Ford Faqs

Ford Motor Company grew its fleet sales in the government and commercial sectors in 2006 while surprisingly reducing its presence in the daily rental market to improve the residual values of its vehicles. This year, Ford will continue to de-emphasize rental fleet sales while allowing its government and commercial fleet sales to grow.

By significantly limiting its presence in the rental market Ford is minimizing the price-cutting impact that ex-rental units have on new car sales. Rental units are more damaging to residual value than other types of fleet vehicles because they typically return to market within a year of being built, enticing buyers away from new vehicles because of an ex-rental unit’s low prices and low mileage.

“Reducing our rental volume to improve our vehicles’ residual value is part of our Way Forward strategy,” said John Felice, director of Ford’s North American Fleet, Lease and Remarketing Organization. “We anticipate and plan an overall decline in fleet volume this year, but it’s almost exclusively attributable to a decrease in rental volume.”

Ford Fleet’s market share and sales performance proved to be very good in 2006, Felice added. Its share increase of 0.4 percent led the industry, and it delivered nearly 900,000 sales, up 6 percent or 48,000 units from 2005, outpacing the industry sales increase by 5 percent. Ford Fleet’s sales increase in 2006 was fueled by the popularity of its F-Series trucks, E-Series vans and Crown Victoria taxi cab and police interceptor sedans in the commercial and government fleets despite flat sales growth in the rental market, which will decline further in 2007.

Felice explained that discontinued production of the Freestar minivan and previous-generation, Atlanta-built Taurus sedan will account for the majority of the rental decline in 2007. The 2006 Taurus, for example, was 100 percent fleet last year and represented a third of Ford’s total rental volume. In place of the Taurus, Ford is currently delivering a limited number of 2007 Five Hundred and Fusion sedans to the rental segment while maintaining its sedan volume in the commercial and government fleets.

“We’ve successfully transitioned our customers from older-generation Taurus to new Fusion and Five Hundred, which was a key objective,” said John Ruppert, general manager of Ford Commercial Fleet and Government Sales. By shrinking its rental volume the company is seeing improved residual values in its current models. Rental vehicles hurt residual value because they reach auction after no more than a year in service to tempt buyers away from new car purchases, which ultimately hurts residual value when dealers must reduce prices on new cars.

Comparatively, commercial and government fleet vehicles stay in service for three to five years and do not compete head to head with new cars, and as a result have minimal impact on residual values. In recent years, Taurus cars held only 30 percent residual value after 36 months due to its high volume rental presence. Comparatively, the Fusion, Five Hundred and Lincoln Zephyr/MKZ hold residual value between 45 and 50 percent after 36 months, because Ford has limited their volume in the rental market.

Another key that is important in increasing residual values is putting the right equipment in rental units for maximum return on the auction block. Unlike in the past, Explorers are getting third row seats and Lincoln Navigators get power lift gates and chrome wheels, attributes that are proven to command higher bids at dealer auctions.

With its rental sales in a holding pattern, Ford increased its government sales by 15 percent in 2006, which led the industry. The company holds a commanding 47 percent share of the segment. Comparatively, General Motors increased its sales by 12 percent and DaimlerChrysler saw its government sales slide by 11 percent.

Ford led the domestic industry with increased commercial fleet sales of 8 percent in 2006. The company holds a competitive 28 percent share of the segment. Meanwhile, GM grew its commercial fleet sales by 3 percent and DCX’s sales dropped by 8 percent. As part of its commercial fleet business, Ford continues to dominate the limousine/livery segment with a commanding 82 percent market share, which represents a two percentage point increase over 2005.

As part of its commercial fleet strategy Ford is leveraging partnerships with suppliers such as Office Depot and United Healthcare by offering them a full service, full maintenance managed fleet program. The companies benefit by replacing costly driver reimbursement programs with a risk-free, closed-end, lease program, which does not obligate the fleet customer to purchase the leased vehicles at the end of the agreement.

Since the fleet customer has no obligation to purchase the leased vehicle upon lease expiration, it does not have to concern itself with asset depreciation. As Felice sees Ford Fleet’s success so far, it’s not just about having the right mix of vehicles at the right price. It’s also about superior sales and service value and customer satisfaction.