The key to success

Stewart Whyte of ACFO and Fleet Audits discusses why this year needs to be about fleet managers optimising the whole business operation

The conventional view of “fleet” has changed significantly in recent years, with very many new options to be considered. In fact, one of the biggest changes has been the trend to consider business mobility as the corporate objective, rather than the vehicle-centric ways that used to be the limit of the market.

In general, end-user businesses now seek full solutions to the issues of moving employees and goods around, rather than on whether to have petrol or diesel cars. The fleet supply chain has sophisticated beyond belief with most products and services based wholly or partly on tax issues: in every sense the government’s focus on CO₂ from transport has produced quite spectacular results.

Many other issues have developed – like the whole question of managing on-road risks in light of the big increase in awareness of the health and safety aspects of employees using the roads, the rising costs of insurance, the tightening of funding and many others. All of these factors should be examined by all businesses from time to time to ensure that exposure to cost risk as well as on-road risk is minimised.

All of this is set in the context of the pretty dire economic situation facing most countries but the UK in particular. With the budget due 23 May, we can’t say for certain what lies in store, but lower tax bills on the status quo are unlikely to be delivered.

Therefore, 2011 needs to be about optimising the whole operation and many businesses have been doing just that over recent months.

Demand for business mobility
Given the current market and the range of choice, the place to start is not with the vehicles – but with a clear picture of what the demand for business mobility actually is in your operation. Not your competitors, not your neighbours, but yours. Every business has its own pattern of annual mileages, its own mix of long and short journeys, a blend of pure transport fulfilment and remuneration through private use. It is becoming clearer that we are moving away from the one size fits all approach, to something much more sophisticated and efficient.

Until recently most change was centred around getting the vehicles cheaper (whether through purchase price or leasing rates). Now, smarter fleets are re-examining the wider picture to see where bigger changes and cost savings can be achieved. There are options to outsource vehicle provision to the employees, through cash allowances or highly formulated schemes. Conversely, there is also a move to in-source vehicle provision through salary sacrifice arrangements – often by extending the scheme to all employees and not just those who need a company car.

Grey fleet
The increase in attention to the grey fleet – employees using their own cars in exchange for a mileage reimbursement – has shown that there is in fact a whole spectrum of potential solutions to meet different requirements. There are many opportunities to examine the options – as well as tax and fleet consultants, many leasing companies now offer analysis and comparisons to help the overall optimisation process.

One of the problems of these comparisons has been the assumptions made about the tax-free mileage allowances – the AMAP scheme – which is often taken as a benchmark level for costing. The HM Revenue & Customs (HMRC) system allows payments of up to 40 pence per business mile (up to 10,000 business miles in the tax year, with any mileage over 10,000 in the year payable at 25 pence per business mile) to be tax and NI free for employer and employee. Many schemes have been set up on the assumption that these will continue at their current rates for some time to come.

This cannot be guaranteed at all, however. On the one hand these rates are unchanged since 2002, and so many elements have changed significantly that change might seem long overdue. On the other hand there is a simplicity and they do tend to reward use of smaller/cleaner cars, while not fully meeting the costs of large, higher-performance models. Business mileage patterns have been changing and there are rumours of HMRC re-evaluating this particular tax-free scheme.

Fuel cost
For all methods, the cost of fuel – petrol and diesel – is a cause for concern. Forecourt prices have increased by well over 15 per cent in the last year alone. With the current instability in a range of North African countries there is a real fear that open-market prices of crude oil will spiral upwards.  

Of course the costs of petrol and diesel have been on a relatively consistent upwards trend in recent years and most fleets have recognised the need to look at saving money. But in reality, many have stopped after that first look. Where a business has never had a fuel management policy, it can be a daunting prospect to try to tighten up on expenses claims and look more closely on the amounts being spent – and what mileages are being delivered.

Although the real life fuel consumption is unlikely to match the test results, most models have seen a big increase in fuel economy (as a function of lower CO₂). However, it is very clear that this is just not being matched by the actual outcome – drivers may be trying to exploit all the additional performance or failing to change their driving habits to use the higher gears whenever possible. In some of the latest models, many drivers are known to be switching off the stop-start function – which is a major part of the improvements package.

Yet cutting the fuel bill through good management is a basic in improving the overall cost profile of business mobility. There is little point in investing in new technologies if the results do not, in fact, justify the investment. There are many ways to improvement but they have one thing in common – the direction and leadership from the top to improve the recording, monitoring and reporting of business fuel.

Monitoring use
Advances in on-board telematics have provided options to help this situation. It is now common and cost-effective to install monitoring equipment that will capture both distances travelled and fuel used – the basics of fuel management. And of course the conventional fuel card still has a highly valuable role to play in tracking volumes, costs and mileages – provided drivers understand that they do have to complete the reports.

Where a recognisable fleet option is in place, one aspect in particular has emerged – the concern over total operating costs, rather than the simple list or invoice price. The difference between a low-CO₂ model and a comparable choice with poorer emissions profile is now highly visible, through differential Vehicle Excise Duty, different levels of driver tax and employer’s NI – and of course the fuel bills.

2011 is therefore a year to review the whole picture, and consider how to reduce costs, CO₂ and administration. This is never an easy or quick option to undertake carefully, as all the factors of all the valid options need to be assessed as part of the exercise. Failing to make sure that every cost type is included can only give a wrong result – not just for the start, but for the fleet lives of all the cars under the sub-optimal arrangements.

Alternative fuels
The market has continued to focus on petrol and diesel as the main fuels. The big alternative fuels of a few years ago (LPG, CNG, high-concentration bio-fuels) have tended to become niche products with true benefits to fleets limited to specific circumstances. Hybrid power has continued to make penetration into the fleet market, but again needs to be selected where its characteristics suit the operation environment (generally urban/ stop-start conditions).

2011 will see the arrival on many new all-electric models, range-extended models where the internal combustion engine becomes little more than an on-board generator, and diesel hybrids. These new and developed technologies offer big opportunities – but in their right place. They are not first choice for extensive motorway driving, for example.

Winter weather
As well as the poor economic outlook, the weather has not been kind to business travellers. Snow in January and December 2010 caused a great deal of disruption to travel plans, and destroyed effective productivity for these periods.

One of the big questions to engage the fleet market was the value – or otherwise – of snow tyres, more correctly termed cold-weather tyres.

Their objective is to provide increased grip on light snow and ice, allowing progress to be maintained when other vehicles are struggling. When the road is blocked by abandoned vehicles, of course, they offer no benefits at all.

Some of the suggested solutions include cars and vans being provided with a duplicate set of wheels with the cold weather tyres so that they can be changed on a seasonal basis. That can be expensive and difficult (where do you store the set that’s not in use). Another solution is to use “snow socks” – a sort of lightweight version of snow-chains. These are of course much cheaper and require no storage.

Why consider a policy on these now? Stocks are not huge and by the time the next major snow-storm or cold weather spell comes along, everyone else will be after them.

In this area, as in every facet of good business mobility management, planning ahead really is the key to success.

For more information:
Web: www.acfo.org