Avis rental cars are shown at Detroit Metropolitan Airport in Romulus, Mich., Friday, Oct. 4, 2005. The October auto sales rate was at its lowest level in seven years, but the results could have been even worse if automakers hadn’t gotten a
ASSOCIATED PRESS
Fleet sales have always been the low-profit bottom feeders for automakers looking to keep assembly plants running and padding monthly sales reports. But an analysis presented by Cox Automotive on Wednesday indicates the carp of the car industry has suddenly become attractive game that is not only growing to historic levels, but pulling in higher profits.
Jonathan Smoke, Chief Economist at Cox Automotive.
Ed Garsten
“If our forecast is correct for fleet…it would be highest sales of fleet sales in the history of the automotive market,” said Jonathan Smoke, Chief Economist at Cox.
Through January, fleet sales have increased 6.9% over the same period a year ago while retail sales are down 5.2%, according to Cox.
Where fleet sales were a mixed bag for automakers, providing bolstered sales numbers but at a low return, a combination of new tax laws and changing fleet customers has had a profound effect on their role.
The updated federal tax code enacted in 2017 increases the amount of business-use vehicle depreciation allowances-in some cases as much as 100%. That’s given businesses, including rental car companies, the positive economics to update or grow their fleets, while providing the spark for others to get in the game.
Charlie Chesbrough, Senior Economist at Cox Automotive.
Ed Garsten
“A lot of individuals are going to start walking up to the fact that hey maybe I ought to start my own little business or somehow get the depreciation deduction for my vehicles,” said Charlie Chesbrough, Senior Economist at Cox.
The category of fleet customer is also changing, beyond the rental companies who pay the least for their vehicles. Jonathan Smoke calls it the “new fleet,” with vehicles that sold over the last 12 months have been less discounted, less incentivized, mainly because they’re being sold to a new category of customer—those operating or renting vehicles for ride share services. Even rental car companies are now paying higher prices as their current contracts expire. Indeed, some rental companies are latching onto the popularity of ride sharing by offering daily or weekly deals to ride share operators.
It’s a trend that really started to pick up steam last year and is not about to retreat anytime soon, according to Charlie Chesbrough who predicted, “we see this is as sort of a permanent change.”
It’s change that comes as new vehicle prices continue to rise leaving less monied consumers to get creative about finding ways to get around. The average sticker price of a new vehicle has jumped to $39,509 while average transaction price stands at $36,950, according to Cox. Blame it on the popularity of big ticket pickup trucks and SUVs and the domestic automakers all but abandoning lower-priced passenger cars.
Customers looking for a basic ride have been forced to consider leasing or moving to used car lots, but the supply of “gently used” passenger cars is thinning and that’s sending prices up for what’s available.
Most automakers will report June U.S.sales on July 2. The Detroit companies have moved to quarterly reporting. But if Cox’s analysis is on the money, sales this month will have declined 2.7% from June, 2018 with the seasonally adjusted annual rate slipping to 17.2 million units from May’s 17.3 million. For the first half of the year, Cox predicts sales will be down 2.2%.
That’s still not bad, but without the building strength in fleet sales, it could be worse.
