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Market Trends

Import-Badged Models Increase Market Penetration with 2009 Fleet Buy

September 9, 2008, by Mike Antich - Also by this author

By Mike Antich

When fuel prices crossed the $3.25 per gallon threshold, fleets began looking for ways to downsize vehicles or opt to four-cylinder engines. For commercial fleets, this trend is also part of a corporate sustainability initiative and/or fuel spend/GHG reduction program. The shift to four-cylinder engines is broad-based and includes companies such as Bausch & Lomb, Owens Corning, Kraft Foods, Johnson & Johnson, Merck, Abbott, Infinity Insurance, etc. One consequence to this increased demand for four-cylinder models is that fleets have increased their purchases of import-badged vehicles.

Fleet management companies, which handle new-vehicle fleet orders from a broad cross-section of companies, also report seeing an increase in fleet orders for import-badged vehicles.

The latest ordering statistics from PHH Arval show a near doubling of market share for imports for the January to August 2008 calendar year versus same time last year. "We expect the trend to continue into 2009," said Greg Corrigan, VP, strategic business intelligence for PHH Arval.

"Between model-years 2007 and 2008, and even as clients are preparing 2009 selectors, we have noticed an increase in demand for import vehicles and vehicles with four-cylinder engines," said Jan Freund, director - manufacturer relations for Wheels Inc.  "Import vehicle purchases by Wheels clients increased by 2 percent from 2007 to 2008. Based on client ordering templates and early order activity for 2009, it appears likely that trend will continue. One of the key factors for customers developing their vehicle selector for model-year 2009 has been the cost of fuel, and therefore, four-cylinder vehicles have received a lot of consideration."

However, ongoing high demand for four-cylinder import-badged models in the retail marketplace will limit the degree of their fleet penetration.

 "We are also seeing more specs for four-cylinder vehicles and more interest than we have seen in past years for four-cylinder imports. I definitely think we will see a slight uptick in four-cylinder import orders as a result. Pricing and availability due to high consumer demand for these vehicles still has an impact on limiting the total volume increase for the 2009 model-year. I should point out that we are seeing the same increased interest in the higher-performing four-cylinder vehicles now offered by domestic manufacturers," said Tim Martin, vice president, operations for LeasePlan USA.

A survey of the fleet departments for Toyota, Mazda, Nissan, and Subaru indicates they are experiencing an increase in commercial fleet orders.

Toyota reports that from January-August 2008, its commercial fleet sales are up 25 percent compared to the same period last year, according to Scott Heyer, corporate manager, fleet for Toyota Motor Sales USA. One factor contributing to this increase has been a jump in hybrid sales to commercial fleets. "Commercial fleet orders (not counting rental) for the Camry Hybrid have witnessed dramatic growth for the January-August 2008 timeframe, compared to the same period last year," said Heyer. "For all Toyota hybrid models, commercial orders, excluding rental sales, are up 63.5 percent for the same timeframe." However, the increase in commercial fleet sales experienced by TMS has been part of a multiyear trend. "We have been experiencing 20-percent year-over-year growth in our commercial fleet sales for the past four years," said Heyer. (Interestingly, TMS reports sales for the Camry V-6 gasoline engine are stronger than those of the four-cylinder model. For the second quarter 2008, orders for the Camry four-cylinder model accounted for 34 percent of all commercial fleet orders, compared to 66 percent for the V-6 Camry.)

Nissan reports a "considerable increase in commercial fleet sales" for 2008, but declined to divulge the percent of increase. "Without question, more and more companies are transitioning from eight- and six-cylinder engines to four-cylinder.  With Nissan offering a fuel-efficient line of four-cylinder engines in Versa, Sentra, Altima, and Rogue models, our commercial sales are up considerably over last year," said Bob Topor, fleet sales manager, commercial, leasing, government and alternative fuel vehicles for Nissan North America.

Mazda also reports an increase in commercial fleet orders. "The dramatic increase in fuel expenses has increased the interest of fleet managers to look towards more fuel-efficient vehicles," said Robert Fecher, national manager, fleet operations & remarketing for Mazda North American Operations. "We are seeing greater interest in the four-cylinder vehicles versus the six-cylinder, which has been the engine of choice historically for commercial markets. Mazda is fortunate to have a wide array of vehicles with fuel-efficient, four-cylinder engines. The all-new 2009 Mazda6 is an example of this trend towards four-cylinder engines. As we launch this new Mazda6, the commercial accounts inquiring about this vehicle are specifically asking for quotes for four- and six-cylinder engines. In the foreseeable future, it looks like four-cylinder vehicles will be the engine of choice for the commercial market," added Fecher.

Likewise, Subaru of America is reporting a year-over-year increase in commercial fleet sales. "For the 2009 model-year, Subaru of America has signed a number of new fleet accounts and it is still very early in the model-year. It is a little too soon to calculate the specific impact of these new accounts as ordering has yet to begin in earnest with some larger new accounts," said Charles Reed, manager, national fleet sales operations for Subaru of America (SOA). "Subaru commercial fleet continues to experience year-over-year sales growth; and with a major price repositioning by SOA in the 2007 model-year, the pace of commercial fleet growth is now exceeding forecasted growth levels. Additionally, many of  SOA's new and existing accounts are going 'green' and have opted to order SOA's SmartWay Certified, PZEV models to complement their own internal, corporate green initiatives," added Reed.


Reasons for Shift to Four-Cylinder Models

A mid-size sedan equipped with a four-cylinder engine achieves, on average, a 10-percent improvement in combined city-highway fuel economy. There is a reduction not only in fuel spend, but also in cap cost. The cost of a four-cylinder engine in mid-size cars is $1,000-$2,400 less than a V-6. The high price of gas is just one reason why many commercial fleets are investigating the acquisition of four-cylinder models. The other reason was to reduce vehicle emissions as part of a green fleet initiative to conform to corporate-wide sustainability focus.

In addition, switching to a four-cylinder engine allows a car fleet to maintain the same size vehicle necessary to meet its fleet application without downsizing to a smaller model.

One reason for spec'ing six-cylinder engines in past years was driver morale. In years past, many drivers complained about underpowered four-cylinder engines. However, powertrain technology has evolved to the point where many unsophisticated drivers may have difficulty discerning a four-cylinder from a six-cylinder. Today's four-cylinder engines provide better performance than the six-cylinder engines of yesteryear.

Another reason cited by fleet managers for the switch to four-cylinder engines is that they currently enjoy high demand in the wholesale resale market. Although this has been occurring for the past several years, it is a historical anomaly. In the past, vehicles were penalized in the wholesale resale market if they were not equipped with six-cylinder engines. No more. This will most likely remain the case for the foreseeable future or as long as gas remains over $3.50 per gallon.

Let me know what you think.


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Author Bio

Mike Antich

Editor and Associate Publisher

Mike has covered fleet management and remarketing for more than 20 years and entered the Fleet Hall of Fame in 2010.

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