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- Consult key stakeholders, such as HR, finance, procurement and employees, to gain a better understanding of the organisation’s fleet requirements.
- Set realistic timescales for the review, leaving it at least six or nine months before making changes to the fleet policy.
- Consider funding methods, such as outright purchase, finance lease and contract hire.
- Ensure providers offer value for money rather than the lowest price.
A fleet review can boost cost efficiency, reduce carbon dioxide (CO2) emissions and improve service standards from an employer’s existing provider, but what does it entail?
A standard review will typically examine an employer’s fleet policy, its associated health and safety policy, and car acquisition method and supplier. But for any review, an employer needs a clear understanding of its business requirements and objectives regarding its fleet.
For some employers, the provision of cars is essential for employees to perform their duties, while other organisations may use cars as a perk to attract and retain talent.
Chris Chandler, a principal consultant at Lex Autolease, says: “The key thing when starting a review is to understand the requirements of the fleet in the context of the overall business. The fleet actually needs to serve the needs of the business, not necessarily its own interests.”
Once an employer fully grasps its business requirements, it can then explore how these are being met by its current fleet policy. It can then decide whether any improvements are needed, while keeping an eye on cost.
This is easier said than done when compensation and benefits professionals are trying to satisfy their organisation’s finance and procurement departments, which are both increasingly involved in fleet policy.
Marcus Bray, sales director at Fleet Support Group, says: “HR wants service, fi nance wants price, and ultimately value; they don’t want to pay over the top for service. Purchasing, of course, wants to squeeze that down to the absolute bare minimum.”
Lifecycle costs
Considering the cost of a fleet over its lifecycle is one way to assess its real cost to the business. Calculating the total cost of ownership will reflect the difference between a car’s purchase price and its residual value at the end of a contract, as well as insurance, maintenance and servicing costs. Fuel efficiency and tax are also important considerations.
Cutting costs and reducing CO2 emissions increasingly go hand in hand. Chandler says: “With so much taxation based on emissions and the high cost of fuel, the two are closely linked.”
From April 2013, the CO2 emissions threshold for the main rate of capital allowances on business cars will be reduced from 160g to 130g per km. The threshold above which the lease rental restriction, which restricts the tax relief available for lease rental, applies will also be cut from 160g to 130g per km. One of the easiest ways to cut emissions is to introduce a CO2 cap on cars offered to staff.
There are a number of other ways to make a fleet more cost-efficient, assuming this is the aim of a review. These include restricting the number of business journeys and introducing a mileage tracking system to ensure staff are reimbursed correctly for the fuel they use.
Employers should also ensure they use the most appropriate funding method for their fleet. Buying the fleet outright is one option, but this may be feasible only for cash-rich organisations. Carl Stephens, commercial director at Venson, says: “A lot of businesses are struggling to get finance. If an organisation has a surplus of cash, tying it up in fleet for the next two or three years is possibly not the right thing for its overall business strategy and the residual value of the cars.”
Contract hire
One of the most popular fleet funding options is contract hire, whereby cars are leased for a fixed monthly charge. Alternatively, a lease, such as a finance lease, can be paid for in full over an agreed period or funded by lower monthly payments and then a final payment based on the car’s anticipated resale value.
A beauty parade of existing and potential fleet providers is an essential part of any review. Stuart Miles, director of new business at LeasePlan, advises employers to conduct parades on a provider’s turf to gain a better insight into its capabilities. “It is important that employers are dealing with people that fit with their values as a business,” he says.
It is also worth exploring any extras providers might be willing to add to their contract. These might include accident management, fuel card management, daily car rentals, driver training and driver’s-licence checking.
Employers must be clear about the services they will get from a provider and ensure these are reflected in a service-level agreement.
Chandler says: “Service-level agreements need to be built to ensure there are processes in place that work with the employer’s systems, and if there are any problems, that there are recognised resolution paths in place.”
Reviewing a fleet can be a lengthy process, but in the current economic climate, the results could prove invaluable.
CASE STUDY: SALVATION ARMY
Bespoke requirements
The Salvation Army outlined about 20 key fleet requirements in an in-house tender document before appointing a new provider in 2010.
The document highlighted the need for a provider to operate a no-quibble tyre policy, allowing tyres to be replaced in all circumstances, whether due to wear and tear or a puncture.
The Salvation Army, which has a fleet of 725 company cars, also wanted a pooled mileage agreement to avoid any end-of contract excess mileage charges.
Peter Bonney, fleet controller at the Salvation Army, says: “Leasing companies vary on the sorts of contract damage waivers they offer and how they handle parking fines and treat the changing of tyres. All these things can be different.
“Nothing is free, but we wanted to know how providers would react to our bespoke specification and meet our requirements.”
After conducting a beauty parade of five shortlisted suppliers, the Salvation Army appointed Venson alongside its existing provider, ALD Automotive.
Both Venson and ALD compile quarterly lease rental lists from which the Salvation Army’s business-need drivers choose the car they want. New fleet models are ordered from whichever leasing supplier is the least expensive on a car-by-car basis. Employees are compensated for trading down their cars, or they can make a financial contribution to trade up. Popular models include the Vauxhall Astra 1.4 ES, Nissan Qashqai and Honda Jazz hybrid.
The Salvation Army switched from an all-diesel to an all-petrol fleet in 2011, which is more efficient for short journeys.
