Fleet management: the devil is in the details

In our consulting practice we help clients gain oversight of the fleet management process and fleet costs. Our approach therefore often sits at a higher level of abstraction than individual lease quotations or a set of winter tyres. We happily talk about risk policy, tactical management and reporting lines. A fine trade.

Yet when completing projects, we still end up dealing with details. Partly because of practical process design, but mainly because of the enormous effect a poorly designed process detail can have on the eventual savings result. Fleet costs are influenced by more than 120 different factors.

Set one pin wrong, and the whole thing goes off the rails.

Below is a collection of cases we regularly encounter in fleet management practice.

Compare excluding fuel

Many organisations work with multiple leasing companies. The advantages of such a multi-vendor tactic are evident: lease rates are established under competition for every order, and you benefit from the calculation differences that occur with every car. Fine. But when two quotations land on the fleet manager's desk, he or she must have the presence of mind to compare the lease rates excluding fuel. Fuel is always a settlement item and says nothing about the real price difference. Sounds logical, but it goes wrong (too) often. Leasing companies play into this by calculating with improbably low fuel advances to win the order. The client ultimately pays the bill.

Order on the actual mileage

A car policy contains norm lease amounts that limit car choice per lease category. The employee has several cars calculated and chooses. Where the employer works with multiple leasing companies, drivers are regularly allowed to calculate with both suppliers, and the quotation resulting in the lowest employee contribution wins the order. The comparison is then made on a norm calculation (often deviating from the actual annual mileage) and on a rate including fuel. In our view, doubly wrong. Some employers do this deliberately, granting the multi-vendor benefit to employees. Our advice: base the eventual order on a comparison of lease rates excluding fuel, calculated on the actual annual mileage. Calculating the employee contribution (the norm calculation) and ordering the car are in fact entirely separate.

Besides the norm amounts, the car policy also determines which fuel the driver must choose, usually depending on the actual annual mileage. In the past, one break-even point between petrol and diesel sufficed, for example: everyone above 30,000 kilometres per year chooses diesel. Fixed break-even points are no longer reliable: for one model the break-even sits below 20,000 kilometres, while another model needs more than 50,000 kilometres per year to be cheaper as a diesel.

A technically sound solution is to calculate the norm on a single fuel type for determining the employee contribution, after which the employer can decide to deploy the same car on another fuel if that is cheaper at the expected actual mileage. In practice sometimes awkward: not everyone is charmed by diesels (higher taxable value) and others will not look at petrol cars (limited towing weight).

Another solution is using two norm amounts: one for petrol and one for diesel cars. There is a catch: drivers quickly notice when a substantive difference arises between the two amounts. The diesel driver can order more bells and whistles than the petrol driver, or vice versa. Suddenly many drivers report a different annual mileage than they actually drive, to qualify for the more luxurious cars. Our advice: recalculate the norm amounts quarterly and verify historical annual mileages yourself.

Cheap, economical cars with low addition-to-income often prove far less economical in practice than manufacturer and leasing company would have us believe. The leasing company does not do this deliberately: it relies on the factory specification. The factory does do it deliberately, because low standard consumption means low emissions, low tax addition and high sales figures. The result: the employer often spends tens of percent more on fuel than budgeted.

One of the most-used savings instruments is the discount weapon: negotiating extra discount with dealer or importer, limiting the number of brands, and down go the costs. At least, that is the idea. Sometimes, however, the discounts end up where they do not belong: in the norm lease rate. The dealer grants extra discount, which is processed into the lease rates, but mistakenly also into the norm lease rates. Ergo: the saving goes straight to the driver and not to the employer.

Our advice: have discounts credited separately by the dealer (an immediate liquidity advantage), or process them explicitly only in the deployment lease rate, not the norm lease rate. If the discount comes with brand restrictions, ask yourself how much it really delivers. The saving is often barely interesting compared to what is possible elsewhere, such as better lease conditions. Brand restrictions can also reduce the choice of tax-friendly models, with dissatisfied drivers as a result.

Replacement car

It seems clearly stated in the lease contract: replacement transport included after 24 hours. That always meant the leasing company pays for the replacement car when the lease car stays in the garage longer than a working day. That is still the case, but increasingly a large part of the rental costs is simply recharged to the client: the first rental day turns out to be a kind of deductible. It was in the small print somewhere, but the client effectively pays for a reservation he hardly uses; the bulk of rental costs sits precisely in that first day. Practical tip: record explicitly that 'replacement transport after 24 hours' means all rental costs for repairs lasting longer than a day are for the leasing company's account.

Winter tyres

More of the same: winter tyres in the contract. We increasingly see standard clauses limiting winter tyres to one set over the contract duration, while summer tyres are not limited. Odd. With a five-year duration and 35,000 kilometres per year, it is highly questionable whether one set of winter tyres will suffice. If the end of the contract is not yet in sight but the end of the winter tyres is, the employer receives an extra invoice. Here too: read carefully what exactly you are ordering.

When a driver exceeds the norm lease amount, the employee contribution is deducted from salary. The employer thus receives money from the employee: a kind of revenue from a private individual. And that is where the shoe pinches. The tax authority regards this income as amounts including VAT, which you must remit. That means you are effectively subsidising the employee's budget overrun by 21%. If this money is leaking away, repair your car policy as soon as possible by increasing the overrun contribution with VAT.

With the QuickScan you discover in a short time what is going well and what can be improved, for now and for the future. Beyond fleet management, the QuickScan also looks at cost savings, time savings, the car policy, deployment and use. And through Fleet Audits we continuously verify invoices, contracts and recharges, so these detail mistakes do not quietly cost money for years.