The maturity of the fleet management market means employers stand to get a good deal, but watch out for extra costs, says Jamin Robertson
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Environmental issues continue to rocket up employers' agendas when it comes to fleet management with hot topics for discussion including CO2 emissions and hybrid vehicles.
Fleet management companies are reporting an increasing interest in the area among employers. They have a sound commercial reason for becoming more environmentally aware with benefit-in-kind tax, which ranges from 15% to 35% of a car's list price, being based on its CO2 emissions.
Gary Killeen, commercial director of GE Commercial Finance Fleet Services, says CO2 output rates across cars have dropped by 58 grams per kilometre over the last five years, partly due to the production of cleaner engines by manufacturers.
David Yates, marketing director at ALD Automotive, explains there are valid reasons for employers to take this on board. "Organisations are being increasingly challenged with tackling emissions across all aspects of their business. They are beginning to recognise that reducing emissions at source is the key [for cars], whether through a combination of reduced business mileage, operating vehicles with a lower CO2 rating or improved driving techniques."
But while the move towards environmental issues is encouraging, it is still early days.
Edward Pigg, head of sales for Lombard Vehicle Management, says: "People are more concerned about the environmental impact, but while lots of people talk about it, [they don't take action]."
Amanda Philps, marketing manager for Alphabet, adds: "It's starting to happen but it's only a tiny minority [that is responding]."
Among the options for employers looking to tackle CO2 emissions, are the purchase of carbon offset units to fund carbon reduction projects, or tree planting schemes such as that coordinated by conservation charity the Woodland Trust.
Employers may also choose to cap driver car choice according to emission levels, or fund hybrid vehicles. But while cars with low emissions attract certain tax benefits, hybrid models are a more expensive capital investment choice.
Irrespective of the increasing interest among employers in the environment and associated products, the fleet management market in the UK is relatively mature, so growth rates are generally unremarkable. Of the major players, Lloyds TSB Autolease actually dropped 1,686 vehicles between 2005 and 2006, while any significant growth among other providers tends to come primarily from business acquisitions.
Lex, for example, is currently finalising an agreement to take on 70,000 cars when its merger with Bank of Scotland Vehicle Finance is completed, adding to the 180,000 vehicles it already administers.
The heady competition among providers for clients indicates it is a buyer's market. But providers warn employers to look beyond the price tag when choosing suppliers.
"There's a lot of cars about which are very cheap. Conversely, when you run cars for the business you do have to sell them at some point. We're forecasting weakening residual values over the next three-to-four years with current manufacturer activity," says Pigg.
One solution is to consider buying a higher quality marque with a slower rate of depreciation. In addition, choosing an exclusive supply arrangement with a multi-marque manufacturer may deliver on both the price and range of cars.
Lately, the price crunch has been underlined with the development of online tendering, which enables providers to submit live bids to win business.
Richard Schooling, commercial director at provider Alphabet, however, warns that low pricing could be a false economy. "Pricing [can be] fictional. We've seen pricing go so far below the bottom line that there's actually no way [providers] can then make money."
He adds that those which quote rock-bottom prices may then depend on factors such as vehicles costs rising in the interim or an order containing more expensive cars to inflate the final price. "It's quite easy to massage. People are actually quoting totally untenable prices," he says.
Servicing is also a key consideration. Dean Woodward, consulting and risk manager at DaimlerChrysler Fleet Management, recommends looking for a comprehensive approach. "We do a host of checks. We look at how [employers] fund their fleet, what vehicles they've got, are they fit for purpose, and the whole life cost of the vehicle. This will determine which vehicles are the right ones for a fleet. Basically, you're squeezing the maximum efficiency out of the fleet, getting the best benefit you can buy for the driver."
Employers are also urged to pay attention to service and maintenance standards, as some rock-bottom tenders will also compromise on service.
Employers' choice of funding method will typically depend on the size and type of their fleet. Contract hire remains the most popular way of procuring cars due to the appeal of its off-balance sheet accounting treatment.
"There's about a million cars sold to businesses every year, and about 550,000 go down the contract hire route," says Pigg.
GE's Killeen adds many employers operate a number of funding methods. These may also include outright purchase, cash allowance schemes and personal contract purchase schemes.
The cash-versus-car debate also continues, with providers reporting a slight swing back into company cars due largely to duty of care concerns.
The second reading of the Corporate Manslaughter and Corporate Homicide Bill last month, meanwhile, has upped the ante in this regard.
Robert Kingdom, head of marketing and business development at Masterlease, believes many organisations need to take the issue of duty of care more seriously.
Meanwhile, employers can restrict the models offered to help fulfil health and safety obligations, while keeping vehicle choices broad enough to placate employees who view their motor as a premier employee benefit. Factors such as CO2 emissions, or the Euro New Car Assessment Programme ratings can be used.
The industry is also watching HM Revenue & Customs' review of employee car ownership plans (Ecops) closely. There is a concern that it may introduce a benefit-in-kind tax on Ecops linked to the amount of CO2 emissions of the chosen vehicle.
Paul Roberts, director of Lex Momentum Consultancy Services, believes this has had an effect. "It has put a dampener on some organisations that were exploring that, [although] I am not expecting anything fundamental to come out of it."
But, while it is a competitive marketplace overall, do not expect many fleet management companies to go into a tailspin. "People need vehicles. Unless they change Ecops or the rules for contract hire then I don't foresee many changes," says Woodward.
The Facts
What are fleet management companies?
Fleet management companies administer company cars for an organisation, form the procurement of cars through to the servicing of fleets, and handling car maintenance and disposal. They also offer driver training.
What are the origins of fleet management companies?
Some providers claim to have been supplying cars to organisations since the early 1900s.
Where can employers get more information and advice on fleet management companies?
ACFO is not-for-profit members' organisation that aims to help fleet operators improve their fleet performance and efficiency through regular networking events and information services. It can be contacted on 01730 260162. The British Vehicle Rental and Leasing Association (BVRLA) provides lobbying and information services and administers regulatory codes of practice for its members. Call 01494 434747 for more information.
Nitty Gritty
What are the costs involved?
Costs vary according to the size of a organisation's fleet, vehicle selection and funding.
What are the legal implications?
Employers' duty of care regulations include company drivers. Regardless of the method used to procure cars, employers have a responsibility toward all employees engaged in on-road company business.
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. Company cash allowance drivers are exempt form the BIK charge but income tax and National Insurance are payable.
In Practice
What is the annual spend on fleet management companies?
According to the BVRLA, £7.5bn was spent on leased and contract hire vehicles. Some £15bn was spent on company vehicles as a whole.
Which fleet management companies have the biggest market share?
Lex claims to be the biggest with 250,000 vehicles following its merger with Bank of Scotland Vehicle Finance. Other major players are Lloyds TSB Autolease, Lombard Vehicle Management, Masterlease and GE Commercial Fianance Fleet Services.
Which companies increased their market share over the past year?
In addition to the Lex acquisition, Alphabet and Lombard claim 10% and 8% growth respectively.
