MISSISSAUGA, Ontario — The fleet market in Canada has been stronger than consumer sales for the first sixth months of the year and this trend is expected to continue, according to Dennis DesRosiers, president of DesRosiers Automotive Consultants. As for the impact of the higher fleet sales on the used market, as many in the industry are aware, these sales can drive down resale values, DesRosiers added.

Fleet sales are up 3.4 percent for the first half of the year, while consumer sales were only up 0.2 percent, DesRosiers pointed out.

"Once the consumer incentive laden July and August sales are factored into this year's sales, I suspect you will find that the consumer market is down by a good 5 to 8 percent by the end of summer," DesRosiers said. "Fleet is where the action is and should be up solidly by the end of the summer. Not enough to offset the decline in consumer sales, though, since we know the total market is now down to the end of July and is not looking good for August."

DesRosiers characterized fleet sales as a "safety value" for the Canadian auto industry.

"Fleet sales aren't necessarily bad and, indeed, aspects of fleet can be very good (commercial, executives sand government fleets for instance). But too often, the OEMs dump underperforming vehicles into daily rentals at low or now margins and or losses. These underperforming vehicles are used by fleets for a relatively short period of time then dumped into the used vehicle market and end up in a consumer's driveway. Well, if they weren't very good when new, then they are even worse vehicles when used.

"The consumers who purchase them get a great deal, but not a very good vehicle," he continued. "If it's the latter then they complain about it which undermines brand value. Overuse of fleet of any kind can also seriously deflate resale values as they increase the supply of used vehicles in the market. This is the root of much of the low resale values at General Motors, Ford and DaimlerChrysler. I would also argue that Honda's high resale value is partially due to their staying away form fleet sales. And Honda beating Toyota in resale values is also due to Toyota playing in the fleet market while Honda does not."

What really hurts resale values, however, is when automakers sell vehicles to fleets at no profit margin or at a loss, DesRosiers highlighted.

"Again, fleet can be a great business, but it requires careful management and a good understanding of the potential negatives, and needless to say, a lot of discipline."

As an example of his insights, DesRosiers referred to last fall, when GM announced its new pricing structure and the automaker said it was going to back out of the fleet market.

"Well, they have been true to their word. GM fleet sales are down 7.1 percent in 2006, ironically, identical to their loss of consumer sales since at the same time they backed away from heavy consumer incentives. Both are smart moves," DesRosiers explained.

"The loss of fleet business costs GM market share and the loss of consumer business cost them even more market share, but these moves are positioning GM to make more money on what they do sell. In the longer term, this should improve their brand value. The loss of fleet business and lower consumer incentives will also not undermine all their new products coming into the market."

While GM was backing away from the fleet market, DaimlerChrysler and Ford did not do this as much, with varying results, DesRosiers said.

"DCX fleet sales are up 12.7 percent in 2006 while consumer sales are down 8.3 percent," he said. "This shows the degree to which DCX is struggling with the consumer side of the market. A total of 40 percent of their sales are now fleet, which is the highest since I started following them in 1990. That year only 21.7 percent of their sales were to fleets so their reliance on fleet has almost doubled over the last 15 years. Ford is having a good year on both sides of the market, with fleet sales up 6.5 percent and consumer sales up 5.6 percent."

As for Toyota, DesRosiers said this automaker's fleet sales are up 35.4 percent to 12,470 vehicles.

"We don't know the mix of these units, as to how many are to commercial fleets, executive fleets, government or daily rental, but Toyota has become aggressive with fleet sales this year," he continued. "Not nearly to the extend that GM, Ford or DCX play in the fleet market, though, as Toyota has only 13.3 percent of their vehicle sales mix as fleet, but Toyota is being more aggressive than in the past."

DesRosiers also mentioned that GM (39.7 percent), DaimerChrysler (25.5 percent) and Ford (24 percent) account for 89.2 percent of the fleet market, respectively.

"Finally, fleet buyers during the last year are complaining about increased costs and this is likely attributable to GM not playing the fleet game to the degree they have in the past. When the largest player sticks to its mantra and doesn't discount like in the past, even the movements by the other players don't offset GM. The other players don't have to discount to the same degree and they don't," DesRosiers concluded.