If you read nothing else, read this…
- During the financial crisis, employers were hesitant to acquire new cars, so it became more common to extend hire contracts.
- Employers are looking to greener cars to reduce the cost of running a fleet.
- Employers are monitoring business miles, considering whether travel is necessary and if cars are being driven efficiently.
- Employers now assess the whole-life costs of a car, including funding, CO2 emissions, miles per gallon and tax relief to determine the true fleet cost.
Case study: Trader Media offers self-service
Trader Media Group (TMG) fully outsourced the management of its cash allowance scheme and car fleet to Zenith Provecta in 2009.
The publisher, which owns the Auto Trader website, runs a fully expensed company car and fuel card scheme for its 256 essential business drivers, most of whom work in sales and drive at least 10,000 miles a year. TMG’s cash
allowance scheme also covers about 170 staff who are not essential business drivers but do a small amount of business mileage.
Zenith Provecta has a website that allows drivers to arrange test drives, order cars online and book services. Natalie Hulbert, head of health, safety and environment at Trader Media Group, says: “It is the best fit for our business because it goes down the route of self-service, where previously internal management was quite a big factor in relation to our fleet. It is a much more user-friendly process for the driver, with one point of contact.”
Case study: Cable and Wireless broadcasts a win-win solution
Cable and Wireless Worldwide launched an environmentally friendly, cost-conscious, salary-sacrifice car scheme for its 5,000-plus UK staff at the beginning of August 2010.
The scheme is set up on a two-year basis and is available for employees to join at any time. After the two years, staff can choose to return the car, buy it back or seek car provision outside the scheme. They can choose from a range of models, including BMW, Mini, Volkswagen and Audi.
The scheme is limited to cars that are low in CO2 emissions, enabling staff to make tax and national insurance (NI) savings.
Paul Bissell, head of reward, Cable and Wireless Worldwide, says: “It is a win-win solution. The [employee] wins because they are getting a brand new, fully maintained, fully insured car for less than they would if they went into a garage. The business wins because, environmentally, we are encouraging our people to use vehicles that are more fuel-efficient or environmentally friendly, and we are benefiting from NI contribution savings associated with salary sacrifice, and from reduced business mileage costs.”
Staff can access a website that provides details of the policy structure, makes and models of cars, and shows them how much a car will cost on a gross and net basis. It also gives staff a comparative quote on what the car might cost from a garage. The scheme has seen a high take-up, with 30 cars ordered in the first week, and approximately
140 cars ordered overall.
The recession forced employers to take a radical look at their fleet policies, with greener, more economical cars becoming the new main priority for many, says Tynan Barton
During the recession, large numbers of employers operating fleets put decisions about buying cars on hold and looked closely at how they managed their existing vehicles.
Many organisations extended their fleet contracts rather than replacing their cars. In the trough of the downturn, the expected residual value of cars was very low and discounts from manufacturers were static, so there were few savings to be had. Some fleet providers saw contracts extended from three to four years.
Ben Creswick, business development director at Zenith Provecta, says: “This trend has continued. Employees and employers are spending a little bit more time ensuring that they are making the right choices.”
But extending contracts could prove to be a false economy because maintenance costs increase as a car gets older. However, few organisations were prepared to buy a new fleet during the recession. Mark Sinclair, director of Alphabet, says fewer cars were bought in 2009 than in 2008, but 2010 saw the pattern reverse. “Contracts that were put on hold, or maybe extended, in 2009 then came up for renewal in 2010,” he says. “Organisations that had restructured or made redundancies were then much more stable and looked to renew their fleet.”
Employers now aim to ensure any replacement cars are the most cost-effective models available. Peter Cooke, professor of automotive management at the University of Buckingham, says: “The industry is restructuring, employers are looking to downsize cars, and to reduce the number of cars where they can, while ensuring those cars are fit for purpose.”
The Fleeteye and University of Buckingham industry review published in November 2010 found 64% of fleet operators cite fitness for purpose as the most important criterion for employee car choice, indicating that fleets are being restructured after being restricted during the financial crisis.
Now, in a period of high inflation and poor economic growth, the big issue facing fleet managers is controlling or reducing costs. John Lewis, chief executive of the British Vehicle Rental and Leasing Association (BVRLA), says: “The number one priority for fleet managers today is making sure they can provide the transport their [organisation] needs, both from the employer and employee perspective, safely and most cost-effectively.”
Opportunities for employers to reduce rental costs are limited, but there are other ways to cut spending. Green cars are gaining credibility among employers, not only as a corporate social responsibility (CSR) initiative, but also as a means of controlling budgets. “Two years ago, green was as much in people’s conscience as it was in their cost,” says Lewis. “But now it is about the most economical vehicle. Green means ‘how can I save costs by paying attention to what I’m doing?’. Lowest emission may mean better economy.”
Employees, too, may be inclined to look for cars with lower carbon dioxide (CO2) emissions that can do more miles per gallon (MPG). Car manufacturers are playing their part by providing a wider choice of cars that fit with employees’ requirements. Lower CO2 cars attract a lower rate of benefit-in-kind tax, as well as lower employer national insurance (NI) contributions on the benefit in kind. Keith Allen, managing director at ALD Automotive, says: “A lot of employers are reconsidering what they need to do in terms of CO2 being more efficient. The old culture of company car drivers wanting a status car is not what it used to be. People recognise they have got to be more efficient and have got to have low CO2 cars. They are comfortable downsizing in terms of engines.”
Fuel duty reached a record high at the start of 2011. From 1 January, drivers were faced with an extra 0.76p/litre duty on already-spiralling petrol and diesel prices. “Employers need to mitigate the growth in fuel cost,” says Alphabet’s Sinclair. “If they want to level off, or try to reduce the increasing fuel cost, they have to buy a different car, with lower CO2 or higher MPG.”
Another way for organisations to counter rising costs is to become more diligent about the business miles their drivers travel. The University of Buckingham’s Cooke says: “Employers are looking to reduce mileage by greater use of technology, for example using more conference calls and Skype. Employers are asking: ‘Are staff planning routes properly? Are they minimising the number of journeys they make? Are they sharing cars?’.”
Providing a car through salary sacrifice has been gaining popularity during the downturn. Sinclair says: “Employers are always looking for new ways of rewarding and retaining employees when the focus has been on cost reduction.”
Employers are now focusing on one main element: the whole-life cost of a car. Zenith Provecta’s Creswick says: “Funding, residual values, maintenance, CO2 emissions, MPG, VAT recovery, tax relief – employers are looking at all these with their leasing companies to say: what is the real cost?”
Organisations are taking all these factors into consideration to ensure they operate the most cost-effective fleet possible. “The old days of the fleet policy just being based on a rental band is going, and people are looking at the total cost of ownership of a car,” says Allen. “It is becoming a lot more of a consultancy-led sale in terms of helping fleets become more efficient, manage their CO2 levels and manage their costs.”
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