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:
“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.”
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.[PAGEBREAK]
Lack of Proximity
A fleet may run into a situation when a driver is not near a metropolitan area or a high concentration of dealers, and needs to purchase a vehicle from dealer stock.
“Although there might be a dealer nearby, they might not be fleet-minded, so we’re going to have a pricing issue,” said ARI’s Crist. “Or, you may have to go further out for that vehicle, encountering transportation costs to deliver it to the driver. Either way, you’re dealing with substantially higher up-front costs.”
One countermeasure is being open to different vehicle manufacturers if they have dealers closer to that driver or facility.
“It might be a situation where the driver says, ‘I prefer one vehicle, but if my company also allows me to get a different one and the vehicle or dealership is in better proximity, that will work for me.’ It takes some flexibility on both the driver and company side,” Crist said.
Another option is a long-term rental. “It could be that, if the pricing isn’t right and availability is not there, you could look into a long-term rental. It may be a more cost-effective option until the factory-ordered vehicle arrives,” Crist said. “It really depends with where you are in the model-year and what is the lead time of those vehicles. There is always that option to get a driver into a rental.”
If the vehicle is being purchased in one state and registered in another, be aware of any potential title and registration complexities, advised Shannon Hoban-Mraz, stock & dealer relations manager for GE Capital Fleet Services. “Some states have different emissions requirements [for registration].Prior to making a purchasing decision, ensure that the vehicle has the appropriate emissions for the state in which it will be titled and registered,” she said.
Complex Chassis Requirements
A medium-duty chassis involves a wide range of potential spec differences that may require modifications to the upfit, which starts to increase the upfit and overall truck cost, according to ARI’s Dewey.
Some specs, such as chassis fuel tank configuration and exhaust system placement, are easy to overlook, but could drive higher upfit costs to accommodate them.
“Keep in mind that with chassis cabs, you’re not just dealing with one manufacturer, but now you’re also dealing with a body company and having to manage all these incremental charges to change the specs,” Dewey said. “So, that’s where proper planning and utilization of the bailment pools becomes crucial in really keeping your costs low.”
In many cases, an ordered vehicle can be shipped-thru the upfitter directly from the factory, minimizing transportation costs. But, when the vehicle is purchased out-of-stock, there’s the issue of either sending the vehicle to the upfitter or getting the parts sent to a local installer. Either way, the price tag can be steep.
“Now you’re dealing with a local vendor or you’re shipping parts from a national upfitter to a local installer, which will have its profit margin included as well,” ARI’s Dewey said. “Then, you start to run into component lead-time. You’re having to expedite shipping of parts and paying higher installation costs — all those costs start to drive the price of that vehicle up.”
What are ways to manage the risk? “Work with the upfitter to stock the most prominent upfit components to minimize the lead times,” Dewey said. “You can’t do it with all upfits because then you start to run into stocking costs for the upfitter. Try to pick the one or two specs out of the entire fleet that are the most common — and try to have those packages on the shelf at the upfitters so they can ship them out ASAP.”