Fleets that sought to save money by extending contracts could be exposing themselves to hidden costs, according to a survey carried out by Fleet News.

The survey was taken when a separate poll on the Fleet News website suggested fleets were finding it more difficult than ever to find access to funding for vehicles (news, page 2).

From the credit crisis in the summer of 2008 which then led to a recession, companies began to place costs under closer scrutiny.

In many cases fleets extended contracts, switched to longer contracts, or delayed buying new vehicles in the case of outright purchase fleets to try to stretch their companies’ cash as far as possible.

For many years, the typical benchmark for a fleet vehicle’s life was three years/60,000 miles.

However, more recently this has been extended to closer to four years/80,000 miles, while many fleets have seen their cars serve a five-year term before being defleeted.

According to industry sources, access to funding could remain an issue for fleet operators for some time yet during the recovery.

Keith Allen, managing director of ALD, told Fleet News: “Availability of funding will continue to be a key issue for fleets for the next couple of years in the UK.

“The economy is still an issue and it will continue to be fragile. We are not pulling back our underwriting criteria, but we are being careful about what we write.”

However, he added: “More sensible pricing is back in the market so we can get gross margin rather than focus on residual values.”

Almost 60% of Fleet200 companies, said they extended the contracts on their vehicles during the recession while more than a third delayed capital investment on new vehicles.

But there is some evidence to show that unless fleets are researching all the implications of using fleet vehicles for longer; extending their working lives could be a false economy.

When using contract hire, negotiating a contract extension could appear to be a cost-effective way of making vehicles last longer without increasing costs significantly.

But it could also introduce new problems and some say driver behaviour would also need to be more closely policed to avoid the condition of vehicles deteriorating on longer contracts.

According to Peter Soliman, chief executive of Fleet Logistics, there is a point in a vehicle’s life where age and mileage result in higher costs.

“We have seen a lot of customers go from three years to five-year cycles and there are clear economies as vehicles reach a point where the residual value curve is flatter, so a longer cycle can save money,” he says.

“In our experience, the point where keeping a vehicle for a longer period becomes more expensive is somewhere between four and five years.

“It can be worth extending vehicle life, but it has to be done with care.”

According to the Fleet News survey, some fleets have been looking at adopting vehicles with manufacturer warranties longer than the typical three years/60,000 miles cover.

Hyundai, Kia, Toyota and Vauxhall are among the mainstream manufacturers who offer warranty length in excess of three years, while these and some other manufacturers offer mileage cover beyond 60,000 miles.

Geoffrey Bray, chairman of Fleet Support Group, says: “The quality and efficiency of vehicle manufacturing has never been higher, which is why some manufacturers are beginning to offer warranties longer than three years.

“Manufacturers’ confidence in the engineering quality of their vehicles is further underlined by the special ser-vice packages that are available on models when they are first acquired.

“In short, vehicle manufacturers have built ‘long life’ into models which, if looked after, will reward those fleets that adopt a long-life replacement cycle strategy.”

However, he warned that poor driver discipline could prevent any additional benefit from better quality vehicles being realised.

Instilling an element of ‘good behaviour’ on the part of drivers could help make a contribution to reducing costs.

“Vehicles are machines and like any machine they need looking after. In our experience there are not many companies that impose sufficient disciplines on company vehicles regarding care of their cars and vans to ensure long life. This translates into driver ‘abuse’ of vehicles,” Bray says.

“It could be argued that vehicle abuse is an accepted fact by too many employers and not viewed as a disciplinary issue. 

“The biggest cost facing companies is therefore drivers.”

Minor accidents resulting in ‘bent metal’ as well as engine damage indicate a lack of care.

Checks on tyres and fluid levels should be regularly undertaken by drivers to keep maintenance costs in check. Dashboard warning lights should not be ignored but acted upon immediately.