Managing Your Company Cars in 9 Easy Steps - Book Extract

‘Fleet policy’ is a fleet industry expression. It means all of your organisation’s policies and procedures for running its car fleet, including the vehicles you select, whether you allow your drivers to choose their vehicles, whether they are allowed to contribute extra (‘trade up’) to get a better car, your policies for dealing with driver safety, what happens if a driver returns a vehicle in poor condition and so on. Your fleet policy should be set out in writing and this document – the Company Car Policy – should be handed to each driver.

Vehicle selection

Every vehicle your company uses should be fit for the tasks it will be required to do. If it is to be used by a sales engineer to carry heavy loads, the maximum load weight, carrying capacity and sill height will be important. If the sales manager will regularly use it for longdistance motorway driving, a larger engine and longer wheelbase will make his journey more comfortable and therefore safer.

Some city centres will soon ban high-emission vehicles. If your drivers routinely drive in these cities they should be allocated lowemission vehicles.

Fleet managers have learned the hard way not to give high performance cars to young, inexperienced drivers as this can lead to expensive mistakes or worse.

You will need to consider the type of fuel, number of doors and whether the vehicle transmission needs to be manual or automatic.

If you allow your employees to select optional extras, be aware that some extras enhance resale values while others do not. For example, leather seating will enhance value in high-value cars but not in basicmodels. Alloy wheels can cost more to buy and to run; if they are in good condition they enhance resale value but if damaged they can reduce it by hundreds of pounds.

The vehicles you select should reflect your company’s image and the industry in which you operate. If you sell luxury goods to the landed gentry, arriving in a small basic car may not project the right image. And if your company’s image is ‘green’, your fleet should reflect this.

Allocation policy

Having considered the most appropriate vehicles for the job, you need to set an allocation policy – deciding who gets what. Most organisations allocate vehicles according to staff grade but many now allow their employees to choose vehicles thatmeet private as well as business needs. So, if an engineer has young children she may prefer to have an estate car instead of a van.

Such flexibility is good for staff motivation and morale but if you offer too much flexibility the costs can begin to rise. A good approach to vehicle allocation is to select a benchmark car for each group of drivers (sales representatives, middle management, directors, etc) and build your list from there, using whole-life costs (see below) rather than list price.

You must allocate cars without discriminating between men and women. In 2003 a group of women won a discrimination case at an Industrial Tribunal because their male colleagues were allowed better cars under their company’s car scheme.

Some companies allow employees to contribute to the cost of a more expensive vehicle (‘trade up’) and to pay either by monthly deduction from salary or a lump sum on delivery of the vehicle. Some also allow employees to trade down and take some extra salary, which can be useful for a perk car driver if their partner already has a car.

If used cars are allocated, the policy should specify how long they will be kept.

Your vehicle allocation policy will need to be updated when vehicle models are discontinued, new cars are released and when list prices change.

Fixed allocation lists

You can publish a fixed list that sets out all of the vehicles available for each grade of driver or you can allow drivers to choose their own cars.

A fixed list gives you certainty and control. Fewer anomalies will arise and your staff will easily understand the system.

However, if you change the list infrequently the business will bear the increased cost when car prices rise. You will not be able to remove themfromthe list until the next review date. On the other hand, if you change the list frequently a vehicle available to a group of drivers one day will be unavailable to them the next day, if a price rise has put the car out of their range.

A fixed list containing only high-emission vehicles will be a cause of employee dissatisfaction. You will be forcing your drivers to pay high levels of personal tax on their vehicles.

Fixed lists tend to be poor for employee morale.

User chooser

This is the alternative to the fixed list. The driver chooses a vehicle based on their seniority and the cost of the vehicle.

This can cause problems when the driver leaves and the company finds the car is not suitable to allocate to any other employee. This problem does not arise with a fixed list.

Some companies allow their drivers to select vehicles based on themanufacturers’ published list prices. However, this approach is sub-optimal because list prices ignore the different discounts available on different vehicles.

Alternatively you might allow drivers to choose any car up to a limit based on the cost to the business net of discounts. This is better than selection based on list price. However, invoice price does not reflect the full cost of the vehicle to your business over the period in which you will use it.

Allowing drivers to select cars up to the value of the contract hire rental of a particular benchmark car represents a further improvement, because the rental automatically reflects purchase discounts, depreciation and interest costs. However, the contract hire rental does not include fuel costs (which may be relevant where the employer reimburses actual fuel cost rather than paying a flat amount per business mile) or insurance premiums.

Whole-life cost reflects the total cost of using the car over the period in which it will be retained by the business. It includes depreciation, interest, servicing, maintenance and repairs. Fuel costs can be added if the company pays for fuel. Whole-life cost represents the best form of allocation policy.

Whole-life costs will increase if a driver chooses a vehicle specification that will be unattractive to buyers when the time comes to sell the vehicle. For example: Air-conditioning is essential on large cars and is becoming important onmedium-size cars. Electric windows are essential on prestige cars. Alloy wheels are essential on sporty cars. Metallic paint looks better on most cars (but not vans).Without these, the resale value of a vehicle will be much reduced and the whole-life cost will rise.

You can obtain whole-life cost data from magazines, fleet management and contract hire companies, motoring organisations and specialist publishers.