Managing the Financial Side of Commercial Fleets

Pitfalls to Avoid When Purchasing Out of Dealer Stock

Work with fleet-minded dealers, plan out vehicle needs as far in advance as possible, and be flexible to avoid time-consuming hassles and higher vehicle costs.

July 2013, by Sean Lyden - Also by this author

Although a factory order is the most cost-efficient way to acquire new vehicles, there are situations (such as a vehicle crash, order/delivery delay, etc.) when purchasing a vehicle out of dealer stock is unavoidable. Unlike factory orders, where the fleet will be working with dependable, fixed pricing and ideal vehicle specifications, dealer-stock purchases present many variables — and potential “pitfalls” — that could lead to a lot of time-consuming hassle and substantially higher-than-expected vehicle cost, if the fleet buyer is not careful.

What exactly are the pitfalls fleet buyers face when having to purchase out of dealer stock — and how can they be avoided?

Experts from fleet management companies (FMCs) helped identify five pitfalls when making out-of-stock purchases and offered tips on how to avoid each:

Inconsistent Pricing

“When a client acquires a vehicle off a dealer lot, it’s going to be at a higher price than a factory order — from $1,000 to $2,000 more,” said Carol Crist, ARI’s manager of vehicle ordering.

According to Jeremy Dewey, ARI’s manager of supply chain, “The most obvious difference is that, with the factory order, you’re getting OEM pricing vs. dealer pricing with additional markup. Then, you start getting into vehicle option content because a dealer doesn’t usually order a vehicle that’s typically a ‘fleet spec.’ Now, you have a vehicle with higher option content, and an upgrade the driver doesn’t necessarily need or want.”

What’s a possible remedy? Work with fleet-minded dealers who understand fleet needs and have a starting point for pricing. Fleet dealers also tend to stock more “fleet spec” (base model) vehicles than retail dealers, because they cater to a consumer market that’s looking for a wider range of colors and creature comforts.

Nathan Niese, operations manager for vehicle acquisition at LeasePlan USA, said FMCs can help narrow the cost difference for fleets by leveraging the FMC’s preferred out-of-stock dealer networks. “These dealers tend to better understand fleet, will report the sale correctly, and will be more consistent with pricing,” he said.

Dave Buscarini, supervisor, out of stock at PHH Arval, agreed. “FMCs have established dealer networks that can be leveraged to find vehicles quickly and cost effectively,” he said. “In many cases, using client-preferred dealers that are not part of this network can be counter-productive and can cause the client to pay more and wait longer.”

Limited Availability

What a fleet requires is often different than what dealers typically carry on their lot, said Elizabeth Kelly, director of operations, vehicle acquisition at LeasePlan USA.

“Fleet customers often want very limited options and basic packages, which is different from what the dealer keeps in inventory,” she said.

One solution is for the fleet to be open-minded with its specs to increase the odds of finding a suitable vehicle quickly, according to PHH’s Buscarini.

“This may include deleting certain fleet-only packages and, in some cases, may include accepting a higher-trim model,” he said. “It’s possible that many items that aren’t available on a dealer’s lot can be dealer-installed in an effort to match the other vehicles in their fleet.”

According to ARI’s Crist, limited availability becomes an issue, especially later in the model-year. “If we’re late in the model-year, and we can’t order from the factory, we’re now competing with other fleets, who must buy off the dealer lot, too,” she said.

What then? “Some of the manufacturers have what they call rapid pools or eFleets, also known as ‘bailment pools,’ ” Crist explained. “Vehicles in the pool are stocked by the manufacturer and are true fleet spec. So, it’s a very basic vehicle and the pricing would be very comparable to ordering through the factory.”

In terms of availability, according to Dewey with ARI, if a fleet has a popular vehicle in the retail environment, it will also be competing with retail customers as well, which tends to further drive up pricing.

“Take the new Ford Explorer, for example, which is very popular in both retail and fleet environments, creating greater overall demand that impacts availability and pricing. Utilizing a bailment pool situation would avoid that pitfall,” he said.

But, when the right vehicle is located on a dealer’s lot, act quickly, Dewey advised.

“Timeliness is critical, not only for the customer to get the vehicle because they have a new project or new hire or an accident, but the customer’s response time to approve a purchase is just as important. Otherwise, the dealer has the right to sell that vehicle right out from underneath you,” he said.

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