Is Your Employee Sales Program Leaving Money on the Table?
One skill that sets apart exceptional fleet managers is their vehicle remarketing expertise. Nowadays, emphasis is placed on fleet purchasing and not enough on remarketing. I recognize that by lowering net acquisition cost, you also lower net depreciation, but this is only half of the equation. To be truly effective in lowering net depreciation you need the other half of the equation, which is an effective fleet remarketing program. Almost every commercial fleet manager I talk with has a program to remarket out-of-service vehicles to drivers or other employees. Although these programs are codified into fleet policy, many fleet managers, nevertheless, are under-utilizing this very efficient remarketing channel, which, by the way, also represents the fastest cash flow in recouping resale proceeds. Vehicle pricing is the key area where many fleets are leaving money on the table. As an employee perk, some 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. The rationale is that the lower price is made up by not incurring auction fees, transport charges, and, if required, recon expenses. However, there is such a thing as offering an employee perk with a greater than necessary discount. In other instances, some fleets price vehicles at the remaining book value rather than the fair-market value. The problem with this pricing strategy is one of fairness. If a vehicle is sold to an employee for substantially less than market value, the difference is taxable income and should be treated as imputed income on the employee’s W-2, said Charles Bowen, fleet manager at Rollins Inc. The scary part is how few companies treat it as such. By not doing so, they are giving cash consideration to one employee over another. On the flip side, some companies take the opposite extreme by pricing vehicles higher than fair market value by selling them at the equivalent retail price. Needless to say, profiting at the expense of your employees is detrimental to corporate morale. You need equilibrium when it comes to establishing employee pricing. Don’t gouge employees, but, likewise, don’t price vehicles below what you can get at auction. Employees will still consider it a perk to be able to buy vehicles at fair market wholesale prices. Another way that fleet managers are leaving money on the table is by not actively promoting their employee sales programs. "To be truly effective, a fleet manager more or less has to assume the role of a used-car salesman," said Terry Flesia, president of AutoCross & Associates. "In my view, a fleet manager who wants to run an effective employee sales program needs to put time and effort into it." To assist understaffed fleet managers, a new product was recently introduced by the Automotive Fleet & Leasing Assocation (AFLA) to help boost employee sales. Called the Employee Automotive Remarketing Network (EARN), it is an online program designed to facilitate the sale of company vehicles to employes and to even cross-market vehicles to employees at other companies. There is no charge for EARN if you join AFLA. (See page 52 of March 2003 AF for more details.) Things to Watch Out For
An important ingredient to a successful employee sales program is a non-negotiable pricing policy. If you open the door to negotiating vehicle selling prices, you begin to undermine the program’s credibility, said John Rancourt, director of license/title & used vehicle marketing for LeasePlan USA. Other suggestions to increase employee sales are to consider offering extended warranties and financing options to help facilitate the purchase decision. Also, don’t wait until a vehicle is taken out of service to promote its resale. Make drivers aware of the opportunity to purchase their vehicles at the time they take delivery of them. Conventional wisdom is that by offering attractive pricing for company vehicles, it encourages drivers to take better care of their vehicles. While this is true, you need to watch out for vehicles that have been intentionally over-maintained by drivers in anticipation of purchasing them, such as buying four new tires prior to turn-in. Conversely, some companies reduce the asking price for vehicles in poor condition. This isn’t a good idea; you shouldn’t reward drivers for taking poor care of their vehicles, said Layne Weber, director of vehicle remarketing for Donlen Corp. Lastly, do not use the word 'benefit' in describing an employee sale program since the IRS could perceive it as a taxable benefit. Many companies view an employee sales program as an employment perk; an unspoken part of a compensation program. In this case, money is being left on the table, but it is being done intentionally! However, fleet managers who price vehicles aggressively below market value need to think twice before complaining about rising depreciation rates, said Jay Fahrendorff, managing partner of ABC Minneapolis. Let me know what you think.