DRIVERS oblivious to the true costs of running a company car are creating a financial black hole for fleets.
New research suggests that fleet managers can save their companies a fortune by making employees – and in particular first-time runners of company cars – aware of just how much they are costing their employers.
Studies from a UK fleet management group have shown that more than three-quarters of drivers do not know how much a vehicle costs to run in total over a 12-month period, which often means they are choosing more expensive cars than they need.
The survey was compiled by LeasePlan and polled more than 1,000 drivers. It provides some startling results.
Managing director Kevin McNally said: ‘This once again highlights the public’s lack of awareness regarding the cost of their cars, despite the fact that they are generally people’s second most expensive purchase after their house. Many probably don’t realise the huge depreciation costs in particular.
‘Thanks to years of tax changes and confused messages, thousands of UK employees are under the impression that company cars – traditionally one of industry’s most popular perks – have become significantly more expensive to run than privately-owned ones.’
Respondents in the survey were asked: ‘If you were given a Ford Mondeo as your company car, how much tax do you think you’d have to pay per year?’
They were given four options, £862, £1,974, £3,162 and no idea. Alarmingly, almost a quarter (23%) had no idea, with a remaining 48% choosing the wrong answer.
Only 29% of those polled gave the correct answer of £862. Regionally, drivers in the Midlands were best at getting the right answer, with 32% choosing the correct amount.
Drivers were then asked how much they thought it cost to run an average Ford Mondeo for a year. The choices were £2,493, £4,264 and £6,483. Some 21% had no idea and only 23% chose the correct answer.
Some 56% of drivers opted for a number significantly less than the actual cost.Many failed to understand that running costs include more than just the initial price and fuel costs.
Wholelife costs are the only accurate way fleets can calculate the true cost of running a car as they take into account price, depreciation, fuel consumption and service or maintenance charges.
It is vital that fleets use this method to help plan budgets and keep the finance department happy. But they also need to be conveyed to drivers who may not have as much knowledge as fleet operators who have been in the industry for years. This way, drivers are more likely to choose cars that are economical to run.
Some companies still use the upfront price of a vehicle to decide whether it is economical or not, but this will only show how much a cheap vehicle is to purchase compared with an expensive one.
Calculating miles-per-gallon figures are just one way fleets can reduce costs and save money over the long term.
For example, if a fleet operator bought a vehicle for £10,000 instead of one for £12,000, the saving over a 100-strong fleet would be £200,000. However, if the first car had an average fuel consumption of 30mpg compared to 35mpg for the second vehicle, long-term costs would be affected.
Over 60,000 miles, the more expensive car would save £1,200 in fuel, significantly reducing front end costs.
Tony Greenidge, head of sales at Hitachi Capital Vehicle Solutions, said: ‘It seems odd that companies drawing up their car choice lists still concentrate on the traditional core areas of finance and maintenance.
‘It is only a matter of time before fleet managers move to wholelife costs as the sole criterion for assessment of company cars, with more seeking to examine all the details of their cost base.’
Motorists were also asked to estimate the running costs they would face with the same vehicle taken as a leased company car and were again given three choices.
The accurate figure of £862 per year (lowest of the three) was selected by less than a third (29%), with the remainder either having no idea or thinking a Ford Mondeo as a company car cost as much as £3,162 a year to lease.
McNally said: ‘The truth is that even including benefit-in- kind tax, a modern, low-emission car is much cheaper to run as a leased company vehicle where drivers do not have to worry about maintenance and depreciation costs.
‘Employees who choose to take a cash option instead of company cars are missing out on a valuable perk – and could end up taking business trips in an old, perhaps unsafe, high-emission car they bought themselves.’