PracticeAccounting FirmsFleet management: more banger for your buck

Fleet management: more banger for your buck

The recession has forced businesses to keep hold of company cars far longer than they have in the past, but there are other options

Look across your company car park and you will see a lasting effect of the
recession – old cars. Well, not exactly old, but older. It is not unusual in
2010 to see a company car on a 56 plate, or even a 55, meaning that they are in
their fourth or fifth year.

This is unusual as, for decades, the vast majority of company cars were run
on an industry standard life cycle of three years and 60,000 miles. This was
believed to be the best balance between financial considerations, where residual
values were the main factor, and human resources, where employees generally
wanted the newest cars possible. If you asked a leasing company for a quote on a
car, three years/60,000 miles was the default.

But the recession has changed this. One of the first things that employers
tended to do as an immediate response to the economic downturn was to halt not
just any unnecessary expenditure but the process of signing up to any future
commitments. The idea of buying or leasing a new company car on the standard
cycle seemed irresponsible to any decent accountant. At a point in time when you
weren’t really sure that your bank would open tomorrow, how could you commit to
a three year lease?

So what did employers do? Well, those that bought cars simply kept hold of
the ones they had. They swallowed the kind of costs that a fleet car in its
fourth year incurs – putting the vehicle through its first MoT, paying any major
bills that arise after the manufacturer warranty ends and spending larger
amounts on maintenance because cars of this age often require major mechanical

Similarly, employers that leased cars simply extended their leases, often
informally. Lessors were only too happy to see this trend because the used car
market had slumped to a point that the residual value forecasts on which they
based their calculations were adrift, frequently by thousands of pounds.

Fast forward two years and a glance at new car sales figures will tell you
that fleet sales are starting to rise but remain sluggish. Employers are
beginning to replace their older company cars but are in no rush to do so.
Significantly, many have come to the dual realisation that in the current job
market, good employees are extremely unlikely to jump ship at the prospect of
being offered a newer, more expensive car and that it is possible to
successfully run cars into a fourth or fifth year while controlling costs.
Modern cars are simply much more reliable and better built than when the three
year/60,000 mile cycle was established and driving a four or five year-old car
is no real hardship for the employee and is financially viable for the employer.

What is interesting about these changes is that they have lead many fleet
decision makers – specialist fleet managers, accountants, human resources
managers and others – to take a good look at the whole issue of company car
provision. The first thing that many have done is to examine the way in which
their company cars are used and take a higher degree of control.

This has traditionally been a weak point in fleet management because most
employers simply hand over the keys to a car and then pay fuel and maintenance
bills as they roll in. However, sitting down with an employee and seeing if they
really need to cover the miles they drive, whether they can share a car for a
regular journey or whether they can do more to group together appointments in
the same area, can all have a substantial effect on overall fleet costs at a
time when the 120 pence litre of petrol or diesel is a reality, while at the
same time benefitting the environment.

Some employers have also discovered that there are a whole range of other
methods becoming available through which to provide a company car. Quite
recently, the choice was limited to renting a car on short-term hire, buying one
or taking out a lease for a minimum of three years. More recent times, however,
have seen the arrival of new options such as car clubs, which allow you to get
hold of a car for as little as an hour, and short-term leasing arrangements that
can be as short as three months. What these developments mean is that some
companies are starting to match their car needs to a method of provision much
more exactly.

How does this work in the real world? Well, if you are in an urban area and
an employee needs transport occasionally, a car club is a genuine option. Most
will allow booking at very short notice and, importantly, will only charge you
for the time that the vehicle is actually used. It can be effectively a
pay-as-you-go company car and a highly cost-effective alternative to a pool car.

Short-term leasing is similarly flexible. We see it applied to all kinds of
situations but, notably, employers are leasing cars over three months for
employees on probation when before the recession many would have ordered a new
car. We also see some employers, who are still tentative about the obligations
of long-term leasing, use it as rolling provision for their company cars. Again,
a solution that can make sound sense in cost terms.

These newer options let employers change their financial relationship with
the company car, either by reducing their commitment or allowing them to only
pay for a car when it is really needed. Along with lengthening replacement
cycles, they mean that the company car park of the next few years might be set
for even more change.

Paul Ashton is managing director of short-term leasing specialist

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