Whether buying, leasing or renting, it’s important for fleets to have a strong grasp on how much it costs to acquire and run its vehicles. Our experts look at existing and new ways to keep costs down, without impacting efficiency.

The importance of being agile

Jayne Pett, sales and marketing director at Fleet Operations

Jayne Pett, sales and marketing director, Fleet Operations

As we navigate an ever-changing commercial and transport landscape, traditional business models continue to be reimagined. Companies are striving to become more agile, nimble, frictionless and dynamic to ensure their operations are cost optimised, that they’re future-ready and protected against unforeseen circumstances. The importance of doing so was reinforced by the impact of the Covid pandemic – and the economic and business environment remains volatile and unpredictable.

The shape of the UK leasing and rental market has evolved to keep pace, with the industry understanding that one size can no longer fit all.

The traditional three-year contract hire vehicle is no longer standard issue. Flexible mid-term leases, short-term hire and daily rentals have all become more regular fixtures in the fleet financing mix. Although these alternatives may be more expensive, the lease or rental costs can be more than offset by avoiding a long-term commitment and the associated penalties of conventional contract hire.

Fleet operators face early termination fees if they need to return vehicles before their contracts end, but flexible options allow fleets to adjust the number of vehicles as needed without incurring such charges. This prevents unnecessary expenses during fluctuations in demand or changes in business requirements.

Flexible leasing is also proving a compelling option when it comes to the electric vehicle market. Shorter contracts enable businesses to swap out vehicles more easily for EV equivalents, again without having to incur early termination costs.

Currently, some businesses and employees may also be reluctant to commit to long-term lease contracts, with the pace of technological development meaning future generations of EVs will become more attractive – and increasingly affordable. Shorter contracts with more adaptable terms allow a toe to be dipped in the water, with EVs trialled before a commitment is made to a longer- term finance arrangement.

Vehicle funding has never been more important

Gary Jefferies, sales and marketing director, Bynx

Gary Jefferies, sales and marketing director, Bynx

In uncertain times – there should be no set rules. Factoring in EV transition targets, vehicle supply, cost of new vehicles, future residual values, future maintenance budgets, future tyre budgets, fleet policy and Total Cost of Ownership (TCO) means there’s so much to consider.

As a result, fleets are more different than they’ve ever been and flexibility is required.

From a finance perspective, there are questions about fleet and asset management. One of the first steps is to find out which approach works best for a fleet: full service operating lease; short- to long-term rental or subscription? Many fleets might not know, or are possibly considering a shift to salary sacrifice as an alternative.

These are all proven ways to help fix your TCO and remove risk, but a more flexible and tailored approach may also help with the uncertainty of future TCO – and the differing needs of the different assets. These elements include pay-for-use maintenance, finance with extendable retention (finance lease) and mix-and-match services (accident management, remarketing etc). These methods are especially proven for the less risk-averse fleet operator.

But which approach is more reflective of the current fleet landscape? Fleets whose vehicles have different roles – and different needs – may need to be financed differently. If a fleet is financing vehicles the same way – when they have different life cycles – it could be a case of leaving money on the table and off the bottom line.

In short, vehicle funding has never been more important. In uncertain times, certainty from fleet finance suppliers is required. That means financial products that are tailored to fleets, with flexible fleet finance and management options and those that consider cost control objectives, the role each vehicle plays, retention parameters and your stakeholder needs. Bynx can provide the fleet finance and fleet management sector tools that underpin these flexible product and service deliveries. And our modular software solutions enable the fleet finance industry to deliver the support that fleets need. Ultimately, that means certainty in uncertain times.

The cost of inflation

Jon Lawes, managing director, Novuna Vehicle Solutions

Jon Lawes, managing director, Novuna Vehicle Solutions

Inflation has put enormous pressure on fleet managers. It has impacted the cost of vehicles, fuel and repairs just when resources are needed to transition to zero-emission vehicles aligned to sustainability targets.

Providing flexibility in leasing solutions is a key approach to navigate these prevailing challenges faced by businesses. Lingering economic uncertainty makes capital investment a potential risk for fleet operators. Consequently, we’re seeing increased interest in flexible-term contract hire products as a way to adapt to market shifts and operational demands without committing to substantial upfront financial outlays.

A second strategy to improve cost efficiency and optimise operational expenditure stems from leveraging the capability of telematics technology. Harnessing data analytics empowers businesses to make informed decisions based on vehicle usage patterns, monitoring mileage, unexpected breakdowns and many other elements of their fleet. This data can optimise the efficiency of each vehicle across its lifecycle and bring running costs down across a fleet.

As the transition from ICE vehicles to electric alternatives gathers pace, data-driven decision-making tracking driver behaviour within a comprehensive feasibility assessment becomes even more imperative in order to make informed renewal decisions and minimise any BAU impacts.

Fleet decision-makers will need to either invest in data management tools or work with a leasing company with dedicated data and account management teams. The result will be implemented combined data solutions now, ready for fleets to make futureproofed cost-effective financing choices.

Within charging infrastructure alone, fleet managers must contend with more than 100 different charge point operators across approximately 40,000 chargers in the UK. As a result, we’re seeing growing interest in a one supplier approach. Consolidating suppliers with one end-to end finance solution can streamline and simplify operations, saving money and time in the process.

What is the optimal funding solution?

Fiona Massey, fleet consultant, Zenith

Fiona Massey, fleet consultant, Zenith

One of the core questions for fleet operators as they transition to zero-emission vehicles is “what is the optimal funding solution?”

A battery electric vehicle (BEV) compared to an ICE powertrain sees average cost increasing by £10,000 (car), £17,000 (van) and £200,000 (truck). For a fleet of 250 vans, this represents an additional £4.25m initial capital outlay, so it is more important than ever to focus on the funding implications of tying up larger amounts of cash.

To establish optimal, long-term investment method – whether this is outright purchase or leasing – accurately evaluating options and accounting for all relevant cashflows, including cost of funds, will be crucial in making informed decisions.

Our recent case study across a range of small, medium and large vans demonstrated that although BEV equivalents had higher capital costs, contract hire was the optimal funding method, yielding average annual savings of £600,000 (9%) for a 250-van fleet.

Funding via contract hire also provides protection from the currently volatile second-hand market for BEVs – a risk that could impact financial statements. Switching from purchasing to leasing will shelter fleets from these impacts. Funding fleets on contract hire allows your business to free up capital for further investment opportunities while de-risking an asset portfolio.

The same is also true in the consumer market and when coupled with employer-backed schemes, low Benefit-in-Kind, as well as the ability to spread payments, we are witnessing a shift to salary sacrifice cars and private leasing from private ownership.

Salary sacrifice schemes give fleet managers the opportunity to enhance reward offerings, addressing cost-of-living concerns while reducing carbon emissions and can create a savings potential for sharing with drivers. For fleet operators making the switch to cleaner technologies, decisions will focus on vehicle cost, suit- ability and other practicalities. A review of funding options should also form part of a fleet’s strategy, helping support informed decisions and optimising its budget allocation.

Seven savings solutions…

Alfonso Martinez, UK country manager, ALD Automotive | LeasePlan UK

Alfonso Martinez, UK country manager, ALD Automotive | LeasePlan UK

1) Mix and match funding > Contract hire might be the most popular funding method in the UK but, depending on VAT status and whether running cars, commercial vehicles, or both, a blend of funding options might suit better.

2) Benefits Box > Compare the perks, crunch the numbers, look at cash-for-car options, the company car scheme and explore EV salary sacrifice to ensure drivers get the right benefits.

3) Look at the bigger picture > When analysing costs, don’t stop at the monthly lease amount. Think about fuel/electricity costs, maintenance, tax, and insurance – and everything else contributing to whole life costs.

4) Beyond the usual suspects > Supply chain disruption over the past few years might have made things trickier, but it’s also opened doors to new players. It’s worth looking at new OEMs entering the UK market and whether they meet fleet and drivers’ needs.

5) Think electric > Low Benefit-in-Kind rates, incentives and emissions targets have meant fleets have been at the forefront of EV adoption. There’s also the benefit of some manufacturers prioritising production of electric vehicles over petrol/diesel models.

6) Flex your choices > If a fleet needs to change, flexible rental can provide fast access to cars and vans from stock. There’s no long-term commitment so fleets can simply return or extend.

7) Fleet risk is not a burden > It’s time to see it as an opportunity. LeasePlan can help you manage and minimise the specific risks faced by fleets and make businesses work more safely and effectively.