The state of the environment and safety issues are helping to drive employers’ fleet agendas, says Sarah Coles
Publicly, environmental issues continue to remain near the top of many employers’ fleet agendas. However, when it comes to actually managing their fleet, these eco-concerns do not always readily translate into hard and fast action.
Stewart Whyte, director at ACFO, says: “If you ask a fleet manager what excites them at the moment they’ll say ‘the environment’. But if you ask them what they have done in this area in the last 12 months, two-thirds of them will say ‘nothing’. Their day-to-day existence is still about buying and selling cars, and dealing with driver problems.
But there are some proactive fleet managers making giant strides in improving the green credentials of their organisation’s fleet. “There are those who have restructured the whole way they deal with business travel and have made strategic changes,” adds Whyte.
Some of these measures include replacing business mileage with alternatives, such as video conferencing, or bringing meetings in-house.
Fleet management providers have responded to this interest in environmental issues. Schooling, for example, says: “The cleanest business mile is the one you don’t drive, so we have been doing some work with the Energy Saving Trust on car sharing, video conferencing and wider policies.”
Meanwhile, Leaseplan has introduced a green product on the back of employers’ interest. Tim Hudson, commercial director, explains: “Greenplan brings awareness about running the fleet more efficiently. It assesses the fleet to determine its environmental footprint, then increases awareness, provides information, and offers driver training to encourage more efficient business travel.”
But many other employers are reactive, responding only to government initiatives. Richard Schooling, a director at Alphabet, says: “The green agenda has been set by government. Business [is] coming under scrutiny for its green policies.”
The government provided a major tax incentive for employers to make their fleet greener when it moved to a sliding scale of benefit-in-kind taxation of 15%-to-35% of a car’s list price, depending on its CO2 emissions, with an extra discount for diesel cars. As a result, there has been a trend among employers towards downsizing, and a shift to diesel. Robin Mackonochie, head of communications at the British Vehicle Rental and Leasing Association, says: “Now, 65%-70% of the fleet is diesel.”
Vehicle manufacturers have also been doing their bit for the environment by lowering emissions across the board and cleaning up diesel engines.
The state of the environment is not the only issue confronting fleet managers. Safety is another, and the two combined are driving up fleet costs. “The extra safety and environmentally-friendly features and the build quality all comes at a cost and it’s pushing prices up. Maintenance costs are going up because of safety checks,” says Whyte.
Safety is at the forefront of fleet managers’ minds due to the Corporate Manslaughter and Corporate Homicide Act 2007 which received Royal Assent in July, and is due to come into effect on 6 April 2008. Under the Act, employers will be held liable where the death of individuals has occurred due to gross corporate failings in health and safety. “There have been a lot of scare stories about the liability of directors. The serious point is that fleets have become more focused on duty of care,” says Hudson.
In response to the issue, some fleet management firms have introduced new product. “We run Safeplan, which is about risk assessment, identifying the most high-risk drivers and developing action plans for them,” says Hudson.
But these extra services bring yet more expense, so cost control is a priority. This means managers are typically examining fleet efficiency, and shopping around in order to obtain the best deal.
Providers are therefore facing tough competition in what is a mature market. In order to grow their share they must win business off each other or expand through acquisition. Lex, for example, completed its merger with Bank of Scotland Vehicle Finance at the end of last year, while ING Car Lease bought Appleyard Leasing six months ago.
However, there are signs of some modest growth in the market as a whole as a number of employers have switched from cash allowances to company cars due to duty of care issues. “There was a shift to cash over the last few years. That’s plateauing. In fact, the duty-of-care issues surrounding liability have encouraged a number of fleets to move back to cars, where they have more control,” says Hudson.
But despite this maturity, the market remains far from static, because there are still outside factors forcing fleet managers to change the way they operate.
The government’s proposed changes to authorised mileage allowance payments (Amaps), which are paid to staff to reimburse them for business miles travelled in private cars is a significant issue within the fleet industry. This is part of HM Revenue & Customs’ [HMRC] ongoing review into employee car ownership schemes and the interaction with company car tax and mileage payments. In a consultation, which closed in July, HMRC asked for opinions on three possible changes to the current structure of Amaps. These included an option for adjusting the rates and thresholds to better reflect differing costs of drivers using their own cars for business, a change to the structure of payments by linking Amaps to CO2 emissions so that drivers become more environmentally aware, and thirdly, a combination of the first two proposals to link CO2 emissions with a change in rates.
“In theory, it’s a good idea. In practice, it’s a huge bureaucracy for employers. This is for people who use their own car, so how do you know what it is in order to find out its CO2 emissions, how do you manage it on an ongoing basis, and how can you be sure people are using the car they say they are?” says Schooling.
Changes around the way depreciation can be written down against corporation tax are also due. “At present, when you have a fleet, all the cars worth less than £12,000 you can put in a pool and depreciate the total at 25%. Those over £12,000 must be depreciated individually up to a maximum of £3,000 a year. The government intends to change it. Anything that produces 165 g per km of carbon or less will be put in a pool and depreciated at 20% a year. Those that produce more are put into a pool and depreciated at 10% a year,” says Mackonochie.
Although the changes are aimed at making fleets more environmentally-friendly they may also result in unintended consequences. If a car is worth £30,000 and produces more than 165g/km CO2, for example, it is actually better off under the new system.
So fleet managers can expect to be kept on their toes in the immediate future. “Even the least sophisticated fleet managers are being encouraged to act, even if it’s just to add a couple of Prius’s to the fleet so they feel they’ve done something,” says Whyte
Focus on facts
What are fleet management companies?
Fleet management firms offer a range of services, from buying to leasing cars, handling administration and servicing, including disposal of assets. They may also offer training, safety checks, risk management and other specialist services.
What are the origins of fleet management companies?
Since cars first hit the road in the first decade of the 1900s fat cats have had their cars, and experts to source them. The current major players formed in the 1950s and 1960s, when car ownership became more of a business tool.
Where can employers get more information and advice on fleet management companies?
ACFO provides information and allows members to network and gain best-practice ideas. It can be contacted on 01730 260162.
The British Vehicle Rental and Leasing Association (BVRLA) provides lobbying services and information for members. Call 01494 434747.
What is spent annually with fleet management companies?
According to the BVRLA, £7.5bn is spent on leased and contract hire vehicles annually, while £15bn is spent on all company vehicles.
Which fleet management companies have the biggest market share?
Lex is the biggest with 250,000 vehicles following its merger with Bank of Scotland Vehicle Finance. Other major players in the market are Lloyds TSB Autolease, ING Car Lease, Leaseplan, Lombard Vehicle Management and Masterlease.
Which companies increased their market share over the past year?
The market in the UK is growing at 1% a year. Some of the larger organisations are growing through acquisition. In 2007, Alphabet claims to have grown by 14% and Leaseplan by 5.5%.
Nuts and bolts
What are the costs involved?
Costs vary according to the size of an organisation’s fleet, vehicle selection, mileage, the number of extra services employed, and the complexity of funding.
What are the legal implications?
Employers have a duty of care to drivers. They are also subject to the implications of health and safety legislation – including anti-smoking regulations. Since the passing of the Corporate Manslaughter and Corporate Homicide Act 2007, employers face legal responsibility if their drivers should cause a death because of an employer’s actions.
What are the tax issues?
The benefit-in-kind tax (BIK) is calculated on 15%-to-35% of the car’s list price according to the engine’s CO2 rating. Cash allowance drivers are exempt from the BIK charge but income tax and national insurance are payable. Corporation tax can also be offset by depreciation. Currently, cars worth more than £12,000 are depreciated individually at 25% a year.