Fleet News Award winner: Fleet of the Year 1,001-plus vehicles

Every decision Johnson & Johnson Finance Corporation makes about its fleet is first referred to ‘the triangle’.

This strategic measuring tool helps the company to balance its core objectives of cost, sustainability and motivation.

Managing director Stephen O’Callaghan explains: “We could have the most efficient fleet in the world, but it might not work from a business perspective.

"For example, if we reduce costs significantly, that’s great for the P&L, but if it disenfranchises our employees then that doesn’t work.”

O’Callaghan heads the fleet team at Johnson & Johnson Finance Corporation (J&JFC). The operation is effectively a standalone captive leasing company, with its own balance sheet, which reports directly to Johnson & Johnson’s global head office in New Jersey, USA.

The business manages the global fleet of around 14,000 company cars, including 1,500 in the UK and 8,000 in America.

The UK car assets are worth £48 million; across Europe the balance sheets total £225m.

J&JFC is also responsible for all other asset funding decisions, such as medical equipment leased to the relevant division – pharmaceutical, consumer or medical.

Consequently, O’Callaghan spends around 20% of his time on fleet matters, which includes the company’s 800 UK cash allowance takers; he also has a team of fleet managers overseeing day-to-day operations at divisions.

He’s no stranger to Fleet News Awards success: in 2007 he was the European fleet manager of the year. “The Fleet News Awards is the one to win,” O’Callaghan says.

Fleet News: What are the benefits for Johnson & Johnson running a captive leasing company?

Stephen O’Callaghan: “We use our own funds to buy our cars which is significantly cheaper than using external leasing companies because we are a triple A rated company.

Owning the asset is the cornerstone to all the savings you can achieve. We also use ‘pay on use’ maintenance managed through GE – we see significant savings through this approach.

We use GE as our fleet management company and it manages third party companies like accident management, tyres and glass.

We take the financial and residual values risk – and reward – so we have to manage that process. It means we have to balance our lease portfolio and make sure we have the right cars. We have reduced down to two brands – VW/Audi and BMW.

FN: How did you manage the residuals slump in 2008?

SOC: We were fortunate not to lose any money on our fleet. We use GE’s residual data as part of our agreement and it tends to be realistic.

But we can also change our values based on what we think the market is doing.

In 2008 we saw what the leasing companies were doing with their contract extensions.

That meant there was no supply into the second hand market and we felt we could still sell cars because the demand was there and three-year old cars look better than four year olds.

So we stayed at 36 months and continued to sell. We were still getting above 100% of CAP Clean.

FN: You’re now at 48 months for vehicle replacements – what made you change the policy?

SOC: We harmonised our policy on 48 months because this is now where the rest of the market is, particularly companies in our sectors.

We make savings from lower rental costs, which was the cost element of the triangle, but we also had to blend in the benefits side for employees.

FN: How did you achieve this?

SOC: At 36 months, employees couldn’t get the same cars because the prices were increasing; but at 48 months they could.

We also introduced an incentive on CO2 emissions [£45 a month if CO2 is below 110g/km; £40 for 110-120g/km; £30 for 121-130g/km; £20 for 131-140g/km: nothing above 140g/km].

The employee can take it as cash or add it to the lease cost for a better vehicle or more extras.

The incentive means significant fuel savings for us – our forward orders and current deliveries are below 120g/km and the fleet average is 129g/km. It’s self-funding.

FN: Safety plays a crucial role in your company. How do you manage risk and ensure buy-in at all levels?

SOC: Safe Fleet is our global programme which looks at vehicle condition, training and driver performance.

We have assessments to compare the UK against the global benchmark. The objective is to protect our employees and reduce the number of accidents; it’s not a cost-saving scheme.

There is a cost associated in delivering it, but we have significantly reduced our accidents to six per million miles.

Executive engagement is a key element; it permeates from the top down. Each Johnson and Johnson board has five questions to satisfy on Safe Fleet to ensure they are compliant and engaged.

They talk about it at conferences and it’s in use by all line managers.

FN: How does training fit into the programme?

SOC: We do a lot of screening before employing someone. Every employee on their first day has a driver training risk assessment.

Within three years they have to prepare for and take the RoSPA advanced driving test, funded by the company. Our analysis shows they have fewer accidents once they are RoSPA trained.

Driver performance looks at whose risk and fault each accident is. If required, we will bring in an investigation team to look at it.

The combination of switching to two manufacturers, thereby improving the support terms and reducing the residuals risk, extending the replacement cycle from three to four years and using less fuel thanks to the CO2 incentives scheme is saving J&JFC £2m a year.

“Savings are important because most of our customers are facing austerity measures so we have to manage our costs in fleet,” says O’Callaghan.

However, those savings shouldn’t be traded off against employee motivation. And they haven’t: all the actions also ensure that employees maintain their access to the same or similar cars, O’Callaghan says.

Cost and sustainability concerns are making fleet management a significant part of any organisation and O’Callaghan believes fleet managers have a key role to play.

But it’s crucial for them to be aware of the business strategy and guard against operating in a fleet silo.

“They have to participate to demonstrate their value and importance to the business,” he says.

Fleet News Award winner factfile