Fleet Management Glossary
This article provides a fleet management glossary for some of the terms used in the fleet management industry.
Advanced Rental – An initial payment as part of a lease or purchase agreement.
Allocation Policy – Defines how a company allocates its company vehicles.
Alternative Fuels – Alternatively sourced fuels such as biofuels, CNG, LPG, Electric, methanol or fuel cell technology.
Balloon Payment – The payment due at the end of some leases / loans.
Benefit in Kind – The non-wage compensations provided to employees in addition to their normal wages or salaries. Employee benefits, such as company cars and private fuel provision are taxable and the amount of tax paid varies according to vehicle.
Blocked VAT – Where a vehicle has some element of private use there is a 50% block on the finance element of the contract hire or finance lease rental.
Capital Cost – The initial cost of acquiring a vehicle or asset.
CNG – Compressed natural gas.
CO2 Emissions – The carbon dioxide emissions output from a vehicle. When the vehicle is manufactured it undergoes a testing process which produces an official figure used for taxation purposes.
Contract Amendment – A formal agreement to change the term and/or mileage of a vehicle lease.
Contract Hire – The most common vehicle funding method. A form of operating lease where the lessee has the right to use a vehicle over a contract period or mileage but does not own the vehicle at any point.
Contract Purchase – The organisation agrees to purchase a vehicle over a contractual period. Ownership transfers by way of a final payment or balloon payment. There is usually an option to return the vehicle at the end of the lease. Contract purchase is a loan agreement as opposed to a lease.
Depreciation – The reduction in the value of an asset over time. Depreciation costs on vehicles tend to be highest in the initial period of ownership when acquired from new.
Disposal – The sale or de-fleeting of a vehicle at the end of contract.
Dilapidation – Under a lease agreement dilapidation can be charged where the vehicle is returned in a less than reasonable condition for its age and mileage. Vehicle condition is generally measured against “fair wear and tear” guidelines which are published by the BVRLA.
Duty of Care – Under the Health and Safety Act 1974, employers have a statutory duty to ensure the health, safety and welfare of all employees at work. This legislation in the context of running the fleet relates to managing on road risk.
Early Termination – If a customer chooses to end a lease agreement before its contracted end date. Under a contract hire agreement this usually generates a charge based on a percentage of outstanding rentals or based on the actual costs of termination.
ECOP/ECOS – Employee car ownership plan/scheme.
EREV – Extended Range Electric Vehicle such as the Vauxhall Ampera with a conventional fuel source to power an electric engine.
Excess Mileage – If the mileage on a vehicle at termination is higher than the contracted mileage, this attracts an excess mileage charge. The amount of charge is generally set on a vehicle by vehicle basis and covers additional depreciation and servicing costs.
Fair Wear & Tear – The BVRLA issue guidelines which define what an acceptable condition for a vehicle is when it is returned at the end of its lease.
Finance Lease – A finance lease effectively funds a chosen vehicle over a period of time (usually between 2 and 5 years). Vehicle leases can be amortised down to an assumed residual value or can be fully written down to zero. Unlike contract hire the lessor assumes the risk on residual value.
Finance Rental – The finance element of rental payments and usually includes depreciation and interest.
Fleet Management – A range of activities associated with running a vehicle fleet.
Fuel Cards – Payment cards specifically for the purchase of fuel and associated services (e.g. Car wash or oil).
Funder or Leasing Company – The company with whom lease or loan agreements are the contractual counterparty. The provider of finance for the procurement of the vehicle.
HGV – Heavy goods vehicle.
Hybrid Vehicle – Vehicles with a dual powertrain such as the Toyota Prius which has a petrol engine combined with electric propulsion at lower speeds.
GAP Insurance – Insurance which covers any collateral gap should a contract have to be written off or early terminated. Certain conditions apply to different types of GAP insurance.
LCV – Light commercial vehicle.
Lessee – The user, but not legal owner of the leased asset.
Lessor – The legal counterparty to the lease agreement and owner of the asset.
LPG – Liquefied petroleum gas.
Maintenance – Servicing, repairs, tyres, batteries and exhausts. Sometimes referred to as SMR.
Master Hire Agreement – The framework contract with a vehicle lessor for a single vehicle or multiple vehicles.
MPG – Miles per gallon.
MPV – Multi-purpose vehicle.
Occupational Road Risk – Risks which arise from employees using the road network in conjunction with business activities.
Operating Lease – A short term lease (a period shorter than the economic life of the asset) where the lessor assumes most of the risks of ownership. Contract hire is an example of an operating lease.
Personal Contract Hire – Similar to business contract hire but for individuals as opposed to businesses.
PHEV – Plug in electric hybrid vehicle. A hybrid vehicle which can be recharged from an external power source.
Pooled Mileage – Normally a term contained within the master hire agreement where all credit and excess mileage charges go into a pool to form a net position.
Relief Vehicle – A temporary vehicle provided by a leasing company of funder to cover instances where the leased vehicle is off the road for repairs or maintenance.
Replacement Cycle – The period of time a vehicle is kept before it is replaced. This usually is a combination of age and mileage parameters.
Residual Value – The forecast value of a vehicle at a future date and mileage.
Risk Management – The management of road risks by an organisation or driver.
Sales Agency Agreement – An option exercised at the start of purchase agreements which allow the customer the choice of paying the balloon and keeping the vehicle or returning it at end of the contract.
Service Rental – Part of the rental which covers the service elements of a lease such as maintenance, tyres and breakdown.
Salary Sacrifice – A scheme to provide company cars to those who would not normally be entitled to a vehicle. Under the scheme the employee agrees to give up some gross salary and receives a company car in return.
Sale and Leaseback – Where a vehicle which has been purchased outright is sold to a leasing company and leased back under a separate agreement.
SMR – Service, maintenance and repair.
Spread Rental – A payment profile which spreads rentals over the life of the contract. This means that there is no rental-free period (terminal pause) at the end of the contract.
Terminal Pause – The period at the end of a lease when no rentals are payable. This is usually the same period as the number of advance rentals initially paid on the contract.
Total Cost of Ownership (TCO) – The total running cost for a vehicle also known as whole life cost (WLC).
VED – Vehicle excise duty.
Whole Life Cost (WLC) – WLC is the sum of the known running costs for a vehicle. This usually involves finance rental, service rental, blocked VAT, employer’s national insurance, fuel, administration and insurance. WLC is also referred to as total cost of ownership (TCO).
Writing Down Allowance – Under purchase agreements certain capital allowances can be claimed against the vehicle. The amount depends on the type of vehicles involved.