The Whole-Life Cost Approach to Vehicle Selection

Just how does a company decide which vehicles it should make available on it's company new car scheme? It wasn't that long ago that we regularly found companies using the retail price of cars to define which vehicles would be allowed within each grade of staff. Of course one of the main problems with this approach is that the operating cost of two vehicles with similar retail prices can vary by thousands of pounds a year as a result of differing rates of depreciation, fuel consumption and maintenance costs.

Some of the more informed companies peg their vehicle selection to a monthly full maintenance lease rate. Given that the main variable costs within such a lease rate are depreciation, maintenance, tyres and funding it becomes very easy to see which cars are expected to perform better than others. And, of course, an operating lease such as a contract hire, combined with a fixed cost maintenance scheme, allows fleets to pass all associated risk onto the lessor.

Unfortunately pegging vehicle selection to a monthly lease rate doesn't account for differing fuel comsumption. Whilst this may not be considered an issue where business mileage is low, and there are no staff provided with free fuel, it is an issue for the majority of fleets, where fuel is second only to depreciation as the main operating cost. Some fleets seek to address this by reimbursing all business mileage at fixed pence per mile, typically using HM Revenue and Customs Advisory Fuel Rates (AFR's). Unfortunatly, this approach frequently results in:

• the employer reimbursing more than the actual cost of fuel
• a regular source of emails from drivers who are convinced that the AFR's are wrong and consequently they are subsidising business travel.

We have found that the ideal solutions is to reimburse business mileage on an actual cost basis. If a company allows business mileage in a privately owned car, reimbursement can then be capped at the appropiate AFR, thereby discouraging the use of cars that achieve a low MPG. With technology as it is, this can be achieved quite simply with products such as Arval's fuel car and Mileage Capture Scheme.

A company that omits the cost of fuel when determining which vehicles it will offer staff is likely to miss the link between fuel consumption, CO2 output and the influence this has on the lease rate restriction for cars that emit more than 160g of CO2 p/km and costs such as Class 1A National Insurance, Showroom Tax and Road Fund Licence.

To gain a truly holistic view of fleet operting costs so that companies can decide which vehicles to make available to staff, it is important to understand and compare the total operating cost of all vehicles. In Fleet4U, we call this the whole-life cost approach. Our analysis takes into account and compares every element of operating costs including:

• The amount each vehicle depreciated over a given time and mileage
• The cost of funding
• Maintenance and tyres
• Fuel
• Showroom tax & Road Fund Licence
• Non-recoverable VAT, if the vehicle is being leased.
• Lease rate restriction - if applicable.
• Class 1A National Insurance.

Fleet4U prepares these whole-life costs for 100's of different models and derivates each month. Based on this analysis, we are able to help our customers to make a truely informed decision about which vehicles they want to offer staff.

Once we have structured a vehicle selection list that helps our customer achieve it's corporate objective at an acceptable and know cost we can then start to bench-mark and manage all other costs, including accidents, administration overheads, recharges etc. This is achieved through a True Cost of Operation (TCO) review and when combined with WLC approach it forms one of the most robust methods of fleet cost management available.