When it comes to company vehicle management, there’s less need to check the rear-vision mirror, more focus required for what lies ahead. Glenn Baker helps steer business owners through the current issues and options.
In a country long renowned for its love affair with vehicles and, more specifically, the much-coveted ‘company car’, there have lately been some rumblings – and not of the V8 variety – that could well change the face of the fleet management sector forever. No matter if your fleet is navy-size or just a few runabouts for the sales reps – there are some definite changes and trends out there that cannot be ignored and should be factored into any company vehicle management strategy.
For a start, we’re hanging onto our company vehicles longer – or as LeasePlan MD Charles Willmer puts it, “there’s a little less structure to fleet rollover”.
“Companies are no longer updating vehicles religiously every 36 months – they prefer to run them on a bit more as they see this reduces cost in their effort to ride out the recent troubled economic times.”
This works to some extent, he says, but not when you consider that new vehicle prices and interest rates will never be cheaper than they are now.
“In New Zealand over the past 15 to 20 years there has been an actual real cost reduction of buying a vehicle,” says Willmer. “But that’s changed in the past couple of years as new vehicle prices have increased.”
As for the actual use of company vehicles, Willmer says there’s been no change. Their popularity for getting the job done or making up part of a remuneration package is unchanged.
What has changed is the types of vehicle we’re choosing. “It’s more a focus on the right car for the right job – rather than, for example, choosing a Ford because we’ve always run Fords.”
More than ever the emphasis is on the total lifecycle cost of ownership, he says, “which leads into the formulisation of vehicle policies”.
This is where a company like LeasePlan can come into its own. It factors in all the parameters: Who has a car? What do they use it for? Are CO2 emissions and safety a major factor? And so on. “Then,” says Willmer, “we scour through our vehicle database and go back to the client with a structured policy and recommendation – matching vehicle models specifically with needs.”
He says sustainability is a major consideration by businesses these days – and in terms of a vehicle, sustainability encapsulates the CO2 emissions, safety factor and value. He says ANCAP safety ratings have become hugely important for companies. Any car that scores three stars or below is simply not considered by LeasePlan for a policy recommendation. “In fact, our own fleet has nothing but five-star rated vehicles.”
Vern McLaren, national customer service manager at FleetPartners, agrees that sustainability is becoming a higher priority as the economy slowly recovers. “Cost reductions have been achieved by either moving away from large cars into more economical options or extending current leases.
“This move has some companies forgoing good service or the most appropriate vehicle option for the cheapest deal in the market.”
McLaren says there is a definite trend to smaller engines, and finding greater efficiencies within fleets. “This means shopping around for supplier quotes, consolidating vehicle brands, pooling resources for increased purchasing power and implementing fleet management tools.”
Meanwhile, Mitchel Booth, GM, Fleet and Equipment Finance, GE Capital, has noticed more companies outsourcing their fleet management to service providers such as themselves, to focus on growing the business. “There has also been increased interest in turning owned vehicles into cash via a ‘sale and leaseback’ arrangement – to further help drive growth and profitability.”
Booth also notes the trend towards alternative energy; more demand for diesel and fuel efficient vehicles; and businesses changing their vehicle procurement policies by using supplier relationships to maximise discounts and increase efficiencies.
“This leads to a demand for smarter procurement of vehicles from fleet suppliers, including batch buying. Additionally, customers expect suppliers to be able to provide a breadth of services and their fleet provider to be a strong financial partner.”
Where to start?
Once you’ve found a company with the most cost effective vehicle and financing solution, the next step is to prioritise your business’s needs. That’s a major box to tick, according to McLaren. He says this will include, but is not limited to: Is the vehicle fit for purpose? The HR requirements of the organisation; pricing versus budget; leasing versus ownership; fuel economy; sustainability, health and safety; and service levels.
“Once you have a thorough understanding of your needs – then you can proceed with the new vehicle or upgrade with confidence.”
Becoming familiar with key aspects of leasing is paramount, according to GE Capital’s Booth.
His advice is to future-proof the lease arrangement – could you still meet your lease obligations should your financial situation change? Are future cashflow fluctuations going to create problems?
The difference between fully-maintained and non-maintained leases are explained in Robert Barry’s separate story that follows – but you may also want to enquire about options such as fuel cards and accident management. And, are you covered for relief vehicles if a car is off the road?
Tax and IASB implications
In the past 12 months the biggest change to tax affecting company vehicles has been the reduction of Fringe Benefit Tax (FBT) to keep it in line with the reduction in personal tax rates. LeasePlan’s Charles Willmer doesn’t think this will have any appreciable difference on the market – regardless of whether you own or lease your vehicles.
However, there will be a much more noticeable effect from changes to the treatment of operating leases this year under the International Accounting Standards Board (IASB) proposal.
The IASB proposal is all about harmonising the way leases are treated for reporting purposes and introducing a common standard, says Willmer. “It’ll bring any type of lease onto the balance sheet to some degree or other. All types of leases, including operating leases like finance leases are now, will be brought into line with ownership. On the balance sheet ownership and leasing will be in a neutral position – it’s really just a ratio issue which will be compensated for by those that review such matters.”
He believes it will primarily impact the ‘larger ticket’ leasing market – but have little impact elsewhere. “It doesn’t change the fundamentals of a lease.”
To find out more about the IASB implications he recommends talking to your accountant or fleet provider. It will also be explained in some length at Fleet Forum 2011, held in Auckland on Friday 19 August and Wellington Wednesday 24 August (more information at leaseplan.co.nz)
There is no doubt that running company vehicles in 2011 requires vastly different strategies compared with, say, 2001. The excesses have gone. Smart, sustainable thinking is in.
GE Capital’s Mitchel Booth recommends businesses future-proof their fleets by considering fixed-term funding and maintenance agreements to protect against future price increases. There is still a lot of uncertainty out there.
“Consider your business strategy,” says Booth. “What will your fleet requirements and the industry look like in two or three years time? Take a look around the corner to maximise the trends that are likely to be presenting in the industry over the next few years. Consider, for instance, the impact of new technology such as electric vehicles, tax changes, environmental trends and regulatory changes and how this may impact on your fleet requirements.