In most companies, the fleet manager looks for value but will be operating within a clearly defined fleet management policy that may well be influenced by the finance function. We speak to Professor Ferdinand Dudenhöffer of the University of Duisburg-Essen about how to define the right policy and what critical considerations will shape it.
Depending on its industry sector, a company's fleet might make the difference between success and failure in the execution of its business model, while in others it may be less business-critical, but still an essential part of the strategy for employee incentives and the retention of senior staff. In either case, the cost implications of the fleet appear firmly on the radar of the finance function, so the responsibilities of the finance director and the fleet manager are often intertwined.
Whether for employee perks, or as a core element of service and product delivery, there are issues of cost that define policy even when other considerations may differ. The first step in defining a successful fleet management strategy for leasing or owning the right vehicles is to first understand exactly what kind of fleet is required before looking at optimising cost-efficiency.
"You have to distinguish between functional cars, where there is a cost-to-value analysis, and perks for managers and other staff, where you are talking about premium cars like BMW, Audi and Jaguar. A company must decide whether it is to be in both of those segments," says Professor Ferdinand Dudenhöffer of the University of Duisburg-Essen, who is a long-standing market strategist in the automotive sector.
"For functional cars, the key consideration is value for money - cost-to-value - and usually they come with full service leasing. Everything is covered, even the replacement of tyres, so you need to ensure that you have a balanced car policy. When it comes to cars that are perks for managers, then the fleet manager or owner decides on which models will be available. Each company will have its own fleet regulations for this but, again, it is about the question of cost-efficiency," he adds.
Fleet in the brand context
Since 2008, Dudenhöffer has been chair of general business administration and automobile economics in the University of Duisburg-Essen's faculty of engineering. At the same time, he became director of its Center for Automotive Research (CAR), having founded a similar centre in 2000 at the Fachhochschule Gelsenkirchen University of Applied Sciences. Before his academic roles took precedence, he amassed considerable expertise at companies such as Citroën Germany, where he was director of network development, and Peugeot Germany, where he was sales director.
He is quick to scotch the idea that a company's fleet is an integral part of its brand and identity, though it may be a carrier of the brand in cases where many functional vehicles are required.
"Fleet policies are not really about brands but more value for money. One brand may lead to a better cost profile and that is what fleet managers will look at. With a user-chooser model, the manager chooses the model of the car, so fleet managers must have a portfolio of brands. With this in mind, some company fleet policies may not allow SUVs or convertibles, for example, so customers are shown quite a conservative range of vehicles," says Dudenhöffer.
Regulation is a key determinant of many companies' fleet policies and regulatory change has prompted a shift in the options available to employees who receive cars as perks, though it has had less impact on the policy for functional vehicles.
In the UK, for instance, the shift towards offering employees a company car allowance or the opportunity to join a car lease scheme - instead of providing a company car - has taken root in part because it mitigates employers' Class 1A National Insurance contributions and removes employees' company-car tax liabilities. Both employer and employee stand to gain in such a scenario.
'Cash for car', as the company car allowance is often known, is essentially an addition to the employee's salary in lieu of the company providing a car.
For the employer, the benefit comes in eliminating the whole-life costs incurred through operating a company car and the cost burden administering a fleet. The shift to company car allowances was driven, in part, by the 2002 budget changes to Benefit In Kind (BIK) tax, which forced many of the more desirable 'status cars' off user-chooser company car lists.
A potential problem that arises with more employees driving their own cars for business - the grey fleet - is the complexity of managing the resulting mileage, accident management and general vehicle maintenance costs. Grey-fleet drivers using a car for business could, for instance, leave a company liable in the case of an accident.
For Dudenhöffer, however, the solution is to take advantage of some of the fleet management systems on the market that have been designed to deal with the various complexities of corporate fleet operations.
"With the grey fleet, the management system will allow you to include whatever car you want, so the system is not complicated to manage, but again it comes back to whether a company's specific policy allows this," he says.
Silicon and sustainability: the future of the fleet
The question of sustainability is one that no one in the fleet management space can ignore. It has become central to many companies' overall business strategy and regulatory drivers are becoming more powerful in the area of corporate social responsibility (CSR). Since the word sustainability first joined the vocabulary of the finance function, however, it has always been considered in the context of cost, which is partly why investment in 'greener' fleets has not included many electric vehicles.
This could certainly change in the future, as the technology behind electric vehicles makes them increasingly practical, but for now their cost profile does not fit with strategies on sustainability that not only seek to make a company greener, but also provide returns through cost-efficiency.
"Sustainability is an increasingly important part of fleet management strategy. It brings down costs and it improves a company's green image. That is another reason why some cars with big engines, like SUVs, are not allowed in some fleet policies. Sports cars, too, and convertibles fit less well with a sustainable strategy," explains Dudenhöffer.
"Sustainability is very important, but companies don't pay a price for environmental protection. Plug-in hybrids, for instance, are very green but they are very expensive. That is why they are relatively rare," he adds.
The right program for management
Another key driver of efficiency in fleet management is sought through the IT systems that enable companies to automate and easily oversee their specific fleet needs. Investment in fleet management systems is growing and will, therefore, become a consideration for many more finance directors allocating budgets in the years ahead and expecting a return.
"The main considerations are full service leasing and choice of which models of car will be included in a policy. The fleet manager has to look at running costs and there are so many models that can be used from different service providers that the big trend is offering fleet management systems," says Dudenhöffer.
There are integrated platforms that can cover location intelligence - including GPS, fuel management, maintenance scheduling and route planning for the management of fleets of functional vehicles - and systems that can provide analysis of diverse streams of data to track the cost-efficiency of company car policies. For finance directors, the key question is what metrics to look at to ensure that a company's fleet policy is delivering the best value for money.
Among some companies there is a move towards using total cost of mobility (TCM) as the key metric. It looks at mobility costs in the round - taking into account everything from taxis to train fares - to ensure that use of the fleet of cars is at the most efficient level. Tracking TCM can help a company to significantly reduce its use of cars within the overall mobility matrix, but when it comes to company cars, the total cost of ownership (TCO) remains the key figure to track.
"TCM is becoming the key metric for some companies but there are constraining variables. I think that TCO is the most important consideration for fleet managers. Fleet managers often look in the direction of the finance team but for some companies managing company cars, perks and user-chooser models, it may be towards the management board that the fleet manager looks," says Dudenhöffer.