Fleet Finance: “It’s a tough time to be a fleet manager”
By Professor Colin Tourick
Over the years I must have read that sentence in the trade press dozens of times, usually when some aspect of government policy was having an impact on company vehicles. Truth is, it’s never been a particularly easy time to be a fleet manager. Government policy aside, fleet management is a multi-faceted, complex and specialised area of business, and even the most highly experienced fleet manager will tell you they’re always learning something new.
But there’s no question about it: the landscape for company vehicles now is very confusing. I’m sure that some fleet managers will be feeling nostalgic for those days when if you ran a fleet of diesel-engined cars funded on maintenance-inclusive contract hire you were almost definitely doing the right thing.
The BVRLA’s recently published Industry Outlook 2020 is a concise exposition of the key issues currently occupying the minds of the people who run daily hire, leasing and fleet management businesses.
It was compiled with input from 20 leading experts from across the fleet industry. The BVRLA is the industry’s trade body and its members are responsible for more than five million vehicles in the UK, including one-in-eight cars and one-in-five vans. Whilst the report is primarily written for the benefit of BVRLA members, its members’ concerns are also fleet managers’ concerns, making this report required reading for fleet managers.
As the report says – and fleet managers know – the sector is facing challenges.
Cars are becoming increasingly connected and are generating vast amounts of data. However, little of the value of this data has been reaching fleet managers, largely because the necessary deals have yet to be sorted out between the manufacturers, leasing companies and end-user fleets to determine who will control this data. Leasing companies would love to access vast amounts of real-time data and would no doubt find all manner of innovative ways to package it for the benefit of their clients. Sadly, this innovation is being stifled at present.
Demand for electric vehicles is increasing and is likely to increase sharply from 6 April when the 0% Benefit-in-Kind tax rate is due to come into effect, once rubber-stamped in the Budget. When your drivers realise they can have company cars without paying any tax, they will really start to look seriously at EVs. However, there is already a problem with the availability of such vehicles, particularly upmarket models, and this will not materially improve in 2020. And the charging infrastructure is still a problem. Too few charging points at home, at work or in public places.
Many fleet managers have been caught in a cleft stick: on the one hand they have drivers for whom the word ‘diesel’ has become toxic, yet Euro 6d-TEMP and RDE2-compliant diesel cars are remarkably clean, cost less than comparable electric vehicles, deliver great mpg and have lower emissions than most comparable petrol-engined vehicles. But can they make a comeback in the minds of drivers?
The relentless increase in Benefit-in-Kind tax rates has driven many company car drivers – particularly low-mileage perk car drivers – to ditch their company cars in favour of cash allowances. Some of these drivers use their allowance to pay monthly for cars on maintenance-inclusive personal contract hire or personal contract purchase, so these cars are being professionally managed. But others are simply buying used cars or using existing family cars, leaving fleet managers trying to ‘manage’ grey fleet cars they don’t control. Nightmare.
Mobility solutions have been touted for many years but we are a long way from the promised vision of a fully integrated system that can take an employee from A to B using the optimal mode of transport at the lowest after-tax cost for both the employer and the employee and with the lowest level of emissions.
In three years’ time the situation should be very different. The EV supply issues will have been sorted out; there will be a lot more charging points in place; there will be many more data-driven solutions available to help fleet managers and drivers; diesel may have come become sufficiently acceptable again to be viable for high-mileage drivers for whom EVs aren’t an option; viable mobility solutions will offer real alternatives to the traditional company car and – hopefully – we will have a stable tax environment where once again we will know what is happening with company car tax four years in advance.
However, none of this helps fleet managers decide how best to fund or manage company vehicles in 2020.
My suggestion therefore is that they should think of the next couple of years as an interim stage where they need to find solutions that will work until we arrive at a brave new world in 2-3 years’ time. The question, therefore, is how to do this. In other words, what can a professional fleet manager do now that will keep costs as low as possible?
I think the solution is to be found by deciding car by car, driver by driver, the optimum funding solution.
Across-the-board funding solutions such as ‘contract hire for all’, which worked back in the day when BiK rates were lower, simply don’t work anymore. Some of your drivers cover much higher levels of business mileage than others. They may pay tax at a marginal rate of 20%, 21%, 40%, 45% or 46%, depending on their levels of income and where they live in the UK. Contract hire will be the ideal solution for some, a company-organised PCH scheme will be best for others and an ECO scheme for others still, whilst some with perk cars may indeed find cash allowances deliver the optimal solution.
Blended contract hire/ECO schemes have been used for years by some larger fleets to make huge savings. Now, the optimum solution requires a blend of contract hire, ECO, PCH/PCP and cash allowance. This is, actually, achievable, because the decision about which solution works for each employee is a simple matter of mathematics.
Ask your leasing or fleet management company to do the sums for you. As the BVRLA Industry Outlook highlights, those companies have been investing heavily in consulting solutions. They should be able to help you choose the optimal funding method for employees changing their cars in 2020. And by the time you come to replace those vehicles, things should be a lot easier.