4 September 2015

Construction firm slashes fleet expenditure by adopting whole life cost policy with help from Activa Contracts

One of the UK's leading construction companies is expecting to save more than £100,000 over a four-year company car replacement cycle after adopting a whole life cost vehicle selection policy. The business turned to Activa to provide a root and branch review of its company car policy with the simultaneous aim of making it more attractive to employees to boost staff recruitment and retention while not increasing business costs.

The Milton Keynes-based contract hire and leasing company won a competitive tender to provide company cars to family-owned Osborne, which has a combined car and light commercial fleet of some 500 vehicles.

Activa has to date supplied 180 cars and is managing out the remaining legacy fleet of 30 vehicles owned by Osborne’s previous sole lease supplier until they are replaced with its own cars.

The cars are provided on contract hire with full maintenance, with us also providing a range of other services including daily rental and logistics, which includes vehicle re-allocation preparation and end-of-lease inspection and collection.

What’s more, although a different leasing company is supplying the company’s almost 300-strong light commercial vehicle fleet, Activa has so impressed Osborne with its partnership approach that it is in the process of delivering 36 vans on a four-year/80,000-mile replacement cycle for a specific construction contract.

Osborne’s previous company car policy was based on effective rental costs – lease rates inclusive of service maintenance and repair (SMR). Divided into ten categories it gave drivers in bands one to six a choice of Ford and Volkswagen models with employees in the remaining bands being user-choosers.

At Activa, we advocate that all fleets use whole life costs as the basis for their vehicle policies as that provides the most accurate and transparent real-world price of corporate motoring.

There is no fleet industry definition of the data that should be included within whole life cost figures, but Activa includes all known parameters: monthly rental, SMR, disallowable VAT, fuel, Class 1A National Insurance and corporation tax relief as well as taking account of vehicle P11D value and company car benefit-in-kind tax.

Osborne fleet manager Jacquie McDermott said: ‘The result of the analysis was astonishing in terms of the breadth of company car choice we were able to provide employees and the financial savings to the company.’

However, to enhance the company car policy even further Osborne decided to increase the cost base of its previous effective rental policy by 5% to widen vehicle choice when introducing whole life cost calculations.

Figures show that having switched to a company car policy based on whole life costs from one based on effective rental, notwithstanding the 5% uplift, Osborne is saving £2,303 per month across the 180 models introduced to the fleet by Activa to date.

That equates to a saving of £27,636 a year and £110,544 over the vehicles’ four-year replacement cycle. Car replacement on the all-diesel fleet is benchmarked at 95,000 miles, but each contract is linked to an individual employee’s mileage.

Furthermore, employees now have a choice of company cars across ten manufacturers – Audi, BMW, Fiat, Ford, Kia, Mercedes-Benz, Skoda, Vauxhall, Volkswagen and Volvo.

Additionally, the whole life cost focus has helped Osborne reduce its carbon footprint and, critically, employees are achieving company car benefit-in-kind tax savings.

The company estimates that by introducing a carbon dioxide (CO2) emissions cap of 120g/km, it has trimmed its carbon footprint by 50 tonnes of CO2 per annum, while drivers are saving an average £20 a month in tax.

Our area sales manager for the south west Sally Lewis works closely with Osborne to ensure the optimum fleet policy.

She explained: ‘To ensure vehicle costs remain competitive we keep the company car choice list under constant review and liaise closely with all manufacturers to obtain maximum discounts.’

The pro-active strategy has proved positive for Osborne and last year versus the previous 12 months delivered an average £3 per saving per month per vehicle across the fleet amounting to a total of £540.

Activa’s Managing Director Ian Hill said: ‘All fleets should use whole life costs as the basis for their fleet policies. We are witnessing a growing awareness of whole life costs among fleet decision-makers, but many organisations still use other criteria for vehicle selection.’

He believes that is frequently attributable to whether or not a business employs a professional fleet manager and where company car management lies within an organisation.

Ian Hill explained: ‘Professional fleet managers understand whole life costs, but many organisations disappointingly do not employ such expertise today. As a result, company car management may rest with HR, finance or another department and whole life cost is harder for them to understand.’

During 2016 all cars on the Osborne fleet will be leased through Activa. In the meantime the two companies are working hand-in-hand to manage the legacy fleet, which is rapidly shrinking.

Jacquie McDermott said: ‘Activa Contracts has helped greatly with the management of the vehicles from our previous supplier. That includes managing the de-fleeting process, advising on any end-of-contract charges and arranging for cars to be repaired.’

Now Activa is in the process of delivering the 36 vans, mainly Ford Transit and Transit Custom models on four-year/80,000-mile contracts. Activa last year provided a similar number of vans on daily rental as a ‘stop gap’ measure due to the urgency of the requirement by Osborne.

Jacquie said: ‘We required the rapid deployment of a fleet of vans for a specific construction contract and utilising daily rental via Activa was the optimum solution. However, we are now replacing those short-term hire vans with vehicles on contract hire as it is a more cost-effective long-term solution.’

In the past month we have also undertaken a complete review of light commercial vehicle racking and livery suppliers used by Osborne and introduced the company to new providers.

Osborne logistics director Colin Brewer said: ‘Fleet business is about the people involved and the added value they bring to the relationship. The people at Activa Contracts have been excellent partners for us; they recognise the importance of having a ‘can do’ attitude to meet clients and their drivers’ needs. Following several years when our faith in the vehicle leasing industry was badly shaken; the team at Activa helped us greatly and continue to provide excellent service. Activa has been a safe pair of hands for us and, as a result, our faith in our leasing arrangements has been rebuilt.’

Sally Lewis concluded: ‘We have an excellent relationship with Osborne and are true partners. We are treated as part of the company’s fleet team. We continually demonstrate that we are pro-active in delivering ideas and advice to assist in the management of the fleet.’