End-of-contract excess mileage charges increase

The amount fleet operators are paying in end-of-contract excess mileage charges for both cars and vans has increased significantly in the past year.

This year’s FN50 research has found the average charge for defleeted company cars rose 17% to £378, while the amount for vans increased 40% to £484.

In 2018, the average amount charged for cars sat at a record low of £324: the second consecutive year it had fallen by more than 11%, and the fifth fall in a six-year period.

However, the 2019 figure was the highest amount since 2016, when it was £413.

There remains a huge disparity in the size of the average charges reported by individual leasing companies and these range from as little as £23 to £1,182. These are comparable to the extremes highlighted in FN50 2018 of £37 to £1,200.

Of the respondents to this part of the FN50 research, 44% of leasing companies had charges above the average amount, with 50% of these at £750 or above. Of the companies with charges below the average, 22% were £100 or less.

The average proportion of cars which are subject to excess mileage charges has remained unchanged from last year’s record low of 19%. Over the longer term, this proportion is significantly lower than the 2005 figure of 32%.

There is also a large disparity between leasing companies in the proportion of cars subject to excess mileage charges.

These ranged from as low as 4% to as high as 71%. There was also a huge gulf in the size of the actual average charges these two companies billed: £752 and £81 respectively.

Just more than one in five (22%) of respondents said the proportion of cars returned which were subject to excess mileage charges was 10% or lower, while 17% said their average figure was above 30%.

The fall in the size of excess mileage charges in recent years suggests that contract hire providers are becoming more savvy at identifying higher mileage early and working with their customers to help avoid big charges at the end of the term.

It is not clear from the research why the downward trend has ended or, at the very least, stalled.

There is no consistent pattern in the duration of average replacement cycles operated by the leasing companies with the highest charges, or whether cars were being returned early, on time or late at the end of their terms.

However, those leasing companies with above average charges for cars also accounted for 75% of the companies with above average charges for vans.

Previous FN50 reports suggested that telematics and connected systems, where fitted, were helping keep track of vehicle mileage through the duration of contracts, and were playing a role in managing mileage more effectively.

They have also suggested that while end-of-contract charges were falling, it was most likely through contract hire companies keeping track of mileage and discussing higher mileage than agreed with customers mid-term, and allowing flexibility to increase monthly rental rates to compensate so there would not be a large excess mileage bill at the end of the fleet lifecycle.

Prior to this latest research, it had seemed more fleets were on board with a more manageable way of addressing excess mileage without having to deal with the inconvenience of a large settlement at the end of the contract.

Whether this is still the case over a sustained period, or if this year’s results are merely a blip, remains to be seen.

Leasing companies, however, say they are continuing to work with customers to reduce their charges, with Alphabet one which has successfully done that.

David Bushnell, principal consultant at Alphabet, said: “Alphabet has worked hard over the past few years to reduce excess mileage charges for customers as we know they are a bugbear for fleet decision-makers.

“There’s no magic bullet to achieve this, it’s a recipe of proactively using all the information available, working closely with customers and their drivers, as well as being flexible with our approach.

“The key is to manage it ‘in life’ rather than at the end of contract.

“So, where we have information on mileage through one of the various customer touchpoints, we’re able to discuss with fleets whether they’re likely to be over or under mileage and work closely how best to handle this.

“As vehicles get increasingly connected, the availability of the mileage and usage data should help both leasing companies be even more proactive in their approach and provide fleets with the transparency to be able to make the right decision for them.”

Hitachi Capital Vehicle Solutions (HCVS) has not seen any notable changes in excess mileage charges compared with 2018, but said it also works closely with its customers to minimise any fees.

HCVS managing director Jon Lawes said: “Through our account management framework we provide fleet information and insight, adding value and ensuring vehicles are being used to their maximum potential so the impact of over/under mileage is minimal at the end of the contract.

“For some customers, we offer pooled mileage which minimises the impact of any outliers.”

As reported, the average end-of-contract excess mileage charge for defleeted company vans has risen 40% to £484.

In 2018, it sat at £345 – the lowest figure since the data began to be collected in 2015 – which was a fall of £151 on 2017’s figure.

However, this year’s increase was the highest charge since 2017, when the average sum was £496.

As with cars, there is a huge disparity in the average charges reported by individual leasing companies, ranging from £40 to £1,442.

Of the leasing companies which supplied this information, 42% had charges above the average amount, with 10% of these at £1,000 or above.

Of the companies with charges below the average, 26% were £250 or less.

The average proportion of vans which were subject to excess mileage charges was 21%, one percentage point above last year’s figure, and one percentage point lower than in 2017. Two in five (43%) respondents reported being at or above the average figure.

Again, there was a large disparity among individual leasing companies. The lowest proportion reported was 3% and the highest 81%.

Overall, one-third (33%) of respondents said their average proportion of vans which were subject to excess mileage charges was 10% or lower, while 10% were above 50%.

The proportion of trucks which attracted excess mileage charges also increased year-on-year, but by a much smaller amount than cars or vans. This sector saw the charges increase by three percentage points to 7% compared with 2018.

One-quarter of respondents reported that 0% of the trucks they defleeted this year were subject to any excess charges, while the highest proportion was 12%.

The size of the average excess mileage charges also increased: at £1,190, it was almost three times last year’s figure of £411.

Of those leasing companies which reported excess mileage charges, the lowest figure was £600 and the highest was £2,960.