Ask most experienced fleet managers how they maximize resale proceeds, and, therefore, minimize depreciation, and somewhere in the answer they’ll mention selling vehicles to employees.
It’s a tried-and-true solution; employees are a “captive” market, fleet managers can provide them with pricing they can’t achieve in a retail market, and transactions can be completed quickly and easily. But, fleet managers must establish a pricing regimen, a method to quote employee pricing. What happens, then, if drivers resist? What if they don’t like a price, and pass on the purchase? Should employee pricing be negotiable?
For a long time, many fleet managers left vehicle sales to their lessor, or managed the sales themselves via wholesale options, such as auctions, wholesalers, and brokers. Little by little, the idea that vehicles could be sold to a driver (initially) began to take root. Fleet managers saw the benefits of selling to drivers, which included:
● Faster sale equals faster application of proceeds: Driver sales could be completed when the new (replacement) vehicle was picked up. The faster proceeds are applied, the faster the TRAC adjustment will appear on the billing.
● Lower prices: Fleet managers can price vehicles at levels above traditional wholesale outlets, but below what drivers are able to get in a retail setting.
● Better care: When drivers know they are able to purchase a vehicle when it is taken out of service, they are more likely to take better care of the vehicle, such as getting preventive maintenance performed on schedule and minor repairs and cosmetic damage taken care of. Better condition means better and more cost-efficient operation.
Soon, this internal, captive market expanded beyond just drivers to other employees as well. Expanded markets and more potential buyers led to more vehicles being sold at better prices.
With the advent of the Internet, non-traditional markets expanded further. Fleet managers and fleet management companies created “virtual used-car lots,” where vehicles for sale (and coming up for sale) could be posted, with photos, pricing, and even access to preventive maintenance records. Fleet managers and their suppliers moved on from just selling vehicles to employees to actively marketing them. Rather than just quoting prices when asked, many fleet managers began to provide pricing for every vehicle being replaced, along with ancillary products and services to facilitate the sales. Financing, leasing, and extended-warranty programs all took their place in the process. The bottom line was that these new markets enabled fleet managers to get better prices and sell vehicles more quickly. Both help reduce fleet costs.
There are few things more personal in American culture than automobiles. They are a reflection of our personalities, given names, and subject to steadfast loyalty. The downside to this phenomenon is this: When someone is selling a vehicle, they believe it is worth far more than the market will pay, and when buying one, they believe it is worth far less.
Now, aside from the fact that something is worth only what someone else is willing to pay for it, this can create problems for fleet managers when selling to employees.
Some employees (particularly managers who are familiar with the TRAC lease and the concept of amortization) will expect a company should be willing to sell a vehicle at its unamortized book value, provided it is lower than any market price. Others (again, managers) might compare the price offered with the sale price of a similar vehicle recently sold wholesale. Still others simply feel a company should be flexible, and willing to negotiate.
Whatever the reason, fleet managers have a decision to make: Do I stick to the quoted price and established pricing process, or do I go along with the employee and agree to negotiate a lower price?
There is no simple answer. Again, the Internet has created a whole new landscape for customer relations. In the past, a dissatisfied customer would tell several others of their experience. Today, they can literally tell thousands via e-mail, Facebook, Twitter, and other social media sites.
No Single Answer
If an employee complains about the sticker price of the out-of-service vehicle, should a fleet manager negotiate?
Before answering the question, there are a number of things a fleet manager must take into consideration. Essentially, there is no single “right” answer.
First of all, there is the pricing mechanism itself. There are a number of different used-vehicle books that fleet managers and suppliers use to determine market value. Some are strictly wholesale books, others a combination of wholesale and retail. To make employee purchases attractive, fleet managers will most often use what is known as “wholetail” pricing, i.e., pricing that falls somewhere between full retail and wholesale.
Fleet managers don’t often see many of the vehicles they manage. They depend upon data, condition reports, vehicle histories, and photos to tell them the condition and mileage of any particular vehicle. Most of the used-vehicle guides will show a base price, and allow the user to add or deduct value depending on condition, equipment, and mileage. Some even allow for regional adjustments as well (such as AF’s used-vehicle prices department. Whatever the pricing mechanism a fleet manager uses to price for employees, it is based upon a used-vehicle price guide, adjusted for the information the fleet manager has at hand.
That said, it isn’t unusual for data to be incomplete, not up-to-date, or just plain wrong. There may be wear-and-tear, minor damage, or required repairs, such as brakes or tires. Thus, if a driver is quoted a price that doesn’t properly reflect the actual mileage and condition, the fleet manager should carefully consider the possibility of adjusting the price accordingly. There are circumstances that will impact the decision:
● Has the driver properly maintained the vehicle according to policy?
● Has any minor body or interior damage been properly reported?
● Was the driver given the go-ahead to have repairs done?
● Do the tires show wear appropriate to the last condition report?
● Is the reported mileage up-to-date and accurate?
Drivers should not be “punished” with a non-negotiable price that doesn’t properly reflect the condition of the vehicle, provided he or she has properly maintained it, had any reported repairs or damage handled, and the mileage is greater than that considered when the price was calculated.
Clearly, there are instances when a vehicle’s condition indicates that employee purchase pricing can be reasonably negotiated. But, what if the price quoted is based on vehicle condition and mileage that is accurate? Should a fleet manager stick to the quoted price, take it or leave it?
Again, circumstances might dictate that it would be smarter to negotiate the price in response to the employee’s request, rather than losing the sale. For example, if a driver receives a price of $8,000 for the purchase of his or her company vehicle, the driver may contact the fleet manager, indicating interest in the purchase; however, saying that he or she believes the price is too high.
The fleet manager would then research the vehicle, and double check the numbers. If the condition reported is accurate, the vehicle has been well cared for, and the mileage is correct; the price quoted is right on the money. However, the fleet manager should then review wholesale pricing, which, if the driver declines the purchase, is likely to be received when the vehicle is sold at auction. That price could be only $6,500. Holding to the quoted price of $8,000 may send the driver/customer looking elsewhere, and the fleet manager could end up getting only $6,500. In such a scenario, it would be foolish for the fleet manager to refuse to negotiate.
But, common sense works both ways; sometimes a price is the price, and the fleet manager should hold his or her ground. Clearly, sometimes there is simply no room for negotiation. If the driver/employee’s offer is far below the wholesale price, it may be clear that selling the vehicle on the wholesale market is a viable option. Just be sure that pricing data is up-to-date and accurate.
In some other cases, if no bids were obtained at auction, remarketing the vehicle to employees will get a sale done more quickly; the time value of money might point to a quick sale rather than leaving a vehicle on the wholesale market to languish for weeks. Finally, there may be other considerations, such as storage fees, which can impact pricing, and the fleet manager will need to recover such costs no matter how the sale goes.
All in all, as with any financial transaction, flexibility can be the key to success. There is no single answer, but, in most cases, fleet managers must remain open to negotiation.
Originally posted on Automotive Fleet