Article

New Contracting Process in Oregon Drives Down Vehicle Prices

The Oregon State Procurement Office used smart price and cost analyses to establish a list of dealerships offering the lowest net prices. As a result, net-to-buyer prices have rolled back to 2009 levels.

March 2012, Government Fleet - Feature

by Greg Hopkins

Pictured are "best value" vehicles purchase by Oregon state agencies: Honda Civic Hybird, Honda Civic CNG, Toyota Prius, Chevrolet Volt, and a Dodge Grand Caravan flex-fuel vehicle. Photo courtesy State of Oregon.
Pictured are "best value" vehicles purchase by Oregon state agencies: Honda Civic Hybird, Honda Civic CNG, Toyota Prius, Chevrolet Volt, and a Dodge Grand Caravan flex-fuel vehicle. Photo courtesy State of Oregon.


At a Glance

The new procurement process has resulted in:

  • Net-to-buyer prices at 6 percent lower than neighboring states.
  • Reduced administrative costs.
  • Unlimited flexibility in new vehicle selection from qualified dealers.
  • A simpler procurement process.

Procurement analysts from the State of Oregon have implemented an innovative and greatly simplified way to purchase fleet vehicles. By getting real-time bids from up to 14 dealers, fleet buyers are getting pricing barely above dealer costs. The result? State and local government fleet buyers are celebrating the lowest prices for cars, trucks, and vans west of the Missouri. Additionally, fleet buyers across the State have much greater flexibility in what they can purchase.

How the Process Works for Buyers

Fourteen dealerships around the state are on a list of qualified providers, chosen through a bidding process. The list includes Ford, Chevrolet, Chrysler/Dodge, GM, Toyota, Mitsubishi, Nissan, and Volkswagen. The dealers can sell any new inventory they have, including police cars.

To get price quotes, fleet buyers go to one of the manufacturer's websites and use the "build your own vehicle" feature. This virtual vehicle serves as the specs for the buy. Next, fleet buyers send an e-mail to the list of qualified dealers and ask for quotes for the type of vehicle they want. For the best price, they are encouraged to shop the entire list. Oftentimes, different vehicles fit the bill, creating competition not only among the same dealers selling the same make, but also dealers of different makes.

The process has shifted the dealers' business strategy. Since they are simply acting as a pass-through, their overhead for each transaction is low. Their game plan becomes maximizing volume. The old days of having inscrutable pricing structures along with lots of tack-on fees are gone.

Short-Listing Qualified Dealers

Dave Reynolds and Josh Rogers, State of Oregon procurement analysts, began by learning how the dealer price structure worked, including  manufacturing incentives dealers receive for each vehicle sold. In addition, if a dealer's volume is high enough, there can be other incentives such as exclusive selling rights to rare and expensive cars in the new model-year. Reynolds and Rogers began to see how a high volume, low overhead process could work. The shift in thinking was enormous.

"I could see an entirely different way of doing business," Reynolds said.

The State could simply get out of the way and the let the power of the free market drive the process. Customers could order what they wanted, when they wanted it, and prices could float like commodity spot prices.

To get on the list of qualified dealers, dealers submitted prices for a list of fees such as dealer prep and servicing costs, discount from net invoice, dealer profit, etc. A market basket of vehicles was used for the bids. The dealers with lowest net cost for each region of the State were awarded a place on the qualified list. The fourteen dealers who made the list turned out to be an optimal size. More than that, the list gets bulky and profits among the dealers drop. Less than this, competition drops and some areas of the State might not be represented by a dealership.

Analysts review the list of dealers every five years, but can make adjustments, rebid, or renew as needed.

COMMENTS

  1. 1. Sammy Samuelson [ March 29, 2012 @ 11:22AM ]

    Great job ,Guys ! Believe it or not back in the '70's , the same tactic was employed with tractor dealers ( Bobcats ) ,and it was a good practice ! We sold 11 Melroe Bobcats to one firm as a result ! Today as a Vendor I encourage the "Bakers Dozen " theory .
    And do not have to service those customers as often ,and it cuts there bottom line budget
    as well!

    Thanks for letting me share,

    Sammy Samuelson
    S pecialty A utomotive M anagement S ystems
    Tacoma ,Wash .
    360-281-7283

    Please check out this website :
    samsceramicgels.com

 

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