The Right Pricing Strategy is the Key to a Successful Employee Sales Program
Market Trends • August 16, 2005
The key ingredient to a successful employee sales program is vehicle pricing strategy; however, there is no industry consistency nor consensus about pricing for employee sales. When establishing a pricing policy the first step is to recognize your company’s motivation in wanting to provide an employee sales program. For some companies, the sole motivation is earning the top resale dollar and they set pricing at the high end of a vehicle’s wholesale value, sometimes even at retail. At the other extreme are fleets that price out-of-service vehicles at the remaining book value rather than the fair-market value.
The problem with both pricing strategies is one of fairness. First, profiting at the expense of your employees will damage corporate morale. Second, if a vehicle is sold to an employee for substantially less than market value, the difference is taxable income and must be treated as imputed income on the employee’s W-2. By not doing so, a company is giving cash consideration to one employee over another and putting them in an awkward position should they be audited by the IRS.
Other companies view employee sales of company vehicles as an employee perk. These companies allow drivers or other employees to purchase fleet vehicles at a percentage below AMR Clean, adjusted for mileage. This is sometimes less than what the company could sell the vehicle at auction. Some companies even reduce the asking price of a vehicle based on its condition. However, this practice is not advised since it rewards a driver for not taking care of his or her assigned company vehicle.
A contentious question is whether a vehicle’s selling price should be negotiable or non-negotiable with employee buyers. One side argues that allowing employees to negotiate the selling price will increase the overall percentage of vehicles sold to employees. The counterargument is that when you open the door to negotiating prices, you undermine the program’s credibility. By negotiating pricing you run the risk of creating a morale problem among some employees who believe they “overpaid” for a vehicle when discovering that another employee was able to buy a comparable model at a lower price. They argue that if you price the vehicle fairly, it is unnecessary to negotiate the sales price.
Remarketing is a Value-Added Skill
Employee sales provide fleets with the opportunity to maximize resale dollars because they do not have to pay transport fees, auction fees, or recon fees. Conversely, employees are able to buy well-maintained used vehicles at a wholesale fair market value price. It is a win-win situation for all concerned. In addition, employee sales is a very efficient remarketing channel, representing the fastest cash flow available to a company to recoup resale proceeds.
Nowadays, the real skill for fleet managers to develop does not lie in the “purchasing” side of the equation, but rather in the remarketing side of the equation. This is a “value added” skill that enhances and renews the value of an in-house fleet manager in the eyes of senior management.
Let me know what you think.
Originally posted on Automotive Fleet