Fleet News

Insight: Industry comment from expert insiders - December 11

Finance: Why short-term deals make a lot more sense

Roddy Graham, commercial director, Leasedrive Velo GroupRoddy Graham

Our position on recommended contract hire lengths for customers’ car schemes appears to be different to the market as a whole. We recommend shorter rather than longer terms.

Why do we believe a two-year deal is best when the monthly payment costs are less over a longer-term contract?

Facing increased pressures from fuel costs and higher benefit-in-kind (BIK) tax charges from government, company car drivers are ever eager to take advantage of the latest models providing the best economy and lowest CO2 emissions.

It doesn’t make sense to necessarily be locked into a car for four years with yesterday’s technology, especially as fuel prices will inevitably rise in the long-term and government will lower CO2 BIK thresholds.

The two examples shown here, using monthly rental and fuel cost but ignoring other cost savings such as NIC and insurance, support this case:

  • Ford Mondeo 2.0 Zetec – 48-month/80,000 miles CHFM. Monthly rental (£360.80) and fuel cost (£237.04) comes to £597.84. Monthly BIK £73.46 (20% taxpayer)/£146.92 (40% taxpayer).
  • Ford Focus 1.6 TDCI ECO-netic – 24-month/40,000 miles CHFM. Monthly rental (£397.50) and monthly fuel cost (£143.22) comes to £540.72. Monthly BIK £35.22 (20% taxpayer)/£70.44 (40% taxpayer

The employer saves £57.12 per month by moving to a 24-month contract on a lower emitting car.

The employee pays roughly half as much BIK on the Focus and would also benefit from two strides forward in technology. It’s a great situation, everyone wins – including the environment.

It’s always best to look at the whole picture rather than jumping to immediate conclusions. One thing is certain, company car drivers are opting for smaller company cars offering better fuel economy, emitting lower CO2, which in turn reduces their BIK exposure.

Equally certain is that government is under mounting pressure to reduce carbon emissions and will reduce BIK thresholds linked to CO2 g/km still further.

Insurance: True cost of a family favour could be devastating

Mike SmithMike Smith, commercial motor technical manager, Norwich Union

Fronting is an increasing problem in commercial motor insurance, where managing directors or company owners use the business’s policy to insure a person not directly connected to the company.

This is usually a family member, often a 17 or 18-year-old son or daughter who has found it difficult or too expensive to take out their own insurance.

Although this may seem as though they are doing the family member a good turn by saving them some money, the risks to the company and young driver are substantial.

Fronting, in most instances, will invalidate the company insurance policy.

As regards third parties, while the insurer will be required to meet any liability under the Road Traffic Act, it can seek recovery of payments from the policyholder.

It is not just money that is at stake.

The safety of the driver, other passengers and road users is a vital consideration as the young driver may not be experienced enough to drive a powerful company car.

To avoid any insurance cover problems, fleet managers need to be open and upfront with their broker and insurer, and ensure they are aware of who owns and drives all vehicles insured on the company policy.

Fleet managers should also review company policy on who can drive company vehicles for social, domestic and pleasure use and ensure adequate controls are in place, including licence checking.

Although fronting has largely been a car issue, vans are becoming increasingly popular with young people for the extra space they provide.

Whether car or van, the true cost of fronting can be devastating.

Service levels: Demand more to improve leasing company service

David Brennan, managing director, LeasePlan UKDavid Brennan

It used to be easy to persuade employees to take a company car. In the 1980s and 1990s, it stood head and shoulders above every other perk and everybody wanted one.

In the face of that kind of demand, leasing firms didn’t need to worry too much about the level of service they offered.

But this is no longer the case.

Company cars are still a terrific perk as well as a vital business tool, but after years of poorly-communicated tax changes it has become much harder to convince people of that fact.

This has put a lot of pressure on the leasing industry. It has also required us to raise our game.

In a mature, commoditised market where demand is no longer coming at us from every angle, service delivery has become the main differentiating factor.

And this is a good thing.

Customers should not be satisfied with OK service and should demand exceptional instead.

It fosters innovation, forcing us to develop our products and services to add real value to our clients. It also helps to weed out the mediocre providers.

But this cannot mean premium pricing.

This vision of better service must be hand in glove with a focus on competitiveness and reducing the cost of running a vehicle fleet.

So, to all the fleet decision-makers out there, hear our call.

Don’t ever be satisfied with good when you can have great. Keep demanding more from your leasing companies and force them to keep improving.

Every complaint or query you make should be a catalyst for positive change and should be seen as such by your provider.

If it isn’t, look elsewhere.

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