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How to Prepare Your Car Fleet for External Factors such as WLTP

How to Prepare Your Car Fleet for External Factors such as WLTP

WLTP is firmly on the horizon and looming large. As of 1st September 2018, all new car registrations will need to issue CO2 emission based on WLTP (Worldwide Harmonised Light Vehicle Test Procedure) rather than the previously applied NEDCA.

A few months ago we talked here about the impact WLTP will have on company car fleets, suggesting the following three challenges:

CO2 Impact

The movement of official CO2 emissions data for a car fleet will impact a company’s carefully constructed fleet CO2 emissions target

Capital allowance claims

It will impact capital allowance claims as cars will move above the new threshold for claiming the standard rate of 18% which, as of the introduction, will be 110 g/km.

BiK Impact

In many cases, NEDC2 will effectively move the BiK of a car two brackets higher.

Unless a company has very tight control on their car fleet structure and understands the impact of these changes to a granular level, it is likely that they attempting to manage these impacts by currently observing two possible directives on company car orders:

  1. as only a selected few manufacturers have released their completed WLTP emissions figures, issue a restricted company car order list, covering only those that are WLTP compliant; severely limiting employee choice.
  2. allow older models of cars which haven’t been tested for WLTP, whilst anticipating the possibility of a negative impact on BiK tax and employers NI contributions when the actual WLTP figures are released. This could result in a hike in personal taxation and/or a request to cancel the order.

Whilst the above two solutions allow a business to navigate the uncertainty of WLTP, they are not ideal and could cause confusion, employee resentment and cost issues.

To be better placed to deal with the impact of WLTP many businesses employ the services of a Fleet category partner. A fleet category partner operates as client-side support, managing the supply chain and ensuring a helicopter-view of the whole fleet dynamic and the supply chain.

Having a completely transparent overview of the car fleet, with a firm grip on costs, compliance and replacement cycles, means the business can understand the sensitivities of the fleet to external factors such as WLTP, resulting in quick and informed decisions.

So rather than taking a compromised approach to managing WLTP, like the scenarios above, having a detailed understanding of the fleet means strategic decisions can be made that will result in the best possible outcome.

A number of our clients who are dealing with WLTP are using their transparent view of its impact to manage their order procedures accordingly, putting directives in place that enhance the medium and long-term benefit to the employee and the business.

Ultimately, having a fleet category partner allows a faster, better informed and more controlled policy procedure that can react accordingly to extraneous factors such a compliance, taxation and cost increases.

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Imminent IFRS16 Accounting Standards Will Impact Car Fleets: Make Them Work to Your Advantage

Imminent IFRS16 Accounting Standards Will Impact Car Fleets: Make Them Work to Your Advantage

The new IFRS16 accounting standard is effective from 1Jan 2019 and will affect publicly listed companies that operate a leased company car fleet. It is broad reaching legislation that fundamentally changes the way organisations report their leases, forcing them to be recognised under an on balance sheet accounting model.

Currently such leases are classified as Operating leases and are kept off balance sheet. These Operating leases’ will now only apply to leases which are 12 months or less or where there is a ‘low value’, which is generally accepted as less than $5k.

Consequently, companies who use a lease funding model to procure their car fleet are now obliged to report this information in a different, more sophisticated manner. Currently the leasing contracts can be reported on the P&L account, meaning there is no need to have such a detailed insight into the data held within each contract.

And here is the rub.

By moving the reporting to the balance sheet, companies must now have a far more robust leasing information system.

Many of our clients are working with their accountancy partners to establish a robust means of recording data on all leases throughout their business.

Our clients have the substantial challenge of understanding what specific values they need to capture in the first instance and thereafter what may change, all proving fundamental to the design and build of their ‘lease information systems’.

Discipline issues

What has taken many by surprise, is the huge variation of lease structures and reporting practices around EMEA, limiting the granularity of reporting in some cases to the lowest common denominator. It is not unusual in some less developed markets just to receive a single monthly rental figure which includes all services whereas, in others, finance and services are itemised to a granular level.

Also, what is evident, is that most businesses up to this point, have lacked discipline and structure when it comes to recording their vehicle lease contract arrangements with their suppliers.

At best, these are dispersed across the region and, at worst, contract documentation cannot be located at all.

And the retrieval of this data from across the EMEA region is perhaps the most challenging aspect of all. Communicating with sometimes more than 80 suppliers from 30 plus countries, and attempting to extract the required data in a standardised format, is no mean feat.

The idiosyncracies of vehicle leasing also add complexity to the recording and reporting process. Unlike equipment or building leases, where the rental and term remains static, vehicle rentals and end dates can change due to mileage variations. So, not only do the supply chain need to be engaged once to collect the initial data, they also need to be kept engaged so changes in rental or terms can be accurately reported.

Collecting lease data accurately and timely will be critical to the successful adoption of IFRS16 reporting. The challenge however, as we have found, is that a complex supply structure creates a complex array of data formats. And where corporates often have centralised structures with scant resource, it is very difficult to maintain dozens of supplier relationships at the right level to retrieve and manipulate the information to the right standard.

This ability to accurately collate and manage lease data is where Fleetworx clients have a substantial head start on their peers. As part of our “Fleet Category” management services, Fleetworx holds relationships with all the fleet supply chain on ours clients’ behalf. Which means we remove the pain of collecting critical contractual data and monitoring any contractual changes due to mileage variations or otherwise. Crucially, this data is also validated, cleansed if necessary and stored in Fleetworx Centrax database.

The value for our clients comes from the single report we produce which consolidates their lease data from across the EMEA region: helping them manage their “lease information systems” more closely, more accurately and less painfully.

We consider the introduction of IFRS16 an ideal opportunity for fleet owners to align their reporting systems, develop closer relationships with the fleet supply chain and gain a more thorough understanding of the fleet category cost. By its nature this then provides an excellent opportunity to deliver best practice and savings.

With support from a professional category management partner like Fleetworx, the task of developing a birds-eye view of the fleet category can be hugely simplified, whilst the rewards can be significant.

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Exposing Hidden Car Fleet Contract Costs

Exposing Hidden Car Fleet Contract Costs

When costing a fleet supply agreement, and choosing the right funding model and appropriate supplier, it is important to understand that the price quoted against a vehicle list is merely a price at a snapshot in time, and on a very specific configuration.

It is a price that is being provided for the purpose of comparison, either between other suppliers in a multi-bid scenario or against other suppliers in a single bid scenario. It is extremely unlikely that it will reflect the actual cost of operating the fleet over the term because of two main reasons:

Price creep
As the fleet expands and the legacy supplier is removed, the new leasing price of each type of vehicle will change over time: likely to result in an increase in the headline price that the contract was signed against.

Additional supplier margins
Although the provider may have offered significant signing-on incentives to win the business, they will always be factored into the overall contract pricing, very often with sophisticated systems to recover this investment.

And it is these margins that the supplier can apply to consumables and services that need to be understood, so they can be managed.

It is a common misconception that the only revenue elements that can be negotiated are the management fee and the margin on the financing interest.

Most fleet stakeholders assume that focusing on these means they are in control of the contract costs, however, that is, unfortunately not the case. There are in fact six cost categories within a typical leasing contract that are used to generate revenue for the lessor.

To understand these six commercial trapdoors Download the fleetworx e-book “Fleet Contracts: Avoiding Commercial Trapdoors – A Practical Guide for Procurement Departments” .

 

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How Structured Company Car Schemes Can Improve Employee Wellbeing

How Structured Company Car Schemes Can Improve Employee Wellbeing

The recent REBA crafted report on wellbeing clearly demonstrates the growing strategic importance of wellbeing strategies and services. There is strong evidence of the high profile that wellbeing now enjoys at board level, and the subsequent clear recognition of the link between employee wellbeing and recruitment and retention, employee engagement and productivity.

It is the firm belief of many REBA members, and report contributors, that a strategic and properly measured wellbeing programme can make a powerful impact. REBA expect the growth of such programmes to soar in the short to medium term, with 45% of companies researched already having a defined wellbeing strategy, and 49% of those without planning to introduce one this year.

Stressful working environments (73% of respondents said a high-pressure work environment is the biggest threat to staff wellbeing) and personal money concerns are widely acknowledged as key wellbeing challenges. As such, companies are keen to explore mental health and financial wellbeing campaigns that can alleviate these pressures and contribute positively to their wellbeing efforts.

Employee mobility and the provision of mobility solutions is one such area that can have a big impact on workplace stress and financial anxiety. Company cars remain a popular benefit perk for many employees, however the industry is seeing a small but growing shift toward cash alternatives, relieving the employer of much responsibility and shifting it to the employee. And in the confusing and predatory world of car retailing, this is not a recipe conducive to employee wellbeing.

Most fleet owners manage their car selection design quite tightly so they can exert some control over their fleet and the type of vehicles driven by their employees. A well organised and correctly specified car fleet provides a more controlled environment for both the employer and the employee; assisting safety, comfort, and productivity.

Company Car Support Network

As the fleet supply chain exists to manage the vehicle, and support the driver, it also removes the personal burden of responsibility for the upkeep of the vehicle, allowing the employee to be free from the distractions and compromises of personal car ownership. However, once this support network is removed and the requirement to source, maintain and eventually dispose of a personal car, albeit with employer financial support, becomes the responsibility of the employee, then the convenience of a company car compared with a cash allowance is drawn into sharp contrast.

Wellbeing implications

If a company decides that a cash allowance is how they wish to mobilise their workforce then there will be a number of implications that could impact employee wellbeing:

Unfamiliar responsibilities
Switching people into a cash allowance scheme will expose them to a number of situations with which they may not have been familiar for many years, such as financing, insurance, maintenance, all of which can cause anxiety, become huge distractions and create financial challenges

Financing arrangement
A personal vehicle needs to be sourced and, unless the employee has the luxury of being able to afford to buy a car outright, it is likely it will need to be financed. (this also raises the issue of exerting some control over the quality and age of the vehicle being used) Car purchases could be private or most likely Personal Contract Plan (PCP) or Personal Contract Hire (PCH) schemes, for which there is usually a deposit required. A cash allowance will provide a monthly fixed sum which can be used to cover the financing payments,  but it will not cover the deposit; something that will need to be covered by the employee.

Minimum term commitment
If the car is to be financed there will be a minimum term to which the employee will need to commit. If their employment circumstances change then they will be committed to the term or likely face early termination penalties.

Insurance
Insurance will need to be arranged by the employee and as most employees may be coming off the back of a company car (it is often difficult to prove no-claims from a company policy) they may struggle to negotiate cost-effective and appropriate levels of cover. And in the event of a claim the typical excesses of £300-£500 need to be paid by the employee.

Maintenance
Company car drivers have the luxury of a centrally applied maintenance arrangement. MOT’s are covered, servicing is just an email away, tyres replaced at the drop of a hat. Dealing with these without the support network of the employer can lead to many hours of sourcing, negotiating and appointment making, as well as creating a serious concern over its financing.

Roadside assistance
Company-wide roadside cover is universally applied to a company car fleet, whilst cash allowance drivers fend for themselves. It is not a particular onerous task to appointment a roadside recovery partner, but it still requires effort and expense.

In-Life and End-of-Contract Damage
If indeed the employee arranges their vehicle on a PCP or PCH, unforeseen operating costs such as damaged tyres and wheels, minor scratches and non-routine maintenance costs are typically not covered under either the maintenance or insurance programmes. Employees will be liable to a recharge if their vehicle is returned with what is classed as unfair wear and tear, a set of tyres for a typical fleet car can cost between £800-£1000.

Excess Mileage
When the employee negotiates their vehicle financing they can be easily lured into an attractive deal with relatively low contract mileage, often overlooking the punitive penalties that are imposed if they exceed the contracted amount on vehicle return.

And even the offer of a cash allowance can have consequences for company car drivers. If a company car driver has deliberately chosen a more energy efficient car with a lower BiK tax point, and their employer offers a cash alternative, then the employee will be charged at the higher of the cash or car benefit value. A consequence that the driver may not even be aware of, and ill-prepared for, until they get their tax bill.

The positive impact on employee wellbeing of a well-designed and carefully administered company car programme compared to a cash allowance scheme should not be underestimated. Personal car ownership brings with it a whole host of challenges that employees need to manage, adding anxieties and pressures that can be hugely distracting and stressful.

Fleetworx can design and implement a range of company mobility solutions that will deliver long-term savings and provide a structured framework of employee mobility that can deal with the ever-changing demands of modern business.

To understand more visit www.fleetworx.com.

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The Great Cash or Car Conundrum

The Great Cash or Car Conundrum

Although the offer of a cash allowance as an alternative to company cars may be considered a fairly ubiquitous option for company car users, it is, in fact, not as widespread as expected.

A recent major report on Global Company Car Policies suggests that only 34% of companies across Europe allow all their employees the choice of cash allowance rather than car; whilst 66% of companies restrict the choice to certain employees or don’t provide the choice at all. Nowhere is the situation more polarised than the UK, with only 17% of companies allowing all employees the option of cash allowance.

This suggests quite clearly that car ownership, rather then the provision of an allowance, remains the preferred choice across Europe.

So why is it the company car is still the preferred route?

  • Employee wellbeing
    • Most fleet owners manage their car selection design quite tightly so they can exert some control over their fleet and the type of vehicles driven by their employees. A well organised and correctly specified car fleet provides a more controlled environment for the employee; assisting safety, comfort and productivity. As the fleet supply chain exists to manage the vehicle, and support the driver, it also removes the personal burden of responsibility for the upkeep of the vehicle, allowing the employee to be free from the distractions and compromises of personal car ownership.
  • Image
    • Driving the right type of vehicle adds to the strategic value of the brand building efforts of the business. The vehicle needs to reflect the brand image and personality that the business is projecting. Sports cars may be desirable to the employee but if they contradict the understated, professional and level brand image that is being communicated then the customer may be left confused about the brand and its real values.
  • Recruitment and retention tool
    • A well-defined company car policy can be a major attraction to new recruits and can be used by the employer to create a point of difference between themselves and their competitive set. If a company decides to offer car allowances then that amount is fixed by policy and has a defined value in the mind of the employee. However a company offering cars can use this to their advantage and employ smart policies such as these to provide higher value vehicles, and hence an increased package, at no extra cost to the business.
  • Tax Position
    • Once a cash alternative is made available to employees it triggers the new tax regulation that means the employee will be taxed on the higher of the BiK or the cash allowance. As well as higher tax liability for the employee, it also removes the incentive to choose low emitting vehicles, as the tax benefit will be eroded.  The employer will also be subjected to higher NI contributions on those vehicles that were previously enjoying low BiK values.
  • Cost Management
    • Employers operating a cash allowance scheme need to be aware of the underlying temptation for car users to choose alternative transport options in order to reduce the mileage accrual on their private vehicle. The use of alternative transport naturally increases mobility costs, and can impact of the total mobility spend of the company.

Although advocates of cash allowances may consider it the easy option for providing cars, it is, in fact, a tactic that could erode the many benefits provided by a well-managed company car fleet.

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New Real-World CO2 Emissions Testing Set To Affect Company Car Taxation

New Real-World CO2 Emissions Testing Set To Affect Company Car Taxation

Have you heard about the new emissions testing regulations that will ultimately affect car tax?

No? Can’t say I blame you.

Without much of a fanfare, the launch date for the new testing regulations has been and gone. As of 1st September, the new vehicle type approval emissions tests have switched from the 80’s throwback NEDC (New European Driving Cycle) to the ultra-modern WLTP (Worldwide Harmonised Light Vehicle Test Procedure).

And frankly, it is probably about time.

Although the test remains lab-based, they will better replicate the actual real-world driving conditions and provide a more accurate indication of fuel consumption and emissions.

With more powerful vehicles, the introduction of speed cameras and road furniture, the year on year increases in traffic numbers and the inevitable stop/start motorway routines that this has instilled, the dynamics of driving are now very different to 35 years ago. And until now this has not been accurately reflected in CO2 values.

Enter stage left … the WLTP.

To create more realistic driving conditions the new test will have, among others:

  • higher average & maximum speeds
  • longer test distances
  • more dynamic & representative accelerations and decelerations
  • greater range of driving situations

Although the tests are now more reflective of what happens on our roads, there will, in fact, be an impact on the recorded CO2 emissions. Quite expectedly, the CO2 emissions will be higher than under the NEDC, with some reports suggesting an increase of over 10%. This will have a threefold impact on car fleet management.

Firstly, the movement of official CO2 emissions data for a car fleet will impact the carefully constructed fleet CO2 emission targets.

Secondly, it will impact capital allowance claims as cars will move above the new threshold for claiming the standard rate of 18% which, as of 2018, will be 110 g/km.

Thirdly, it will effectively move the BiK of a car two brackets higher.

Although the EU has suggested the scheme should not be used as a tax grab for national governments, there needs to be an alignment of CO2 thresholds with the introduction of the WLTP. It has been announced that the regulations will not impact directly on car tax until at least April 2019. This is the date for which HMRC have suggested the exiting NEDC figures will continue to be used for taxation purposes. And they have also suggested the review of CO2 thresholds to be used beyond that date will be announced in the Nov 2017 budget.

And of course it is not just the potential increased personal taxation forced upon an employee who may be renewing a like-for-like vehicle but with a new WLTP grading, there is also the potential increased employers NI contributions. Using a Fleetworx client as an example, moving a fleet of 389 cars two BiK brackets will impose an additional £35,000 in employers NI contributions.

So, although the introduction of WLTP is universally welcome, it is basically a watching brief between now and the various staging dates to keep track of looming administrative and cost challenges.

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Plug-in hybrids not being plugged in? Real world data supports need for plug-in hybrid fleet strategy.

Plug-in hybrids not being plugged in? Real world data supports need for plug-in hybrid fleet strategy.

We have written recently about the suitability for fleet of EV and plug-in hybrids, and how it is important to develop a deployment strategy considering the following issues:

  • company objectives
  • tax position
  • technology
  • driver behaviour
  • health and safety
  • range
  • image
  • future proofing

One of our main concerns was driver behaviour and how this impacts on real-world fuel consumption.

A plug-in hybrid can only deliver its dual fuel benefits if it is, well, plugged-in.

There are countless stories within the trade of charging cables for plug-ins never having been removed from their plastic wrap and it appears these stories are not just stories, but are being played out in real-life.

TMC have conducted a recent study into the fuel efficiencies of plug-in hybrids and discovered that they are in fact among the highest polluting vehicles in the fleet if not used correctly.

Using the data captured in their Mileage Capture & Audit system, they analysed seven PHEV models, finding the sample vehicles achieved an average of 45mpg, a huge 65% lower than their advertised average consumption of 130mpg.

The subsequent CO2 emissions averaged at 168 g/km, again, in sharp contrast to the advertised CO2 emissions of 55g/km.

And it is the advertised consumption and emissions rates that are leading to claims of “fake hybrids”, allowing such vehicles to sit within the low emission category, attract lower BiK rates and offer conscious-satisfying CO2 savings.

The ”fake” status means that the BiK advantage is of genuine appeal to company car driving employees, whilst the employer is stuck with the challenges of the real-world fuel consumption resulting in higher than expected fuel costs and whole life cost challenges.

Belgium is one European country that has decided to tackle this issue head-on and is removing the friendly tax status of plug-in hybrids. From 2020 the financial benefit will switch to the ratio of the battery capacity to the weight of the car, meaning those cars running on a small battery will become significantly less attractive. UK is also set to follow suit as in 2020 the BiK will be linked to the actual electric-only range.

Plug-in hybrid discipline

In the meantime, as plug-in hybrids remain a popular choice for employees (plug-in hybrids sales for Jan-June 2017 up 14% on same period 2016) it is in the interest of the employer to instill charging disciplines that encourage and increase plug-in usage:

Mileage allowance rates

  • consider utilising sliding mileage allowance rates based on journey length, giving lower mileage rates for shorter journey to encourage the battery to be sufficiently charged

Workplace charging

  • take advantage of voucher scheme offering up to £300 toward the installation of each workplace charging socket
  • place charging point stations in advantageous parking positions to encourage charging
  • reward work place charging by identifying charging vehicles and assigning “charging points”
  • arrange charging etiquette to avoid “charging point congestion”

Homeplace charging

  • support employees in applying for a grant of up to £500 toward the cost of installation of a home charge point
  • encourage the sign-up by explaining the process
  • support the sign up by having clear health and safety guidelines
  • reward the sign-up by offering relevant incentives
  • consider interest-free loans to help with home charge point installation costs
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Are you getting the best possible value from your car fleet? (part 3) – 6 more essential questions

Are you getting the best possible value from your car fleet? (part 3) – 6 more essential questions

As we learnt from part 1 in this mini-series, knowledge imbalance is a common by-product of outsourcing a company car fleet. This series of blogs covers the questions that must be asked of the supply chain to ensure they are delivering best value.

Part 1 dealt with the issue of transparency and cost control, whilst part 2 covers the subject of policy and best practice/value.

The third and final series of questions concern the provision of management info and how it helps you make decisions.

  1. What is our trend on pence per mile per vehicle spend and why?

Your supplier should have the reporting infrastructure to advise on your pence per mile per vehicle spend. A more accurate picture can be built using a TCO approach, but this will require a more sophisticated reporting system. To correctly analyse your spend and make strategically sound decisions, it is essential that you have a clear and accurate understanding of your entire supply chain, and all its associated costs. Your suppliers should be able to provide you with a detailed analysis of your spending and explain its direction.

  1. How do our costs compare with those of our peer group?

Understanding your company car benefit program in the context of your peer group is essential for effective recruitment and retention. Company car benefit is a highly visible component of a reward package and is an effective recruitment tool. Your supplier should have appropriate data systems which can collate and analyse all your spend categories. They should then be able to lay this against that of your peer group and advise on your position within your sector. Having this intelligence ensures your company car benefit design is working to your advantage.

  1. What are the key risks for increased costs for the future?

Transparency and insight to your cost structure will help you understand your areas of risk going forward. Your suppliers should have the ability to categorise your spending and interrogate it thoroughly to analyse the potential ramifications of category cost increases. They should then offer strategic advice on how to avoid cost creep.

  1. Do we have total visibility on all areas of company car fleet spend? If not how do we incorporate the missing areas of spend. (e.g. capture trading up and trading down payments and voluntary flex payments or receipts)

Visibility on all areas of spend is essential for controlling the company car fleet supply chain. A generalist who has been allocated the responsibility of managing a businesses company car fleet may assume the only spend to manage is the monthly lease rental cost. Naturally this cost is important, but it is only one of many cost lines that need to be managed. If a company car benefit program is correctly managed, it is quite possible for it to have up to 60 cost lines allocated to over 15 cost categories. A cost centre such as Finance Lease may contain 10 different cost lines, only one of which relates to the monthly lease cost. Others will be:

  • Excess mileage charge
  • Early termination
  • Trade-down driver payment

Collating the detail and allocating it to the correct cost centre, is the only way that the total investment in the company car fleet can be understood. It is very important to maintain tight control on all the spend lines as they are so broad that they can easily be incorrectly allocated, undermining the actual true value of the investment. For example, if a policy allows an employee to trade-up their car for a more expensive model the system must ensure the appropriate contribution is collected and allocated. Whereas conversely if an employee wishes to trade-down, the correct payment must be made to that employee via payroll.

  1. Does our management information give us sufficient detail on our strengths, opportunities etc

Company car benefit design is a dynamic and complex process, with many variables at play. Consolidating these influences to help strategise about the direction the company car benefit should take is very important to maintaining its profile and share of voice within the business. Having the intelligence to help strategic decision-making is vital and having a management information system that can interrogate the company car program and translate its intricacies into discernable management information is of great value. Any fleet stakeholder should be able to use the management information system to outline a SWOT analysis of the program. It could uncover strengths such as advantageous fixed terms with manufacturers providing good value for money and contributing to accurate forecasting.

It could identify weaknesses such as high overall C02 emissions, contributing negatively to the companies ESOS position. Or it might expose threats such as a large amount of unplanned spend (accident damage, insurance claims, hire car costs etc) which, if unchallenged, could become an increasing cost burden.

It could also show opportunities by identifying how a series of smart policies could improve the perceived value of the company car selection policy without increasing cost: a valuable tool for recruitment and retention.

An increasing priority for many fleet stakeholders is having detailed management information, the raw data for which sits with the various suppliers. The challenge facing fleet owners, however, is creating systems to extract and analyse the data and provide sensible reporting that adds value to the decision making process. Such systems are only of value when they are external to the supply chain, as only then can the data be verified and independently analysed. Fleetworx provide this independent, accurate management information, ultimately helping the supply chain work better for everyone through a combination of data analytics, technology and expertise.

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Are you getting the best possible value from your car fleet? (part 2) – 5 more essential questions

Are you getting the best possible value from your car fleet? (part 2) – 5 more essential questions

As we learnt from part 1 in this mini-series, knowledge imbalance is a common by-product of outsourcing a company car fleet. When a company removes the internal fleet specialist and moves the responsibility to generalist stakeholders, this creates a power shift to the supply chain. As the generalists usually don’t have the benefit of previous fleet experience, the supply chain now knows more about the provision of car fleet than the company they supply. In order to redress that imbalance there are a number of questions that should be asked of the supply chain to ensure they are delivering best value. Part 1 dealt with the issue of transparency and cost control. Part 2 covers the subject of policy and best practice/value.

Remember these are all questions that you are perfectly entitled to ask.

  1. What areas of our policy would not be considered best practice?

It is important to ensure your company car benefit design is kept reflective of current market requirements. It also needs to be benchmarked to ensure it is providing a competitive framework within which to operate. Your supplier should be completely abreast of market needs and understand the compliance issues at stake. Requesting them to analyse your policies will focus attention on those areas that are potentially compromising the efficacy of the design.  

  1. Considering the mileage covered by our drivers, is our replacement strategy delivering the best value?

Many organisations operating a company car fleet do so with a replacement cycle of 3 years. This has been the norm for many years and is usually the expectation of the employee. The opportunity does exist, however, to realise some extra value from the investment in the company car fleet by reviewing the replacement cycle. Under a 3-year replacement cycle a driver with an average mileage of 20,000 miles per annum would be expected to have covered only around 60,000 miles, if not fewer, before they would change their vehicle. Indeed the average number of miles covered by business users is falling year on year, as factors such as the relative expense of travel, challenging traffic conditions and technological advances such as video conferencing all discourage travel. This reduction in the amount of miles travelled makes increasing the replacement cycle to 4 years much more attractive: less miles means less wear and tear on the vehicle. A 4-year replacement cycle is becoming increasingly popular within the UK and can deliver quite significant cost savings. Alternatively, this cost saving could be re-invested in the fleet to deliver a higher value car at the same base cost: a useful reward and retention tool in an increasingly competitive employment market. For example changing the replacement cycle from 3 to 4 years could upgrade a BMW 318i SE 4Dr Auto to a 320i SE 4Dr Auto for the same cost. This ebook is a great guide to the smart policies which can build on a replacement cycle change and deliver some real incremental change in the cars you can offer.

  1. Are the cars we are offering our employees appropriate for our industry, how do they compare with our peers and are they set at the right value?

This is a question to your suppliers that you should be asking regularly. Understanding your company car benefit in the context of your peer group is essential to developing a competitive employment proposition. Sectors such as Technology, Pharmaceuticals and Healthcare can all experience rapid growth and an increasingly competitive employment landscape. Niche providers in these sectors are known to pursue aggressive recruitment and retention models, and use company cars as an important ingredient in differentiating their position. Their company car offer will often sit in the higher percentile of the industry, making it very difficult for mid-market businesses to compete for key talent when their company car benefit is only of an average value. Therefore, knowing what you are competing against will give you the intelligence required to develop a company car benefit programme that is of value but can also act as a differentiator in an aggressive employment market. 

4.Are we using the best selection methodology to ensure that we are delivering a consistent benefit level whilst containing costs.

There are several selection methods for allocating company cars. It is very important that the chosen selection method reflects the objectives of the business and delivers vehicles which are right for your fleet. A common approach is using rental bands. These can be based on basic rental or effective rental, which includes non-recoverable VAT. Some companies also use a benchmarking approach, where a benchmark vehicle is chosen for each band and others cars within that band need to be similar. Although these allow a basic comparison of the vehicle cost and help create vehicle bands, they do not accurately illustrate the total costs of running that vehicle. An increasingly popular approach for vehicle selection is the Total Cost of Ownership (TCO) method. TCO ensures that all fixed and variable costs associated with that vehicle are considered when making the selection. Costs such as fuel, insurance ,non-recoverable VAT and employers NI are added to the rental costs to determine the total cost of running each vehicle. The addition of fuel to the calculation means TCO takes into account the fuel efficiency of the vehicle. Whilst the CO2 emissions drive the corporate and benefit-in-kind tax efficiency of the vehicle, making more fuel efficient cars an attractive option for both the company and the employee.

The nature of the TCO selection method, means the least costly vehicle choice is much easier to illustrate. This helps a company manage their fleet costs much more closely. It can also highlight fuel-efficient premium models as having a lower cost than averagely efficient volume models: allowing a more attractive company car policy at a lower cost to the company. 

  1. Is the car selection policy appropriate to brand image, whilst still allowing suitable reallocation?

Company car allocation policy can be varied, ranging from free choice to no choice. The most popular policy is usually somewhere in the middle ground, the offer of choice from a designated range. The benefit of this is that the cost can be controlled much more tightly and the TCO of each vehicle can be budgeted more effectively. A broad range can usually satisfy the aspirations of an employee, but offering a range that is too broad can lead to fewer manufacturer discounts, and consequently a more expensive program. It can also lead to re-allocation challenges when a free-choice vehicle or a vehicle chosen from the margins of a broad selection policy needs to be re-distributed among the team. Not everyone would be comfortable in a 2-seater sports vehicle, running 25mpg!

Correct policy construction is an essential part of negotiating an appropriate supply structure. Whilst challenging your supply chain may be necessary to ensure the policies are working to the advantage of you and your drivers. The next and final part of this mini-series will look at management information and how this helps with strategic choice.

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Are you getting the best possible value from your car fleet? (part 1) – 5 essential questions

Are you getting the best possible value from your car fleet? (part 1) – 5 essential questions

Appointing an external fleet management company to oversee car fleet is becoming an increasingly common practice. As businesses look to reduce headcount and out-source non-core activity, removing the fleet department and handing responsibility to HR, Procurement and/or Finance is a very familiar picture across UK and pan-European companies. A 2014 industry report found this practice in 40% of their surveyed companies. It also showed that growth in fleet size increases the likelihood of outsourcing, with 62% of companies with over 2000 vehicles being managed externally.

There are 5 unintended consequences of losing the internal specialist and outsourcing a company car fleet, see this whitepaper to learn more: one of which is knowledge imbalance. Once the strategic specialism of car fleet management is lost to the business it creates a knowledge void. The internal teams that take on responsibility for fleet are typically generalists who may not have the benefit of previous experience in fleet. Subsequently they become reliant on the supply chain to provide insight and strategic direction. This power shift results in the supply chain knowing more than the business they supply, and the potential for them to feed only sanitised information back to the client. Not an ideal situation for creating a challenging supply environment.

We have created a mini-series of articles highlighting the questions to be asked of the supply chain in order to redress the knowledge imbalance.

This first article is looking at the area of transparency and cost control. The next article will look at policy and best practice/value and the third will cover management information.

So here we go. Remember these are questions that you have every right to ask your leasing company

  1. Where are the greatest levels of unplanned, in-life spend within our car fleet supply chain?

If it remains unchecked, in-life spend can drastically increase the overall cost of your company car program. A company car programme can expect to incur 5% of the annual driver cost in unplanned , in-life costs. Consequently a company running 1500 cars at an average driver cost of £9,000 pa can expect to be faced with an additional £675,000. Unplanned spend can come from accident costs, repair and maintenance costs and end-of-contract charges and can add significantly to the total cost of ownership. The supply chain should have systems to monitor these areas of spend and offer advice on how to reduce their impact. For example, experience shows that drivers who take the risk on damage liability show a reduction of low-speed impact incidents of up to 70%, subsequently reducing the amount of insurance and repair costs.

  1. Where are your areas of margin in the products you supply our business?

If you are employing an outsourced fleet provider you may be surprised to learn that about only 20% of their revenue is from the management fee they charge you. The rest consists of opaque margins and rebates. These revenues are broad and varied and consist of, among others, interest margin, contract adjustment margin, maintenance network rebates, repair network rebates. If your contract has been written with transparency in mind, these revenues will be visible and accountable. As the client you have every right to challenge and negotiate the value of these margins and decide who takes the benefit.

  1. What discounts are you getting from manufacturers and how are they built into our costs?

Suppliers who take a partnership approach to your relationship should be willing to share information about manufacturer discounts. Manufacturer discounts can be substantial and they should be made transparent to all stakeholders. Suppliers should be asked how the discounts are awarded and how they are distributed between themselves and their clients.

  1. How does our maintenance spend compare with the maintenance spend in the budgets?

This question is vital for setting and managing accurate budgets. Suppliers should have the ability to report on different spend categories, highlighting overspends and re-directing savings. Understanding the maintenance spend category helps advise on the strategic direction of maintenance contracts and supports effective decision-making.

  1. How much are we paying in end-of-contract charges?

End of contract charges is a spend category which will often go unobserved. Charges are frequently applied without being challenged and can lead to unplanned costs in tens of thousands of pounds. End-of-contract charges are made up of excess mileage claims, damage costs and late-hire charges. Close interrogation of all invoices related to these charges should be a standard and your supplier should have systems in place to deal with and report on these costs.

Dealing with the knowledge imbalance provides valuable intelligence that the maturing relationship with the supplier has gradually eroded. Recapturing some of that knowledge will help foster a challenging supply environment, drive efficiencies and avoid cost. Next time we will look at questions about policy and best practice; making sure the policies are working to the advantage of you and your drivers.

For an informal discussion about how you can get the best possible value from your car fleet drop us an email or give us a call. 

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