Service plans: how they can save fleets money

Manufacturer service plans are often aimed at retail customers, but should they be?

Those manufacturers that don’t have an off-the-shelf service pack for fleets argue that the differing requirements of companies make it difficult to offer one.

The popularity of contract hire with maintenance agreements is cited as another reason.

But leasing companies can, and do, take up manufacturer service plans and, in theory, should pass the savings on to their customers. This means that even fleet operators that have maintenance agreements with their leasing provider should take an interest.

Lex Autolease currently purchases service plans from two leading manufacturers but integrates the plans with its own maintenance contracts as the schemes don’t cover wear and tear components, such as brakes and clutches, and can’t be tailored to different age terms and mileages.

“The benefit to fleet managers is financial,” says Guy Mason, head of fleet services at Lex Autolease.

“The service packs we currently purchase enable us to reduce our service, maintenance and repair (SMR) budgets as the manufacturer supports the cost of the packs in return for guaranteed service retention within their network.”

Lower lease rates are one of the benefits of opting for a manufacturer’s service plan.

BMW reports that almost all leasing companies and a large proportion of outright purchase fleets which acquire its cars also buy a service plan, which start at around £300 for a five-year/60,000-mile contract.

It says these can reduce SMR bills by 50% or more: a service pack for a 320d costs £360; BMW says the equivalent work outside a service pack would cost a fleet £724.51.

“Most leasing companies adopt it on the basis that it reduces their rentals because it positively affects their SMR,” says Steve Chater, BMW general manager of product and market planning.

“The majority also service their cars at our BMW franchised dealers and this gives them a reason to continue to maintain that approach where they might have been looking at independents.

"This gives them the benefits when they come to remarket their cars.”

Chater suggests that leasing companies which purchase the Service Inclusive plan reduce their rentals by an average of £6-£10 per month.

BMW’s repatriation service, set up to tackle concerns about residual values in the face of the company’s strong growth in fleet, enables leasing companies to take advantage of BMW’s own dedicated remarketing process via its franchised dealer network.

“Dealers can sell cars for more money if they are with the service pack because they know the car has been regularly serviced at a franchised dealer,” Chater says.

“We know that this gives the consumer greater reassurance.”

BMW recently reviewed its SMR options with leasing customers and end-user fleets, suggesting alternatives such as fixed price servicing.

They said the existing service pack product was the most appropriate for them.

Vauxhall says one of the benefits of using its service plans is “the knowledge that the Vauxhall retailer(s)/authorised repairer(s) undertaking the work conform to the Service4Fleet aftercare standards, and that vehicles will have a full Vauxhall service history to maximise their resale value”.

Vauxhall’s service plan includes all scheduled servicing costs, maintenance, repair of any mechanical or electrical failure, and parts that need replacement due to fair wear and tear, as well as free vehicle rental and full Vauxhall Assistance for the length of the plan.

Vehicle sale/write off protection is also offered as part of the programme. Glass, tyres, and accidental damage are not included.

Ford has also recently extended its Blue Service aftersales package to fleet operators (see www.fleetnews.co.uk/blueservice)
Skoda, Toyota and Lexus, Fiat and Mitsubishi are looking into a service plan offering for fleets.

Sharon Townsend, general manager – service at Mitsubishi, says: “We are starting to get interest from fleet managers and we are looking at this. Currently the plans are promoted only to the retail customer and there is a 93% uptake of service plans.

“I believe that fleet managers see a value in manufacturer servicing and using OEM parts. They need reliability in their fleet of vehicles and if servicing costs can be fixed up front this simplifies the process for the end-user.”

The Environment Agency has taken up service packs on Mitsubishi L200s as the vehicles are outright purchased and travel only 12,000 miles a year.

“We have used service packs on and off for the past five or six years, if not longer,” says Dale Eynon, head of fleet operations at the Environment Agency.

“We started using them on plant and then moved into vans. It’s a fixed cost so you know what you are spending and, generally speaking, you get a good deal.”

Eynon also prefers to use main dealers for specialist vehicles as they have the appropriate equipment for servicing and repairs and if there are any warranty issues they are dealt with immediately, which reduces downtime.

“The problem is that there is a variation in which manufacturers offer service plans, which vehicles they are offered on and what is not included in the plan,” he says.

“Our contract hire with maintenance contracts on our cars cover virtually everything although we find that the maintenance pot is never used up fully, on average.”

Dealer location has to be considered. Eynon says: “We are keen to reduce business mileage and if the main dealer is further away than the non-franchised dealer, does it make sense to use them?”

Service plans/packs do not appeal to another fleet manager, who asked not to be identified, because “they tend to be too loosely written in terms of what is included and not included and they don’t allow for any additional work/parts that may be required, so it’s still not a fully budgeted cost”.

He adds: “I would suspect that once the dealer had the vehicle, then they would look closely for chargeable additional work to generate another revenue stream.”

Zenith uses service plans if there is a benefit to it and its customers.

Mark Connor, operations director at Zenith, says: “You need to consider not only the cost compared to standard servicing through the franchised dealer, but also a cost comparison versus the independent route.

“You also need to factor in that this will probably increase your costs for work not covered under the service plan (particularly where you have a policy of using independents), as the vehicle will be captive in a franchised dealer.

“In the case of the BMW service pack, you need to factor in the cashflow impact of buying the pack at the beginning of the contract, together with any view on the residual value of the pack should your contract finish early.

“A fleet manager will have the same perspective as us – how do I deliver the most cost and service efficient process for my fleet? Service plans will sometimes deliver this, but not always.”

What fleet managers think about service plans

If I was to use a service pack then the dealers would have to match my expectations in terms of lead in time for servicing, which is not often possible in my local area.”
Damian James, head of operations at Bracknell Forest Borough Council and chairman of ACFO

“Service plans can be good. It’s important to do the maths before committing just to make sure you’re not paying any more than
the equivalent number of services would have cost, but there’s generally a saving to be had. Also, if you lease your vehicles the plan can be built into the cost and the payments spread over the term so there are no nasty shocks and it is good for budgeting.”
Graham Short, fleet and property operations manager, Evander Glazing and Locks

“Service plans appeal to me provided they are better value than the standard offer from my leasing company. I have previously taken BMW and Mini offers.”
Justin Patterson, head of fleet management, Mitie

“I would consider removing maintenance from my contract hire agreement if service plans were available that genuinely covered all servicing, etc. without hidden costs in the small print. It would have to be on a piecemeal basis though.”
Debbie Floyde, group fleet/risk manager, Bauer Media

Which manufacturers offer service plans to fleets?

BMW

Yes. The Service Inclusive programme typically costs around £300 for a five-year/60,000-mile contract. Service Inclusive Plus adds brake pads/discs, clutch assembly and wiper rubers to the list of included items. There are sector-specific packages such as one for the chauffeur market.

Citroen

Yes. Not off-the-shelf, but Citroën will tailor a service plan for fleet managers, depending on the specific vehicle, age, mileage and usage. A complementary three-year/35,000 mile service plan, aimed at retail and qualifying SME customers, is available on the DS3, DS3 Cabrio, DS4 and DS5 models.

Fiat

No. Fiat does not have fleet specific service plans but it is evaluating the potential as part of its growth strategy for fleet. It currently offers fleet customers enhanced labour rate and parts discount terms.

Ford

Yes. Ford has recently extended its Blue Service package to fleet customers (with a fleet of 25 or more Ford vehicles). Blue Service includes an optional extended warranty/service plan with new vehicle purchases.

Honda

Yes. Service plans typically focus on the retail customer due to the varying mileage requirements of fleet customers. However, Honda can, and does, produce and quote for fleet customers when requested. The price varies, depending on the term and mileage required. All manufacturer-required servicing content is included in the plan.

Hyundai

Yes. Hyundai offers low- and high-mileage service plans up to 50,000 miles, starting from £249 (including VAT). The plans are complemented by 0% finance across any aftersales purchase which exceeds £275, providing an alternative to a standardised service plan. It intends to introduce further service plans covering greater mileages.

Kia

No. There are no plans to introduce fleet service plans, although this is regularly reviewed. The largest volume of potential sales would need to involve contract hire and leasing companies, but their business model includes competing products and services, and the price point required needs significant manufacturer and dealer support.

Mazda

No. Mazda does not currently offer a specific fleet service plan as it is not experiencing demand for them on a wide scale. However, it is an area that Mazda regularly reviews and would introduce if it felt appropriate to do so.

Mercedes-Benz

No. Mercedes-Benz Service Care plans are predominantly used by retail customers and those from the SME sector. There are no specific service plans for corporate customers.

Mini

Yes. A TLC service plan is available free of charge to corporate customers. It covers five years/50,000 miles.

Mitsubishi

No. Mitsubishi Service Plans (MSP) are promoted only to the retail customer at present but some fleet customers have taken the option. The plan covers the first three scheduled services for each model (so either 27,000 miles or 37,500 miles/three years maximum).

Renault

Yes. Not off-the-shelf, but Renault offers tailored service plans (on demand) to corporate customers.

Skoda

No. Historically, Skoda has not had a service plan in place, but during 2014 it will be developing a range of fleet-targeted offers, including the provision of service plans, as part of the development of its fleet and aftersales proposition and the evolution
of the brand.

Toyota Lexus

No. It is something Toyota and Lexus is looking into at the moment and is very much work in progress. There are non-manufacturer (dealer-based) service plans but they change in price depending on location.

Vauxhall

Yes. Eighteen different age/mileage combinations are available from two years/40,000 miles to four years/120,000 miles for cars. A four-year/80,000 mile service plan for an Insignia, for example, costs £1,408. Vauxhall is working on service plans for van fleets.

Volkswagen

Yes. A fixed price service plan is offered to retail customers and SME buyers (up to 50 vehicles). For fleets with more than 50 vehicles, Volkswagen offers a tailor-made service maintenance and tyres solution. It says that because all fleet drivers tend to have different requirements, it is more difficult to offer an off-the-shelf service plan.