Fleet procurement in the ’new normal’ business world set to become more challenging

Monday, July 6, 2020 - 07:45
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Fleet procurement in the ‘new normal’ business world will become more complex but will provide businesses with the opportunity to future-proof their fleets, rethink their supply strategies and increase flexibility and resilience in their supply chains.

Fleet Procurement

Sue Branston, Country Head for Fleet Logistics UK and Ireland

That’s the view from Fleet Logistics UK (FLUK), the UK and Ireland arm of Fleet Logistics International, Europe’s largest independent fleet management provider with more than 180,000 vehicles under management worldwide.

As the lockdown restrictions continue to be lifted and the Government attempts to kick-start the economy, businesses face a number of questions and challenges over the future composition of their fleets to make sure they are running at optimum efficiency.

  1. Greater homeworking

Many organisations expect more of their employees to work from home more regularly having experienced home working on a larger scale during lockdown. However, as a result, companies will need to carefully consider the types of vehicles they need to run in the future, and whether they could look at operating smaller models or greener alternatives such as electric vehicles and hybrids.

  1. Reduced mileages

Greater homeworking inevitably means fewer business miles being driven. If an employee with a 50-mile commute works from home for two days a week, that equates to a saving of 5,000 miles a year, or 15,000 miles over a three-year contract. Businesses need to look at the number of employees who may be working this way in the future and renegotiate their mileage benchmarks with their leasing supplier to take into account the new way of working, which will also reduce their lease costs as a result.

  1. Multiple suppliers

Having more than one leasing provider for your vehicles not only spreads the risk but also increases the number of credit lines available. In a business world, where securing credit may become more of a challenge – due to increased economic and financial pressure – this could provide real benefit, especially for business sectors where a credit squeeze could become a major issue.

Having multiple leasing suppliers also allows the introduction of the concept of multi-bidding, with competitive quotes from at least two suppliers for the same vehicle helping to drive down leasing costs for each new vehicle ordered.

  1. Shorter contracts

Organisations might want to question whether it is advisable to lock themselves into standard 36 or 48-month contracts, when they may need future arrangements that are more flexible. Not only do shorter contracts require smaller credit lines – as fewer rentals are payable – but with vehicle technology changing so quickly, leasing companies may be sympathetic to the idea of shorter contracts so that vehicles are changed more regularly. This keeps their book current and limits their exposure to obsolete technology, which can potentially affect residual values over the longer term.

  1. Lease rental restriction

The current CO2 limit for offsetting all leasing rental costs against Corporation Tax is 110g/km. Above 110g/km, the rate falls from 100% to 85%. However, from next April, the lease rental restriction limit falls to just 50g/km. Businesses need to take this into account when looking at their vehicle fleet policy going forward and consider how practicable it would be to have all, or a mix, of low emitting vehicles on the fleet. Staying with the current vehicle mix will inevitably have an inflationary impact on whole life costs under the new rules.

  1. Going as green as possible

With 0% Benefit-in-Kind tax rates this year, rising to 1% next year and 2% the following year, electric vehicles can provide their drivers with attractively low tax bills. And for businesses, fuel costs and Class 1A National Insurance Contributions are reduced as a consequence, as well as CO2 and NOx emissions.

The challenge for businesses is to evaluate whether, and how many, EVs might be practical for the fleet based on driver profiles, mileages covered, journey type, driving conditions, charging infrastructure and the number of drivers involved. The answer may be in line with the business’s Corporate Social Responsibility (CSR) strategy, and any aims it may have to reduce its carbon footprint and help simplify the decision-making process.

  1. Review vehicle manufacturers

Businesses need to select vehicle manufacturers based on a range of factors such as technology, emissions and the impact of WLTP (including vehicle availability), the types of powertrains and their suitability, as well as Benefit-in-Kind tax bills for drivers and the appeal of the range. Regular reviews of the market are imperative to select the right vehicle mix and OEMs.

Sue Branston, Country Head of Fleet Logistics UK and Ireland, said there were many challenges facing businesses as the country looked to come out of lockdown.

“The complexity of operating a fleet is increasing all the time, especially in these dynamic times as we look at coming out of lockdown, and businesses need to consider whether they feel confident in tackling these challenges themselves.

“Or do they feel that it makes sense to consider the advantages of getting advice from an independent fleet management partner, with the knowledge and experience to help guide them through these unprecedented and challenging times.

“We are focused on using our knowledge and experience to support our clients strategically during the current uncertainty and the benefits are realised in the bottom line by their business,” she added.

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