One of the questions that came up in yesterday’s post, The Truth About The Ten Best-Selling Sedans Of 2010, was how to interpret a high percentage of fleet sales. After all, “fleet sales” could describe a huge variety of sales to diverse buyers at widely varying price (and profit) points. Rental fleet sales are widely seen as being far worse than other types of sales, which is why the resale value trackers at Automotive Lease Guide keep such a close eye on what they call “Rental Fleet Penetration.” In its latest newsletter, ALG notes
ALG tracks several key metrics that impact residual values and brand health. Of these metrics, rental fleet penetration (RFP), which ALG measures as the total number of vehicles sold into rental fleet channels divided by total sales, has been found to have an impact on both residual performance and perception of quality… As a general rule, ALG recommends RFP levels below 10% for Mainstream brands and <5% for Luxury brands to avoid any negative impact from rental fleet sales on residual performance.
The Chrysler brand, which has had a history of high rental fleet levels in the past several years, showed the highest increase in RFP to ~49% in 2010YTD compared to ~19% in 2009YTD. Dodge and Jeep, also operating under the Chrysler umbrella, showed high YOY increases in RFP with levels at 32% and 18% for 2010YTD, respectively. Though industry retail sales showed improvement in 2010YTD, the Chrysler, Dodge and Jeep brands all suffered declines in retail sales compared to 2009YTD. While the decline in sales has a positive impact on residual values due to the drop in used supply, the increase in rental fleet penetration will negate much of the used supply impact on residual values due to the decline in perceived quality and residual performance relative to the competitors.
Chevrolet also displayed high increases in RFP levels to ~26% for 2010YTD compared to ~13% in 2009YTD. Retail sales for the Chevrolet brand also increased, resulting in increased used supply for the brand which would negatively impact residual performance, holding all else constant. Mercury rounded out the mainstream brands that experienced the largest increases in RFP levels.
But that’s hardly the whole story…
ALG has found that rental fleet sales have an even more detrimental effect on residual values and perceived quality for luxury brands compared to mainstream brands. Cadillac showed the highest YOY increase in RFP from ~9% in 2009YTD to ~17% for 2010YTD. Though rental fleet sales showed a significant increase compared to the Luxury brand average, Cadillac has shown improvements in other metrics. Retail sales grew by 34% in 2010 compared to 2009 (July YTD), while incentives decreased. While this is a positive story for Cadillac, the increase in rental fleet penetration will place the brand at a disadvantage compared to other luxury brands that have kept rental fleet below the 5% mark.
The other brands in the luxury list all had fairly small changes to RFP levels and averaged <5% for both 2009 and 2010YTD. Both the mainstream and luxury domestic brands have shown higher rental fleet trends versus their import counterparts.