GM sees more room to cut rental sales
DETROIT — General Motors plans to keep reducing the flow of vehicles from its plants to U.S. rental lots at least through 2018, continuing a strategy that has helped the automaker's North American operations pile up more than $26 billion in profits under CEO Mary Barra even as its overall market share keeps sliding.
Alan Batey, GM's president of North America, told Automotive News last week that sales to daily-rental fleets would fall by about 50,000 units this year and an unspecified amount in 2018. That would represent four straight years of declines for GM's rental deliveries, which already dropped from 16.1 percent of its total U.S. sales in 2014 to 11.7 percent in 2016, according to R.L. Polk registration data provided by the company. The additional reductions Batey discussed likely would drop that proportion into single digits.
"We like the rent-a-car business from a seats-in-seats perspective, because it's great test drives and it's a great opportunity to expose new people to our products," Batey said. "We don't like it when it's bringing too many nearly new vehicles back into the market to compete with our new business and compress our resale values."
Such discipline represents a major philosophical shift for a company that used to rely on money-losing fleet sales to keep its assembly lines running because its union contracts made cutting production extremely costly — and often because executives' bonuses and bragging rights hung in the balance.
Barra has moved GM away from prioritizing size at the expense of its bottom line, abandoning some large global markets where it was unprofitable in addition to emphasizing retail sales on the domestic front.
GM isn't shunning all varieties of fleet; its more lucrative commercial and government business is on the rise. It also has funneled 10,000 vehicles into its Maven short-term rental service since its launch in early 2016
GM's U.S. retail sales are up 0.3 percent this year through May, while total industry sales have slipped 2 percent.
By selling fewer vehicles to Enterprise and Hertz, GM can boost residual values and improve the economics of its leasing business, Batey said. That, in turn, puts customers in the market for a new vehicle more often.
"What's different today from seven or eight years ago is we now have a full captive in GM Financial that's really gaining momentum and gaining steam," Batey said. "We're able to really look at this holistically. We want to have a very strong lease portfolio, and we want to manage the back end of that in a very controlled manner."
GM's discipline has been relatively steadfast even as its inventory has climbed to the highest level in nearly a decade. Batey said the build-up is designed to help GM weather a significant amount of production downtime in the coming months to retool for upcoming pickup and SUV models. But if the second half of the year is weaker than GM projected, it will test executives' resolve to avoid the profit-killing relief valves historically used in such situations, including higher incentives and more rental deliveries.
Batey insists the automaker is well positioned, even with about 44 percent more inventory than it had a year ago.
"You have to react to what's happening in the market," he said. "We don't control the external environment, but we have to react appropriately once we get clarity. We'll take whatever actions we need to ensure that we keep our discipline in the marketplace."
It's a shame Opel never had this North American rental car strategy in place they might have been a profitable concern today, some models rental car number are 5 times higher than the current North American 11%, Opel rents 70% of its cars in places like France in 30%/70% ratio of Private/Avis & Hertz buyers.
Hertz are struggling themselves at the moment anyway shares have plummeted 39% and they are making big losses. Demand for rental cars, which, for many consumers are as appealing as a visit to the dentist’s chair, is only part of the story, amid the proliferation of car-hailing companies such as Uber and Lyft. Hertz has struggled to get quality resale prices for its old vehicles as U.S. used-car values have fallen it use to sell on. Hertz use to make $1,350 to $1,400 when it sells a vehicle at retail now its close to nothing.