Fewer cars are paying excess mileage, but charges still rise

For some, the figure is as little as £20; for others it can be up to £900, reports Andrew Ryan

The amount fleet operators are paying in end-of contract excess mileage charges for cars has risen significantly for the second consecutive year.

This year’s FN50 research has found the average charge for defleeted company cars is £449, 19% higher than last year, which itself was 17% higher than in 2018. The 2018 figure was a record low of £324.

There remains a huge disparity in the size of the average charges reported by individual leasing companies and these range from as little as £20 to £900. The extremes highlighted in last year’s FN50 were £28 and £1,182.

Of the respondents to this part of the FN50 research, 38% of leasing companies had charges above the average amount, with 63% of those at £700 or above.

Of those with charges below the average, 15% were £100 or less.

The average proportion of cars subject to excess mileage charges has fallen one percentage point from last year to a record low 18%. 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 0.5% to as high as 61%. There was a £350 difference in the size of the actual average charges these two companies billed: £440 and £790 respectively.

Just more than one-quarter (28%) said the proportion of cars returned which were subject to excess mileage charges was 10% or lower, while 24% said their average figure was about 25%.

Meanwhile, van operators fared much better with excess mileage charges. The average charge for vans fell £2 from 2019’s figure to £482, which points to a year of relative calm after the previous year’s 40% increase.

Those leasing companies with above-average charges for cars accounted for 67% of the companies with above average charges for vans.

As with cars, there is a huge disparity in the average charges reported by individual leasing companies, ranging from £55 to £900.

Of the leasing companies which supplied this information, 42% had charges above the average amount, with 16% at £750 or above. Of the companies below the average, 50% were £250 or less.

The average proportion of vans which were subject to excess mileage charge has remained steady over the past three years.

This year it was 19%, two percentage points below last year’s figure and one percentage point lower than 2018. Two-in-five (38%) respondents reported being at or above the average figure.

As with cars, there was a large disparity between the proportions reported by individual leasing companies. The lowest figure was 2% and the highest 85%.

Overall, 28% of respondents said their average proportion of vans which were subject to the charges was 10% or lower, while 12% were above 50%.

Like last year, there does not seem to be a common factor to determine why the excess mileage trends have either increased in the case of cars or slightly decreased for vans. 

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

Another unknown is the effect the Covid-19 pandemic had on this year’s figures. In July, a Fleet News survey of 150 fleet decision-makers found almost 61% expected to see average mileages of their company car fleet fall.

More than half (57%) of respondents said the majority of company cars they operate were not being driven for work, while 43% said less than one-third of the vehicles on their company car fleet were being driven for work.

This would suggest vehicles could either have been returned with lower than expected mileages as business travel reduced, although many fleets extended their vehicle contracts during the pandemic. Other vehicles could be likely to incur increased charges due to an increased workload.

LOCKDOWN HELP

During lockdown, leasing companies worked to mitigate the impact on mileage charges. 

For example, Miguel Cabaça, managing director of Arval UK, says: “Arval will be as understanding as possible in these difficult times.

“We will be having individual discussions and be offering proactive solutions client-by-client.”

Leaseplan said customers’ individual mileage allowances would continue to roll on, on a pro rata basis, if leasing agreements were extended.

Next year’s FN50 should provide a clearer picture of the impact of the pandemic on business mileage and how fleet decision-makers have managed their vehicles during the crisis, as more leases expire and vehicles are returned to their leasing providers.

Previous FN50 reports have suggested that when end-of-contract charges are falling, it is 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.

These are among the measures introduced by Free2Move as it has focused on reducing excess mileage charges for its customers.

“We have taken two very decisive moves in this area in recent years, taking account of prior dissatisfaction in the market at the level of these charges,” said Mark Pickles, managing director of Free2Move.

“Pence-per-mile rates for excess mileage have been reduced to take account of the ‘real’ impact on residual values, rather than to be used as a ‘penalty’ or profit opportunity – treating our customers fairly is a core principle.

“We also have a large number of our fleet fitted with onboard tele-matics, using our own Free2Move Connect Fleet system, to be able to monitor the mileage on a real-time basis.”

Where Free2Move sees mileage is starting to trend above the contract-agreed figure, it calls its customers to find out if they are aware of this, if it is a trend that is likely to continue or is a seasonal aberration, or if they would like to amend their contract to avoid any end-of-contract penalties.

Pickles added: “Most customers, faced with this up-to-date and reliable information, elect to increase their monthly lease payment slightly to cover the extra mileage and avoid a nasty surprise at the end.

“In the same way that we are used to our gas and electricity bills being adjusted to take account of higher usage rather than building up a deficit on our home energy account, Free2Move is able to neutralise this impact and give the customer a choice of how to deal with a change in usage.

“By utilising the telematics data, we can avoid false alarms, see patterns emerging and give fleet managers the choice of how they wish to manage the change.”

Pickles adds that pooled mileage arrange-ments give its larger customers more flexibility and reduce the need to swap cars or vans between users to manage mileage, resulting in fewer excess mileage charges and less intervention on the part of the customer.

The average proportion of trucks which attracted excess mileage charges also increased year-on-year, this time by three percentage points to 10% compared with 2019.

The average charge was £600 – 50% less than in last year’s FN50 report, while the disparity in the proportion of trucks subject to excess mileage charges reported by individual leasing companies was much smaller than with cars or vans, ranging from 9% to 12%.