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  • Why you should use whole-life costs as a basis for vehicle selection

    Whole-life costs include the cost of running and servicing a vehicle over its replacement cycle and offer the best estimate of real costs to your business. There is no use in selecting a vehicle based on it costing less than another initially, if it was then to cost more in overall costs including vehicle funding, fuel costs, depreciation, insurance, VAT, tax, NI contributions, servicing and maintenance.

    It can be completely possible for two vehicles with the same monthly rental cost to have very different whole-life costs when you take into account all of these additional expenses. Calculating whole-life costs are critical to fleets securing financial savings and should be fully considered as a basis for vehicle selection.

    As an example, a £60 saving per month on whole-life costs on a 4 year replacement cycle could save your company £3,000. When you consider this for a fleet of say 50 vehicles you are looking at considerable cost savings!

    Whole-life cost of vehicle

    By adopting a whole-life cost model drivers may be able to select a vehicle completely outside of their normal monthly rental allowance, such as an electric vehicle. It may therefore be possible to offer different brands and more efficient vehicles within your pool of choice.

    Issue of shifting costs

    Costs such as purchase discounts, funding costs, fuel costs, fleet insurance, interest rates, etc all affect the whole-life cost. But as each of these costs are constantly changing it is important to continually monitor and measure these changes to be able to better predict future costs to help with whole-life cost modelling.

    Data should be captured on each of these costs and someone needs to be identified to manage and keep up-to-date with projected changes in legislation, fuel and tax in terms of forecasting true costs.

    Consistency in vehicle management can help you meet your whole-life cost goals

    Whole-life cost goals can be set, but what is the point if there is no chance of meeting them? In order to meet your whole-life cost goals benchmarks should also be set for how a vehicle should be maintained and run across the business.

    This can include policies that offer consistency on how each vehicle should be maintained, how fuel is paid for, choice of vehicle from the outset in terms of efficiency, and measuring vehicle usage correctly. Leaving such items open only leads to problems and an inability to forecast true life time costs.

    Tips to maximise savings when adopting a whole-life cost model

    An optimum replacement cycle

    Adopting a whole-life cost approach can help you establish the optimum replacement cycle and funding method for your business as well as the best cars for your choice list. It is important to establish the optimum replacement cycle for your fleet, which may not be at the average rate of 3 years - upping this to 4 years could make all the difference and introduce substantial monthly savings without causing much of an issue.

    Flexible funding options

    Some companies find they can reduce costs substantially by using different funding methods for separate parts of the fleet. For example, you could consider introducing leased vehicles with higher CO2 rated cars for high business mileage users, whilst also offering Contract Hire vehicles for cars with lower CO2 emissions to more occasional drivers in order to find the optimal mix for cost savings.

    Accident management

    Accident management can help to reduce vehicle off road (VOR) time, maintenance costs, insurance premiums, as well as eliminating a whole lot of stress and time spent managing the whole process. By adopting and communicating a variety of methods such as implementing a rigid fleet policy, driver training, and use of telematics equipment you can look to reduce overall whole-life costs with effective accident management.

    Electric vehicles

    It can be argued that in most cases the whole-life cost of electric vehicles can be far more beneficial to a business. The up-front list price will be much higher and often considered as a barrier to purchase, but when savings of about 8p per mile in fuel and 20-30% in service, maintenance and repair costs are considered they can be well worth the initial investment.

    Clearly legislation is also pushing to drive towards selection of electric vehicles by implementing significant tax savings as well as the introduction of the world’s first Ultra Low Emission Zone in London for 2020. For businesses there are strong incentives to reduce CO2 emissions. As a business adopting electric vehicles you and the environment will also benefit from reducing your carbon footprint.

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