Ford transforms unethical practices into a lucrative opportunity, prompting GM and Stellantis to take notice.

• In the automotive industry, the term "fleet" has evolved from a negative connotation to a multibillion-dollar competition among U.S. automakers, with Ford Motor leading the charge.
• Since 2021, Ford Pro's operations have generated approximately $18.7 billion in adjusted earnings and $184.5 billion in revenue.
• The fleet and commercial operations of Ford have been highly praised by Wall Street, with analysts calling it a "hidden gem" and comparing it to Ferrari, the highly profitable Italian sports car manufacturer.

In the automotive industry, the term "clean" has evolved into a multibillion-dollar competition among U.S. automakers, with General Motors leading the charge.

Ford's fleet business, which includes sales to commercial, government, and rental customers, has become a significant source of revenue. As a result, Ford's crosstown rivals and Chrysler's parent have also restructured their operations.

"Mark Hazel, S&P Global Mobility associate director of commercial vehicle reporting, stated that there is now a greater focus on profitability and how fleets can contribute to this. Automakers are taking a strategic approach to deal with fleets, with a targeted emphasis on how they can contribute to profitability."

Historically, daily rentals and fleet sales have been viewed negatively by auto companies as they are less profitable than sales to retail customers and are often used as a way to dispose of excess vehicle inventories and increase sales.

Since 2021, Ford's "Ford Pro" fleet business has generated $18.7 billion in adjusted earnings and $184.5 billion in revenue, proving that not all financial results are always the same.

Wall Street has praised Ford's Italian sports car manufacturer, which has been referred to as a "hidden gem" by analysts.

Ford Pro outperformed all other companies during the second-quarter earnings call, and Ford CEO Jim Farley intends to fully leverage this advantage, he stated on July 24.

J.D. Power reports that fleet sales make up between 18% and 20% of annual U.S. light-duty vehicle sales, excluding larger trucks and vans.

The aging fleet of commercial and commercial vehicles on American roads presents a significant opportunity in fleet sales. Last year, the average age of the 25 million fleet vehicles was 17.5 years, compared to 12.4 years for light-duty passenger vehicles in 2023.

Although commercial sales, considered the most successful fleet sales, are predicted to be slightly lower in 2023 compared to 2023, both GM and Stellantis have recently revamped and intensified their commercial operations. However, neither company discloses their individual results.

According to Wolfe Research's investor note on Wednesday, the fleet channel's commercial sales have been the weakest. Upon closer examination, only two original equipment manufacturers, STLA and GM, seem to be struggling.

This year, Ford's commercial volumes have increased by 7%, according to Wolfe.

According to Wolfe Research, Ford is expected to generate $9.5 billion in fleet sales earnings this year, significantly more than GM's $5.5 billion and Stellantis' $3.5 billion.

Ford has consistently been the top fleet leader for new vehicle registrations among businesses with 10 or more vehicles weighing under 26,000 pounds, with a market share of approximately 30% since 2021. In comparison, GM had around 21%-22% during the same period, while Stellantis had about 9%.

According to third-party data, GM claims to have surpassed Ford in sales of commercial vehicles exclusively for businesses with five or more vehicles last year.

Ford stated that it considers all customers who register their full-size, Class 1-7 truck or van under their business, not just those with five or more vehicles.

Through May of this year, Ford claims to have a roughly 43% share of U.S. registrations for commercial vehicles, which includes Class 1-7 trucks and vans. This is an increase of 2.3 percentage points compared to the previous year, the company stated.

Ford Pro

The Ford Pro business thrives on the sales of its Super Duty trucks, which are part of the F-Series truck lineup, including the Ford F-150, and range from large pickups to commercial trucks and chassis cabs.

The company's sales of Transit vans in North America and Europe, as well as its Ranger midsize pickup in Europe, and its provision of service parts, accessories, and services for commercial, government, and rental customers, have been strong.

Fleet operations are viewed as a crucial element by automakers, including Ford, not only for electric vehicle sales but also for recurring revenue streams such as software and logistical services.

"During the quarterly call, Farley stated that the revenue generated by the company has gross margins of over 50%, which results in significant operating leverage and improved capital efficiency. He added that the majority of the new software business belongs to Ford Pro."

Ford aims to generate $1 billion in software and services sales by 2025, primarily through its fleet and commercial division.

"According to John Murphy of BofA, Ford Pro is a crucial component of Ford, and there is significant potential for growth in both volumes and software and service. Specifically, Ford Pro accounts for approximately 80% of Ford's software subscriptions, with an attach rate of only 12%. This rate is projected to increase to over 35% in the coming years."

Ram, GM retool

Its fleet business is being promoted by Ford, while its competitors have intensified their activities.

Stellantis, the parent company of Chrysler, is set to relaunch its "Ram Professional" unit this year with the aim of achieving unprecedented profitability by 2025 and eventually becoming the market leader in light-duty commercial vehicles, excluding larger vehicles.

Stellantis' Ram brand CEO, Christine Feuell, did not reveal a specific timeline for achieving the target but stated that the automaker believes it can accomplish it after restructuring its operations to prioritize customer-centric mainstreaming and increase earnings through sales and new services.

"Not only does our business generate high profits from products, but also from services, particularly in software and connected services," she stated during a CNBC media event last week.

"Although we are slightly behind Ford in launching those services, we anticipate experiencing comparable growth and revenue generation from our connected services."

Stellantis' U.S. fleet and commercial business is dominated by Ram, which accounts for approximately 80% of the company's sales. To enhance its offerings, Ram is introducing a new or revamped lineup of trucks and vans, as well as a range of connected and telematics products designed to assist fleet customers. Additionally, the company has increased the availability of financing and lending options for commercial customers.

"This year marks the start of our commercial offensive," Ken Kayser, vice president of Stellantis North American commercial vehicle operations, stated during the media event. "2024 is a pivotal year for our brand, as we aim to gain momentum heading into 2025."

GM is not idle, it has revamped its fleet and commercial business. Last year, it launched "GM Envolve," which focuses on fleet sales, digital telematics, and logistics for commercial customers.

Sandor Piszar, GM Envolve's vice president in North America, stated that the company views the business not only as a means to sell vehicles but also to establish recurring revenue and long-term relationships with businesses.

Fleet customers can now access all their needs in one place with GM Envolve, formerly known as GM Fleet, which has reorganized its business to provide a comprehensive solution for fleet management, logistics, maintenance, sales, and financing.

"GM Envolve is a profitable business that provides a competitive advantage for General Motors. It serves as a single point of contact for coordinating the full portfolio of General Motors' offerings."

Stellantis and GM did not reveal their fleet businesses' earnings and profitability.

EV goals

GM Envolve's commercial EV business, BrightDrop, was folded back into the automaker last year, despite not achieving the growth GM had anticipated. However, EVs present an opportunity for automakers' fleet and commercial sales.

"Piszar stated that BrightDrop is a valuable opportunity for both General Motors and GM Envolve, particularly for all-electric vans used in last-mile deliveries and small local businesses. He emphasized the numerous use cases and the importance of increasing production and customer trials of the vehicle as a crucial aspect of their business model."

Unlike typical consumers, numerous commercial and fleet customers have established routes or timetables that can easily accommodate electric vehicles, as they primarily travel within a local area and can recharge during off-peak hours when electricity rates are lower.

Last year, in the US, Automotive was the leader in all-electric cargo van registrations, nearly doubling Ford, who came in second.

The initial cost of investment for automakers may be substantial, but they believe the potential return could justify it for certain businesses.

The three legacy Detroit automakers are highlighting the benefits of their electric vehicles to fleet customers, while also providing traditional vehicles with internal combustion engines.

Both Stellantis and Ford are now emphasizing their diverse range of powertrains, including hybrids and plug-in hybrid electric vehicles, as the adoption of electric vehicles has not progressed as rapidly as anticipated.

Ford recently declared plans worth approximately $3 billion to increase Super Duty production, including electrifying these trucks.

"We have implemented a multi-energy platform in all of our commercial vehicles, giving customers the choice that no other competitor will offer," Farley stated during the earnings call. "We believe we will be the first mover, if not the first, in multi-energy Super Duty."

— CNBC's Michael Bloom contributed to this report.