General Motors and Ford Motor could better revive their anaemic businesses by reducing the number of vehicles they sell to fleets, according to a report by Banc of America Securities.
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These transactions are less profitable, taint a company’s brands and, over the long term, reduce the value of the vehicles, The Associated Press said.
“The core problem for GM and Ford: too many brands and too many fleet vehicles produced at in too many plants and distributed through too many dealers,” Banc of America analyst Ronald Tadross said in the report cited by the news agency.
“The bottom line is that it would cost GM and Ford tens of billion of (cash) dollars to fully restructure the businesses properly. The shortest lead time part of the fix, in our view, is to cut back on fleet vehicle sales.”
So far, GM, Ford and Daimler-Chrysler have simply focused on downsizing their respective businesses, rather than spending the money to eliminate brands and buy out dealers, the analyst said.
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By GlobalData“We think it is as important to cut back on ‘profitable’ corporate fleet sales as well as rental fleet sales,” reportedly said Tadross.
He noted that Honda, for instance, frowns on both and it has the best retail value in the industry.
Fleet vehicle sales comprise roughly 30% of US sales for the ‘big three’ automakers but comprise 1% to 2% of Honda’s and only 5% of Toyota ‘s, according to the research firm.
“What’s especially frustrating to us is how the companies have not worked harder to reduce the shortest lead time and potentially biggest weight on their vehicle resale values: rental and corporate fleet sales,” Tadross said, according to the report.
Banc of America maintained a “neutral” rating on shares of GM and Ford, as both companies “seem ripe” for a change in management.
“Absent such a change, the fundamental pictures remain bleak to us,” the analyst said, according to The Associated Press.
