Driving has become an expensive business. Record crude oil prices fuelled by demand from the growing economies of China and India, combined with tanker drivers’ strikes and the effect of the economic slowdown have all contributed to rapidly-increasing petrol prices around the world.
Over the last year the price of a barrel of oil has doubled, at one point rising to a record high of $140 in June before falling back a little and then settling at approximately $121 as Employee Benefits went to press on 21 August. However, in the long term some experts believe prices could rise to $200 a barrel within the next year or so mainly because production is failing to keep pace with a souring global demand.
More expensive crude oil inevitably leads to pricier petrol at the pumps. Although a supermarket price war has helped bring prices down on the forecourts in the last month, the AA says they are still too high as they have failed to fall in line with recent wholesale price reductions. Its Fuel price report August 2008 puts average UK unleaded prices at 113.15 pence per litre nationally, while diesel is now priced at 125.58 pence per litre. However, if the price of crude oil soars again to a new all-time high, as some are predicting, then petrol prices will follow.
This step change in fuel prices poses a significant challenge for fleet managers. According to GE Capital Solutions’ 2008 Company car trends report, a massive 97% of fleet managers have said that fuel prices are the factor most likely to have an impact on fleet policy.
Stewart Whyte, a director of fleet industry body ACFO, says: “The rate of increase in fuel costs has provided a loud and clear alarm for fleet operators, despite the fact that we, and many others, have been warning of the need to control fuel costs for many years.
“It seems oil speculators have succeeded where fleet consultants and environmental campaigners have failed. Fuel economy is now firmly on the agenda for fleet managers.”
Employers looking to cut fuel costs associated with company car schemes have a number of avenues to explore.
A good starting point is to limit the amount of time employees spend in their cars on business, says Whyte. “The most common approach that we have identified is simply to question all business journeys. This attacks the root of the issue: the greenest mile is the one not travelled,” he adds.
Homeworking and flexible working arrangements are increasingly cited as sure-fire ways to cut the fuel costs of employees driving on business. It means for drivers there is an incentive to plan a working week so that travelling time is used efficiently as there is no need to make costly diversions to report into the office at the beginning or end of the day. According to the aforementioned GE Capital Solutions survey, 95% of fleet managers said homeworking has cut the number of business miles travelled. Last year, 75% said that employees were driving fewer miles because they could now work from home.
Anna Allan, director of flexible working consultancy HalsAllan, explains: “The most obvious ways working patterns can help reduce journeys are homeworking and compressed hours, where employees [work] four long days, rather than five eight-hour days. Start with the question, does this task need to be location specific? Do people need to be on the premises to carry it out? If not, investigate if it can be done at home.”
New technology can also be used to help staff avoid commuting on business. Rather than clocking up miles to attend meetings, employers could investigate whether staff can use other methods of communication, such as conference calls or video-conferencing, instead.
Cutting down the time employees spend on the road, though, is only the beginning. The next step for employers to consider is switching to cleaner, greener cars that are more fuel efficient.
This will also help employers deal with the impact of changes to capital allowances, due to come into effect in 2009, which penalise those firms that invest in inefficient vehicles that pump out high levels of carbon dioxide emissions. Expenditure on cars with CO2 emissions above 160 grams per km will attract a lower writing-down allowance of 10% compared with the 20% that is imposed on vehicles that emit 160 grams per km or below.
Jason Francis, managing director of fleet management company Jaama, believes employers should limit company car lists to models that get more miles to the gallon. “Fuel management begins even before a vehicle takes to the road. Employers should be reviewing their company car choice lists to ensure they offer drivers vehicles with excellent miles per gallon,” he adds.
It is worthwhile employers pointing out to staff the changes that are due to come into effect around company car tax in 2010/11. Although an employee will be better off if they select a vehicle with low CO2 emissions, employers also stand to gain as the car is likely to be more fuel efficient.
Even where individuals have cash allowances and choose to take the money to strike their own deals, employers may want to consider making it clear that cars with low CO2 emissions will attract less vehicle road tax. If employees do end up choosing vehicles that are efficient on fuel this can help control the business mileage costs of employers.
Where employers are looking to review the types of vehicles in their company car lists then they may want to consider petrol-electric hybrids. Amid rising petrol prices, some employers are opting to switch to petrol-electric hybrids, such as the Honda Civic and the Toyota Prius.
Over the last 18 months, Marks & Spencer and Ikea are among those that have added hybrids to their company car lists. These cars are more economical on fuel because a battery provides additional power when it is needed. In the past, many fleet managers have been reluctant to move to hybrid cars because of their cost, which is greater than that of petrol models. However, this additional cost is now outweighed by escalating prices at the pumps. The Employee Benefits/SureFleet Fleet research 2008 found 25% of employers now offer hybrid or electric cars, compared with 13% in 2007.
Electric cars, such as the Smart cars, come near the top of the league when it comes to green vehicles. These plug-in cars offer serious savings, using as little as 2.5p in electricity for every mile of motoring, according to car review website WhatGreenCar.com. Few employers offer these cars to staff, but this situation looks likely to change as manufacturers compete to develop the next generation of electric cars.
If moving staff out of their petrol-swilling models and into Smart cars isn’t an option, employers could look into switching fuels. Although more expensive than petrol, diesel delivers more miles per gallon, says AA technical specialist Vanessa Guyll. “If you do a high [level of] mileage, a diesel car works out slightly cheaper, but the current high cost of diesel fuel can make the benefits of a diesel car harder to achieve,” she explains.
Another possible fuel to consider is liquefied petroleum gas (LPG), which remains substantially cheaper than either petrol or diesel. “For petrol cars that cover a high annual mileage, an LPG conversion might be worthwhile. A conversion costs about £2,000,” explains Guyll.
A further option is bio-fuel, which is derived from agricultural products. “Biofuels are only slightly cheaper than conventional fuels, and the energy content of biofuels is lower, so fuel consumption will be higher. The other problem is that biofuels are not widely available at filling stations,” explains Guyll.
Although biofuels often have a green image, they have come under criticism recently for being the cause of rising food prices. The corn used for biofuel is used in cereals and for animal feed for pigs and chickens.
Another way for employers to ease the fuel price pinch is to give staff lessons on greener driving. Employees can learn how to coax extra miles per gallon, for example, by driving more smoothly and keeping tyres pumped up.
Mark Sinclair, director of fleet provider Alphabet, says: “Educating drivers is one of the best investments a fleet manager can make. Training drivers in fuel-efficient driving techniques not only gains more miles per gallon, but it also reduces wear and tear on vehicles and helps bring down accident rates, which, in turn, cuts repair bills and insurance premiums in the long run.”
If this does not reduce fuel bills, fuel cards may be able to help. These allow organisations to authorise, control and track the fuel purchases for their vehicles. “It goes without saying you can’t manage something you don’t measure. It is impossible to drive better fuel economy unless you know the levels of efficiency your cars and drivers are achieving.
“Fuel cards are an effective tool for measuring and controlling fuel economy. Make sure the card allows drivers to report their mileage when filling up and ensure they do so. This will allow you to monitor fuel consumption through fuel card reports and take action if necessary. Some companies send out league tables to drivers, showing who is most and least fuel efficient,” says Sinclair.
Employers who wish to go a step further in keeping tabs on fuel consumption could consider hooking cars up to specialised telematics software. This enables employers to monitor their vehicles’ fuel economy and flags up drivers who are burning the tarmac.
However, most employers are wary of using such Big Brother-style surveillance, says ACFO’s Whyte. “Only a few fleet managers seem to be addressing the problem with in-car technology, although the capacity exists to exercise very high levels of monitoring and control. Costs and resistance from drivers seem to be the most common objections. Some managers believe that telematics is overkill. Most suppliers like to talk about the many things their systems will do, but what most senior managers want is a simple, cheap system that gives the basics of journey and fuel monitoring,” he explains.
Reining in the benefits that are offered alongside cars can also help to contain or reduce costs. Private fuel allowances, for example, are a costly perk. Funding employees’ private mileage was one thing in the days when petrol cost 70 pence a litre. However, an open-ended commitment to pay for fuel that now stands at around £1.13 a litre is quite another matter.
No let up Paul Bartlett, head of employee reward and benefits at Grass Roots, explains: “With all the predictions, the cost of private fuel is likely to increase further and, without action, this will become an increasing burden on companies offering this benefit. Once it is removed, the full impact of fuel prices will be realised by employees, who, in turn, may adjust their driving habits. However, it will be a difficult benefit to withdraw in the current climate.”
Private fuel can also considerably add to tax bills for both employers and staff. Not only must employers pay national insurance on the perk, but many workers end up paying more in tax than it would cost to pay for the private miles themselves.
Marcus Puddy, head of fleet consultancy Lloyds TSB Autolease, says: “It is definitely worth communicating the actual cost [of private fuel] to workers, and challenging them to weigh up whether they are benefiting. The cost savings that could be gained by limiting or removing private fuel as a benefit mean employers can offer alternatives that are more efficient for both parties.”
When looking to do away with the perk, however, employers may have to consult with staff over the proposed change if it is, or has come to be seen as, a contractual benefit.
Finally, employers looking to reduce their fuel consumption costs could consider the most radical option of all and rid themselves of company cars altogether. This would, of course, require detailed consultation with employees. However, taking the decision to ditch company car schemes is a guaranteed way of cutting fuel bills, and would give a huge boost to an organisation’s environmental credentials.
Professor Ian Fells, professor of energy conversion at Newcastle University, concludes: “The best thing that industry can do is abandon company car schemes and make employees buy their own cars. This means stopping filling up company cars with fuel and giving a realistic but tight pence per mile allocation for travel on company business. All those fuel-gobbling, ego-boosting large cars will soon make way for the new breed of fuel-efficient cars” EB case studyCentrica pumps up its green credentials Last year, Centrica decided to save on fuel costs and reduce the environmental damage caused by its 2,100-strong company car fleet.
To achieve this, the parent company of British Gas limited its list of cars, offered through contract hire, to green models.
Colin Marriott, general manager for its fleet, says: “Our policy eliminates vehicles that have a greater detrimental effect on the environment by capping car choice for all company car drivers to vehicles that emit no more than 200 grams of carbon dioxide per kilometre. “[In addition] we introduced hybrid vehicles such as the Toyota Prius and Honda Civic IMA.” The company also taught employees how to adjust their driving to make it greener.
“A total of 1,842 of our staff have been on a driver development course that included advice on using fuel-efficient driving techniques,” says Marriott.
Case study: Hybrid fleet
Hybrid fleet a credit to Triodos Bank As befits a self-styled ‘ethical bank’, Triodos Bank’s employees drive environmentally-friendly hybrid cars.
Trey Sanders, an HR adviser for the Dutch-owned company, says: “Our small fleet is made up of hybrid cars and we promote alternative ways to get to work. Only eight people [out of 84 UK staff] have company cars. They are provided because of the need of a particular role rather than a grade.” Triodos also offers a raft of schemes designed to get staff out of their cars. “Many workers use public transport or bicycles. We encourage car sharing and have a cycle-to-work scheme,” says Sanders.
Of the firm’s employees, 10 joined the cycle-to-work scheme last year.
The company’s also measures its ethical credentials in its annual report. “We monitor how people get to and from work in our annual accounts, measuring our environmental performance as well as our financial one,” Sanders adds.
Case Study: Rentokil
Rentokil eradicates wasteful driving habits Rentokil Initial introduced driver training to combat the rising cost of filling up.
It is currently piloting courses, and employees are encouraged to adopt fuel-saving measures such as ensuring tyres are properly inflated and avoiding heavy braking.
John Green, procurement director and fleet manager at the pest control company, says: “Fuel efficiency is a matter we take very seriously. Across the group, fuel, energy and telephony are among our highest day-to-day operational costs. These items are vital to the effective operations of our businesses, but we need to be really vigilant that we are not wasteful when we use these resources for the sake of the environment, as well as our bottom line. This is a message that is being communicated across the group.” The company is also promoting environmentally-friendly and cost-efficient driving practices to staff, with posters, car stickers and mailshots, all giving tips on how to squeeze out more miles per litre of fuel.
“So far, fuel efficiency has improved by 10%. But this can start to diminish as drivers get back into old habits, therefore reinforcement of the core messages is important,” says Green.