Thought leaders: Academic insights: Renting cars by the day can save money

Key points

• Many company-provided cars are under-utilised

• Grey fleet cars are now subject o health and safety regulations

• Daily rental contract rates can be cost-effective and software can assist with in-house monitoring

Daily rental could be a cost-effective way to provide cars for business use, says Peter Cooke

Conventional wisdom suggests that half the new cars sold in the UK each year are run ‘on the business’ in some shape or form. Certainly, a high proportion of these cars are used every day on business, to visit clients and suppliers, and provide essential mobility.

But what about cars that are provided as a perk, as part of an employee’s total remuneration and are rarely used on genuine company business? Equally important, how many employees use their own cars occasionally for business travel?

A company car might be a sign of corporate esteem and a badge of rank for the recipient, but can organisations afford such largesse during periods of austerity? How many employees will have to lose their jobs so that businesses can continue to provide such under-utilised assets? Many claim that a company car earns its keep only when it is away from the car park.

The grey fleet – employee-provided cars used occasionally on business – has come under the spotlight as duty of care and health and safety rules covering such units are now the same as for company-provided cars, with the associated management and sanctions.

Has the time come to think laterally about business mobility provision?

A company car or a grey fleet car is provided as a means of undertaking company business, not a depreciating asset with significant costs.

Look at your car fleet: how many units are rarely used on business? How many business miles are they driven each year? Do some calculations on the real cost per mile; it might frighten you. Equally, how many grey fleet units do you borrow, and are all of the mandatory checks and records kept on those cars in your risk register?

In many organisations, there is an almost iceberg-like situation between the cost of cars on business and the total cost of car provision.

What would be the real cost of replacing these low-utilisation company cars and the grey fleet with a professional daily rental service? Yes, there may be few bruised egos and compensation costs, but think of the potential cost and management savings.

A daily rental agreement, a contract for the organisation, may well be an economic alternative. A well-thought-through contract against business requirements with a rental company, or arranged through a broker, could cover all locations in the UK, taking account of annual requirements and not ad-hoc needs. It could also include international rental.

Software is available for in-house use to assist employers with monitoring, so authorised employees requiring a car on business can simply order it electronically. This can be checked against the departmental budget, authorised as necessary, an appropriate car selected through the rental organisation, and that car delivered. Invoicing can be automatic and an audit trail completed.

Daily rental contract rates are very different from rack rates. Contract rates are determined by projected requirements, the type of unit and mileage. They can be very cost-effective compared with the real cost of providing company cars.

Such a scheme is unlikely to work for the entire fleet, but it may well work for a significant number of units – and every cost saving is worth seeking in these days of austerity. A move to enhance the cost-effectiveness of the fleet may have other advantages, and any strategy to protect the organisation has to be good news.

A move to a part-rented fleet is a radical step for any employer to take. It requires careful planning and internal selling, but could well be worth the effort.

Professor Peter Cooke is professor of automotive management at the University of Buckingham

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