Fiat is on the verge of returning to short-term rental, although not on the terms that saw it previously burdened with non-profitable contracts.

The company said it was in advanced talks that will see it supply Alfa Romeo, Abarth and Fiat vehicles on a solus basis to a major international car rental company.

The news will be welcomed by the rental industry, which has been struggling with the limited supply of new vehicles, especially small cars.

The effects of a policy shift by many car makers away from supplying short-term rental vehicles over the past few years has been dramatic, and have been heightened by the recession which has seen production slashed as new car sales fell away.

The impact of the scrappage scheme, which helped boost retail demand for small cars, has further reduced supply in short-term rental.

This has all meant manufacturers that supply rental companies can demand better terms.
Now Fiat looks likely to kick-start supply into a sector, although it told Fleet News that its intentions are not to return to the non-profit deals of previous years.

“Daily rental was an area where Fiat chased market share, but lost money,” said Andrew Sproston, Fiat sales director. “The short-term cycle has always been loss-making.”

Now, he said, Fiat is in discussions with a major international rental company that should see it sign an “economically viable long-term solus partnership”.

This will be a “true, long-term partnership,” he said that will involve cars supplied for no less than 12 months.

Anything shorter than that – three to six-month deals - don’t make sense he said. “Discussions are at the stage where they will conclude very quickly.”

Fiat is clearly attempting to increase the number of vehicles that go to fleet – currently just 25% of its sales are to corporates compared to over 50% by Ford, Vauxhall, BMW, Audi, Volkswagen and Peugeot.

This is confirmed after it signed one of the largest manufacturer fleet deals in recent months, which will see Fiat supply 14,000 mainly 500 cars to learner driver school BSM over the next four years.

The deal marked the end of a 16-year relationship between BSM and Vauxhall, which saw the British carmaker supply some 3,500 Corsa and Astra cars to BSM a year.

Sproston told Fleet News that the deal was “on retail terms”.

It has long been suggested that the agreement between Vauxhall and BSM meant Vauxhall supplied cars free of charge, although neither company has ever confirmed this.

Fiat said it would never entertain such terms. “This is absolutely not for free. We would only go into this deal where there are clear economic returns,” said Sproston.

“This marks a significant return for us into the fleet sector and continues our strategy of commercial growth, the driving influence of which is sound economics, not purely volume,” added Fiat managing director, Andrew Humberstone.

Fiat won the contract following a tender process that involved 17 manufacturers.

The contract means Fiat gets 130,000 new drivers into its cars at that critical time just before they make their first car purchase.

According to BSM research carried out prior to the signing of the new contract, 70% of new drivers buy the marque that they learnt to drive in once they pass their test.

Fiat estimates that it will sell another 3,000 new 500s a year directly as a result of the BSM deal. It also expects to see a significant number of younger used car buyers migrate to the marque.

Fiat is in a strong position with the 500 – the car has won critical acclaim and has come to market when demand for small cars is high.

Of the 40,000 cars it has sold so far, 38,000 have been to retail customers.

As a result, the Italian carmaker is in a strong position when agreeing terms with fleet buyers.
The new Fiats will be supplied to BSM on 12-month contracts over which they will cover some 24,000 miles.

This high mileage may go against it, said Glass’s.

“Fast churn cars have rarely commanded decent residuals and it's interesting to speculate how Fiat intends to protect residuals when so many used examples will be hitting the market each month,” said Jeff Paterson, chief car editor at Glass's.

"As the launch effect wears off and demand is satisfied to a large extent I'm not entirely sure how these cars will be profitable for Fiat. It is also worth considering that these cars will have relatively high mileages when they are returned and as a result, values will be much lower than the current used cars are making."

The contact also involves dual-branding, which will see BSM and Fiat logos sitting side-by-side in marketing and at BSM schools.

“We asked for 12-month contracts,” said Sproston. “The key is protecting residual values, which are already class-leading on the 500.”

Fiat says the new contract now also guarantees its dealers a supply of “genuine” used 500s – about 300 every month.

None of the defleeted BSM cars will be sold via auction or outside the Fiat network - a move that should prove effective, said CAP.

“Fiat 500 is still relatively scarce in the used market, with some examples making close to list price,” said CAP spokesman Mike Hind. “Any substantial increase in supply is highly likely to reduce used values, although by how much will depend on how the return of the cars is managed. It is good news that they will be managed entirely through the dealer network as that is less likely to severely depress values than if supply was suddenly ramped up into the open market.”

BSM will start to take delivery of the new Fiat fleet this summer and complete the exchange over to Fiat by the end of the year.

“This deal proves that you can do these profitability,” said Sproston, although this assertion has been thrown into question.

A Vauxhall spokesman said it decided not to continue with the contract for “commercial reasons” following a tender process. He stressed it was Vauxhall’s decision.

And Paterson added: “I would question Fiat's assertion that this deal will be profitable for them. After all, Vauxhall didn't make any money with their involvement with BSM so it's hard to imagine how Fiat will.”