Fleets and vehicles: Creating a tailored choice list

Creating a tailored vehicle choice list gives a fleet manager the opportunity to drive cost or efficiency ambitions, but there are many factors to consider. Andrew Ryan reports

Company car choice lists are a vital tool for any organisation looking to shape the direction of its fleet.

Whether its ambition is to reduce vehicle CO2 emissions, cut costs, enhance staff recruitment and retention, or just to make sure vehicles are fit for purpose, creating the right choice list can help achieve the fleet’s objectives.

But devising one can also be a complicated task with many factors to consider. 

So if a fleet manager is looking to create a new company car policy or review an existing one, where should they start?

By identifying the core business objectives for that organisation, according to Richard Hipkiss, managing director of Fleet Operations.

“Whether job-need or employee benefit, this must always be the starting point for any vehicle choice list,” he says.

Richard Cox, fleet consultant at Arval, adds: “Fleet managers need to look at what they are trying to achieve with their choice list.

“To do this, they need to ask some fundamental questions. This should include defining the purpose of their fleet: is it a tool of the trade, is it part remuneration, or is it a combination of both?

“Also, they need to work out how many vehicles they actually need, including creating a specification for any particular job-need roles, especially when it comes to commercial vehicles.”

Then it becomes a balancing act between cost, choice and suitability.

“We believe there are eight variables that directly affect the shape, cost and structure of a fleet,” says Matthew Walters, head of consultancy at LeasePlan UK.

These are depreciation, SMR (service, maintenance and repair), fuel, insurance, employee benefit provision, mileage, VAT and corporation tax relief.

“These variables act as levers that you can pull and push,” he says. “Pulling one can create a saving in one place, but generate a cost somewhere else.

“The important thing is to look for the right trade-off between total cost of ownership, compromises on car choice, cash allowances and so on.

 

CO2 caps

If environmental considerations are an important factor for vehicle choice, setting an upper CO2 limit is a common and proven way of reducing emissions.

Skanska currently caps its car policy at 130g/km, and this has helped reduce its average emissions to 105g/km. The average for new cars on order is 92g/km.

“Roughly 50% of those are sub-75g/km,” says Julie Madoui, head of fleet at Skanska. “I’ve probably placed 40 orders in the past two weeks and I don’t think any of those exceeded 110g/km.

“We introduced our 130g/km cap in 2009, which was quite an aggressive thing to do at that time.”

In addition to the CO2 cap, Skanska has also placed restrictions on who can opt for ultra low emission technology to ensure its drivers make an appropriate choice for their individual needs. 

For example, drivers who do more than 20,000 miles a year cannot choose a pure electric vehicle.

“We want to give people choice, but we don’t want to put drivers who we know are doing 40,000 miles a year into a vehicle which we know is not going to be cost-effective,” says Madoui.

While capping CO2 has proved successful for many fleets in the past, Richard Cox, fleet consultant at Aral, questions whether, given advancing technology, fleets should continue with a cap.

“With the increased focus on benefit-in-kind (BIK) tax and private fuel costs, there is already significant incentive for most employees to select their cars sensibly,” he says.

“Analysis shows that the CO2 emissions for fleets with caps is not significantly different to those without.

“This calls into question whether CO2 caps are having any real effect on the company’s carbon footprint, or whether they serve only as an environmental ‘badge’ for the company to display.

“For caps to be effective, they have to actually modify employee choices, and therefore probably need to be lower than they already are.”

 

Total cost of ownership

It is widely accepted that best practice is to base choice lists on the total cost of ownership (TCO) also known as wholelife costs, rather than leasing rates or list price as had traditionally been the way.

TCO should not only include the lease or purchase costs, but also all real-life expenses such as depreciation, fuel, insurance, maintenance, interest, tax and employer’s national insurance, says Richard Hipkiss, managing director of Fleet Operations.

When Skanska introduced a new company car policy in 2015, it switched from a banding model using leasing rates to one based on TCO.

“I wanted to change the modelling so it was a true reflection of the cost of operating the vehicle,” says Julie Madoui, head of fleet at Skanska.

“We did a lot of modelling work with our leasing provider, LeasePlan. We refactored each of the grade values by taking what was the most ordered vehicle within each of our existing bands and used that as a base to determine the wholelife cost bandings per grade.

“Within that we incorporated the cost of the rental of the vehicle, a monetary insurance value, the fuel economy of the vehicle and the employer’s national insurance contribution.

“That enabled us to really increase the choice of vehicles available within the bandings and to bring more sustainable vehicles in that were not previously available in those bandings. It improved the choice without actually increasing the cost.”

Skanska has made one change to the wholelife cost calculation when considering plug-in hybrids. Instead of using the fuel economy figures produced under the official testing regime as it does for petrol and diesel models, the company uses a figure which is 60% of the test result.

“We know plug-in hybrid technology is new and drivers are going to need to be trained to get the most out of them,” says Madoui.

Britvic, too, uses a TCO-based model to offer employees a wide vehicle choice.

“We have a five-tier banding system that sets out the eligibility of an employee vehicle, so we wanted to make sure that at each of those levels we were providing something suitable that not only met the general needs of those bands but was also seen as a benefit as well,” says Will Smith, director of compensation and benefits at Britvic. “We wanted to make sure that even our core business-user fleet drivers were excited about getting a company car. That was important for us.”

 

Choice – wide or narrow?

Many companies operate an open choice policy so an employee can pick a make of car they are happy with.

Offering a wide choice is important to many organisations where recruitment and retention is a key consideration – “the quality of our car policy is really important for our recruitment,” says Julie Madoui, head of fleet at Skanska. 

However, limiting the brands available can also have benefits.

Reducing cost is potentially the most significant one. Countrywide Group estate agents, for example, saved £900,000 through improved terms with manufacturers when it went from an open policy to just four brands.

Another potential benefit of reducing choice is the effect it can have on vehicle reallocation policies.

Enserve Group had experienced problems reallocating ‘spare’ vehicles due to their specification and now limits the cars to ‘business colours’: black, white, silver and grey.

“We were constantly getting a car back that somebody had ordered, for example, in lime green with leather seats and bits and pieces,” says Paul Brown, head of group fleet at Enserve Group. “Trying to move that car on    to a manager was really difficult, so we decided to keep it to business     colours that don’t offend anyone.”

Together with reallocation reasons, many fleets limit the body styles available for practicality or image.

Fleets such as CITB (Construction Industry Training Board) and Skanska allow only cars with four or five doors.

“We don’t have any two-doors or convertibles, because if it’s a car provided for business purposes and when you have to take a client out, you can’t really put them in a two-seater, can you?” says Madoui.

Some fleets don’t impose such restrictions. “We are pretty open,” says Simon Watts, fleet manager at Rydon. “Drivers can choose three-door, coupe or convertibles.

“We might flag it with the manager to check if it’s suitable in case they have a need for taking clients out, but other than that it’s not an issue.”

 

Equipment and options

Consideration should also be given to what equipment is fitted to vehicles, says Richard Hipkiss, managing director of Fleet Operations.

“In line with corporate risk management policies, systems such as lane departure warning may fall within company requirements for minimum safety standards,” he says.

“The availability of emerging technologies also calls for further cost scrutiny and consideration to the risks of obsolescence as technology develops at a rapid pace.

“Shorter renewal cycles, while having lease and acquisition cost implications, can help address this dilemma and can appeal to drivers.

“For owned fleets, technological obsolescence may impact resale values – so decisions taken today may have a significant impact on the bottom line in three or four years’ time.”

Specifying other, less expensive, options can benefit a fleet. Both CITB and Genus Breeding fit parking sensors to all new company cars.

Colin Hutt, fleet and insurance manager at CITB says these have virtually eliminated reversing collisions on its fleet, while Adrian Davies, fleet manager at Genus, says: “For me, adding parking sensors is making the vehicle fit for purpose. When I started this role, I analysed all the costs and the incidents, and it just cried out for parking sensors. 

“If you are looking at the cost, something cheap like the sensors can cut out 30% of all your collisions.

“When you are on a farm at 4am when it is pitch black and that silo that wasn’t there yesterday is there today, a parking sensor is going to help.”

Rubber mats are also a must fit for Genus’s vehicles due to their work on agricultural sites. 

“It doesn’t matter what role they   are doing, I have basics that all the vehicles must have if they come on to my fleet,” says Davies.

 

Trading up or down

Many organisations allow employees to either contribute more to gain a car from above their band, or to save money by opting for one below (although the new regulations around cash/car taxation could eliminate this if employees have the choice).

“We’ve built in flexibility whereby all but the senior managers can contribute an optional £50 a month to open up the choice list further,” says Colin Hutt of CITB.

“Typically, at the lower grade we’ve got people in Ford Focus Titaniums and Nissan Qashqais, and if they want to pay £50 a lot of people are choosing cars like the Audi A3 or BMW 1 Series.”

He adds: “If a driver wants the 2.0-litre car with the higher spec they pay slightly more tax; if they are happy with the lower spec, producing less CO2, they are going to save money. It’s entirely up to them.”

Listen to the drivers

When compiling a new vehicle choice policy, driver feedback should always play a role, says Lauren Pamma, head of fleet consultancy at Lex Autolease.

“A company-wide survey will identify desirable vehicles to help inform the list alongside business objectives, such as achieving cost efficiencies and hitting emissions targets,” she adds.

“A comprehensive range can also encourage drivers   to opt for company cars over cash allowances, giving organisations more control over their fleet and enabling them to manage risks more effectively.

“Importantly, any changes to fleet policy and the level of choice offered should be communicated clearly with drivers to avoid any misunderstanding or complications, ensuring they understand the reasons behind the future direction of the fleet.”

 

Eight steps to introducing an effective car policy

1 Always base your choice list on wholelife cost analysis.

2 Consider all fuel types including alternative technologies.

3 Compare manufacturers and establish the value of restricting their number. 

4 Set fixed lists where possible for job-related functions. This can increase leverage and simplifies the reallocation process.

5 Set financial wholelife cost allowances for non-essential users – and allow trade-up and trade-down within limits to mitigate the risk of early termination and to simplify reallocation.

6 Set CO2 limits to control environmental impact and maintain adherence to the company’s corporate social responsible agenda.

7 Apply sensible vehicle restrictions – such as the number of seats, doors, 4WD and convertibles.

8 Launch the policy either by e-mail if it’s purely a change of manufacturer, or a formal presentation/event if employee benefits are being changed, supported with fully documented policy rules and FAQs.