Edit How to Lower Fleet Management Costs (Part 1): Capital Costs
Understand your fleet management costs and learn how to reduce spending…
Without really knowing what you’re currently spending on keeping your fleet running, how can you ever hope to remove waste and cut the associated costs?
When it comes to the fleet management, there are effectively two types of costs to look at: capital and operational costs. If you have a strong understanding of these areas of your fleet – and how to better manage them – then you have a very good chance of significantly reducing your fleet management costs.
The capital costs of your fleet include:
- Acquisition costs
- Ongoing vehicle finance
- Depreciation (if this is relevant to your funding)
Not only does this include the actual figure of buying or leasing the car, but also the cost of acquiring the money to do so.
If, for example, you are outright purchasing, you need to understand how much that 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.
This can differ across companies, depending on accounting procedures and financial position, however, it is 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 in black and white, and once you know your base financial position you can start to act.
Lowering capital costs
This obviously varies according to the way the vehicles are bought or leased, but there are some management issues you should consider that will help keep these costs on budget.
Leasing generally accounts for about half a fleets total running costs, but if you employ fleet management you could reduce this proportion. Increasingly popular is a strategy of having a panel of preferred lenders in place rather than using a single leasing company – and asking them to tender for either individual vehicles or a selection at any one time.
Taking this approach has the potential to cut your leasing costs by as much as 10%, but this does need to be managed strategically: just choosing the cheapest option every time doesn’t always work out in the long run.
If you’re going to get your suppliers into a price war for supplying you with vehicles, you may well get some very impressive headline lease rates. But winning the business with the lowest price might result in much less accommodation from your supplier with wear and tear or excessive mileage issues at defleeting time or less competitive servicing costs.
As with everything in fleet management, there is often a balance to be struck between front end prices and ongoing costs.
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 right, from:
- 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
- Defleeting 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 might well be worth getting a fleet management company in to help.
Accurately estimating the operating cost of an entire fleet is arguably an impossible task, yet with ever dwindling headcounts – resulting in less administration resource – and without competent fleet management software, it’s the only option available to many fleet managers.
Operational fleet management costs are those that come from day-to-day vehicle activity and the ongoing business of running them. Here are some of the main ones you’ll need to manage:
Company car drivers have to pay benefit-in-kind (BiK) tax on the P11d price of their car, relative to the official CO2 figure and fuel type …but for a business, National Insurance Contributions (NICs) are necessary too.
The current level of NI contribution is 13.8% in financial year 2018/19, and so for any vehicles brought onto the fleet, the CO2 figure is crucial not just to reducing the tax liability of the employee, but the employer too.
Fuel cost is a major expense of running a fleet, and it can fluctuate depending on a wide range of factors that are sometimes out of your control.
That said, from a fleet management perspective, there are some actions you can take. Choosing fuel-efficient vehicles (whatever their fuel type) is a start, and the new WLTP regulations on official fuel economy figures should provide some clarity.
Choosing the right type of fleet vehicle for the job is also important. For high mileage, diesel is still best, but whatever the fuel, buying it cheaply (either using a fuel card or specifying certain stations where possible) and keeping the vehicle in good condition will certainly help.
Underinflated tyres can, for example, increase fuel consumption by up to 15%. See our infographic for more tips on how to save fuel.
Whatever fleet insurance policy you have, you need to understand your risk first.
So, you need to put in place a risk assessment (probably with the help of your insurer and fleet management company) to analyse your claims history and highlight areas that need to be worked on …perhaps by bringing in some fleet driver training or fitting telematics into vehicles.
Service, Maintenance and Repair (SMR):
Service, maintenance and repair (SMR) rates can have a big impact on your fleet management costs of ownership, and monthly leasing payments too.
But it’s an area which is very hard to manage if you don’t have expertise in that area. A simple way is to opt for packages, where servicing, tyres and general wear-and-tear is looked after by a fleet management or leasing company.
Alternatively, there are many systems which can monitor your servicing and repair work, with parts and labour prices guaranteed and service level agreements and KPIs in place for suppliers. Any time they fall outside those parameters, it is flagged up.
This level of management will also give you a view on the operational behavior of your fleet and business …and solving SMR issues could help vehicle downtime and make your business run more smoothly and efficiently.
With a flexible fleet management system you will be able to gain full visibility over all of the elements that make up your unique fleet operation – and with visibility comes control.
By consolidating data into one centralised, enterprise-wide fleet programme you will be able to monitor and reduce financial investment, and as a result better manage lease costs and terms; manufacturers’ incentives; daily or monthly asset utilisation; business and personal mileage; external maintenance and fuel usage; CO2 emissions cost-per-mile; parking fines and the total cost of ownership (TCO).
Apart from capital costs, you can also focus on operational costs and utilising information from your fleet
management software to make fleet management more economical.
Learn how in the second part of our blog.