It’s the overall cost of vehicles that companies should be working with.
Even before the current lockdown, there was plenty going on to occupy fleet managers’ minds in terms of short- and long-term fleet planning, with a swirl of issues affecting the cost of running a fleet of vehicles.
It’s easy to be tempted by a low monthly rate for companies leasing their vehicles, or by a bargain low price for those that buy outright, but there’s much more to the cost of a company car operation than getting hold of the cars in the first place, especially with the big shift in the taxation landscape that kicked in for the 2020/21 tax year.
“Moving to a whole-life cost model is very apt at this time; now is the time people should be looking at it,” says Grant Boardman, client services director at fleet management company Fleet Alliance (pictured above). “Just in terms of fuel saving, there are huge benefits to have if you monitor, a huge part of fleet cost is fuel so you need someone to monitor it.”
LOOKS CAN BE DECEIVING
“You might think all lower-medium hatchbacks cost the same, but they don’t. The key benefit of a whole life-cost approach is that it guards against either a ‘hot invoice
price’ or super-cheap contract hire rental misleading a fleet buyer and causing them to believe something is a bargain when the full operating cost might be a completely different story,” adds Mark Jowsey, director of manufacturer liaison at industry whole-life cost expert KeeResources. “The rental or invoice cost is only part of the story, and you need to be aware that today’s special offer may contain hidden costs.”
Fleet Alliance’s Boardman says the five big ones are the rental (or purchase) cost, Class 1A National Insurance contributions, fuel, insurance and the lease rental restriction cost.
“It’s too easy just to look at the rental. Every quote should also contain a whole life cost”
Much of the whole-life cost of a vehicle revolves around its efficiency, for economy and taxation reasons.
Stuart Ferma, general manager, fleet for Toyota and Lexus GB, (pictured right) says: “Businesses need to make sure they are aware of the full impact of vehicle emission figures, especially while most diesels are still subject to the four-band BiK increase if they don’t meet RDE2 emissions standards.
“These figures impact more than just an employee’s BiK contributions and company fuel bills, but also an organisation’s NI contributions, and choosing cars in lower BiK bands can lead to significant savings in NI alone.
“Fleets often take a fully maintained contract but fuel costs are sometimes overlooked, which we have seen with plug-in vehicles not being plugged in,” Ferma continues. “This can result in higher fuel costs if not managed.”
ENSURING INSURANCE CONTROL
Insurance cost is another that shouldn’t be taken too lightly, or presumed to be a flat cost, according to KeeResources’ Jowsey. “Fleets might work on a cost-per-car-per-year average, but that’s completely inappropriate because you can have cars of the same size and sector, but insurance groups of 11-15 because of the risk associated to different products; regardless of how you manage the insurance cost, certain cars represent a greater risk to the company.”
So how should a company go about moving across to a model where more of a vehicle’s costs are factored into the decision-making process?
“My advice is to get the data in place first,” says Paul Hollick, co-chairman of the recently launched Association of Fleet Professionals, formed from the merging of ACFO and ICFM (pictured right). “Speak to your leasing provider, it’s freely available on most quotes, as well as the gross and net leasing costs, and most companies have a consultancy division that can help.”
The fleet industry training body’s chairman also said a company’s accountant should have all the numbers to help. “For the fleets that haven’t done so, prepare and get data,” he continues. “Start speaking to data providers or your accountant and start modelling costs.”
Toyota’s Ferma adds: “There are many tools on the market that provide businesses with whole-life costs, and leasing companies should also be able to assist with this. Fleets need to be working towards making sure they utilise every available tool to build the right business case for their vehicles. Manufacturers’ field teams can also assist; many are equipped with a whole life cost tool.”
So if there are savings, why is a whole-life-cost model not used by every fleet?
“It’s too easy to just look at the rental; most companies won’t have a fleet manager, so it will sit with HR or finance and the lowest line of resistance is to look at the lease rate,” says Fleet Alliance’s Boardman. “Providers, including ourselves, need to make it easier, and every quote should have a whole-life cost.”
The growth in contract hire rather than purchase, and the related decline in the number of dedicated fleet managers is key, according to KeeResources’ Jowsey.
“One of the consequences of the growth in contract hire is that you have fewer expert fleet managers managing fleets; outsourcing fleet provision still requires quality administrators to manage the process, but without expert fleet managers it’s difficult to operate in the most cost-efficient way,” he tells Company Car Today.
WHAT TO INCLUDE IN A WHOLE-LIFE-COST CALCULATION
1. Effective rental/outright purchase cost
2. Class 1A National Insurance
3. Fuel cost
5. Lease Renatal Restriction cost (if leasing)
“If you’re going to do the job properly, you need to look beyond the hot rental or invoice price, and not everybody has someone with the necessary experience to be able to do that,” he continues. “It’s easy to use contract hire price or invoice price for the selection policy, but you can have cases where it limits the type of vehicle available in a grade, especially with the expansion of powertrains from petrol and diesel to hybrid and battery electric.”
Even if the fleet manager can show the benefit of taking entire costs into account, there are still businesses that can be reluctant. “The only reason why not is sometimes the culture of the organisation doesn’t want to change,” explains AFP’s Hollick. “Executives might like staying with a list price basis because it favours them on the big-CO2 vehicles that they want to drive. But it’s not a modern way of trading any more.”
SHAPING A CHOICE LIST
The change works especially well with perk fleets where you’re not worried what they are driving as long as it is safe.
But it is worth monitoring the impact on the type of vehicles available on a fleet list, especially if they are job-need cars. “It can be a challenge with workhorses if a vehicle moves out of a particular band you are trying to create; make sure that those cars that are almost used as vans are in the right bandings.” says Hollick. “And you don’t want to see an employee driving a nice saloon be moved into a small hatchback, especially with the forthcoming impact of the change to WLTP emissions testing.”
That change will raise most vehicles’ emissions figures, with industry expert Cap HPI claiming an average 19.7% increase in official CO2 numbers.
Toyota’s Ferma agrees. “Businesses need to be aware of shifting emissions figures under the new WLTP testing regime, especially if they have policies with particular caps, such as keeping cars under 110g/km,” he said.
Overall, the move to a whole-life-cost system should have a positive effect.
“Moving to this model will always save money, everyone always says they saved money,” states AFP co-chairman Hollick, who is also managing director of fleet management and data firm TMC. “It should make the choice list more expansive; it’s not going to be a completely free choice because lot of fleets still run a two- or three-badge policy, but you will get a better car for less money, and it should drive employees into more fuel efficient vehicles, dropping CO2.”
A knock-on effect of knowing more about costs is that, Hollick says, companies can introduce a competitive element to cost control.
“We are seeing a lot of gamification, with league tables to reduce costs of accidents, fines, abuse of vehicles.”
The model also protects employees because the company will be ensuring vehicles are as tax-efficient as possible. “There is an element of duty of care for the driver; a reason a car falls out of a grade is that it is high on CO2 or personal taxation, so there is an element of mutual protection,” says Jowsey. “Subject to the ability to do it properly, there is never an argument for not including all reasonable costs. It’s all about risk management.”
A DIFFERENT EQUATION FOR VANS
While the principles are the same for fleets running light commercial vehicles, the tax system means those elements can be removed to leave efficiency, service, maintenance and repair cost and insurance among the key considerations, as well as resale value versus purchase cost for vehicles owned outright.
Even that last point is negated to some extent by the longer time and higher mileages that LCVs are run for on a fleet, over the length of time a car will typically be kept in operation.
But with vans even more likely to be workhorses than cars, another key consideration is the back-up offered by the manufacturer in guaranteed levels of service to make sure vehicles are maintained and repaired quickly. Plus, warranty and roadside assistance offerings should also be compared, because it’s vital to have light commercials in use earning their keep.