Dealers Protest Low Price Carmakers Give to Fleet Buyers
EVERYONE knows Budget Rent A Car Corporation., Avis Inc., and The Hertz Corporation - the Big Three of the daily car rental business. Now they are becoming some of the biggest names in used-car sales. In the process they are stirring up hostilities between the nation's conventional car dealers and auto manufacturers. ``Half of our dealers are losing money or just breaking even,'' says Ron Tonkin, a past president of the National Automobile Dealers Association (NADA), which represents the vast majority of the nation's new-car dealers.
The losses result from a variety of problems, including the overall slump in new-car sales. But Mr. Tonkin charges that carmakers promote high-volume purchases by rental companies, government agencies, and other owners of large auto fleets by offering them vehicles at prices significantly under dealer cost.
``It's an absolute necessity that dealers get cars cheaper than anyone else,'' insists Dennis Wilson, a Chrysler dealer from Olathe, Kan.
Otherwise, he says, they can't match competition from rental car companies, which have set up their own sales lots. And dealers rarely have the recent, low-mileage models that fleets can offer. Rental companies may sell cars that are only four to six months old.
Not surprising, dealers around the country, many of whom attended the recent annual NADA convention in Las Vegas, believe that getting rid of the fleet subsidies is a top priority.
Some carmakers are taking the complaints to heart, helping dealers obtain subsidized, low-mileage used cars turned in by government and other private fleets. But the manufacturers are loathe to end the fleet subsidies entirely.
For one thing, fleets are a way to get a lot of cars out onto the streets in a hurry. Several years ago, Chevrolet put thousands of its Corsica and Beretta subcompacts into the daily rental fleets, months before they were available on new car dealer lots.
That gave Chevy a chance to influence potential customers even before it officially launched the new products. It also created a big bubble, inflating the initial sales numbers for the two cars.
``There is data to support the contention that an early introduction to the fleets has four times the impact of any other comparable marketing program,'' says William Pochiluk, chief analyst with Autofacts Inc., a Paoli, Pa.-based market research firm. ``Effectively, what you have is a subsidized test drive.''
``For some vehicles, fleets account for 40 percent or more of all sales,'' Mr. Pochiluk says. Corsica and Beretta are heavily dependent on the fleets, as is the Dodge Dynasty.
The domestics have been heavily dependent on fleet sales for years, but as the imports expand their US production capacity and are making increasingly attractive bids to fleet managers.
Tonkin also complains that the fleet subsidies are the result of a conflict of interest. Virtually all the nation's new-car dealers are privately owned. But many car manufacturers have financial ties to the rental companies: Ford Motor Company owns a stake in Hertz, General Motors Corporation in National Car Rental System, and Chrysler Corporation in Thrifty Car Rental System Inc.
``I admit it's gotten a little crazy,'' said Chrysler chairman Lee Iacocca in a speech at the NADA conference. But, he stressed, ``the fleets have been very good to us at Chrysler; they helped save us when we almost went down for the count. And they're very important to our future ability to utilize capacity.''
In other words, as long as the fleets are willing to buy in big numbers, Chrysler and most of the other carmakers are unlikely to end the subsidies.
The final resolution of the debate could be handed down by the courts.
``I have filed a lawsuit in Oregon against four automobile manufacturers, importers, and all major rental car companies,'' Tonkin declared to thunderous applause. ``In the lawsuit, we will show price discrimination and violation of the Oregon antitrust laws.''