Fleet management is becoming more and more complex. In addition to issues such as tax, duty of care, fuel types and emissions, buyers are grappling with whole-life vehicle costs. These include all the extra expenses that drive up fleet spend including servicing, maintenance, repair, depreciation, the costs of manufacturers’ key components and insurance.

Duncan Webb, head of product development at BT Fleet, says purchasers must also consider the costs of the vehicle not being used.

“Purchasers need to focus on whole-life costs, including the vehicle’s downtime. It can easily cost companies that are running operational vehicles £300 a day for a vehicle that is off the road.

“Purchasing decisions should therefore not be based on the best fleet management fee, but on speed and ability to get a vehicle back on the road.”

He adds: “The question purchasers should be asking is not so much about the price, but the service and convenience.” In his view, they should work with suppliers which can provide what he describes as an “integrated” service “in one place at one time, rather than sending a customer to one garage for maintenance, another for fast-fit items and another for tyres.”

Another important factor in a vehicle’s overall cost is depreciation. Even those in good condition can be worth as little as 21 per cent of their original value after three years and 60,000 miles. By contrast, some prestige models have a value of nearly 50 per cent after the same period.

Component costs must also be taken into consideration. Some manufacturers, for example, may use more expensive components, such as run-flat tyres or wrap-around screens, which will cost more to replace.

Legislation is also an issue. Vehicles are now classed as places of work, which means they fall under the provisions of the Health and Safety Act, regardless of whether they are owned by the employee or the company.

Simon Harris, managing director of consultancy FleetConsult, adds: “There’s a duty of care where the employer needs to fulfil due diligence ensuring the driver is qualified, and the car and the employee are insured and legal.

“They also have to build and monitor the driver’s activity [the number of hours they drive a day] in the vehicle.”

The Health and Safety Executive points out that although this is extra work, it can save money by reducing accident costs and insurance bills, and regular maintenance will lower fuel bills.

As well as the duty of care, European VAT legislation is set to have an impact. As of 10 March 2005, the European Court of Justice has ruled that companies can no longer claim back VAT paid by the employee (for example, if an employee pays for fuel using cash or their own credit card).

The UK has not yet decided how to implement it, but it may be advisable to start investigating company fuel card schemes or issuing company credit cards if you want to claim back VAT in the future.

Beyond choosing a supplier and vehicle, the biggest hurdle for fleet management is funding. Industry research from consultancy Monks Partnership in 2004 suggests only around 20 per cent of fleet vehicles are bought outright.

The advantage of buying is you can sell when you want, and benefit from the returns. The downside means tying up a lot of company funds, either by committing to loans or using company money to pay off vehicles outright. The company also has to invest time in managing maintenance costs.

So what happens to the other 80 per cent? The most common alternative to buying is contract hire. Using this method, a firm can simply pick its vehicles, specify how long they are needed, how many miles they will cover, and take delivery.

Harris points out, however, that few companies actually own the vehicles. “Most go back to the vendors at the end of a certain time.”

And he says, this provides a revenue opportunity for the vendors (and potential cost for purchasers) through a bill for damage or “excess” wear and tear. “It’s essential to ensure at the start that there’s an understanding of what is fair wear and tear,” he cautions.

There are other ways to reduce expenditure. “Ideally you should also pool excess mileage across the fleet, as charges can be a bit of a surprise. It’s also a good idea to negotiate a guaranteed buy-back so you know exactly what the vehicle is going to cost you over its life.”

Choosing fuel for your fleet should be a cost-based decision. Big savings can be made depending on the option selected. However, making a decision on cost can become complex.

Employees may choose petrol, which is available anywhere and makes cars go faster. But Harris adds: “Both diesel and petrol are high priced and will probably only go on rising. In addition, future emissions laws could change and price them even higher. The size of the engine is already linked to the amount of tax you pay, so emissions can only be next.”

Liquified petroleum gas (LPG) is a clean fuel and is substantially cheaper than petrol or diesel (39.1p per litre, compared with 86p). But it’s not available everywhere and it costs up to £1,500 to convert a conventional car to LPG.

In the past, government grants were available to defray the cost of conversion, but they are currently under revision to meet European rules on state aid.

Mike Chapman, automotive administrator with the LP Gas Association, says: “We await details of the new grants, which are currently being agreed between the Department for Transport and the European Commission. However, from initial information issued by the DfT, we are hopeful that the grants for improving air quality will be available to LPG light commercial vehicles.”

BXTech, the courier division of mail service Business Post, uses LPG in about two-thirds of its 120-odd vehicle fleet. Terry Chapman, general manager, explains: “We switched to LPG for two reasons: the economic advantage, as fuelling the vehicle is less costly than diesel and petrol; and environmental, as we are trying to use pollution-free vehicles where we can.”

Another option, electric vehicles, are still in their infancy and there are concerns over mileage. But hybrid vehicles (a mix of petrol and electricity-powered) have none of the problems of pure electric automotives.

As is the case with LPG-run vehicles, they’re exempt from taxes and from the congestion charge in central London. Other cities in the UK are soon to follow the capital’s lead and make drivers pay to enter, so this issue is likely to grow in importance for businesses.

Another problem with company cars is abuse: what is acceptable personal mileage and where do you draw the line when it comes to dents and knocks?

Harris points out: “You cannot limit personal use if the car is a benefit in kind.”

However, that doesn’t stop you tracking where the vehicle is and how it’s used. FleetConsult uses a system called Accredis – a tracking device that uses GPS positioning.

The driver selects either business or personal use when starting the car. If it’s business use, every five minutes the system records the vehicle’s position; for private use, it just details the mileage.

You can then produce a series of reports from the data and integrate it with other fleet management products such as expense reports accounting packages.

So with all this information, do you need a fleet manager?

Harris thinks not. “You don’t need a dedicated fleet manager as long as you are willing to ensure the diligence and rules are followed. However, you should take advice from your tax adviser.”

Happy motoring.

Marcus Austin is a freelance business journalist. SM will publish a fleet management supplement with our 8 September issue