Learning Zone

How to reduce your fleet management costs part 1: buying, selling and funding vehicles

By Ellen Sowerby
25 January 2021

The sooner you understand your fleet costs, the quicker you can learn how to reduce them. Here’s how to do it…

 

Have you been challenged by your company to reduce costs? The likely answer is yes as businesses look to rebuild in the aftermath of the Covid-19 pandemic and hit on profits.

As a fleet manager you’ll have to look at two distinct areas – capital and operational costs.

Effective fleet cost management allows you to develop an understanding of all financial aspects of the business – where and how money is being spent and areas where it needs to be reduced.

 

How can fleet expenses be reduced?

Before you do anything else, our advice is to do your homework. You need to know exactly how and where money is being spent. Doing this puts you in a strong position to better manage spend, creating the ideal opportunity to reduce costs.

So, what are the costs associated with fleets? We have split these into capital costs and corporate costs…

 

Capital Costs

The capital costs of your fleet include:

  • Acquisition costs
  • On-going financing of the vehicles
  • Deprecation (relevant for company purchased vehicles)

Not only does this include the actual figure of buying or leasing the fleet vehicle, but also the cost of acquiring the money to do so.

If, for example, you are outright purchasing, you need to understand how much the capital outlay is costing the company if the money has come through a lender. If the vehicle is leased, you’ll need to understand the tax advantages – or disadvantages – of that approach over the course of the vehicles’ fleet life.

It’s imperative that you start here when looking at your fleet management costs, otherwise the results of your subsequent calculations will always be skewed.

A good fleet management company will be able to lay this out clearly, and once you know your base financial position you can start to act.

Lowering Capital Costs

Obviously this varies according to the way your vehicles are acquired – be that owned or in a form of lease agreement. Capital costs account for about half of a fleets’ total running costs so it’s worthwhile looking at the cost benefit analysis to determine which is the best option for your fleet. So, what are your options?

Company car ownership – you buy the vehicles outright which means you are responsible for all servicing and maintenance repairs. Fleets that don’t have their own in-house workshop division can outsource this work.

Lease – the vehicles remain the property of the leasing company but on a hire agreement. Depending on what’s agreed in the contract, this can mean that all maintenance and servicing is carried out by the leasing company at agreed intervals – helpful for fleets that don’t have their own maintenance departments! Taking this approach can have the potential to cut your leasing costs by as much as 10%, but this third-party agreement does need to be managed strategically – remember, choosing the cheapest option every time doesn’t always work out in the long run.

Pool cars – vehicles owned by your company and used for ad-hoc business trips. In our experience this is a more cost-effective option than providing individual company vehicles.

Gray fleet – your employees’ own vehicles which are utilized for business purposes such as carrying out sales appointments. All running and maintenance costs are picked up by the employee and your company pays an agreed business mile rate for each business journey taken.

With options available, you need to take the time to calculate the most cost effective and practical vehicle solutions for your business. Capital available to fleet managers to source vehicles plays a part in influencing this decision too. Loaning money to purchase vehicles may become an expensive option with interest rates and other charges that apply through such a business decision.

 

Depreciation 

Depreciation is a major part of capital cost, accounting for as much as 40% of the total cost of running a vehicle. From a fleet management perspective, there are many elements to consider including:

  • Picking vehicles with strong predicted used values
  • Working with the finance department to account for depreciation throughout the vehicle’s life on your books
  • Maintaining and looking after them properly
  • Ensuring they always have the right paperwork
  • Managing drivers so they look after them
  • De-fleeting them at the right time

As with buying or selling anything, striking a deal at the right time can be an art and for this, it may well be worth sourcing a fleet management company to help.

 

Click here to read part 2 of this blog.

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