Fleet News

Report highlights business car trends

THE 2003 edition of Business Car Expectations, sponsored by HSBC, gives a snapshot of key issues facing British business.

Risk management

FLEET operators are failing to meet basic risk assessment standards according to the report, which has indicated a lack of awareness on issues such as health and safety, risk management and document verification.

More than two-thirds of companies surveyed had policies in place to cover drink driving, falling 3% on last year's figures.

The report stated: 'The largest organisations are no longer showing the high figures from the past two years. While a 3% drop might be considered small statistically, it means 30% of companies do not have a published policy.'

Policies covering driving while under the influence of drugs faired even worse, with a 7% drop in companies adopting such a policy. Additional safety measures have also slipped down the priority list for some fleets. The number of companies imposing policies on driving while using a mobile phone, has fallen by 2% on last year.

Larger fleets tend to address the problem with 67% of fleets with more than 1,000 vehicles having a policy in place compared with only 50% of fleets sized 10 or below. The low priority given to risk assessment and risk management is of deep concern, according to Tim Holmes, head of vehicle finance at HSBC.

Holmes said: 'Our survey findings are a wake-up call to businesses. With up to one in three drivers using their car for some form of business activity, failure to fully embrace their responsibilities could have far reaching effects.'

Although 88% of companies confirmed that driving licences are checked when an employee first joins the company, HSBC says this isn't enough.

'Merely checking a licence when an employee joins an organisation and is allocated a car is insufficient. Licences need to be checked regularly. The number of points to get a ban can be accumulated quickly,' the report stated. Of those surveyed, 50% of firms check licences annually, 14% conduct random tests and 8% conduct six monthly checks.

Cash for car

Employee acceptance of cash in lieu of a company car has yet to gain as much credence as the column inches written about it would suggest.

According to Holmes: 'More businesses are offering cash-for-car but the take up is not taking off. It puzzled me but we are beginning to understand why.'

The survey found that 20% of the organisations sampled now offer a cash alternative, when only 1% offered it in 2000. Half of the respondents anticipate a growth in cash alternatives.

The report said: 'Cash-for-car shows a substantial growth over the past four surveys.

'It is now spread across all fleet sizes. It really does appear after many false starts the cash alternative to the company-provided car has at last taken off.'

There remains the grey area of actual take-up of the cash alternative by employees. Professor Peter Cooke, the report's author, added: 'Having a car fed and watered and provided for you is great. But what happens when things go wrong?'

'We have come across a large operation where there have been problems with senior executives spending lots of valuable time looking after their car through servicing and maintenance. Think about what you would pay a fleet manager, and what you would pay a senior manager.'

Cooke argues the investment in a fleet manager actually would save money in that instance. The survey said: 'Yet the greatest management challenge emerging from these latest figures must be the move towards providing a cash alternative to the company-provided car.

'There are so many potential pitfalls associated with this trend that most businesses are sensibly choosing an experienced partner supplier to facilitate the change on their behalf.

'In many ways the level of cash alternative to be paid is the easiest part of a complex equation. Maintenance, vehicle transfer, disposal and replacement all represent a potential minefield for the unwary.'

HSBC believes the reason for low take-up is due to the economic climate: consumer confidence is at risk, and employment is seen as less secure. Employees do not want to take on the extra burden of a privately run car.

Demand for diesel

The trend Fleet NewsNet has been tracking over the last year has been borne out by the report. Two-thirds of the survey (62%) claim that the benefit-in-kind (BIK) tax rule will result in more diesel cars.

It said: 'The past 12 months have seen a continuing trend in the switch to diesels. For those drivers who were previously driving petrol, this has helped mitigate any tax increase as well as benefiting them from improved fuel economy. At a time of rapidly increasing fuel prices, the attractiveness of diesels looks set to continue.'

According to the Society for Motor Manufacturers and Traders, diesel car sales have risen for 29 consecutive months and by the end of 2004, could account for 30% of all new cars sold.

The majority of respondents (63%) anticipate that the new benefit-in-kind rules would have no bearing on the number of fleet cars, a marked increase over last year's more pessimistic figure of 55%.

However 33% believe there will be fewer cars as a result of the change in tax legislation, while only 4% predict more cars.

The report added that petrol cars still have a secure future, saying some, such as the BMW 3-series, have a very efficient petrol engine and are proving to be a good alternative. And fleets have yet to see the impact of the Volkswagen Group's FSI units.

Downsizing, once considered a potential beneficiary of the BIK changes, has not lived up to this expectation. In recent experience, HSBC said, there has been little change as drivers appear to have opted for the diesel alternative.

Funding

The nature of how fleets have been funded is evolving. According to Holmes: 'In the four years that we have been conducting this survey the economy has slowed down, there have been structural changes within the industry, a new tax regime and more regulation.

'Consequently, the provision of cars has become more and more complex. It is not surprising therefore that businesses are turning to contract hire, particularly to ease the administrative burden.'

Cost management is becoming more important, he added. With low inflation, economic growth is very hard to achieve and the spotlight is trained on costs, with many firms believing contract hire can help cut those costs.

The survey found that 62% of firms now use contract hire. The next largest method of vehicle acquisition is outright purchase, with 46%. Next largest is cash for car with 20%.

It added: 'Contract hire is at its most popular among medium-sized fleets – the level where it is still possible to manage with a part-time fleet executive, but where cost and management is becoming an issue its popularity will continue.

Outright purchase is becoming less attractive, with firms not keen to shoulder the defleeting risk and no 'inflation cushion' on residual values at the moment. Outright purchase has dropped 2% in the past four years, with 46% of firms using the method.

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