Choosing the best company car fleet

Man holding set of car keys
By Curtis Hutchinson

18 August 2015

With a growing range of fuel types, new technologies, government incentives, and tax and emissions regulations to navigate are company fleet managers getting a smooth ride or being driven to distraction?

The provision of company cars used to be straightforward.

Staff would be offered a benchmark price range, then chose the car best suited to their needs. Sensible restrictions were often applied and typically included no two-seaters or convertibles, while the driver chose the car with the highest specification available to them.

The question of fuel type was easy, especially with drivers expecting to clock up high business and private mileage. Diesel quickly became the fuel of choice with its lower CO2 emissions, making diesel cars more favourable than comparable petrol models.

The government liked diesel too as its uptake meant a lowering of average CO2 levels, although to stop a wholesale migration to diesel, fleet drivers faced an additional three per cent benefit-in-kind (BIK) surcharge due to diesel motors producing nitrogen oxide (NOx), which can affect air quality. This sub charge is due to end in the 2016/2017 tax year.

Improvements in engine technology

New-generation diesels have benefitted from higher levels of refinement resulting in lower emissions. It's hardly surprising, then, that just over half of all the new cars sold in 2014 were diesel powered.

However, diesel's pre-eminence came under attack following the UK's Supreme Court ruling in April 2015 that the government must take immediate action to cut NOx levels.

This prompted headlines suggesting diesels could be prohibited from some UK city centres - although older diesel cars are dirtier than modern ones. This means that local authorities will need to clarify where they stand on the use of older dirtier diesels compared to the new generation of cleaner Euro 6-compliant engines used by many fleets.

Electric alternatives

Meanwhile, the choice of electric plug-in alternatives has grown, following the success of the UK-built Nissan Leaf and the ongoing roll-out of the refuelling infrastructure, as charging points are added to a growing number of motorway service stations, supermarkets and local authority-run car parks.

The choice of suitable hybrid-powered petrol/electric and diesel/electric models has also grown significantly, many of them available as plug-ins.

However, without any BIK incentives announced in the March Budget, electric and hybrids are likely to only appeal to early adopters and for those whose work-life balance would not be compromised by the sub-100-mile range of most electric vehicles.

The official new sales figures, from the Society of Motor Manufacturers and Traders, reveal that last year just 2.1 per cent of all new cars sold were electric or hybrid, a grand total of 51,739 units. Diesel accounted for 50.1 per cent and petrol 47.8 per cent.

No one-size-fits-all solution

Murray Wilkinson, owner of the Stirling-based Camargue Group, a specialist fleet vehicle supplier, believes the case against diesel is overstated.

He says: "When it comes to choosing a car, there's no 'one size fits all' solution. I always ask the client what it's being used for. I had a customer looking at a hybrid because he had been persuaded to do so by a dealer who said it was the way to go. However, they were doing a lot of motorway miles so hybrid was wrong for him because their greatest advantage is when you are doing a lot of town driving and using the electric power. That was a clear case of diesel being a better choice, which is what we advised him to do."

While Murray is impressed by new-generation super frugal petrol engines, he says the business case for fleets tends to favour diesel.

The challenge for fleet and financial managers is how to make an informed choice and sound business case for the type of cars they plan to run.

Diesel's pre-eminence is also noted by Nick Hardy, sales and marketing director of Ogilvie Fleet, who pointed out that many fleets only run diesel cars. However, he believes businesses should base their choice on a vehicle's whole life cost rather than the fuel.

Nick says: "Diesel remains far and away the dominant company car of choice and will remain so until fleet managers move away from a diesel-only policy and introduce one based on whole life costs where diesel is considered on its merits against petrol, electric and plug-in hybrid models.

"However, there is a degree of reluctance to review policies and move away from the comfort of a diesel-only policy and introduce one based on whole life costs, despite best practice advice to the contrary."

Mixed messages from government

For those planning fleet strategies the choice is not straightforward due to conflicting signals from central government over its treatment of diesels and electric vehicles.

Nick Hardy says "The government's denigration of diesel is sending mixed messages to fleet managers and company car drivers. I have seen road signs displaying messages urging motorists not to drive diesel because of air-quality issues, but in 2016/17 the government will remove the 3 per cent BIK tax surcharge on diesel cars.

"The effect of that will be that drivers' tax bills will reduce as tax rates will rise by two percentage points, but the net effect for the driver of a diesel company car will be a tax saving.

"What's more, BIK tax on zero-emission and plug-in hybrid models is being loaded with significant year-on-year increases for the next five years, while the government wants to encourage demand for these vehicles. Mixed messages are being sent through the BIK tax system and that is not healthy in terms of encouraging the right choices to be made."

The Association of Car Fleet Operators (ACFO), the trade body and lobby group that looks after the interests of fleet professionals in companies, believed the government should have incentivised BIK rates for electric and hybrid company car users.

"The government is ploughing hundreds of millions of pounds into encouraging the uptake of zero and ultra low-emission company cars so ACFO is disappointed that BIK tax rates on these vehicles (0-50g/km) are increasing further in 2019-20," said ACFO chairman John Pryor.

"Given the focus on encouraging demand for electric and plug-in cars through a range of incentives, notably grants, ACFO would have expected the chancellor to reduce company car BIK tax rates on these vehicles in the Budget, not increase them."

Future of electric cars within company fleets

ACFO believes electric vehicles will continue to play a role on company fleets, albeit a small one.

"The marketplace is changing, so electric vehicles have to be a factor on fleet managers' radar. Nevertheless, it remains our belief that electric vehicles will always be a niche within fleet operations while diesel and petrol power will form the bedrock of both public and private sector fleets for the foreseeable future."

The challenge for fleet and financial managers is how to make an informed choice and sound business case for the type of cars they plan to run.

The best advice here is to consider individual usage and whole life costs and, if they consider choosing diesel, they will have the confidence of knowing that new-generation engines are cleaner and more efficient than ever.

Curtis Hutchinson is the Editor of Motor Trader. This article first appeared in the August 2015 edition of the CA magazine.

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