Ford is turning fleet business into a profit engine. GM and Stellanti want to do the same.

DETROIT – The word “dirty” in the auto industry has become a multibillion-dollar battleground for American automakers, led by Ford Motor Company.

The Dearborn, Mich.-based automaker has turned its fleet business, which includes sales to commercial, government and leasing customers, into a profitable force. Ford competitors also operate across the city. General Motors And the parent company Chrysler Stellantis They noticed this and restructured their operations as well.

“There’s a greater focus now on profitability and how fleet can help with that,” said Mark Hazel, associate director of commercial vehicle reports at S&P Global Mobility. “(Automakers) are looking at how to approach this strategically. It’s been a very targeted approach to how they approach fleets.”

Many fleet sales, especially daily rentals, have historically been viewed as a negative for automakers. They are traditionally less profitable than sales to retail customers, and automakers sometimes use them as a place to offload excess vehicle inventories and boost sales.

But Ford proved that wasn’t always the case by unveiling the financial results of its Ford Pro fleet business. The operations generated about $18.7 billion in adjusted earnings and $184.5 billion in revenue since 2021.

Such results have prompted Wall Street to praise the business, with analysts calling it a “hidden gem” and “Ford's brand.”Ferrari“, referring to the highly profitable Italian sports car manufacturer.

“No other company has Ford Pro,” Ford CEO Jim Farley said July 24 during the company’s second-quarter earnings call, in which Ford Pro performed best. “And we intend to take full advantage of that advantage.”

According to J.D. Power, fleet sales typically account for 18% to 20% of annual light-duty vehicle sales across the United States, which excludes some larger trucks and vans.

Part of the opportunity in fleet sales comes from older vehicles on U.S. roads. According to S&P, the average age of the 25 million commercial and fleet vehicles on U.S. roads was 17.5 years last year. That compares to an average age of 12.4 years for light passenger vehicles in 2023.

While commercial sales, which are considered the best of fleet sales, are expected to be slightly lower this year than in 2023, both GM and Stellantis have recently redesigned and doubled such operations. However, neither is reporting such results separately.

“When analyzing the fleet channel, commercial vehicle sales were the weakest,” Wolfe Research said in a note to investors Wednesday. “If we look at it in more detail, only two OEMs are facing particular challenges: STLA and, to a lesser extent, GM.”

Meanwhile, Ford's commercial sales volumes are up a “strong” 7% this year compared to 2023, Wolff said.

While fleet sales data isn’t as readily available as retail sales, Wolfe Research estimates Ford is the clear leader in such earnings, with a forecast of $9.5 billion this year. That compares with General Motors’ North American operations of $5.5 billion and Stellantis’s of about $3.5 billion, Wolfe estimates.

Ford has been the fleet leader for some time, S&P Global Mobility reports. As of 2021, Ford’s share of the new vehicle registrations market (categorized by companies with 10 or more vehicles weighing less than 26,000 pounds) was about 30%. Meanwhile, GM’s share was about 21%-22% during that period, and Stellantis’ share was about 9%.

GM, citing third-party data, claims it outsold Ford last year in fleet sales: commercial vehicles sold exclusively to businesses (those with five or more vehicles) rather than to individual buyers.

Meanwhile, Ford said it counts “all customers who register their Class 1-7 full-size trucks or minivans under its name,” not just those with five or more vehicles.

Ford claims to lead sales of commercial vehicles, classified as trucks and vans from Class 1 to 7, with about 43 percent of total U.S. registrations through May of this year. That’s up 2.3 percentage points from a year earlier, the company said.

Ford's Pro business is based on sales of the automaker's Super Duty trucks, which are part of the F-Series truck lineup with the Ford F-150, and range from pickups to commercial trucks and chassis cabs.

It also covers Transit truck sales in North America and Europe, all Ranger midsize truck sales in Europe, and parts, accessories and service for commercial, government and leasing customers.

But automakers, including Ford, also see fleet operations as a key driver in other ways, including electric vehicle sales, as well as recurring revenue options like software and logistics.

“These revenues have a gross margin of over 50%, which is driving significant operating leverage and improving capital efficiency,” Farley said during the quarterly call. “The bulk of this new software business is actually Ford Pro.”

Ford aims to achieve $1 billion in software and services sales by 2025, led by its fleet and commercial businesses.

“Ford Pro is the core of Ford, and there is potential for growth in volume as well as in software and services,” John Murphy of Bank of America said in a note to investors on Thursday. “In software, Ford Pro accounts for about 80 percent of Ford software subscriptions with an engagement rate of just 12 percent, and is expected to grow to more than 35 percent over the next few years.”

While Ford boasts about its fleet business, its closest competitors have ramped up their operations.

Stellantis, Chrysler's parent company, plans to relaunch its Ram Professional unit this year with a goal of achieving record profitability in 2025 and, ultimately, becoming the No. 1 seller of light commercial vehicles, which excludes some larger vehicles.

Stellantis Ram brand CEO Kristen Fewell declined to give a timeframe for achieving that goal, but said the automaker believes it can do so after completely revamping its operations to focus on improving customer service and growing profits through new sales and services.

“It’s a very profitable business,” she told CNBC during a media event last week. “Not just on the product side, but on the services side as well. Software and connected services are a huge growth opportunity for us as well.”

“We're a little bit behind Ford in launching these services, but we certainly expect to see similar types of growth and revenue generated from these connected services.”

Ram makes up about 80% of Stellantis’ fleet and commercial business in the United States. It has a new or redesigned lineup of trucks and vans coming to market, as well as a range of connected and telematics products to help fleet customers. It has also increased the availability of financing and lending for commercial customers.

“This year really kicks off our commercial offensive,” said Ken Kaiser, vice president of commercial vehicle operations for Stellantis North America, during the media event. “2024 is a key year for our brand as we look to build momentum into 2025.”

GM hasn’t been sitting idly by. It’s been revamping its fleet and commercial businesses. Last year, it launched GM Envolve, a revamped fleet and commercial business focused on fleet sales, digital communications and logistics for commercial customers.

The Detroit automaker sees the business as a competitive advantage not only for selling vehicles but also for creating repeat revenue and relationships with businesses, said Sandor Pisar, vice president of GM Envolve North America.

GM Envolve, formerly known as GM Fleet, has reorganized the automaker's business to become a one-stop shop for fleet customers — from sales and financing to fleet management, logistics and maintenance.

“GM Envolve is a very important part of GM’s business,” he told CNBC earlier this year. “It’s a profitable business. We think it’s a competitive advantage in the approach that we take in this consultative approach of having a single point of contact and coordinating the entire portfolio that GM offers.”

GM and Stellantis declined to disclose revenue and profitability for their fleet businesses.

GM Envolve includes its electric-vehicle business BrightDrop, which was folded back into the automaker last year rather than operating as a subsidiary. It hasn’t delivered the growth GM had expected, but electric vehicles have potential for automakers’ fleets and commercial sales.

“BrightDrop is a great opportunity for GM and GM Envolve,” said Bessar, citing the all-electric trucks for last-mile delivery and small local businesses. “There are a lot of use cases and as we ramp up production and encourage customers to try the vehicle, this is a core part of our model.”

Unlike retail customers, many commercial and fleet customers have pre-set routes or schedules that can accommodate electric vehicles well because they drive locally in an area and can charge overnight when electricity costs are lower.

S&P Global announces the start of the electric car project Rivian The automaker led the U.S. in all-electric truck registrations last year, nearly doubling the number of Ford, its closest competitor, in second place.

Although the initial investment is high, automakers claim the eventual return could be worthwhile for some companies.

Detroit's three legacy automakers are touting such benefits to their corporate customers, while still offering traditional vehicles with internal combustion engines.

Stellantis and Ford have also started highlighting their portfolios of different powertrains such as hybrids and plug-in hybrid electric vehicles as EV adoption has not happened as quickly as many had expected.

Last month, Ford announced plans worth an estimated $3 billion to expand Super Duty production, including “electrifying” Super Duty trucks.

“We’ve moved to a multi-power platform across all of our commercial vehicles, so we’re going to offer customers a choice that we don’t think any other competitor will have,” Farley said during the earnings call. “We think we’ll be the first to move, if not the first to move, on a multi-power Super Duty.”

— CNBC's Michael Bloom contributed to this report.