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Beyond retail therapy – Why RRP is important to fleets

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How useful is a car’s retail price when fleets are deciding what to source? Curtis Hutchinson, editor of Motor Trader, reports.

Image of Curtis Hutchinson, editor of Motor Trader

Curtis Hutchinson, editor of Motor Trader

No-one really talks about recommended retail prices anymore do they? After all wholelife costs determine company car choice from SMEs through to the blue chips and rightly so as they provide accurate budgeting and remove potentially costly guess work.

Curiously, though, whole-life costs mean little in the retail sector where the focus has also moved away from RRP and turned to the monthly payments of manufacturer subsidised Personal Contract Purchase schemes with buyers effectively paying for vehicle usage rather than outright ownership. PCPs have been hugely successful at coaxing buyers back into the new car market with some incredibly competitive low interest deals which have seen some buyers source new cars for less than they spend on their monthly Sky package.

So how should SMEs, who source their vehicles from dealers, evaluate the cars they put on their books? While whole life costs are central to the equation, there are other criteria to take into account.

RRP is still an important consideration. It is after all where the P11D value is derived and this aspect of the sourcing process requires buy-in from the user who will be paying personal tax based on the vehicle’s price and emissions.

Murray Wilkinson, the owner of the Camargue Group, the Stirling-based fleet management company that provides cars and finance to businesses, advises companies to consider a number of elements in the round but retain a focus on whole life costs.

“It is impractical and inaccurate to use factors such as retail price, C02 emissions, mpg or fuel type in isolation. While the retail or manufacturers list price is important to the employee, especially for tax reasons, it may not be the most economical car for the company to run.”

Fuel is another important consideration. With new generation petrol engines benefitting from lower CO2 emissions and better economy than ever before, an increasing number of brands offering longer range electric cars and diesel being widely vilified for their NOx emissions, how should SMEs tackle fuel choice?

“We recommend the full range of vehicles, including new vehicle technologies, as long as they can meet the specific needs of the customer. As long as a vehicle fits within the organisations’ whole-life cost parameters, and any other restrictions they may have linked to their business priorities, the fuel type shouldn’t matter,” said David Nicholas, fleet consultant at Arval.

“The only current exception comes with fully electric vehicles where additional factors need to be considered, for example the profile of the journeys undertaken by the driver and how a business mileage reimbursement policy will work.

“In the last couple of years, we have seen a significant increase in driver interest in plug-in hybrid vehicles because of the relatively low Benefit-in-Kind associated with them, and the increasing number of models becoming available. For some drivers this is a good option, but not for all, and tax shouldn’t be the sole consideration when selecting a vehicle. For example, for a driver regularly completing high mileage, a standard diesel could be a much more practical and fuel efficient choice.”

Restrictions are also important when drawing up a choice list as a three-door may lack practicality if the car is passed onto another member of staff, while a convertible or 4X4 may be at odds with the image the company is trying to convey.

“Ultimately, the restrictions applied within a policy should be tailored to specific needs. Having said that, it is often appropriate that outward, or customer facing drivers, completing high business mileage face more restrictions than those drivers operating in back office functions and perk drivers. These restrictions are in place to ensure the vehicle is fit for purpose and that the correct image of the organisation is portrayed.

“It is also common to set a CO2 cap for the various entitlement grades within the company car policy. With a wide range of efficient vehicles available, it is now possible to reduce the company’s environmental impact while still offering drivers an attractive choice of vehicles.”

Finally, with most brands now offering a selection of models suitable for fleet needs, how should a company decide which marques fit the bill?

“Once a business is clear on their fleet requirements, they should consider the full range of vehicle manufacturers, finally selecting the product that can best meet their needs. Business priorities can range across areas like cost reduction, driver satisfaction, employee recruitment and retention and environmental impact. Some manufacturers will be better at delivering against these goals than others.”

So while whole-life costs are central to sourcing smartly, fleet managers still need to consider RRP along with fuel type and a vehicle’s suitability for staff needs.

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Curtis Hutchinson

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