Every decision Johnson & Johnson Finance Corporation makes about its fleet is first referred to ‘the triangle’.
This strategic measuring tool helps the company to balance its core objectives of cost, sustainability and motivation.
Managing director Stephen O’Callaghan explains: “We could have the most efficient fleet in the world, but it might not work from a business perspective.
"For example, if we reduce costs significantly, that’s great for the P&L, but if it disenfranchises our employees then that doesn’t work.”
O’Callaghan heads the fleet team at Johnson & Johnson Finance Corporation (J&JFC). The operation is effectively a standalone captive leasing company, with its own balance sheet, which reports directly to Johnson & Johnson’s global head office in New Jersey, USA.
The business manages the global fleet of around 14,000 company cars, including 1,500 in the UK and 8,000 in America.
The UK car assets are worth £48 million; across Europe the balance sheets total £225m.
J&JFC is also responsible for all other asset funding decisions, such as medical equipment leased to the relevant division – pharmaceutical, consumer or medical.
Consequently, O’Callaghan spends around 20% of his time on fleet matters, which includes the company’s 800 UK cash allowance takers; he also has a team of fleet managers overseeing day-to-day operations at divisions.
He’s no stranger to Fleet News Awards success: in 2007 he was the European fleet manager of the year. “The Fleet News Awards is the one to win,” O’Callaghan says.
Fleet News: What are the benefits for Johnson & Johnson running a captive leasing company?
Stephen O’Callaghan: “We use our own funds to buy our cars which is significantly cheaper than using external leasing companies because we are a triple A rated company.
Owning the asset is the cornerstone to all the savings you can achieve. We also use ‘pay on use’ maintenance managed through GE – we see significant savings through this approach.
We use GE as our fleet management company and it manages third party companies like accident management, tyres and glass.
We take the financial and residual values risk – and reward – so we have to manage that process. It means we have to balance our lease portfolio and make sure we have the right cars. We have reduced down to two brands – VW/Audi and BMW.
FN: How did you manage the residuals slump in 2008?
SOC: We were fortunate not to lose any money on our fleet. We use GE’s residual data as part of our agreement and it tends to be realistic.
But we can also change our values based on what we think the market is doing.
In 2008 we saw what the leasing companies were doing with their contract extensions.
That meant there was no supply into the second hand market and we felt we could still sell cars because the demand was there and three-year old cars look better than four year olds.
So we stayed at 36 months and continued to sell. We were still getting above 100% of CAP Clean.
FN: You’re now at 48 months for vehicle replacements – what made you change the policy?
SOC: We harmonised our policy on 48 months because this is now where the rest of the market is, particularly companies in our sectors.
We make savings from lower rental costs, which was the cost element of the triangle, but we also had to blend in the benefits side for employees.
FN: How did you achieve this?
SOC: At 36 months, employees couldn’t get the same cars because the prices were increasing; but at 48 months they could.
We also introduced an incentive on CO2 emissions [£45 a month if CO2 is below 110g/km; £40 for 110-120g/km; £30 for 121-130g/km; £20 for 131-140g/km: nothing above 140g/km].
The employee can take it as cash or add it to the lease cost for a better vehicle or more extras.
The incentive means significant fuel savings for us – our forward orders and current deliveries are below 120g/km and the fleet average is 129g/km. It’s self-funding.