After reviewing my growing library of fleet management posts, I realized I have yet to fully describe and compare factory orders and stock purchases; two things I have mentioned in previous posts. This is about as lopsided a contest as humanly possible. If this were a boxing match, factory orders would be Mike Tyson and stock purchases would be Andy Dick. Can I be any clearer? Here’s why:

Factory Orders Defined: Factory orders are when you place an order for a specific vehicle with specified features through your fleet management provider to be made to those specs by a manufacturer. This requires you to place the order in advance. This is what I was referring to in previous posts of being on a regular replacement schedule. The lead time is typically between 8 and 12 weeks for delivery. Here is a great link to the Donlen Corp web page that outlines order and roll-out dates and other info needed when making a factory order:

Factory Order Benefits: The main benefit of factory ordering is a reduction in purchase price. Depending on Competitive Assistance Program (CAP) qualifications and the provider’s relationship with the manufacturer, a discount of $1,000 per vehicle is not uncommon. That means you’ll be paying invoice price, since there’s no dealer mark-up, AND you get the fleet incentive AND any other fleet management provider discount. Would you rather pay $18K for that truck from the dealer lot or $16,500 direct from the manufacturer? That’s not just a $1,500 savings, think of the smaller amount you’ll be paying in interest on a smaller principal. Now think of that savings on every vehicle in your fleet. Factory orders are starting to sound pretty good now, aren’t they?

The second main benefit of a factory order is you get exactly the vehicle you want; no more, no less. Everything is made to your specifications, so you can obtain a vehicle that’s as stripped-down or supped-up as you’d like. The only real downside to a factory order is the lead time. You need to be on your game when it comes to vehicle replenishment in order to reap the benefits of this program. So get on your game and start saving money.

Stock Purchases Defined: A stock purchase is when a vehicle is bought from a dealer lot, not from the factory direct. Stock purchases are typically urgent need purchases, such as a new employee is hired and needs a vehicle, a vehicle is totaled, or there is a catastrophic failure. For the most part, you have no choice but to go with a stock purchase in these situations, that is, unless you’re smart and have a pool fleet. A pool, or overstock fleet, is a small number of surplus vehicles for situations like a new employee or an accident. These vehicles are used while waiting for a factory order to be delivered. It buys time and saves money.

Stock Purchase Drawbacks: There really are no benefits to a stock purchase unless you’re really in a bind and need a vehicle now. I’ll save the overstock fleet I-told-you-so’s for later. The drawbacks to stock purchases are the opposite of the benefits of a factory order. The financial drawback with a stock purchase is actually compounded. Not only are you giving up paying invoice price and giving up fleet discounts, you’re also paying dealer and fleet management margins. When the fleet management provider acquires a vehicle from a dealership, the management company pays for the dealer’s profit margin, which in turn is passed on to the buyer. These dealership margins vary from purchase to purchase. In addition to that, the management company adds a profit margin. In order to gain compensation for such a purchase, a surcharge (average of 2%) is added to the purchase price of the vehicle. As an example, a stock purchase vehicle with an MSRP of $20,000 could cost as much as $2,000 (or more) more than a factory order when factoring in loss of CAP incentives and the addition of dealership and fleet manager margins.

On top of this, you probably won’t be getting the exact specs you want. There are two cost pitfalls with this. The first, is you may buy a vehicle with features you don’t need/want. In this case, you’re paying a premium you otherwise wouldn’t have with a factory order. On the flip side, the only vehicle available in your desperate search for a quick replacement may have fewer features than you need. In this case, you have to pay to up fit the vehicle to have all the features you need/want. Stock purchases are looking pretty crappy, aren’t they? Then why do you replace your entire fleet with stock purchases?

I can’t be emphatic enough; go with factory orders. It doesn’t take a rocket scientist to know when a vehicle is on its rocking chair and ready to take the big sleep. Be proactive. Actually, you don’t even have to be proactive; let your fleet provider do it for you. You’ll save a lot of money, and you’ll have fewer surprises when it comes to urgent buys.
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Jazzy Sourcer

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