Fleet management in an age of austerity

Fleet managers face an immensely challenging job, balancing the mobility needs of their workforce with the cost and environmental pressures that are increasingly coming to bear on all forms of road transport

Written by John Lewis, chief executive, British Vehicle Rental and Leasing Association

One of the most difficult questions many will face is how they deal with these issues in the context of their grey fleet. The term “grey fleet” is used to describe work-related travel undertaken in employee-owned vehicles. It is “grey” because in most cases, the employer knows very little about what vehicles are being used, how they are being used and where they have been.

Some of the best statistics on this issue come from the UK public sector, where it is estimated that grey fleet travel accounts for around 57 per cent of total road mileage – 1.4 billion miles each year.

Cost management
Most organisations will reimburse their grey fleet drivers with an Approved Mileage Allowance Payment (AMAP). HMRC sets out a statutory mileage allowance that can be paid free of tax. For cars and vans it is currently set at 40p per mile for the first 10,000 business miles and 25p for every mile thereafter.

Although this is a maximum tax-free amount, most organisations set this as their standard reimbursement rate. This would mean an organisation travelling 10 million grey fleet miles a year would spend up to £4 million annually. Some organisations pay up to 80p per mile.

The AMAP rate is supposed to reimburse the owner-driver for any costs associated with using their vehicle for business purposes, and includes depreciation, maintenance and fuel. According to estimates produced by the BVRLA, this cost per mile borne by the driver is more in the range of 21 to 28p per mile than 40p.

Many fleet managers like relying on grey fleet because they think very little management is involved and employees like it. There is anecdotal evidence that generous AMAP rates may actually be an incentive for some workers to drive more miles, therefore boosting their income.

Very often, however, the grey fleet is not the most cost-effective method of getting staff where they need to go. One illustration produced by the Office of Government Commerce showed the cost savings achievable on a 240-mile journey from London to Bristol. At £96, grey fleet (at the 40p AMAP rate) was the most expensive option, with public transport (£49), car rental (£60) and a lease/company car (£76) all substantially cheaper. It is worth bearing in mind that a lease or rental car would become the more cost-effective and environmentally-friendly option if more than one member of staff was making the journey.

Managing grey fleet costs is not just about choosing the most appropriate form of transport, it is also about reducing unnecessary mileage. Based on the experiences of the OGC and the Environment Agency, a 20 per cent reduction in organisational grey fleet mileage of 10 million miles would generate a net saving of over £1 million in AMAP payments and much more in freed-up staff time.

Environmental concerns
The 1.4 billion public sector grey fleet miles referred to earlier in this article would generate estimated emissions of 400,000 tons of CO2. So with all organisations, public or private sector, under increasing pressure to reduce their carbon footprint, targeting these emissions is a great way to start.

Studies conducted on a sample of public sector organisations indicated that the average age of an employee-owned car used for business is 6.7 years. Vehicle emissions have improved significantly over the last ten years and the age of a vehicle can have a dramatic impact on its CO2 emissions.

Grey fleet alternatives are not only cheaper – they are also more environmentally friendly. Moving grey fleet drivers into newer leased (average age of 18 months) or rental cars (average age of six months) can have a major impact on carbon emissions, especially if fleet managers take the opportunity to mandate the use of cleaner vehicles.

Duty of care
As well as addressing the key issues of cost and environmental sustainability, fleet managers also need to meet their health and safety obligations. Up to one in three road crashes involves a vehicle being driven for work.

Quite simply, an employee driving their own vehicle on a public road in the course of their job should be treated just as if they were working on company premises. This means that employers need to demonstrate that they have taken steps to manage their duty of care to all staff driving at work. This includes checking the driving licences and insurance of grey fleet drivers and having a work-related road safety section within their wider health and safety policy.

One of the biggest problems for organisations looking at managing their fleets is that they don’t have anyone with the specific knowledge or expertise to do so – they don’t actually employ a fleet manager. Often, fleet management is something that comes under the control of a finance, HR or facilities manager. There is, however, plenty of guidance available from government organisations including the National Business Travel Network, the Health and Safety Executive, and Driving for Better Business.

Alternatively, there is a wide array of organisations specialising in the provision of fleet management services and daily or long-term vehicle rental. The BVRLA website has a host of information that can help you chose the right provider, including a directory of members.

Leasing optins
More and more companies are choosing to acquire vehicles through some form of lease agreement rather than splashing the cash upfront. There are a variety of different types of lease with the main difference being whether a business just wants to rent its vehicles or would also like the opportunity to own them and take the associated risks (mostly to do with depreciation). Most leases usually involve paying a fixed amount each month over a contracted period, typically three to four years and 60,000-80,000 miles in the case of company cars.

Before opting for a funding method, an organisation needs to consider the overall cost of each approach, the flexibility and certainty it provides, how it will impact on business capital and cash flow and what the tax benefits and implications are of each option. All these factors can have a dramatic cost impact, so it pays to get some advice from a reputable leasing company or leasing broker.

The dominant form of leasing is contract hire. For a fixed monthly payment, you get the use of a taxed car or van for an agreed duration and mileage that suits your business and eliminates any concerns about what the vehicle is worth at the end of the agreement. As long as you have not exceeded the contracted mileage and the vehicle is in a fair condition, you just return it at the end of the contract, with no further cost.

For an extra monthly fee, you can ask your leasing company to take care of nearly every hassle associated with car and van ownership, whether it is maintenance, servicing or replacement vehicles.

Don’t sign any contract until you have read the terms and conditions closely and are aware of your rights in situations like early termination, excess mileage or damage that falls outside the normal fair wear and tear guidelines.

Working with a leasing provider that is a BVRLA member means that they are regulated by a rigid code of conduct that demands that customers receive the highest levels of service. If you have a dispute with a BVRLA member that cannot be settled directly, it can be referred to the association’s conciliation service.

For more information
Web: www.bvrla.co.uk