Managing vehicle expenses – more than meets the eye.
Managing vehicles is not as simple as choosing a make, model and colour. The right strategy involves a set of decisions around risk, tax, equity and financing. These requirements change over time. This means you should review your strategy on a regular basis.
There are many factors that impact the ownership and operational cost of vehicles
Individual usage. Tax. Risk. Finance. There are numerous factors that companies and individuals must consider when choosing a vehicle for business use.
Recent market changes are driving a re-consideration from many businesses. That is how to buy, finance, manage and dispose of vehicles. Change in the vehicle landscape is not a recent phenomenon. It is one that is occurring on a continual basis and will continue to do so into the future.
The answer for most businesses comes down to understanding what will deliver the best outcome. Risk, finance, cost-to-serve and compliance appetite must be considered. There is no one solution.
Understanding the total cost of ownership over time is critical. Rather than focusing only on a metric that can be written into a contract. While the rules are complex, there are simple solutions to ensuring you do not get caught out.
What factors impact vehicle costs?
If you look back over 20 years of how businesses manage vehicles – there have been lots of changes. Some have been driven (excuse the pun) by changes to business markets. Technology has caused some changes. Tax laws change over time. Some are from changes in legislation. All of which inevitably leads to a change in the risk profile. Every change has an impact on what the best option is for a business.
One large change (novated leasing) sprung up after a lawyer found a loophole in taxation law. Some of the ways in which businesses did things have vanished. The vehicle industry in Australia has been through considerable changes of late. And, changes to accounting standards have delivered another impact. Businesses can no longer keep operating leases ‘off-balance sheet’.
Recent legislation changes to consumer and business lending practices are having a major impact on people, car allowances and novated leases. Credit has become harder to get from Australian banks and financial institutions since the banking royal commission.
Where can you save on vehicle costs?
Are your vehicles business-owned? Leased? Or do you compensate (or not) employees for private vehicles? Both you and employees should be considering the following:
Before you make a commitment, understanding what is right for your business (or employees) is critical. Are you choosing the right make, model or brand of vehicle? What depreciation will apply to the ideal make or model over time? Will you be left with negative equity? Is it better to lease or buy? Do you have all the information you need to make an informed decision?
Purchase / Procurement
Getting the right price on a new or used vehicle is more than knowing someone. It is a combination of factors. As well as knowing the industry inside and out. This can deliver a 2-3% saving over and above what you can negotiate yourself. If you are trading in or selling a prior vehicle – how do you maximise the value to you or your business?
The right finance product is dependent on many factors. There is no one-size-fits-all solution. Nor, one provider that offers the best rates at all times. You should definitely not do only the same thing you did last time. Finance should also be considered in line with the complete vehicle strategy. A more flexible loan rather than lower interest rate may deliver lower cost of ownership.
Fleet Management / Operation
Fleet management is a delicate balance. It is important to not only manage the operation of vehicles. But, to also consider other aspects such as FBT reporting, asset equity and exceptions/trends. This allows the business to better manage cost around vehicle use.
When is the right time to sell? Well, that depends on the make, model, financing and much more. Operating purely on a fixed schedule may not account for normal wear and tear in lease clauses nor cater for differing geographical areas (regional vs urban)
Don’t get caught out chasing the wrong metric
Chasing the wrong metric is a lot like a shell game. It allows suppliers to keep you wondering where the ball is. Administrative fees are often are focus for buying teams as part of contract negotiations. The reality is that fees represent a relatively small opportunity to save when compared to vehicle purchase, finance and equity management.
Focusing on saving $10 a month on admin fees alone makes no sense.
Whether your vehicles carry people, tools of trade or goods for delivery – there are many ways to both reduce risk and save. All the way from procurement through to disposal offer opportunities to reduce your vehicle costs -some may surprise you. Supply Clusters through our approach to a total vehicle solution can assist in Procurement, Operations, Chattel Mortgages, Fleet Management, Disposal and Fuel Cards.
There are many benefits whether you operate a financed or owned fleet of vehicles and you can find out more about them here.
More and more organisations have moved to providing car allowances as opposed to providing company vehicles. From a corporate point of view, it moves the FBT and tax compliance aspects of company vs private use into the hands of the individual for taxation purposes. It also removes vehicles (and the associated risk) completely from company books or balance sheets.
As a company who offers employee benefits in the form of car allowances, novated leases or you just want your staff to benefit from better prices – there is a range of opportunities for your staff to save.
Want a total vehicle solution?
As part of your total vehicle solution Supply Clusters can also help with standalone fuel cards or short and long term car hire. You can find out more below
Supply Clusters offers the choice of convenience or savings cards to help reduce the operational cost of vehicles for our members. They can choose from our own branded fuel card for the perfect balance of convenience and savings or get savings only from Caltex.
Where can we help you?
Supply Clusters works with businesses of all sizes. Especially those larger companies who need support to work out the best approach for them.
We have worked with large not-for-profits and commercial businesses across many industries. If you are unsure where to start, all it takes is a no-obligation discussion to get started.