It seems the world won’t become a greener place without some painful reorganisation, as the Chancellor’s “green” tax on carbon-dioxide emissions has set both employers and employees a few interesting questions.
Does green mean company car drivers will all be driving small diesel runabouts henceforth? Fortunately, or perhaps unfortunately for environmentalists and those who like simplicity, the answer is no. The composition of car fleets will change and is already changing in response to the new benefit-in-kind (BIK) legislation. And yes, there is a strong movement among low-mileage drivers toward diesel vehicles. However, no one expects fleets to go totally diesel or to shift overnight toward the tiniest vehicles available.
Rael Winetroube, sales and marketing director at DaimlerChrysler’s fleet services arm explains that many of the changes we will see – and are already seeing – are subtle. Companies which value the company car as an HR tool to enhance their recruitment and retention capability need to pay attention to the fine detail, he says. By the time the whole thing has worked through the system, we are likely to find that – much as the Inland Revenue predicted – the winners and losers will net out, leaving the car fleet volume business pretty much as it was. The composition of fleets, though, will be very different, and the new carbon-dioxide-based tax structure is already accelerating changes in funding mechanisms and fleet purchasing strategies.
The broad-brush scenario that Winetroube envisages sees the under-2,500-kilometres-a-year driver (the category of employee that, under the old regime, was most keen on the cash-for-car alternative) coming back to the company car. Attracting hordes of employees back to the car might not be exactly what the Chancellor had in mind but the new emissions-based BIK legislation makes low-mileage company cars attractive. However, this category of driver is also likely to be the prime candidate for straightforward PCP (personal car plan) deals.
There will also be large numbers of company car drivers who will find themselves disadvantaged under the new legislation by a few hundred pounds a year, but who decide that the convenience and benefit of having a company car outweighs the increased tax liability.
However, there will be big losers, too. Weintroube cites the example of a high-mileage sales director in a high-performance, high-emissions vehicle. Such a driver could easily find his or her tax liability goes up not just by a few hundred, but by several thousand pounds. “You can’t just leave someone in that position. You have to give them an alternative.
These people will tend to be the decision makers in the organisation, so their voices will be heard loud and clear if they are dissatisfied,” he says.
Stephen Tasker, marketing director at GE Capital points out that there is no single solution for all fleets. The new legislation will require companies, in association with the consulting arms of their fleet outsourcers, to think through their particular circumstances. In fact GE Capital, he points out, hasn’t issued an official statement on the new BIK legislation precisely because it believes the effect is too complicated to be caught by a simple soundbite.
“What we prefer to do is to go through a fleet, looking at the company’s HR policies, the kinds of mileage various drivers are doing, the present composition of the fleet and the range of options available,” he says.
“These are accountancy-led studies and there is rarely a single recommendation that comes out of them. Every company is different and you are always looking for the best solution for each driver.”
Jon Roberts, fleet manager at the Vauxhall dealer and contract hire specialist, Lance Owen, points out that conversations with customers over recent months make it clear that there is considerable confusion over both the nature and the impact of the new tax.
“It is important company car drivers taking advantage of employer-provided fuel are made fully aware of the changes to the mileages they need to cover to break even”, he says. He cites the following example: the driver of a 1.8-litre petrol car doing 35mpg and paying tax at 22%, paying a national average price for unleaded fuel of £3.52/gallon, would need to cover 5,381 private miles to make the benefit cost-effective.
For his part, Winetroube sees the potential fleet customer base splitting into several segments. The first and simplest divide is between those companies which have a fleet expert in house and those which do not. “My expectation is that companies which are big enough to justify having a fleet manager in house will simply take basic contract hire from companies like us, and will control the fleet themselves,” he says.
This way, the company gets to outsource the risk inherent in vehicle maintenance and in residual values. These become the responsibility of the outsourcer, which has to factor its best guestimate of the true cost of these elements into the lease price, while the company continues to manage the driver-facing elements and the day-to-day administration of the fleet.
Companies in this category generally run simultaneous deals with several fleet leasing companies to ensure that they benefit from competition.
Apart from giant multinationals with thousands of employees, the only companies still employing in-house fleet managers tend to be those where the core business requires a fleet, such as parcel delivery companies and construction companies.
The other scenario is where fleet management is not the company’s core business. In this instance companies are generally receptive to the idea of outsourcing everything to do with the fleet, including fleet management.
There are two criteria for success here. First, the organisation has to feel that it remains in control of the function, and that it is given key performance indicators to measure the success of the contract. The second, critical factor is that having outsourced its fleet management, the company has to ensure that someone internally at a sufficiently senior level retains responsibility.
“You have to agree which area of the business owns the fleet function. The owner sets the policies with the fleet outsourcer, such as agreeing what the key response times are for certain actions, for example roadside assistance. Thereafter, the fleet operator has to measure its performance accurately and provide these figures to the policy owner. That way, the company feels in control,” Winetroube says.
Despite the changes and the confusion, most experts do not anticipate a huge increase in PCP sales. The general feeling is that most drivers who see their position change only marginally will still want the company car. The big increase in business will come in consultancy.
“Fleet contract hire is less and less about selling a commodity, and more and more about selling a business solution. You have to look in detail at each client’s position and build a solution that fits their requirements.
This will involve a variety of elements, from company contract hire to employee ownership schemes, to PCPs. Each deal will be different, but our aim is to provide clients with pricing transparency, so they can see what our assumptions are, how we are positioning on residual values and how we sit relative to the market,” Winetroube says.
He points out that companies exploring the idea of outsourcing the whole complex issue of buying, maintaining and managing a car fleet, have a wide choice of what look like nearly identical suppliers. “We are all about the same size of business. We are all owned by financial institutions or motor manufacturers and our cost base is quite similar. The one way we have of really differentiating ourselves is on our service, so this is the dimension that clients should look at very carefully,” he says.
EXAMPLES OF BIK
Office manager on personal tax rate of 22%
Company car: Ford Mondeo 1.8 LX 5dr hatch, manual
P11D value: £14,415
Annual business mileage: 2,000 miles
Under the old tax regime
Mileage tax band: 35%
Annual tax liability: £1,110
Under the new carbon-dioxide regime
Tax band: 187g/km = 19%
Annual tax liability: £602
Result: Office Manager is £507 better off in 2002/3, than in 2001/2
Sales person on personal tax rate of 22%
Company car: (as above)
P11D Value: £14,415
Annual business mileage: 20,000
Under the old tax regime
Mileage tax band: 15%
Annual tax liability: £476
Under the new carbon-dioxide regime
Tax band: 187 g/km = 19%
Annual tax liability: £602
Result: Sales person will be £127 worse off in 2002/3 than in 2001/2
Figures provided by DaimlerChrysler.
View our archived webinar, including Oracle and a host of ‘Fast Data’ experts, to discover how financial professionals can help create a Fast Data business
Reinmoeller, professor of strategic management at Cranfield School of Management, has proposed an Eight Actions Model to help organisations increase margin and perform ahead of market expectations
When thinking about Iran as a potential market it’s important to go in with open eyes. This means being aware of some of the myths as well as being clear on the challenges
Third of UK companies with defined benefit pensions schemes are paying out more from their scheme in pensions than is being received in contributions