Bulk fleet tenders hit local car industry

UPDATED
14/10/2013A NATIONAL procurement initiative that is trying to change the way local government buys its motor vehicle fleets has been shunned by all three local car-makers and some major importers who appear reluctant to break with existing procedures.

GM Holden, Toyota and Ford, along with Mazda and Volkswagen, have all decided to stick with the established system of supplying leased vehicles to state and local governments, either through their dealers or through what in Victoria is known as the State Government Fleet Leasing Scheme.

This means there is no chance any Australian-made cars will be included in the current tender being managed by the National Procurement Network, which is for 2700 vehicles across 40 councils in several states.

Brands that have lodged bids in the tender include Honda, Nissan, Suzuki and Great Wall.

It is believed the leading car companies are wary of allowing a third party (other than a franchised dealer) to insert themselves between the car-makers and the customer.

There are also some concerns about the contractual conditions in the tender, although the specifics of these concerns are still locked deep inside the legal departments of some of the car companies.

The situation has attracted criticism of the local car-makers from the tenderer, the National Procurement Network (NPN), portraying them as recipients of taxpayer funding who are unwilling to sell cars to local councils.

The NPN connects procurement services offered by local government associations in all states and territories to provide national programs “where it is beneficial to combine the purchasing power of councils Australia-wide”.

In this case, a group of more than 40 councils put out the combined tender for 2700 cars and light commercials and received responses from only a few suppliers.

GM Holden, which was the only company to provide a statement to GoAuto this week, said the NPN tender was not pursued because it fell outside its current arrangements.

“Holden has a very good relationship with government entities around the country and we welcome their ongoing support in buying our products,” Holden said.

“We supply local councils and government fleets through our established and competitive preferred government pricing program.

“The tender in question here is run by an independent third party operator that falls outside our current arrangements.”

The tender is not for the delivery of 2700 vehicles in one hit but, rather, the delivery of vehicles to councils over a period during which the councils will turn over their existing fleets.

A factor that may help explain the reticence of the three local car-makers is that some established state government procurement systems, notably Victoria and South Australia, have policies to buy only locally made cars where possible.

A straight tender run by the NPN would make no such distinction.

The tendering system is being adopted by local government because it is seen as simpler and more efficient than the current procurement process, according to Municipal Association of Victoria (MAV) chief executive Rob Spence.

The MAV, which represents all Victorian councils and is a member of the NPN, started down the road of improving procurement for councils about five years ago after professional services firm Ernst & Young examined the local government sector and estimated that councils could save around $350 million across Australia if they smartened up their procurement and combined their purchasing power.

“We have just done a $400 million tender for debt,” Mr Spence said. “The banks loved it. A single agreement, a common agreement for all councils involved. A simple process.

“The councils love it because they have got really competitive prices, but the model is so efficient. Previously they all went separately. It was all over the joint, all these multiple agreements and so on.”

Closer to home, in automotive terms, the NPN recently ran a tender for trucks.

“We’ve done a truck tender and all the big players are involved in it,” Mr Spence said. “And again, the feedback from the truck manufacturing industry is they love it: simple process, competitive pricing.

“The advice to me is the pricing is better than you can get through the state contracts through our tender, because we have gone with local government nationally with that one.”

Mr Spence stressed that the move towards tendering was not just about shaving a few more dollars off the price of a vehicle or a bank loan.

“This is as much about process engineering: better processes, cost reduction, simplified engagement with the industry, better reporting, all of that stuff,” he said.

“It’s like fuel cards. We deal through Shell here. If we were dealing with all service stations on single accounts it would be crazy.

“This is as much about process redesign, improving the process for both industry and for local government as it is about price, trying to get efficiency.”

The NPN can muster huge buying power because any or all of the 562 councils across the country can participate in any tender.

After dealing with raising debt and buying trucks, the NPN went after cars and light commercials.

“We got responses from Nissan, Jaguar, Mercedes, Suzuki and Ateco (importers of Great Wall, Chery, SsangYong and others),” Mr Spence said.

“They all responded and they are all involved, but we couldn’t get anything out of Toyota, Ford and GM Holden. We actually got a response from Ford but then they withdrew.”

Mr Spence conceded that a tender for 2700 vehicles was not a large proportion of total local government needs, but said councils have been quick to join in after seeing the results of the earlier tenders.

“The experience in Victoria is, when you get a tender in place – and in this case over 40 councils are involved – then what happens is other councils, when they see how it works, will come on board or try to come on board.”

He believes the introduction of the tendering process, which represents a change in normal practice, will start with early adopters and then spread to the wider target community.

“It’s like any change in process. Not everyone will adopt it at the start, but our view is that they will join,” he said.

“With all the tenders we have done, those big ones I have mentioned, we get pressure from councils which want to join it after the tender process is complete because they see what it does.”

Mr Spence was surprised an industry as competitive and cut-throat as the car industry was resisting the implementation of a system that improved efficiency.

“You know how hard the car industry is in Australia when it wants to chisel out its own suppliers. They’re always looking to improve,” he said.

“One of the people here used to work for one of the big providers to the motor industry here and he tells me how aggressive they are.

“But, coming from the other side, we can’t even get them to talk.”