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Wholelife costs: the way forward for fleets?

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Wholelife costs, which take into account a number of factors in addition to the vehicle’s rental price, show the true picture of the cost of a vehicle. But not all fleet managers are convinced.

There is also the problem of deciding what to include in your wholelife cost calculation. So what do wholelife costs mean to you?

Tony Brady fleet and travel manager, Steria: Wholelife costs mean different things to different people. For us the main things are the price of the vehicle and any manufacturer support, financing of that over the long term, maintenance costs, fuel, writing-down allowances and national insurance costs. We use a projected pence per mile that is based on our contracted mileage.

Nigel Trotman, head of strategic consultancy, Alphabet: There is a range of views about what wholelife costs are. For Alphabet wholelife costs include rental, insurance, fuel and non-recoverable VAT. Fuel is one of the biggest factors – and one which is often invisible to the fleet manager as it rarely features in fleet budgets.

The more factors you include in wholelife costs the more sophisticated your system needs to be. For example, some systems may reflect Advisory Fuel Rates or the company’s set mileage rates or may use manufacturers’ combined mpg figures or real life mpg figures from fuel cards.

Do you, or your customers, use wholelife costs?

Tony Brady: Yes, we use them to set the choice list and we have taken that approach for the past two years.

We dabbled with wholelife costs before that, factoring in fuel, but wholelife costs came into sharper focus when the capital allowance changes made it more cost effective to choose vehicles below 160g/km.

Nigel Trotman: The fleet managers I speak to understand the principle of wholelife costs and see it as a good thing but quite a lot don’t set their choice list using wholelife costs.
Some people are uncomfortable with the fact that a premium car with very effective wholelife costs may end up in a lower band than they would like. It can send out the wrong status signals to employees.

So using wholelife costs has to fit with their car policy. It’s not the only tool you can use – there are so many different ways of setting your choice list. The most common approach is using rental bands. You can use basic rental or effective rental (which includes non-recoverable VAT).

Another method is to set your choice list using a benchmark vehicle for each band. Other cars in that band need to be similar to the benchmark vehicle or there may be rental restrictions if the driver chooses a car that costs more than the benchmark vehicle.

Tristan Campbell, fleet adviser, Chivas Brothers: No, we don’t. I am sceptical about wholelife costs because they can mean you take your eye off the monthly rental. We use effective rental (including maintenance and disallowable VAT) for budgeting purposes. It’s important to know what your costs are going to be for the year and when you are leasing on a wholelife costs basis the rental can fluctuate. Drivers want the most cost-effective vehicles and naturally choose low CO2 vehicles with good fuel consumption – we don’t have to force them.

What are the benefits of wholelife costs?

Tony Brady: We see it as the most effective way of controlling costs and giving people choice. It means that you take all the factors into account. National Insurance can easily be ignored if you don’t use wholelife costs. If you take everything into account the employee and the company benefit.

Nigel Trotman: I think that wholelife costs are really effective because you understand the true cost of operating a particular vehicle.

Fuel is a huge component of the cost of vehicles and should ideally be reflected when setting policy. If your car policy does not incorporate wholelife costs there is a risk that your fleet will not operate as economically as it could, as staff will not select the most efficient vehicles.

What about the issue of wholelife costs fluctuating?

Tony Brady: All costs fluctuate – if an accident happens you don’t plan for that additional cost. You can build parameters in when you are using wholelife costs. Fleet managers just have to decide what works best for them. The main thing is to be consistent and to have an approach that you can measure against.

Nigel Trotman: It’s true that wholelife costs can fluctuate but why should that be a bad thing – it reflects real life. Indeed, you could choose to include an additional factor in your calculations to take account of future increases in fuel prices.

If you want more stability in your costs for budget purposes then you may opt for effective rental because once you’ve ordered your car the price is set. But it’s not set when you are making potential choices and there are factors which can change effective rental.

There might be an SMR or residual value review, for instance. There could also be a change in the cost of money, or a manufacturer price increase.

Tristan Campbell: Effective rental is an approach that is proven to work – we haven’t changed the car bandings for several years. Out-of-contract maintenance issues can crop up but it is much easier to predict what your costs will be throughout the year using effective rental.

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  • terrywoodhouse - 06/10/2011 08:34

    I have to admit its not a concept that I was familiar with but the fleet managment company that we use seems to be taking it into consideration if their website is anything to go by: http://www.totalmotion.co.uk/solutions/fleet_whole_life_costs.htm

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