· 9 min read · Features

The fleet's in

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Post-recession, what should you do about the company car? There's a whole range of options to keep costs down, says Steve Hemsley.

 

Whether it be a necessity for some or a perk for others, providing company vehicles to employees is expensive. With businesses desperate to cut costs in 2011, the key to saving money is to ensure any company vehicle scheme is well-managed, energy-efficient and safe.

There is increasing pressure to extend the lifecycle of vehicles and replace them every four years, rather than every three. And many organisations are sending employees on training courses to get tips on driving and planning their journeys more efficiently, thus reducing maintenance and fuel bills.

A November 2010 report from Fleeteye, the fleet operator's forum, produced with the University of Buckingham's Centre for Automotive Management, confirms that running costs are the most significant factor influencing fleet management decisions. In fact, running costs have risen from 8.1 (out of 10) to 8.4 in terms of critical importance since June 2010, with fuel costs as a factor rising in the same period from 7.4 to 8.0.

Fleeteye says the market for providing vehicles is stagnating, with 25% of respondents expecting employers to increase the size of their car fleets and 25% predicting a decline.

Peter Cooke, professor of automotive management, University of Buckingham, says organisations are already stretching replacement cycles to save money and more employers are encouraging drivers to treat their vehicles with extra care.

"There can be big financial savings if cars are looked after and it is crucial employers monitor this," says Cooke. "They should compare how different drivers are consuming fuel and how many miles they are driving. There is so much data available, but businesses can be scared of it."

He believes every number tells a story and can highlight training needs that will bring cost savings. "If one employee is having their tyres changed more than their colleagues, it may be because they are poor at parking. And are drivers planning their routes effectively if they now have a bigger territory to cover because of the recession, and can they save fuel by not driving so fast?" asks Cooke.

Julie Jenner, national chairman of the Association of Car Fleet Operators (ACFO), agrees that employers need to spend more time and money analysing data to see where savings can be made. "It is disappointing when companies do the analysis, but then fail to act on the results - or it takes months, or even years, to implement changes," she says.

The good news is that drivers appear happy to choose car options that can save money.

The introduction of CO2 emission taxation in 2002 has made many drivers think green. In fact, research last autumn by the Institute of Car Fleet Management (ICFM) claims 87% of company car drivers will consider CO2 emissions when they choose their next company car.

Diesel is now by far the preferred fuel type, represented in 86% of fleets (compared to 50% for petrol). A relatively 'green' diesel car can produce a tax burden 50% less than that incurred by a petrol equivalent. Sky Broadcasting tells HR it wants to reduce CO2 emissions by 25% per van by 2012, compared with the levels recorded in 2009. The company has run trials using data to track and manage its fleet and will roll this out company-wide during 2011.

Employers are considering different schemes to reduce their fleet costs. Salary sacrifice (see below) has been a fashionable choice, but it is not as popular as some in the leasing industry might think. ACFO has discovered that 24% of businesses have never even looked at the salary sacrifice option.

It seems employers are being put off by the large overhead costs to design, implement and run such a scheme. The tip for running one cost-effectively is to allow enough time to set up systems and ensure HMRC compliance, and then put maximum effort into marketing the scheme internally.

Matt Dyer, commercial director at fleet manager LeasePlan UK, says salary sacrifice is best suited to organisations with more than 500 employees. If schemes are planned and run properly, he says, they can be effective retention and recruitment tools and can also save money.

"From a raw financial perspective, the attraction is clear: the employer does not pay National Insurance on the salary sacrificed and only pays class 1a NI on the value of the company car benefit," says Dyer. "This is also a cost-effective way for employers to still meet their duty-of-care requirements."

Facilities services company OCS Group signed up to Zenith Provecta's 'Salary Exchange' scheme for 2,000 staff. OCS's head of reward, Ian O'Sullivan, promoted the scheme through a series of roadshows. "A lot of our staff use their own cars and we wanted to encourage them to adopt lower-CO2 cars, while optimising the cost efficiency of the scheme to the drivers," he says.

Business development director at Zenith Provecta, Ben Creswick, says companies must find the best company car scheme for them.

"When there are changes in the Budget which affect company cars, such as the rise in VAT to 20%, we will do a funding analysis to see whether outright purchase or contract hire is the better option," he says.

Organisations considering introducing or adapting private mileage schemes need to closely monitor staff driving behaviour - otherwise, they could be significantly out of pocket. Drivers must be encouraged to record their monthly business mileage accurately so they are compensated fairly and there is HMRC compliance.

Heinz UK and Ireland hands over its fleet management to IFC Fleet Outsourcing, which has a mileage consultancy subsidiary called Vertivia. Its internet-based software has reduced the amount of business miles being claimed by Heinz staff by about 25% and cut fuel bills dramatically.

The system works by making it harder for staff to exaggerate the distances they have travelled. "Drivers log into the system and record the locations they have driven between," says IFC sales director, Paul Chater. "The mileage is checked through a postcode system and that information feeds directly into a person's expenses. Now the mileage claims match the call sheets, whereas before many employees rounded upwards the mileage for trips, so companies paid a lot more over a year than they should have."

Such schemes could certainly help public-sector organisations at a time when deep cuts are being implemented. Historically, staff have been able to gain financially from using their own car (the 'grey fleet'), because the mileage allowances are often in excess of those accepted in the private sector of 40p per mile, the standard set by HMRC.

The data collected via web-based mileage-capture systems can be analysed to make future business travel arrangements more efficient. The information can be linked, for example, to other cost-saving initiatives such as fuel cards.

These cards save organisations money on fuel, but, according to the fleeteye report, only 41% of employers are either considering such a scheme or have implemented one. The figure is expected to rise during 2011.

This is surprising, considering that all the large filling station operators such as Shell and BP run card schemes offering fleet drivers pump price discounts. There is also the broader retail fuel card, Arval AllStar, which does not offer a saving at the pump but is accepted at the majority of garages rather than at just one chain. Its major benefit is that employees do not have to carry credit cards or cash; and data is easier to monitor for tax purposes. Another approach is that of independent agent Fuel Card Services (FCS), which buys fuel in bulk and sells it at a discount to businesses, which then know how much they will pay at the pumps over the next week. The cards provide savings of between 3p and 4p per litre and the price agreed is valid at motorway service stations too, where the cost of fuel can be higher.

Head of marketing at FCS, Steve Clarke, says employers must consider the most suitable fuel card for them. Companies should select a product based on where their drivers tend to operate and the number of service stations an oil company brand has in that particular area.

Another money-saving trend expected to accelerate during 2011 is daily car rental.

The University of Buckingham's Cooke says this is a cost-effective solution, if it is managed effectively. "There should be a 24-month agreement with a hire company to get the best daily rate - and different budgets for different cars," he says. "The arrangement should be integrated with an organisation's business intelligence system to collect data and allow drivers to request cars online and have them delivered to and collected from their offices."

Chris Longmuir, head of business development at Avis UK, claims employers can save up to 15% on leasing fees when renting daily, because of the immediate cut in overhead costs. "Ownership and management fees as well as certain HR administration costs are removed," says Longmuir. "With the pay-as-you-need approach, a fixed rate is negotiated at the beginning of the contract, the size of vehicles can still be controlled and there is an enormous flexibility as well as sophisticated reporting software to track driver behaviour."

It seems anyone running or managing a company car fleet and facing pressure to save money has plenty to think about.

 

SAFETY FIRST ...

Rick Wood, head of training for the fleet team at the Royal Society for the Prevention of Accidents, says one-third of accidents on Britain's roads involve somebody who is at work. This amounts to about 200 serious injuries every week.

The number of work-related road accidents jumps by 15% in the autumn and winter, as drivers fail to adapt to the wet weather. The month for the most crashes is October, when falling leaves make the roads greasy. "Employers must conduct suitable risk assessments to ensure all work-related journeys are safe and staff are fit and competent to drive," says Wood.

If staff are driving their own vehicles, these must be safe and roadworthy and employers must regularly check driving licences for added penalty points - this is a process which can be performed in-house or outsourced.

Neville Briggs, managing director of fleet software company CFC Solutions, says holding on to a vehicle which has clocked up very high mileage for a fourth year can bring safety problems. At the end of three years, a car will need its first MoT test and maybe require costly repairs, such as a new cam belt.

Companies are also being urged to discourage the use of mobile phones, even hands-free sets, when someone is driving.

CellControl from Chameleon Group is a device that lets an HR or fleet manager stop drivers making calls when their car is moving. A Bluetooth hardware module links wirelessly to software installed on the driver's mobile phone. It prevents outgoing calls and stops access to incoming ones, diverting them to voicemail, text messages and emails until the vehicle stops.

Every driver should also be given a road safety pack. This should include a warning triangle, high-visibility vest, a disposable camera for record-keeping, a torch, a blanket, gloves and a first aid kit.

Of course, when it comes to cost-savings, safe driving is also fuel-efficient driving.

 

SALARY SACRIFICE

Salary sacrifice enables an employee to give up part of their salary in exchange for a benefit, in this case, a company car. This allows them to save income tax, VAT and national insurance contributions by having the cost of the car deducted from the salary before the statutory deductions. And due to the tax breaks available for vehicles with low CO2 emissions, as well as the substantial discounts for fleet purchases, company cars can be a very attractive proposition. By providing company cars via salary sacrifice, organisations can offer a great company car benefit to any employee at no cost to themselves.

As the vehicle is a company car, the employee is liable to pay company car tax. For the employer, the scheme is cost-neutral, as the full cost of the car is met by the employee.

 

CASE STUDY: ENVIRONMENT AGENCY

Government departments are under pressure to reduce their employees' business mileage and to cut the environmental impact of their vehicles.

At the Environment Agency, Kirsty Browning, its contract officer, fleet operations, needed a better understanding of how the vehicles in its fleet were being used and wanted additional data on emissions and mileage.

The agency implemented the Driving the Right Behaviour toolkit from Enterprise Rent-a-Car, which identified 70 miles as the break-even point at which hiring a vehicle for the day becomes a more cost-effective option than allowing staff to use their own cars and claim back mileage expenses.

This fact was incorporated into a new travel policy, which has reduced the incentive for staff to drive their own cars and changed their attitude to mileage reimbursement.

Enterprise Rent-A-Car's director of business rental for UK and Ireland, Rob Ingram, says as well as savings on private mileage claims the rental alternative is a newer, cleaner and more efficient vehicle. The Environment Agency, for instance, has cut CO2 emissions per mile by an average of 5%.

"More organisations are looking for advice on how to bring down travel costs and to reduce the impact their employees' driving is having on the environment," says Ingram. "Making the transition from private vehicle use or under-utilised pool cars to daily rental is an effective solution."

 

TOP TIPS FOR A SMOOTH FLEET

- Ensure the list of vehicle choices is cost-effective, but still motivates staff

- Consult with employees to assess their expectations and car wish-list, so any scheme both appeals to them and matches the organisation's objectives around cost savings and also its environmental commitments

- Running costs can be cut by an average of 15% using efficient driving techniques, so analyse driving habits to determine training needs

- Analyse whether everyone who has a company car really needs one, post-recession

- Consider extending the vehicle replacement cycle from three years to four years

- Don't forget that even when an employee uses their own car for business, the company still has duty-of-care responsibilities to them

- Safety is paramount, so review work targets to ensure staff do not feel pressured to drive faster - or more carelessly - than they should.