Fleet Management North America: Record sales threaten residual values
With new vehicle sales in the U.S. reaching all times highs in the last couple of years, the danger of supply outstripping demand in the used car market is increasing
Fleet sales in the United States are holding steady in 2017 after two bumper years for the new car market, according to the top two fleet manufacturers, Ford and General Motors.
U.S. car sales have grown year-on-year for the last seven years, with job growth, pent-up demand and attractive finance deals fuelling the market. As a result, 2016 outstripped 2015 as the year with the highest sales in U.S. automotive history, at over 17.5 million registrations.
Within the fleet sector, sales are split between three categories; commercial fleet, rental and government.
In the commercial fleet sector, the combined sales of eight manufacturers totalled 673,689 vehicles last year, including 104,504 cars and 569,185 trucks, according to Automotive Fleet. Rising sales of SUVs and pickups to companies helped to offset falling sales of cars.
This mirrored the wider market, where pickups and SUVs accounted for 59.5% of sales in 2016 sales, up from 55.8% the year before.
“While midsize cars and midsize crossovers/SUVs are the basis of many corporate fleets, full size pickups are used far more frequently for utility and commercial work in the US and Canada than the vans that are used in Europe,” said Steve Higgs, manager, global and North American regional fleet development, General Motors.
“This pickup segment dominates the US market for fleet and retail in particular.”
High Auction Supply
GM has four key brands in the US - Chevrolet, Buick, GMC and Cadillac – and Steve Higgs reported that increasing sales in the commercial and government fleet sectors are compensating for GM’s deliberate restriction of volumes in the daily rental market.
GM’s rental sales were down by 74,000 units in 2016, a decline of 10.7% and its third consecutive year of reduced sales to the sector. Lower rental sales will help to protect GM’s residual values, although the market as a whole will start to feel the impact of greater used car supply in the coming months.
“An increasing level of used vehicles available in the market place, due to the last few years of high volume new vehicle sales in the 17-plus million range, will effect residual values,” said Higgs.
Waldek Raczkowski, Ford’s North America fleet, lease, & remarketing operations, expressed similar thoughts, indicating that depreciation over a typical three-year, 60,000-mile (c100,000km) fleet holding period can account for over 66% of the total cost of ownership in the US.
“With a North American new vehicle market that has been very strong for the past several years, we anticipate a significant number of vehicles (from all major OEMs) returning from leases and entering the auction process. High auction supply coupled with a stable or slightly shrinking market demand will drive the auction prices of these returning vehicles downward somewhat. Although there are no intense alarm bells ringing, the auto market is already experiencing this phenomenon – especially in the car segment,” said Raczkowski.
The fleet sector accounted for 29% of Ford’s US sales in 2016, representing 758,000 fleet registrations, up 2% on 2015, including major gains in van sales (up 9% year-on-year, to 240,721 units) and government sales.
Doug Walczak, Ford’s global business development director, said, “Ford government sales increased 17%, with strong growth coming from our police interceptor vehicles. Combined the interceptor sedan and SUV were up 20 percent with 41,685 vehicles sold. Police interceptor SUV sales totaled 32,213, which represented a 29% increase.”
As an indication of sector shares, for the first four months of this year, rental accounted for 15.4% of Ford’s total sales, commercial sales for 12%, and sales to the government totalled 6%. | 17/05/2017 | Jonathan Manning