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Why Ford Beat General Motors in U.S. Sales Last Month

By John Rosevear - Apr 6, 2016 at 4:20PM

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The Blue Oval outsold its larger rival in the U.S. last month. It's the first time Ford has managed that feat since 2011. But in this case, there was a story behind the numbers -- and that story makes GM look pretty good.

Why are Chevy Cruze sales down 38% this year? GM's efforts to cut sales to rental-car fleets in a bid to boost profitability might be part of the answer. Those cuts dented its overall U.S. sales figures in March. Image source: General Motors.

Last month, Ford's (F 3.68%) U.S. sales rose 7.8%, while rival General Motors' (GM 2.69%) rose just 0.9% over year-ago results. 

That meant Ford gained on GM in terms of overall market share. It also meant Ford actually out-sold GM in the U.S. last month, something it hadn't managed to do in five years. 

On the surface, it looked like a good win for the Blue Oval. But once we look past the headline numbers, it's clear that GM has something important to brag about, too.

GM had good gains at retail, but fleet was a different story
The difference was clear in the press release that GM issued to announce its sales totals: It was heavily focused on retail results.

GM said that its "retail market share" in the U.S. increased a full percentage point in the first quarter. It bragged about the nice retail sales gains for its Chevrolet, Buick, and GMC brands. And it also noted that its sales to rental-car fleets were down 33% from a year ago, a difference of about 14,000 units.

Ford, on the other hand, said during a conference call on Friday that its overall U.S. fleet sales (not just rental cars; more on this in a moment) rose 39% in March, while its retail sales fell 5%. 

Now, to be clear, that's not quite an apples-to-apples comparison. "Fleet sales" includes three broad categories:

  • Sales to commercial fleets. Think about the number of trucks owned by cable companies, miners, oilfield-services companies, big construction contractors, and the like. These are commercial fleet customers. They buy a lot of vehicles -- mostly trucks, and mostly from Ford and GM. Both Ford and GM consider this to be good, profitable business. They compete hard with each other to win it. Increasingly, they also compete with rival Fiat Chrysler Automobiles (FCAU), which is aiming to win a larger share of these orders.
  • Sales to government fleets. This is everything from police cars to highway-department trucks to the huge number of cars bought for U.S. government employees. This is also considered good, profitable business, and it's also very competitive. 
  • Sales to rental-car fleets. If you've ever rented a car, you know what these are like. But they're a mixed bag for automakers and a source of concern for investors.

Investors often wince when they hear about "fleet sales" because Detroit has a bad history with rental-car companies. In the past, these fleets were used as dumping grounds for excess production, which was often sold off at a loss. That didn't just hurt profit margins, it also depressed resale values when the rental companies sold all those cars off a couple of years later. 

Nowadays, most automakers recognize there's some value to rental-car fleet sales: It's a way to introduce their (much-improved, at least from Ford and GM) products to potential customers who might not otherwise think to check them out. But it's still true that overdoing rental-fleet sales can be bad: While the cars aren't typically sold at a loss now, the margins are thin -- and resale values can be hurt in the same way, which these days makes it harder to offer competitive leasing deals. (Learn why here.)

Both Ford and GM have talked for the last few years about reducing their sales to rental-car fleets. Both have, to some extent. But recently, GM has been very disciplined in limiting its sales to rental-car company fleets.

So, how did that play out last month?
Ford and GM don't disclose exact numbers around fleet sales. Ford does give a monthly update on the percentage of overall sales accounted for by each of the three types of fleet sales. The company said on Friday that total fleet sales accounted for 36% of its U.S. sales last month, and that sales to rental-fleets were 17% of its total U.S. sales.

Both of those numbers are high. Ford's fleet sales have tended to run around 30% or so of its total U.S. sales in recent year. Last year, rental-fleet sales accounted for 11% of its total U.S. fleet sales. (To be fair, Ford is also working to increase its commercial-fleet sales. That's a good thing.) 

Ford's U.S. sales chief, Mark LaNeve, said on Friday that the jump in rental-fleet sales was caused by the timing of some big deliveries. He emphasized that Ford's full-year 2016 rental-fleet sales weren't increasing over the long term and should again be about 11% of its total U.S. sales in 2016.

Meanwhile, GM said its commercial-fleet sales were up 9% in the first quarter, its government-fleet sales were up 23%, and its rental-fleet sales were down 36%, or about 43,000 units. It also said that cutting back on rental-fleet sales helped it boost higher-margin sales at retail and to commercial fleets, presumably because many of GM's North American factories are running at or near capacity. 

The upshot: GM should see a margin boost, but it's probably a wash for Ford
Ford had a big year-over-year jump in rental-fleet sales in the first quarter because of the timing of some big deliveries. Meanwhile, GM is making a disciplined effort to cut back its own rental-fleet sales, and that probably accounts for much of its apparently sluggish overall sales performance in March.

For investors, here's the final takeaway: GM is cutting back on rental-fleet sales in an effort to boost its margins in North America. Meanwhile, Ford saw its rental-fleet sales jump in the first quarter. But it says this is just a temporary thing, meaning it's unlikely to have a significant impact on profits over time.

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