Fiat Chrysler Automobiles NV (IW 1000/20) is cutting back on discounted, lower-margin sales to fleet customers in the U.S., following General Motors Co. in a strategy that helped the larger rival post record third-quarter profit.
Fiat Chrysler trimmed fleet deliveries 23% in October, as the automaker’s total sales fell 11%, Ralph Kisiel, a spokesman at the company’s Auburn Hills, Michigan-based unit, said in an e-mail. He said the results reflect a strategy of reducing sales to daily-rental companies.
“FCA has been on the higher side of rental fleet as a share of total sales, so I think it is a significant move given the flattening of real demand,” Jeff Schuster, an analyst with LMC Automotive, said in an e-mail interview. “It suggests that the unhealthy habits of chasing share and volume growth are not the path forward.”
Not relying on fleet is not only financially healthy, but it also helps to bring to light the right product decisions for true demand."
— Jeff Schuster, LMC Automotive analyst
GM’s long-running campaign to reduce its reliance on fleet business has helped mitigate investor concerns that the U.S. market has peaked. While Fiat Chrysler’s U.S. shares fell 26% this year through Wednesday and Ford Motor Co. slid 19%, GM slipped only 7.5%. GM beat analysts’ estimates for third-quarter profit and for U.S. vehicle sales in October on the strength of its retail business.
Even within its fleet activities, GM said it increased more-profitable sales in October to commercial and government customers while reducing those to rental companies by 19%. For the year, rental sales are down 29%, GM said.
“GM continues to post reductions in fleet sales and it is helping to position the group for stronger margins,” Schuster said.
Fiat Chrysler, in advance of cutting back on fleet sales, this year halted production of its Dodge Dart compact car and Chrysler 200 midsize sedan. Chief Executive Officer Sergio Marchionne, declaring the shift in consumer preference for light trucks over car models as permanent, stopped making those two models to free up assembly-plant capacity for more pickups and SUVs. Strong demand for Jeeps, especially in the U.S., helped drive the company to boost its full-year profit forecast last month.
The company declined to make sales executives available to elaborate on its strategy.
“Not relying on fleet is not only financially healthy, but it also helps to bring to light the right product decisions for true demand,” Schuster said. “It improves residuals and brand value.”
But such an approach has been the exception rather than the rule. Industrywide, fleet deliveries are up 8% this year, while retail sales to individual customers are slightly off, said Mark Wakefield, managing director and head of the automotive practice for consultant AlixPartners.
“That’s not the sign of a healthy market,” he said. “The fleet release valve has been opened this year. If you leave the fleet valve open too long, you can really do some damage to your” resale values.
By Jamie Butters