Fiat Chrysler Dials Down Rental-Car Sales in Echo of GM Play

(Bloomberg) -- Fiat Chrysler Automobiles NV is cutting back on discounted, lower-margin sales to fleet customers in the U.S., following General Motors Co. in a strategy that helped the larger rival post record third-quarter profit.

Fiat Chrysler trimmed fleet deliveries 23 percent in October, as the automaker's total sales fell 11 percent, Ralph Kisiel, a spokesman at the company's Auburn Hills, Michigan-based unit, said in an e-mail. He said the results reflect a strategy of reducing sales to daily-rental companies.

“FCA has been on the higher side of rental fleet as a share of total sales, so I think it is a significant move given the flattening of real demand,” Jeff Schuster, an analyst with LMC Automotive, said in an e-mail interview. “It suggests that the unhealthy habits of chasing share and volume growth are not the path forward.”

GM's long-running campaign to reduce its reliance on fleet business has helped mitigate investor concerns that the U.S. market has peaked. While Fiat Chrysler's U.S. shares fell 26 percent this year through Wednesday and Ford Motor Co. slid 19 percent, GM slipped only 7.5 percent. GM beat analysts' estimates for third-quarter profit and for U.S. vehicle sales in October on the strength of its retail business.

Even within its fleet activities, GM said it increased more-profitable sales in October to commercial and government customers while reducing those to rental companies by 19 percent. For the year, rental sales are down 29 percent, GM said.

“GM continues to post reductions in fleet sales and it is helping to position the group for stronger margins,” Schuster said.

Truck Focus

Fiat Chrysler, in advance of cutting back on fleet sales, this year halted production of its Dodge Dart compact car and Chrysler 200 midsize sedan. Chief Executive Officer Sergio Marchionne, declaring the shift in consumer preference for light trucks over car models as permanent, stopped making those two models to free up assembly-plant capacity for more pickups and SUVs. Strong demand for Jeeps, especially in the U.S., helped drive the company to boost its full-year profit forecast last month.

The company declined to make sales executives available to elaborate on its strategy.

“Not relying on fleet is not only financially healthy, but it also helps to bring to light the right product decisions for true demand,” Schuster said. “It improves residuals and brand value.”

But such an approach has been the exception rather than the rule as industry growth has stalled. The annualized sales pace in October at 18 million was the fastest of 2016, but it was still down from 18.2 million a year earlier, according to researcher Autodata Corp. Through 10 months, light-vehicle sales are down 0.2 percent to 14.48 million. Industrywide, fleet deliveries are up 8 percent this year, while retail sales to individual customers are slightly off, said Mark Wakefield, managing director and head of the automotive practice for consultant AlixPartners.

“That's not the sign of a healthy market,” he said. “The fleet release valve has been opened this year. If you leave the fleet valve open too long, you can really do some damage to your” resale values.

--With assistance from Keith Naughton To contact the reporter on this story: Jamie Butters in Southfield, Michigan, at jbutters@bloomberg.net. To contact the editors responsible for this story: Kevin Miller at kmiller@bloomberg.net, John Lear