on it.”

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