There are two days about which one should never worry, and these are yesterday and today. -Robert Jones Burdette
All the mistakes I ever made were when I wanted to say "No" and said "Yes." -Moss Hart
It's hard for me to get used to these changing times. I remember when the air was clean and sex was dirt.-George Burns
A few weeks ago someone in a position to know (and whom I trust, implicitly) shared the characteristics of the latest global account bidding war among the domestic factories
Know that while it isn't the largest international account, it is large and heavily global. It isn't made up mainly of pickups and SUVs (where there are higher factory margins) and it is a top progressive company who pays its bills.
My point is that when the winning bid CAP figure was divulged, it literally shocked me; and it would you, too.
During my many years observing the ups and downs of model popularity, the multi-year contract commitments, the "throw-in" options and/or services, and the bald competitiveness among the domestics, this was what I call a leap of faith.
Whether we focus on the increasing dollars waved to the buyers in incentives or the ultimate return to 0/0% financing for the retail purchasers, one has to question the combination of pricing strategies, productivity of manufacture and marketing objectives.
To my amazement, the factories are all reporting profitable periods and are selling at near record pace in spite of a recessionary era when most firms are struggling.
It's also a time when commercial fleet sales are off nearly 20 percent, rental companies are going belly up, fleets are generally thinning out their fleets or running the vehicles longer.
No one is alone here. The fleet management firms will privately tell you that there aren't any more pockets of profit to lean on. Every buyer knows the system now and negotiations are the toughest, ever. Loyalties are slim or non-existent. These so called lessors have learned to rely on expanding services to stay even and work on developing productivity while lopping head count. It's not a pretty picture
Vehicle dealers are under the same gun. There are no secrets any more. If a clerk is elevated to manage the fleet, the first thing they seem to learn is the meaning of
"Net/Net/Net." With a myriad of online sources describing the invoice prices, there's nowhere to hide.
So, "Where Are We Going?"
With about 20 percent of all sales by the domestics coming from fleet registrations, top factory management has been increasing supportive with CAP monies to gain market share: and it's understandable. But the fears are growing that at some point (not far away) the commercial (fleet) business will begin equating profitability with that of Rental (which is looked upon unfavorably from the top). Once an incentive is given it's difficult to discontinue. Therein lies the problem.
So "Who Cares?"
Fleet buyers love the scene, and push for more. It's their job to never be satisfied. The incentive checks are so large at the front end, few managers rely on their lifecycle costing data. Who at the factory or lessor level is willing to flinch or give up market share? They all live by the mantra of "being competitive" to the end.
Who cares? The industry collective better care and find an equitable solution, quickly, or we'll all be paying the piper.