By Mike Colias
General Motors Co. aims to end three years of market share declines in 2017 even as the company continues to cut back on sales to one of the auto industry's most loyal customers.
The Detroit auto maker has sharply reduced sales to daily-rental companies in recent years because those sales traditionally return lower margins, dent resale values and hurt overall brand image. This strategy has taken a toll on overall market share, with GM finishing with 17.3% of the U.S. market last year, compared with 17.6% in 2015.
A top executive said GM will reduce rental-car sales in 2017 by as much as an additional 50,000 vehicles compared with 2016 sales, or 15% of the rental-fleet total, but it aims to tally market-share gains.
The company's sales strategy will be in focus Tuesday as the auto maker presents part of its 2017 business plan to analysts at an investor conference taking place alongside Detroit's annual auto show.
While GM's position continues to sink further below the dominant perch it long held in the U.S., GM's North America Chief Alan Batey said the company is increasing retail sales, or deliveries to individual buyers at dealerships. "We've been able to take the vehicles that we would have been selling as rentals and switch them to retail," Mr. Batey said in an interview on the sidelines of the auto show.
"That grows profitability."
Mr. Batey said GM should be able to offset the reduced rental-car volumes this year because it is rolling out a number of redesigned crossover SUVs, which are a hot part of the market.Detroit's auto makers historically have leaned on the rental-car business more heavily than Asian competitors. Rather than cutting production when demand from individual buyers cools -- which crimps revenue and potentially leads to cash outflows related to plant shutdowns -- GM often would sell large pools of cars to rental companies.
That strategy eventually leads to higher numbers of used cars returning to the market at depressed prices, which reduces resale values and makes it more costly for auto makers to offer attractive lease deals. GM curtailed excessive rental sales in the years following its 2009 bankruptcy but redoubled its effort in the last few years under GM Chief Executive Mary Barra.
Rentals accounted for 10.7% of GM's overall sales in 2016, down from 15.3% in 2014.
The pullback on rentals "shows evidence of GM going after more-profitable segments" of the market, RBC Capital analyst Joseph Spak wrote in an October research note.
But GM's strategy could be tested by a continued slowdown in consumer demand for passenger cars, analysts say. Diverting more Chevrolet Cruze and Malibu models to rental lots could help avoid trimming production.
Mr. Batey said doing that would be reverting to bad habits.
"There is absolutely no temptation from this leadership team to say 'OK, let's go back to our old ways and dump vehicles into rental-car fleets," Mr. Batey said. "We want to build these brands."
(END) Dow Jones Newswires
January 10, 2017 11:49 ET (16:49 GMT)
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