In doing interviews for the “Best Practices” article in this issue, I found that many of you small fleet operators were hesitant to change your purchasing practices for fear of spoiling your dealer relationship.
Even when you have the luxury to plan in advance and use your fleet number to factory order, you don’t want to squeeze him for a few hundred more—especially when you’ll run into him on the golf course Saturday.
“Besides, what’s a few hundred?”
A few hundred is a few thousand over time. And your first priority is to your business, not putting your dealer’s kid through prep school.
Excuse me. I’ll take a deep breath. You can save money by factory ordering and still keep a good dealer relationship.
First, use your fleet number to check out manufacturers’ fleet sites. You’ll see you can configure and order a vehicle to your exact specs and trim level, as well as track your order from manufacture to final delivery.
Doesn’t the factory order cut into my dealer’s profit?
Not necessarily. The dealer still sets the price of the car whether you factory order or buy off the lot. You won’t steal his hot new car for nothing. But most of those fleet sites show you prices at invoice, which is the proper benchmark to start negotiations.
That invoice price still includes your dealer’s holdback (i.e. “built-in dealer profit,” usually 1 percent to 3 percent of MSRP) whether it’s a factory order or stock purchase.
Factory orders also don’t include other dubious dealer fees such as “dealer prep.” The manufacturer pays the dealer to prep the car for sale. You shouldn’t be paying this, whether the deal is factory order, out of stock or retail.
By factory ordering, won’t I be taking away sales that would count toward the dealer’s volume bonus?
No. You wouldn’t have been “helping” him by buying out of his stock anyway. Volume programs are based on retail, not fleet sales. All dealer stock purchases are originally invoiced as retail but become fleet purchases when a fleet number is applied.
With that in mind, the off-the-lot fleet deal can be a disadvantage. Manufacturers only allocate a certain number of specific models to dealers each year. Your fleet purchase reduces his allocation by one. One he most likely could’ve sold retail for more.
Goodbye Ad Fees
If he’s not losing, then how do I save?
Factory orders don’t include advertising fees, a $300 to $600 bill that regional ad councils charge dealers to run those cheesy sales event ads.
When you purchase from dealer stock, ad fees are included in MSRP or broken out on your invoice.
Because those ads are meant to pull in retail customers, dealers can apply to get ad fees refunded when they sell a vehicle out-of-stock as fleet. Depending on the agreement with the local ad council specific to region and manufacturer, some dealers can get a full refund, or half, or none. Whether the dealer then refunds the ad money back to you is another story.
Ad fees are not even a negotiation when factory ordering, because they simply aren’t there.
Factory Ordering Reduces Cap Cost
Factory ordering helps you with the taxman. Unlike stock purchases, your fleet incentive is applied at the time of purchase, thus reducing the cap cost and the amount of tax, title and license fees. With a fleet incentive of $3,000 on a $30,000 vehicle, your cap cost reduction to $27,000 will save you more than $250 in California.
Now you’ll tell me I can actually put money in his pocket.
Yes, I will.
Just like you and me, dealers buy their cars with loans and pay interest, at about prime. It’s called floorplan. The factory finance arms start charging the dealer flooring the day the iron is shipped. When it lands on a dealer’s lot two weeks later, the dealer already owes interest on the vehicle.
However, manufacturers give dealers “floorplan assistance,” usually about a month of interest payments. Assuming you pick up the factory order the day it lands, the dealer will pocket the remaining two weeks of floorplan assistance.
The Smart Fleet Dealer
The smart fleet-minded dealer will be open to these cost-saving ideas if he wants to keep you as a customer.
Now, to keep it friendly, go buy him a round of golf with the money you’ve saved.