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Outsource magazine: thought-leadership and outsourcing strategy | March 6, 2015

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Driving In My Car

Driving In My Car
Outsource Magazine

The company car in the UK is a very emotional subject, declares Zafar Currimbhoy, analyst with market research firm Datamonitor. He can say that again! We all heart our company cars as the bumper stickers repeatedly remind us.

The company motor is a status symbol and a clear marker that proclaims we either have the keys to the executive washroom or a seat on the sales floor. Despite the introduction of legislation affecting the tax breaks for employees with company cars, its still top of the perks for busy execs.

Regardless of the emotional minefield involved in our relationship with our four-fendered friends, managing a fleet of cars is a massive cost overhead for organisations and an administration headache. Managing a fleet is not just a matter of buying, maintaining and selling cars at a high residual value  though thats complex enough. Companies also need to contend with issues such as road tax, insurance, congestion charges, carbon dioxide emissions, foreign travel, vehicle delivery, health & safety, MOTs, short-term hire… and on and on and on.

Its hardly surprising then that an increasing number of companies are opting to let someone else get in the driving seat. Some 3.2 million people in the UK have company cars, and half of those cars are managed by third-party leasing companies, according to Curimmbhoy.

As with so many forms of outsourcing, cost is often the key behind the move to using a third-party supplier. The savings can be massive, but will come from different areas depending on the size of company. Larger companies, often with a dedicated fleet team of up to 10 15 people, can dramatically cut costs by reducing headcount, by as much as 50 per cent on staffing costs alone according to estimates from fleet management specialists LeasePlan.

Smaller companies wont have a dedicated team so will save little on staff costs, but will gain by taking advantage of the leasing companys buying clout. The biggest cost is the purchase price and depreciation, explains Ian Gosling, commercial director at LeasePlan. With a large company you are getting very large discounts which smaller companies often cant get.

So, although there wouldnt be much difference in the percentage savings between a fleet of 3,000 and one of 5,000 cars, customers with 200 cars will get a discount as if they had a 3,000-strong fleet. Gosling estimates that companies could gain between 10-20 per cent savings on the purchase price of a car  a substantial discount on a car of say £14,000. This economy of scale not only works its magic on the purchase price, but also on the cost of spare parts.

Currently, its mainly the large companies that are outsourcing their fleet management. Gosling estimates that 30-32 per cent of large companies with fleet cars do some significant level of outsourcing, but that the numbers fall away the lower down the food chain you go, until it is practically unheard of for companies with less than 100 cars. Nonetheless he argues that smaller companies should be exploring their options. Within 12-18 months, it will be possible to take it down to companies with 20 cars, he says.

But for now, a typical outsourced fleet management customer is the likes of Corus, formerly known as British Steel. Corus has been a customer of Lloyds TSB Autolease for the past year, but in fact first began outsourcing its fleet about 15 years ago. Today, Corus has a fleet of 2,000 cars, roughly 1,200 of which are for essential users who need a car and 800 are user-choosers, who get a car as part of their remuneration package. Lloyds Autolease has people on site who handle the driver enquiries. There were three reasons for doing it originally, says Ray Brown, manager of administration and facilities management: To get better vehicles for less cost, it took an asset from the balance sheet and it gave a cash injection.

Royal Mail was also attracted to outsourcing by the prospect of cost savings for running its 5,000 cars (excluding its red delivery trucks). The three-year deal with LeasePlan is part of Royal Mail`s initiative to reduce costs and return the business to profit, says a spokesman for the company. Following detailed analysis, it was shown that LeasePlan could manage the car fleet operation more cheaply and effectively than if it remained in-house.

Cost savings may make leasing an attractive prospect, but the main benefits derive from the access to best practice and a better level of service to drivers, maintains Gosling. For one thing, both SMEs and some large companies are likely to be running some fairly unsophisticated fleet management systems, whereas a specialist lease company will have state-of-the-art kit.

Often the move to outsource will coincide with a move towards managing the fleet via the Internet/intranet, rather than a team of people. Drivers can find out a lot of the information they need about company car policies online, and they can follow the car ordering process online. This simply didnt exist a few years ago, says Gosling. Now, he adds: We reckon that in most larger companies 80-85% of drivers are ordering over the web.

Theres also the increasing administration and legal burden that companies need to deal with. Not all directors realise, for example, that they are responsible for employees on company business, even if they are driving their own vehicle. An outsourcing company will be able to advise you on how to keep the right side of the law, which could save the pennies in the long run.

Surprisingly many will go ahead with very little costs savings  they see it as simply an area that is already complicated  theres health and safety, congestion charging… and they think I dont want to be doing all this, confirms Colin Thornton, customer services director at Lloyds TSB Autolease. We tend to see companies focused on the bottom line and wanting to take cost out of the business, adds Mike Waters, head of market analysis at Arval PHH. He also points out that as cars are such a highly emotive area a little distance can be a good thing and it may be easier for an outsider to handle the egos in an even-handed way.

Outsourcing fleet management is not just a quick fix for a problem. There needs to be sound business case for it in the first place. The company that is outsourcing has to have very clear objectives and reasons for doing it. If they havent been through that process internally, its difficult for us to meet their needs, says Waters.

One potential area of conflict is the in-house fleet manager whose job will change beyond all recognition, post outsourcing. Giving up the reins can be tough for some fleet managers. That is a big issue and one of the biggest things that companies who look to outsource have to grapple with, Gosling points out. The two things are very different  its one thing to manage a team, quite another to manage a supplier.

Instead of having to micromanage every aspect of car management, the fleet manager has to learn to let the outsourcer deal with the day-to-day stuff, while he/she manages the relationship. When a company outsources its fleet management its quite natural that the fleet manager may feel slightly threatened  but actually its an opportunity, adds Gosling.

Of course, not every company (particularly the smaller ones) will actually have a dedicated fleet manager or specialist department at all. That said, there needs to be someone whos part of the contract and keeps us on our toes, insists Waterspoints.

This issue of control is another area of potential conflict. If all aspects of fleet management are outsourced, then its easy to see where responsibilities lie. But if only part of the process is outsourced, this may lead to a grey area where responsibilities are not clearly delineated.

So how do you make sure that your outsourcing partnership lasts longer than a tinsel town marriage? It sounds obvious, but check out the capabilities leasing company can offer, how much experience it has of similar deals and how good a fit it is with your company. So, if youre a pan-European company, find out a leasing company that can cope with that.

We see people who outsource to companies who dont have the culture to deliver it, warns Thornton. Youll only find about the company by visiting the outsourcers and talking to reference sites, rather than by taking the glossy marketing brochure at face value.

First, think about how complicated its going to be to introduce up front  most of the work is in the preparation and this includes looking at your IT set-up. The lease company will need to integrate with HR and finance systems, and if theyre not in order in the first place, that will complicate matters.

Each deal is unique. You may want to outsource everything, or as in the case of Corus, you may want to buy the cars yourself but let the leasing company look after the fleet management for you. Second, get those service level agreements in place upfront. You cant go into these arrangements without KPIs [key performance indicators] and the type and quality of reporting required, warns Waters.

The important thing for choosing a supplier is to understand what is included  two rental companies may seem to be offering the same thing; but say one company is £10 cheaper it may seem like a good idea, but you should check the small print. That £10 initial saving may cost you dearly in the long run. The devil is in the detail, so analyse and reanalyse exactly what you want from the relationship and the service levels your require. Dont be afraid to ask any potential providers to give you a level of detail. A good company will tell you if its going to add cost, says Waters.

You should negotiate that small print. For example tyres. Do you pay for every puncture that takes place, or do you get them free? points out Brown at Corus. Obviously you want the contract company to make a profit  but what discounts are they able to make?

Third, secure the cost savings in writing. Establish how the leasing company is going to save you money. We would always take some kind of feasibility study as an indication of the kind of costs you can save, says Thornton. Any leasing company worth their salt will save costs either in policy or infrastructure.

Like any business deal, providing youre doing it for the right reasons and manage it effectively, outsourcing fleet management can allow you to concentrate on your core business, and save money. The added bonus is that youll have a happier workforce on your hands, not a bad thing when you consider that, if an Englishmans home is his castle, then his car will be the Royal carriage.

Written by Janine Milne. Originally published in Outsource Issue 1, Summer 2004 p44

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