Written by Hejab Azam
30 April, 2019
Managing a fleet is no easy task, whether your fleet is large or small. On top of the time-consuming job of managing your employees and admin, managing a fleet comes with even more responsibilities, including managing costs and maintenance of vehicles. For 82% of fleet managers, cost is an important factor in running their company cars schemes. However, many fleet managers struggle to cost save on their fleet because of underused vehicles, expensive running costs, depreciation of vehicles in their fleet and not keeping on top of legislative and environmental changes. Luckily, there are some solutions to help you increase the ROI of your fleet.
Allowing new employees access to new vehicles can be a great perk in employment. Studies have shown that company cars have a significant impact on employee retention. A 2015 report on company motoring identifies that company cars play a prominent role in recruitment and retention. According to this survey by Lex of over 1000 employees and 250 fleet managers, 64% of employees said that a company car was or would be an important factor in weighing up new job opportunities. And 43% of fleet managers said that company cars are becoming increasingly important in the HR world.
However, committing to vehicles for new staff from day one could be costly for you. What happens to those vehicles if employees leave within their probation period? Usually they would sit idle in your fleet with no use, until given to another employee (given they are happy to commit to a company car). Even if you get a lease rather than purchasing a car upfront, you’re still committing to a company car for at least 3 years in most cases. If an employee leaves before then, you still need to pay the remainder of the contract for a vehicle which may not be in use, or pay a costly penalty to return it.
A more cost-effective solution may be to have long-term rental cars for employees throughout their probationary period – usually six months. If an employee leaves, you don’t have an unused vehicle in your fleet and therefore won’t have the extra costs of paying for it and maintaining it. And you don’t have to worry about giving it another employee just to get some use out of it. Once the probationary period is over and successful, you simply hand it back and consider a longer term lease.
If you’re giving your employees vans to carry out their jobs, providing one size for all employees could be a costly mistake. Giving your employees cars that are larger than what they require could be an extra cost to your fleet. You need to consider how much space they really need in their vehicle. Some larger vehicles use more fuel and if you aren’t using a vehicles full load capacity, you aren’t being cost effective and could be better off with a smaller, more fuel-efficient van.
Similarly, providing a van that’s too small to carry a heavy load could also be costly to your company, as it won’t be as fuel efficient. According to a survey, nearly 50% of van drivers drive overloaded vans. Overloaded vehicles increase fuel consumption. For example, according to the Federal Trade Commission in the US, a 200 pound weight in your vehicle increases fuel consumption by 2%! Overloaded vehicles also increase wear and tear because it puts a strain on your tyres and can cause them to overheat. It’s also illegal to drive overloaded vehicles, and if there’s an accident, your insurance is void – adding an extra potential cost. It’s important to remember that when it comes to your fleet, one size doesn’t fit all. You must consider the right sized vehicle for your employees’ jobs and requirements.
If you are providing cars to employees as a perk, providing one car type could cost you in terms of employee retention and job satisfaction. Perk cars are more of an emotional driver for employees, and if they don’t get a choice in the vehicle they drive, it could affect their job satisfaction. If an employee leaves, you still have to pay the remainder of the contract for an idle vehicle in your fleet. Employees also have to pay Benefit in Kind (BIK) tax on company cars, which varies according to the type of vehicle. Therefore, it’s even more important that they get a say in the type of car they drive as it will impact the amount of tax they will pay.
When you purchase a vehicle, whether it’s through a cash purchase or a finance agreement, you own the car. If any damage happens to the car, such as scratches, stone chips or minor dents, it’s your choice whether to fix it. However, a major cost with ownership is depreciation. 99% of vehicles start depreciating in value, as soon as you buy them. And brand-new vehicles depreciate quickly – as high as 60% in the first three years. You also have the burden of paying for servicing, maintenance and repair, insurance and fuel. Vehicles which are depreciating in value, could negatively impact your company’s balance sheet as it will be shown as a depreciating tangible asset of the company.
An alternative option could be to either lease or rent cars on a long-term basis. If you lease a car, you have all the perks of ownership, but lower costs because all you are paying for is the difference in value between the purchase price of the vehicle and its estimated residual value at the end of the contract.
Leases are typically offered on new cars, which means there’s generally fewer maintenance costs, compared to running older cars. And most leasing contracts also come with a maintenance option so this means you can avoid peaks in servicing and maintenance costs and avoid any unexpected repair bills.
Additionally, some employees may work on a contractual basis and therefore may not need vehicles regularly. Using long-term rental vehicles (instead of committing to a lease or purchasing a new car), may be a better and more cost-effective solution.
Businesses also receive tax benefits for rental and lease vehicles – giving you another opportunity to save cost on your fleet. If your car emits equal to or less than 110g/km of C02, you can claim back 100% of the monthly rentals against tax. Additionally, you can claim back 50% of your VAT on your monthly leasing payments for cars. If you have vans in your fleet, you can claim back 100% VAT and 100% of VAT for any maintenance fees.
Not keeping on top of legislative or environmental changes could have a significant impact on your vehicles, especially if the changes relate to new taxes and fines. Just this year, London introduced the Ultra Low Emission Zone (ULEZ) which charges vehicles with engines that predate Euro 4 (petrol) and Euro 6 (diesel) emission standards. This initiative was a result of the Clean Air Zone (CAZ) plan which is being introduced in many major cities across the UK. Vehicles that do not meet the standards will be charged from £12.50 a day, up to £100 in certain cities, depending on the type of vehicle you drive. If you aren’t up to date with these kind of legislative changes, your fleet could be costing you more than you think. For example, research suggests that if your vehicles don’t comply with CAZ (Clean Air Zones), you could be paying an annual fee of over £1300. And not complying with other legislative changes could mean you face penalties and charges which makes running your fleet more costly.
A solution to this would be to do an inventory of all your vehicles to find out which ones meet the current legislative and environmental regulation. The vehicles that don’t comply can be swapped with vehicles that comply with new regulations. For example, you could switch older vehicles that have engines predating the Euro 6 and Euro 4 emission standards with new ones, to comply with CAZ. Or to comply with certain environmental changes and reduce your overall running costs, you could incorporate hybrid and electric vehicles.
Our expert consultants can help you cost save on your fleet by suggesting a range of solutions. Depending on your objectives, our team will suggest different brand and vehicle types, acquisition methods, identify areas in your fleet where you can save money and give you completely impartial advice.