Three or four year cycle?
Many fleets around the UK are faced with making a decision on the length of their company car replacement cycle. Three years or four years is the usual dilemma and Lex Momentum’s fleet consultant John Webb has been looking at this issue in a little more detailFirstly, there is no right or wrong answer to this question. Three-year renewal cycles are still the most popular option with over 50 per cent of Lex fleet customers, with just under 40 per cent opting for a four-year duration.
Be careful as changing your fleet policy will usually have a far-reaching impact beyond simple cost considerations, so your decision must be based on a range of strategic, operational and employee related factors if all of your business needs are to be met.
It is true rentals can be cheaper on four year contracts, but these could have a negative impact on employee motivation levels if the car is part of a valued flexible benefits package. Conversely, the employee can have 'more car' for their allowance over four years, which means they may be able to get behind the wheel of say a sporty or executive car, rather than a standard family five door model.
Either way it’s worth consulting with HR colleagues and other key stakeholders if conflicts of interest are to be avoided as nowadays, management of the company car fleet touches up on HR, finance as well as fleet roles.
Other important factors to consider are predicted mileages ie the higher the annual mileage, the shorter the length of replacement cycle.
Taxation, staff turnover and manufacturer discount levels are also worth considering as are whole-life costs. Don’t just rely on facts and figures you may see in the fleet press, get your accountant or leasing company to carry out a detailed discounted cash flow projection on different vehicles over different replacement cycles.
As we said earlier there is no right or wrong answer, just make sure all of the above issues are considered before making the decision. And don’t be afraid to adopt a mixed replacement cycle with three years on some cars and four years on other. Even consider two years on some very high mileage cars. As long as it is the right thing to do for these individual cars and employees, having taken into account the many issues above then you are making the right decision.
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