Saving on your fleet, but how?

When costs come under pressure, every cost item large and small is scrutinised and trimmed wherever possible. Most likely your fleet holds savings too, but most organisations never get beyond stretching lease contracts and negotiating some extra dealer discount. A pity, because the fleet is often one of the largest cost items in an organisation, after staff costs and housing.

The big question is how to cut fleet costs structurally without taking cars away from half the workforce, or putting everyone in the smallest possible car. Many employers are (rightly) reluctant to take draconian measures: in the long run they cause more damage than they deliver in the short term. Yet the wish to lower car costs structurally remains.

In practice, many organisations concentrate on procurement. The leasing company is pressured to lower the lease rate, a few cents of fuel discount are negotiated and cars are bought centrally at a lower price. With that, many believe they have cut their car costs to the bone. A misconception we encounter time and again in our consulting practice.

Sharp procurement is the beginning, not the end. Those who only manage the lease rate leave most of the savings on the table.

When tackling car costs seriously and structurally, it is important to distinguish two phases, both of which are necessary for maximum results:

The second phase is continuous and is necessary to prevent car costs from creeping up unnoticed after a successful Clean-Up. It also removes the need to repeat a complete Clean-Up every four to five years.

The beauty, and at the same time the treachery, of car costs is that they are influenced by more than one hundred different factors. These factors are also interlinked in various ways, so intervening in one specific cost item often causes unexpected side effects, both positive and negative.

A good Clean-Up is therefore above all a complete Clean-Up. By working through all cost drivers systematically and simultaneously, an integral picture of the savings potential within the fleet emerges. The cost drivers can be divided into five areas of attention, each with common improvement points.

1. Policy

Stating the obvious, perhaps, but worth mentioning: your car policy (or more broadly: your mobility policy) determines who drives which car. These can be lease cars, but also private cars on a mileage allowance. The car or mobility scheme is usually the right place to record that policy. Every fleet should start with a policy, but in practice a fleet simply starts with a few cars and the policy is bolted on later. It is healthy to evaluate and improve it annually.

2. Procurement

When procuring lease contracts, the leasing company's conditions and rates matter, but so does the number of leasing companies you contract. Selecting two leasing companies has the great advantage that both have an interest in calculating sharply for every new car. You also benefit from the price differences between them.

3. Deployment

Deploying cars seems to take care of itself once a new framework agreement is signed. However, the contract variables under which cars are deployed largely determine the cost level.

4. Administration

The costs of fleet administration are often hidden. They are an integral part of the lease rate, and within the organisation fleet management is often a side duty. "We are paying for those hours anyway", is the thought. Yet there are often interesting indirect savings to be found by examining the administration.

5. Use

The driver is the last, but certainly not the least decisive factor in car costs. First through fuel costs, but he or she also largely determines repair and maintenance costs, tyre wear and damage costs. The leasing company covers these within the lease rate, but structural deviations can be used to set the lease rate higher for the current or next car.

By looking at all these areas systematically and simultaneously (policy, procurement, deployment, administration and use) you lay the foundation for maximum savings. These areas appear separate, but they are interdependent. You can train your drivers to minimise damage, but if the lower claims burden then disappears into the leasing company's pockets, you gain very little. Another example: you can procure lease contracts extremely sharply, but if the car is then deployed on too short a duration and the wrong fuel, the money still flows the wrong way.

It is not uncommon for an organisation to complete a successful Clean-Up (including tender and a new car scheme), only to let the entire fleet process collapse like a pudding afterwards. The job is done, the focus is gone and all the money drains reappear. Occasionally initiated by the leasing company, which cleverly exploits its client's lack of knowledge. On paper the savings targets have been met, but in practice nothing comes of them.

Mind you: a leasing company can add enormous value. Operationally in particular, a leasing company works far more efficiently, cheaply and quickly than a client ever could. Think of the automated approval, processing and screening of maintenance invoices, or the professionalised sale of used cars through as many as six different channels. The art is to actually reclaim as much of that advantage as possible, so the fleet genuinely remains cheaper than doing everything yourself.

A leasing company is essentially a cross between a bank, an insurer and a car dealer. It is wise to apply adequate control to that.

The Keep-Clean phase is therefore nothing more than ensuring good fleet management, which preferably stays as far away as possible from fuel cards, green cards and traffic fines. Instead, a good fleet manager monitors the accuracy of rates and invoice items, identifies and analyses cost deviations and reports them to the principal, who can then intervene in time: in the process, the behaviour of the leasing company and the behaviour of drivers. This tactical fleet management covers four disciplines:

A good fleet manager also tracks what his actions and corrections save the organisation, so the added value is demonstrable. And he puts himself on the management agenda at least once a year, so the fundamentals of the fleet (car scheme, contract and division of tasks) can be adjusted where necessary.

Completing the Clean-Up phase properly and fully leads to an average structural cost saving of 5 to 10% of the Total Cost of Ownership. Occasionally savings of more than 20% are possible; in those cases the fleet was never reviewed or runs on (too) old contracts. A well-organised Keep-Clean function then prevents a cost increase of 1 to 2% per year, on top of the phase 1 savings.

5–10%

structural saving after a complete Clean-Up

1–2%

cost increase prevented per year through Keep-Clean

7–12%

total structural saving per year with the integral approach

The Molthoff Fleetmanagement QuickScan is the practical implementation of the Clean-Up principle: an integral analysis of your fleet across the five areas described, with savings expressed in euros and a savings guarantee. For the Keep-Clean phase, Price Monitor and Fleet Monitor continuously safeguard that rates, invoices and conditions stay sharp.

Saving on your fleet internationally? Molthoff Fleetmanagement is part of the worldwide fleetcompetence Group network of more than 60 independent fleet experts. You are in the right place for that too.