Chrysler, GM, and Ford Dominate YTD Fleet Sales

The auto industry’s paper of record, Automotive News, did a nice piece of reporting in this week’s issue (link here [sub], via TTAC) on the explosion in fleet sales at Ford, GM, and Chrysler so far during 2010.  Thanks to a thorough review of internal documents, conversation with contacts at the manufacturers, and its own estimates, AN has painted a less-than-rosy picture of the sales mix behind the overall sales gains we’re seeing in the industry so far during 2010.  Basically, retail sales are nearly flat – if not shrinking – at GM and Chrysler, and both companies’ fleet/retail mix is more heavily skewed toward fleet than toward retail than is typical.

Generally, automakers try to keep sales that go to fleets at or below 25 percent of their total sales volume.  There are three main types of fleet sales – commercial fleets, government fleets, and daily rental fleets.  Sales to commercial and government fleet buyers aren’t as bad as sales to daily rental fleet buyers, because those first two types tend to hold onto the vehicles longer, maintain them well, and have a specific driver assigned to the vehicle.  Sales to daily rental fleets are not good because, well, we all know how people treat rental cars.  Worse still, rental cars are usually not well-equipped examples, and once their useful life has been exhausted, the rental companies dump them at auctions, which depresses the resale values of the same model everywhere.  That tends to anger consumers, and also tends to make leasing those specific vehicles a more expensive endeavor.  Finally, sales to daily rental fleet buyers are typically heavily discounted, meaning there’s little profit for automakers from the sales.  But hey, they keep the factories running, right?

Through the first seven months of 2010, the fleet sales percentages for the seven largest-selling automakers in the US were:

• Chrysler:  39%
• Ford:  35%
• GM:  31%
• Hyundai-Kia:  16%
• Nissan:  15%
• Toyota:  9%
• Honda:  2%

We’ve actually seen Chrysler’s number look worse prior to its trip through Chapter 11, but Ford’s number is somewhat alarming at first glance.  Isn’t Detroit’s golden child kicking ass and taking names in the market?  Well, according to Ford’s chief sales analyst, George Pipas, the company is emphasizing commercial and government fleet sales this year, with the likes of the Crown Victoria, Town Car, Econoline, and F-Series trucks.  We do not know the model-by-model fleet-retail breakdown to validate whether his statement is accurate, but Pipas also noted that Ford’s July sales pushed the fleet total down to 25 percent.  Finally, he added that the company expected its overall fleet number to be around 30 percent by the end of 2010.

At Chrysler and GM, there were no pronouncements of focusing on commercial and government fleet sales rather than to daily rental companies.  Instead, both firms gave more of a, “don’t worry, they’ll go down by the end of the year” response to the ANreporters’ questions.  Chrysler spokesman Ralph Kisiel said, “For the full year, fleet sales will be roughly 25 percent of our total sales.”  Similarly, GM spokesman Tom Henderson said GM’s full year fleet mix will be 25 to 26 percent, similar to 2009’s 25 percent. ”

Unfortunately, at this point, the numbers start to look fuzzy.  As in, unachievable.  At Full Metal Autos, we conducted our own analysis, based on a few assumptions (which we will outline below with the rest of our methodology) and the fleet percentages and sales figures calculated by Automotive News.  Because we are making some assumptions, reality on December 31 may turn out to be different from our projections.  At the very least, though, we will show how difficult, if not nearly mathematically impossible it will be for Chrysler and GM to get to the 25 percent bogey.

We took the total sales for the first seven months (through July 31) of 2009 and 2010 for each of the seven automakers listed above.  We calculated the percentage gain from 2010 (as the market recovered) over 2009 for each automaker.  We then applied that percentage gain factor to each automaker’s full-year 2009 sales to calculate projected 2010 sales.  An assumption that we made was that each automaker’s sales gains from a percentage standpoint from August through December 2010 would match their percentage gain for the January through July period, which may or may not come true.

Next, we took the fleet percentages listed above that Automotive News calculated and multiplied them by the YTD seven months’ sales to get the fleet/retail breakdown in absolute numbers.  We then took the fleet target percentages cited by GM, Ford, and Chrysler (25%, 30%, and 25%, respectively) and applied that factor to projected 2010 sales.  That calculation gave the absolute number of fleet sales projected for each of the three automakers during the full year of 2010, if their 25/30/25 numbers held true.

Finally, we calculated how many fleet sales each automaker could have throughout the remainder of 2010 based on the full-year fleet projection and the full-year sales projection.  We then calculated the average monthly fleet volume (YTD fleet sales divided by 7 months) and figured out how many months of fleet sales at the current pace

Here is an example of the calculation.  Say that a company had an overall sales projection of 1,000,000 vehicles, and expects its fleet sales to be 25 percent by the end of the year.  That means that fleet sales should be 250,000 vehicles.  However, let’s say that this hypothetical company already sold 200,000 fleet vehicles, which would tell us that they only can sell 50,000 more from August through September to stay within the 25 percent number.  The only way to change the math is to either make the numerator smaller (selling 10,000 fleet vehicles per month rather than the 29,000 in this example) or to make the denominator larger (selling far more vehicles at retail).

This is where Chrysler’s numbers become implausible.  The company has already sold 242,007 fleet vehicles (assuming 39 percent of YTD 2010 sales), yet its sales projection for 2010, assuming an 11 percent sales gain, is just 1,031,901.  This means that 25 percent of 1,031,901 is 257,975 sales.  In other words, for Chrysler to hit 25 percent fleet sales by December 31 assuming the same total number of sales, it can only sell another 15,968 fleet vehicles, which is less than half of the 34,572 per month that it’s been averaging.  And that 15,968 is not a monthly figure – that is to be spread over five months, or just 3,194 sales per month – less than 10 percent of the monthly fleet volume it’s been showing so far this year.

The other way for Chrysler to hit its number, assuming the same total sales number, would be to increase its retail sales.  With the new Jeep Grand Cherokee launch this summer, its dealers finally have new products to sell to retail customers.  There’s also a blitz of revised and refreshed products coming this fall to Chrysler Group dealers, such as an updated 300 and Charger, a refreshed Sebring and Avenger, upgraded Wrangler, updated Town & Country, and more.

So let’s give Chrysler the benefit of the doubt and say that the company’s retail sales will increase in the last part of 2010 with the new and revised models.  But if the company wants to keep its fleet sales going at the same pace (in absolute, not percentage terms) it has been so far this year, it would have to show an overall 78 percent sales increase over 2009.  And yet, with overall sales up just 11 percent so far this year, the company would need to sell 864,897 vehicles at retail over the next five months, and that’s literally impossible, since Chrysler only sold 378,525 at retail for the first seven months of 2010.  They’re on pace to sell 395,401 between August and December at retail, so that would mean finding an additional 469,396 sales in five months.  A refreshed Sebring, Avenger, Charger, and 300 (among others) isn’t going to do that.

Ford and GM are in similar, though less extreme situations.  Assuming overall sales gains consistent with the first seven months of the year, Ford will have to cut its fleet sales to 42,932 per month (down from an average so far of 57,578) or raise its overall sales over 2010 to 37 percent (they’re up 23 percent currently).  That would mean selling 859,953 cars at retail from August through December, while the company sold about 748,514 retail units through the first seven months of the year.  They’re on pace to sell 692,799 between August and December at retail, so that would mean finding an additional 167,154 sales in five months.  The dramatic retail sales gains are unlikely to happen, but this is not an either-or scenario.  Increased retail sales and decreased fleet sales could make a difference, and with the 2011 Mustang, Flex, MKX, and Fiesta likely to trend mostly retail, Ford could make its number.  Also, remember that Ford said 30 percent rather than 25 percent, making its objective easier to reach.  Too, Ford claims that most of its fleet sales are not daily rentals.

GM will have to cut its fleet sales to 37,310 per month (down from an average so far of 56,562) or raise its overall sales over 2010 to a 31 percent increase (they’re up 12 percent currently).  That would mean retailing 1,154,223 cars from August through December, while the company retailed about 881,270 through July.  GM is currently on pace to sell 866,179 vehicles at retail from August through December, so hitting a 31 percent sales increase would mean finding an additional 288,044 sales in five months.  The retail sales gain is not very likely to happen, nor is such a dramtic fleet sales reduction.  GM’s new Cruze will help on the retail side, but there are not many large-volume product launches slated for the General through the end of 2010.

The bottom line:  the math looks like it will be pretty difficult for any of these three automakers to get to their desired 25 percent (or 30 percent) fleet number by the end of 2010.  All three brands, but GM and Chrysler in particular, are putting their long-term brand value at stake with an over-reliance on fleet sales.