DETROIT -(Dow Jones)- Detroit's Big Three auto makers increased sales to fleet customers in September, a move that could reflect even weaker demand for domestic cars and trucks last month than initially thought and could lead to a tighter profit pinch if the trend continues.
General Motors Corp. (GM), Ford Motor Co. (F) and Chrysler Group, the U.S. division of DaimlerChrysler AG (DCX), each increased fleet sales to commercial customers and rental car companies last month compared to the like period in 2004. Ford's fleet sales jumped 26% while retail demand slid 28%, and GM fleet sales spiked 24%, with retail falling 35%.
Chrysler declined to report specific numbers, but spokesman Kevin McCormick said fleet sales "had gone up a little bit in September." Each of the automakers delivered at least a quarter of total vehicles sold to fleet customers.
National Automobile Dealers Association chief economist Paul Taylor said some of the fleet demand was inspired by a need for replacement rental cars in regions devastated by Hurricanes Katrina and Rita. Nevertheless, September' significant drop in retail demand reflects souring enthusiasm for Detroit' products as Japanese auto makers grab market share.
Sales declines at GM and Ford contributed to a 7% decline in the U.S. car market in September. The decline led to a 16.4 million seasonally adjusted annual rate of vehicle sales in September, down from about 16.8 in August and 20.6 million in July. While September numbers outperformed analyst expectations by as much as 3%, the month was far below the historically strong average for the month.
But the declining numbers may not give an adequate reading of demand for U.S. products given the increase in fleet sales, said George Pipas, U.S. sales analysis manager at Ford. "Underlying retail demand was weaker than the headline number," he said.
The SAAR was inflated by at least 181,000 domestic fleet sales and approximately 20,000 sold to fleets by the top three Japanese automakers, according the most-recent registration data published by R. L. Polk & Co.
High fleet sales are especially troubling for GM and Ford, both of which have expressed a need to drastically reduce sales to rental car firms in order to boost the value of products and, in theory, cut incentive spending. Taylor said sales to rental fleets aren't necessarily a negative as buyers are given chance to experience a brand through rental cars, but Detroit auto makers have hurt themselves by pouring outdated, under-equipped models into rental fleets that " diminish the value of the brand, he said."
Not everyone is backing away from the fleet market. Toyota Motor Corp. ( 7203.TO), the top-selling Japanese automaker, boosted fleet sales 16% in the first seven months of 2005 compared to the like period in 2004, according to R.L. Polk, while Nissan Motor Co. (7201.TO) and Honda Motor Co. (7267.TO) have upped fleet business 25% and 30% respectively. Even though each of Japan's Big Three have boosted sales in 2005, fleet increases far outpace the rate of growth for each company.
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