Loading ...How to Save Money in the Toughest of Economic Conditions
With pressures mounting on businesses as economic forecasters predicting that 2009 will be even tougher than 2008, business leaders urgently need to eliminate unnecessary costs. For many enterprises, vehicle fleets account for a high proportion of spend, and poorly managed fleets can absorb tens and even hundreds of thousands of pounds, yet many companies do not have the in-house expertise to ensure that a fleet is cost-effective and not wasting resources.
Rob Bailey, Head of Lombard Vehicle Management, the UK’s fourth-largest vehicle leasing and management provider, therefore suggests some of the key ways to reduce fleet spend.
Lease your vehicles
If you do not lease your vehicles, reconsider your funding strategy. Leasing comes into its own in difficult economic circumstances. It not only frees up capital at a time when the cost of funds is increasing but removes heavily depreciating assets from the balance sheet. This is even more important at the moment as residual values are in sharp decline, yet a leasing company takes that growing and unpredictable risk on behalf of its customers. By fixing the majority of costs including maintenance, an operating lease, or contract hire agreement, also provides greater budgetary certainty at a time of increasing unknowns. In addition it outsources much of the basic administrative burden of managing a fleet, allowing staff to concentrate on core business activities.
Extend your existing contracts
If you already lease and the end of your contract term is approaching, you should ask your provider about extending the contract. Uncertainty over the economy and a new tax regime being introduced in April means that although monthly leasing rentals are, on the whole, likely to increase, it is imperative that businesses take the time to consider their approach to vehicle funding and management strategically. The right longer-term approach will save money.
Go large
When it comes to funding providers, size does matter. You may not be one of their major customers, but a large leasing company will have the economies of scale buy vehicles in cheaply and pass the savings on to you. We are part of a global banking group and the UK’s leading asset finance provider, running around 110,000 vehicles in the UK. A major provider should also have consultants with the expertise to develop the most efficient solution for your business’s specific situation, plus a range of cost-saving products and services which can often be built into the monthly rental payments.
Understand forthcoming legislation
April’s tax changes represent the biggest upheaval in this business for a generation.
Under the new regime, cars producing more than 160g/km of CO2 will be subject to a writing-down allowance of only 10%, while those producing 160g/km or less will qualify for a 20% allowance. Leased cars in the higher category will have 15% of the relevant payments disallowed while those in the lower category will have no disallowance. This will make a massive difference. For example, a company could claim over £8500 on a sub-161g/km CO2 car – such as a 1.6-litre diesel-engined Focus - with a new value of £20,000 and 70% depreciation after three years. However, if the car produced 161g/km CO2 or more only just over £4800 could be claimed. The relationship between CO2 emissions and Vehicle Excise Duty levels is also being strengthened from April, with differences of up to £250 per year on cars in the two categories.
Go green
Whatever your attitude to the environment, a green vehicle policy will save you money. In simple terms, the lower the CO2 emissions, the lower its whole-life cost will be, and more than ever it is the whole-life cost – not list price or even monthly rental – which matters. Despite the premiums on list price and the cost of the fuel, diesel models are usually more cost-effective to run than petrol equivalents as they not only produce less CO2 but their fuel economy is so superior and they have better residual values. And you do not have to short-change your drivers – premium makes like BMW, Audi, Mercedes and VW have all introduced low-CO2 model variants. Such cars also reduce the financial liability for employers, as they have to pay Class 1A National Insurance contributions on the value of employees’ benefits.
Put more vehicles on your fleet
It sounds strange but is completely logical. If you offer drivers a cash-for-car option you are probably paying considerably more than providing them with vehicles through a well structured in-house fleet. Most cash schemes were introduced at a time when financial circumstances were very different from today. The increasing tax incentives to run low-CO2 fleets create an opportunity for vigilant businesses to save money, and it is now a buyer’s market in which massive discounts can be achieved. If you effectively outsource a large part of your fleet decision-making to your drivers you are spurning that opportunity. In addition a recent report by accountancy firm KPMG concluded that company cars produce up to 40% less CO2 than those chosen by cash-for-car drivers, who frequently buy used vehicles with poorer emissions performance. A 40% reduction in CO2 equates to approximately 8mpg, which would result in a saving of around £600.
