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Fleet management: The price of fuel

With the price of fuel on the rise, FDs need to be savvy about making savings on their fleet costs, writes Catherine Chetwynd

26 Jan 2012

By Cathryn Chetwynd

Fleet image

THE COST of fuel has risen by, on average, more than 50% over the past five years and the Department of Energy & Climate Change projects that, at its highest level, a barrel of oil could cost £123.40 by 2016. In the UK, duties and VAT are the highest (by percentage) in the EU.

The cost of fuel has overtaken depreciation and usually represents 30% of the whole life costs of a vehicle. However, the opportunities for making savings are legion - and often with immediate results.

A good starting point is to get out of providing private fuel. If the thought of removing a perceived perk from employees seems to be asking for trouble, think again: a driver needs to be covering fairly high private mileage for free private fuel to be worthwhile.

I would drive 9,000 miles

For example, someone driving 9,000 miles in a vehicle emitting 138g/km and consuming 48mpg will be paying £20,200 (fuel scale charge) multiplied by 21% (CO2 rating of vehicle) multiplied by 40% (tax band) - a total of £1,696.80 business in kind (BIK).

However, the fuel to cover 9,000 miles (at 140.1/litre) costs only £1,194.18, so the driver would be better off by about £500 if the free fuel perk were removed. For the employer, the same fuel cost attracts 13.8% national insurance, making a total potential saving of £1,799.57.

“There is a perception that free fuel is a benefit but it is not always so,” explains Paul Marchment, fleet consultant at Arval, and to illustrate his point, he highlights an AA report showing that people are reducing their private mileage. “In which case, it is even less likely to be an advantage.”

Free personal fuel will work better for a driver in the same car covering 15,000 private miles, with BIK at £1,696.80 and fuel cost at £1,990.30 per annum - the point at which you would break even occurs at 12,788 miles. With national insurance, the fuel cost amounts to £2,575.69 for the employer.

If the driver is to be bought out of free fuel and left cash neutral, he or she will need to be compensated by £293.50 (cost of fuel less BIK), as well as the 40% tax and 2% national insurance to be paid on the cash compensation (£212.53), making £506.03. Add to that employer’s national insurance- at £69.83 and the total cost to the company of buying the driver out of free fuel is £575.86, leaving a saving of £1,999.83.

Communication is very important when removing free personal fuel in order to ensure that drivers understand the figures, and the provision can be phased out over 12 or 24 months, with new employees not being offered the benefit.

Hybrid theory

There is more. Fuel cards are an excellent way of gathering incisive management information: what type of fuel was used, how much was purchased at what time, where it was bought and how often.

This information shows whether employers need to educate drivers about buying at supermarkets rather than at motorway service stations or they have to encourage purchase of non-premium fuel. In addition to this, it is also a chance to analyse driver behaviour, as the information highlights discrepancies in fuel consumption across comparable vehicles and mileage covered.

“Companies can encourage employees to be a little bit more responsible for their own behaviour: ‘You are driving £20,000 worth of company asset and we would like you to consider how you are driving that’,” says commercial director of Leasedrive Roddy Graham.

“This way, you can sometimes improve fuel consumption by as much as 10% and the knock-on effect is reduced maintenance, tyre and brake usage; fewer incidents and accidents, resulting in lower insurance costs; and the driver is more productive because there is less down time for the vehicle.”

League tables are an effective way to encourage better driving and the attendant efficient fuel consumption.

Fuel cards are VAT compliant, so organisations are no longer reliant upon drivers keeping their VAT receipts to facilitate reclaims, but choosing a card requires some care to ensure it can be used across a comprehensive network, so that drivers do not have to deviate from their route to fill up.

And finally, the petrol versus diesel debate is still ongoing. Diesel engines have lower CO2 emissions and are generally more fuel efficient, although particulates are still an issue.

However, motor manufacturers continue apace in their quest to make cleaner, more efficient engines.

Ford has recently produced a Focus model with a three-cylinder engine the size of an A4 sheet of paper that does 90mpg. Meanwhile, the Volkswagen group has introduced petrol engines for brands that include VW and Audi which deactivate two of the four cylinders during urban motoring or on a motorway.

“We are seeing some petrol engine cars that are cheaper and more efficient to run. There will be a shift in the dynamic over the next 12 to 18 months, with more companies introducing petrol engines, especially on perk fleets,” explains Paul Marchment.

In addition, there are petrol and diesel hybrids as well as electric vehicles for covering short distances, and the range extension Vauxhall Ampera, with an electric battery and a small petrol engine that recharges the battery. This model delivers up to 150mpg. Marchment describes the car’s performance as “phenomenal” and although prices are still high, they will go down as more models enter the market.

“I am very excited about what the future holds,” he concludes. ■

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