Company car fleets are going green to cut fuel costs

Changing the way company car drivers use their vehicles not only boosts a company’s green credentials, but boosts the bottom line, reports Roger Carter

Building a business case for cutting the carbon footprint of the fleet hasn’t always been straightforward. It relies on the idea that corporate social responsibility eventually feeds into the bottom line, which requires a leap of faith.

In the last 12 months, however, as forecourt prices have increased by around 25%, everything points to a diminishing long-term supply outlook: as petroleum production levels show signs of peaking amid depleted fields, such as the North Sea, where production of a barrel of crude now requires a capital outlay four times greater than in 2003.

Duke University’s June CFO Global Business Outlook survey in the US found fuel costs almost tied with consumer demand as the main worry among finance chiefs. Fuel is now the second-largest fleet expense after depreciation, so there are real incentives to act quickly. As Robert Kingdom, head of marketing at leasing firm Masterlease, says: “There has been a ‘greening the fleet’ agenda for a couple of years, but it has been hard to build a business case. Now that business case is easier to write because saving fuel means saving large amounts of money.”

The first part of the process is understanding your costs, but these can often be hidden. Fleet industry analyst Ashley Martin says: “In my experience the biggest obstacle to improving fuel consumption is the fact that ‘fuel costs’ are delegated to operational cost centres as just one part of a miscellaneous overhead, and even where quality fuel card reports are available from the fuel card providers, these are most commonly used to reconcile the accounting consideration, rather than as a dynamic cost-reduction tool. In many aspects of our work the lack of basic data about fuel use and costs is little short of disgraceful: hopefully the current [spiralling oil price] situation will encourage many more fleets to follow best practice and monitor more closely the use of this expensive commodity. “

So while fuel usage can be monitored through the use of fuel cards or spreadsheets filed by drivers, both feedback methods rely on the accurate reporting of fuel consumption. Paul Jackson, managing director of fleet consultancy firm The Miles Consultancy, says: “Most organisations don’t like fuel cards because of the abuse that goes on, so we audit them. We look at cases where a disproportionate number of trips are for a distance ending in a zero. People may be rounding up, and that has a big impact.”

Alternatively there is telematics – the computer analysis of car performance. But Jackson says these can be problematic: “Telematics could be perfect for monitoring mileage but people don’t like them in their cars and HR can’t see why you should pay £20 a month on something that demotivates people.”

Simply measuring costs will, in itself, have an effect. As Kingdom says: “Measuring mileage lets employees know it is important, so they will start to pay closer attention.”

Once the cost is known it can be used to calculate whether it’s worth changing the fleet choice list. Assessing ‘whole of life’ costs, including fuel, builds the case for a greener fleet. According to the Energy Saving Trust this means businesses could save £2.6 billion by switching to greener fleets.

A variety of employers have taken this route. Support services group Morrison, for example, cut out gas guzzlers and now only has one vehicle on its list producing more than 160 grams per kilometre of carbon dioxide. British Airways, meanwhile, has taken on 100 Honda Civic Hybrid vehicles, as part of a strategy that has reduced carbon emissions by a third.

It’s not only the cars that can be greener, drivers can be educated into more fuel efficient practices too, through eco-driving techniques. Martin explains: “It’s about driving smoothly, because heavy acceleration and heavy breaking mean hefty fuel use, so its about anticipating what’s ahead.”

An experiment by 50 AA employees got them to drive normally for one week and then adopt eco-driving the following week. In all they saved 10% on their weekly fuel bills, and one individual shaved off a staggering 33%. Jim Kirkwood, managing director of training company DriveTech, says: “For a typical company car driver this can mean savings of over £400 for the year.”

This training can be targeted on heavy fuel users. Recruitment firm Pertemps selected driver trainees based on young and inexperienced fleet users, or those with a poor accident history or more than six points on their licence. Microsoft, meanwhile, compared drivers of similar cars, looking at the pence-per-mile they were achieving. Training was given to those in similar cars with a higher pence-per-mile cost.

Broader education may also be offered, with simple hints and tips such as turning off air conditioning when you don’t need it, removing a roof rack when you’re not using it and inflating tyres properly.

Beyond this, employers should examine policies that may be acting as a deterrent to fuel efficiency. One clear issue is where employers pay for private fuel. Martin says: “400,000 employees get free fuel and that’s 400,000 too many. Like company car tax, the tax is charged on a sliding scale depending on the CO2 emissions, so you pay somewhere between 15% and 35% of a fixed lump sum. The sum was recently raised from £14,400 to £16,900 to make it less attractive. The problem is that now it’s only appealing to those driving very low emissions vehicles – which is very unusual – and those clocking up vast private miles. So it incentivises employees to do more private miles – and doing them at the organisation’s expense. Employers need to do the calculation. If drivers don’t benefit from free fuel, there’s no need to offer compensation if you take it away. If they do, you need to work out an average among those drivers who benefit, and pay that average to all of them.”

Another problem is where employers pay an allowance for every business mile driven in the employee’s own car. The Inland Revenue recommended allowance was recently raised, to keep pace with rising fuel costs. However, because rates were raised more for bigger fuel consumption cars, one side effect was to make it more cost effective for employees to drive bigger gas guzzlers.

One alternative is to offer a single reimbursement rate. Jackson says: “Hewlett-Packard, for example, has 5,000 drivers paid 16p per mile. If you have a three-litre petrol engine it costs you money to drive. If you’re in a 1900cc diesel you make money.”

Or employers could switch to simply reimbursing employees for fuel used, at the pump price. Thus employees pay full price for every private mile they drive. Pertemps and leisure firm Whitbread have both moved to this method after reviewing their green fleet policies.

Reviewing policies requires a commitment, and in many cases an initial outlay. However, the strength of the modern business case for reducing fuel usage is beyond question. As a result more organisations than ever are grasping the nettle. Paul Harrop, sales and marketing director of Daimler Fleet Management, says: “Fuel-card reports indicate fuel consumption is down over 17% this quarter.” Which is a clear and immediate cost saving that any finance chief would be proud of.

Route planning cuts business miles

Organisations need to address working practices to examine where unnecessary miles are being driven. This may simply require better journey management. Estate agent Hamptons has targeted reduction of business miles by 20% through better route planning.

Employers can think big when it comes to route management. Engineering consultancy firm Atkins changed its recruitment policy to hire more people in closer proximity to where the work was carried out, and jobs were planned so engineers had consecutive jobs and thus covered less of the same ground. The initiative cut the annual road mileage by 25% to 750,000.

Some employers are thinking more broadly still, assessing every journey to see if it’s crucial and opting for alternatives where appropriate, such as teleconferencing, working from home or car sharing.

Executive Summary

• Fuel is now the second-largest fleet expense after depreciation, but the biggest obstacle to improving consumption is that fuel costs are delegated to operational cost centres as just one part of a miscellaneous overhead.
• Fuel consumption can be monitored through the use of fuel cards or spreadsheets filed by drivers, while mileage can be monitored via telematics.
• Staff will pay closer attention if mileage is measured and drivers can be trained into more fuel efficient practices.
• Employers should examine policies that may be acting as a deterrent to fuel efficiency, such as employers paying for private fuel.
• Often, when paying for business miles driven in the employee’s own car, higher rates are paid for less fuel-efficient cars.

Back to Employee Benefits Report for Financial Directors – September 2008

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