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How the diesel restrictions will affect company car fleets

How the diesel restrictions will affect company car fleets

Now that we are in April, the month within which a High Court Judge declared Defra come up with a better plan for reducing air pollution in 6 cities (London, Birmingham, Leeds, Nottingham, Southampton & Derby) , plans for diesel restrictions and bans are gathering pace. The upshot is the announcement of a £12.50 charge for vehicles entering a London Ultra Low Emissions Zone in a petrol car not meeting Euro 4 standards and diesel vehicles not meeting Euro 6 standards (which City Hall suggest is most petrol cars more than 13 years old in 2019 and diesel cars more than 4 years old in 2019). As well as this there is a so-called “toxin tax” of up to £20 a day also expected to be introduced in “several other UK cities” (presumably those listed above).

But what does this mean for company car fleets, and the mobility of staff around the UK’s major, and maybe not so major, cities?

The Thin End of the Wedge?
Although these charges represent the first steps toward reducing the impact of diesel emissions, whether this is the thin end of the wedge toward an outright ban is unclear. And such bans are not unknown. The mayors of Paris, Mexico City, Madrid and Athens have all confirmed they will ban the use of diesel-powered cars and trucks by 2025, citing alternative vehicle use, cycling and walking as their preferred method of mobility. A seven year run-up should be enough for companies in these countries to adapt their car fleet appropriately, and if they don’t then, well, some medical reps are going to be awfully tired cycling their samples around inner city hospitals.

Indications of a hard stop on diesel in the UK are a little less clear, but pre-brexit legislation suggested that the UK is one of  Six European countries potentially facing hefty fines if it fails to reduce NO2 levels by 2020. And it is the NO2 that is the problem with diesel. Diesel cars were once revered for having lower CO2 emissions than pertrol, by virtue of the fact they are more efficient and use less fuel for the same mileage – less fuel should mean lower emissions. However it is now known that diesel cars spew out high levels of NOx (nitrous oxides and dioxides) which contribute to and exacerbate a number of health issues. A recent study by DEFRA suggested the number of premature deaths in the UK attributed specifically to NO2 at 23,500. So, there are new aggressive plans to clean up air pollution issues and it seems likely diesel cars will bear the brunt of the legislators.

7 questions to be considered
So what must car fleet stakeholders ask themselves in advance of these moves – What is our exposure to the regulations? What percentage of journeys are in potentially regulated areas? Do we begin phasing out diesel engines in newly contracted cars? What about grey fleet cars?

  1. How exposed to these regulations is my car fleet?

Some basic analysis will highlight the number of diesel cars in the current fleet and the potential number over the ensuing 2 years as people change vehicles. The current restrictions will apply to Diesel vehicles registered before Sep 2015, which means they will be four years old by 2019 and most likely in the process of being replaced. Seemingly not much of a concern then for fleets operating with leased vehicles on a 4 year replacement cycle. However, what if the restrictions on diesels extend beyond charges based on Euro 6 and move toward total bans? What would be the exposure? How would it disrupt the mobility of the team?

  1. How do I understand the journey profile of my fleet?

Understanding the exposure to the restrictions is essential to inform strategic choice on fuel types. But how it this achieved? Can existing records determine the journey profile of the fleet and the likely exposure, or would it be necessary to introduce telematics to the vehicles in order to gather a very detailed understanding.

  1. How will this affect the TCO of running a diesel?

What considerations should be made when planning the vehicle strategy if the analysis reveals a large exposure to the regulations, for example many inner-city journeys and/or a large number of older diesel cash allowance and grey fleet cars within fleet (see below). Is the changed TCO of operating a diesel and absorbing regulatory charges more or less than the equivalent TCO of a petrol or ULEV car.

  1. If my fleet is heavily exposed do I begin promoting alternative fuel types?

If indeed ULEV or EV cars are promoted how is the charging procedure and discipline managed. How will the vehicle range impact on the mobility of the team?

  1. How will it impact on cash allowance and grey fleet vehicles?

The BVRLA suggest there are 11.5m grey fleet cars in the UK and 230,000 cars on a cash allowance scheme. Of the grey fleet cars, 30%(3.4m) are diesel and 70% (8m) are petrol, whilst the UK cash allowance fleet is 67% (154k) diesel and 23% (53K) petrol. With an average age of 8.2 years for grey fleet and 5.3 years for cash allowance, the tendency is for these vehicles to be older than any other vehicle segment used in business travel e.g. leased, rental etc,. As vehicles of a certain age are more likely to be impacted by the restrictions, the following shows the likely number of grey fleet and cash allowance vehicles that will be affected.

diesel numbers

Figures from BVRLA : Getting to grips with grey fleet, July 2016

So this suggests 4m grey fleet and cash allowance vehicles will potentially be subjected to the charges. The challenge this presents is more than just the cost of the additional charges, it extends to the administration of the charges. Who becomes responsible for the charges? Is it the company who has asked an employee to travel into a regulated zone, or is it the employee who has chosen to operate a vehicle that doesn’t meet the clean air regulation.

  1. How will it impact cash allowance and grey fleet vehicle car selection policy?

Cash allowance vehicles
Possibly fairly straightforward for cash allowance cars – Cars must meet the Euro emissions regulations, which means older cars will no longer be allowed. Although if current trends are indicative of the car market mix in 2019, there will still be over 75,000 cash allowance cars in the UK that are non-compliant because of age, which means measures to address this will need to begin immediately.

Grey Fleet Vehicles
This is a more of a challenge as over 3.5m vehicles will be non-compliant, so where a company uses grey fleet as part of their mobility strategy the added burden of charges adds to the complexity of using grey fleet. This may become the catalyst to applying more control over grey fleet and understanding how it fits within the mobility strategy of an organisation, BVRLA suggest initiatives such as – analysing the nature of the trips made in grey fleet vehicles, introducing a travel hierarchy, implementing grey fleet alternatives such as daily rental, car clubs and/or leasing.

  1. How will companies manage their CSR policy?

For years organisations have been working hard to reduce their carbon footprint and as transportation has been a large contributor to CO profiles, the diesel car was seen as one of the easiest ways to make positive changes. Now that diesel is under threat, how do organisations remain committed to their CO reduction targets whilst also acting responsibly toward clean air guidelines?

To discuss how the diesel restrictions may affect your company car fleet contact Graham Rees on 01926 353 300

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Company Car Fleet Analysis: 5 Numbers You Must Study Closely

Company Car Fleet Analysis: 5 Numbers You Must Study Closely

A couple of weeks ago I wrote about the importance of knowing your numbers. Well, it seems this topic has touched a nerve. We had lots of feedback on the significance of good data flow and its interpretation, but we also had a lot of questions about what numbers matter. It is great to have systems that draw your numbers together and produce insight, but which numbers should be your focus, and which numbers matter for overseers of a company car fleet supply chain.

These are the top 5 numbers that matter when managing your company car fleet supply chain.

a. Unplanned, in-life spend.

If it remains unchecked, in-life spend can drastically increase the overall cost of a company car benefit 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 per year. 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. 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

b. Supplier Margins

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.

c. Manufacturer Discounts

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.

d. Maintenance Spend

Understanding this number is vital for setting and managing accurate budgets. Suppliers should have the ability to report on different spend categories, highlighting overspends and re-allocating any savings.

e. 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.

We know that getting to grips with these numbers can be very challenging. Mostly because extracting these numbers from an external fleet supply chain is very difficult and cumbersome, just one of the unintended consequences of outsourcing a company car fleet.

CentraxTM , our management information system, has been developed to deal with this frustration. We use CentraxTM to reach into the supply chain and draw out the data for our interpretation. We take data analytics very seriously at Fleetworx, and we use tecnology and expertise so that we not only know your numbers, we know the right numbers.

A copy of our whitepaper “The Unintended Consequences of Outsourcing Company Car Fleets: And How to Avoid Them” is available here. To understand more about CentraxTM and how it can help your company car fleet contact me on grees@fleetworx.com.

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How to Stop Cost Creep Becoming a Horror Story

How to Stop Cost Creep Becoming a Horror Story

At Fleetworx we are obsessed with our forensic approach to cost management. Last week I wrote about “knowing your numbers”, and adopting a data analysis approach to company car fleet management. I described how not having control of your numbers and data can be an unintended consequence of outsourcing a company car fleet. Well, a lack of data intelligence can also lead to another significant unintended consequence – cost creep.

As part of our obsession with numbers and knowing exactly how much is being spent across the whole car fleet, we mine every piece of cost data from across the entire supply chain. That’s a lot of data. To control it we place it in cost categories and then work with it to understand spend and savings opportunities. Because we do this daily we are used to it. But when you actually stop and take a step back, the number of different cost codes is very surprising. We did a little exercise to review the categories so we could establish the optimum means of managing the data. We removed some, merged some, created some new ones and at the end of the exercise we had 60 cost codes, sitting across 16 categories.

Now this may seem a little excessive, but it does mean complete control over spend and minimal cost creep.

Cost creep is a very common issue in supply chains. And within company car fleet supply chains it can become a big problem. When a company decides to outsource its company car fleet it will benefit from short-term savings. At this point new suppliers are on their very best behaviour, cutting deals and slashing cost. The client will enjoy some pretty substantial cost savings during the first couple of years. However, and here’s the rub, as the contract matures and becomes less visible to the client, costs begin to slowly creep up until, if remaining unchecked, they can accelerate back to pre-outsourcing levels.

They do this because of what I mentioned earlier. The 60 cost codes that provide 60 opportunities for suppliers to add margin.

Our cost categories cover areas such as accident charge, end of contract charge, servicing, management fee and insurance. Whereas our codes cover costs such as third party claims payment, loss on sale fee, vehicle movement costs and accident management fee. Being very detailed is key to keeping the creep under control.

It may not be widely appreciated, but only about 20% of a leasing providers revenue will be from declared management fees. The remainder comes from margin applied to the myriad costs associated with running a large car fleet.

This is why we are fanatical about the numbers. It is why we capture every little invoice and statement and place it in its rightful place. Because only then can we interrogate each cost code and ensure the cost is correct, that it is being applied to the correct vehicle, and any margin is within contract.

For further detail about cost creep and how to avoid the unintended consequences of outsourcing your company car fleet download our whitepaper

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Why Knowing Your Numbers is a Game Changer

Why Knowing Your Numbers is a Game Changer

In the UK, I don’t think many people will know the name Billy Beane. You may recognise his on-screen persona, Brad Pitt, but I am pretty sure Billy Beane means almost nothing to most people.

Billy Beane is a genius. A change-maker. A risk-taker. Billy Beane is the name behind the Hollywood movie Moneyball, starring Brad Pitt, and the bestselling book Moneyball:The Art of Winning.

What Billy Beane did was utterly revolutionary in his field. As a coach of a major league baseball team (I know, baseball is alien to me too, but stick with it) he transformed the player recruitment and selection process from anecdotes and subjectivity, to data and analytics.

Faced with a depleted team, and competitor’s with much higher salary budgets, Billy Beane adopted an analytical approach to assessing players values and building a new team. He devised new ways of gauging a players’ performance and potential, and used hard data and analytics to build a team based around what the numbers said, not what the scouts thought. Sabermetric was the phrase coined to describe the model, and it was the sabermetric approach that turned Billy Beane’s baseball team on its head.

The team became completely devoted to the numbers. Every decision was made after reviewing the data – from which players to recruit, who to retain and when to release someone. They challenged all their assumptions, looked at unique scenarios, ran what-if analysis and did not hesitate if the data dictated a change in direction.

It’s no different for company car fleet management.

Data analytics should be at the heart of every strategic and policy decision. Advances in data collation and analysis tools allow those with responsibility for fleet to model supply chain networks, run what-if scenrios and conduct contingency planning. They can also model strategic change, whereas spend analysis can identify consolidation and rationalisation opportunities.

The challenge, however, for many companies who have outsourced their company car fleet is capturing the data. After outsourcing, the knowledge base becomes unbalanced. The supply chain hold all the data and typically only feed sanitised information to the company. Running data analytics and making decisions based on the data feed can become very challenging.

Data analytics is fundamental to Fleetworx and is central to the value-add for our clients. We do, however, appreciate the challenges a company faces when outsourcing their car fleet and have written a whitepaper about the unintended consequences, and how to avoid them. Knowledge imbalance is a key consequence and, although it may not appear problematic, the lack of data and transparency can seriously compromise the ability to analyse the correct numbers and take advantage of what those numbers suggest.

And if you were wondering what happened to Billy Beane’s team, well, after implementing sabermetrics, they went on to a record-tying winning streak of 19 consecutive games and into the play-offs (which is a good thing) and Billy Beanes’ model became regarded by many as the future of baseball. A definite game-changer.

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