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Weighing the facts on fleets
Businesses have had to steer their way through a company vehicle management minefield during the recession. Patricia Moore gets the experts’ views on how things stand in 2010.
The cost of running a vehicle fleet is one of the first P&L lines companies look at when they want to save on expenses, says Mitchel Booth, general manager, sales, at Custom Fleet NZ.  “As cashflow slowed we’ve also seen an increased interest in the sale and lease back of existing fleets of motor vehicles as companies realise the overall value of leasing.”
Economic conditions have also seen companies extending lease terms out from the usual 36 month term to four years in some cases, according to LeasePlan managing director, Charles Willmer.
Whether the term ‘fleet’ applies to one or two vehicles or some dozens of them, the big question for many business owners and managers is whether it’s smarter to own or lease vehicles. The cost to a business of managing a fleet of vehicles is also a significant consideration. And it’s something that doesn’t go away. This has seen more companies which own or operate a fleet, outsourcing management and enjoying the advantages of having a specialist company cope with everything from maintenance and fuel cards to the management of accidents and breakdowns.
The pros and cons of leasing versus ownership have been well documented; essentially it boils down to risk management and cashflow.
Leasing provides an alternative funding line; it enables a business to retain working capital and know the total costs involved (a plus when planning for the business). Efficient late-model vehicles reflect the image of a company and reliability is optimised.
With ownership, vehicles appear on the balance sheet and you have an asset – albeit one that depreciates – but there are associated risks. Resale is one of these risks, as is maintenance. However the business has total control of the vehicle.
“The market has been pretty changeable,” admits Booth, but there is light at the end of the tunnel. Alan Roberts, GM Fleet and Fuel, at fleet management specialists Cardlink, reports they’ve purchased 17 percent more vehicles for clients than the same period last year. New car sales overall are approximately 13 percent ahead of 2009.
“Many of these are in the corporate market, and a substantial percentage is leased,” says Vern McLaren, national customer service manager at FleetPartners. “This is a good indicator that companies have confidence in their business and the economy in the immediate future.”
Going down and green
Kiwis may love their cars, but big is no longer beautiful. There’s a trend to downsizing says McLaren. “It’s driven in part by a desire to drive newer, more fuel efficient vehicles, whether through technology or hybrid and diesel fuels.” More efficient use of space is also a factor, he says. “The internal size of a medium size car today is equal to the room in an older, larger car.”
Booth says their fleet has definitely changed, “with customers moving away from big three and four litre cars to smaller, more economical two and three litre. There are a couple of reasons for this. One is cost; the other is the whole eco/green theme. Long-term it’s definitely going to be an important consideration.”
Indeed, many companies are reviewing their fleets and setting standards around emission levels. Willmer says they’re leading by example. “At LeasePlan we’ve recently undertaken a review of our own staff vehicle fleet with this objective in mind. We’re never going to remove cars from the face of the earth but if we take the responsibility of measuring our actions and our clients’ actions, then we’re being responsible in our business.” 
Around five years ago, LeasePlan introduced Green Plan which aims to make fleet operation carbon neutral by enabling their business partners to take responsibility for the effects of their fleet on the environment.
“Reporting is done around the environmental, social and economic impact of vehicles.”
The message wasn’t new but they were something of a voice in the wilderness when they began communicating it to their customer base. By sending well researched and reliable information on a regular basis, Willmer says clients now have a greater understanding of the ramifications of the motor vehicle on the environment, and are actively seeking eco solutions.
The larger a vehicle fleet, the more complex the management issues involved. But even small enterprises can benefit from outsourcing. It’s not necessary to lease the vehicles to take advantages of the management options available and there are a wide range of options to choose from. And while general day-to-day care of vehicles sits with the driver and the company and their policies around care of vehicles, having maintenance managed will ensure high standards are kept and cost is monitored.
“Accident management can reduce downtime for drivers and provide insights into driver behaviour,” says McLaren. “From the time a vehicle is mobilised an accident management team will take over, managing everything from getting the driver back behind the wheel to organising insurance claims and repairs.” Companies can also set up reports that will identify certain repeat offences with drivers that can help in additional driver training. “Or highlight a pole in the car park that keeps getting hit. It’s all in the detail,” adds McLaren.
Managing fuel cards
Fuel cards are another important management tool.
“Our research has shown they’re first and foremost about control and convenience,” says Alan Roberts. “Clients are looking for additional insight into purchases – when, where and what quantity. They also want to know if their business reflects the norm.”
But, he warns, it’s not about spending time trawling through screens – or screeds – of data. “Spend analytics are the key to enabling any company using fuel or charge cards to obtain a holistic overview of card use.”
It goes without saying that using a fuel card offers the convenience of consolidated invoicing that saves time and money, says Roberts. Today that convenience of use is dependent on a fuel card being accepted by multiple brands.
“In 1976 there were some 4000 service stations in New Zealand. In 2010 the number is closer to 1400 and it’s likely that by 2012 there will be less than 1000. So from a convenience point of view you’re disadvantaged if a fuel card can only be used at a single branded service station.”
More options

Leasing an ex-lease vehicle can mean significant savings and cost advantages, which can be particularly attractive for smaller enterprises, says Mitchel Booth. “They know the vehicles have been well maintained and they’re getting a late model with reasonably low mileage at reasonable rates.” 
Under their Econolease product name, FleetPartners also have pre-leased vehicles available.
“These offer excellent FBT savings and can be leased for long or short terms,” says McLaren. Another option finding favour with SMEs is buying direct from the importer. Darryl McGifford, general manager at AutoTerminal, says he believes for a lot of companies this can be the most cost effective way to get a business up and running with a company car. Look at FBT, he says. “Depending on the salary, the FBT on a $45,000 four-cylinder sedan would be around $6000. A higher-spec equivalent with 70,000 kilometres on the clock, priced at $15,000 carries FBT of about $2000.” Less depreciation is another advantage, he says.
Arranging a lease for a short duration need not be a stumbling block. “Essentially you can lease for a term that suits your business,” says Booth. “As dictated by tax requirements, a fully maintained operating lease can run from six months up to 45 months for company cars, while utes can be leased for up to 60 months and commercial vehicles can go out to five years dependent on what it is. Finance leases can run longer than this as they are treated differently under accounting standards.” 
The smart leasing options are about ‘fit-for-purpose’ vehicles, says Willmer.
“A good leasing company will work with you to make sure vehicle policy fits perfectly with the vehicle usage purpose, safety standards and requirements; then recommend vehicles within that specification, taking into account green factors, cost factors and safety factors, such as ANCAP ratings. Leasing is a smarter way for companies to budget; it makes good business sense.”
Tax changes
In spite of what would seem to be a plethora of changes on the taxation front lately, there have not been any that significantly affect company cars directly, says Vern McLaren. There has been talk about depreciation rates and GST increases on October 1. There have also been changes in company and personal tax rates that can impact FBT calculations, he says.
“It’s vital that a leasing company keeps up to speed with legislative and tax changes.”
The increase in GST should be neutral for customers, says Booth. “The company pays it and then claims it back. For us the challenge is making sure, mid-lease, how we go about changing the GST portion of the monthly lease rate. One month this is 12.5 percent. The next it’s 15 percent.” Custom Fleet has a project underway to ensure processes are in place to deal with the change, he says. “It’s something we need to plan for to ensure the transition is a smooth one for both our customers and our staff.”
From ownership to leasing
For companies moving from fleet ownership to a lease arrangement, it’s important to understand they’re taking on a partner. Study the fine print and don’t be afraid to ask for clarification, says Vern McLaren. “One of the key considerations is having a copy of the guide that fully explains the condition the vehicle should be in when returned at the expiry of the contract.”
Too many clients look to sign master lease agreements without fully understanding the impacts of some of the clauses, says Alan Roberts. “Look at things like kilometre over-run and under-run, end of term refurbishment and what costs are covered by which party.” There are clients paying a king’s ransom to some companies where others offer a fairer and more reasonable contract, he says. “On occasion lease companies may also fail to fully explain the benefits and features of fully maintained leases, versus non-maintained.”
Fleet leasing can have significant advantages for a business, regardless of its size and, given the flexibility of lease arrangements now available, arranging a lease that fits is easier. But, like anything in business today, do the homework.
Before you talk to a potential leasing partner know exactly how much your current situation actually costs your company; analyse your fleet needs compared to your wants and remember, the cheapest deal may not necessarily be the best deal.
Patricia Moore is an Auckland-based freelance writer. Email
mch@xtra.co.nz

 

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