Industry News
Cutting fleet costs: what can be done to slim the fleet in tough times?
Keeping on top of fleet operating costs is a key priority when industry is faced with recession. For fleets, there are several strategies that can be put in place to ensure your operation is as efficient as possible for your business.
Cost control in any fleet operation depends on your overall fleet policy, and it could be that now is the time for a complete review of all your systems in the light of new legislation that will affect every fleet. If that seems daunting, there’s a rule of thumb that will stand you in very good stead for cutting costs: choose lower emission vehicles.
Taxation and how to prepare for change
Taxation is set for major change, with some legislation already in place favouring lower-emitting company cars. The CO2 emissions-based BIK tax system has formed the cornerstone of the Government’s ongoing strategy to reduce emissions of ‘greenhouse’ gases from company cars, and the same basic system has been rolled out to Class 1A NIC taxation. The premise is simple – the more CO2 your car emits, the more you will pay in tax – and the rules are set to get tighter.
Now the same emissions-based philosophy is being applied to Capital Allowances, which has replaced the previous system based on vehicle price in favour of an emissions-based regime centred on a CO2 emissions threshold of 160g/km.
Companies are able to claim tax relief against depreciation relative to the CO2 emissions of a car: those emitting over 110g/km of CO2 and up to and including 160g/km are eligible for a 20% write-down allowance, while those emitting over 160g/km can claim only a 10% write-down allowance each year. Those cars emitting 110g/km or less can claim a 100% write-down allowance in the first year.
According to some experts the relief penalty between the old price-based capital allowance regime and the new CO2-based system could be as much as £2,000 for the heaviest polluters.
Many fleets have already geared their policies around the new 160g/km threshold, while manufacturers have risen to the task of producing cars that comply with the more beneficial 20% vehicle pool.
VED reforms to penalise higher polluters from 2010
With a tighter 13-band vehicle excise duty (VED) scale, set for introduction on May 1, pre-empting a further VED restructure in 2010 that will introduce punishing first-year rates for the worst polluters, it stands to reason that a fleet whose vehicles are cleaner will incur less tax.
The chart below shows how things are going to get tougher for high polluters from 2010, so plan now to avoid including these models on your choice list.
VED bands: 2009/10 and 2010/11
1: Includes cars emitting over 225g/km registered between March 1, 2001 and March 23, 2006.
2: Alternative fuel discount 2009/10: £20 Bands A-I, £15 Bands J-M. 2010/11 £10 for all cars. 2009 VED rates apply from May 1.
Operational costs
Once you have a firm grip on the future development of vehicle taxation for fleets, operational issues such as whole life costs can be tackled.
Whole-life costs can be used to determine the likely operational costs of a vehicle over a typical fleet operating cycle and generally take into account fuel costs, servicing, maintenance, repair (SMR) costs, tyre costs and residual values.
Usually expressed in pence per mile terms per vehicle, rounded up to a total cost over a typical operating cycle (3 years/60,000 miles is a popular company car lifecycle), whole-life costs enable you to benchmark your selections and decide which vehicles suit your choice list and usage patterns best. A fleet management specialist is often invaluable in helping you put together a choice list and advise on the best vehicles for your fleet.
There are a number of whole-life cost providers, for example CAP Motor Research, TopCalc, Eurotax Glass’s and CarCost by KeyResources’ KWIKCarcost, which can offer a benchmarking service and predictions on costs based on established criteria to help you streamline your fleet choice list.
Funding for efficiency
Evaluating your fleet funding method can often reveal key areas where savings can be made. You may need to enlist specialist help to look at your fleet’s operational pattern and consult on potential savings, but the tax implications of each method vary and while a particular funding method may suit some operators it may be incorrect for others. Fleet size needs to be taken into account here; where company expansion (or contraction) occurs, fleet funding methods may need to change to make the most of the efficiencies available with varying methods.
Sale and leaseback may also be an attractive option, too, allowing fleets that have outright purchased their vehicles to negotiate a sale and leaseback arrangement with a leasing company to free up capital tied up in vehicles.
Risk management
All fleets incur costs, in both time and money, because drivers have had accidents, often small, unfortunately sometimes much larger, and invariably costing thousands of pounds to put right.
If you can find an easy way of minimising the risk with your fleet and dealing with accidents more efficiently through getting drivers back on the road quicker and cars repaired faster and more cheaply, you will save considerable sums.
Analysing accident history may reveal accident rate patterns – particular drivers making the same mistakes over and over, for example, or unusually high incident rates in the company car park – enabling you to take action. Investment in professional driver training will pay dividends and is proven to improve your accident rate. Or you could simply implement rules or incentives to improve driver attitudes and responsibilities behind the wheel.
But accidents do happen, and when they do they take a long time to sort out: dealing with the third party, organising repair and replacement cars and of course insurance issues.
It is an area that an expert accident management company can help with, reducing cost, reducing vehicle off the road time and generally streamlining the claims handling process, especially when it involves a third party.
Day to day housekeeping
Consider the need for business mileage in the first place: there will always be a place for face-to-face meetings, but how often are many of journeys absolutely necessary?
Modern communication methods can often render some journeys redundant, and regularly challenging employees to think smartly will lower the number of miles they drive, reduce fuel usage and cut the risk of accidents occurring.
Ensuring drivers keep tyres inflated to the correct pressure will save money in a number of areas. A survey by a leading tyre manufacturer claimed that 60% of all tyres are under-inflated, leading to drastic reductions in fuel efficiency – perhaps reduced by as much as 15%. And because of the extra rolling resistance an under-inflated tyre creates, tyres will also wear more quickly, increasing your replacement costs.
Summary
Cost savings can be made right across the fleet with diligence and care, from top-line strategy to day-to-day running, and needn’t involve drastic measures in most cases. It doesn’t require revolution to make a significant financial impact, simply careful analysis of the facts of the whole business of fleet operation. Often, small adjustments here and there can combine to create a significant saving.
Keeping on top of fleet operating costs is a key priority when industry is faced with recession. For fleets, there are several strategies that can be put in place to ensure your operation is as efficient as possible for your business.
Cost control in any fleet operation depends on your overall fleet policy, and it could be that now is the time for a complete review of all your systems in the light of new legislation that will affect every fleet. If that seems daunting, there’s a rule of thumb that will stand you in very good stead for cutting costs: choose lower emission vehicles.
Taxation and how to prepare for change
Taxation is set for major change, with some legislation already in place favouring lower-emitting company cars. The CO2 emissions-based BIK tax system has formed the cornerstone of the Government’s ongoing strategy to reduce emissions of ‘greenhouse’ gases from company cars, and the same basic system has been rolled out to Class 1A NIC taxation. The premise is simple – the more CO2 your car emits, the more you will pay in tax – and the rules are set to get tighter.
Now the same emissions-based philosophy is being applied to Capital Allowances, which has replaced the previous system based on vehicle price in favour of an emissions-based regime centred on a CO2 emissions threshold of 160g/km.
Companies are able to claim tax relief against depreciation relative to the CO2 emissions of a car: those emitting over 110g/km of CO2 and up to and including 160g/km are eligible for a 20% write-down allowance, while those emitting over 160g/km can claim only a 10% write-down allowance each year. Those cars emitting 110g/km or less can claim a 100% write-down allowance in the first year.
According to some experts the relief penalty between the old price-based capital allowance regime and the new CO2-based system could be as much as £2,000 for the heaviest polluters.
Many fleets have already geared their policies around the new 160g/km threshold, while manufacturers have risen to the task of producing cars that comply with the more beneficial 20% vehicle pool.
VED reforms to penalise higher polluters from 2010
With a tighter 13-band vehicle excise duty (VED) scale, set for introduction on May 1, pre-empting a further VED restructure in 2010 that will introduce punishing first-year rates for the worst polluters, it stands to reason that a fleet whose vehicles are cleaner will incur less tax.
The chart below shows how things are going to get tougher for high polluters from 2010, so plan now to avoid including these models on your choice list.
VED bands: 2009/10 and 2010/11
| VED Band | CO2 emissions (g/km) | 2009/102 standard rate (£) | 2009/10 Alternative fuels rate (£) | 2010/11 First year rate (£) | 2010/11 Standard rate (£) | 2010/11 alternative fuels rate (£) |
| A | Up to 100 | 0 | 0 | 0 | 0 | 0 |
| B | 101-110 | 35 | 15 | 0 | 20 | 10 |
| C | 111-120 | 35 | 15 | 0 | 30 | 20 |
| D | 121-130 | 120 | 100 | 0 | 90 | 80 |
| E | 131-140 | 120 | 100 | 110 | 110 | 100 |
| F | 141-150 | 125 | 105 | 125 | 125 | 115 |
| G | 151-165 | 150 | 130 | 155 | 155 | 145 |
| H | 166-175 | 175 | 155 | 250 | 180 | 170 |
| I | 176-185 | 175 | 155 | 300 | 200 | 190 |
| J | 186-200 | 215 | 200 | 425 | 235 | 225 |
| K1 | 201-225 | 215 | 200 | 550 | 245 | 235 |
| L | 226-255 | 405 | 390 | 750 | 425 | 415 |
| M | Over 255 | 405 | 410 | 950 | 435 | 425 |
1: Includes cars emitting over 225g/km registered between March 1, 2001 and March 23, 2006.
2: Alternative fuel discount 2009/10: £20 Bands A-I, £15 Bands J-M. 2010/11 £10 for all cars. 2009 VED rates apply from May 1.
Operational costs
Once you have a firm grip on the future development of vehicle taxation for fleets, operational issues such as whole life costs can be tackled.
Whole-life costs can be used to determine the likely operational costs of a vehicle over a typical fleet operating cycle and generally take into account fuel costs, servicing, maintenance, repair (SMR) costs, tyre costs and residual values.
Usually expressed in pence per mile terms per vehicle, rounded up to a total cost over a typical operating cycle (3 years/60,000 miles is a popular company car lifecycle), whole-life costs enable you to benchmark your selections and decide which vehicles suit your choice list and usage patterns best. A fleet management specialist is often invaluable in helping you put together a choice list and advise on the best vehicles for your fleet.
There are a number of whole-life cost providers, for example CAP Motor Research, TopCalc, Eurotax Glass’s and CarCost by KeyResources’ KWIKCarcost, which can offer a benchmarking service and predictions on costs based on established criteria to help you streamline your fleet choice list.
Funding for efficiency
Evaluating your fleet funding method can often reveal key areas where savings can be made. You may need to enlist specialist help to look at your fleet’s operational pattern and consult on potential savings, but the tax implications of each method vary and while a particular funding method may suit some operators it may be incorrect for others. Fleet size needs to be taken into account here; where company expansion (or contraction) occurs, fleet funding methods may need to change to make the most of the efficiencies available with varying methods.
Sale and leaseback may also be an attractive option, too, allowing fleets that have outright purchased their vehicles to negotiate a sale and leaseback arrangement with a leasing company to free up capital tied up in vehicles.
Risk management
All fleets incur costs, in both time and money, because drivers have had accidents, often small, unfortunately sometimes much larger, and invariably costing thousands of pounds to put right.
If you can find an easy way of minimising the risk with your fleet and dealing with accidents more efficiently through getting drivers back on the road quicker and cars repaired faster and more cheaply, you will save considerable sums.
Analysing accident history may reveal accident rate patterns – particular drivers making the same mistakes over and over, for example, or unusually high incident rates in the company car park – enabling you to take action. Investment in professional driver training will pay dividends and is proven to improve your accident rate. Or you could simply implement rules or incentives to improve driver attitudes and responsibilities behind the wheel.
But accidents do happen, and when they do they take a long time to sort out: dealing with the third party, organising repair and replacement cars and of course insurance issues.
It is an area that an expert accident management company can help with, reducing cost, reducing vehicle off the road time and generally streamlining the claims handling process, especially when it involves a third party.
Day to day housekeeping
Consider the need for business mileage in the first place: there will always be a place for face-to-face meetings, but how often are many of journeys absolutely necessary?
Modern communication methods can often render some journeys redundant, and regularly challenging employees to think smartly will lower the number of miles they drive, reduce fuel usage and cut the risk of accidents occurring.
Ensuring drivers keep tyres inflated to the correct pressure will save money in a number of areas. A survey by a leading tyre manufacturer claimed that 60% of all tyres are under-inflated, leading to drastic reductions in fuel efficiency – perhaps reduced by as much as 15%. And because of the extra rolling resistance an under-inflated tyre creates, tyres will also wear more quickly, increasing your replacement costs.
Summary
Cost savings can be made right across the fleet with diligence and care, from top-line strategy to day-to-day running, and needn’t involve drastic measures in most cases. It doesn’t require revolution to make a significant financial impact, simply careful analysis of the facts of the whole business of fleet operation. Often, small adjustments here and there can combine to create a significant saving.