The United States of America was the birthplace of motor vehicle mass production and the automobile remains a potent force in the country. That is not surprising given that the US has the largest road network in the world according to data from the US Central Intelligence Agency (CIA) and is also the third largest country in the world.

Although the US was overtaken by China for annual vehicle sales a few years ago, the country remains the second largest light vehicle market in the world. Data from LMC Automotive shows that year to date sales (YtD) until the end of August stood at 11,592,014, a 3.8% increase on the same period in 2014. Carlos Gomes at Scotiabank estimated that US sales totalled an annualised 17.7m units in August, an increase on the 17.3m during the previous three months. He attributes this to, “rising pent-up demand, a strengthening labour market, low interest rates and gasoline prices have lifted sales above 17 million units in each of the past four months – a development not seen since the ‘tech bubble’ of the late 1990s.”

Strong pickup and SUV sales

The pickup truck has historically been a strong seller in the US, due in part to the large unpaved road network, representing 35% of the total road network. Data from the Wall Street Journal shows that YtD light truck sales accounted for 54.4% of total light vehicle sales. Gomes at Scotiabank says that market gains continue to be driven by both pickups and sport utility vehicles (SUVs). He suggests that improving personal finances for US citizens is encouraging consumers to move to more expensive models.

Wall Street Journal data shows pickup trucks as the top three sellers in the US light vehicle markets. The traditional best seller, the Ford F-series pickup remains at the top of the list with 494,800 sales YtD, a -0.5% decrease compared with 2014. Chevrolet is the second best seller with the Silverado pickup registering 387,179 sales, up 16.6% YtD. Dodge completes the top three with the Ram pickup and 294,045 sales YtD, up 3.8% on 2014.

Gomes suggestions are borne out by the Wall Street Journal data. YtD, General Motors leads the US light vehicle market with a total of 2,048,537 sales, of which light trucks were responsible for 1,406,140 units. Total sales represent a 3.2% increase on 2014, yet total car sales are down -15.8%, while light truck sales are up 15.1%. That pattern is repeated for most other manufacturers and is the overall pattern of the US market this year.

The trend is also supported by the Wall Street Journal data. The Honda Accord is the best selling car YtD, but sales are down -14.8% to 231,173 and the same is true of the fifth placed Toyota Camry with YtD sales down -4.8% to 291,843. For the top 20, the pattern is much the same with car sales generally down and pickups and SUVs up. The

Nissan Rogue (sold as the X-TRAIL in other markets) has posted the largest percentage rise with sales up 37% compared with 2014.

Cars for the job

Where the fleet sector is concerned, there is probably no larger contrast than between the European market and the US market. Broadly, the European fleet market is now dominated by operational leasing where the leasing company carries all the residual value risk. Leases tend to be of fixed length and generally for around three or four years. It is probably fair to say that the European car fleet sector, although driven by business need, also contains a proportion of business where the car is part of the wider salary package – a benefit to the employee.

The US picture is quite different. “It’s a much smaller piece of the overall pie,” says Scott Singsank, senior global account manager at Wheels Inc., one of the leading North American fleet service providers and ALD Automotive’s North American partner. “It’s much more regarded as a work tool as opposed to a Benefit-in-Kind, so the majority of folk that get a vehicle here are going to get it because they need it for their everyday job.” LeasePlan’s US office echoes those views, “The US fleet car sector is a mature market where most of the vehicles are business-related, meaning they have a specific job function. These cars are generally used as service or sales vehicles, which is not a new concept in our market. Leasing is a common practice in the US especially among larger fleets.”

Governments are fleet customers in Europe, but the scale of the business appears to be greater in the US. “It’s about a third, I would say of the overall fleet business,” reckons Singsank. Overall he reckons that commercial business and rental take up around a third each too, but around those are also police and taxi fleets which he thinks account for around 2% of the market each.

It depends on how you do the maths, but LeasePlan reckons things slightly differently, “When looking at commercial versus government vehicles, government would make up roughly half the sector. However, government fleets tend to operate differently from most commercial fleets. In many cases they own their vehicles and they self-manage the fleet. They run their own maintenance, repair and accident shops, and sometimes even their own fuel pumps.”

That is a picture that would have been recognisable in European fleets around 20 years ago, although there are still some heavy truck fleets that operate their own repair and maintenance facilities, even though some of these may involve a contracted maintenance provider from the dealer network.

Fleet limited by strong retail sector

Singsank reckons that the light vehicle parc in the US is around 250m vehicles in total and of that, fleet takes up around 12 million or some 5% or less, a total that includes light commercial vehicles. The buoyant retail market that US buyers are currently enjoying does have an impact on the fleet sector, as LeasePlan notes: “The biggest impacts to the U.S. market are incentives and availability. With current car sales being strong, manufacturers haven’t needed to revert back to the high incentives once offered. In addition, vehicles that are also popular with consumers may see early build-outs, lack of availability for out-of-stock purchases and challenges in general in terms of fleet allocations.”

Singsank at Wheels agrees, “Obviously being such a small percentage of the overall number of vehicles on the road, fleet gets impacted by retail where there’s a vehicle that’s very popular in retail. So if a manufacturer has a very popular vehicle, they may withhold the allocation that goes to fleet. They may be less willing to incentivise that vehicle because they can get more money for it selling it off their dealer lots.”

Because vehicles tend to be business tools in the US fleet sector, the choice of vehicle is influenced by what it will be used for. “When we first approach our clients, we want to understand what the vehicle does for their business – what is it meant to do, what’s the job it’s got to do? From there you can help determine what vehicles you look at”, says Singsank. Fleet goals will also influence choice, “Do they want to put the safest vehicle on the road for their drivers as a tool? Do they want the lowest cost vehicle? Something that has the best fuel efficiency?” These are all factors affecting choice, he reckons.

LeasePlan also sees cost as a factor, “It largely depends on the industry and usage, but some of the considerations are around upfront cost, total cost of ownership, fuel efficiency and quality. Most organizations today are basing their purchases around those factors, and what is the least amount of vehicle to get the job done.”

In terms of favoured manufacturers, Singsank identifies a pattern that is not particularly surprising, “In most cases, I would say that the ‘Detroit Three’ (Chrysler, Ford and GM) are still leading the way from an OEM standpoint because of access to supply. They have the most dealers and the highest production capacities and things like that.” That said, he reckons things are changing, “More and more, we’re seeing other brands that are popping into the mix like Nissan, Volkswagen or Subaru – brands that can fill niche needs.”

The ‘business tool’ approach also means that the light CV sector is an important part of US fleet business. “The light-commercial vehicle sector makes up a significant part of the market in the U.S. because we have so many service vehicles. Small vans and light-duty trucks tend to be the most popular, but purchases are again driven by the job function,” says LeasePlan. The sector is defined differently from that in Europe and covers a greater weight range. Singsank reckons it covers vehicles from small vans up to a US Class 5 truck, which has a gross weight range of between 16,001–19,500 lb (7,258–8,845 kg), which would be the equivalent of the European light truck sector, requiring a specialist driving licence.

Fleet cars are generally taxed in a similar way to private cars, but as Singsank points out, taxation is not based on CO2 emissions. LeasePlan points to two significant differences in taxation from private cars too, based on depreciation and fringe benefit.

“A business that owns motor vehicles is permitted to depreciate the vehicles for tax purposes. Unless the vehicle is used in a business, an individual is not permitted to depreciate a private car.

“A second difference is the taxability of the fringe benefit of an employer-provided motor vehicle to an employee for their personal use. An employee is subject to income tax on the value of the personal use of the vehicle.”

Open-ended lease

When it comes to vehicle financing, the favoured method for US fleets tends to be the open-ended ‘track’ lease. LeasePlan notes that closed end and open calculation type leases are also available but just not as popular. Singsank explains how the track lease works, “The track lease puts the risk of residual value on the lessee. They can keep the vehicle as long as they want as long as they keep it for 12 months, but they are on the hook for the difference between what’s left on the book value and what the residual value is. As a fleet management company our job is to help them manage that properly so that they make the right decisions and keep their businesses. That’s the overwhelming majority of fleet leases in this market.”