Auto companies are bailing out on rental-car sales

Cheap Car RentalFlickr/Jonathan BrodskySorry, no cars for you.

In the auto industry, they’re called “fleet sales,” and they’re complicated.

They can boost an automaker’s sales numbers, but at the expense of profits, given that fleet sales are going to large organisations and rental-car agencies, and those folks don’t pay full retail prices for the thousands of vehicles they buy.

This year, General Motors has been making a concerted effort to reduce fleet sales, and as Bloomberg’s Jamie Butters reported, the approach has been good for GM’s bottom line — so much so that another Detroit carmaker is emulating the plan:

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 per cent in October, as the automaker’s total sales fell 11 per cent, Ralph Kisiel, a spokesman at the company’s Auburn Hills, Michigan-based unit, said in an email. He said the results reflect a strategy of reducing sales to daily-rental companies.

As Butters wrote, another factor is influencing FCA’s decision: the automaker is shifting away from passenger-cat production to focus on trucks and SUVs.

That means it won’t have as many sedans to sell to rental-car fleets, but will instead be concentrating on remaining competitive with pickups and crossovers, two of the industry’s most profitable segments.

It’s worth noting that this strategy is fine while it lasts, but eventually fleet customers will want to buy additional cars. Ford, for example, took care of their fleet customers early in the year and has now shifted to the retail side of its business.

Fleet sales, though lower margin, still represent millions in potential annual sales, and those buyers are reliable.

But this trend is also a good example of how US automakers are rethinking their traditional approach to sales. Profitability is ruling the day, rather than market share. And with sales on a pace in 2016 to match 2015’s record of 17.5 million, carmakers could be backing away from fleet sales for a while.

NOW WATCH: FORD CEO: This is why women and young people love SUVs

NOW WATCH: Money & Markets videos

Business Insider Emails & Alerts

Site highlights each day to your inbox.

Follow Business Insider Australia on Facebook, Twitter, LinkedIn, and Instagram.