Issue 5 Autumn 2013 £4.50
Helping you make better decisions
cash vs car Should you offer staff cash instead of a car?
Six steps to cut carbon – and how it can save you thousands of pounds
❚ Calculate the true cost of your company cars ❚ Why pool cars could cut your transport costs ❚ Eliminate expensive reversing crashes
‘be bold... be honest’
Institute of Directors chief Simon Walker reveals his tips for business success
How corporate manslaughter law affects your company vehicles
ISSUE 5 Autumn 2013
Pensions: automatic enrolment is here. Are you ready?
STRATEGY & FUNDING
10 Wholelife costs
Calculate the true cost of your company cars and vans
16 Cash vs cars
Will changes to benefit-in-kind tax drive an increase in cash allowances?
HEALTH AND SAFETY
20 Cut your reversing risk
Assessing your vehicles is the first step to a safe reversing policy
23 Going green
Cut carbon and save money through six steps to a greener workplace
26 The DB interview
Simon Walker on why it pays to be bold in business
36 Vehicle utilisation
� 16 Cash vs cars
Cut your reversing risk
Choosing the right vehicle can save you thousands of pounds
38 Car clubs and pool cars
Pool cars offer flexibility, but how do you manage them?
CARS AND VANS
40 Executive cars
Find out which of these models make the best company vehicles
42 Long wheelbase small vans
�23 Green your office
�36 Navigate the maze of vehicle utilisation
We compile your shortlist of cost-efficient vehicles
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Helping you make better decisions
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Is there any limit to technology? Perhaps more profoundly, should we seek to put a limit on technological developments? A press release landed in my inbox recently from Volvo, listing a number of new technology concepts for its XC90 SUV, due for launch at the end of next year. The one that caught my eye was autonomous parking. A growing number of cars offer a form of parking assistance, with the car reversing into an appropriate space leaving the driver to control just the brakes. But this is different. Volvo claims its system allows the driver to get out of the car at the entrance to the car park, leaving the car to drive off and park itself. The company says that combining autonomous driving with detection and auto brake for other objects makes it possible for the car to
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interact safely with other cars and pedestrians. The speed and braking are adapted for smooth integration in the parking environment. If you’ve spent as many wasted minutes as I have idling in a car park while waiting for a space to become vacant, this sounds like a great idea. However, will the government allow technology to be introduced that enables a driver to actually get out of the car and leave it behind? As a show of just what technology is capable of, the autonomous parking is a real showcase for Volvo. And it may well appeal to lots of people, especially in a car as big as the XC90. But despite the wasted minutes, I’ll pass. Trusting a car to ‘think’ for itself seems a bit too I, Robot for my liking. Enjoy the latest issue of Driving Business – as usual it’s packed with best practice and comment to help you save money and make money. Stephen Briers Editor, Driving Business
Contributors Will Murray With a background in transport and logistics, Will has specialised in work-related road safety research, policy and practice for more than 20 years, working with government agencies and NGOs. He is research director at Interactive Driving Systems.
Catherine Chetwynd Catherine worked for a number of public relations consultancies before moving to Executive Travel magazine, where she stayed for 12 years. She went freelance in 1995 and has written for The Times, FT, Financial Director, Accounting & Business and The Grocer.
Dan Rees Dan is a senior manager and specialist consultant in the Deloitte Car Consulting team within employment taxes. He has more than 12 years’ experience in this specialism and has led a number of high-profile fleet policy and salary sacrifice projects.
Debbie Wood Debbie is a journalist with experience in both business and consumer magazines. A former Fleet News writer and web producer, she has covered subjects from company car tax and telematics to road tests. She is currently the senior staff writer on Parkers. mydrivingbusiness.co.uk ❚ Autumn 2013 ❚ 5
n F RON T E N D
IN THE SPOTLIGHT: LEGISLATION
How corporate manslaughter law affects your company cars and vans WHAT IS IT? Introduced in 2008, the Corporate Manslaughter and Corporate Homicide Act 2007 (to give it its full title) creates a means of accountability for deaths caused by very serious management failings.
WHAT DOES IT MEAN FOR ME? It means a company can be convicted if it can be proven that there was a gross breach of duty of care by senior management, instead of just one individual. In the context of company cars/vans, any death caused by a member of your staff driving on business
could result in corporate liability. While the offence is concerned with corporate liability and does not apply to directors or other individuals who have a senior role in the company or organisation, existing health and safety offences and gross negligence manslaughter continue to apply to individuals. Prosecutions against individuals will continue to be taken where there is sufficient evidence and it is in the public interest to do so.
WHAT PENALTIES COULD THE COMPANY FACE? Penalties will include unlimited fines, remedial orders and publicity orders.
ANY ACTION POINTS? Any significant flaws in health and safety policies, risk assessments, working methods, equipment and maintenance procedures could open the door to a corporate manslaughter prosecution in the event of a workplace fatality. Ensure you have clear policies in place for company cars and vans and expectations for the way drivers behave behind the wheel. A driver handbook and a process for regularly servicing and checking vehicles are essential. You need to be able to prove you have done everything that is reasonable and proportionate to prevent an incident.
JANUARY - JUNE 2013 1. 2. 3. 4. 5. 6. 7. 8. 9. 10.
TOP 10 FLEET VAN SALES
The Transit occupied the two top spots in the first half of the year
Ford Transit (heavy) Ford Transit (medium) Volkswagen Transporter Vauxhall Vivaro Volkswagen Caddy Mercedes-Benz Sprinter Peugeot Partner Fiat Doblo Cargo Ford Connect Renault Trafic
13,329 7,211 6,927 6,593 6,135 5,560 5,048 3,847 2,799 2,721
JANUARY - JUNE 2013 TOP 10 FLEET CAR SALES
Ford’s Focus retains its title as the most popular fleet car
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1. 2. 3. 4. 5. 6. 7. 8. 9. 10.
Ford Focus Vauxhall Corsa Ford Fiesta Volkswagen Golf Vauxhall Astra Nissan Qashqai BMW 3 Series BMW 1 Series Mercedes-Benz C-Class Audi A3
30,467 22,802 22,008 21,808 21,211 16,790 14,552 10,306 10,159 9,675
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Motivate your employees BJ Cunningham, Death cigarette founder Pay is important, but is not everything. I’ve learnt that everyone I employ is worth at least £5,000 a year more to someone else ... it’s why headhunters make a living. Pay matters, but more than that it is about motivation, sense of purpose and involvement. Highly motivated staff have a sense of ownership and are a part of (as opposed to being apart from) the story at the heart of the business. I believe the same principles that underlie customer relationships should underlie staff relationships. So it is about truth above all. Authenticity. Staff and consumers want a relationship. They do not want to be treated like a commodity or a number on the bottom line. They want to feel special, part of a community, part of a working friendship. Building a strong friendship or relationship can start with just thanking them, because: n If you thank your customer, you are helping your customer to thank you. n If you are helping your customer to thank you, you are using your customer. n If you are using your customer, you are embracing your customer. n If you are embracing your customer, you are loving your customer. n If you are loving your customer, you are trusting your customer. n If you are trusting your customer, you are knowing and understanding your customer. This process of building a friendship can of course be reversed, it is perfectly symmetrical: n By knowing and understanding your customer, you come to trust your customer. n By truly trusting your customer, you are loving your customer. n By loving your customer, you embrace your customer. n By embracing your customer, you are making use of your customer. n By making use of your customer, you are being helped by your customer. n By being helped by your customer, you can be truly thankful. This demands integrity, transparency and responsibility. Telling it like it really is. Share your joy and energy and allow your staff and the people you serve to give back. So why are some companies successful at retaining staff and customers and others are not? What is the real magic? The magic is belief. The magic is clarity. The magic is authenticity. The magic is allowing the people within the organisation the opportunity to take pride in it. Perhaps the greatest magic is in removing the illusion of separation between the company and the customer. Treat your customer as you would have them treat you. Treat your staff as you would have them treat you.
Mark Palmer, non-executive director, Green & Black’s chocolate Getting the right people on the bus is critical. Fast-growth businesses need to hire a team today that is big enough for tomorrow. If you are going to go on a big, challenging journey, then it is a good idea to fill the tank up with petrol before you leave. Many businesses plan to hire the right people when they get bigger and can afford it. Sadly, they rarely arrive at their destination. Good people need to be paid fairly, but will often respond well to lower pay along the way if they can share in the ultimate success of the business. This doesn’t work for all staff, as many people just need to be paid well for doing a good day-to-day job, but it can work when incentivising a few top managers. You need them to take some risk if they are to go the extra mile for you.
Don’t be bamboozled by industry jargon EXCESS MILEAGE CHARGES The contract covering the vehicle lease is likely to include a mileage limit. If, at the end of the lease period, the mileage exceeds the limit specified in the contract, the leasing company will charge for the excess mileage. The charge will be levied at a specified rate per mile over the limit. For example, a car returned with 35,000 miles on the clock on a 36-month/30,000-mile contract hire agreement faces excess mileage liability of 5,000 miles. If the charge rate was 5p per excess mile, the excess mileage charge would be £250.00.
MILEAGE POOLING It can be difficult to set an appropriate mileage limit because the use of the vehicle can change during the lease period. Organisations can consider rotating their vehicles in order to even out mileages. Or they can choose to pool mileage in agreement with the leasing company. In this way, vehicles whose mileage exceeds the agreement are offset against vehicles whose mileage is less than the agreement at the end of the contract.
FIND OUT WHAT’S ONLINE Check our website mydrivingbusiness. co.uk for: n Information and data on all the latest cars and vans allowing you to compare vehicles and make the right choices n Best practice advice on safety and legislation n Details of all the costs associated with running vehicles, including maintenance, fuel and insurance and how you can reduce them n All the latest news
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O PINIO N
The challenge for the transport industry is big. 92% of workers in the sector are eligible for automatic enrolment and only 44% are currently saving into a scheme
AUTOMATIC ENROLMENT IS COMING. ARE YOU READY?
n GRAHAM V ID L ER , D IR EC TO R O F CO M M U NI C AT I O NS A N D EN G AG EM EN T, NEST NEST, the National Employment Savings Trust, is a qualifying pension scheme established by law to support the introduction of automatic enrolment
012 saw the biggest shake-up in retirement provision in the past 100 years. Starting with the largest employers and rolling out over the next five years, some 11 million people working for about 1.2 million employers will be automatically enrolled into pensions. The new laws mean that practically every employer must automatically enrol their eligible workers into a qualifying workplace pension scheme and make contributions. What does automatic enrolment mean for you? The challenge for the transport industry is big. 92% of workers in the sector are eligible for automatic enrolment and only 44% of those employees are currently saving into a scheme. What do you need to do? A good starting point is to understand your ‘staging date’ and work back from that. Your staging date is the date you need to comply with the duties by. You can find this out from the Pensions Regulator’s website, along with other guidance on the rules. Who do I need to enrol? An eligible worker is: n Aged from 22 – State Pension Age. n Working in the UK. n Earning more than £9,440. You will also need to consider what scheme or schemes you will use to meet the automatic enrolment requirements, decide on your contribution levels for different groups of workers and ensure your payroll systems (if you have them) can manage pension payments every pay period.
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Our advice is that you should not assume your existing provider will be able to help all of your workers. Start a conversation with them early on to see what they can do. If that all sounds a bit daunting, don’t despair! There is lots of advice and guidance available to you. You can find out more at the Pension Regulator’s website and NEST has a suite of tools and guides on its website which can help you navigate your way through what you need to do. How long does it take to prepare for my employer duties? If your staging date is more than a year away, it can be tempting to push it to the bottom of your ‘to do’ list. However, many employers are underestimating how long it can take to get the implementation of automatic enrolment right. It can take between six and 18 months to get ready, depending on the size and complexity of your business. Whatever their size, the vast majority of employers will face similar decisions and activities, although on differing scales. What do I need to tell my workers? Your workers will need to be told about the changes in writing, either by paper or email. The information you need to tell your workers is set out in legislation and includes details of the pension scheme you use and the contributions for your workers, as well as where your workers can go for more information. NEST has templates you can use, both to meet your legal requirements and materials to help your workers understand how the changes will affect them. Pensions are often seen as confusing. A recent survey conducted by NEST found that the majority of consumers (71%) agree they may not have put enough aside because they don’t want to make the wrong decision about saving for retirement. Nearly half (47%) agree it’s because they don’t know enough about what would be their best option. These figures suggest that many workers lack confidence about workplace pensions and this may mean more questions for you as an employer. If you communicate ahead of the changes, in clear language, you’re likely to reduce the number of queries from your workers. How much do I have to contribute? Minimum contributions will start at 2% of qualifying earnings from 2012, of which the employer must contribute 1%; then they’ll rise over the next few years to a total minimum contribution of 8%, of which employers will have to put in a minimum of 3% of those earnings.
HOW NEST CAN HELP If you would like to find out more about how NEST can help you prepare for workplace pensions changes, check out the employers section of our website, www.nestpensions.org.uk/employers.
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CALCULATING THE TRUE COST OF YOUR CARS Companies should base their car selection policies on the wholelife cost of the vehicle. Deloitte business car consultant Dan Rees explains why. n W H AT T HIS M E A NS FO R YO U Many businesses still use upfront cost to choose what cars to offer. However, this does not accurately reflect a car’s cost – including funding, fuel, maintenance or insurance – over its lifetime with your company. There can be huge variation, often thousands of pounds, in wholelife costs (WLC) of cars with the same upfront cost. By evaluating WLC, you can take more control of spending and select the most appropriate vehicles.
Dan Rees, senior manager at Deloitte Car Consulting
he wholelife costs (WLC) of running and owning company cars can run to millions of pounds a year, so planning is crucial to minimise the financial impact this could have on a company. When organisations do not base their car selection policies on the true, post-tax WLC of cars, this can result in cost uncertainty, lower potential for cost savings, reduced incentive for employees to choose ‘greener’ cars and less flexibility in choice. In addition, employers implementing salary sacrifice schemes for cars without considering the WLC are open to unexpected costs or the risk of providing a less attractive benefit, thereby reducing take-up.
WHAT IS WLC? The design and operation of company cars based on their WLC is widely accepted as best practice for cost control purposes. The WLC equation is specific to the business acquiring the cars and must incorporate all incurred commercial costs, such as funding, fuel, maintenance and insurance, which are then adjusted for the implications of corporation tax relief (and restrictions), employer’s National Insurance (NI) and VAT, as appropriate. These costs and taxation implications must be considered for the full retention period of the vehicle, incorporating any known legislative changes that occur during that period. All cashflows can then be discounted at a specific rate to calculate the true cost, or net present value (NPV), of the contract to the business. These calculations are not straightforward, particularly when considering complex fuel reimbursement arrangements, or the quantum and timing of cash flows, such as tax relief and NI payment for discounting purposes.
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There can be a huge variation, often many thousands of pounds, in the wholelife costs of cars with the same upfront cost
WHY USE WLC?
Many businesses still base their car selection policies on upfront cost bands, such as list price or monthly lease rental. However, there can be a huge variation, often many thousands of pounds, in the WLC of cars with the same upfront cost, which is directly related to the emissions level (tax cost) and depreciation rate of each individual car. It is difficult for policies structured in this way to create cost savings or certainty, without applying heavy restrictions to the types of car available for selection by employees. Greater cost certainty is achieved by selecting cars according to WLC band, rather than upfront cost band, where this variation in WLC arises.
the expected cost saving after one fleet widened its choice from a single manufacturer to several after analysing wholelife costs
SPONSOR’S COMMENT By Neil Broad, General Manager Toyota & Lexus Fleet and Vehicle Re-marketing Services
When buying a vehicle there is a lot to consider – emissions, performance, fuel efficiency, capacity and specification. But when it comes to company cars, there is something even more vital to think about. That something is whole life costs. Do we really make informed decisions when enquiring about, owning and running a vehicle? Do we really understand all the factors in the equation? And where can we source accurate data to compare one model with another? Toyota & Lexus Fleet Services has developed the Complete Car Cost Calculator, the only tool that compares real-world ownership of different vehicles while also taking into account individual business circumstances. There’s now much wider awareness of the substantial company and personal tax savings possible with low- and ultra-low-emissions
“Do we really understand all the factors in the equation?” vehicles. The government’s environmental policy puts the sub-100g/CO2 category centrestage, with petrol hybrid vehicles stealing the spotlight. Every day, the Calculator shows organisations how to ‘clean up and save’ with new technology. Let’s take, for instance, the challenge of the versatile estate. A diesel Ford Focus estate (2.0TDCi 140 Zetec 6Spd) would seem to offer a reasonable specification. But what happens when we use the Calculator to compare its whole life cost against Toyota’s latest petrol hybrid challenger? On paper, the P11D value for the Toyota is £500 higher. But over three years and 60,000 miles, a company running our Auris Touring Sports Hybrid Synergy Drive (1.8VVT-h 136 StopStart Icon CVT Auto) would save itself a staggering £4,600. The driver would save £2,643, assuming personal taxation at 40%. By comparing both company and personal acquisition, and factoring in the savings often hidden in insurance, fuel economy, servicing and residuals, The Complete Car Calculator provides you with a personalised report outlining the smart savings to be made. Visit www.brilliantforbusiness.co.uk/cost-calculator or call 0844 701 6186
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n STR ATEGY
n W H AT A R E W H O L E L IF E CO S T S? Wholelife costs is the term used to refer to the total cost of ownership over the life of a fleet vehicle. When reviewing fleet car or fleet van wholelife costs, there are a number of elements that should be considered to make an accurate calculation of the vehicles’ wholelife cost.
P11D The P11D is the taxable retail price of the vehicle. The overall retail price of a vehicle is inclusive of number plates and service checks that are not eligible for tax, the P11D is the term given to the price of the overall vehicle with tax.
Tax There are a variety of different aspects of fleet tax to consider, from the outright tax charged on the price of the vehicle, road tax, CO2 emissions, VAT recovery, corporation tax and more.
WLC can be reduced by [choosing] cars with higher upfront costs and lower emissions
However, this approach in isolation does not necessarily improve choice or incentivise the selection of “greener” cars because, ultimately, there is still a band – it is just defined using different parameters. There could also be a distinct difference in the types of car that exist in any one WLC band. One could be a high depreciating car with low emissions and the other low depreciating with high emissions. Restrictions would still need to be applied to car choice, such as emissions caps, but for reasons other than simply cost.
BETTER CHOICE AND ‘GREEN’ INCENTIVES Deloitte’s methodology uses WLC, but it is designed to increase choice and flexibility and provide an incentive to choose ‘greener’ cars. Instead of a WLC band, a WLC figure is used as a benchmark for an employee car entitlement grade. Employees can choose cars either side of this level, with a financial adjustment made to ensure that the WLC of any car to the business is the same as the benchmark. If an employee chooses a car above the benchmark, a tax
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The purchase price The overall cost of buying your cars, including any discounts manufacturers may apply.
efficient payment from net salary can be calculated to cover the WLC difference to the employer, taking into account the changes in tax charges to both parties. Note that this is not the same as ‘trading up’ to a better car in the usual sense, but is simply making a contribution towards the private use of a car, within grade parameters. A similar mechanism could apply in the reverse direction, where an employee chooses a car below the same benchmark to receive in return an additional, nonpensionable, payment of gross salary, which generally provides an excellent incentive for employees to choose ‘greener’ cars. It is worth bearing in mind that with greater flexibility and choice come reduced reallocation potential in the event of employees leaving. In practice, reallocation can be a fairly unpredictable and difficult exercise, regardless of the car selection policy, but there is a balance that can be found.
POTENTIAL FOR COST SAVINGS Our experience of implementing WLC policies with employers is that besides providing a valuable cost control
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Depreciation Depreciation is the rate at which the vehicle will lose value over a period of time. Once a new vehicle is driven off the forecourt it immediately begins to lose value, so it is important to select vehicles that will decrease in value at a slower rate when it comes to the end of the cycle and the company wishes to resell.
Sponsored by Fuel Fuel consumption is an important consideration when looking at the wholelife costs of the vehicle. Companies can spend millions of pounds each year on fuel. A couple of extra miles to the gallon can result in substantial savings.
n W H O L EL IF E CO S T S ( W LC ) T H E B U I L D IN G B LO CK S Funding n Rentals/payments n VAT recovery (and blocking) n Tax relief Fuel n Cost of business fuel n VAT recovery and tax relief n Free private fuel? Class 1A NIC n Charge on employee benefit n Emissions-based since 2002 n Tax relief
CO2 emissions With focus leaning more towards the impact vehicles have on the environment and new stricter tax implications, finding vehicles with low CO2 emissions is an important consideration when evaluating wholelife costs.
Residual value The residual value is the value of the vehicle once it has completed its term. The slower the rate of depreciation, the higher this figure is likely to be.
Insurance n Tax relief n Fleet-wide profile policy Cost of capital n Time value of money n Weighted Average Cost of Capital (WACC) rate of company
salary payments, an indication of employees making informed, cost-based decisions and selecting lower-CO2 alternative cars.
CARBON FOOTPRINT AND DUTY OF CARE Road transport generates a huge percentage of the UK’s carbon emissions, which is why the tax system has been structured to incentivise employers and employees to choose lower emissions cars. It is doing this very effectively. WLC methodology uses the tax system to provide a clear cost benefit for employees to choose ‘greener’ company cars. This only happens, though, if the financial adjustments are calculated according to WLC, not upfront cost, and the employees are able to view the true cost of cars to them, rather than concentrating solely on the adjustment payments. A concern for businesses that have decided in the past to move away from company cars to the provision of cash allowances is that there is no real incentive for employees who take cash to choose low emission cars.
framework for the company car fleet, there is also the potential for substantial cost savings by moving away from the existing policy based on upfront cost. Since the most influential factors are emissions and depreciation, we frequently find that, counter-intuitively, the total WLC can be reduced by making more desirable cars with higher upfront costs and lower emissions available for selection. In one example, a company with cars solely from one manufacturer – a heavily restrictive policy traditionally used to drive down upfront costs – was restructured using the WLC basis to widen employee choice to several manufacturers. The cost saving expected to be realised is 10% of the original fleet cost over one fleet cycle, building in a 10% year-on-year increase in fuel price. The business is pleased with the cost savings and structure provided by the new design and the employees are much happier with their greater choice, despite having to pay for it in some cases. Evidence suggests that there are more employees receiving gross cash reimbursements than making net
Maintenance n VAT recovery n Tax relief n Can include many items
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n STR ATEGY
In fact, the average emissions of these populations of drivers’ cars are substantially higher than equivalent company car fleets, due largely to the vehicles being older. It can be more administratively problematic to ensure that all cash fleet cars are roadworthy and within policy parameters, which introduces a duty of care issue.
THE RISE OF SALARY SACRIFICE Salary sacrifice is of rapidly growing interest to employers, in both the public and private sectors, that wish to reduce their environmental and duty-of-care exposure by providing a tax-efficient alternative for employees who take cash, or reinvigorate their benefits package to offer a company car to their ineligible wider workforce. An employee can elect to give up an amount of salary in return for a company car, which is taxed as a benefit in kind (BIK) as usual. It works because the tax regime is favourable to low emission company cars, when compared with salary. In addition, the business can potentially reclaim VAT and can usually receive volume-based discounts from the
car manufacturers, both of which are unavailable to an individual. All this means that an employee could get a car from the scheme at a substantial saving when compared with buying the same car privately. Businesses can choose to share in this saving, while not overly decreasing the attractiveness to employees, but calculating the sacrifice amount is crucial to ensure that the WLC of the car to the business is fully covered and the level of savings the business requires to make is realised. It is very important to look at the existing company car policy when examining whether salary sacrifice is the right option for cash-takers. The risk is that a properly designed salary sacrifice scheme using WLC as the basis for the calculations is more attractive than the existing company car scheme, which could lead to more employees taking the cash route only to move back into company cars via salary sacrifice. If the cost of the cash to the business is higher than a company car, then that could dramatically increase costs, which is obviously not the desired intention. It would be a lot easier to simply restructure the existing company car policy to use WLC, as it achieves the same result.
CONCLUSION WLC is widely accepted as the most effective way to provide cost control and certainty for company cars. Flexibility and choice are additional benefits, but the calculations required to achieve this accurately are complicated. Salary sacrifice for company cars is a new benefit in the flexible benefits arena and the latest technology is helping to ensure that employers do not face unexpected costs through the application of the WLC methodology. WLC, used correctly, allows for employer cost savings and greater certainty, opens up choice to employees, incentivises selection of lower-CO2 cars and enhances the value of the benefit of a car.
n C A SE S T U DY: A N G L I A N WAT ER Running cars and vans is frequently the second biggest cost in an organisation after employees, so when the pressure is on to save money it is essential to know that the most cost-effective vehicles are being operated. That is why professionals such as Nigel Allen, Anglian Water’s fleet manager, use industry knowledge and expertise to compile wholelife costs to ensure the operation’s optimum efficiency. Choosing the most cost-effective vehicles for the van fleet is a crucial decision in the process. WLC not list price The cheapest vehicles to operate are those with the lowest wholelife costs – not necessarily those with the lowest list price – over a fleet replacement cycle, which in Anglian Water’s case is 120,000 miles/five years. The organisation operates a 95% Vauxhall van fleet. The remainder is composed of a wide cross-section of LCVs from other manufacturers which, in the main, Anglian Water has had on trial and then opted to buy. They range from Renault Kangoos to a five-tonne Mercedes-Benz Sprinter. “Our fleet is the best, most cost-effective solution 14 ❚ Autumn 2013 ❚ www.mydrivingbusiness.co.uk
we’ve ever had,” says Allen, who believes it is vital to be aware of what is happening in the marketplace, which is why the company continues to work with other manufacturers despite its long-term Vauxhall allegiance. “We borrow a vehicle for perhaps six months and put it through its paces in the day-to-day work environment. We frequently end up buying the van as long as it is fit for purpose and that then enables us to gather five years of data on the vehicle for comparison purposes.” Reliability cuts costs Excluding fuel, Allen has seen wholelife costs reduce years as vehicle build quality and reliability improves. Factors are taken into account by Allen when calculating wholelife costs are budget price, estimated residual value utilising a combination of data from vehicle information provider CAP and his own market intelligence, maintenance using own workshop costs and labour rates versus national averages, cost of common parts based on fleet history and the company’s accident management data, and manufacturers’ average fuel economy. “That gives us our wholelife costs on a per-vehicle basis utilising a combination of published data and our own real-world knowledge and experience,” says Allen. “We review costs annually and all figures are based on market testing. We actively monitor costs day by day and
that means we can react to any issue before it has any significant impact.” For example, if a major vehicle mechanical problem materialises, the team will discuss the issue with the relevant manufacturer in a bid to implement a solution to prevent other vans being similarly affected. Allen believes that smaller companies can also benefit from close relationships with manufacturers. “They need to talk to manufacturers to enable them to build up an understanding of what is required and they can then deliver. Too often they aren’t sure what they want and they don’t understand what help and support is available from manufacturers. If they don’t know what they want then it is difficult for manufacturers to help.”
n STR ATEGY
C A SH ALLOWANCES
CASH VS CAR
Will changes to benefit-in-kind tax drive an increase in cash allowances? n W H AT T HIS M E A NS FO R YO U Companies are increasingly looking at offering their employees a cash alternative to a car, which they believe is a cheaper option because it removes the operational cost of running the car. But is it? And can it create new problems for the company? What happens, for instance, if the employee uses the cash to buy a car and uses that car for work purposes? Read this feature to find out.
By Catherine Chetwynd hen benefit-in-kind tax changed to being calculated on a CO2 emissions scale in April 2002, there was much debate as to whether businesses would flee from giving company cars in favour of cash allowances. Many organisations’ company cars attracted punitive tax with the change in the law but, even then, the predicted exodus did not materialise. Now, with recent increases in BIK, cash for cars is again on the radar, although the removal of the 3% surcharge on diesel engine cars in 2016 probably provides a balance against the tax increases over the intervening years. “The removal of the surcharge may mean there is a move to analysing miles per gallon rather than petrol vs. diesel and companies may have a greater blend of petrol and diesel as a result,” says Jon Burdekin, head of consultancy services for Alphabet. “That analysis should include electric and hybrid and be based on wholelife cost. “And with cars on a three- to four-year lease, people need to think about that now and look at what taxation will be like in two-and-three-quarter years’ time.”
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Employees can use cash allowances in a number of ways. They may: n Buy a car, assuming sufficient additional funding n Enter into a personal contract purchase (PCP) agreement with a third party such as a dealer, with an option to buy the car at a pre-agreed price at the end n Enter into a personal contract hire (PCH) agreement with a third party n Participate in an employer-sponsored PCP agreement, giving the company the confidence that insurance, maintenance and MOT are all undertaken and removing responsibility for those things from the driver n Spend the money on something else. According to Tony Murtagh, director of SME for Lex Autolease: “There are definitely trends towards increases in cash takers in the SME population. There has been huge growth in PCH and PCP products. The large majority of company cars these days are diesel and the removal of the surcharge won’t make a lot of difference.” But unless drivers take an employer-funded PCP, companies will need to keep control of what is tantamount to a ‘grey fleet’ – the duty of care implications are the same as for a company car.
CARS KEY TO COMPANY IMAGE And there is the company image to consider. Most company cars are driven by sales people, service engineers and those whose jobs are client facing. Workhorse models of Ford Mondeos and Vauxhall Insignias give a good, solid image of people plying their trade but a client-facing employee given free rein to buy a car might choose to trade down to a brand with less badge appeal or top up their car fund and thunder about in something equally unsuitable such as a Lotus Elise. So cash for cars in this group is arguably not appropriate. There is a popular misconception that giving cash is cheaper for the company and, at first glance, the option is tempting for drivers too. A gross cash allowance is added to an employee’s salary and they pay standard rates of income tax and NI but no BIK. However, a driver who is entitled to, say, a BMW 3 Series as a company car often expects to get that with a cash alternative but even when the allowance is grossed up by tax and NI, they find they cannot afford the same car.
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One reason for this is the removal of the buying clout commanded by their employer and another is inflation in the cost of different elements of car ownership which means the allowance does not match the outgoings.
COMPANY CAR IMMUNE TO RISING CHARGES “We have seen a 20-25% increase in insurance costs and similar levels in maintenance charges, plus changes in VAT. But a company car is immune to all that,” says Ian Hughes, commercial director for Zenith. Conversely, in an attempt to be fair to the driver, corporations review cash allowances in line with salary, so if the driver gets a 2% pay increase, the cash allowance follows suit. But if an allowance is based on CO2 bands, this could mean someone who was entitled to a Volkswagen Golf with emissions of sub-120g/km three years ago could be driving around in a BMW 5 Series, now with emissions of sub-120g/km. Not only could the allowance have been reduced but the larger car has an associated higher road fund licence, fuel consumption and insurance. There is also the issue of mileage allowances. A cash allowance is supposed to cover everything except fuel, but mileage paid at 45p per mile is meant to include the whole cost of running the car. Companies “are not getting involved in this kind of discussion,” says Nigel Trotman, strategic fleet consultant for Alphabet. Even lower disbursements come with complications. Typically, companies pay around 14p per mile, but drivers are entitled to claim 45ppm from HMRC, so they can claim 31ppm (45p less 14p) for the first 10,000 business miles and 25ppm thereafter. These are known as approved mileage allowance payment or AMAP rates. “That is one of the reasons employees like cash for cars because they get an injection of cash but the employer can deliver those AMAP rates in a tax-efficient manner so that the employee still gets them and the company reduces its overall cash allowance liability,” says Matthew Walters, head of LeasePlan Consultancy. In addition, if an employee leaves within a year of receiving the allowance, they already have the money and although the employer can write in a caveat, it is difficult to enforce the return of the cash. If the individual has a car, however, they can buy it or leave it behind.
Given the complications surrounding cash, many businesses are getting back into the comparatively safe haven of company cars
Not surprisingly, given the complications surrounding cash, many businesses are getting back into the comparatively safe haven of company cars and thanks to the successful efforts of manufacturers to produce low-emission vehicles, this is no longer the expensive option. Where they do not go quite that far, salary sacrifice provides a convenient and financially efficient stopping-off point, allowing employees to sacrifice an amount per month before tax to pay for a car. Drivers pay BIK but with a low-emission car this is minimised. There are strong arguments for splitting drivers into categories. Where drivers have high business mileage and/or are customer facing, many organisations are mandating company cars. However, a board director with attendant salary and higher disposable income benefits from taking cash because at a 40% to 45% BIK threshold, they will be hit harder with a company car. And if drivers take cash, there are ways to control it, including rental schemes which allow companies to keep track of cars and their maintainance. Even cash for cars can be set up to give companies peace of mind regarding duty of care but the best option is to construct the fleet in the ways best suited to its use. And that means a combination of company car and cash allowance.
diesel engine surcharge is being removed from benefit-in-kind tax in 2016
pence per mile mileage allowance for the first 10,000 business miles under the HMRC’s approved mileage allowance payment rates
n WA N T TO K N OW M O R E ?
ARE YOU WASTING MONEY ON CASH FOR CARS?
CONSULTANCY ADVICE ON CASH
DUTY OF CARE RESPONSIBILITIES
ADVICE ON BEST OPTION FROM STAFF POINT OF VIEW
www.mydrivingbusiness.co.uk ❚ Autumn 2013 ❚ 17
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Cut costs and tax bills with accurate mileage capture Why managing business mileage should be a priority for small businesses
ith cost control remaining the number one priority in 2013, fleets are increasingly focusing on accurate business mileage capture, according to recent research by TomTom Business Solutions. “46% of drivers have overestimated their mileage when claiming expenses, with 35% doing so regularly … and although fleets are required by law to keep accurate mileage records for Benefit in Kind tax compliance, only 10% of respondents have been challenged by their employers over the accuracy of their claims.” An effective mileage capture strategy is now a fundamental operating requirement – even for small fleets – and can make a significant difference to the bottom line. Simple, paper-based solutions have been around ever since drivers claimed expenses. While they may have evolved into emailed spreadsheets or online expense systems, they still don’t address the fundamental point: how to verify accurate mileage. Having an effective business mileage capture process is not just about reducing costs – it can also avoid an unwelcome knock on the door from the taxman. Last year, HMRC announced it was clamping down on business mileage claims, particularly from SMEs, and said it planned to check the records of some 60,000 SMEs between 2012 and 2015. In a nutshell, any fleet that isn’t keeping accurate mileage records is risking being hit by a sizeable tax bill – potentially up to £18,000 per driver – plus fines and interest penalties. It’s a sharp wake-up call. So what can businesses do to cut costs and manage business mileage accurately? Automated systems using GPS technology, which accurately record business mileage either via smartphone apps or via plug-in devices, are being marketed. However, they do still rely on the driver having a smartphone, keeping it fully-charged, remembering to open the app each time
The ProFleet2 telematics device provides seamless and accurate mileage capture
“As company MD, I was looking for a flexible telematics product that gave us the functionality to view our working fleet’s activity in real time and could be part of an accurate business mileage reclamation process. ProFleet2 telematics gives us far greater control of our business and allows us to meet our customer demands. Not only can we easily assign the closest vehicles to our customers, ProFleet2’s integration with LVS systems gives our drivers the benefits of automated service reminders and pre-populated expense forms. ProFleet2 has allowed us to streamline our efficiency and increase our profitability.” Andy Patterson, Managing Director, Automotive Group Ltd
To find out more, contact Lombard Vehicle Solutions on 0117 908 6490 or visit www.lombardvehiclesolutions.co.uk
and uploading journey records. These systems can also be expensive to operate and have contractual tie-ins. The one technology that offers seamless mileage capture is telematics. This works behind the scenes, recording journey detail automatically and accurately. The myths surrounding telematics as a ‘spy in the cab’ or ’big brother’ have been dispelled. The Lombard Vehicle Solutions ProFleet2 telematics device allows only the driver to view their private journey data and enables them to send their employer an HMRCapproved report detailing their validated business journeys. Installed in more than 25,000 cars and light commercial vehicles throughout the UK, the ProFleet2 system is integrated seamlessly within the service provided by Lombard Vehicle Solutions, creating an incredibly cost-effective option for fleets of all sizes. In addition to basic mileage capture, it offers drivers and fleet managers numerous other cost-saving benefits.
n SAFE T Y
RE VERSING INCIDENTS
HOW TO CUT YOUR REVERSING RISK Assessing your fleet is the first step to a safe reversing policy n W H AT T HIS M E A NS FO R YO U Almost one in eight reported collisions arises from reversing/backing. Analysing your company’s likelihood of being involved in a reversing incident is the first step towards cutting your costs and risks with driver training and technology
By Will Murray nsurance claims data from many companies and research undertaken at the University of Huddersfield suggests that approximately 25% of all reported collisions arise from vehicles reversing. Among some vehicle types, it is many more. Many such collisions never even make it into an organisation’s insurance records, let alone official government statistics, being dealt with instead as routine vehicle maintenance costs. For this reason, companies and the authorities are often ignorant of the reversing risk until it is too late and someone has been killed or seriously injured. Applying a range of appropriate management (e.g. analysis and review), site (e.g. risk assessment), driver (e.g. assessment and training) and vehicle-based (e.g. reversing cameras and alarms) interventions can help organisations to be more proactive and cut their costs and risks.
PERCENTAGE LOCATIONS OF ACCIDENTS
PROACTIVE APPROACH The starting point for taking a proactive approach to safe reversing and manoeuvring is to understand the extent of the risks in your organisation. Insurance claims data is a good starting place. The table opposite, based on 79,403 motor fleet insurance claims analysed by Interactive Driving Systems, shows: n 13% of overall claims involved reversing/backing. n 15% of light commercial vehicle claims involved reversing/backing. n 19% of heavier commercial vehicle claims involved reversing/backing. n 10% of company car claims involved reversing/ backing. Many such claims occur at familiar locations. The pie-chart shows the locations where reversing collisions tend to take place for a typical retail multi-drop operation, with more than half occurring at collection and delivery points, and at the company’s own depot or recycling unit (RSU). After reviewing a great deal of fleet collision data over many years, Andy Cuerden, from Interactive Driving Systems, says: “We believe that all drivers must exercise greater care when reversing/backing, especially fleet drivers visiting customer sites and homes as part of their daily activities. “Because of the relatively low impact speed, many people don’t regard reversing as a significant hazard. However, reversing/backing and slow speed manoeuvring incidents make up a large proportion of
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n On site 29% n Collection and delivery 52%
n On route 15% n Company depot 4%
Such analysis allows the extent and nature of the risks to be understood and targeted via a detailed risk assessment and gap analysis.
fleet collision costs and risks. Whether you are travelling forward at 100 kilometres per hour on a highway or reversing/backing at walking pace on a customer’s site, the same vigilance, caution and courtesy must apply.”
RISK ASSESSMENT A ‘where are we now gap analysis’ is the starting point to address the reversing safety issue. This allows decisions to be made on the most appropriate actions to take. A sample gap analysis is reproduced in full on the Driving Business website – go to bit.ly/dbgapanalysis to download the PDF. The higher your score, the safer the systems of work you have in place for vehicle reversing. It can be applied initially and on an annual basis to review progress, covering four areas: 1. Operational analysis and statistics. 2. Site procedures and operations. 3. Vehicles. 4. People.
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All drivers must exercise greater care when reversing/backing, especially drivers visiting customer sites and homes
For each item you have in place – tick Yes. The percentages column show the results of other completions to data enabling you to benchmark your results against other companies. For instance, 83% of companies know the total number of vehicle collisions involving reversing, but fewer than half (48%) have undertaken detailed analysis of reversing collisions to identify the causes. In addition, 89% have fitted vehicle proximity devices, such as reversing sensors, but just 9% have reversing alarms and only 24% have fitted improved vehicle mirrors, a key point for larger vehicles.
TOP TIPS TO REDUCE REVERSING INCIDENTS All drivers should be encouraged to adopt the following advice for safe reversing/backing: n Walk around the vehicle and look for obstacles or hazards before moving. n Always beware of pedestrians, but especially children. They are unpredictable! n Reverse slowly – turn your head, use your mirrors and check both sides. n Avoid reversing over a long distance. n Look behind before reversing – not as you take off. n When reversing and turning, remember to watch the front of your car as well. n If towing a trailer, practice reversing with the trailer in a safe location. n Where possible, reverse or ‘pull through’ into parking spaces rather than out of them. Such good practice is typical of the online RiskCoach modules available globally to organisations using Virtual Risk Manager to identify and support their people who are required to drive as part of their work. For more information go to www.virtualriskmanager.net
MOTOR F LEE T INSUR ANCE CL AIMS Vehicle type
Car Heavy commercial Light commercial Other All vehicle types
7,116 1,329 14,018 160 22,623
25% 38% 30% 16% 28%
5,098 442 6,428 536 12,504
18% 13% 14% 54% 16%
11,167 869 16,043 213 28,292
40% 25% 34% 21% 36%
2,877 654 6,799 63 10,393
10% 19% 15% 6% 13%
1,999 227 3,341 24 5,591
7% 6% 7% 2% 7%
28,257 3,521 46,629 996 79,403
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mydrivingbusiness.co.uk The Driving Business website is packed with information to help you choose, manage and sell your company cars and vans Choose the right cars and vans. Unsure which vehicle you want? Head to the Find a Car/Van tool. Want to compare car or van running costs? Our tool provides the calculation based on price, resale value, fuel costs and service, maintenance and repair costs. Here, you can also find out how much tax your drivers will pay and you can read reviews of every key car and van from our experienced road testers. Managing the cost of your vehicles. With myriad funding options to choose from, this section will help you decide which is best for your business. You can also get tips to help you reduce your fuel bill while our maintenance advice will ensure your vehicles stay on the road. Safety & Compliance. Running company cars and vans isn’t simply about choosing which vehicle you want. You have legal obligations to keep staff safe and you can find out what those are in this section – and what the implications are if you fail to comply. Here, we also advise you on how to reduce accident costs and provide details of vehicle safety ratings, as well as offering tips on your drivers’ responsibilities. Cool Stuff & Business Surgery. Business Surgery is where you can ask questions of our experts and find best practice case studies on improving safety or reducing cost. It also contains the ‘Broader View’ articles which explore related areas of business management, such as funding and IT. Cool Stuff contains future launches, crazy concepts and things that we think will excite or surprise you from the business world. 22 ❚ Autumn 2013 ❚ www.mydrivingbusiness.co.uk
n BROADER VIE W
STEPS TO A GREENER WORKPLACE How you can cut your carbon footprint and save money n W H AT T HIS M E A NS FO R YO U Going green used to be seen as a cost to the business; something that was primarily about presenting a positive image but required time and money to achieve. However, simply taking a few simple steps to cutting your carbon footprint can save you thousands of pounds a year. Here, we show you how.
savings into more green initiatives. Nearly half of the businesses questioned also said they had reduced their energy usage by 5-10% in the last year, the most common initiatives including turning off equipment when not in use and educating staff. There are some key benefits to ‘becoming greener’ and in this article we will explore the different initiatives that can be introduced plus some cash-saving possibilities.
By Debbie Wood or small businesses, sometimes the idea of ‘going green’ can seem like an expensive and daunting task, but small changes to everyday operations can really make a difference, not only for the environment but to the company’s bottom line too. Research from NPower has revealed that 42% of SMEs are benefiting from energy efficiency measures and reinvesting
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n BROADER VIE W
CUTTING DOWN ON PAPER
TURN OFF INSTEAD OF STANDBY
CUT DOWN ON TRAVEL
70% less energy is required to recycle paper compared with making it from raw materials. Using recycled paper is a good way to start but you should also consider printing double-sided. At the very least this will halve your paper usage and costs for the year.
If a computer doesn’t need to be on out of hours – turn it off. Even on standby electrical equipment will still cost you money and create emissions. According to the Carbon Trust, equipment left on standby during bank holidays and weekends could cost small and medium-sized office-based businesses nearly £6,000 over the course of a year.
Reducing the number of miles you travel not only means less money on fuel, flights and hotels, but also has a positive impact on the environment. Using video or telephone conference calls are a great way of interacting with other businesses and suppliers without having to leave the office. Also consider promoting and incentivising car sharing and schemes that involve alternative transport like biking to work or taking the bus.
UPGRADES AND MAINTENANCE
Technology is advancing all the time and becoming cleaner and more efficient. According to the Carbon Trust, effective management of equipment can reduce energy consumption by up to 70%. Making sure equipment is regularly maintained to keep it efficient is important and installing new equipment can help drive savings.
Recycling is becoming a way of life at home, so for businesses it should be an easy step to integrate. From recycling plastic cups and paper to food and confidential information, there are a number of companies on the market today that offer a variety of services and collections to help make it non-disruptive in the workplace.
The sun is the best source of light and making the most of natural light will help reduce company energy bills. If not needed, lights should be turned off during the day if there is enough natural light available. Also ensure they are off out-of-hours which, according to the Carbon Trust, could save businesses 10% on lighting costs. Light switches should also be correctly labelled so staff select only the lights they need. Consider installing low energy bulbs and tubes which use up to 75% less energy.
n M E A SU R E A N D SE T G OA L S Deciding as a company to roll out green initiatives is an important first step, but measuring success and reporting on the impact that the changes make is equally key. There are many resources out there and companies that specialise in helping organisations get to grips with their carbon footprint such as Carbon Footprint and the Carbon Trust. There are also many forums and organisations that bring companies together to share best practice and ideas when going green, like Change London, which is a mitigation scheme where you pay so much for carbon, PM10 and NOX and all the money goes into local area initiatives to improve levels of pollution in London. You can also calculate your company carbon footprint by using the Driving Business Carbon Footprint Calculator at mydrivingbusiness.co.uk/static/ carbon-footprint-calculator/
n WA N T TO K N OW M O R E ?
HOW TO OFFSET YOUR CARBON
energysavingtrust.org.uk BEST PRACTICE ADVICE ON GOING GREEN
HELP TO CUT YOUR CO 2 EMISSIONS
HOW TO RECYCLE MORE AND REDUCE COMPANY WASTE
24 ❚ Autumn 2013 ❚ www.mydrivingbusiness.co.uk
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n BROADER VIE W
THE DRIVING BUSINESS INTERVIE W
‘I believe that business is good, that it is in everyone’s interests’ It pays to be bold, IoD chief Simon Walker tells Catherine Chetwynd
and protection and preservation of your brand is all-important. Walker quotes Warren Buffet’s ‘It takes 20 years to build a great reputation and only five minutes to lose it’. “That’s true of brands, too,” he says. Gerald Ratner would no doubt agree. It was at the Institute of Directors (IoD), with the words that his products were “total crap”, that he nearly brought down his empire. Not only did this undermine the brand, it showed contempt of his customers. “You need to be absolutely ruthless about addressing defects in your processes, if you are leading a business, but without necessarily candidly acknowledging them in public,” says Walker. Walker is relaxed and quietly spoken and covers subjects with economy and thoroughness. But he can also be uncompromisingly direct and the occasional phrase breaks through the calm like a bolt of lightning: “Far better to say, albeit privately, ‘we have many strengths, we have some weaknesses, let’s address these’, than to say ‘we’re all bloody marvellous’ all the time. Only a mediocrity is always at his best.” Not that it’s easy to stand back from your own organisation and be dispassionate. “I worked at Buckingham Palace years ago, because the royal household believes that every so often it should bring in someone to give an outside perspective. Once you’ve been part of an institution for a period, three years perhaps, five years certainly, you lose that detachment,” he says. “It was a good thing that I came from outside the IoD to head the IoD but after I’ve been here five years I will be moving to a point where I will have outlived my usefulness. I think any business leader needs to evaluate what’s the right time to go. Politics is littered with examples of politicians – Tony Blair, Margaret Thatcher – who hung on too long, possibly becoming detached from reality in the process. “That can easily happen in business as well. I think you must go
imon Walker’s mantra for anyone starting a business is “be bold” and he practises what he preaches. Having left university in the UK, he worked in television in New Zealand and then for the New Zealand Labour Party, before setting up a lobbying and communications company to help businesses reach government. “I rented offices in central Wellington and took my dining table, put a dining chair behind it and got a telephone. That was it,” he says. “It was the most frightening thing I’ve ever done. I had a completely sleepless night because I had spent £300 on a memory typewriter, a second-hand one. How was I ever going to pay this back? I had no fees coming in. “You have to take chances, risks, and be patient. It required a degree of boldness to start up that way.” But measuring that risk is equally important: “I don’t mean take rash risks – know what you are doing.” That includes knowing the needs of your market – or even telling people what they need. “Steve Jobs would undertake a survey of potential customers in order to design an iPod or, indeed, the iPad I use all the time. He saw something customers didn’t and filled a need we didn’t know we had,” says Walker. “That’s clever. That’s the key to great business success, I think.” But a new product brings disruption and change. “When I was a child, my father spent days teaching me how to use a slide rule. They don’t exist anymore because computers have supplanted them. All business is a process of creation and destruction and we need to understand that and move on,“ he says. There are countless examples of brands having lost their way
Simon Walker – a business timeline 1975: Reporter, TVNZ,New Zealand
1980: Communications director, New Zealand Labour Party
1984: Founded Communicor (PR and lobbying), New Zealand
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1987: Executive Director, New Zealand Centre for Independent Studies (economic policy think tank)
1989: Director European public affairs, Hill and Knowlton
1994-1996 & 1997-1998: Partner, Brunswick
1996: Special adviser in the Prime Minister’s Policy Unit at 10 Downing Street
1998: Director of corporate affairs, British Airways
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2000: Communications Secretary to HM The Queen at Buckingham Palace
2002: Director of Corporate Communications and Marketing, Reuters Group
2007: Chief Executive of the British Private Equity and Venture Capital Association (BVCA)
2011: Director General, Institute of Directors
www.mydrivingbusiness.co.uk ❚ Autumn 2013 ❚ 27
n BROADER VIE W
THE DRIVING BUSINESS INTERVIE W
You need to be absolutely ruthless about addressing defects in your processes, if you are leading a business
when people can say: ‘Did he have to go so soon?’, rather than when they say “For God’s sake, why has he hung in there quite so long?” He returns to the Ratner theme: there is nothing wrong with having cheap jewellery as your product, just as low-cost carriers offer flights with minimal service, food, etc. It is just as respectable as charging a lot to fly in first class or business class. “Segmenting marketing is a legitimate part of the business process,” he says, but warns: “You must believe in what you are doing. If you are bringing cheap travel to the masses, that’s an important thing to do. Don’t say ‘what a load of poor suckers they are’.” This leads neatly into the importance of a strong brand saying what it is and whom it is for. It is possible to change a brand over time and, although it cannot be done on a handbrake turn, it has been achieved in the automotive world, says Walker. “If I were buying a new car now, I would seriously consider a Skoda. That idea 20 or 30 years ago would have been laughable.” A brand needs to be monitored constantly and, if budget allows, it is a good idea to employ an expert, such as a chief marketing officer. But the buck stops with the chief executive. “You are expected to be passionate about it and ultimately, that will seep into you and may even condition your thinking overall,” says Walker. Honesty is another of Walker’s watchwords and he applies it to motivating staff. This includes honest recognition of the problems a business faces from time to time. Even more important, he says, is to convey the certainty that you’re going to overcome them. “If you are foolishly optimistic, you will lose people’s confidence even more quickly than if you are in a state of despair. People will see through it – people who know the business you are in aren’t stupid,” he says. Pay cannot be discounted as a motivator, he says, but it is not the most important factor. However, on inflated salaries, Walker is unequivocal: “I think senior executives in much of British business are grossly overpaying themselves and I think it is wrong that their boards and shareholders allow them to.” Employees are also motivated by pride, he says, his voice warming as he continues: “I loved working for Reuters news agency because Reuters was, is, about freedom of the press and accurate information about the world. It would be sad if a great bank or supermarket chain collapsed but, to me, it would be a tragedy if Reuters disappeared, not because it always gets everything right but because its purpose is fundamentally about improving the world we live in.” Any good reputation is hard won and to achieve it, businesses need to set out their stall and make it clear what they do. This generates trust. When Walker worked in the private equity industry,
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The average age of a member of the IoD
n I O D - AG E O F CO N CER N Simon Walker: “We want a younger, broader, more diverse membership. We have got wonderful premises in central London and we have strong regional networks; we have great professional management development capabilities and a strong commitment to good governance. “I do want to get a younger membership, one which is aspiring in business, rather than just a membership which has largely made it. The average member is in their 50s and the average sex is male – and I want to try and balance that one. “We have got a lot going for us and if any of your readers would like to join, we would gladly waive the joining fee if they write in and mention this article. “If people want to try us out, they’re very welcome.”
he developed guidelines on transparent communication with the public, on the basis that the business would be treated better if people understood a bit about it. He succeeded and the sector now releases much more information into the public domain. That transparency also provides an incentive for it to behave well. His dedication shines through and it becomes abundantly clear why he is the right man to head the IoD: “I believe passionately that business is good, that it is in everyone’s interests and if you believe that, you are relatively safe,” he says. Those who believe that business’s first objective is to rip people off, he adds, make it a self-fulfilling prophecy. However, humans make mistakes and he is adamant that wrong business decisions should be admitted as soon as possible, so you can cut your losses. But to create a culture where anyone can admit a mistake, it is important to recognise that everyone makes them. “To me the real sins are failing to recognise weakness and error – not addressing problems and not learning from them,” he says. Although he does not think fear rules the boardroom, he emphasises that being a director is a demanding job. “If you get it wrong, not through dishonesty but through dereliction, you’re going to be in serious trouble and that’s as it should be. If you are a director, you are the guardian of the interests of shareholders, of the owners of the company. You can’t ever forget that. “It is not enough to be an eminent name, one of the great and the good, and say ‘I’ll let the chief executive do whatever he wants; as long as there’s no actual dishonesty, I’ll nod it through’. You can’t get away with that any more, nor should you be able to.” Walker believes setting up shop during an economic downturn is a good thing to do – people know if they can make it then, they can make it in any conditions. “It is interesting to me that many of the great recent businesses – Apple, Amazon, Google or Microsoft – were started in the teeth of different recessions. Some of the businesses we have seen starting up now could be the success stories of 20 years’ time.” Whether you believe in luck or making your own, exploit it – launch the business effectively and at the right time. And, of course, “be bold”. Walker tells of working at British Airways, then under the leadership of chief executive Bob Ayling. At a press conference, Ayling told the assembled journalists that BA was going to introduce flat beds in six months. Then he told the engineering staff. “Everyone said it was impossible, but five months and three weeks later, the first plane with flat beds rolled out. It was transformational and gave us a three-year lead on any of our competitors. “That kind of boldness is a facet of great management.”
n SPECIA L REP ORT: TOYOTA AND LE XUS
CHANGING THE FOCUS OF A GLOBAL GIANT Toyota looks to hybrids, hydrogen and wholelife costs to give the worldâ€™s largest car company a lead in fleet sales
In association with
n SPECIA L REP ORT: TOYOTA AND LE XUS
INTERVIE W: NEIL BROAD
‘We’ve put fleet business on the top table across the whole company’ Toyota has set its sights on leading the fleet market by being ‘easy to deal with’
oyota is the largest car company in the world, with global sales of 9.75 million vehicles in 2012. The Japanese manufacturer is also the most successful when it comes to hybrid cars. With more than 5m sold to date, the company accounts for about 95% of worldwide hybrid sales. Yet, despite its global sales success, there is no objective to lead the sales chart for its own sake. It intends to be successful due to the products and services it delivers. “We have been very retail-focused,” says Neil Broad, general manager for Toyota & Lexus Fleet and Vehicle Remarketing Services. “We want to be a fleet leader and we have now put fleet business on the top table across the whole company in the UK. However, rather than simply chase volume, the ambition is that we are known as an easy company to deal with.” Toyota is in a strong position. Fleet sales were up 14% in 2012 compared with 2011, with strong gains predicted for 2013. It has already stated its desire to improve on these figures and the arrival of the new Auris in petrol, diesel and hybrid versions can only help. However, Broad, who was
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of worldwide hybrid car sales are accounted for by Toyota
the number of sub-100g/km cars available from Toyota and Lexus
Despite the success of hybrids such as the Prius, Broad says they are just a stepping stone
appointed to his current role in December 2012, is far from complacent about the uphill battle Toyota faces. Part of his strategy is to accentuate the British-built nature of the new Auris and its overall low cost of ownership to business users, particularly in hybrid form. “We believe it’s not just the price of a car that attracts fleet business, but the channel to market [that] is important,” he says. “We want to build a long-term relationship with fleet managers and business drivers by being good people to do business with.” Part of this approach is to avoid an aggressive sales pitch or attempts to push its cars into every possible area regardless of the effects on image or residual value. “Market share is important and it helps with brand awareness when you have a lot of cars on the road,” says Broad. “However, we’re trying to pursue wholelife costs as this makes it easier for our customers to manage their businesses. To help here, we are working very closely with our dealer network to make sure we have compatibility with all aspects of business.” Broad dismisses criticism that Toyota, and its premium offshoot Lexus, was slow to offer diesel engines to the fleet sector. He points out that Toyota offers several models with diesel engines and he also takes the opportunity to further the case for hybrid models, such as the Yaris, Auris and Prius. With Euro 6 emissions legislation looming and its focus more on particulates NOx and SOx (nitrogen oxides and sulphur oxides) rather than just CO2 output, efficient, petrol-powered cars with no particulates are predicted to see a resurgence in the fleet sector, where diesel has dominated over the past 15 years. Broad says the link between affordable company car tax rates and hybrids has become well established “and as an ethical car manufacturer we want to look at the overall picture. Diesel may have become an integral part of the fleet map in the UK, but Toyota has pioneered hybrid technology and you can see many are now following. “Our challenge is to help more fleet buyers understand the hybrid message. Those who don’t comprehend what we are saying tend to be those who have not tried a hybrid vehicle. We think we are in a strong position with hybrid because Euro 6 emissions makes diesel less attractive to manufacturers as it takes more effort to build these engines to meet the regulations.” Even so, Broad is not blinkered about the impact of
Part of Neil Broad’s fleet strategy is to accentuate the British-built nature of the new Auris
hybrids and the fact that they are not the end solution: “Hybrid is a stepping stone, with plug-in hybrid such as the Toyota Prius Plug-In the next small step towards the future. We believe hydrogen will feature very prominently as part of the overall solution to clean driving in our lifetimes.” As part of this view of the future, Toyota will launch its first production fuel cell electric vehicle (FCEV) in the UK in 2015. The company is not blind to FCEVs’ current limitations, due to poor support for hydrogen-powered cars. However, it is working with the H2 Mobility project, which was established to evaluate the benefits of FCEVs and decide how to implement a refuelling infrastructure. Broad accepts that FCEV models are not likely to be immediate best-sellers, even if they do offer very low emissions and running costs. He says: “When we launched the Prius it wasn’t affordable, but now it is as the market changes and economies of scale have been brought to bear. This has allowed us to make hybrid technology available to all and it’s how we see hydrogen fuel cell vehicles working their way into the market.” In the more immediate future, Broad points to Toyota’s recently strengthened partnership with PSA Peugeot Citroën to develop new vans as a way of advancing technology and making further in-roads to the fleet sector. But Broad suggested in the medium term there will be no hybrid-powered vans from Toyota. He is also far from convinced of the need for diesel-hybrid models, again citing the effect the Euro 6 emissions laws will have. He is far more upbeat about the role telematics will play in increasing Toyota’s market share of fleet sales.
“Telematics is hugely important and Toyota pioneered satellite navigation, so we understand just what a big impact it has on the fleet market,” he says, before striking a note of caution. “We have to look at how much technology we can fit into a car affordably. While a top-of-the-range Lexus LS already comes with a complete suite of safety and driver aids, we need to look at how to include these in more affordable models. It will happen, as we’ve witnessed with innovations such as sat-nav, anti-lock brakes, VSC and airbags that were once only for high-end cars and are now standard on all models.” Broad is conscious that strong, open relationships are a vital part of doing business. Toyota learnt the importance of this during worldwide press coverage for some recent recalls. While these were overblown in some sectors of the media, the effects are still being felt at Toyota. Broad says: “All car companies conduct recalls, but because Toyota is the biggest car maker in the world it makes the news. Our attitude is we’ll always do the right thing for our customers. Rather than try to bury our heads in the sand, Akio Toyoda [president and CEO of Toyota Motor Corporation] saw the recalls as a positive as it made all of us within Toyota look at ourselves. “As a result, we now have the Early Detection, Early Resolution system in place and every dealership now has someone whose job it is to identify patterns of faults to deal with them as soon as possible. Customers want consistency and we believe in being an extremely honest organisation. This is what will build those relationships and take us further into the fleet market.”
We are trying to pursue wholelife costs as this makes it easier for customers to manage their businesses
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n SPECIA L REP ORT: TOYOTA AND LE XUS
TOYOTA R ANGE
Since its launch, the iQ has continually served up plenty of interest. While the exterior styling helps it stand out, it’s inside that the iQ shows its flair, with a 3+1 seating arrangement courtesy of the staggered front seat layout. Ingenious as this is, it’s the 99g/km, 1.0-litre three-cylinder petrol engine that will appeal most to company car drivers. Available in the base model and mid-spec iQ2, this engine may not offer quick performance, but it’s fine around town and the Toyota feels more stable on the motorway than its direct rivals. There’s also a 1.33-litre petrol that pushes CO2 emissions up to 119g/km, or 120g/km with the optional CVT automatic (also offered with the 1.0-litre engine). We’d stick with the manual 1.0-litre for emissions and economy of 64.2mpg, but also because it’s the best drive.
The Toyota Yaris has matured into a solid and well rounded supermini, with the 1.0- and 1.3-litre petrol models the best sellers. A peppy 1.4-litre turbodiesel is available and offers CO2 emissions of 104g/km coupled to 72.4mpg. However, the petrol models are more affordable and fun to use, while company drivers will be tempted by the Yaris Hybrid. This is the world’s cheapest hybrid car and provides 81.0mpg combined economy, just 79g/km CO2 emissions and company car tax at 10%. The hybrid also keeps NOx and SOx (nitrogen and sulphur oxides) low for the forthcoming Euro 6 emissions legislation. While the Yaris Hybrid is a little slower than the 1.3-litre petrol Yaris and not as much fun to drive due to its CVT gearbox, the financial case is hard to ignore even if it comes only in the upper three trim levels.
Introduced in 2005, the Aygo has remained largely unchanged other than some styling tweaks. The 1.0-litre petrol engine offers zippy in-town performance, though motorways put more of a strain on the driver’s ears. Emissions of 99g/km for the manual gearbox model in both three- and five-door forms makes the Aygo popular with fleets. We’d avoid the Multidrive MMT automated manual gearbox as it’s not as smooth as a standard auto and drops economy from the manual’s 65.7mpg to 62.7mpg. The auto also has emissions of 104g/km. Every Aygo copes well with town and country driving, but the rear seats and boot are cramped. However, Toyota’s five-year, 100,000-mile warranty gives it the edge over its near-identical French cousins from Citroën and Peugeot.
Built in Derby, the Auris is spearheading Toyota’s greater push into the fleet market and it’s easy to see why fleet managers and company drivers may be tempted. It comes in five-door hatch and newly-launched Touring Sports estate models with competitive pricing and a choice of four well-equipped trims. While the keen pricing and decent drive of the Auris appeal, particularly its smooth ride over bumpy roads, it’s big draw will be wholelife running costs for fleet buyers. The 1.4-litre turbodiesel engine gives 72.4mpg, 103g/km CO2 emissions and comes in at 15% for Benefit in Kind tax to put it among the best in class. However, Toyota also has its Auris Hybrid to draw in fleet users. Economy for the Hybrid may not be much better than the diesel’s at 74.3mpg, but emissions of 87g/km and BIK at 10% make a strong case.
The Verso may not be an immediately obvious fleet contender from Toyota, but the revised model has lower emissions, improved fuel economy and reduced prices. There are 1.6- and 1.8-litre petrol engines on offer, but it’s the punchy and refined 2.0 D-4D that will interest fleet drivers. With CO2 emissions of 129g/km, the diesel is on a par with most rivals and its 57.6mpg also rates highly, while 20% BIK beats both of its petrol sister models. The diesel is also the best engine to drive due to its flexibility and slick gearshift. Choose the Verso with the diesel engine and you get a seven-seat layout as standard. It makes the Verso very practical and easy to alter to suit different passenger and cargo needs. As expected, the cabin is very well put together and the Easy Flat system makes folding the rear seats quick and easy.
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Quality and refinement are the watchwords for the British-built Avensis in both saloon and estate guises. It’s a car that lets its driver and occupants know how well built it is from the first contact to the last, as well as in the clear dash design and superb comfort and space of the cabin. However, the ride quality is not as smooth as in some rivals and the Avensis is not an engaging car to drive. This makes it less appealing than a number of competitors that offer a far more interesting drive and better economy and emissions. The Avensis that will attract most business interest is the 2.0 D-4D turbodiesel that gives 119g/km CO2 emissions and 62.8mpg. These are figures neither the 1.8-litre petrol nor the 2.2-litre turbodiesel come close to. The 2.0-litre diesel is hushed in use, but it misses the punch of similarly efficient rivals with more power.
Every now and again, Toyota gives us a glimpse of what it can do when it gets all sporty. The GT-86 may be a collaboration with Subaru, hence the 2.0-litre ‘flat’ four-cylinder engine, but the driving character is directly descended from the best sporting Toyotas and that means balanced handling and nimble steering. It’s easy to make the most of the GT-86’s handling and performance, as both are designed to be at their best in the real world rather than on a race track. However, the fun comes at a price and that is fuel economy of 36.2mpg and less-than-companydriver-friendly CO2 emissions of 181g/km for the manual gearbox model. There is an automatic gearbox option that improves economy and emissions to 39.8mpg and 164g/km, but it dulls the driving experience to the point where it undermines the reason to choose the GT-86.
The Prius has established itself as an alternative to diesel-powered cars in the fleet sector thanks to its hybrid mix of a 1.8-litre petrol engine and electric motor. This puts every Prius model in the lowest company car tax category, plus it has lower nitrogen and sulphur oxides (NOx and SOx). Fuel economy is not as impressive as it was, though, with many diesel-fuelled rivals matching or exceeding it. However, the Prius range has a unique appeal and offers a relaxing drive, thanks to its CVT gearbox and, for short periods in town, its silent running. If you want to extend that time, Toyota has added the Prius Plug-In, which delivers just 49g/km CO2 emissions and 134.5mpg average economy. It can cover up to 15.5 miles on battery power at speeds of up to 51mph. The Prius+ provides the same low emissions and low NOx and SOx but with seven seats and MPV versatility.
The RAV4 was one of the first to get in on the sporty compact SUV act and it remains one of the best in its current guise. It’s more SUV than crossover as the driver sits up with a commanding view and the Toyota gives the impression it can cope with more than just a run to the supermarket. Sturdy cabin materials and plenty of space further the impression of chunky SUV credentials, though these are underlined by a little too much noise from the turbodiesel engines. The 2.2-litre diesel is the swifter and comes with four-wheel drive as standard, but the 2.0-litre turbodiesel with front-wheel drive only is the better company driver bet thanks to 127g/km CO2 emissions that earn a 20% BIK rating and 57.6mpg. The 2.2-litre turns in 149g/km and 49.6mpg, while the 2.0-litre petrol rules itself out due to 167g/km and 39.2mpg.
The Toyota Land Cruiser is known for its near-indestructible build. If your work takes you off the beaten track or involves towing, the Land Cruiser is a sound bet with its 34.9mpg, 3.0-litre turbodiesel engine. The downside is a lack of refinement compared with six-cylinder diesel SUVs and CO2 emissions from 213g/km. The go-anywhere abilities of the Land Cruiser and its seven-seat layout will make the cost in company car tax worth it for some. For those with deeper pockets and a penchant for greater luxury, the Land Cruiser V8 is even bigger and packs a 4.5-litre turbodiesel V8 motor. It’s virtually unstoppable off-road and more refined on-road than its smaller sibling. However, 29.7mpg and 250g/km CO2 emissions guarantee it will be a rare sight on company car lists.
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n SPECIA L REP ORT: TOYOTA AND LE XUS
LE XUS R ANGE
The Lexus CT200h is unique in its class for offering petrol-electric hybrid power. While the 1.8-litre petrol engine’s 98bhp doesn’t sound like much, the extra power of the electric motor helps the CT from 0-62mph in 10.3 seconds, with smooth progress thanks to the CVT (continuously variable transmission) gearbox. However, the ride is firm and the CT doesn’t have the same overtaking power as its key rivals. A petrol-electric mix gives 74.3mpg and 87g/km CO2 emissions in the entry-point S model, but all other CT220h versions deliver 68.9mpg and 94g/km that still qualifies them for 10% BIK rates. This Lexus can also travel at up to 28mph on battery power alone for short distances. There are no fewer than six versions of the CT200h to choose from, all with the same power, starting at £21,995.
The newly-launched IS saloon comes in IS300h and IS250 forms. While the IS250 uses a 2.5-litre V6 petrol engine, the IS300h uses a more efficient, four-cylinder 2.5-litre with an electric motor. This makes it the prime choice for business drivers thanks to 99g/km CO2 emissions and 65.7mpg combined economy, compared with the IS250’s 199g/km and 32.8mpg. Even if the IS250 is a shade quicker off the mark, providing 0-62mph in 8.1 seconds to the 300h’s 8.3 seconds, it’s the IS300h that is the better all-round company bet despite higher initial starting prices. The 300h comes in SE, Luxury, F-Sport and Premier trims, with the F-Sport featuring sports suspension, 18-inch alloy wheels, sporty body kit and instruments inspired by Lexus’s LFA supercar.
Lexus has always gone its own way in the executive saloon sector and so it is with the GS. Instead of the fleet-friendly turbodiesels of its rivals, the GS comes with either a 2.5-litre V6 petrol engine or a soon-to-be-launched 2.5 fourcylinder petrol-electric hybrid. The GS450h hybrid competes with larger-engined German and British cars, offering swift performance coupled to 141g/km CO2 emissions and 46.3mpg. Add in 0-62mph in 5.9 seconds and the GS450h is a match for its rivals, but the problem is the bulk of fleet sales in this sector are of smaller-engined, more efficient models. Even if it’s keenly priced, the V6 GS250 cannot compete due to its 207g/km CO2 and 31.7mpg. All GS models are comfortable and capable cruisers. The GS450h can drive in electric-only mode for short distances around town to offer zero emissions.
It’s hard to imagine how you could pack any more labour-saving, luxury-inducing equipment into the Lexus LS. It makes for a car that is very relaxing to drive and travel in, helped by fabulous refinement and a supple ride, though the more sporting F-Sport model’s suspension errs a little on the firm side. With a sumptuous, spacious cabin, the Lexus LS should be the ideal luxury car. However, the petrol-only LS460 cannot get close to the economy and emissions of its diesel rivals, with 26.4mpg and 249g/km CO2. The hybrid LS600h, which uses a 5.0-litre V8 petrol engine in place of the 460’s 4.6-litre V8, offers a more considerate 32.8mpg and 199g/km. Yet both of these figures lag some way behind its key rivals with diesel or hybrid power. When you consider the LS600h’s substantial price, fleet managers will find it difficult to choose the LS over its main opposition.
Only a 3.5-litre V6 petrol engine is offered in the RX450h, which is combined with an electric motor to give hybrid power. This offers petrol, electric or combined power, so the RX can run on battery power alone over short journeys. A CVT gearbox gives seamless delivery of power. However, the suspension doesn’t complement the transmission due to its firm ride at low speeds and the RX feels too large and unwieldy on country roads compared with rivals. The RX regains ground thanks to 44.8mpg average economy and 145g/km CO2, which are impressive for an SUV of this size. Lexus also provides a spacious and comfortable interior for the RX, though the Remote Touch Interface that works like a computer mouse to operate functions on the dash display is not as intuitive as it might be. Even so, every RX model is well equipped and priced competitively.
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CASE STUDY: JOHN SMITH, SERVICE MANAGER, CATHEDRAL HYGIENE
Prius has proved reliable and durable for Cathedral Hygiene
Not many fleet managers will happily keep a car on the road for a quarter of a million miles, but then John Smith does not manage your average fleet. The service manager at Cathedral Hygiene, Smith is responsible for the running, maintenance and replacement of 44 Toyota Priuses. The hybrid’s reputation for reliability was one of the elements that attracted him, but that’s far from the whole story. “Back in 2004, the company bought its first Prius as a conscious decision to become a greener fleet,” says Smith. “We tried some other hybrid models, and we’ll always consider and evaluate any new car on the market, but the Prius wins out for us thanks to its reliability and low running costs that outweigh any higher initial costs.” When the first Prius joined the Cathedral Hygiene fleet in 2004, the company’s policy was to replace its petrol- and diesel-powered cars at 100,000 miles. Sales staff could easily achieve this within two years and the knock-on effect of changing cars so often was something Smith identified as needing a new approach. After the initial period of using a Prius, it became clear to Smith that he could extend the life of the vehicles on the fleet to 150,000 miles. A Prius on the Cathedral Hygiene fleet will complete this standard mileage before it’s even considered for replacement. Smith says: “We have several cars with more than 150,000 miles on the clock. Some use a little oil, though nothing out of the ordinary, so we reckon we’ve had the best out of them by this point.
The Prius wins out for us ... its reliability and low running costs outweigh any higher initial costs
Number of Prius models run by Cathedral Hygiene
“However, we did have one Prius that we kept for four years that clocked up more than 240,000 miles without any problems. “We remarket our cars at four years old simply so they still have a value when they go to auction. This is another positive for the Prius as there is a ready market for used models, even ones with high mileages, so the residual values are strong.” The sales and management teams at Cathedral Hygiene both use the Prius and are very happy with it, says Smith. However, he explains this was not always the case: “There was a reluctance to switch to the Prius in the early days because it’s a hybrid and some [thought] it wasn’t a ‘proper’ car. “Now that everyone is used to the Toyota, they like them a lot and many of our team say they would happily buy one with their own money, which is as big an endorsement as you can get.” Smith cites the Prius’s ease of driving as one of the reasons Cathedral Hygiene’s staff was won round. He says: “It’s light and simple to operate, which makes it stress-free, which is a very important consideration when our drivers are covering large annual mileages.” He adds that the Prius shows no drop-off in performance, economy or battery charge, even after significant mileages. Smith uses fleet software to monitor the reliability, downtime and costs of every vehicle. This informs him when a car is liable to be sold on, but also gives him a detailed insight into how durable the Prius is. “We find the Prius very quickly cancels out the initial higher cost to buy compared to some rivals,” adds Smith. “We get a very good service from our local Toyota dealer when buying and servicing the cars. “In fact, if we could buy hybrid vans to add to the fleet, we would.”
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n THINK DIFFERENTLY
A PUZZLING DILEMMA The right answer can bring big savings n W H AT T HIS M E A NS FO R YO U Understanding why you need business vehicles and their roles will help you select the right cars or vans for the right jobs and use them in the most cost-effective way
By John Charles osses of SMEs are typically very smart people. But they don’t necessarily make the smartest choices in respect of transport and mobility. A mixed and confused picture often emerges over the choice of vehicle funding and ‘rightsizing’ cars and vans operated that can cost SMEs £1,000 a year per vehicle, according to Tony Murtagh, head of the SME division at Lex Autolease. Decisions around which employees are allocated vehicles and how many cars or vans are ultimately required can also result in further unnecessary cost. Once those decisions have been made, optimising in-life vehicle utilisation is critical to improving business efficiency and ultimately cutting costs. That, says experts, can be better achieved with the aid of fleet management software and telematics. To initially select the right number of business use vehicles, organisations must have a clear understanding of what they need them for, according to Paul Marchment, fleet consultant at leasing and fleet management company Arval, which targets small businesses through its SME Direct team.
INFORMED AND COST-EFFECTIVE DECISIONS
SMEs need to think about more than just the up-front purchase price
LEASE /BUY/ RENT/ POOL CAR?
Factors include how often vehicles will be used, what mileage will they complete, the type of goods/equipment carried and driving usage – urban or motorway. “With this information, businesses can make informed and cost-effective decisions,” says Marchment. “Vehicle usage is really important in making the right choices. If a vehicle is used predominantly in a city for short, urban journeys, a small petrol engine or an electric vehicle may be best. “For high-mileage motorway driving, a larger diesel engine or range extension vehicle is likely to be most effective.” For occasional employee journeys, short-term rental or mini-lease vehicles generally provide a better option than taking a permanent lease or buying a vehicle, says Marchment. Likewise, if several employees occasionally required a company vehicle, introducing a number of pool cars could be an effective option. He adds: “It is important to have a clear view of the business rationale for the vehicle, or vehicles. For example, if employee recruitment and retention are the priority, how well a vehicle is utilised might not be such an important factor as how desirable it is.” For businesses using vans, ‘right-sizing’ can deliver cost savings. Marchment says: “Many companies will select a large van because they occasionally need to carry large loads. “The problem with this approach is that the van generally costs more to purchase or lease, is typically more
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HOW OFTEN WILL VEHICLES BE USED?
DRIVING USAGE – URBAN OR MOTORWAY?
HOW MANY CARS OR VANS ARE ULTIMATELY REQUIRED?
expensive to run and is often only part full. As an alternative, it is often better to select a smaller, more cost-effective van then rent a larger model for the occasional times the additional capacity is required.” Nick Hardy, sales and marketing director of Ogilvie Fleet, says: “Businesses must initially decide whether vehicle provision is job-related or a perk as part of an employment package. If it is the latter then it is an employment and not a utilisation issue. “If there is an ad hoc requirement among staff for vehicles, then renting is the simplest and most costeffective solution. However, if one employee is renting a vehicle 15 times a month then it may be better to provide a company vehicle. It is important to monitor who is renting and mileage travelled, and then do the maths.” Murtagh divides fleet expertise into three sectors in the SME sector: companies operating 20 vehicles or more have a more professional fleet management outlook; those with
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n C ASE STUDY: DR JONES YEOVIL A building firm is predicting that it will make financial savings after deciding to replace an expensive-to-run and ageing fleet with a £1 million investment in new vans and cars on contract hire with maintenance and accident management from Lex Autolease. DR Jones Yeovil is forecasting fuel cost savings and a reduction in its carbon footprint after placing the order for 100 new vans and 10 cars. The first batch of 10 Citroën vans and two cars has been delivered to the company and once the full complement of vehicles is operational, a 20% saving in annual fuel bills and a 17% cut in CO2 emissions is anticipated.
TYPE OF GOODS/ EQUIPMENT CARRIED
“A 20% saving in fuel bills is expected” CONSIDER WHOLELIFE COSTS
WHAT MILEAGE WILL THEY COMPLETE?
Dave Jones, managing director of parent company The Jones Group, says: “It is our intention that over the next few years we will have replaced our existing fleet with the most eco-friendly and fuel efficient vans on the market.” To identify the most suitable type of vehicle, Lex Autolease conducted a detailed review of the company’s working practices, which included assessing the different types of kit staff carry and the distance travelled between jobs. Based on the findings and following a period of vehicle evaluation, a range of Citroën models were chosen. Mark Porter, operations director for The Jones Group, said: “We made the decision to upgrade our fleet because the older vehicles had become too expensive to run and maintain. As the scope and variety of our work increases it also became clear that these vehicles were not fit for purpose.”
WHAT ARE THE VEHICLES NEEDED FOR? (JOB-RELATED OR PERK)
five to 20 vehicles and have a semi-professional outlook but some inconsistencies; while businesses operating less than five vehicles have a more consumer mindset. It is in the sub-five vehicle category that the vast majority of small businesses reside and Murtagh says: “In that sector there is a really confusing and inconsistent picture of what businesses think is the right thing to do. As you move up the fleet size curve more structure appears. “Many small businesses give employees a company vehicle in roles that in a large organisation would not come with such a benefit. “But the rationale is that by providing a vehicle, as well as other benefits, they are protecting their employee base. “Questioning why employees have a vehicle tends to be a very short conversation, but explain how a more professional approach to choosing and funding a vehicle delivers financial savings and better value and small businesses are amazed.
“SMEs are run by some very smart people and the challenge is clarifying their confusion around vehicle funding and in-life vehicle management to save them money.” Too often the consumer mentality of small businesses is to buy a vehicle based on headline price and not to utilise the big fleet strategy of linking vehicle selection to wholelife costs incorporating key factors such as fuel economy, CO2 emissions, tax, depreciation and service, maintenance and repair (SMR) while also broadening vehicle choice. Marchment says: “To select the most cost-effective vehicles, SMEs need to think about more than just the up-front purchase price or lease rental.” n Part two of this feature, which looks at utilisation of vehicles once procured, will appear in the winter issue of Driving Business, out on November 28. www.mydrivingbusiness.co.uk ❚ Autumn 2013 ❚ 37
C AR CLUBS AND P OOL C ARS
tric car c le
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n THINK DIFFERENTLY
A FLEXIBLE FRIEND? Pool cars are a useful tool to provide occasional transport for staff without company vehicles. But how should you manage them? 38 ❚ Autumn 2013 ❚ www.mydrivingbusiness.co.uk
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By Catherine Chetwynd ool cars tend to be automotive bin ends but unlike the vinous variety, which can throw up the opportunity to acquire the last of a rare treat, they tend to be the runt of the litter. This is less a reflection on drivers’ choices than the administration and tax implications surrounding them, plus the difficulty in running them efficiently. Pool cars are a mixed bag. They can be daily hire (shortterm); cars from a company scheme that have not been re-allocated following staff leaving; cars leased to act as pool cars; purchased for the pool; low-spec, fuel-efficient vehicles; car club cars; and/or electric vehicles, depending on the length of journey and ability to charge them. Zenith has two Nissan Leafs, which staff use to collect customers from the local railway station or to get to the shops at lunchtime. They are used for up to 10 journeys at lunchtime alone, which would otherwise have been done in a diesel- or petrol-engined car, and they are charged on the premises. Using former company cars in the pool can prove expensive: the business is still paying monthly rental for the vehicle but it may be used only two or three times a month. In addition, lack of visibility – who is using them and how often – can raise complications associated with grey fleets, making it important to check drivers’ eligibility to use the vehicle, insurance, validity of driving licence, etc. A flexible car policy that allows employees to trade up or add extras brings its own problems and the pink Ford Focus with matching spoiler and alloy wheels that may have been the owner’s dream proves to be the fleet manager’s nightmare. Apart from having niche appeal, it is expensive to re-allocate because it is still subject to full BIK even though the next driver is getting a used car. Early-termination clauses solve the problem of cars handed back by former employees and most lease companies offer these, but it is incumbent on the fleet manager to ensure this is written into the contract.
n W H AT T H IS M E A NS FO R YO U What do you do if staff without a company car need to travel for business purposes? Do you allow them to drive their own car? Pool cars are a more cost-effective and safer answer, but they have to be managed well. There are also several options to be considered, such as car clubs or short-term rentals.
HOW TO AVOID DOUBLE BENEFITS A policy for new recruits pre-empts pool problems. “A lot of companies allow people to order cars as soon as they join, but they could give them a pool car or prestarter vehicle for the duration of their trial period,” says Matthew Walters, head of LeasePlan Consultancy. This ensures that if they don’t stay the course, there is no legacy vehicle to cope with. Zenith’s commercial director Ian Hughes is looking at in-car technology that can check whether people are eligible to use the vehicle. “If they have taken cash instead of a car and they are using the company estate, then they are taking a double benefit and that needs to be stopped,” he says. “It is a protective measure and we are anticipating it would be very cost-effective.” Car clubs exploit technology to considerable effect and they make a convenient and efficient substitute for an
n WA N T TO K N OW M O R E ?
HMRC ADVICE ON POOLED CARS AND VANS
on-site pool. In London, where paying the congestion charge can become punitive, “the option of a car by the hour is quite compelling if you only want to go from A to B without ownership issues”, says Hughes. Users book online and the website tells them where the nearest car is parked and issues a PIN, which the driver uses to open the car. Billing is automatic. Charges include fuel, insurance and mileage. “It is a nice, bundled solution. It is very convenient,” says Hughes.
CAR CLUBS – A BETTER CHOICE FOR SMES? However, pool cars tend to be the preserve of large corporations and Tony Murtagh, director of SME for Lex Autolease, says they barely register in the world of smaller companies, whose priority is investment in more flexible working practices. But this has mobility implications. “There is cause and effect: flexible working practices mean people are not having to travel to work and the same challenge exists in getting them from A to B,” he says. SMEs tend to look at a local option for short journeys and therefore use car rental companies. “I do not believe they are cost-effective or ecoefficient,” says Murtagh. “If you book car hire, there is a good option of brands available, but at most local rental sites you don’t get a great choice.” He is also a protagonist of car clubs as the most effective way of covering local reach. “Conversations we have with SMEs are not around pool cars but at the margins, looking at overall usage of vehicles and transport to build an analysis of their non-company car travel spend,” he says. “And if the cost of that is £10,000, spent largely on short, local trips, we can see where they have the opportunity to look at an alternative such as using electric cars or car clubs.” The most efficient way of catering to ad hoc demand is often a blend of models. According to Jon Burdekin, head of consultancy services for Alphabet, the big questions are “What do you need the car for?” and “Am I sweating the asset as best I can?” Alphabet provides two types of daily rental to cover car share. With AlphaCity, companies lease cars – BMWs or Minis – on a full maintenance monthly rental, which they keep on their premises and rent out by the hour or day. Drivers register as a member, in the same way as a car club, and have 24-hour online booking and keyless access. Onboard technology allows monitoring of use. “This works particularly well where an organisation has two heavily-populated sites, with two cars in each location, so that a driver could do a one-way journey and someone else could drive it back,” says Burdekin. Left to their own devices, pool cars could quickly descend into grey fleet territory but there are ways for companies to take constructive control of this area and turn it to their advantage, while still catering to drivers’ ad hoc requirements.
A LPHABE T ANA LYSIS OF SHORT-TERM RENTA L COMPARED WITH A LPHACIT Y
Aggregate days of car hire
Av. length of hire (days)
Average daily hire cost
Site 1 193 4 £5,225.57 £27.07 Site 2 153 5 £3,702.56 £24.19 Site 3 49 3 £2,623.49 £53.54 Total projected annual cost saving £15,780 * All these sites would also have incurred some additional daily rental
Cost of AlphaCity
Daily cost saving
Projected annual savings
No. of AlphaCity cars*
£12.59 £12.59 £12.59
£14.48 £11.60 £40.95
£6,706 £4,260 £4,814
6 5 1
www.mydrivingbusiness.co.uk ❚ Autumn 2013 ❚ 39
n C ARS
BEST IN CLASS Helping you to choose the best cars for your business n E XECUTIVE C ARS
BMW 530d M Sport auto
Audi A6 saloon 3.0 TDI S Line S-tronic
Infiniti M30d S auto
LEASING PRICE £604.59 PURCHASE PRICE £38,910 DRIVER APPEAL ✪✪✪✪ FUEL ECONOMY 55.4MPG MAINTENANCE COSTS £3,060 RUNNING COST £36,300
LEASING PRICE £722.97 PURCHASE PRICE £42,330 DRIVER APPEAL ✪✪✪ FUEL ECONOMY 37.7MPG MAINTENANCE COSTS £4,536 RUNNING COST £45,918
KEY REASON TO BUY: Good all-round package
KEY REASON TO BUY: Hi-tech image
KEY REASON TO BUY: Underrated alternative to German rivals
BEST FOR: Driver appeal
BEST FOR: Premium car for relatively low running costs
BEST FOR: High standard specification
DRIVING BUSINESS SAYS
DRIVING BUSINESS SAYS
DRIVING BUSINESS SAYS
BMW knows how to make good company cars, and the 530d is no exception. As with all BMWs it’s enjoyable to drive, and the sixcylinder engine does an excellent job of combining performance with efficiency – with CO2 emissions of 145g/km. It lacks the standard equipment of some of its rivals – options are pricey – but that won’t put many people off.
CO2 emissions of 133g/km are impressive for a V6-powered executive saloon car like the A6. This is partly down to the S-tronic gearbox which acts like a normal automatic ‘box, but as a manual gearbox does not carry the fuel and emissions penalty usually found with automatics. Audis are always popular with user-choosers and the A6 is no exception among senior management. Its impressive refinement gives its rivals a lot to live up to.
Infiniti is the luxury arm of Nissan. The company hoped the M30d would propel it into the mainstream, but it hasn’t really happened. This is mainly because of tough competition, but that doesn’t mean the M30d should be overlooked. It comes with a lot of equipment and offers reasonable value for money. However, its kerb weight of 1,845kg means it is not competitive for company car drivers compared to rivals as CO2 emissions and fuel consumption are high.
LEASING PRICE £593.74 PURCHASE PRICE £43,235 DRIVER APPEAL ✪✪✪✪✪ FUEL ECONOMY 51.4MPG MAINTENANCE COSTS £3,894 RUNNING COST £37,908
40 ❚ Autumn 2013 ❚ www.mydrivingbusiness.co.uk
* Source: www.comparecontract hire.com * * Source: www.fleetnews.co.uk * * * Source: KeeResources
To read reviews of these models visit: w w w.mydrivingbusiness.co.uk
Why is this important? Every company has different requirements from its cars and vans, whether the priority is lowest costs, best reliability, or driver appeal. Best in class helps you to choose the vehicles most appropriate for your needs. Best performers in each category Any box that is shaded green means that this car or vans has the best value or top rating in that category. Key reasons to buy We have also highlighted key reasons to buy each model and the type of business need each model is best suited to fulfil. Want to know more? Full driver impressions about each car and van is available on the mydrivingbusiness.co.uk website. You can also calculate your running costs.
Jaguar XF 3.0d S Luxury auto
n TERMS EXPL AINED Leasing price* The best price at 3yr/60k miles – with maintenance
Fuel economy The lowest mpg car will also have the lowest CO2
Purchase price The P11D price on which driver’s BIK and employer’s NIC is based
Repair costs Includes servicing and maintenance based on 3yr/ 60k miles ownership
Driver appeal** A car rating based on how good it is to drive and be seen in
Running costs*** Repair and fuel costs and residual value over 3yr/60k miles
Lexus GS 450h Luxury
Mercedes-Benz E350 Bluetec AMG Sport auto
LEASING PRICE £795.18 PURCHASE PRICE £44,810 DRIVER APPEAL ✪✪✪ FUEL ECONOMY 46.3MPG MAINTENANCE COSTS £3,366 RUNNING COST £41,862
LEASING PRICE £587.24 PURCHASE PRICE £40,675 DRIVER APPEAL ✪✪✪✪ FUEL ECONOMY 47.1MPG MAINTENANCE COSTS £3,630 RUNNING COST £40,675
KEY REASON TO BUY: Classy image
KEY REASON TO BUY: Refinement
KEY REASON TO BUY: Smooth and efficient engine
BEST FOR: Entertaining to drive
BEST FOR: Alternative to diesel rivals
BEST FOR: Comfort
DRIVING BUSINESS SAYS
DRIVING BUSINESS SAYS
DRIVING BUSINESS SAYS
It’s five years now since the XF was introduced and made Jaguar a serious contender for company car users. Although not as spacious as an A6, 5 Series or E-Class, the XF excels in combining refinement with a sporting drive. The 3.0-litre V6 is smoother and quieter than the 2.2-litre offering, but CO2 emissions of 159g/km aren’t as low as some rivals.
Lexus rejects conventional diesel-powered company cars, instead offering a 3.5-litre petrol unit, combined with an electric motor. This results in a very smooth, quiet drive without the diesel clatter that can creep into the cabin of its rivals. It’s expensive to lease compared to its rivals though, and running costs are high. If it’s within budget, it should definitely be considered.
The E-Class saloon was recently given a radical mid-life facelift aimed at fighting off its dated image compared to its key rival, the BMW 5 Series. Although it looks good and has the prestige of the Mercedes badge, the figures aren’t as impressive as its rivals from BMW and Audi. The 252bhp engine is smooth and, as you’d expect from a Mercedes, the E350 is packed with gadgets.
LEASING PRICE £663.49 PURCHASE PRICE £41,630 DRIVER APPEAL ✪✪✪✪ FUEL ECONOMY 47.1MPG MAINTENANCE COSTS £3,666 RUNNING COST £39,294
www.mydrivingbusiness.co.uk ❚ Autumn 2013 ❚ 41
BEST IN CLASS Helping you choose the best commercial vehicles for your business n LONG WHEELBA SE SMALL VAN
Volkswagen Caddy Maxi 1.6 TDI Trendline
Citroën Berlingo L2 e-HDi LX Airdream
Fiat Doblo Cargo LWB Maxi 1.6 Multijet SX
LEASING PRICE £200.64 PURCHASE PRICE £14,385 LOAD VOLUME 3.7CU M FUEL ECONOMY 56.5MPG MAINTENANCE COSTS £1,716 RUNNING COST £19,032
LEASING PRICE £223.07 PURCHASE PRICE £15,715 LOAD VOLUME 4.2CU M FUEL ECONOMY 54.3MPG MAINTENANCE COSTS £1,920 RUNNING COST £21,420
KEY REASON TO BUY: Quality
KEY REASON TO BUY: Price
KEY REASON TO BUY: Former International Van of the Year
BEST FOR: Looks good and feels sturdy
BEST FOR: Running on a budget
BEST FOR: One-tonne payload
DRIVING BUSINESS SAYS
DRIVING BUSINESS SAYS
DRIVING BUSINESS SAYS
Although not the cheapest van here, the Caddy is a quality vehicle. Inside it feels well-made, like a Volkswagen car. It’ll also hold its value well compared to cheaper rivals, meaning the initial extra outlay makes sense if buying outright. The TDI engine is gutsy on the flat – although hills can require the gearbox to be worked hard. VW’s chain of van centres can save time and money when it comes to maintenance.
The Berlingo offers great value for money – combining 3.7 cubic metres of loadspace with satellite navigation as standard and a host of fuel-saving technology to keep fuel consumption down. The 1.6-litre engine is mated to a six-speed automated manual gearbox which means there’s no clutch, but gears can be changed using paddles on the steering wheel. The leasing price is the cheapest here, meaning it’s ideal for van operators on a budget.
When launched in 2010, the second-generation Fiat Doblo surprised by being a massive improvement over the previous model. It’s a quality van that wouldn’t have disappointed if it came from one of the German manufacturers. Only the Vauxhall Combo here matches its 1,000kg payload, and the figures match up to make it a sensible proposition. With stop-start as standard, the Doblo is economical and the engine is willing.
LEASING PRICE £280.23 PURCHASE PRICE £15,810 LOAD VOLUME 4.2CU M FUEL ECONOMY 48.7MPG MAINTENANCE COSTS £1,260 RUNNING COST £19,932
42 ❚ Autumn 2013 ❚ www.mydrivingbusiness.co.uk
* Source: www.comparecontract hire.com * * Source: www.fleetnews.co.uk * * * Source: KeeResources
To read reviews of these models visit: w w w.mydrivingbusiness.co.uk
Why is this important? Every company has different requirements from its vehicles, whether the priority is lowest costs, reliability, or driver appeal. Best in class helps you to choose the vehicles most appropriate for your needs. Best performers in each category Any box that is shaded green means that this car or vans has the best value or top rating in that category.
n TERMS EXPL AINED Leasing price* The best price at 3yr/60k miles – with maintenance
Key reasons to buy We have highlighted key reasons to buy each model and the type of business need each model is best suited to fulfil.
Purchase price The P11D price on which driver’s BIK (if applicable) and employer’s NIC is based
Want to know more? Full driver impressions about each car and van is available on the mydrivingbusiness.co.uk website. You can also calculate your running costs.
Load volume** Capacity of the cargo compartment
Mercedes-Benz Citan Long 109 CDI BlueEfficiency
Fuel economy Lowest mpg also means the lowest CO2 Repair costs Includes servicing and maintenance based on 3yr/ 60k miles ownership Running costs*** Repair costs, fuel costs and residual value over 3yr/60k miles
Renault Kangoo Maxi dCi 90 eco2 Sport
Vauxhall Combo L2 1.3 CDTi Ecoflex H1
LEASING PRICE £240.03 PURCHASE PRICE £15,600 LOAD VOLUME 3CU M FUEL ECONOMY 65.7MPG MAINTENANCE COSTS £1,710 RUNNING COST £19,182
LEASING PRICE £239.76 PURCHASE PRICE £14,990 LOAD VOLUME 4.2CU M FUEL ECONOMY 57.6MPG MAINTENANCE COSTS £1,920 RUNNING COST £20,184
KEY REASON TO BUY: Image
KEY REASON TO BUY: Solid van
KEY REASON TO BUY: Value for money
BEST FOR: Prestige badge combined with excellent fuel economy
BEST FOR: Fuel economy
BEST FOR: Large loadspace for relatively low cost
DRIVING BUSINESS SAYS
DRIVING BUSINESS SAYS
DRIVING BUSINESS SAYS
Introduced earlier this year, the Citan is Mercedes-Benz’s first offering in the small van market. Surprisingly, it is based on a Renault Kangoo, but most people wouldn’t be able to tell. The Citan returns impressive fuel economy of 60.1mpg and, based on the success of the larger Vito and Sprinter vans, it would seem people are willing to pay extra for the three-pointed star – even if it is a Renault underneath.
A few years ago a fuel consumption figure of 65.7mpg would have been remarkable from a car, and unheard of from a van. But with the cost of fuel on the increase, van operators are keen to use the most efficient vehicle possible. Not only does the Kangoo sip fuel, it also feels very rugged and like it could take the abuse vans encounter on a daily basis. Although there’s plenty of room inside, it can be a little noisy and the engine feels underpowered.
Launched last year, the latest Vauxhall Combo is essentially a rebadged Fiat Doblo Cargo. It was a tough replacement for Vauxhall, after the success of the previous model with both business and private customers. The new Combo is easy to drive but the long wheelbase L2 model doesn’t scrimp on loadspace. The CO2 figure of 136g/km is respectable for a commercial vehicle and 57.6mpg is impressive.
LEASING PRICE £257.91 PURCHASE PRICE £14,405 LOAD VOLUME 3.1CU M FUEL ECONOMY 60.1MPG MAINTENANCE COSTS £1,686 RUNNING COST £19,056
www.mydrivingbusiness.co.uk ❚ Autumn 2013 ❚ 43
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