Fleet review can save costs

If you read nothing else, read this…

  • A fleet review will typically cover four key areas: fleet policy, health and safety, acquisition method and company car supplier.
  • If performed properly, a review can reduce the operating costs of an organisation’s fleet by between 10% and 15%.
  • Organisations may find they have to conduct a fleet review more often than they expect because of changes in tax and legislation.

Case study: Heinz puts lid on fleet costs

After conducting a fleet review last year, Heinz UK and Ireland will introduce fuel cards and a mileage tracking system for its 500 drivers to increase the accuracy of claims for fuel reimbursement.

The food manufacturer’s system, which is linked to its automated expenses processes, allows staff to fill in details of business travel online, as well as order a new car or change a vehicle. Developed by IFC Fleet Outsourcing, it also tells staff their tax liabilities on different cars.

Reward manager Ken Horrocks says: “All this is about making people’s money go further. We can then reimburse the company car business mileage at actual cost per mile. Drivers are actually paid what it costs, and [HM Revenue and Customs] will accept it because we have proof of the trips and cost of fuel.”

As a result of its review, conducted by the Energy Savings Trust, Heinz has also reduced its average C02 emissions per car from 166g to 141g per km. Looking at cars’ whole-life costs has made staff aware of the tax penalties and other costs associated with driving high-polluting cars.

Conducting a fleet review can bring cost savings, but organisations must take account of many factors before deciding on any change of direction for their car policy, says Nicola Sullivan

When conducting a fleet review, employers must consider a number of factors to ensure the best possible cost savings. If done properly, a review can cut the operating costs of a fleet by between 10% and 15%.

But if an employer wants to use a third-party provider, accountant or consultancy, it must ensure there is enough in the budget to cover the cost of the review. How much employers have to pay will depend mainly on how in-depth they want the review to be, as well as how complex their fleet structure is. For example, a mixed fleet offering company cars, cash allowances, salary sacrifice and an employee car ownership option will cost more to review than a one-size-fits-all set-up.

Organisations must also consider how frequently they want to conduct a review. This could be more often than they expect because of changes in legislation and tax affecting company cars. Chris Chandler, a principal consultant at Lex Autolease, says: “A fleet policy really is a living document. It is a very dynamic marketplace, with fairly complex taxation and regular changes in vehicle technology. We would normally suggest that after 12 to 24 months, employers should look at having a formal review. In the interim, businesses always need to keep an eye on changing legislation and tax systems, which then may trigger the need for a review.”

A fleet review will typically cover four key areas: fleet policy, health and safety, acquisition method, and vehicle supplier. When addressing policy issues, compensation and benefits professionals must strike a balance between the cost and impact of the benefit, which is easier said than done when many finance departments are keeping a close eye on the books post-recession. Tony Hullat, managing director of fleet management firm CLM, says: “It is understanding what the initial motivation is for doing a review: whether it is finance-related or HR-related.”

Once employers have established what they want the review to achieve, they should benchmark themselves against competitors. Phil Peace, director of sales at Hitachi Capital Vehicle Solutions, says: “The motivational focus and objectives around the review are really important. To clarify these, employers need to know what competitors are doing in the marketplace.”

Make cars as green as possible

When it comes to vehicle choice, the tax system incentivises employers to make sure the cars in their fleet are as environmentally friendly as possible, so many will be looking for a supplier that offers a wide range of low CO2-emitting makes and models. Although greener cars are often more expensive to buy, they are less expensive to run. Employers conducting a fleet review should analyse a car’s whole-life cost, including fuel consumption, taxation and maintenance.

“Working on a whole-life cost basis means employers are not just taking a proportion of the cost, but are also looking at the finance cost, maintenance cost, insurance and tax,” says Peace. “Vehicles with lower CO2 emissions drive down costs significantly, including whole-life costs and taxation. Benefit-in-kind tax, corporation tax and fuel are all linked to the CO2 emissions of cars.”

When it comes to acquiring cars, employers can use a number of methods. Cars can be obtained through a contract hire agreement, employee car ownership scheme, or a traditional company car arrangement. Employers can also offer cash allowances.

Employers’ choice will depend on a number of factors, including cost, driver mileage and whether they want to manage the risk that comes with car ownership. If cash is tight, they might want to opt for a restricted choice of cars and see what deals they can negotiate by entering into a solo arrangement with one manufacturer.

Try to reduce mileage

But before choosing an acquisition method, it is wise for employers to look at employees’ mileage and what can be done to reduce it. Mileage averages not only guide employers in their choice of fleet arrangement, they can also help to reduce costs and influence how often cars need to be replaced. Peter Lambert, fleet sales director at KwikFit, says: “During the recent difficult times, lots of restrictions were placed on travel, not only in terms of taking flights when travelling abroad and staying in hotels, but also asking people ‘is that journey absolutely essential?’. It is really a root-and-branch review of what journeys are going to be made by individuals who are given company cars.”

Looking at the average distances drivers travel can also help employers decide on how to approach health and safety, which has come to the fore in fleet management since the Corporate Manslaughter and Corporate Homicide Act 2007 came into effect.

Stuart Donnelly, UK business development director at Fleet Logistics, says: “It is difficult for an employer that has people doing genuinely high business mileage to consider moving staff to cars they are responsible for looking after. It is very difficult and costly to manage driver-owned cars at arm’s length.”

When reviewing their fleet’s health and safety, employers will typically look at whether MoTs and vehicle servicing checks are being conducted in a timely way and check the status of drivers’ licences. Mileage tracking systems can show how long it takes employees to cover certain distances, alerting employers to problems such as speeding.

Tips for employers conducting a review

  • Employers conducting a fleet review should ensure that they analyse a car’s whole-life costs, which include factors such as fuel consumption, taxation and maintenance.
  • Before selecting a car funding method, employers should look at their employees’ mileage and what can be done to reduce it.
  • If cash is tight, organisations could opt for a restricted choice of cars and see what deals they can negotiate by entering into a solo arrangement with one manufacturer.
  • The cost of a review will depend on how in-depth employees want the review to be, as well as the complexity of their company car fleet arrangement.

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