Through the 12-month period ending in June 2019, overall manufacturer incentive spend has declined, and the strength of fleet sales this year has been a big reason why.
This decline, noted Cox Automotive Chief Economist Jonathan Smoke, comes at a time when new-vehicle sales haven’t been as strong as they have been in the past. And usually, when new-vehicle sales stagnate or decline, OEMS increase their discounts and incentive spend.
The problem with raising incentive spend is that while it helps boost new-vehicle sales, it eventually hurts vehicle values as the higher discounts / incentives end up hurting the used vehicle’s residuals.
“I think part of the reason that the OEMs have been disciplined is that they actually have been seeing strong and growing demand coming from the fleet side of the business,” said Smoke. “Fleets are also buying a lot of expensive, high margin, vehicles such as pickups. OEMs might not have been as disciplined in their incentive spend had it not been for fleet sales.”
Fleet sales have been a shining light in a relatively stale new-vehicle market in 2019. While overall new-vehicle sales have declined — as has been the case since 2016 when the new-vehicle market saw a record high 17.5 million vehicles sold — fleet sales have increased.
Cox Automotive expects fleets to purchase approximately 3.2 million vehicles in 2019 (with a potential 26% coming from commercial fleet sales and 66% from rental), which would not only represent a 4% year-over-year increase, it would also represent the highest sales volume on record for the fleet industry, according to Cox records.
“It’s across the board, rental car companies are growing their fleets again and commercial fleets are benefitting from tax reform and being able to expense most of the vehicle, in most cases, upfront,” said Smoke. “As a result, you’re seeing everything from contractors to local florists refreshing, and in many cases expanding, their fleets. As a result, it’s also meant that fleet is fairly consistent and steady contributor to the wholesale market as well.”
Originally posted on Automotive Fleet