Fleet News

Well-run ECOs are still cost-effective

GORDON Calder-Jones, head of Alto and major corporate sales at Interleasing, says targeted ECO schemes can lead to big savings.

'EMPLOYEE Car Ownership (ECO) schemes allow drivers to opt out of traditional company car schemes and protect them from increases in company car tax. At first, ECOs were greeted with open arms by many businesses which expected them to solve all their problems.

Interleasing was one of the first companies to introduce its own Employee Car Ownership scheme, Alto, which won the Fleet News Award for best company car tax initiative in 2002. With ECOs like Alto, finance is provided to drivers to purchase their own cars, which are then used for both business and personal use. This side-steps the benefit-in-kind liability incurred by a 'traditional' company car.

More recently, critics have slammed ECO schemes for being complex to set up and administer and failing to achieve real cost savings.

But many companies have applied ECO schemes to all employees, when they can only deliver real cost savings for certain drivers. To make large savings, it's preferable that drivers are 40% tax-payers doing in excess of 10,000 miles a year, and the company needs to be benefiting from generous manufacturer discounts.

Many businesses make the mistake of transferring all employees to an ECO scheme.

We advise clients to use a combination of fleet funding methods to offer real choice and get the best savings. The most economical fleet solution is a combination of ECOs, cash-for-car and contract hire.

ECO savings have also been disputed because many businesses have not been warned to take account of early termination costs before the contract went operational. There is a common misconception that cars cannot be reallocated to another employee under ECO schemes. But Interleasing has been able to do this with its Alto service. However, some clients prefer not to reallocate cars and insure against early termination costs instead.

Another topic affecting ECO schemes is CO2 emissions. Some claim that CO2 is less of an issue now because there are more CO2 efficient cars are available.

However, many businesses are tied into three or four-year contracts with high CO2-emitting cars, so there are still benefits from joining an ECO scheme. With the right fleet profile, opting out still provides cost savings compared to the provision of company cars.

As far as complexity goes, there are significant benefits if ECOs are set up correctly.

These are cost reduction, protecting drivers from company car taxation and extending choice.

Choosing an ECO scheme rather than giving cash for cars also helps companies manage current health and safety issues. This is because they have more control over the cars driven, assurances that vehicles are regularly maintained, serviced and repaired and that drivers are properly insured.

Other factors such as compliance issues must also be taken into account. ECOs must meet Inland Revenue requirements, the Consumer Credit Act and employment law. Such matters should be addressed by experienced consultants and employers should engage third party audited advice on the tax and legal elements of the scheme.

Before considering an ECO scheme, fleet managers must ask themselves the following questions:

  • What are the objectives of the scheme?
  • Is it suitable for all, or some, of the fleet?
  • Does the company need independent consultancy?
  • What are the savings? Can the company provide accurate data for the provider to calculate realistic savings? If the data is inaccurate savings might not be achievable.
  • What are the timescales for implementation? (Six months is a realistic target).
  • What experience do the prospective providers have of implementing the proposed scheme?

    In total, 10% of Interleasing's fleet is currently on ECO schemes. The flexibility and cost savings they can offer when used in the right way will always make them a popular choice. For real cost savings though, companies should tailor their fleets using a variety of methods to get the best and most economic deal for their employees and themselves.'

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