Fleet News

Fleet funding: Buying and running cars successfully

BUYING a vehicle should be a simple matter. You pop round to a dealer, take a test drive, select the specification, place your order and a few weeks later the vehicle arrives. This is how many smaller businesses buy their cars.

Giving employees the authority to buy cars may not impress your auditors. You open the door to the unscrupulous to manipulate the transaction for personal gain – for example, selling their spouse’s car as part of the deal and arranging a high trade-in price for that car at the cost of a lower discount on the new car.

A far better approach is to nominate one dealer for each make of vehicle and negotiate a standard discount off the manufacturer’s list price.

One of the unusual features of the motor industry is that fleet buyers can get two discounts – one from the dealer and another from the manufacturer.

Manufacturer discounts, normally called volume-related bonuses or VRBs, are available to organisations that buy large numbers of vehicles – for example, fleet management companies, contract hire companies and other organisations that have big vehicle fleets.

The amounts paid and the thresholds vary by make and model and change from time to time.

All contract hire companies obtain dealer discounts and manufacturer VRBs. To the best of my knowledge, they always reflect these in their contract hire rentals. Indeed, they are contractually bound to do so under their agreements with the manufacturers. If they left them out, they would find it hard to be competitive.

You are advised to check your contract to ensure you are getting these. Invoke your right of audit if you are uncertain.

In place of volume-related bonuses, some manufacturers offer customer-specific ‘support’ targeted at individual customers.

Customer-specific support is available direct from the manufacturer and your contract hire or fleet management company will negotiate to obtain these on your behalf.

It is good practice to place your orders in writing, using your own standard order form. The form can contain signature boxes setting out details of your authorised signatories. By using your own standard form you reduce the chance of ordering the wrong vehicle.

Nonetheless, on rare occasions, the wrong vehicle will arrive. If you can point to your order and show that the dealer did not deliver the correct car, you will not have a problem.

If you decide to cancel an order you may be asked to pay a cancellation fee. A long chain of actions will have been put in motion to get you the car you require and the supplier will have gone to some expense. If you cancel the order after the dealer has registered the vehicle, they may well be left with a vehicle built to your specification that they cannot sell. If you cancel an order that you have placed with a contract hire company, either the dealer or the contract hire company – or both – may charge a cancellation fee. Normally, no fee will be charged if you cancel before delivery because the price of the vehicle has increased.

Keeping maintenance costs down

FEW fleets have their own servicing facilities so they have to rely on local dealerships, fast-fits and repair shops.

Alternatively, they can use a contract hire or fleet management company and allow the supplier to make these arrangements.

In many small businesses, drivers decide when their vehicles require servicing or repairs.

They take it to a servicing centre, get the work done, pay the bill and claim it back on expenses.

There are many problems with this approach. The driver may forget to have routine servicing or MoT tests carried out when they are due or may pay too much for the work.

The garage may say that a piece of work is necessary, or a part needs to be fitted, when a cheaper option may be available.

There are no economies of scale here as the dealer might have offered you a discount if they knew they would be getting more than one car in for servicing or repair.

You have no control over the driver’s actions. Employees may ask for work to be done simply because they feel it would be nice to have, rather than it being essential for the function or safety of the vehicle.

Many companies allow their drivers to buy their company cars when they are de-fleeted.

There is a strong correlation between drivers buying their used cars and asking for additional work to be done to the car at the company’s expense just before they buy it. Giving employees full control of the maintenance of their vehicles is unlikely to be in the best interests of a business.

There are several key elements of managing maintenance expenditure, called pre- and post-event control, written maintenance policies and pre-agreed pricing structures. Pre-event control is a management process whereby a qualified, authorised person receives a quote for servicing, maintenance or repair work and decides whether or not to accept it.

If they accept the quote they should issue an order number and record this on the maintenance record.

Post-event control involves checking suppliers’ invoices against the maintenance record to ensure the work authorised has been correctly billed. If these tally, the invoice can be passed for payment.

If they differ, it should be returned to the supplier for amendment.

A surprisingly high percentage of invoices received by contract hire companies have to be rejected because they do not reflect the work that was authorised.

A written maintenance policy is a simple set of rules issued to each driver, setting out what he or she should do if work needs to be done to their car.

If the car is supplied on contract hire or subject to a fleet management arrangement, the supplier will include this information in the driver handbook they supply with the car.

Pre-agreed pricing can considerably reduce service, maintenance and repair costs. Discounts are there to be had in many areas of SMR but these should be pre-agreed to maximise the discount you obtain.

Some servicing items, particularly those supplied by fast-fits, are offered at an all-in list price (a ‘menu’ price). Otherwise, the price you agree will normally be a flat discount off a published menu price.

Keeping fuel costs low

COST control is only achievable if fleets have information. Unfortunately, for many companies, fuel information comes from assembling lots of scraps of paper (petrol bills) and trying to make sense of what they say. Many thousands of UK companies have realised that this is a thankless task and that the first step to getting control of fuel expenditure is to use a fuel card.

Fuel cards are used much like credit cards. The driver presents a fuel card at the petrol station, the cashier swipes it through a reader and the driver drives away without having had to use their own cash or credit card.

The cards can be customised to ensure they are only used by a named driver or for a specific car or both. They can also be restricted to cover petrol only, petrol and oil, or a wider range of products. They ensure that your company does not pay for non-business items and that no fuel finds its way into private cars.

The cards can also be configured so that the mileage of the vehicle has to be entered at the point of sale. This is particularly valuable as it provides an excellent way for companies to keep track of vehicle mileage so that routine services are not missed. Customers receive one invoice (usually weekly, fortnightly or monthly), showing all fuel expenditure.

Additional reports are available – often online – and it is through these that you take control of your fuel costs.

Fuel cards work well when the company is paying for all of the driver’s fuel, both business and private. The company gets one bill, pays it and that’s that.

The general view in the fleet industry is that fuel cards provide such a valuable management tool that they should be retained. Employees should submit a monthly form showing their total mileage and their business mileage (listed journey by journey).

The company pays the entire fuel card bill, then deducts an amount from the employee’s net salary equal to the cost of the private fuel used. Each employee signs a form authorising this deduction to be made.

Fuel cards cost a small amount per vehicle per month and some fleets get them for free. The fuel card companies are amongst the biggest buyers of fuel and oil in the country. They pay less than the pump price so they can afford to give free fuel cards to their larger clients because they get a rebate from the fuel company.

If you spend a large amount on fuel, the fuel card company may be willing to give you a discount off the pump price too.

It may not be huge, only a fraction of a penny per litre in most cases, but if you buy a lot of litres it can add up to quite a tidy sum every year. The information on your fuel card reports will capture all of the expenditure by fuel brand so you can see how the rebate is calculated.

  • The article here is an abridged version from ‘Managing Your Company Cars’, published by Eyelevel Books in association with DaimlerChrysler Services Fleet Management. It can be bought online from www.tourick.com. Readers can get a £5 discount by entering promotion code 8705
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