On the surface, managing the total cost of ownership for vehicle fleets seems like a fairly straightforward calculation: Buy the right vehicles at a discounted price with low depreciation rates, take good care of them, maybe recondition them a bit before sale and wholesale them off as quickly as possible.
Then, start all over again.
In reality, professionally controlling your total ownership costs better than your competition involves a greater level of thought, planning and analysis.
While the straightforward plan of buying well and selling quickly covers the basics, it will likely result in you or your clients leaving a lot of money on the table. Within each step are opportunities to minimize your total cost of ownership with strategic planning, analysis and decision-making.
If you manage, advise on, or own a large fleet of vehicles, consider these four strategies for improving your bottom line.
1. Choose the right vehicle
What do most employees who drive fleet vehicles really need? A safe, reliable car that will get them to meetings and other engagements on time.
Michael Bor, CarLotz
Perhaps a utility vehicle with the base features required for the team to execute their tasks in the field. The team might appreciate driving a more popular brand or having features like Bluetooth and backup cameras, but those perks can add up quickly and may seem like a waste of money.
Even basics like automatic windows and mirrors or cruise control aren’t always necessary for entry-level staff or quick, non-strategic vehicle uses.
However, just because your current drivers don’t need the features doesn’t mean you should automatically avoid them.
While base models may on the surface look “cheaper” — and provide everything your drivers need — they can actually cost more money in the long run once you factor in the significant reduction in remarketing proceeds when it comes time to sell the vehicle.
Nearly every vehicle put through a remarketing channel will eventually end up in the hands of a consumer. What that consumer is willing to pay for that vehicle has value consequences all the way up the supply chain to the original user of the vehicle, so it’s good to keep resale in mind and consider the desires of the end consumer when buying your fleet vehicles.
When remarketing at an auction or other wholesale alternative, the buyer is typically a wholesaler or dealer that will ultimately resell to the general public, so they’ll factor in the vehicle’s features and general desirability into their purchase price.
When remarketing a vehicle directly through a retail channel, the consumer coming for a test drive will likely notice and be turned off by basic inventory that lacks features like Bluetooth, power window and locks, cruise control and others commonly demanded by consumers.
At CarLotz, we have seen base versions of vehicle models like Audi Q7s, Chevy Silverados and Nissan Frontiers — typically in high demand among consumers — take much longer to sell or sell for reduced prices because they lack features like sunroofs, power windows or backup cameras.
Similarly, if these vehicles were wholesaled through an auction or online channel, wholesale buyers may avoid these vehicles because of their reduced feature set.
Cost-minimizing tip: Look beyond your current drivers’ needs when selecting vehicles for your fleet. Determine which features and models the ultimate consumer buyer may want in the remarketing process, and consider key upgrades to your fleet to maximize your remarketing proceeds down the road.
2. Be strategic with your refresh timing
Timing is everything, even with a vehicle refresh. Let’s say you bring on a new fleet every three years and sell your old vehicles in late fall.
This timing may work well for your company’s operational needs, but you’re missing peak remarketing season — spring — which means you’re not maximizing the remarketing proceeds and, as a result, increasing your total cost of ownership. The retail market for used vehicles, which spikes in the spring due to tax refunds driving consumer purchases, generally leads to increased used-vehicle prices in the retail and the wholesale market.
To manage your timing strategically, you need to not only consider your internal schedule, but also the wider market demand for used vehicles. Shift your refresh forward or backwards just a few months, and you can take advantage of spring’s more favorable remarketing conditions. As a result, you may be able to remarket your old vehicles more quickly — and for a higher price — than just a few months before or after.
Cost-minimizing tip: Analyze your fleet refresh timing, from selecting new cars to reconditioning your existing vehicles. Then, work backward and plan your next refresh to align with spring’s peak retail remarketing season.
3. Address reconditioning
Between rushing to meetings, eating in the car and spending so much time on the road, company drivers don’t always take the best care of their vehicles. So, when you’re ready to remarket your fleet, reconditioning is key if you want to get top dollar.
While a detail and windshield replacement or light paint touchup seem like obvious reconditioning tasks, sellers should consider spending a few additional dollars to remove the larger red flags, which often lead to a significant reduction in what buyers are willing to pay.
Check-engine lights, for example, are often linked to inexpensive issues like an O2 sensor or loose gas cap but will likely result in a significant reduction in buyer interest and purchase prices. Putting four new tires of any brand, replacing worn seats or rectifying dash lights will dramatically improve each vehicle’s appeal.
Used-car dealers are willing to pay up for “front-line ready” vehicles, as they will reduce the time required for getting the vehicle sold and reduce the risk that they’ll uncover other issues in their inspection process. Oftentimes, the work required to make a vehicle front-line ready is far less than the cost of doing the work
Cost-minimizing tip: Be proactive about reconditioning. Talk to your fleet manager or your account reps working with you at your remarketing channel of choice about your remarketing goals and how they can help you prep for getting the highest return on remarketing spend from your existing fleet. Your remarketing channel rep should have your goals in mind when making reconditioning recommendations.
4. Experiment with multichannel marketing
To maximize remarketing proceeds, you need to think about the whole picture, not just the puzzle piece in front of you. Looking beyond wholesale is key in the evolving remarketing industry.
With more vehicles hitting the market and auction prices dropping in reaction, strong proceeds depend on expanding your distribution channels.
While auctions and online wholesale channels will likely always be a part of the fleet-sales process, including cutting-edge online and retail remarketers in your strategy is increasingly important. These emerging distribution channels enable you to skip the middleman and go straight to the retail buyers, which pay retail prices well above wholesale.
It’s certainly not the obvious choice for every vehicle, but for vehicles that are “front-line ready” and in high demand among consumers or those that will appear far riskier than they actually are through a wholesale channel, selling through a retail channel will maximize remarketing proceeds and minimize total cost of ownership.
Of course, selling a car at wholesale may only take a week or two, while retail may take a week or two longer than that. But, assuming an average sales price of $15,000, an additional $1,500 per vehicle that you’re likely to achieve in the retail market equates to a roughly 10-percent greater return in a couple of weeks, which annualizes to well over a 100-percent return on your investment.
Cost-minimizing tip: Evaluate your current vehicles and the available remarketing channels to determine where to list each one. By strategically selling your fleet — rather than automatically choosing wholesale — you may be able to dramatically reduce your or your clients’ total cost of ownership.
When you have a large fleet, small savings on each vehicle can add up to become meaningful differences for your company or your clients. With a few changes to your strategies and decisions, your total cost of ownership could go down for every single car in your fleet. And who doesn’t like those cost savings?
Michael Bor is co-founder and chief executive officer of CarLotz.