DEARBORN -- Last week, Ford introduced its 2011 lineup of U.S. fleet vehicles, the most fuel-efficient in the industry.  Profitable fleet sales, consisting of government, commercial and daily rental business, are a key component of Ford's improving bottom line.  U.S. Sales Analysis Manager George Pipas explains Ford's fleet strategy and how it compares to the industry.  

Q. Ford's fleet sales in the first quarter represented 36 percent of the company's total sales.  Isn't this high?
A. Actually, it's right in line with our historical average.  There’s a seasonal element to fleet mix.  Historically, the first quarter is a strong period for industry fleet sales.  On the other hand, retail sales typically are not as strong during this period as they are the remainder of the year.  The combination of those two factors accounts for a higher mix of fleet sales during the first quarter.  By the end of the year, our fleet mix will be in the 30-percent range, just as it's been the last several years.     

Q. Are fleet sales less profitable than retail sales?
A. It depends on what vehicle you’re selling and to which market.  Generally speaking, daily rental is the least profitable, but it is still very profitable.  It would surprise people to know what a big difference it makes to our bottom line. 

Q. Didn't resale values of the mid-size Taurus suffer several years ago because Ford sold too many units to daily rental companies?  What steps is Ford taking to avoid that same situation?
A. Five years ago, Ford's daily rental business was about 17 percent of total sales.  And much of it was in the Taurus car line.   In fact, almost all Taurus production went to fleet customers at that time. 

Since then, Ford has reduced daily rental sales to about 12 percent, in line with the rest of the industry.  Furthermore, we use mathematical models to establish caps, or maximums, for the number of daily rental units we should sell for every one of our products.  As long as we stay within those defined caps, the daily rental business is very profitable for us and offers exposure to many customers who would not otherwise drive one of our products. 

Let me give you an example.  A while ago, I received an e-mail from a woman who is a physician in California.  She had flown to Pennsylvania to visit her father.  When she landed, she rented a Mercury Milan. She ended up buying a Milan, based solely on that rental experience.  She could not believe what a great product it was at such an affordable price.  Had it not been for that rental, this woman may never have visited one of our dealers, let alone purchased one of our vehicles.  The fact is, many people who fly are excellent new vehicle prospects because they tend to have higher-than-average incomes. 

Q. Does Ford also cap government and commercial fleet sales?
A. No.  The reason is that these customers keep their vehicles in service three, four, five or more years.  When a company buys an F-Series truck, they likely are going to drive it into the ground.  In that case, there isn't a flood of F-Series trucks hitting the auctions or used car lots after, say, a year in service.  A lot of those trucks may never see an auction if they're driven long enough. 

On the other hand, daily rental units usually are turned over – taken out of service and sold as used vehicles – about every 12 months.  So, if an automaker has pushed a high volume of cars through the daily rental channel, they all come out within a few months of each other and can adversely affect their value at auction.  And a lower value at auction for a used car or truck has the same impact on new versions of that vehicle at dealerships.  It becomes a vicious circle.  

A key to managing a successful, profitable fleet business is maintaining a proper balance.  Ford is doing just that.  In fact, as we reduced our participation in the daily rental business, we have increased our participation in the commercial and government segments.  And if we can get more of that business, we will. 

Q. How does Ford's mix of fleet business – daily rental, commercial and government – compare to the industry as a whole?
A. In 2009, Ford's fleet sales consisted of 43 percent daily rental, 34 percent commercial and 23 percent government.   The rest of the industry was 66 percent daily rental, 24 percent commercial and 10 percent government.  We have a much better balance.  The industry is heavily weighted toward daily rental business. 

Q. How is Ford's fleet business compared to major competitors?
A. Ford led the commercial and government fleet segments in 2009, gaining nearly two points of fleet share while overall industry fleet business declined 29 percent.  It's important to note that Ford also has gained retail share 17 of the last 18 months, so we're not picking up fleet business at the expense of retail business.  There isn't much fleet data yet for 2010, but what there is seems to indicate that this year could be another good year for Ford fleet sales. 

Q. Why is Ford experiencing increased fleet sales?
A. It's the result of our strong, balanced product lineup.  We're not pushing our vehicles into the commercial and government fleet markets.  Customers are pulling our vehicles into these segments because they want them – just like retail customers are doing.
  
This is a result of the product improvements that Ford has made in recent years in such areas as quality, fuel efficiency, safety features, smart technology and increasing residual values.  Fleet customers are even more watchful, careful and critical of the operating cost of a vehicle than a typical retail customer because in many cases, the fleet owner is not just purchasing one vehicle, they’re purchasing several hundred.  So, they’re particularly concerned about factors such as durability, fuel economy and resale value.  Resale value is very big with fleet customers, especially when they are turning over their vehicles every two or three years, like many fleet owners do.   

Q. Which Ford vehicles are the most popular with fleet customers?
A. Registration data shows that F-Series is the number-one fleet vehicle in the entire industry. 
E-Series is number three.  Fusion, Taurus and Escape are also among the top-selling vehicles in the commercial fleet market.  In years past, you wouldn't find them near the top of the list, but fleet customers recognize the excellent resale value, fuel economy, quality and other attributes that these vehicle offer.  Word is getting around. 

As I said earlier, there's not one company out there that wouldn't love to have the breadth and balance of our fleet business because it is a big contributor to our bottom line – and to our dealers.  I wouldn't trade our fleet business – and especially the way we manage it – for anything.