Peter Crabtree: Choose right car funding method

This article is supplied by SG Fleet.

While managing cars is likely to be a pain, it’s a highly valued benefit for staff. So how do employers minimise costs while also providing employees with cars they want and value?

There are many options available to organisations to manage and fund cars. Although contract hire is by far the most popular funding method, it isn’t the right solution for every employer, let alone every car in every organisation.

And selecting a cheap contract hire rental isn’t fleet management. Employers need to consider how they will support driver queries, fuel-consumption rates, fuel purchases, mileage claims, driver training and safety, whether they require short-term or long-term cars and motor insurance.

Outsource or insource?

The first question is whether it is best to outsource fleet management or run it internally. Fleet management is a complex and constantly evolving area. For example, there are literally thousands of new cars coming onto the market each year. Just keeping abreast of the changes in new cars is a big task.

Clearly, larger fleets should consider an in-house fleet function, while a smaller fleet will benefit from a fully outsourced solution. But the decision is not so simple because in-house fleet management also involves investment in specialist computer systems, not just people.

Fleets of up to 500 cars are often fully outsourced, as are larger fleets where there is limited appetite for an additional staff and software budget. If an organisation has more than 100 cars and cannot commit at least one full-time employee to manage these, it should definitely consider outsourcing fleet management.

Know your suppliers

It is important for employers to understand who they are working with and what they will actually provide. For example, many organisations purport to provide vehicle finance but are actually just motor finance brokers. Google “Vehicle leasing” and the first page is full of brokers promoting “cheap deals” and “specials”.

A cheap rental can sound like a good idea at the time, but employers won’t have any relationship with the party that provides their biggest cost. They must always ensure their finance supplier is actually their finance supplier.

Best funding solution

Contract hire is the most popular funding and management product, but it isn’t right for everyone. Employers have to consider the fact that their organisation is stuck with a car for the duration of a contract. So contract hire will work well where employers can strictly limit the choice of cars available.

That means they are less likely to be stuck with cars no one else wants when the user leaves. But the downside is that cars are a valued employee benefit and limiting choice limits the perceived benefit.

A total solution should also consider allowing drivers to opt out of a standard car policy and choose their car. To do this, employers need more than just contract hire and should consider car salary sacrifice as part of their fleet arrangement. A well-designed car salary sacrifice scheme will mean employers have no risks if an employee leaves and will not be left with cars no one else wants.

Grey fleet cars

Grey fleet cars can be part of a total solution, but need to be minimised. They bring some additional risks around maintenance and insurance. However, a well-designed salary sacrifice scheme is an effective way for an employer to minimise these risks.

Employee car ownership (Eco) schemes are another option, but these are highly complex to set up and administer.

HM Revenue and Customs (HMRC) does not look too fondly on them either. But the biggest issue? To make an Eco scheme effective, employees are required to do high work mileage in their own cars, which is an alarming contradiction.

Control over fuel expenditure

Fuel is an ever-increasing cost in running a car fleet. Fuel expenditure will be influenced by the choice of car, its age, fuel-efficiency and driver behaviour, so how aware are drivers of fuel-efficient driving techniques? Is mileage capture telemetry used to ensure that business mileage is recorded accurately and risk around mileage over-claiming is minimised?

HMRC statistics suggest that mileage claims can be overstated by up to 25%. This is a huge cost for businesses, so they should avoid offering drivers free fuel. It produces a significant tax liability, together with additional cost to the organisation. 

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Operating a vehicle fleet is a complex area. A focused approach is required to manage all the component parts to identify ways of reducing cost and risk. This is a delicate balance between keeping employees happy while ensuring all costs are fully under control and minimised as much as possible.

Peter Crabtree is director, sales and customer service at SG Fleet