Fleet Car: Still burning money?

A new regime of capital allowances and revisions to benefits-in-kind rules are steering the company car culture away from status-symbol wheels to practical, low-emission fleets. Richard Bremner looks at the options for driving down costs.

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Last Updated: 09 Oct 2013

What'll she do, mister? For decades that has been the obvious question for anyone intrigued by a flash new car, be they 14 or 40 years old. And the answer they're after is usually its top speed, or the seconds it takes to screech to 60mph. These days, however, fleet operators, company car users and private buyers are increasingly interested in another statistic: how many grammes of carbon dioxide a car emits over a kilometre. Why? Because cars are increasingly being taxed on the basis of their CO2 emissions, and the financial penalties of buying something with a hefty carbon tag attached can be considerable.

While fleet managers grapple with these taxation rules, prompting major re-evaluations of the vehicles they operate, they're also having to contend with one of the worst economic downturns for a generation. And as company car fleets are quite often a business's second-biggest outlay after its wages bill, it's easy to see why the financial microscope is zooming in on company vehicles and their running costs.

Fortunately for the sanity of fleet managers everywhere, it's possible to lower CO2 emissions and to cut costs simultaneously. According to Paul Marsh, Ford's manager of fleet sales operations: 'There's an increasing desire among fleets to look at their environmental position and to save money. This is a win-win situation, because low CO2 means good fuel economy. With the personal tax allowance position too - which favours lower-CO2 models - this is having a considerable influence on car-buying patterns. A big cause of this is the change in the amount of capital write-down allowed, which is now part-determined by the car's CO2 emissions.'

As of this tax year, the rate at which a company car's purchase cost can be written down against tax is determined by its carbon emissions. If it produces no more than 110 g/km, its entire purchase price can be written down in the first year - no mean advantage. Cars falling between 111 g/km and 160 g/km qualify for the standard writedown rate of 20% per year, but for models over 160 g/km, this has shrunk to 10% annually. So it's clear that a car producing 110 g/km or less will cost a firm much less.

But what if your company leases its cars? If the car emits 160 g/km or less, its entire annual cost can be claimed against tax. Cars emitting more than this can only be claimed up to 85%. Because the lease company that owns a car producing over 160 g/km will also face the reduced writedown allowance, there's a double disincentive to run a car of this kind.

To set these numbers in the context of cars on sale, the lowest CO2 figure for any mainstream new car today is the 89 g/km of the latest Toyota Prius, and at the other extreme is the 495 g/km of Lamborghini's Murcielago supercar. The average figure for all the new cars sold in the UK for the first half of this year, weighted by sales, is 152.7 g/km, according to motor industry consultancy Spyder Automotive - although the fleet average is a whisker higher at 153 g/km. But the numbers are falling, aided by the fact that there are now nearly 500 models on sale with emissions lower than 120 g/km, and they're not all tidddlers, either.

To ram the green spur home, a car's vehicle excise duty (the annual cost of its tax disc) is zero if it emits under 100 g/km and rises to £405 if it spits out 255 g/km or more, a sliding scale that is set to get even longer in tax year 2010-11. And, finally, a company pays lower National Insurance contributions on behalf of employees who run lower-emission cars.

All of which adds up to a pretty hefty set of disincentives for the traditional large, thirsty and deeply un-green status-symbol company car. So are they working? According to Paul Adler, brand manager of General Motors fleet, the new capital allowances 'have a significant effect on whole-life running costs. The Government is clearly indicating that it wants people to buy a lower-CO2 car, and it has been doing a solid job - there is a general migration to lower CO2 vehicles.'

Proof of that lies in figures from Spyder Automotive that indicate a sales-weighted fleet average of 159 g/km in 2008 and of 153 g/km in the first half of this year, a 4% drop in only six months.

At least as significant is that companies are imposing new rules on the cars their employees can choose. 'Nearly a third of fleets now have an emissions limit of 160 g/km,' says Adler, with some estimating that figure as being more like half or even higher. Toyota's Jon Williams, commercial director of sales and marketing, agrees. 'What we're absolutely seeing is a move to more fuel-efficient and low-CO2 cars. It's partly about corporate social responsibility but it's mainly about tax. We now have green vehicle taxation in this country. There are a lot of cases where companies set CO2 limits, and 160 g/km is typical.'

But cost isn't the only motivation behind the growing trend to greener cars. These days, most firms have CSR agendas that carry pledges to reduce carbon emissions. 'Tenders will often include a corporate responsibility question asking about the carbon footprint of our factories and offices,' says Adler. 'It provides an opportunity to mention, for example, the solar panels on the roof of our Saragossa plant. That can be the balancing item if a company is choosing between a Corsa and a Fiesta.'

At this stage, these enquiries don't seem to be very scientific - Adler has yet to be asked how much CO2 is generated by the production of one model versus another, for instance.

Getting companies to buy cars at all has been more of a challenge since last autumn, when Britain slumped into recession and new-car sales plunged even faster. By January, they had fallen by more than 30%.

The combination of tumbling residual values and the need to save money has prompted many companies to defer the purchase of replacements. 'But the economics of holding off only works for so long,' says Toyota's Williams. 'Companies typically keep their cars three years or four, but beyond that the costs start to rise quite steeply with the effects of wear and tear, and because the car is out of warranty.'

Peugeot fleet director Phil Robson echoes this view. 'Contract extensions have become more common, because residual values have dropped and finance has become harder to get, especially for small companies.'

Some businesses have been able to defer fleet updates because redundancies have left some company cars lying unused that are still under lease contracts, says GM's Adler. 'So they redeploy the cars they already have. That's happened at lots of estate agencies.'

Of course, choice of car isn't the only determinant of emissions and fuel consumption - there's the person behind the wheel, too. So out should go the off-duty F1-star driving techniques, to be replaced by a lighter-footed, more thrifty style. 'We know of fleets that have saved 20% to 30% on their fuel bills through a combination of careful car choice and driver training,' explains Ford's Marsh. 'We provide driver education through a company called Drive and Survive, and promote this quite widely.' Speed limiters on vans can also help.

For those who suspect that driver training just goes in one ear and out the other, reducing the carbon emissions of the cars themselves remains the way to go. One means of achieving this is by downsizing your vehicles and the engines propelling them. 'There's not much resistance to downsizing in today's climate, says Peugeot's Robson. 'People understand that businesses have to change the way they operate.'

Despite this, the average engine of a company car is still bigger, at 1,754cc, than the 1,661cc average of the private car.

The trend to smaller cars with smaller engines is likely to persist, however. Fiat, maker of some of the lowest-CO2 models in Europe, is readying itself for re-entry into the fleet market, having lost money in the segment for years. UK boss Andrew Humberstone vows that the company will do only profitable business from now on. He has announced a deal that will provide Fiat's chic 500 model for the British School of Motoring, and promises more. 'We will come back into the fleet market, but not at the expense of cost of ownership to the retail buyer,' he says. 'We've got to protect our residual values.'

Residual values are the killer cost-in-waiting for fleet operators, numbers that remain unknown until the car is disposed of. Says Peugeot's Robson: 'It's not all about what you can get off - it's also about the whole-life costs of the vehicle.'

Toyota's Prius hybrid has strong 'used' values; its sales have risen consistently in the UK every year since its launch in 2000, with a rising fleet content. Williams expects the latest, third-generation model to do well, given that it qualifies for the lowest benefit-in-kind tax exposure and the maximum capital write-down, and that there's no vehicle excise duty to pay. The Prius is not the only mainstream hybrid. Honda is offering a 101 g/km Civic Insight that is almost as attractive financially, while Peugeot is readying a diesel hybrid version of its 3008 crossover model.

Further into the future, there will be more incentives from the Government to buy greener and electric cars. From 2011, it plans to offer subsidies of between £2,000 and £5,000 to those who buy electric cars. Qualifying vehicles must emit no more than 75 g/km, be part or fully electric, have a top speed of more than 60 mph, score at least four NCAP occupant protection stars, come with a seven-year battery warranty and have 'mass appeal'. That may seem like a slightly odd set of criteria, but the aim is to exclude vehicles such as the G-Wiz city car, whose classification as a quadricycle excludes it from the need to conform to various safety criteria, and the high-end Tesla electric sports car.

The vehicles it's intended to encourage are either pure electric models, such as the forthcoming Nissan and Renault EVs, on sale here in 2011; and so-called plug-in hybrids, such as GM's Chevrolet Volt/Vauxhall Ampera electric range-extender hybrid and the Toyota Prius plug-in hybrid. Of course, Labour may well be out of power by 2011, which is why Adler says: 'The Government needs to give a clear direction and stability with its future policy.'

But the message for fleet operators and company car users alike is that the purchase of low-CO2 cars will continue to be substantially encouraged by the Government. Couple this to the absolute certainty that oil prices will rise, and you can be sure that company car emissions will continue to fall.

CAR CLUBS - THE WAY TO GO?

Avoiding ownership of a vehicle fleet altogether has long been an attractive option for companies eager to avoid admin aggravation. Conventional renting is an expensive option, but far more popular is leasing, a vehicle fleet hired in return for a monthly fee covering mileage, depreciation and maintenance.

But car-sharing clubs such as Streetcar, WhizzGo and City Car Club offer a new means of access to a fleet of well-maintained vehicles that can cost far less because you're not paying for their use 24/7. Instead, members have access to a fleet distributed across various local access points and can book them online for the hours that they're needed.

The potential benefits are many: no capital outlay is required; the company is not committed to a long-term lease contract; accounting costs are reduced because the club provides a monthly itemised bill; the need for parking facilities at the business's offices are reduced; the burdens of vehicle fleet management are reduced; and the car's on-board data recorder logs the mileage covered.

WhizzGo specialises in catering to corporate clients, of which it has over 2,800, including Grant Thornton, Savills, Arup, PricewaterhouseCoopers and a number of city councils. Says Ray Hill, senior transport planner for Leeds City Council: 'Using WhizzGo helps us to meet our carbon targets by taking cars off the road in Leeds and by encouraging our staff to use alternatives to private vehicles. Two-thirds of staff with access to WhizzGo now avoid commuting by private vehicle, and the majority of these journeys would have taken place during rush hour. This means staff can choose a sustainable way to get into the city centre and still have access to a car whenever they need one for appointments.'

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