Wholelife cost – also referred to as total cost of ownership (TCO) or cost of ownership (COO) – is “the only way to capture, manage and control all of the costs associated with running a company vehicle,” according to Julie Jenner, chairman of ACFO and key solutions manager at GE Capital Fleet Services.
She believes that more and more companies are using this approach, but research suggests there is still a significant number that are not.
Only about a third (32%) of the 124 respondents to PricewaterhouseCooper’s (PwC) company car survey last year used WLC to determine the value of car choice for employees.
The most popular method was lease cost (50%) with the remainder using list price (RRP set by manufacturer) or purchase cost (net price after any discounts).
However, a recent survey by Alphabet revealed that 59% are using TCO; a quarter said they are “not concerned about total cost of ownership”.
Paul Hollick, sales and marketing director at Alphabet, puts this down to fleets not fully appreciating the benefits of using WLCs.
He also points out that it can be time consuming and challenging to change approaches as it requires buy-in from a number of stakeholders – senior management, HR, finance and fleet teams.
Why use WLC?
Two cars may appear to cost the same – they may even have identical monthly rentals – but in reality one car could end up costing significantly more over its life cycle.
Deloitte has advocated a wholelife cost approach for a number of years and Mike Moore, a director at Deloitte Car Consulting, says: “Adopting a wholelife costs approach can typically generate savings of £700 to £1,200 per car over a three year retention period.”
But it isn’t just about potential savings.
Companies that switch to wholelife costs often find they are able to enhance choice for employees.
Attractive cars that may traditionally have been restricted to senior managers – such as a BMW 3 series saloon – become available to lower grades because they have low running costs, particularly related to fuel, tax and National Insurance Contributions (NIC).
This means that a wholelife cost approach could be useful tool for staff recruitment and retention, according to John Kelly, key solutions leader at GE Capital Fleet Services.
“It’s a win-win situation,” he says. “The company wins on its tax and fuel bill and the driver gets a more attractive vehicle, a reduced private fuel bill and reduced BIK.”
Static versus real-time calculations
Companies can use static wholelife costs established at a set time to create a fixed list of cars or they can use live up-to-date wholelife cost data at the point of ordering a car.
Helen Fisk, AutoSolutions manager at ALD Automotive, describes the latter as “true TCO” and believes more companies should take this approach as it means orders are placed using “real time costs”.