80% of fleets still ignoring whole-life cost approach
Speaking at the “Fleet Management in a Changing World” seminar held in Canary Wharf, fleet experts Dan Rees, senior manager, Deloitte Car Consulting, and Andrew Cronin, key solutions manager, GE Capital UK, each highlighted that whole-life costs were the key criteria in compiling company car choice lists at an ACFO fleet briefing held in association with Motorexpo, the world’s largest free-to-visit motoring event.
Cronin highlighted that GE’s “Company Car Trends” report that has tracked fleet industry developments for almost a decade revealed that many organisations ignored whole-life costs in drawing up vehicle choice lists.
Asked to highlight criteria used in setting company car choice lists, only 20% of respondents used whole-life costs in 2013 compared with 29% three years ago. That compared with 70% who said they used a CO2 emissions limit, while other factors influencing choice list compilation included fitness for purpose, vehicle lease rates and safety features.
Vehicle whole-life costs are critical, said Rees, because they highlight that cars which may cost the same in terms of list price or monthly lease rental actually did not in terms of cost per mile to operate.
He said: ‘The cost difference can build up over the lifecycle of a car. The principle of basing choice lists on whole-life costs can help both employers and employees. For employers it can save money, and for employees, even if the whole-life cost figures on two models are identical a different CO2 emissions figure will influence the level of Benefit-in-Kind tax due.’
Cronin added: ‘Basing company car policies on whole-life costs means naturally excluding the worst-performing cars so organisations are naturally managing their risk.’
He added: ‘Whole-life costs generally favour low CO2 emissions cars so support corporate carbon reducing policies and reward drivers in terms of the benefit-in-kind charge.
‘Presently 40-45% of our customers use whole-life costs. If you don’t use this process then it is worth considering.’
However, there is some confusion as to what data to include when using whole-life costs to compare the fleet operational viability of individual cars.
One figure that is frequently not included is employers’ Class 1A National Insurance contributions paid on the value of benefits such as company cars.
Cronin said: ‘Class 1A National Insurance is a key part of fleet costs, but not often considered. If the lease rate of two cars is £10 a month difference then the car with the higher cost will not be considered and the same criteria should apply to Class 1A National Insurance.'
Rees added that ‘tax was a fundamental part of whole-life costs’ and suggested that fleet decision-makers also took into account the impact of capital allowances and VAT recoverability.