Fleet Cost Savings | 15 Tips To Make Efficiencies In Your Vehicle Fleet Operations
Fleet cost savings are significant for most organisations as they can be one of the highest costs to hit the profit and loss account.
Managing fleet costs is not always easy, as they tend to be in different accounts. But, typically, the cost for each vehicle on fleet ranges from £5,000 to £10,000 per annum.
The starting point for fleet cost reduction is the existing cost. It is crucial to establish a cost baseline incorporating all costs associated with the running of the fleet. Then, measure any savings from this baseline to ensure any changes to fleet strategy have the desired effect. Often changes may save cost in one area only to increase expenditure in other areas.
When looking to reduce costs, it is essential to look at the different stages of a vehicle lifecycle: acquisition, in-life and disposal.
Vehicle lifecycle: Acquisition
The selection of the vehicle forms an element of fleet cost reduction. There are several key considerations for the acquisition stage, which are detailed below:
Method 1 | Vehicle Funding
A wide variety of options exist for the funding of a fleet vehicle. Therefore, it is vital to assess which option is financially most efficient. Options include outright purchase, contract hire, contract purchase, finance lease, employee car ownership and salary sacrifice. The best choice often depends on the individual characteristics of both the business and fleet concerned.
For organisations that are happy to risk the vehicle’s residual value, then outright purchase or finance lease could be the best option. However, if you wish to pass the risk to a lessor, contract hire is the most suitable funding method.
Method 2 | Manufacturer and Dealer Discounts
Discounts for vehicle purchases are commonplace. They can be obtainable from both manufacturer and supplying dealer. Discounts reduce the price paid for the vehicle or are taken as a rebate.
Discounts usually scale up according to volume (or volume commitments). However, special offers become available at certain times of the year, especially on stock vehicles or where model changes are due.
Method 3 | Vehicle Policy
There are several areas concerning vehicle policy that can yield cost savings. For example, vehicle replacement cycles, fleet vehicle cost of ownership, levels of allowances, fuel reimbursement methods, vehicles offered, and the value of any cash allowance can all impact the cost of providing the fleet.
It is best to restrict choice for individuals who require vehicles for their business role. For those who receive vehicles as part of a benefits package, a broader selection of cars should be made available to employees. However, limit options to certain manufacturers to increase the potential discounts.
Method 4 | Fleet Management Company
Many organisations choose to lease vehicles predominantly through bank or manufacturer owned leasing companies. However, businesses can choose to put some or all of their business through a particular supplier. Where sole supply arrangements are in place, the firm should secure some contractual concessions from the leasing company such as pooled mileage, damage waivers or signing on bonus.
Under a multi-supply arrangement, these contractual concessions are more challenging to achieve. However, vehicle leases will likely be cheaper due to the ability to benchmark the market price for most purchases. Administratively, this may be more difficult to manage multiple suppliers, but the cost difference can be significant.
Whichever solution you select, it is crucial to managing the suppliers to minimise potential cost leakage.
Method 5 | Cash Allowances
Some organisations offer cash allowances as an alternative to a company car. In addition, some businesses provide cash for job needs and perk driver populations, although it is more popular for perk grades.
Set cash allowances at a cost-neutral position to that of the company car, so it doesn’t cost the company more should the employee opt for cash or the company car.
Method 6 | Pool Vehicles
Some businesses would benefit from running a pool vehicle fleet, especially with large offices with large casual driver populations.
Pool vehicles rely on high levels of utilisation to make them cost-effective. Use pool vehicles to replace grey fleet mileage, helping reduce risk and cost.
This has been very effective for some council fleets who operate within confined geographies and have locations with ample parking.
Vehicle lifecycle: In life
When you acquire a vehicle, it moves into its in-life phase. Here, you’ll need to think about the cost of fleet maintenance. It is possible to make fleet cost savings through several areas and initiatives highlighted below.
Method 7 | Fuel
After lease costs, fuel represents the highest cost to the running of a vehicle fleet. Therefore, it is essential to procure fuel well in addition to managing its use. Businesses have the options of fuel cards, bunkered sites, corporate cards and pay & reclaim.
Monitoring a drivers fuel economy is vital. There should be a follow up if there are discrepancies. Managing fuel is central to effective business mileage management. Without this, it is challenging to know what is happening within the fleet.
Speed limiters are now commonplace on light commercial vehicles and can lead to fuel and maintenance savings.
Free private fuel can be a costly benefit to provide and, in many cases, is not beneficial for the driver. Increasingly organisations are moving away from the provision of free fuel due to the cost to the organisation.
Method 8 | Vehicle Maintenance
Maintaining vehicles correctly is important to minimise downtime.
Closely monitor and adhere to service intervals to make sure vehicles remain in warranty and out of contract charges are not levied by the fleet management company. Some organisations, particularly if running “mission critical” assets, will adopt a more proactive maintenance schedule or out of hours servicing to ensure assets are available for the maximum time possible.
Drivers should undertake regular vehicle checks for items such as fluids and lights. In addition, ensure you check any remedial mechanical repair work against the manufacturer’s warranty, avoiding unnecessary costs.
Method 9 | Vehicle Policy and Procedures
Organisations should enforce vehicle policy and procedure at all times.
Where employees leave, fleet managers should reallocate vehicles in the first instance instead of terminating a lease early.
Many organisations charge drivers for misuse of company vehicles or damage charges incurred when handing the vehicle back to the fleet management company.
Method 10 | Fleet Risk Management
Effective risk management can help bring down costs by reducing maintenance, damage, insurance and accident costs.
Risk assess drivers and take remedial interventions where appropriate. This may involve some form of training or the removal of a vehicle altogether.
Method 11 | Daily Hire and Minilease
Daily hire provides a helpful service for short term transport needs. However, the daily rental can also be a considerable cost to a business.
Periodically review daily rental costs to ensure it offers the best value for money solution. In addition, where pool vehicles are in operation, cross-check daily hire records to help avoid any unnecessary hires.
Method 12 | The Grey Fleet
Grey fleet is both a risk and a cost to a business. Monitoring and understanding the grey fleet is critical to identifying and managing associated risks.
An alternative to using grey fleet is using pool vehicles or hired vehicles, particularly for longer journeys.
Vehicle lifecycle: Vehicle disposal
Once the vehicle has come to the end of its useful economic life, it will need to be disposed of. We have highlighted some considerations regarding the disposal process below:
Method 13 | Disposal Channel
The lessor is responsible for disposing of vehicles under a contract hire agreement.
Fleets who own their vehicles will need to select an appropriate route for disposal. This will range from selling via a local dealer, auction, online sale or sale direct to an employee.
The best sale channel will depend on the type, age and mileage of the vehicle. Employee sales generally offer the best sale price as well as reducing disposal fees.
Method 14 | Vehicle Damage
Assess and if necessary, repair any vehicle damage before returning vehicles to the lease company. Leasing companies will charge for vehicles with damage (as assessed under BVRLA standards) and this is usually more than the cost of remedial action. It is worthwhile using mobile repair services to address any minor damage before the vehicle is returned to save on any unwanted invoices.
For owned vehicles the residual value of a vehicle will suffer if it is sold in a damaged condition.
Method 15 | End of Contract Mileage
Leased vehicles come with a contracted mileage as part of the contract. Exceeding this mileage will incur an excess mileage charge at the point of return.
Excess mileage should in the first instance be offset against a mileage pool where it exists. Failing that vehicles can have their contracts re-written in-life but fleets need to be aware that leasing companies will seek to add more profit into a contract where this occurs.
Alternatively, re-allocate vehicles to different drivers based on their anticipated mileage, reducing the impact of excess mileage.
Summary | Fleet Cost Savings
There are several ways to achieve fleet cost savings. First, fleets should establish the cost baseline and look to make adjustments against this baseline.
Evaluating cost-saving initiatives against the baseline will avoid unwanted consequences. Generally, change will impact numerous areas.
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