Is it time to re-think your vehicle strategy?
If the last time you looked at your vehicle strategy was when we still made vehicles in Australia, it may be time for a review. There have been changes to finance legislation, accounting standards, technology and tax laws. The solutions you had in place may not be delivering the best results to your bottom line.
Like any market, it changes over time and your assumptions from a few years ago may be doing more harm than good. Both to your bottom line or your employees back pocket.
There are many companies out there that are approaching this category the right way. Many of our members are.
But, there are many companies that we talk to who are:
- focusing on the wrong metrics
- lack in-house expertise, or,
- are not aware of market changes. This may be costing thousands of dollars per vehicle.
Signs you need to update your vehicle strategy / consider other options
1/ All you focus on is the cost of monthly admin fees
Monthly admin fees represent low single-figure percentages of the cost of buying and operating a vehicle over its life.
Chasing savings on such a small number at the detriment of other cost factors is not good business. Say, for example, your organisation has a large fleet:
Let’s say you negotiate a saving on monthly admin fees for operating leases of $5. If you have 100 vehicles, you would save $6,000 a year or $18,000 over 3 years.
You could do this at the detriment of other factors. Those such as buy price. However, you could be foregoing $100,000 in savings on that alone. Not to mention other aspects such as paying more for finance.
You also need to consider what you get for low admin fees. They a small percentage of the cost of running a fleet. But you may be giving up service levels or reporting that is necessary to manage ongoing operating costs. Not to mention keeping on top of the optimal time to sell based on the value of the vehicle.
2/ You have a program of car allowances for employees
Many businesses are changing to car allowances. It certainly simplifies the process from a company point of view. No more managing FBT, etc on company cars. It also simplifies tax reporting as it forms part of the employee’s taxable income.
However, it shifts the burden of management and responsibility onto the employee. Most employees will find it difficult to manage all the obligations to make sure they are correctly reporting for tax purposes. Or, they could end up shortchanging themselves if they use the wrong methods to measure FBT.
In some instances, Novated Leases provide a simple tax effective solution for employees. Especially for those who need a vehicle for work and receive a car allowance. However, depending on the industry and the amount of personal use it may not be that simple or effective. It is worth considering a supplier who can offer greater flexibility and value in this space – such as the Tax Break product from Fingo.
3/ You outsource everything to the same provider you have for years
Loyalty is generally seen as a perfect character in a supplier. It can breed complacency in managing your vehicle fleet if you are not wary.
The market changes, rules and regulations change. It is not unknown for suppliers to milk the gravy train of the status quo. That is rather than recommend a change in vehicle strategy which would cost less for customers (and impact supplier margins).
It always makes sense to look at each category afresh when the time comes for contract renewals. And consider new and upcoming suppliers in the market
4/ You do not have the industry connections/expertise in-house
The car industry has long been as a hotbed of pressure sales and bait and switch tactics. All designed to take advantage of those who are not experts. The same tricks played on the unsuspecting in the car yard, are being used to your detriment. But without the depth of industry knowledge and resources – how would you know? And, even if you found out, would you make a noise about it and look ill-equipped for your job?
Be honest with the skills and expertise that you have in-house. It pays to leverage external resources and let them help guide your vehicle strategy.
5/ You manage contracts rather than a category
Many companies are guilty of doing this in at least one category. The reasons for this often come down to resources (who isn’t doing more with less) or expertise in a given area. Or, company policy (sometimes driven globally) dictates having a contract in place where it makes no sense in a local market.
For many years – companies have been foregoing having a fleet manager on the books. They have been outsourcing the work via operating leases. With that change, a lot of internal know-how was of course lost.
We all understand the concept of the total cost of ownership. It has been about for years and in vehicles, it means as much as in other categories. The impact of having a total vehicle category solution can often deliver benefits that are over and above a contract level approach. Especially when focussing on one area or metric.
Where vehicles are a considerable part of your spend, and you do not have dedicated resources – there are solutions.
What are some simple things that you need to keep an eye on?
1/ Avoid add-ons as part of the vehicle sale
Some add-ins make a lot of sense to do at the time of purchase. Some, however, are opportunities for a dealer to drive up the selling price and add some margin back in. Dealers have been squeezed on margins from OEMs. The add ons can often enhance the margin they make.
This can have a greater impact on lease and finance. It generally does two things:
a/ Overstates a potential tax benefit by increasing the capital component of a loan.
b/ Increases repayments over time and reduces the actual equity in the vehicle resale value.
2/ Best price and trade-in price are often not the same source
As a consumer, it is common practice to trade in your car at the dealer where you buy your new car. Dealers want to make margin on trade-ins so the price you receive may not be reflective of the value of the vehicle. Your option is always to sell the vehicle yourself. Or through another party for personal or business vehicles. It is worth looking at the options available to save more money.
3/ The best finance interest rate may not provide the best option for you.
Often lower interest rates on loans for vehicles come with a catch. You miss out on some of the discounts available on the purchase price. This is an easy place to get caught out for the uninitiated. Low or no interest rates on a vehicle purchase can often lead to you paying more overall for the vehicle.
There may also be terms in a loan that may end up costing you more.
There are many lenders out there in the market. More often than not, someone has a promotional deal in place that is worth looking at. It pays to shop around or work through someone who has access to many sources of lending.
4/ Knowing when the right time to sell is
Do you know when is the right time to sell? The right time is a function of the remaining loan (if any). Any residuals on a lease. And the market price for your vehicle. The more vehicles you have, the harder this is to manage. Inside knowledge of the industry is also important to maximise the value to you (rather than to the supplier).
Knowing when the right time to sell is can save you a big percentage of the cost of the vehicle or a replacement. It is wise to work with a supplier that can deliver this reporting to you such as Fingo
5/ What service do you get for your admin fees?
We don’t understand at times the focus only on admin fees for leases or fleet managed vehicles. Yes, it can deliver savings on a very small part of the cost of owning and operating a vehicle. But there are far greater financial benefits to be had working with a high-service organisation.
The key is to work with a supplier with a focus to deliver the best business value. The more you clamp down on one element of price for vehicles such as service fees, the less you get back.
Now if you are a giant company with hundreds of vehicles – you may expect (and may receive) good service and prompt reporting.
But what about useful reporting. Or someone to talk to. Having someone at the end of the phone and good information is critical. It enables better decisions is a far more useful situation than saving $5-10 a month.
Don’t get taken for a ride
Dealing with hundreds of companies every year. We see the good side as well as the bad side of how people manage their vehicles.
The members we work with who have this all buttoned-down. They have the resources and expertise in place to maximise the benefits to their companies. Many others do not. Who isn’t doing more with less these days?
It is important to be honest with yourself and know when to seek external help. Doing this will help define a better vehicle strategy. And it will help you achieve the real goal of delivering savings for your organisation on its vehicle fleet.