arket dynamics have created a sweet spot and OEMs must position themselves to capture their share of the growth story.
US automakers have typically seen the fleet segment as a volume driver, rather than treating it as a strategic channel to pursue. This is mainly due to its relative importance to the overall car market – in the US, fleet vehicles accounted for 12 percent of total light vehicle sales in 2020¹. By comparison, in Europe the share was around 55 percent, driven by tax incentives for companies supplying vehicles to their employees.
Supply challenges resulting from Covid-19 and vehicle shortages have certainly clouded the medium-term outlook. However, we believe there are two significant drivers of growth that will make the fleet segment significantly more attractive to OEMs in the coming years. The first is the transition to electric vehicles (EVs) in both corporate and government fleets. The second is the M&A wave among fleet management companies, which will further consolidate the access to corporate fleets.
So how can OEMs capitalize on this period of transformation? Below we look in detail at the market opportunities created by the two forces of change, and three possible business models for OEMs and their captive financing arms to pursue.
In the US, the vehicle market is dominated by light trucks, which accounted for 75.6 percent of new vehicles sold in 2021 (see Figure 1). Best-selling models include the Ford F-150, RAM 1500, and the Chevrolet Silverado. The light vehicle category, which includes cars as well as light trucks, made up 97 percent of the vehicle market last year.
Figure 1
As described above, corporate fleets account for a smaller share of the overall vehicle market in the US compared with Europe. However, with 1.68 million light vehicles sold to corporate fleets in 2020, it’s still an important market segment for OEMs².
Pre-pandemic, the fleet segment was also growing ahead of the overall market, and we expect that trend to resume as the US vehicle industry overall recovers from the ca. 15 percent decline in sales in 2020. In 2019, the last full year unaffected by Covid-19 disruption, fleet sales grew by 8.6 percent compared with 2018, while overall vehicle sales fell by 1.8 percent. Within the fleet market, we expect a particularly strong recovery in commercial and government fleet vehicles. In 2020, around 887,000 vehicles were sold in those two strands of the fleet segment (see Figure 2).
Figure 2
We expect growth to be driven by the Biden administration’s commitment at the end of last year to accelerate the transition to electric vehicles (Berylls’ detailed insights into the EV revolution in the US are set out in this recent study). Both commercial and government fleets will need to replace internal combustion engine vehicles with new zero emissions models. Under an executive order signed in December 2021, all light duty vehicles purchased by federal government agencies must be zero emissions by 2027, and the entire fleet by 2035³. To give a sense of the scale of the change that is coming, in 2021 the federal government bought 643 EVs, equivalent to less than 1 percent of its total vehicle stock⁴.
Meanwhile, commercial fleets will be impacted by the EV targets set by states and large corporations. California, for example, has set a target that only zero-emissions new cars and light-duty trucks will be sold by 2035⁵, while Walmart has pledged to reach zero emissions from its operations by 2040⁶.
Fleets account for an average of 10 percent of OEMs’ sales in the US, but for the big three US automakers, that proportion increases to closer to 20 percent: fleets accounted for 18 percent of Ford’s US sales in December 2021, 17 percent for GM, and 19 percent for Stellantis, the parent company of Chrysler. In absolute unit terms, Ford is the largest fleet supplier, followed by GM and then Stellantis (see Figure 3).
Figure 3
In line with the US vehicle market overall, fleet sales are currently dominated by light trucks such as the F-150, Silverado and RAM 1500. Electric vehicles are still a very low proportion of total vehicles produced in the US, at between 4 and 5 percent⁷. However, we expect the mix to change significantly as a result of the legislative changes and targets described above. 90% of a group of 300 fleet managers surveyed by Wakefield and Samsara believe that electric is the inevitable future of commercial vehicles⁸.
We believe electrification will transform the US fleet segment, and the new EV-only players are betting the same: car rental chain Hertz has ordered 100,000 Teslas for its fleet, electric SUV and pick-up maker Rivian plans to supply delivery vehicles to Amazon and Cox Automotive has set up a new mobility division to provide data, insights and technical expertise for fleet services and operations, and EV battery solutions. A further notable fleet opportunity in future will be self-driving electric cabs, already being trialed in San Francisco, for example.
Two of the biggest incumbent players, Ford and GM, also have ambitious EV fleet expansion plans:
Ford aims to grow its fleet revenues from $27bn in 2019 to $45bn by 2025, through sales of both commercial vehicles and related services including charging points. The automaker’s strategy is to build on its 40 percent market share in the vans and light trucks segments with the Transit and F-150, and its existing 125,000 fleet customers, through a separate business unit called Ford Pro⁹.
Ford Pro will supply commercial vehicles and offer charging, telematics and aftersales services, as well as financing and fuel cards. The division also plans to roll out 120 additional service hubs and 1,200 fleet service vehicles by 2025. To persuade small and medium-sized businesses to switch over to electric minivans and the electric F-150, due to come to market in 2022, Ford Pro aims to work with customers along the electrification journey, from identifying incentives to charging installation consultation.
Ford’s Pro software for managing EV fleet charging can also be used for non-Ford vehicles. A look across the pond may provide some indication of where Ford’s fleet plans are heading. In Europe, Ford has a partnership with ALD to offer full leasing and fleet management solutions.
Ford aims to grow its fleet revenues from $27bn in 2019 to $45bn by 2025, through sales of both commercial vehicles and related services including charging points. The automaker’s strategy is to build on its 40 percent market share in the vans and light trucks segments with the Transit and F-150, and its existing 125,000 fleet customers, through a separate business unit called Ford Pro⁹.
Ford Pro will supply commercial vehicles and offer charging, telematics and aftersales services, as well as financing and fuel cards. The division also plans to roll out 120 additional service hubs and 1,200 fleet service vehicles by 2025. To persuade small and medium-sized businesses to switch over to electric minivans and the electric F-150, due to come to market in 2022, Ford Pro aims to work with customers along the electrification journey, from identifying incentives to charging installation consultation.
Ford’s Pro software for managing EV fleet charging can also be used for non-Ford vehicles. A look across the pond may provide some indication of where Ford’s fleet plans are heading. In Europe, Ford has a partnership with ALD to offer full leasing and fleet management solutions.
GM is similarly embracing the promise of commercial vehicle growth as a result of electrification. The company is particularly focusing on the delivery segment with its Brightdrop commercial EV startup, and fleet tracking (telematics) with OnStar. Both ventures seek to capitalize on the macro trend of increasing home delivery.
Through Brightdrop, GM is also helping fleet customers to go electric with a commercial vehicle charging service called Ultium. As well as charging facilities, Ultium’s services include helping customers from the start of their EV decision-making, including choosing utility providers¹⁰). Like Ford, GM aims to offer its services beyond its own vehicle customers – OnStar’s telematics can also be used with non-GM vehicles using an adapter, for example.
GM is similarly embracing the promise of commercial vehicle growth as a result of electrification. The company is particularly focusing on the delivery segment with its Brightdrop commercial EV startup, and fleet tracking (telematics) with OnStar. Both ventures seek to capitalize on the macro trend of increasing home delivery.
Through Brightdrop, GM is also helping fleet customers to go electric with a commercial vehicle charging service called Ultium. As well as charging facilities, Ultium’s services include helping customers from the start of their EV decision-making, including choosing utility providers¹⁰). Like Ford, GM aims to offer its services beyond its own vehicle customers – OnStar’s telematics can also be used with non-GM vehicles using an adapter, for example.
Managing large vehicle fleets made up of many different models and brands, plus vehicle financing, is complex, and is treated as a non-core part of the business by many US corporates. As a result, they frequently outsource the task to specialized fleet management companies (FMCs).
These companies typically make around 50 percent of their profit from financing and the other 50 percent from vehicle and driver-related services such as procurement, maintenance, and telematics. Economies of scale are key, with the US market dominated by a few large players (Figure 4). The biggest, including ARI, Enterprise and Donlen, typically have links to dealerships or rental companies, or like Element, have been created by large mergers.
Similarly, the European market is also dominated by a small number of FMCs. Some have ties to financial institutions, such as ALD, partly owned by Société Générale, and Arval, part of BNP Paribas, and some are owned by OEMs, such as Alphabet, part of BMW, and Athlon, owned by Daimler. Consolidation among FMCs is further ahead in Europe than in the US, where (as we set out below) a new wave of mergers has begun.
We believe US OEMs and their captive financing arms should consider the fleet management market as a future key capability in a world of autonomous vehicles. With the current round of consolidation, the hurdles for OEMs to enter this market as late followers might become even higher:
Figure 4
In October 2021, two significant deals were announced in the US fleet management sector: Donlen, previously owned by Hertz, announced it was merging with Wheels Inc. The same month, ALD said it was planning to merge with LeasePlan, giving ALD direct access to the US market. Before the mergers were announced, Donlen had been the partner of Athlon in North America, while Wheels had partnered with ALD in the region. In Europe, ALD and Athlon are rivals.
We believe these two mergers will put further pressure on Element in North America and Arval in Europe to build up their scale. Both are among the top three players in their home territories. They have a contractual relationship for Arval to work with Element’s customers with business in Europe, and vice versa in North America. Facing a competitor that is directly active in both markets, as ALD will be, will present both companies with new challenges.
In addition to consolidation, fleet management companies are joining the likes of Ford and GM and gearing up their EV capabilities: Wheels and Donlen will add EVs to their merged fleet¹¹, while ARI and Element are partnering with a range of EV vehicle and infrastructure suppliers. These include Electrada, a developer and operator of EV charging infrastructure, and Ayro, which supplies last-mile delivery EVs¹². Enterprise Fleet Management is using data analytics to assess the cost-saving opportunities of potential EV deployment within its clients’ fleets¹³.
OEMs in the US have traditionally had diverse views on the fleet market. For some, it was very important, particularly manufacturers specializing in mass-market vehicles perfectly suited to most fleet users’ needs. Others have avoided the segment because it was perceived as offering volume at the expense of profit and margins. Discounts are typically steep and vehicles low spec; fleet cars are often homogenous, down to the same color.
We believe the market changes identified above, in particular the transition to EVs and the need to renew the stock of fleet vehicles, mean all OEMs should look again at their fleet strategy. Fleet management services, for example, are a good fit for OEMs expanding their “Vehicle as a Service” business, where cars are no longer sold to one owner but leased or offered on short-term contracts to a number of users over time, while the car remains the property of the OEM (see Figure 5).
Our detailed thinking on integrated VaaS models for OEM groups is available in our recent study “From vehicle sales to customer & vehicle lifetime value management”.
Figure 5
The expected growth in the US fleet segment as commercial and government customers replace traditional vehicles with EVs is a transformational moment that OEMs cannot afford to ignore. Rivals will step in to take market share from the automakers that are not ready with vehicle and service offerings, including charging or fleet management technology.
The merger activity that started in late 2021 also looks set to continue as fleet management companies build even greater scale. For OEMs and their captive financing arms, this is the moment to consider building their own dedicated FMCs, as European OEMs have done. Whatever OEMs decide, their access to fleet owners will change as a result of the market’s consolidation. Fleets are entering uncharted waters, and OEMs must have their strategic options ready.
Christopher Ley (1984) joined Berylls in October 2021 as Principal. He has over twelve years of top management consulting experience with focus on new business models and market expansions within the automotive & mobility industry. He is an expert around Vehicle-as-a-Service, comprising vehicle finance & leasing, fleet management and mobility services. Christopher Ley is advising OEMs, Captives, Financial Services Companies & Investors, Leasing & Rental Companies, Fleet Managers and Mobility Startups around the transformation from one-time sales towards use-based multi-cycle business models on a global level.
Prior to joining Berylls, Christopher Ley has been working for other international management consulting firms, amongst others Monitor Deloitte and Alvarez & Marsal. He holds a diploma degree in business administration from Johannes Gutenberg-Universität in Mainz and an MBA from Colorado State University.
