A Fleet Manager's Guide: Negotiating Manufacturer Programs
It’s become a regular part of the fleet process: Manufacturers offer “rifle shot” pricing programs to willing fleet customers. Here’s how the process begins, what to look for, and how it can help reduce fleet costs.
Buying or leasing company vehicles involves a more complex pricing process than just about any other purchased item. There are a number of components to fleet pricing, and each is subject to negotiation (save for one).
Part of that process involves so-called competitive allowance program (CAP) pricing that fleet managers negotiate with individual manufacturers in return for a commitment for a set number of orders or for an agreement to single source vehicles.
Although such programs and negotiations have been around for years, they have become more common not only with large, national fleets, but with mid-market and even smaller fleets, as well.
Unlike many other large-ticket assets, fleet vehicle pricing isn’t just a single number. Fleet managers know that there are prices — and then there is pricing:
● Manufacturer’s suggested retail price (MSRP) or “sticker” price is what retail customers may pay for popular models, but fleets don’t. “Car” people refer to this as the “Monroney label,” or just “label.”
● Factory invoice is the price the factory bills the dealer for the car. It is different for each manufacturer; however, it is roughly around 5-percent below sticker price.
● Holdback is an amount of money, usually equal to 2-3 percent of sticker price, and is paid back to the dealer by the manufacturer. Holdback was originally set up by manufacturers to ensure dealers made some profit when a vehicle was sold.
● Fleet incentives are direct deductions from the price of a fleet vehicle. Originally set up to be sent to the customer after the sale, they are usually deducted from the invoice, although some accounts still get the incentives paid directly, especially in the case of “stair-step” CAP incentives. Each incentive can range from a few hundred to thousands of dollars.
● CAP cost is the agreed, contractual price at which a fleet lessor will purchase and lease a vehicle to its customers. This is the amount that will be amortized in the lease, and ultimately will determine any TRAC adjustment when the vehicle is sold.
● CAP or manufacturer’s pricing programs are informal, negotiated discounts that fleets receive from manufacturers in return for the fleet committing to all, or some number, of orders for a model-year.
The starting point in the CAP program process begins at the onset of a model-year, with vehicle selection. Fleets can vary greatly in what types of vehicles they need. There are “homogenous” fleets, where the mission and function is the same across the entire company. This would be, for example, a sales fleet of four-door sedans or a service fleet of minivans.
Then, there are fleets that have several functions, perhaps a combination of a sales and a service fleet.
Finally, there are fleets with a range of missions, including sales, service, delivery, executive — companies that need many different types of vehicles.
When fleet managers research and analyze fleet selections, much of the initial focus is on compatibility with the mission, followed by lifecycle cost. And, depreciation is the single largest fixed component of that cost.
Once selections have been made, specs and equipment are applied. Powertrain requirements, electronics, and other important components also impact the CAP program process.
Fleets that consist of primarily one vehicle type have a simpler negotiating process. The more vehicle types, however, the more complex the negotiation. Then there is the question of “best practices.” Some manufacturers are better known for one type of vehicle than others, and a fleet with multiple missions requiring multiple types of vehicles might choose to go with different makes for each type.
What Are the First Steps?
The first step in entering into a manufacturer’s CAP program is to get to know factory representatives. Larger manufacturers may have representatives at the local, district, regional, or national level get to know them. When they call, set aside some time to discuss what your fleet requirements are, and let them present the products they have that fit the specific fleet needs.
Sometimes, you may be contacted by local dealers. However, as important as dealers are to the overall fleet process, dealers don’t have the ability to offer CAP programs, and, in some cases, they can’t offer national fleet incentives and factory courtesy delivery assistance.
This does not mean that you should ignore local dealers, but, for a national pricing deal, it’s best to work with the factory rep.