Counterintuitive

In other news this week, I noted that Ford Motor Company was having a really bad quarter, and in particular a terrible September. Here’s one of the news stories about their situation. What I found puzzling about this account was the mention that while Ford’s sales are down 15% (I’ve seen other news agencies estimate as much as 30%, but the AP is a bit conservative here), the company is cutting sales to rental fleets by more than 30% this year (over 130,000 cars total) as part of its long-term restructuring plan. This seemed a bit counterintuitive to me.

According to the company’s spokesman, rental sales are bad for the corporate image and actually hurt sales. But they don’t say how that could possibly be. One of the other articles I turned up suggested that people renting really beat-up Ford vehicles might come to associate those well-worn cars with the company in general. Others have suggested that it’s actually the rental sales programs – where car rental companies dump their much-used cars onto the used car market – that result in this negative consumer view. What’s odd is that both of these claims would appear to fly in the face of both the company’s advertising claims and common experience.

For a lot of people, renting a car represents their only opportunity to try driving another car (or another brand of car) over a long period. Some people will actually rent a car for a few days to see how they like it; others will have a car randomly assigned to them and find that they like it enough to purchase one. Ford itself has been advertising a “Ride Swap” program on their television commercials, where unsuspecting consumers agree to exchange their own cars for the Ford equivalent for a week, by which time (in the commercials, at least) the participants usually want to keep the Ford car in place of their existing vehicle. In either case, it seems unlikely that any bad experiences that rental customers might have would outweigh the advertising advantage of actually having them drive one of your cars for a few days.

Then there’s the fact that, whatever its effect as a means of advertising the product, sales to rental car fleets account for more than 130,000 additional sales each year. If each new car is between $10,000 and $20,000 (allowing for price discounts for fleet sales), then this loss of business represents between $1.3 billion and $2.6 billion all by itself. It is possible that the long-term positive effects on the Ford brand will compensate for the (quite literally) billions of dollars the company is flushing away now, but this seems like a risky strategic move when you sales are declining and foreign competition is nipping at your heels.

Of course, it may turn out that there’s some far more subtle factor in play here, that the Ford people will ultimately prove to be completely right, and that their strategy is just too subtle for me to grasp. But I still say this strategy seems a bit counterintuitive…