Did you know that the typical company vehicle costs a business over £8,000 a year? - 3 Steps to controlling and reducing your Fleet & Business Mobility spend in 2021
Whether you have 2 or 2,000 company vehicles (Company cars and Light / Heavy Commercials) the cost line will typically appear as one of your top 5 business spend lines. Alongside, employees, office expenses, insurance, Marketing and utilities
As businesses look to deploy more flexible cost-effective methods for business travel, more and more are incorporating short-term mobility alternatives alongside the more traditional company cars and van leases. i.e. use of employee personal cars for business journeys, alternative travel options, rail, taxi, flights or looking to reduce business miles travelled.
2021 has just begun and it is a great time to review you Fleet and Mobility spend to ensure that it is optimised and supporting the growth and overall profitability of your business.
3 Steps to controlling and reducing your costs:
1/ Fully understand your existing cost base
This may sound obvious, but with fleet and mobility spend being incurred across many suppliers for different products and services, these costs are often not clearly and easily identifiable, it is very common to ask the management team of a business how much do you spend on your fleet and business travel and get a reply that is at best approximate or worst totally inaccurate.
This is often as a result of costs being amalgamated in other spend categories, so the true cost is not easily identifiable. Even when Fleet costs are well managed they often will not incorporate all elements of spend, i.e. blocked VAT, National insurance, business insurance, personal car business use reimbursements etc, etc.
Getting a clear, timely and accurate view on what your costs are is a key and critical first step to controlling them.
Below are just some of the costs to consider:
Often larger organisations have a dedicated Fleet manager or Fleet team, that has full ownership and control of all aspects relating to usage, financing and management of their company vehicles. However Fleet managers are becoming less common as businesses look to outsource the management of their company vehicles to their suppliers.
This can be an effective way of reducing costs but often comes with certain challenges.
Is the organisation that provides you with fleet finance and services 100% focused on reducing and controlling your spend? Often the answer to this question will be no as their primary interest will be to maintain and increase their margin. Also to ease your administration you may consolidate your Fleet and broader business mobility spend with one or two suppliers, costs and service levels may be compromised as a result.
2/ Monitor and control your Fleet and business mobility cost lines
Do you have fully transparent pricing which easily enables you to identify and challenge any non-justified price increases?
How competitive are your costs relating to your company vehicles and associated business travel? Often companies will select suppliers via a formal tender process and award a supplier contract for 3 or 4 years. At contract award stage you will have been confident that you had market competitive pricing, but ongoing price creep can quickly occur, with many price variables changing simultaneously it can be extremely difficult to identify legitimate market price movements with those resultant from supplier price creep.
Let’s just look at one aspect of fleet cost, company vehicle financing and lease costs. Here the price monitoring challenge is clear…. Vehicle list price changes, new vehicle model introduction and retirement of older models, vehicle taxation changes i.e. Road tax, National Insurance, fuel duty, finance interest rates and market movements in used vehicle values will all impact your costs, so how can you be sure that the price you are paying is market competitive?
Maintaining a level of confidence that you are still benefiting from competitive market pricing can be a real challenge without the correct price tracking mechanism and KPI’s in place.
Regular benchmarking of best in class market pricing is a key factor in controlling your company vehicle costs.
These principles of tracking and challenging price movements apply to all elements of company vehicle spend, i.e. servicing and maintenance, short term rental, accident management, Fuel etc.
When you have completed Step 1 – Understand and quantify your true cost baseline and Step 2 – Monitor and control your Fleet and business mobility cost lines you are now in a good position to move to Step 3.
Step 3 – Strategic initiatives to control and reduce Company vehicle and business mobility expense
First ask yourself the following question. Does my business strategy take into account new products introductions, tax & legislation changes, business and employee taxation changes, changing business travel requirements and broader economic influences?
There are many opportunities to improve the cost efficiency of your business travel expense, the level of cost savings and ease of implementation will vary by the initiative chosen. Here are LetsTalk Fleet we have highlighted 7 examples of Strategic Cost Saving initiatives you could look to deploy for 2021 to reduce expense and make your business more efficient and cost effective.
1/ Vehicle choice – Are the vehicles you have on policy the most cost efficient for your business needs? Always compare vehicle options on a fully costed whole life cost (WLC) basis i.e. asset price, finance, servicing and maintenance, taxation and fuel, this is especially relevant after the new Worldwide Harmonised Light Vehicle Test Procedures (WLTP) were introduced in September 2018. This reassessed the Co2 values and fuel efficiency of vehicles, seeing increases of approximately 10-15% in Co2 values and a decline in reported MPG’s, with the resultant knock on impacts to vehicle costs and business / personal taxation.
2/ Business mileage – One of the simplest ways to reduce cost is to reduce the number of miles that you travel, this can be done by conducting a detailed review of the journeys travelled, identify journeys that are not a business necessity or that could be avoided by utilising other provisions. i.e. video conference for some customer reviews can negate the need for many face to face meetings, improved business journey planning to reduce and eliminate overlapping journeys.
3/ Vehicle holding period – As a general rule the longer you keep a business company vehicle the lower your monthly cost will be i.e. keeping a vehicle for 3 years will have a lower monthly cost than a 2 year holding period and a 4 year holding period will be cheaper than a 3 year one. However detailed costings need to take place to ensure that you choose the optimum holding period. Maintenance and servicing costs will increase proportionally the longer the holding period, often to the extent that keeping a vehicle for 6 years or more will not be proven to be cost effective. Also, with vehicle technology, legislation and taxation changing constantly it is really important that you regularly evaluate the impact of such changes to ensure that your historic holding period is still relevant.
4/ Fuel type - Fuel costs and new fuel types are constantly changing, diesel versus petrol, hybrid and electric vehicles are quickly becoming a viable alternative to more traditional fuel types. Always factor in the Whole Life Costs (WLC) associated with your vehicle choice I.e. purchase price, maintenance and servicing and business/ personal taxes.
5/ Mobility cost – Develop a clear business mobility policy, compare the cost of business travel via alternation options, Short Term Vehicle Rental, Long Term Vehicles Lease, Public Transport & Car sharing are some of the options available to solve for your business travel requirements. Clear guidelines and ability for employees to identify the most efficient and cost-effective option is key to reducing and controlling your spend.
6/ Grey Fleet – Grey Fleet is a term used to describe business mileage travelled in an employee’s personal vehicle. Employees are reimbursed for the business miles travelled. With many options available to reimbursee employees for the use of their personal vehicle from cash allowances to business mileage reimbursement rates or indeed a combination of the two. Structuring the employee payments cost effectively is really important to ensure that your cost is controlled and kept to a minimum and that the appropriate tax is paid on any employee payments. Also, ensuring that up to date and clear policies are in place to manage corporate liability for such provisions is a key action for employers.
The start of a new year is always a great time to take a fresh look at your Fleet and Mobility cost base, ensuring you have the right suppliers in place, you have a clear road map in place to deliver on your strategic objectives and that you have clear management to control your costs.
LetsTalk Fleet are totally independent and specialist Fleet Management and consultancy business with over 50 years’ experience in the often complex and challenging Fleet and business mobility arena. We are based in Manchester and a member of the Greater Manchester Chamber. We work with businesses of all sizes, helping them reduce and control their business expenses and optimise their mobility operations.
2021 will see a lot of change in this area, personal taxation, electric and hybrid vehicles becoming more widely available and cost effective, congestion charging and Zero emission zones and the continued move towards mobility solutions are just some of changes which may impact your business.
If you have any questions or need support with any aspect of your company vehicles and business mobility provision, please contact us:
Contact Details - LetsTalkLeasing, Stadium Way, Manchester M30 7EY