General Motors has decided to further shrink its outgoing fleet of rental vehicles to prioritize its in-house vehicle lending service, Maven, and focus on getting newer cars to customers. That does mean building fewer vehicles overall, but GM shouldn’t care if it can keep raking in the profits — something rental fleets aren’t particularly good at in lower volumes, unless you’re the one charging a daily rate.
Alan Batey, president of GM’s North American operations, claims sales to rental fleets should drop by about 50,000 units this year and an undisclosed amount in 2018. It follows the company’s trend to scale back fleet sales in general. Big businesses accounted for 16.1 percent of its total U.S. sales in 2014, but that was reduced to 11.7 percent in 2016.
“We like the rent-a-car business from a seats-in-seats perspective, because it’s great test drives and it’s a great opportunity to expose new people to our products,” Batey told Automotive News. “We don’t like it when it’s bringing too many nearly new vehicles back into the market to compete with our new business and compress our resale values.”
CEO Mary Barra has continued to shift GM away from volume as a means to make money. The brand has pulled out of some foreign markets to focus more on the domestic arena. Even in China, where high-volume seems within any clever automaker’s grasp, the company has been highly selective of what it sells. The strategy seems to be working. GM earned more than $12 billion in pretax profits in North America last year, resulting in record profit-sharing payments to UAW-represented workers.
One of the reasons to slow fleet production had everything to do with GM’s vehicle surplus. Profitability aside, the overall market is slowing and the automaker has allowed its inventory to hit the highest level in nearly a decade. Batey claims GM has 44 percent more inventory than it did a year ago.
“You have to react to what’s happening in the market,” he said. “We don’t control the external environment, but we have to react appropriately once we get clarity. We’ll take whatever actions we need to ensure that we keep our discipline in the marketplace.”
There’s also Maven. GM is funneling more of its supply into its own short-term rental fleet, hoping to expand it into a national phenomenon — like ZipCar. But it doesn’t want to eliminate its product from places like Avis, Enterprise, or Hertz altogether. It just wants to keep them hungry and ensure the cars on their lots are the latest model year, hopefully whetting renters’ appetites for one of their current offerings.
It’s a fairly nuanced and disciplined approach to dealing with the changing market, especially when it would be so much easier to stay the course and offer massive discounts when the market doesn’t immediately turn around.
“What’s different today from seven or eight years ago is we now have a full captive in GM Financial that’s really gaining momentum and gaining steam,” Batey said. “We’re able to really look at this holistically. We want to have a very strong lease portfolio, and we want to manage the back end of that in a very controlled manner.”
[Image: General Motors]