Here are some surprising figures, which throw a different light on Australian company car fleets:
- In the USA, the proportion of cars registered to corporate fleets is about 20%.
- In Australia, the proportion is about 60%.
- In the UK, the figure was 60%, but is currently 40% and dropping.
Why the enormous discrepancy? It is the way that the fleet is funded NOT the difference in the number of vehicles needed to do to the job.
Which funding option are you taking? Does your funding option contribute to maintaining your cost competitiveness on the one hand and staff satisfaction on the other?
The Cash Purchase Option
Perhaps your organisation has a strong cash flow and you can purchase the vehicles outright to save on the higher leasing interest rate. No doubt there are many corridor experts telling you about other options that will expand the number of vehicle models in the fleet. No doubt you are frustrated by the extent of non-core activity that distracts your staff!
Finance Lease
If your cash flow cannot sustain the heavy draw-down needed to purchase vehicles outright then you could be using finance leases? In this way you have smoothed out the cash flow issue by paying monthly lease premiums. You know exactly what you are paying because the principal, term, interest rate and estimated residual value are known. Also your organisation keeps the profit on resale. However you must record the asset and the liability on your balance sheet, as you would with the cash option.
Operating Lease
If you do not want the assets to appear on the balance sheet you might have entered into an operating lease. This is like a rental; the lessee pays a monthly amount over a stated period. Usually organisations that choose the operating lease process go to the market place to obtain quotations for monthly leases and select the lowest price. From that point on don't forget that the leasing company could be making handsome profits at your expense. Unless the lessee organisation has an appropriate monitoring and benchmarking system in place it has little chance of disputing the future rentals as individual units are leased.
Salary Sacrifice
We are seeing an increasing number of companies starting down the road of divesting themselves of their executive car fleets. Just imagine for a moment what this could do for your company if some or all of the following occurs.
- Fleet funding taken off the corporate balance sheet.
- No more repair cost controls.
- No more distracting exception reports.
- No more car insurance and registration.
- No more accident administration.
- No more FBT calculations.
- No more agonising over what makes and models of cars are permitted.
The only fleet task remaining would be to determine the size of the salary increment - and this is a HR function. Options to assist moves toward salary sacrifice include:
Novated Lease - the employees enters into a lease which is novated to the organisation which pays the monthly premiums to the lessor, the liability for the lease rests with the employee.
Cashed Up Vehicle Allowance - the employees are given a cashed up vehicle allowance and, subject to some guidelines, purchases a vehicle and runs it as their own.
Outsourcing
Organisations tend to think they can 'outsource' fleet management and then rest in peace. But no, outsourced contracts still need to be managed against key performance indicators. As well, day to day issues such as cost competitive benchmarking, approving vehicles for new employees and for replacement vehicles and verifying for payment all related accounts, remain an in-house function.
Regardless of the extent to which fleet management is 'outsourced' there must be processes in place to ensure that the lease payments proposed by the lessor company are continuously interrogated to ensure that any increases are justified in terms of either changes in interest rates or residual values.
Neither leasing nor outsourcing allows you to rest in peace.
David Lysons is Associate Director of Fleet Audit Consulting & Training Pty Limited "the FACT team" which writes fleet management strategies for public and private sector corporations. The main office of the FACT team is contacted on 02 9873 2147 Fax 02 9872 6919
Disclaimer
The purpose of this database is to provide a full-text record of all articles that have appeared in the CDJ since February 1997. It is aimed to assist in the research and reference process. The database has a full-text index and will enable articles to be easily retrieved.It should be noted that information contained in this database is in pre-publication format only - IT IS NOT THE FINAL PRINTED VERSION OF THE CDJ - therefore there might be slight discrepancies between the contents of this database and the printed CDJ.