– By Gerard Norsa –
When it comes to servicing fleet vehicles, keeping a lid on costs is a significant challenge that fleet managers grapple with on a regular basis so any opportunity to introduce stability to that line of expense potentially represents operational efficiencies and more accurate budgetary forecasting.
Many manufacturers are now offering capped pricing deals on warranty period servicing as part of their new vehicle sales packages which is a deviation from previous systems where servicing costs were not so predictable.
At first glance it all sounds good and in most cases probably is but you do need to keep in mind that you are entering a contract and that the devil is in the detail. Choice Magazine, the monthly consumer advocacy missive warned in 2012 that all capped price servicing deals are not the same.
“You might look at the headline price, but it pays to read the fine print,” a Choice spokesperson was quoted as saying at the time. “As it is difficult to compare like-for-like, ask the dealer what the total cost of servicing is for three years – and what happens once the capped pricing deal ends.”
Capped price servicing is a good solution for factory-aligned dealers as it guarantees them ongoing services revenues on each sale they make; revenues that generally offer much better margins than the new car sale itself. Automotive retail sales is a highly competitive game of moving stock to take shipment of the next delivery from the manufacturer and a lot of the base profit has evaporated as a result.
In a lot of ways you can make a comparison between car sales and computer printers. Both products allow vendors to reduce profit on the initial sale because they are able to increase lifecycle value by locking in post-sale transactions. With printers there is far greater earnings in the sale of ink cartridges than the commodity printers themselves.
Essentially, capped price servicing is the declaration by manufacturers that there is a ceiling cost applied to each service that makes up the full recommended schedule of log book maintenance for a vehicle over an allotted period of time – generally, but not always, the same length as the base warranty.
Initially designed to woo retail customers as a value-add to the sale, increasingly capped pricing is something that fleet managers are taking advantage of for the governance benefits they deliver.
While it is a negotiable component of any sale, just about all manufacturers now encourage capped pricing on the service schedules which, as mentioned, helps to keep the highly profitable service teams busy but it also helps customer loyalty by eliminating potential over-charging from dealers.
Robert Wilson, Managing Director of independent fleet management consultancy, 4C Management Solutions said that market competition among manufacturers is driving the almost ubiquitous introduction of the provisioning of specified service activities at a set price.
“There are clear benefits for fleet managers because of the easier budget forecasting and management efficiencies,” Wilson said. “There is also the opportunity to take advantage of perceived benefits in better quality servicing from accredited dealers which can introduce positive whole-of-life cost outcomes.
“It is not uncommon for fleet operators to negotiate capped price, fixed price or even pre-paid servicing but it is important for managers to understand exactly what they are signing up for. I have seen contracts that allow for price schedules to be adjusted over time.
“It is my belief that set price servicing can be useful for the fleet manager. It enables greater clarity and stability around operating costs and by doing so enables better quality capital investment decisions.
“Just make sure there are no surprises in the fine print – for example, any exclusions or price increase mechanisms”.