How Will Fleet Cuts Affect the Auto Rental Industry?

Could the trumpets be any louder?

The domestic automakers have declared very publicly that decreasing incentives, low-margin sales to rental fleets and vehicle repurchase programs will help return them to profitability.

For the auto rental industry, this means no more government cheese. What are the car rental "Big Five"—Hertz, Avis Budget, Dollar Thrifty, Vanguard and Enterprise—doing about it? And how will their actions affect the independent car rental operator?

Reduction in Fleet Sales Underway
Ford, General Motors and DaimlerChrysler have all started reducing fleet sales. In 2007, this will contribute to the lowest level of auto sales in a decade, economists warn.

Ford, which posted a $5.2 billion third-quarter loss in 2006, reported a drop in fleet sales in November, on the heels of the demise of the Taurus. Even on its last wheels in 2005, the mighty fleet car sold 122,000 units into rental. By contrast, the Taurus replacements, the Five Hundred and the Fusion, sell less than 30 percent of Taurus' numbers into fleets.

DaimlerChrysler, with inventory that took an average of 80 days to turn on dealers' lots in 2006, said in November it has also reduced fleet sales.

It's no secret now that much of DaimlerChrysler's sales gains in the past two years—in the face of GM and Ford's sales slide—came with low-margin fleet sales. However, "they haven't sweetened any of their car-buy deals to help with this excess inventory," says one medium-sized RAC.

DaimlerChrysler is about to go through the same cost-cutting, plant-closing pain that GM and Ford are going through now.

GM said final tallies for 2006 will disclose 80,000 to 90,000 fewer vehicles sold into fleet. The decline will continue into 2007. GM reported "a fairly substantial" improvement in prices on its rental-car sales in November.

CONTINUED:  How Will Fleet Cuts Affect the Auto Rental Industry?
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