Analysis is the key to optimal fleet funding
Ongoing funding analysis is recommended to ensure the most cost- effective solution for your drivers
Fleet funding is changing and adapting to the profile, usage and driver requirements of each individual business. As a result, we are seeing a rise in fleets adopting flexible solutions for different employee populations, marking a significant shift from the stablished approach to funding.
Traditionally it would have been typical for leasing companies to see the majority of their customer portfolio have one funding type for cars and another for LCVs with no flexibility in between. This is no longer the case, with fleets adopting a flexible approach that focuses on the usage and needs of the driver rather than the vehicle type.
This means that fleets are maximising cost savings by adopting a variety of solutions – often including a mixture of contract hire, contract purchase, outright purchase, employee car ownership and salary sacrifice, otherwise known as blended funding. This flexible approach to funding has mainly been driven by the appetite of the fleet industry to develop and adopt sophisticated technology used to break down the true cost of running a fleet over the entire life of the vehicle.
Using modelling software, leasing companies can work with fleets to carry out a comprehensive review of each and every vehicle at the point of order. This review takes into account a range of variables including tax profiles, mileages, payment profiles, type of vehicle, fuel type, emissions, the vehicle cost, the internal rate of return and current vehicle purchasing performance. Once all the analysis has been completed the most efficient funding method can then be identified. Increasingly we are seeing a blended solution being the best value option for fleets.
The longevity of each of the funding methods involved in the blend depends on a variety of factors and the smartest choice for fleets will change depending on fluctuations such as tax changes, mileage preferences and car choices. Blended funding supports the idea of change with one of its greatest benefits being that once it is in place it allows easier flexibility of movement between funding types in the future.
As a leasing provider we have found that although great savings are initially made by switching the funding method, there can be a danger within the industry of implementing the solution and then leaving it to run over an extended period of time without review.
It is crucial for fleets to work with their leasing provider to continually evolve their funding solution. By monitoring the scheme on an ongoing basis, fleets can drive down costs by introducing new blends as and when requirements change, not just when their contract is up for tender or renewal. As well as making sure that fleets are consistently funding their vehicles using the most cost-effective method, ongoing analysis will ensure that funding type is adapted to regular changes in legislation and tax and the
increased availability of lower emission ehicles suitable for company car drivers.
By taking this approach and continuing to improve efficiencies throughout the entire life-cycle of a fleet, new initiatives can be implemented that drive continuous improvement and ensure that fleets are flexible, agile and always one step ahead. This not only benefits customers but, through salary sacrifice, also often gives the drivers variation of travel choice that suits their own circumstances and mileage profiles.
Case Study: 1
Move from outright purchase to outsourcing fleet management through contract hire
A company has a fleet of 610 cars and 280 LCVs funded through outright purchase. Zenith completed a full review of funding to identify potential cost savings through moving to a fully outsourced contract hire solution.
RESULTS: The review found that moving both the car and LCV fleets to contract hire would create significant savings for the customer. Efficiencies were also identified through reviewing manufacturer terms, outsourcing maintenance, aligning cash cost to car cost, introducing a salary sacrifice scheme and outsourcing leasing administration. In total all these recommendations combined led to annual savings of £889,350.
Case Study: 2
Move from contract hire to blended funding
A company has a fleet of 520 cars and 891 LCVs. Zenith carried out a comprehensive review of all fleet areas, including a competitor review, to ensure that any recommendations were in line with the industry. Following a full funding analysis, a blended funding approach was taken – with some cars being funded by contract hire and some by employee car ownership. LCV funding was reviewed and savings were identified by changing from contract hire to contract purchase and contracting over a longer term
and at a higher mileage. Additional savings were identified by moving a population of perk drivers on to salary sacrifice.
RESULTS: The changes resulted in annual savings of £902,191.
Case Study: 3
A full review of fleet funding provides year on year savings
A fleet with 379 company cars funded through contract hire (245 with private fuel benefit) and some employees who take a cash allowance. Zenith carried out a consultancy review to establish if contract hire was the best funding solution in comparison with outright purchase, employee car ownership and a blended funding arrangement. Zenith also considered other costs such as fuel reimbursement, manufacturers and introducing a salary sacrifice scheme.
RESULTS: A full review of the fleet funding found that a blend of contract hire and employee car ownership would ensure the most economical funding method for the customer, while keeping the cost to employees neutral. Other changes to policy were suggested, such as using whole-life cost methodology, increasing the mileage cap to 120,000, bulk purchasing vehicles at certain grades, introducing a salary sacrifice scheme, gradually removing private fuel benefit and enforcing a no-motorway fuel purchase policy. Combined, this led to year-on-year savings of £352,224 in year one, rising to £1,287,789 by year four.