Total Cost of Ownership

Wholelife costs represent the most effective way of operating and managing a fleet/allocation policy because they provide the best forward estimate of the real costs to the business over the vehicle operating lifecycle.

Wholelife costs or the total cost of ownership (TCO) should reflect all the projected, vehicle-specific costs associated with operating a vehicle over its fleet life.

However, while TCO is the only ‘scientific’ mechanism for accurately calculating vehicle costs, only 25-30% of fleets use the method, according to Helen Fisk, manager of the AutoSolutions’ division at leasing company ALD Automotive.

Wholelife cost figures would normally include depreciation (the total difference between the original cost and the residual value projected), funding, service, maintenance and repairs, VED, insurance, fuel (at least the fuel for the business mileage), Class 1A NIC payments, VAT and corporation tax. Also VAT on the fuel scale charge for private use if this is provided.

But, says Fisk, many businesses fail to take account of employers’ NIC at 13.8% in their calculations. VAT and corporation tax relief are others factors also left out by some organisations.

“A lot of businesses use a halfway house of effective rental – finance and maintenance costs plus fuel – or P11d values to compile fleet choice lists,” she says.

“They think that is wholelife costs, but it is not because it isn’t true TCO.”

Consequently, when they discover the financial savings available by basing choice lists on TCO, Fisk says they are ‘blown away’ by the benefit. She calculates that a fleet basing choice lists on effective monthly rental rates could see a top to bottom discrepancy of up to £2,000 per vehicle over an average operating cycle.

“That’s why we use a total cost of ownership fleet software programme that analyses in fine detail every single factor – both corporate and personal – impacting on vehicle funding, car choice and services to be offered,” says Fisk. “As a result we can deliver substantial funding and operating cost savings to employers and benefit-in-kind tax savings to drivers.”

Meanwhile, market research from rival leasing provider Ogilvie Fleet also suggests that not all relevant wholelife cost data is included by many suppliers in vehicle sel-ection calculations.

Agreeing that wholelife cost calculations from contract hire and leasing companies are often based on an effective rental plus the cost of fuel, the company has launched Ogilvie True Cost (OTC) which takes the principle of wholelife costs as its base and then adds in crucial elements to provide customers with what it says is a far more accurate representation of the actual costs associated with vehicle operation.

OTC includes the critical cost associated with employer Class 1A National Insurance contributions and subtracts a corporation tax saving before adding back in to the calculation any applicable lease rental disallowance.

Sales and marketing director Nick Hardy said: “Many fleet decision-makers and drivers use monthly rental rates to compare and select vehicles but unless all applicable figures are included the real world financial picture is distorted. We believe OTC delivers a win-win benefit for both businesses and their drivers and enables the right vehicle choices to be made.”

Introduction

SMR Costs

Accident Costs

Vehicle Downtime