Ford transforms fleet business into profit driver. General Manager, Stratis wants to join | Real Time Headlines

DETROIT — What was once a dirty word and business in the auto industry has become a battleground for U.S. automakers fighting for billions of dollars. Ford.

The Dearborn, Miss.-based automaker has turned its fleet business, which includes sales to commercial, government and rental customers, into a profit driver. and Ford’s crosstown rival General Motors and Chrysler parent company Strantis have taken notice of this and reorganized their operations.

“There’s a lot more emphasis now on profitability and how fleets can help achieve that,” said Mark Hazel, associate director of commercial vehicle reporting at S&P Global Mobility. “(Automakers) are looking at how to address this strategically. It’s something they’re dealing with A very focused approach to fleet issues.”

Many fleet sales, especially daily rentals, have historically been seen as negative for auto companies. They traditionally have lower margins than selling to retail customers and are sometimes used as dumping grounds by automakers to offload excess vehicle inventory and boost sales.

But Ford proved that wasn’t always the case by releasing its financial results. “Ford Pro” fleet business. Since 2021, these businesses have generated approximately $18.7 billion in adjusted earnings and $184.5 billion in revenue.

Such results have Wall Street praising the business, with analysts calling it a “hidden gem” and Ford’s “ferrari”, referring to the lucrative Italian sports car maker.

“No other company has Ford Pro. We intend to take full advantage of that,” Ford CEO Jim Farley said at a company meeting on July 24. Second quarter earnings conference callwhere the Ford Pro performed well.

According to JD Power, fleet sales typically account for 18% to 20% of annual U.S. light vehicle sales across the industry, excluding some larger trucks and vans.

Part of the opportunity for fleet sales comes from aging vehicles on U.S. roads. The average age of the 25 million fleet and commercial vehicles on U.S. roads last year was 17.5 years, according to Standard & Poor’s. This is related to Light bus In 2023 it will be 12.4 years.

While commercial sales, considered best-in-class fleet sales, are expected to be slightly lower this year than in 2023, both GM and Stellantis have recently redesigned the business and stepped up investments. However, neither reported such results individually.

“Breaking down the fleet pipeline, we find that commercial sales are the weakest. Zooming in further, only two (original equipment manufacturers) appear to be particularly challenged: STLA and, to a lesser extent, General Motors,” Wolfe Research said. in a Wednesday investor note.

At the same time, Wolff said Ford’s commercial sales are up “strong” 7% this year compared with 2023.

While fleet sales data is not as readily available as retail sales data, Wolff Research estimates Ford’s profit forecast for this year at $9.5 billion, by far the leader in such profits. That compares with GM’s $5.5 billion and Stellantis’s North American business at about $3.5 billion, Wolfe estimated.

S&P Global Mobility reports that Ford has been the fleet leader for some time. Since 2021, Ford’s market share in new fleet vehicle registrations (classified by companies with 10 or more vehicles weighing less than 26,000 pounds) is about 30%. Meanwhile, General Motors’ market share during that period was about 21%-22%, and Stellantis’s was about 9%.

Citing third-party data, GM said it outsold Ford last year in fleet sales: commercial vehicles sold exclusively to businesses (those with five or more vehicles) rather than to individual buyers.

Meanwhile, Ford said it counts “all customers who register a full-size Class 1-7 truck or van under its business,” not just those with five or more vehicles.

Ford claims it leads sales of commercial vehicles (Classes 1-7 trucks and vans), with about 43% share of U.S. registrations as of May this year. The company said this figure was up 2.3 percentage points from the same period last year.

Ford Pro business is led by sales of automaker’s super truckPart of the Ford F-150 family of F-Series trucks, ranging from large pickups to commercial trucks and chassis cabs.

It also covers Transit van sales in North America and Europe, all sales of the Ranger midsize pickup truck in Europe, and service parts, accessories and service for commercial, government and rental customers.

But automakers including Ford also see fleet operations as a key driver in other areas, including electric vehicle sales and recurring revenue options such as software and logistics services.

“The gross margin on this revenue is over 50%, which significantly improves operating leverage and improves capital efficiency,” Farley said on the quarterly conference call. “The major part of this new software business is actually Ford Pro.”

Ford aims to achieve $1 billion in software and services sales by 2025, driven by its fleet and commercial businesses.

“Ford Pro is Ford’s core product with potential upside in sales as well as software and services,” Bank of America’s John Murphy said in an investor note Thursday. “On the software side, Ford Pro accounts for about 80% of Ford software subscriptions, with an add-on rate of only 12% and is expected to grow to more than 35% in the next few years.”

Christine Faure, Chief Executive Officer Ram brand by StellantisIt declined to reveal a timetable for achieving that goal but said the carmaker believed it could achieve it after overhauling its business to focus on better serving customers mainstream and growing profitably through sales and new services.

“It’s a very profitable business. Not only on the product side, but also on the service side,” she told CNBC at a media event last week. “Software and Internet services are indeed an important growth opportunity for us.

“We’re a little behind Ford in rolling out these services, but we definitely expect to see similar growth and revenue from these connected services.”

Ram accounts for about 80% of Stellantis’ U.S. fleet and commercial business. The company has launched a range of new or improved trucks and vans, as well as a range of connected and telematics products to assist fleet customers. It also increases the availability of financing and loans for business customers.

“This year our commercial offensive really begins,” Ken Kayser, vice president of Stellantis’ North American commercial vehicle business, said at a media event. “2024 is the foundation year for our brand, and we hope to build momentum for 2025.”

General Motors hasn’t been idle either. It improved its fleet and commercial operations. Last year, the company launched “GM Envolve,” an overhaul of its fleet and commercial operations with a focus on fleet sales, digital telematics and commercial customer logistics.

Sandor Piszar, vice president of GM Envolve North America, said the Detroit automaker sees the business as a competitive advantage that not only sells cars but also creates recurring revenue and relationships with businesses.

GM Envolve (formerly GM Fleet) restructures the automaker’s operations to become a one-stop shop for fleet customers – from sales and financing to fleet management, logistics and maintenance.

“GM Envolve is a critical part of GM’s business. It’s a profitable business,” he told CNBC earlier this year. “We believe our single point of contact approach to negotiating and coordinating the complete product portfolio that General Motors has to offer is a competitive advantage.”

GM and Stellantis declined to disclose revenue and profitability from their fleet operations.

GM Envolve includes the company’s Electric vehicle commercial business BrightDropLast year, the company was folded into the automaker rather than as a subsidiary. It hasn’t achieved the growth GM expected, but electric vehicles offer opportunities for the automaker’s fleet and commercial sales.

“BrightDrop is a great opportunity for GM and GM Envolve,” Piszar said, citing all-electric vans specifically targeted at last-mile delivery as well as local small businesses. “There are a lot of use cases and it’s a key part of our model as we ramp up production and get customers to try this vehicle.”

Unlike retail customers, many fleet and commercial customers have predefined routes or schedules that fit well with electric vehicles because they drive locally in an area and can charge overnight when electricity rates are lower.

S&P Global reports electric vehicle launch Rivian The auto industry led the U.S. in registrations of all-electric vans last year, roughly twice as many as second-place rival Ford Motor Co.

Although the upfront investment is high, automakers believe the eventual payoff may be worth it for some businesses.

Detroit’s three legacy automakers are touting these benefits to their fleet customers while still offering conventional vehicles with internal combustion engines.

Stellantis and Ford have also begun emphasizing their portfolios of different powertrains, such as hybrids and plug-in hybrid electric vehicles Adoption of electric vehicles It’s not happening as quickly as many expected.

Ford last month announced plans worth about $3 billion to expand Super Duty production, including to “energize” Super truck.

“All of our commercial vehicles are on a multi-energy platform, so we will provide customers with options that we don’t think other competitors will have,” Farley said on the earnings call. “We believe that even if it’s not a multi-energy super mission The pioneers, we will also be the pioneers.”

— CNBC Michael Bloom contributed to this report.