12 steps to choosing the right funding method

Step 1 Perform a total review

Companies should not look at funding in isolation – any review should form part of a reassessment of the entire fleet policy, according to fleet manager David Graham, who previously headed up the E.on fleet team.

“The funding decision should sit within the policy requirements,” he says.

Companies need to consider funding alongside issues such as CO2 emissions, badge policy, vehicle mileages and replacement cycles as well as business requirements.

It’s a view echoed by Deloitte Car Consulting.

Companies need a “holistic approach”, says senior manager Simon Down.

“Funding is a very important part but if you focus on one area you could leave yourself open to not appreciating other factors. The decision won’t be as well rounded.”

How often a full review should be carried out varies but it should be at least every three to five years (see panel below).

How often should you review?

Companies should undertake a detailed review of their funding method every three to five years in line with their replacement cycle or contract with their funding provider.

Simon Down, senior manager at Deloitte Car Consulting, says it is also worth doing a “refresh” annually, following the budget.

If a company is in a state of flux, with new businesses being acquiring or disposed of, a funding review will need to take place more regularly.

Peter Weston, fleet manager at Home Retail Group, undertook a six-month funding review after the business acquired Homebase. He points out: “No one method suits a business all of the time.”

E.on also illustrates the need to carry out regular reviews.

It used to operate an Employee Car Ownership (ECO) scheme because “the tax regime made it sensible to do so”, according to its former fleet manager David Graham.

However, over time it became less cost-effective due to the difficulties of being HMRC-compliant and the increased administration burden on payroll teams.

It was still efficient for a small number of high-mileage drivers but not for the majority of E.on’s drivers so the company switched to contract hire.

Step 2 Seek advice

“Get as much unbiased advice as possible,” says Peter Weston, fleet manager at Home Retail Group.
When he performed an in-depth funding review, he sought the help of an external consultant as well as colleagues in different departments.

Graham advises getting stakeholders involved at different stages of the process.

The procurement and fleet department should work together initially and then a steering group should be set up with representatives from HR, finance and – for large organisations – treasury.

For smaller organisations the decision may rest with the owner of the business, although they should still seek advice.

Considering the driver’s view point is important too, although their interest is more likely to revolve around the vehicles they can select.

Step 3 Wholelife costs

Companies need to ensure they have the right vehicles to start with, irrespective of the funding method, according to Dan Rees, senior manager at Deloitte Car Consulting.

He advises looking at the wholelife cost of vehicles (also referred to as the total cost of ownership).

Wholelife costs take into account a number of factors in addition to the vehicle’s rental price to give a true picture of the cost of the vehicle.

However, what factors to include is much debated (see www.fleetnews.co.uk/wholelife-costs/).

Leasing providers Arval and Zenith say the biggest mistake companies make is not making their funding decision based on a wholelife cost approach.

“Without understanding the full range of costs over the expected lifetime of the vehicles, they may be setting themselves up for an ongoing cost burden that they hadn’t planned or budgeted for,” says Paul Marchment, fleet consultant at Arval.