Auto sales fell 5.8 percent in October – more proof that U.S. demand is softening — but two big Asian manufacturers, Nissan North America and Hyundai of America, managed to outperform the industry. How? By sharply increasing their sales to rental car agencies.
Almost 270,000 Hyundai and Kia vehicles have ended up in rental fleets so far this year, 57,000 more than last year at this time, a 27 percent jump. Meanwhile, Nissan has steered 65,000 more cars to rental fleets in 2016, 39 percent more than last year. The figures come from The Bobit Report, which tracks commercial, government and rental sales trends. (Fiat-Chrysler is still the top purveyor of rental cars, with nearly 353,000 to date, but sharply curtailed its rental volume in October, following a similar move earlier this year by General Motors.)
The Nissan Altima is now the top rental car in America, by far, with one-third of all Altimas sold through June going to rental agencies, according to vehicle registration data from IHS Markit which was shared by a rival carmaker. (A spokeswoman for IHS Markit would not confirm the figures, which are proprietary for industry customers and not shared publicly.) Hyundai more than doubled sales of its Sonata sedan to rental agencies through the first half of 2016, making it the third-most common rental car (behind Toyota Camry).
Nissan and Hyundai are not alone; the leaked IHS Markit data shows the rental mix of total sales for major automakers has been rising. (The exceptions are General Motors, which is scaling back, and Honda, which doesn’t sell many rental cars anyway.) Through June, 24.3 percent of Hyundais were rental cars; as were 21.2 percent of Nissan and FCA cars; 15.2 percent of Fords; 11.1 percent of Toyotas, and 10.3 percent of GM vehicles.
Why does it matter? Carmakers often use rental lots as dumping grounds for vehicles they can’t otherwise sell. Right now, consumers are gravitating toward crossover utility vehicles. Traditional family sedans aren’t selling, which is why rental agencies are scooping them up at a discount.
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The problem is automakers earn less profit on rental cars. Plus, when they show up a year later at used-car auctions, they’re often tired and beat up, so they fetch lower resale prices. That drives down residual values on new-car leases, making them more expensive.
GM’s strategy to pull back on rental sales is part of a larger brand-building effort, particularly at Chevrolet, to focus on more profitable sales to individual retail customers. GM has sold 103,000 fewer rental cars so far in 2016, a 29 percent decline, according to Bobit. While its overall market share has fallen to 18.1 percent, from 18.8 percent a year ago, it has gained retail market share in 16 of the past 19 months. Led by gains at Chevrolet, GM’s retail market share has increased 0.6 percent, to 18.1 percent, so far this year, more than any other brand.
Its residual values are climbing too. Research firm ALG, a unit of TrueCar, said GM’s residual value index is up 0.6 percentage points, a reflection not just of its shift away from rental sales but also lower incentives and better vehicles in its lineup. (Nissan’s residual index, meanwhile, has fallen o.1 percent as its rental car mix has increased.)
The payoff is hitting GM’s bottom line. It had a record $2.8 billion net profit in the third quarter, and beat analysts’ sales expectations in October on the strength of its retail business.
Meanwhile, Nissan and Hyundai seem eager to step into the void left by GM. A Nissan spokesman explained the big jump in rental mix as a timing issue related to the the arrival of the 2017 Altima in January. Sales of the new model to rental companies were “front-loaded” to the first half of the year, and will ”taper off” to normal levels, he said. Hyundai did not respond to a request for comment.