Fleet cars: a buyers' guide

If business is the engine that makes the world go around, then company cars provide the wheels that allow it to turn.

Although the humble company car is taken for granted, its role is much more important to business than you may realise. Take the simple example of a vehicle breaking down, which can lead to missed appointments, angry salesmen and extra paperwork.

Nearly every aspect of modern business life requires transport and the car is the only flexible, reliable and cost-efficient option available. It can also be used as an enticing offer to attract new staff.

But just because company cars are essential, doesn’t mean they are straightforward to deal with. The industry is constantly changing, with growing choices of models and brands, options and prices to attract new buyers, while the whole market is swathed in a maze of complicated taxation.

This state of flux has transformed the fleet market in recent years. The nation used to be familiar with ‘Mondeo man’ and fleets of Vauxhalls, but now the sector is being squeezed by premium brands from above, with cars such as the BMW 3-series – and eager new contenders from below, such as the transformed brand of Skoda.

Downsizing has meant drivers have jumped from the Mondeo-sized car into the Focus-sized hatchback in vast numbers, and at the same time, the launch of a carbon dioxide-based company car tax system has meant a wholesale switch to low-emission diesels.

Because the tax system penalises drivers who choose something luxurious that happens to have high emissions, there has been a signifi cant swing to drivers taking the cash option and trying to go it alone with their business motoring. For most businesses, this may seem like an easy option, but it is like taking your hands off the reins at full gallop and seeing what happens. Companies need control of their drivers, for obvious reasons.

So if you stick with company cars (or hybrid cash schemes) then what vehicles should you be providing? Over the next two pages we make our recommendations in six popular categories.

LEASING VS BUYING

Unless there are specific accounting reasons for choosing outright purchase, companies should have much better things to do with their money than tie it all up in a company car.

The mathematics are simple. If you buy, even using your own loans, then you own a depreciating asset and that has to be recorded on your books. Your company also has to sort out lots of hassles, such as maintenance and selling the car when you want to get rid of it. Admittedly owning vehicles gives you fl exibility, but at what price?

More than half of all fleet cars which hit the roads each year are leased and there is a good reason. Running costs are spread evenly over the life of the lease, whereas with purchase, a vast chunk of a car’s depreciation comes in the fi rst year, while all the hefty bills for repairs normally come in the third year.

So with a leased Ford Focus you might pay about £350 a month for three years/60,000 miles, with a three month deposit up front. But purchase the car for £13,000 and it is worth about 50% of that after just a year.

There are loads of leasing companies to choose from, ranging from the largest, such as Lex Vehicle Leasing, Lloyds TSB autolease, Lombard, LeasePlan and Masterlease, to smaller firms, such as Zenith Vehicle Contracts and Marshall Leasing. Compare prices through brokers and online at each firm’s website. Alternatively, issue a tender document asking for leasing rates on a basket of vehicles. A three-year lease is typical, but four years can be more cost effective. Once you have chosen your parameters, such as three years/60,000 miles, you have to stick to them, as there are excess mileage fees. There are also charges if you don’t look after the car and you need to have comprehensive insurance.

But it is cheap because leasing companies can reclaim VAT on the car, as for them it is 100% business use, a saving which can be passed on. Remember you pay for after-sales service, meaning management reports, driver back-up and low excess mileage charges and fi nes for damage. It also means expert management of penalty notices, which are becoming more of a problem. Paying a little extra may make all the difference in this area. Extra services range from health and safety audits, to vehicle tracking technology.

FLEET MANAGEMENT/SOFTWARE

The amount of data handled by the average fl eet department is enough to make your computer explode. According to cfc solutions, a leading fl eet software fi rm, the amount of fleet data pouring into company offices could rocket by 10,000% in the next decade.

Reports on fuel costs, health and safety, vehicle choices, new suppliers, driver changes, licence checks, garage details and so on all have to be fi led and stored effectively. Running a fl eet is complicated and needs specialist management support.

There are a number of fleet software packages to choose from, many of them now offering web-based services to keep demands on your own computers to a minimum. Like most good software, they guide you through the processes you need to follow to keep track of your fl eet and run out automatic reports that show vehicle performance and any work that needs doing.

It used to be quite a staid industry, but new companies such as Jaama have prompted renewed efforts to introduce software upgrades that can help fl eets run their systems better. Apart from online management packages, there are also free services for smaller fl eets, such as cfc solutions’ Fleet Outlook product, which works alongside Microsoft Outlook. Other suppliers include Chevin Fleet Solutions, Drive Software Solutions, Bynx and RAC Software Solutions.

Like most software, you need trained people inhouse to use it, but also receive support from the supplier when you need it. Prices are reasonable but on bespoke systems. Although leasing companies take away the need for internal fl eet lists, accident logs and so on, it pays to have software to provide an independent assessment of the fleet.

MAKE YOUR FUEL BUDGET GO FURTHER

For a brief period last year, the days of the £1 litre of fuel were a reality and companies paid a heavy price. The impact is serious, but for a company with 10, 50, 100 or 500 vehicles, the result can be disastrous.

A company running 100 Audi A4 1.9-litre TDi diesel models, each covering 15,000 business miles a year, is now paying at least £10,000 a year more for fuel than it was a year ago. On average, fl eet vehicles cover 20,000 miles a year, so each petrol car – achieving 35mpg – would use 571 gallons of fuel, currently costing £4.09, equivalent to £2,335 annually. The equivalent diesel, achieving 45mpg, would use 444 gallons currently costing £4.28 a gallon, equivalent to £1,900.

So how can you keep costs down when prices are rising so quickly? A few years ago, the first answer would have been to turn to liquefi ed petroleum gas (LPG), a cleaner and much cheaper fuel that can be used on modifi ed petrol-engined cars. Unfortunately, its time has been and gone, thanks mainly to the Government’s disastrous handling of a grants scheme designed to promote confi dence in the fuel.

Petrol/electric hybrids are an easier answer, as they turn their engines off when they aren’t needed, such as in traffic jams or at low speeds. Official fuel economy fi gures for cars such as the Toyota Prius and Honda Civic Hybrid are more than 60mpg, although independent road testers claim a lot less.

They cost a lot more than equivalent petrol or diesel cars, but are exempt from the dreaded Congestion Charge, which could make up for the premium. But if you have to make do with what you currently have, then there are options to make your money go further.

Fuel cards providers, such as Arval, which covers most fuel sites, and Diesel Direct provide easy monitoring of fuel spend. The euroShell Fleet Card is another and covers more than 3,500 sites.

But ultimately, real success depends on drivers. Get them to think about routes, alternative transport and how they drive. Speed, gear changing and braking habits can make huge differences to mpg but drivers may need to be educated to follow fuel efficiency guidelines.

PROTECTION

It is estimated that up to one-third of all the fatalities on Britain’s roads are work-related, equivalent to 1,000 dead each year. The same estimate suggests tens of thousands of people are injured on the roads each year while driving on business.

Many companies report that 60% of their fleet is crashing each year. In this environment, good insurance is vital and understanding what you need is even more important.

Companies need to cover their vehicles, their staff, third parties and their goods in the event of an accident, and most turn to fully comprehensive cover as a result. The premium paid can vary, depending on the insurance excess a fl eet decides to pay. Fleets with hundreds of vehicles on their books may be better off opting for the self-insurance route. This means taking out third party cover with an insurance company and then paying for the remaining damage as and when it happens.

By law, fleets cannot self-insure third party risks so this is a minimum requirement. “If you have a large fl eet you may be better off paying for the cost of damage to your own vehicles as it arises,” says industry expert Colin Tourick, “rather than asking an insurer to pay this for you. You will save that part of the insurance premium that covers damage to your own vehicles.”

If a self-insured scheme is managed properly and the accident rate of the fleet remains relatively low then there could be cost savings associated with self-insuring. When it comes to breakdown cover, most new cars come with the fi rst year’s cover as standard, but it is possible to extend this with a little hard bargaining.

HOW TO BUY AND COSTS

Buying a vehicle should be a simple matter. You pop round to a dealer, take a test drive, select the spec, place your order and a few weeks later the vehicle arrives. This is how many small businesses buy their cars.

You can nominate one dealer for each make of vehicle and negotiate a standard discount off the list price. One of the unusual features of the motor industry is that fl eet buyers can get two discounts – one from the dealer and another from the manufacturer.

Manufacturer discounts, normally called volumerelated bonuses or VRBs, are available to organisations that buy large numbers of vehicles – for example, fl eet management companies, contract hire companies and other organisations that have big fleets.

In place of volume-related bonuses, some car makers offer customer-specifi c ‘support’. Customer-specific support is available direct from the manufacturer and your contract hire or fleet management company will negotiate to obtain these on your behalf.

It is good practice to place your orders in writing, using your own standard order form, according to Tourick. The form can contain signature boxes setting out details of your authorised signatories. By using your own standard form you reduce the chance of ordering the wrong vehicle.

To improve the deal further, discuss future maintenance arrangements and whether there is a discount for volume – there normally is and it can reduce running costs further. “Few fleets have their own servicing facilities so they have to rely on local dealerships, fastfits and repair shops,” adds Tourick. “Alternatively, they can use a contract hire or fl eet management company and allow the supplier to make these arrangements. However, in small businesses, drivers decide when their vehicles require servicing or repairs.”

An average car will cost 26.4 pence per mile to run for three years/60,000 miles, or a total of £15,840. This is made up of depreciation (17.19ppm), service maintenance and repair (2.29ppm) and fuel costs (7.29ppm). Running company cars is a complicated business, but if done right it can save your business thousands of pounds in the long-run. John Maslen is supplements and events editor of Fleet New