OEM Fleet Sourcing Tips

Vehicle Fleet is a complex category with many intricacies and moving parts considering fuel pricing, fluctuating features and specifications of new vehicles, and individual driver metrics. Sourcing this category has also been viewed as a daunting and time-consuming process. However, through continuous research of best practices and leveraging an all-encompassing sourcing approach, you can streamline and optimize the sourcing process enabling an informed decision when choosing the most cost competitive and best suited OEM for your organization.

So why would you want to evaluate your fleet profile? There are multiple reasons/conditions for evaluating the fleet category (as it pertains to OEM selection) besides due diligence. Potentially you are aggregating disparate fleets resulting from a merger or acquisition. Maybe you are undergoing a company culture change in which vehicles are needed for different purposes or for a larger volume of employees. Possibly there is no fleet policy or management structure at all and your company has grown out of the reimbursement model per mile for individuals driving their own cars for work-related activities. In all of these hypothetical situations a specific set of steps should be taken in order to evaluate the most cost competitive solution.

For any of the reasons above, whether it be for consolidating a diverse fleet with multiple OEMs or evaluating the cost/benefit for initiating a company fleet program, the fleet evaluation process needs to focus on factors other than the unit cost of each vehicle. Though the unit cost (or “invoice cost” as it is known in the industry) of a vehicle is the largest cost driver when considering your overall fleet profile, many other factors such as fuel mileage, residual value, and loyalty incentives can oftentimes tip the scale in favor of one OEM over another in terms of overall cost-competitiveness.

For light fleet, some of the competitive manufacturers with mature fleet programs and support include Ford, GM, Nissan and Toyota. With these companies, depending on the size of your fleet, you should be assigned a program manager from the OEM who oversees your account and manages the pricing and administrative functions such as order placement and up-fitting. If you don’t have one, you should get one so you can keep updated on model year changes, volume discounts and other new opportunities and year over year pricing trends.

Once contacts are established with a few competitive OEMs you are ready to start the actual strategic sourcing process. The first step is to create a robust bid package that includes detailed specifications of the desired vehicles (depending on your companies specific use of the vehicles these will vary), anticipated volumes, and desired contract term by model year. To accompany the information, you should also include a detailed questionnaire covering warranty packages, vehicle information (fuel mileage, maintenance costs, residual values), delivery timing, and loyalty and volume based incentive options. This allows you to collect all the information you’ll eventually use to develop your “TCO” analysis (total cost of ownership analysis).

The TCO analysis allows you to weigh and measure future costs such as total anticipated fuel and maintenance expenses over the lifecycle of the vehicle, resale value, warranty coverage, finance rate impact and depreciation schedules. With this information you will be able to forecast the total cost to own the car during the lifecycle of each vehicle by utilizing your own unique fleet metrics such as average miles driven per year, cost per gallon in your primary operating area(s), the desired lease term – assuming your fleet is leased vs. purchased, and the financing rates offered by each OEM.

Equipped with this information you will be able to compare multiple OEMs on an apples to apples basis. Some OEMs might have cheaper cars, but through your TCO analysis you concluded that the maintenance costs of the cheaper vehicle would offset the lower price by year 2 of the lease as compared to a more expensive, better built vehicle. Considering your average miles driven per year, a car with deeper discounts on the Invoice price might actually be more expensive on the net after 1 if the MPG is less than that of a slightly more expensive brand. Overall, there are many variables that can offset perceived cost savings when comparing different OEMs. When you create a comprehensive cost model, this helps to alleviate any of those variables.