Fleet management: accelerate value for money with whole life costs

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Fleet management: accelerate value for money with whole life costs

Accelerating cost isn’t the only factor that makes fleet management a procurement challenge for businesses of all sizes. Corporate social responsibility, environmental factors and taxation rules all impinge on this activity. In this article, Kevin Casey of Fleethire shows the importance of a whole life costing approach.

With the current economic climate forcing us to make changes in the way we run our businesses, many companies who adopted a fleet policy based around monthly rental cost are feeling the squeeze. It seemed an obvious basis for a policy which included lower rentals at a lower cost. But with today’s climate when vehicle and fuel prices are on the increase it has inevitably led to reduced choice.

Is there a way for businesses to save money, reduce fuel costs and run an environmentally friendlier fleet whilst making sure drivers don’t suffer through their benefit-in-kind?

Traditionally the monthly rental cost has been the key indicator of value and affordability. Leasing companies arrive at this rental figure by a calculation of the funded depreciation and maintenance costs of a vehicle. However this rental is only a constituent part of the overall cost and is not a true indicator of value for money.

It doesn’t necessarily follow that the cheapest monthly rental will lead to the cheapest overall cost for your business, and it is likely that two vehicles with identical monthly rentals will have very different Whole Life Costs – see example below.

A Whole Life Costs analysis takes into account all the related factors over the contract life: the actual discounted capital cost, depreciation, cost of funds, servicing and maintenance costs, company car tax, NI and anticipated fuel expenditure. This is the only accurate way of calculating the true cost of running a vehicle.

In the above example a lower monthly rental alone would draw your attention to the automatic model, with the consequence of a £3,100+ Whole Life Cost premium. In addition the driver would pay over £78 per month more in personal taxation.

A fleet policy based on Whole Life Costs will provide your business with these clear benefits:

  • Green – low CO2 emission vehicles use less fuel and are lower in benefit in kind (BIK). More mpg = less fuel
  • Financial – choose vehicles with optimum funding, operational and tax costs to reduce overall costs
  • Benefit in kind tax – cleaner running vehicles mean lower P11d tax bills and happier drivers
  • Reduced exposure to rising fuel costs
  • A consistent policy with a common sense approach based on CO2, P11d and MPG that is easily understood by stakeholders.
  • The opportunity to identify desirable brand models at a lower overall cost than volume models, improving the image of the fleet for recruitment and retention.

In considering your fleet requirements you should discuss not only Whole Life Costs but other areas within your fleet where savings can be made. This will ensure you develop a robust, safe driver policy geared around the management of risk and your duty of care to your staff.

About Fleethire

Through giving clear and concise advice and information to customers Fleethire can help businesses make informed decisions. For further information please contact Kevin Ryan of Fleethire on kevin [dot] ryan [at] fleethire [dot] co [dot] uk


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