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I live in Los Angeles, a popular city for tourism, and a very popular city for rental cars, so I know how to clock a rental car's perennial plates from a mile away. There are some rental car usual suspects, including a sea of Mustang EcoBoost convertibles, most Chevrolet Traverses on LA roads, or, if you're in Hawaii, it's Jeep Wranglers. Recently I've noticed an increase in entry level German luxury cars, too, like new BMW X2s and 2 Series Gran Coupes that let me know fleet sales are alive and well. 

Fleet sales count the same as customer sales when it comes to quarterly sales reports, so they can help an automaker look strong. But these can be misleading numbers. For starters, the margin on fleet sales is lower than on retail sales. An automaker will make less profit selling 1,000 new cars to a rental car company than they will selling the same number of cars to 1,000 different individual shoppers. The primary concern surrounding fleet sales falls on the shoulders of the rental car market. Commercial and government fleet sales have proven to be more profitable than rental car fleet sales. They can also be hollow numbers that dilute a brand's appeal and a model's value on the used market, especially when it comes to rental-car fleets.

Fleet sales and residual values

Selling a lot of vehicles via fleet sales will eventually result in a flooded used market for that same vehicle. Too much supply of a particular vehicle, and the used prices will drop. What's more, that steep devaluation of used cars makes potential buyers lean toward a much cheaper used car rather than buying the full-priced new cars companies desperately want to sell.

An analyst at LMC Automotive told Bloomberg that not relying on fleet sales improves residuals and brand value, as well as illuminating the right product decisions for true demand. Think of it this way: if you go to a discount store like Marshalls or Ross Dress For Less and you find products from a luxury brand that are marked down significantly, does that signal to you that the brand is doing well, or poorly? 

I love finding scores like that, but ultimately it reflects poorly on the brand that its products have trickled down to the discount market. Cox Automotive found that fleet sales have increased by 3.6% through September this year, but there's actually been a 0.8% decline in rental fleet sales, so some of the value may stick around in those cars, paying dividends for the automakers who've moved away from rental car fleets.