· 7 min read · Features

Fleet management: Could the recession cause the trend towards greener fleets to go into reverse?

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Companies appear to be changing the way they operate vehicle fleets in response to the recession and climate change but if the economy improves, will the trend towards greener fleets go into reverse? By Andrew Donoghue.

Life was simpler in the 1980s. Greed was good and the company car was all about status. But a gradual increase in pollution legislation, combined with rising fuel prices and fears about climate change, have chipped away at these attitudes. And against this long-term background of environmental/social change, the recession and lack of funds are wreaking further short-term havoc. So what is the future for the fleet sector? While turning to cheaper and more energy-efficient vehicles makes sense in a recession, if good times return will the high-end company car return to its position as the ultimate perk, or has the tide of public opinion changed the status of the company car irrevocably?

Trying to ascertain whether UK plc is falling out of love with the company car is not easy. According to the Energy Saving Trust (EST), there are three million company cars on the UK's roads emitting an estimated seven million tonnes of carbon dioxide (CO2) every year. According to John Lewis, chief executive of the British Vehicle Rental and Leasing Association (BVRLA), research carried out among its members shows the average mileage of company cars was significantly down in 2008 to 19,617 miles, compared with 21, 643 miles in 2007. Isolating the exact cause of this drop is difficult, to say the least, but, according to Lewis, financial and environmental factors are certainly at play. "Motivated by a desire to cut costs and reduce their carbon footprint, fleet managers have been looking to monitor unnecessary business mileage and make sure that any essential travel is completed in the most environmentally-friendly way," he says.It is not just the BVRLA that has recorded a drop in car mileage. Figures released by the Department of Transport revealed the country's motorists travelled some 3.1 billion fewer miles last year. "The focus on cost reduction is no mystery," says Nigel Underdown, head of transport advice at the EST. "Most companies are looking very hard at their fleets because they are a big spend."

Clearly, environmental, financial and, to some degree, health and safety issues are combining to change companies' behaviour when it comes to fleets. But trying to separate the long-term impact of environmental considerations from the effects of the recession is less clearcut. For a lot of companies going green is basically a watchword for greater efficiency that translates directly into cost savings. True, some models of car may have higher upfront costs (see above), but these are often a trade-off for better fuel efficiency over the vehicle's lifetime. The ESG, for example, recently claimed that British business could save around £3 billion a year by moving to greener fleets.

Others in this industry share the view that there is little white space between efficiency motivated by green ideals and those driven by cost-saving. "A car that uses less fuel has a lower carbon footprint and incurs less cost while a fleet where risk is being properly managed will also see reductions in unnecessary maintenance bills, accident costs and, potentially, insurance premiums," says Gary Killeen, commercial leader, GE Capital Solutions, Fleet Services.

This view seems to be backed up by the real-life experiences of some fleet managers. Gateshead Council claims to have cut costs and improved its environmental credentials by trials of biodiesel and liquefied petrol gas (LPG) vehicles. "By reducing the effect that our fleet has on the environment we are also realising the joint benefit of spending less money on fuel," the council's transport services manager, Brian Barnes, recently told the EST.

The Royal National Institute for the Blind recently announced plans to switch its fleet of around 80 vehicles from Ford to Toyota, citing financial and environmental considerations. Meanwhile, in the US, telecoms giant AT&T plans to invest about £410 million as part of a long-term strategy to develop a fleet of cars, vans and other vehicles based on compressed natural gas (CNG) and hybrid electric engines. But when - and if - the economy recovers to the levels companies were accustomed to during the past 10 years some still debate whether we will see a return to the gas-guzzler as status symbol.

"I firmly believe greening of the fleet is a permanent change," argues Jim Salkeld, chief executive of specialist fleet supplier Toomey Optica. "When growth begins again, companies will continue to reduce emissions and costs. We can see huge advances in technology already, where even a high-value 4x4 produces just 148g/km emissions."

Nick Sutton, group business development director for fleet supplier Zenith Provecta, agrees attitudes to fleets and the car industry in general are changing. "The current financial situation is all part of an evolutionary process. What has happened is that the need for cost efficiencies and environmental issues have come at the same time, and the industry will be all the better for it."

However, some industry insiders are less adamant about the long-term impact of environmental and social change and see the current push to efficiency by fleet buyers as primarily financially-motivated. "Companies will definitely be looking at their fleets in light of the downturn, mainly because of cost pressure and possibly as a result of redundancies. The catalyst therefore is not environmental considerations but rather financial," says Robert Kingdom, head of marketing Masterlease.

Others still see a future for the fleet car as status symbol but as an evolved and smarter version of its gas-guzzling predecessors. "They will remain but they will be more efficient. Drivers of company cars are even getting pressure from their children on how green their car is," says Marcus Puddy, head of consultancy services Lloyds TSB Autolease.

So it seems most industry insiders believe fleet management has changed, and mostly for the better. Environmental, economical and social pressures have knocked the company car off its pedestal as the ultimate perk and set it back in the ranks of a piece of business equipment - and even a return to more prosperous times won't change that.

"During the 1990s and 2000s, HR departments pushed for ever-wider vehicle choice and higher specifications to attract and retain the best staff," says GE Capital Solutions' Killeen. "In the current economic climate employers are starting to look at the company car again as a cost-effective business tool. Car choice is being restricted more often and cost factors are overtaking human resources issues."

- The next generation: while hybrid technology is still emerging, the range of economical diesel vehicles has widened massively and offers a good way to improve fuel efficiency. The cars below should be on your future fleet shortlist

VW GOLF 1.9 BLUEMOTION MATCH TDI DPF 5-DOOR HATCHBACK
Cost from: £17,000
Emissions: C02:119g/km
Engine type: diesel
Fuel consumption: 62.8 mpg
VW has tweaked some versions of this Golf to be eco-friendly, including
additions such as lowered suspension to improve aerodynamics. However,
the extra green features do cost more, according to industry experts.

AUDI A4 SALOON 2.0 CR TDI 120PS
Cost From: £21,495
Emissions: C02: 134g/km
Engine type: diesel
Fuel efficiency: 55.4 mpg
Historically lagging behind BMW in the company car hierarchy, Audi has
improved its offerings of late. The A4 competes directly with the BMW
3-series but lacks some of the handling, according to What Car magazine.

BMW 320D ES SEDAN
Cost from: £25,385
Emissions: CO2:128 g/km
Engine type: diesel
Fuel efficiency: 58.9mpg
Long seen as the company car to aspire to, BMW has worked hard over
recent years to develop efficiency credentials to match. The German
carmaker claims its diesel engines are fitted with particle filters as
standard and comply with EU emission requirements.

VAUXHALL ASTRA 1.7 CDTI 16V ECOFLEX CLUB 5-DOOR HATCHBACK
Cost from: £15,565
Emissions: C02: 119g/km
Engine type: diesel
Fuel consumption: 62.8 mpg
Relatively affordable but without the kudos of BMW, Audi or VW, this
model's 1.7 diesel engine lacks some of the punch of bigger engine
models but obviously has better fuel efficiency and produces less C02 as
a result.

HONDA 1.4 IMA CVT
Cost from: £17,120
Emissions: C02: 109g/km
Engine type: petrol hybrid
Fuel consumption: 61.4 mpg
According to Honda, the Civic Hybrid is 'living proof that
environmentalism and style can go hand in hand' with its electric-petrol
hybrid engine. The company claims to have been developing hybrid
technology for years and has been working hard to catch up with the lead
set by Toyota's hybrid Prius.

SAAB 1.9 TTiD 180 ps Aero
Cost from: £26,479
Emissions: CO2: from 149g/km
Engine type: diesel
Fuel consumption: from 62.8 mpg
This SAAB is a good executive cruiser but has relatively high C02
emissions. Although reviewers claim it is not as entertaining to drive
as rivals from BMW, Mercedes and Audi, it is seen as a relatively good
all-rounder and cheaper than some cars in its class.

ENCOURAGING DRIVERS TO MAKE FEWER JOURNEYS

Aside from the recession and companies voluntarily responding to climate change, legislation is another factor shaping changes to fleet management.

Last month the Government introduced a new corporation tax regime that will include incentives for companies to use more efficient vehicles. Industry insiders see the changes as one of the biggest taxation changes to affect fleet cars for years.

The new rules are designed to encourage the purchase of company cars that emit 160g/km or less of carbon dioxide (CO2). Companies that own these vehicles will be able to offset a much greater part of the value of the car against their tax bill compared with cars outside the benchmark.

"Being above or below this threshold can make a difference of hundreds of pounds to a company's tax bill," says John Lewis, chief executive of British Vehicle Rental and Leasing Association.

Nigel Underdown, head of transport advice at the Energy Saving Trust, says the new tax regime will do more to change buying behaviour in the short term than environmental altruism on the part of fleet buyers or indeed the impact of the credit crunch. "Since last month, with cars over an emission level of 160g/km, there is a significant difference if you are the wrong side of that watershed and a very big advantage if you are right down among the cleanest cars," he says.

Tax changes around car C02 emissions will not only have an effect on companies but also on staff who drive company cars. Employees who receive 'free' fuel for private use from their employers have been targeted since the early 1990s. Government figures indicate that around 380,000 employees still pay tax on company-funded fuel for private use. However, most would be better off giving up the 'perk' and paying for fuel used privately themselves, experts claim. Along with the other tax changes introduced in April, the Government announced a tax strategy designed to encourage drivers to give up free fuel for private use and travel fewer miles by paying for petrol and diesel themselves.

REDUCE THE SIZE OF THE FLEET

As well as scaling back on miles, some companies are also simply cutting back on the number of cars in their fleet. Some of this is down to having fewer staff as a result of redundancies - an issue that could become more striking as the recession continues to bite. "If unemployment reaches the three million that is forecast, some of that increased redundancy is bound to involve company car drivers," says the Energy Saving Trust's Nigel Underdown.

But there were also moves to reduce fleet sizes that predate the current dire economic conditions. Companies have been targeting the 'grey fleet' - personal cars used by employees for business purposes - for several years. "Most staff claiming expenses for using their own car claim the 40p approved mileage allowance payment rate which, for many journeys, works out much more expensive than providing them with a rental car or their own company car," says John Lewis, chief executive of the British Vehicle Rental and Leasing Association (BVRLA).

Rental and leasing are still attractive compared with buying vehicles outright, according to the BVRLA. "They (renting and leasing) enable you to take a fixed-cost, pay-as-you go approach to motoring and they are flexible - you can rent a car for as long as you will need it, without having to worry about being stuck with a depreciating asset sitting in your car park," says Lewis.