Auto sales continued to slide in
June, as car buyers react to higher vehicle prices and Detroit backs away from
dumping unwanted inventory into rental-car lots.
General Motors Co., Ford
Motor Co. and Fiat Chrysler Automobiles NV reported steep
monthly sales declines compared with the same period in 2016. While retail
demand is losing steam, each of Detroit’s players also reported significant
reductions in deliveries to daily-rental companies, long the Motor City’s
Sales to Enterprise Holdings
Inc.’s Enterprise Rent-A-Car or Hertz Global Holdings Inc. traditionally
were a way for auto makers to keep factories rolling even as dealership traffic
slowed. But that business has traditionally dented profits and soiled brand
The move away from rental sales
reinforces a newfound discipline for domestic players that have been riding a
seven-year growth streak since GM and Chrysler sought bankruptcy protection in
2009. The Detroit 3 reported tens of billions in profits during that span,
bolstered by tailwinds from falling gas prices and surging demand for
profit-rich trucks and SUVs.
Overall industry demand softened
over the first half of 2017, however, falling about 2% through six months,
according to JD Power. The development ushers in an expected plateau for auto
sales, an important driver for the broader U.S. economy.
The fleet-sales pullback is
having a disproportionate impact on wider volumes. Sales to retail customers at
dealerships is down less than 1%, but sales to non-retail customers such as
government fleets, commercial buyers and rental-car companies is off 7.8%,
according to JD Power.
A rental-car reduction “is not
something normally seen” at the start of a cyclical sales downturn, R.W. Baird
analyst David Leiker said in a research note. The reversal of that trend could
ease concerns that profit margins will erode as auto makers chase less
lucrative business or resort to price wars.
Even as auto makers ramp up
incentive spending to improve dealer traffic, transaction prices are rising as
cars are loaded with more safety gear and connectivity features. A consumer
shift away from sedans and toward pricier sport-utility vehicles also aided the
Edmunds.com reported that the
average monthly payment on a car or truck has soared above $500, forcing buyers
to stretch more than ever to obtain a new set of wheels. The firm estimates the
average auto-loan length reached a record 69.3 months in June, with the average
amount of financing reaching $30,945, up $631 from May.
GM’s sales fell 5% to 243,155
vehicles in June, while Ford’s sales totaled 227,979 vehicles, down 5.1%. Fiat
Chrysler’s sales slumped 7% to 187,348 vehicles.
Japan’s top sellers fared better
during the period.
Honda Motor Co. reported
a 1% increase compared with the previous June with 139,793 vehicles sold, aided
by gains at its Acura luxury division, while Nissan Motor Co. sold
143,328 vehicles, or 2% more than the prior year, as it ramps up its reliance
on trucks. Toyota Motor Corp. notched a 2.1% gain, with 202,376
Certain Asian auto makers,
including Korea’s Hyundai Motor , have fueled sales with
rental-car sales. At Nissan, rental sales surged 37% in 2016 and were up 9%
this year through May, making Nissan the only major auto maker to boost rental
deliveries, according to data from Bobit Business Media, a publisher of trade
Detroit’s sales declines,
meanwhile, are fueled by lower fleet sales.
GM sold about 31,000 fewer rental
cars in the first half of the year, a decline of 21% from a year earlier.
Rentals accounted for 8% of total sales, less than half the level from a few
Ford said rentals accounted for
13.2% of overall sales in June, down from 15.6% a year earlier.
“We try to keep our overall daily
rental within a reasonable number,” Ford’s U.S. sales chief, Mark LaNeve, said
Monday. Rental-car companies are “becoming a little more cautious given the
uncertainty in residual values,” he added. Rental-car companies keep a close
eye on the resale value of cars and trucks; a glut in used cars can lead to
Fiat Chrysler’s fleet sales sank
15% in June, with rental deliveries at its flagship Jeep brand down by almost
Enterprise, one of the leading
car-rental firms, reduced its vehicle purchases in the first half of the year
compared with 2016, said Kurt Kohler, a senior executive in charge of the rental
company’s fleet acquisition. He said signs of declining used-vehicle prices
heading into the year prompted Enterprise to narrow its shopping list.
“The market started to move on
us, so we pulled back a bit,” Mr. Kohler said. “The car segment already had been
declining, but we also saw pricing coming down on SUVs and trucks. That
affected how much we wanted to buy.”
Alan Batey, president of GM’s
North America region, said an unexpectedly severe downturn in consumer demand
for sedans has made it more difficult to ease rental sales, because the rental
business would typically help make up the shortfall. “It has tested our
commitment” to the strategy, he said, forcing GM to make “tough decisions” to
reduce passenger-car production this year, which led to thousands of layoffs at
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