Master of the fleet
Vans, cars and trucks - simple tools of the trade or a costly, time-consuming burden? James Graham considers the complex world of fleet management
Vans, cars and trucks - simple tools of the trade or a costly, time-consuming burden? James Graham considers the complex world of fleet management
It used to be so simple. Hire or buy some cars and give them to employees grateful to get their hands on the latest Ford Sierra or Vauxhall Cavalier. But while the cars have become more advanced so have the demands of running a fleet.
"The whole way it's managed has become far more complex," says Andrew Cope, chief executive of Leeds-based Zenith Vehicle Contracts, the biggest independent fleet management business in Yorkshire.
"There are a lot of other people with fingers in the pie. Human resources teams worry about the schemes being flexible enough while the finance people are looking for the most tax-efficient system.
"As for the poor old fleet manager - a lot of those jobs have been outsourced."
And it's companies like Zenith that have benefited from this environment.
So how did it get so complicated? The management of company fleets has been subject to a string of different demands. The most significant of these is cost. During the past 15 years many companies have eschewed the idea of forking out for their own fleet in favour of leasing.
This way they can avoid the hefty cost of depreciation and also shake off the responsibility for maintenance. A myriad of confusing funding arrangements has sprung up over the last ten years to meet these requirements.
In turn, employees have had a significant impact by demanding a choice of car. Many firms have recognised that the promise of a generous cash allowance can be a very persuasive recruitment and staff retention tool.
And to cap it all the Government has confused things by changing the tax regime and tightening up safety at work legislation.
Its emphasis on an employer's duty of care to staff means that firms are responsible for staff safety on the road - whether they're driving a company car or not. But these conditions haven't driven all businesses into the arms of a fleet management firm.
In Keighley the brewer responsible for Landlord bitter delivers its ales with seven trucks. Timothy Taylor has three on contract hire from ERF but has bought four and ultimately aims to own all seven.
"We think there's a marginal cost advantage to owning the vehicles," says transport manager Geoff Drinnan, who co-ordinates the vehicles with his supervisor, Paul Marklew.
"Fortunately we have the money to make that choice and hopefully it will come back to us; we should get good value from them."
But many firms are turning to the specialists and the demand is huge. According to Bruce Blackburn of Harrogate-based Servius there were 200 vehicle acquisition and finance companies 13 years ago and now there are 6,000.
He says: "Whenever a company or individual gets a handle on the situation, something changes and the Government decides to revamp the tax regime."
Blackburn founded Servius six years ago. It does not run a fleet, or maintain vehicles like the big fleet management firms. Instead it acts as a broker buying in the best services available in the sector for its clients. This also includes the motoring extras such as insurance and roadside recovery.
Servius also has a deal with the Federation of Small Businesses to run its vehicle solutions arm, offering its services to FSB members. Blackburn, who has been in the industry for 17 years, deals with firms of all sizes. Although their requirements are different, he says they all have the same concerns.
"There are six key issues: the vehicle financing; the services they need to operate the vehicle; cost; tax; and VAT.
"It's like having six jigsaw puzzles. Our job is to open up the box and unravel it all so the client can make sense of it."
At the Leeds office of accountancy firm KPMG, Mark Allen, senior consultant for remuneration services, is trying to do the same thing. His department has come up with a software programme called CarWISE, which works out if a firm is funding its fleet in the most cost-effective way.
It essentially takes the standing cost of a fleet and puts it through 17 different funding scenarios to discover the best one.
So, if a company wants to buy its own vehicles he might suggest German cars because they hold their value. Or it might be prudent for a firm to only use low-emission cars, reflecting the impact of new taxes based on the car's C02 output rather than its mileage.
This would prevent anyone getting hold of a vehicle that would attract tax of more than 25 per cent.
"There is no 'one size fits all' solution," says Allen. "We don't try and flog a product like car ownership schemes. We look at the fleet profile and what the business is trying to achieve."
But it's the employee car ownership scheme (ECO) - where staff receive cash allowances to buy their own vehicles - that is regarded by many as the biggest change in the last 10 years. Staff, particularly executives, expect flexibility. They want to choose their own car and many human resources departments are keen to accommodate this desire as a way of attracting the best people.
But is it really the best option for a company? "It only fits certain fleet profiles," warns Allen.
In a typical ECO arrangement an individual runs their own car funded by mileage reimbursements, tax savings and a top up from the employer.
"There was a view that this was a good thing," says Allen. "But it only works where you have a fair amount of business mileage."
For Blackburn, another big hurdle is employees' credit history. He says one in four people in the UK is uncreditworthy according to the methods used by the motor industry.
"Either the firm becomes the guarantor or they go back to where they were before," he says.
And there are other concerns. For many businesses it's cheaper to offer a company car. Cars have come down in price, but the cash allowances haven't.
"Finance people are struggling with the idea of getting these cash allowances down," says Cope.
But he also thinks that personal financial pressures, such as high mortgage repayments, will push many people back to a company car which is free of maintenance and insurance worries.
"The company car is great because most people are hocked up to the eyeballs on their mortgage and credit cards," he says.
"There's the cost of insurance and the risk factor. If someone takes all that risk and hassle away it's hugely valuable."
But if an employee is determined to take the allowance and try to save money by buying a cheaper car, how does the employer know it will be reliable during work hours?
And if you're bound by a duty of care to your employees, it's harder to keep tabs on the roadworthiness of that privately-owned vehicle.
The UK's biggest fleet management business, Lloyds TSB Autolease, which has around 140,000 cars, has come up with a way around this problem. It now offers privately-owned staff cars that are covered by all the same perks as a company car.
"We developed a scheme called Whitechapel," says operations director David Kershaw.
"We still provide all the back-up, it just makes the duty of care much easier."
Autolease has around 120,000 cars and 20,000 commercial vehicles. Just 10 per cent of its fleet is owned by its clients, reflecting the significant shift from owned to leased vehicles. For Kershaw the most important issue facing fleet managers is duty of care.
"A lot of additional exposure in terms of risk is on the commercial vehicle side because they're usually multi-driver.
"The same vehicle could be operated by three or four drivers over a 24-hour period. Each time the company's responsible for that individual's welfare. So it's paramount the vehicle is maintained."
If a company driver is in an accident, says Kershaw, the first thing the police would want to know is if he was on the phone. "Even if he was on hands-free they'd probably penalise," he adds.
In turn the company would be expected to know how many hours the employee had been driving and for what reason.
"We take on board these responsibilities and work with the company to make sure they do have things in place like regular driving licence checks and eye tests."
"It's a lot of administration," adds Kershaw.
But even then the ultimate responsibility lies with the employer. It's enough to make you want to hark back to those simple Sierra days.
Fleets' new lease of life
While the role of in-house fleet manager has been in decline, the leasing firms have flourished.
Lloyds TSB Autolease has sucked up 16 businesses and 13 brands in the last eight years.
"There's been a lot of consolidation and as a result a lot of fleet management organisations have either gone by the wayside, because they haven't been able to keep up, or they've been bought," says Autolease's operations director, David Kershaw.
But monopoly is unlikely - there's only so far you can go in the fleet business.
No matter how many thousands of cars you buy there's a limit to the manufacturers' price cuts. And a huge fleet can make the business cumbersome and less able to react to changes in the market.
Zenith is itself a product of consolidation, but chief executive Andrew Cope thinks the sector has a lot of potential because it is still "relatively unconsolidated".
The business, which is much smaller than Autolease, with around 15,000 vehicles, was formed in 1989 following the takeover of Bramhall Fleet Services by Avis.
Senior staff left to set up on their own and built up the new business throughout the 1990s.
In 2002 Andrew Cope, who had started in the early days as a tea boy, bought into the company along with management colleagues. At Christmas 2003 his team bought out the business with backing from 3i.
"Our business model is to get to around 50 customers and 20,000 vehicles. That's our three to four-year plan."
That is still a small slice of a huge market - less than half of one per cent. Cope says there are 3.5 million company-related vehicles on the road out of a total 29 million.
"We say there's room for independents which are very competitive," says Cope who is up against Autolease and the other big operators like Lex, Leaseplan and GE.
"It's still a relatively unconsolidated market because you don't get much advantage by getting bigger. It's also incredibly capital intensive. To buy 100,000 cars would cost about £31.5bn.
"There isn't really a market advantage. The larger players buy cars at the same price as we do. There isn't a price advantage, so fleet managers are judged on efficient service levels and the flexibility of the service they provide.
Lloyds TSB Autolease's guide to an employer's duty of care
Understand your fleet
Running a safe fleet requires good record keeping and a deep understanding of how the vehicles are used.
Take the time to record fuel consumption, accident rates, injuries, accident costs and mileage.
Check your drivers
It is important to run licence checks on all employees at least once every year to make sure everyone is driving legally.
Health issues should also be monitored to ensure drivers aren't placing themselves at risk.
Better driving
Sending staff on driver training may not be well received. Instead encourage training sessions after an accident or speeding fine.
Also, help drivers to plan routes and schedule work so they don't put themselves at risk by spending too long at the wheel.
Vehicles fit for purpose
As well as driver competence and awareness, the vehicles themselves also need to be roadworthy.
All drivers should be aware that they are not only responsible for getting the vehicles serviced at regular intervals, but also need to make weekly checks on oil levels, washer fluid and tyres.
Private cars on company business
Regardless of who owns a vehicle, if the driver is on company business, the employer continues to hold responsibility for their safety.
Make sure the vehicles are properly taxed, carry a valid MOT and tax certificate, and are roadworthy. Ask to see driving licences and insurance documents regularly.
Write it down and spread the word
A health and safety policy that everyone truly understands is vital. The introduction of policies should be done as positively as possible and commitment from senior management to safer driving is a must.
The policy needs to clearly state the responsibility of drivers and should cover such things as speeding, mobile phone use, security and drink driving.
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