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Can Detroit Change End-of-Year Habits?

With auto sales showing signs of stabilizing, U.S. car makers must contend with more workaday challenges, like profit margins.

Auto makers roll out December car and light-truck sales reports throughout the day Tuesday. Many economists and analysts expect that sales hit an annualized rate of at least 11 million units.

That would be the best sales rate since September 2008, excluding months boosted by the U.S. government's "cash-for-clunkers" program, according to Barclays Capital analysts.

Such hints of economic recovery in overall sales would be welcome. But in a sign that just selling cars is no longer reason enough for cheer, analysts are looking at the types of sales auto companies are notching.

Analysts want evidence that car makers are continuing to wean themselves from reliance on typically low-margin fleet sales long used to help boost volumes.

Traditionally, auto makers scramble to meet sales goals in December, in part by offering deals on vehicle sales into the fleets maintained by groups such as local governments or rental-car companies.

These buyers are less likely to splurge on options that pad the bottom line.

While such deals might help car makers defend their market share, reliance on fleet sales can hurt margins, weigh on resale values and, some argue, make brands less attractive to consumers.

"They can be addicted to it," said Jessica Caldwell, director of industry analysis for autos Web site Edmunds.com.

"It has to be a healthy mix," she added.

Of the Detroit car companies, Ford Motor seems to get the most-improved nod for disciplining its reliance on fleet sales, said Brian Johnson, an auto analyst at Barclays Capital.

Ford was once thought to be one of the most reliant on fleet sales, especially when it owned car-rental company Hertz, which it sold in 2005.

Analysts are somewhat less clear about how new management at Chrysler Group and General Motors will balance market share and profit margin.

Even if sales do hit the 11-million unit annualized rate, an overabundance of fleet sales embedded in the data would raise concern about whether U.S. auto makers have "changed from their old ways," said Mr. Johnson.

2010-1-6

 




 
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