Nissans crowding rental-car lots carry risk
WHEN his car needed weeks of transmission work and his dealer was out of loaners, Myles Arnett was sent to a nearby Hertz rental- car lot. He had his pick of Nissan Altima and Sentra sedans to choose from – and little else.
“Over the past two, three years, predominantly Nissan is what’s on the lot, whether its Enterprise or Hertz,” said Arnett, a Columbus, Ohio-based computer-network administrator who rents vehicles several times a year.
More American rental- car lots are looking a lot like the one Arnett encountered, which helps explain why Nissan has been an exception among auto makers reporting declining US sales this year. But Nissan’s decision to boost deliveries to fleet companies carries risk, both to the Japanese auto maker and to struggling rental- car giants Hertz Global Holdings and Avis Budget Group.
Rental- car companies go through cars much like consumers do, racking up miles before re- selling them to the used-vehicle market. If Nissan sells too many cars to the likes of Hertz and Avis, the oversupply can depress the value of vehicles owned both by regular consumers and the companies. Having been burned by this phenomenon in past downturns, Detroit automakers have been dialing back their fleet business this year, contributing to what analysts expect to be another month of slower US auto sales in May.
“Nissan has been very open that they think they can handle more fleet business in a profitable way,” said Eric Lyman, an analyst at TrueCar Inc.’s ALG unit. “If GM and FCA have left some of the fleet business, Nissan is more than happy to fill the void.”
Auto makers probably will report a slower pace of annualised sales for a fifth consecutive month, according to a Bloomberg News survey of analysts. The industry-wide selling rate, adjusted for seasonal trends, may have slipped in May to about 16.8 million, compared with 17.2 million a year ago.
Nissan has been expanding its fleet business as some dealers criticise its use of retailer incentive programmes and rising discounts to consumers drag on earnings. The Yokohama, Japanbased company risks reducing the value of its models over time, a hidden cost to buyers that also makes it harder to finance competitive leases.
Almost a third of Nissan Altima sedan sales in the US last year went to fleets, according to Edmunds.com data through October.
“A successful fleet operation is one thing, when it’s 10 per cent of your volume,” said John Mendel, who until April was Honda Motor Co.’s top US sales executive. “But when it approaches 35 per cent to 40 per cent of your business on that vehicle line, I struggle with saying that’s successful. That’s just giving cars away.”
Detroit auto makers may be cutting back on their fleet business, but Judy Wheeler, Nissan’s vice president of US sales, said the companies remain very much in the mix. Nissan has been working more than a year to sell nicer- equipped models to rental fleets to make impressions with consumers and woo some potential buyers, she said in a phone interview.
“Maybe it makes them rethink what they have in their driveway,” Wheeler said.
Nissan’s market share gains this year could continue another month, based on analysts’ estimates.
The company’s deliveries may rise 0.6 per cent in May, while four of its biggest peers are projected to report declines. General Motors is expected to post the biggest increase, at 4.3 per cent.
Fiat Chrysler Automobiles’s move to end production of the Dodge Dart and Chrysler 200 sedans took out big chunks of rental- car supply and has contributed to shrinking total sales for about a year. Chief Executive Officer Sergio Marchionne is retooling factories that used to produce cars to make more profitable Jeep sport utility vehicles and Ram pickups.
US auto sales are on track to decline this year for the first time since 2009, the year that GM and Chrysler’s predecessors went bankrupt.
Rising fleet sales last year – led by Nissan – powered the US auto industry to an unprecedented seventh straight annual sales gain in 2016. While full-year light-vehicle sales rose by 70,882 vehicles, according to researcher Autodata Corp., total fleet sales increased by about 108,440 units, according to trade journal Automotive News.
Nissan’s fleet sales alone rose by 80,200 vehicles, Automotive News reported.
Nissan’s Wheeler downplayed how much of a role rental- car companies are playing in the company’s increased fleet sales. Deliveries of Titan pickups and NV work vans are boosting business with commercial customers, she said.
The target for Nissan is to sell 15 per cent to 20 per cent of its vehicles to fleets, Wheeler said. That’s higher than recommended by ALG, which finds that usedcar values and brand image take a hit once fleet exceeds about 10 per cent of auto makers’ total sales.
“The fleet sales that we’re seeing with Nissan is going to create pressure on their new- car values,” ALG’s Lyman said.
While selling to rental fleets can mean exposing your vehicles to potential buyers, lower-tech models run the risk of turning off drivers.
That was the case for Arnett, the Hertz customer from Ohio. The Altima he rented has more pep than his Hyundai Veloster, but he called the Nissan’s infotainment cluster “subpar and basic” and said the steering wheel was already showing wear. —WP-Bloomberg