Ask the expert

Over the years, all the methods you mentioned of grading vehicles in a company car scheme have been used.

However, with changing legislation, the need to offer flexibility to drivers, and the realisation the actual cost to a business in relation to their fleet goes beyond the monthly rental or the original purchase price, has driven more businesses to adopt a scheme based on wholelife cost.

As a result, we would recommend going down the whole life cost route but you need to ensure you include the right elements in your calculation.

As a rule, we include NI Class 1A, fuel costs, insurance and from April 2009 the new net tax position that takes into account a car’s CO2 emissions. In adding these elements to the effective rental you can conduct a more accurate wholelife cost analysis and can demonstrate to your business what the actual costs are in relation to your fleet.

Being in the position of creating a new scheme enables to take an even more holistic view. I would recommend you look at two additional elements to the wholelife cost analysis – firstly, carry out a simple analysis of your fleet funding. Is it the most cost effective, tax efficient way of doing it? And secondly, take a look at what your company car drivers actually need to drive and what their aspiration levels are.
If you consider all these elements you stand a better chance of creating a scheme that is good for the company and also good for your drivers.
 

The industry has seen a significant increase in contract extensions, with fleet managers citing various reasons for their decision to extend rather than replace with new – one of which can be the reduction in the monthly rental.

On the face if it, this would seem ideal as cost reduction is one of your key objectives but you need to look at other factors as well.

You will need to consider the probable reduction in BIK your employees will pay, as a newer vehicle is likely to have lower CO2 emissions, and the lower Class 1A NI your company will pay. However, this needs to be weighed up against the effects of the increased P11D values due to rising vehicle purchase prices.

While there is uncertainty regarding future staff numbers for many businesses, fleet managers are also looking to reduce the possible effect of early termination charges on their business and are asking for extensions rather than starting new contracts.

Regarding your concern with breakdowns, this can be a serious issue if your vehicles are “job need”. We would suggest taking into consideration the vehicle’s mileage when deciding whether to replace or extend.

Analyse your fleet on a vehicle-by-vehicle basis and base your decision on the factors above. Base cost comparisons on like-for-like contract terms and mileages. and use wholelife cost analysis (including Class 1A NI and fuel cost) to get a more accurate financial picture.
 

Many companies are dealing with staff redundancies which can create the problem of what to do with unwanted company cars and we are finding this is a blind spot for businesses.

There can be a significant cost involved for terminating a contract, so fleet managers need to assess all options. It may be the case that storage will be a more cost-effective alternative to termination, allowing a company to hold the car until it is needed. Most fleet suppliers will have insured storage options available.

What fleet managers must also be aware of is their duty of care when re-allocating vehicles. Cars will need to be sent back to the fleet provider for refurbishment and a full health check. 

The second key lesson is to make sure you transport vehicles efficiently to reduce costs and staff time. We have seen cases where customers need to relocate a vehicle from one office to another, either because an employee has moved or the vehicle is now surplus to requirement. 

By using a fleet company who offer a logistics service rather than trying to manage the process in-house, it can save both time and costs. Fleet managers should weigh up all the options before making the decision.

mark.gibson@ingcarlease.co.uk

If you want to take advantage of the following benefits then yes:

• Effective budgeting – including the SMR cost will smooth out your fleet expenditure and reduce the possibility of irregular payments.
• Underwritten risk – your leasing company will carry the risk of non-routine mechanical problems and associated cost.
• Protection against the effects of increasing energy costs – we have seen an increase in tyre prices due to the increase in the price of oil. A contract which includes the cost of replacement tyres will remove any incremental price rises.
• Purchasing power – due to the substantial expenditure of a leasing company on SMR services, economies of scale would predict a lower unit cost if services are part of the lease contract.
• Ease of operation – less administration for the fleet manager and drivers.
• European cover – in general, a contract that includes SMR will also include European breakdown.
• Detailed management information – access to exception reporting gives the ability to spot rogue vehicles and investigate whether exceptions are caused by vehicle or driver.
• Problem vehicle management – a leasing company will have close links with the SMR network and will manage problem vehicles for you.
   

mark.gibson@ingcarlease.co.uk

The impact on pricing is greatly influenced by whether a leasing company reflects the changes or not. If the changes are reflected, the impact is linked to CO2 emissions, purchase price and period of the lease. 

As a rule of thumb, cars emitting below 110g/km will reduce in rental, cars between 110 and 160g/km will show a slight increase and cars above 160g/km could see a significant rise. 

We must, however, take into consideration other factors such as residual values, manufacturer price increase or, in the case of the minority few, a price decrease.

On an individual car basis, the impact on the price is also influenced by the capital value and the term over which the lease is taken out. 

If a leasing company does not reflect the capital allowance changes, in theory its pricing for the higher emission vehicles will be more competitive but these specific cars are generally the ones experiencing lower residual values, which in turn will see increases in base lease rentals.

Additionally, these vehicles will generally be less efficient from the customer perspective due to the impact of the new rental allowance rules (only attracting 85% of rental allowances compared to 100% rental allowances for sub-160g/km emitting cars).

In general, a company leasing vehicles will see a positive tax position for sub-160g/km cars, which ties in with the Government’s underlining strategy of encouraging a move towards lower CO2 emission vehicles.