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GM, Ford Lose Rental Car Boost

The auto giants post big sales declines because of a shift away from the lower-margin business.

Updated from 4:18 p.m. EST

Now that

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have slimmed down with job cuts and plant closings, the automakers are looking to shift away from the low-margin business of selling vehicles to rental car agencies.

The tough short-term effects of that move became evident with the automakers' latest sales reports Thursday.

Sales to the rental market have long served Detroit's bloated automakers as an easy way to juice sales, move inventory and enhance production capacity. Rental car agencies are reliable customers, but they buy vehicles in bulk at a discount, and they tend to bulk up on cheaper, less profitable models.

Automakers' latest efforts to ween themselves of this crutch puts both companies on a road to higher and more sustainable profitability, but it also promises to be painful in the short term.

"It's a positive development in the turnaround story for Detroit, but now these guys really have to bring home the bacon on the retail side, and that's easier said than done," says Erich Merkle, analyst with automotive research firm IRN.

GM reported that its January U.S. sales declined 19.7% on a day-rate selling basis to 247,464 vehicles, reflecting the shift away from the rental market. The day-rate percentages adjust to account for an extra selling day in the period.

"We are aggressively reducing our daily rental fleet sales as a continuing element of our strategy to offer industry-leading value and improve residuals," said GM in a press release. "In January, our mix of total fleet to retail sales continued to improve significantly. The positive movement we have seen in total mix, and the mix of fleet to retail sales, positions us for future retail sales growth."

GM's total car sales were down 25.6% for the month to 104,156 units and its truck sales dropped 14.8% to 143,308 units.

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Ford reported that its U.S. sales for the month dropped 19% from a year earlier to 166,835 vehicles.

Sales to daily rental companies accounted for much of the decline, plunging 65%. Sales to retail customers fell 5%.

"Even if you allow for the shift away from the rental market, it was a bad month for GM and Ford," says David Healy, analyst with Burnham Securities.

Ford's total car sales slid 32.5% for the month to 55,842 units, while truck sales dropped 9.7% to 110, 992 units.

"All of us at Ford are focused on restructuring our business to be profitable at lower volumes and offering more of the products people want, including more cars and more crossovers," said Mark Fields, Ford's president of the Americas unit.

The company's signature F-series pickup trucks had a 15% decline in sales for the month. Ford said it expects sales of its truck to continue to lag in the first half of this year due to weakness in the new-home construction market.

"That's got to hurt these guys," says Merkle. "Sales of the F-series came down a lot in the fourth quarter and its going to continue to come down in 2007, and that's really bad news for Ford. The F-series makes up a lot of their sales, a lot of their production and a lot of their profits."



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continued to gain traction as it becomes poised to overtake Ford as the No. 2 U.S. automaker. The Japanese giant's total sales rose 5.1% in January to 175,850 units.




U.S. division had its best January in six years, with a 3.2% increase in sales.

Sales at its U.S.-based Chrysler division were up less than 1% to 156,308 units, while Mercedes sales surged 36.9% to 17,069 units.