Reallocating vehicles can cut costs and improve utilisation

A common decision fleet managers have to make is what to do with vehicles which become spare.

This may be for a number of reasons: an employee may have taken a new job, redundancies, or a company may be restructuring.

Whatever the reason, a vehicle becoming spare leaves an organisation with two options: defleet so it operates only the number of vehicles it needs or redeploy to another driver elsewhere in their organisation.

“The downside of the latter is the company is still paying the rent while waiting for the changeover,” says Ashley Barnett, leader, consultancy at Lex Autolease.

“There may be a month’s wait before the new driver comes on board, then they have to get the car to that person, and that is before even considering the need to valet it, do a service check and generally make sure it is fit to be used as a second-hand vehicle.

Lex Autolease uses logistics businesses to handle this and will manage the pool for customers, but “sometimes they don’t want the hassle and would rather incur the slightly higher cost of terminating early and making the incoming driver happy with a new vehicle, particularly where the early termination cost is low”.

However, keeping hold of the vehicles and running a reallocation list effectively has many advantages: not least avoiding the early termination charges and having the ability to provide mobility to staff at short notice.

“There’s always a perception that it’s a pain in the neck to do this, but, essentially, you have a stock of vehicles and, although you are charged a little bit for storage, that acts as a kind of driver for you to move the vehicle on,” says Peter Kowalcyzk, fleet manager at Inspired Gaming, which uses BBS Fleet Logistics to manage its reallocation vehicles.

“Our new starters begin on a trial period and what you don’t want is to get them a new vehicle only for them to leave in three months’ time.

“Having a stock of vehicles you can reallocate to people, when needed, is always really handy, and in situations where you do have an urgent requirement for a vehicle on a temporary basis, potentially you can just use something that is in storage.

“We can get a vehicle delivered easily within a couple of days.”

Inspired Gaming, which has a fleet of around 570 cars and vans, typically has around eight cars in storage waiting to be reallocated at any one time.

Rental almost eliminated

Close Brothers, which also uses BBS Fleet Logistics, usually has around 20 vehicles waiting for new

drivers and has used these to significantly reduce its use of rental cars since introducing a vehicle reallocation programme around five years ago.

Close Brothers head of fleet Steve Cuddy says: “Our new starters have to go on a six-month probation before we allow them to order a permanent company car. We had been using long-term hires during this time, but that was getting expensive and they had to change the cars over every month or two, and it just became a mess.

“At one point with the hire cars, I put them out as six-month rentals so it was almost like a minilease but, sometimes within a month, the rental company said it had sold the car and then the changeover interferes with the employee’s working day.

“They may have to take a day off, or wait for it to be swapped over, and having multiple cars doesn’t look good to the new starter either.”

Cuddy says Close then took on some pool cars to allocate to new staff, but began using BBS Fleet Logistics to manage its spare vehicles after recognising an issue it had managing these after drivers had received their new cars.

Being able to reallocate its spare vehicles means it “barely uses” rental now, says Cuddy. “We use it for breakdown, accident management and that sort of stuff, everything else goes through BBS and the spare car pool,” he adds.

Overcoming resistance

As well as to new starters, spare vehicles can also be allocated to existing staff members to replace their own cars, whether it is on a short-term basis while their own vehicle is, for example, off the road for repairs, longer term as a replacement for their own car that is at end of lease, or switched from a high-mileage driver to a low-mileage one to ensure the vehicle doesn’t go above its contracted mileage.

One problem fleet decision-makers may face with this is resistance from drivers who may not be happy taking delivery of a used car, as opposed to a new one.

An older vehicle may emit more CO2 than a newer one, meaning the driver could face higher benefit-in-kind (BIK) tax, particularly if the fleet has recently adopted a plug-in hybrid or BEV-only policy for new cars and the employee is being offered a petrol or diesel model.

There are ways of making the offer more attractive, of course. For example, offering the driver a car from a higher grade such as an Audi A4 instead of the A3 they would be entitled to, or by providing an extra cash sum per month.

With this, it’s a matter of maths. If it will cost £3,000 to terminate a lease three years early, but the company needs to pay an employee £100 a month extra to take the car, plus national insurance contributions (NICs), it would cost less to hand in the lease prematurely.

But “the line between an essential business user, a tool to do the job and a perk is becoming increasingly blurred, so there is almost a sense of entitlement and even the essential business user has an element of choice, so if they might have had a Ford Focus they could get a BMW 1 Series by paying a bit more,” says Barnett.

Reallocation is easier if the business can tell drivers ‘you will get this car, with this spec and in this colour’.

Some companies make it clear they reserve the right to allocate an available vehicle rather than order a new one.

Caroline Sandall, specialist consultant at LeasePlan UK, recommends creating a decision-tree to determine whether a car should be kept.

“This will change over time when the organisation expects an influx of new starters or sees a hiring freeze; in every case, reallocation of vehicles should be reassessed according to the context,” she says.

“Very large vehicles or those that have a high BIK rate can be particularly difficult to reallocate; it may be more cost-effective to return the car and pay the early termination fee.”

Mitigate tribulations

To some degree, fleet managers can mitigate the worst reallocation tribulations by defining their company car list closely, still allowing employees some choice, but not total freedom.

“While a more open company car list provides employees with a wealth of options for how they tailor their vehicle, this also increases the chances of weird and wonderful selections of colour and so on being added to the fleet,” says Nick Bartley, head of corporate and international account management at Alphabet GB.

“It’s nearly always trickier to tempt an employee to take a bright yellow reallocation vehicle than a black or silver one.”

The same goes for wholelife cost policies and CO2 emission caps; if a driver is allowed to order a high CO2 vehicle and then leaves, it can be costly to reallocate this due to the higher BIK.

“Because of this, it’s often sensible to consider a level of restriction in fleet policies, whether in manufacturer selection or just colour choice,” adds Bartley.

Both Close and Inspired Gaming have reasonably standardised choice lists, which ensures vehicles can be easily reallocated as the financial impact on drivers is insignificant.

“When we put a vehicle list together, we look at the impact of the combined CO2 and P11D price on the monthly cost for that driver to make sure the choice is within a similar sort of band,” says Kowalcyzk.

“The bulk of our drivers are job-need and they generally have the same kind of vehicle anyway, usually in the same colour but, even if not, it’s effectively a vehicle that’s fit for the job.

“In some cases, you may have drivers that say ‘well, (a re-allocated car) is a lot more in terms of tax’, but, actually, when you calculate the figure for them, it may be £7 a month, and they’ll say they’re not bothered by that.

“You may have other people that are in the process of choosing a new car and until they get it we provide them with a reallocated vehicle.

“We can say ‘look, you will only have this for x amount of time and by the time you come to choose your vehicle, there’ll be a much broader range which will be a lot more tax efficient.”

He adds: “Historically, we have two or three grades of management and we’ve had situations where somebody in a senior management vehicle has left and we’ve had their vehicle for another couple of years.

“In those circumstances, if we’ve got a space to reallocate that to somebody lower down the chain we would potentially offer them that vehicle.

“In those instances, it’s kind of a ‘look, would you like the vehicle, but there will be a cost attached to the car’, so it has to be someone who is prepared to take on the BIK.

“We have to do that within reason, because it can’t look like we’re giving a junior employee some amazing vehicle.”

One potential drawback of offering a restricted car choice list to aid reallocation could be an impact on recruiting and retaining staff, says Sandall.

“That could be to the detriment of the wider policy,” she adds. “This is particularly true while technology, specifically electric vehicles, is constantly evolving, when having a higher turnover of cars may not necessarily be a bad thing, enabling fleets to keep up with developments and take on cars that are better for the environment.”

Vehicle condition

If a fleet re-allocates spare vehicles, it needs to ensure these are in an appropriate condition for a new owner as well as ensuring the maintenance is up to date.

Valeting is an essential part of this. “It sends an important message to the driver about the standards to which they are expected to maintain the vehicle and also contributes to their acceptance of a reallocated vehicle,” says Paul Hyne, commercial director at Arval UK.

Cuddy adds: “When a vehicle is still in contract and its driver has left, we’ll get our supplier to collect the vehicle and when it goes into storage they will check it over both from a maintenance point of view and also look at any possible damage, highlighting any work that needs to be done.

“They’ll show us a picture of the damage and give us what is almost like a price sheet so we can choose what to have done.

“We have the vehicle returned to BVRLA fair wear and tear standard guidelines and BBS lets us know once the vehicle is ready.

“From that point on we will look to get them to redeliver to a different driver.”

Cuddy says staff turnover means cars are not sat in storage for more than two weeks after they are repaired and prepared for their new driver.

“Utilisation is pretty good on average,” he adds.