Fleet News

The end game - excess mileage and early termination charges

Excess Mileage Charges

How much do excess mileage charges cost fleets? The latest FN50 research found that average end-of-contract mileage charges are at a four-year low of £439, with 21% of returned vehicles incurring charges. The highest average excess recorded for a leasing company was £927, while one FN50 firm said 56% of its
vehicles incurred a charge.

What is the first step to reducing charges? Fleets should be realistic about mileage when negotiating leases. Aiming for the fewest miles possible when
determining a new contract will reduce a vehicle’s monthly rentals. But this can be a false economy, as any cash saved through these lower payments could be swallowed by an excess mileage charge.

Fleets should also avoid adopting a ‘one-size-fits-all’ approach to mileage, says Simon Staton, director of client management at Venson Automotive Solutions. “Fleet policies should be designed to tailor mileage to the driver, ensuring that the contract is being based on actual mileage, not a ‘rule of thumb’ for the whole fleet,” he adds.

How can fleets monitor a vehicle’s in-life mileage? Fleet operators can use information included in fuel card and maintenance reports. If it looks like a vehicle will go over its specified mileage, a manager can speak to their leasing company about rewriting the contract. Nick Hardy, sales and marketing director at Ogilvie, says: “Any vehicles travelling in excess of 10% above contract mileage should be rescheduled.”

Are there any other measures fleets can take? Many leasing companies offer a ‘pooled mileage’ arrangement where fleets can balance rebates for vehicles which have travelled below their contracted mileage against those which have exceeded theirs.

Mike Cooke, fleet operations manager, FleetEurope, adds that, for fleets without pooled mileage agreements, high-mileage drivers should swap
vehicles with low-mileage ones mid-contract. 

Early Termination Charges

How much do early-termination charges cost? There are a number of methods for calculating early termination charges. The simplest is based on the rentals payable and the point at which a contract is terminated. 

For example, a leasing company may be due 18 months’ rental for an early termination in the first year of a contract. Alternatively, the charge may be determined by a percentage of future rental.

If a vehicle has been written off in a collision, a fleet’s insurance company may settle an early-termination fee.

What is the first step to reducing early-termination charges? It might be possible to agree a set number of early terminations per year without charge.

Are there any other measures fleets can take? Generally, it is cheaper to reallocate a vehicle than to send it back to the leasing company early. Many fleets reallocate cars to new members of staff or to an employee whose own car is being returned.

Also, consider whether the vehicle could be a pool car to reduce short-term rental costs.

How can you overcome potential driver objections to taking on ‘old’ cars? Pool fleet reallocation can have P11D and tax consequences which can lead to protests and car park politics, says Mike Cooke, fleet operations manager at Fleet Europe.

Some companies may offer financial incentives to drivers to encourage the take-up of those cars, while Cooke adds: “One of the strongest methods for minimising and avoiding early-termination charges is to have a simple policy: find a standard car or specification that is right for the majority of the workforce and limit options.”

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