Fleet management is an all encompassing function which includes aspects such as
insurance, maintenance, management reporting, fuel management, accident management and leasing. In a fiercely competitive market there are so many variables out there for a company to choose from that gaining independent advice in designing a cost effective fleet can make a tangible difference to a company’s bottom line.

Rather than assigning this function to an accounts person or a general manager who does not have the specialised knowledge, says Charles Willmer, MD of LeasePlan, companies tend to outsource to fleet management specialists. As with all other outsource agreements, the underlying business principle here is that it is more cost effective to spend the time at your disposal on your core business, rather than on attempting functions for which you are ill-equipped.

It is important, says Willmer, to understand that "leasing refers to the means by which the use of a car is funded, while fleet management entails the administration of the events surrounding operating the vehicles that make up a fleet."

"Fleet management only is a viable option for those companies that wish to retain ownership of their vehicles," says Nicholson.

Willmer highlights the benefits of leasing. Compared with purchasing (which either involves a significant upfront outlay, or overpayment in the case of HP) leasing is an "opportunity cost" – that is, it gives a company the opportunity to utilize the money it would have spent on purchasing a vehicle more profitably elsewhere within the company. In addition, leasing removes the element of risk associated with fluctuating interest rates and market costs, as well as a possible loss when disposing of the vehicle.

Nicholson points to the accounting advantages of leasing which include off-balance sheet funding (as the assets are not owned by the company but by the lease company).

As a direct profit and loss expense, lease rentals are fully tax deductible. With the cost of ownership passed to the lessor, budgeting for the fleet becomes both accurate and comprehensive. Cost savings on maintenance and service are achievable as lease companies have the necessary scales of economy to negotiate reduced rates with their suppliers.

Lease options include both fully maintained operating leases (including all maintenance, registration etc.) and non-maintained leases where the lessor leases the vehicle but the lessee takes ownership of maintenance and other costs.

According to Nicholson, non-maintained operating leases with an outsourced fleet management package often provide the best value because the all-inclusive monthly cost of a fully maintained operating lease option is less transparent when it comes to aspects such as vehicle purchase price, margin on interest rates, maintenance costs and resale values compared to residual value.

‘nEXt’ leases involving pre-leased vehicles, consecutive leases and commercial asset leasing are also available from his company.

These start off with a basic fleet management services package including maintenance management, fuel management, management reporting and registration management. Insurance and accident management can be added to this basic service, as can vehicle acquisition and/or disposal. It might even be possible to throw driver training into the package.

"Outsourcing your fleet management does not mean you simply hand over and take no further interest in this aspect of your business," says Nicholson. Today’s software means instant access to vital information about your fleet – so although the work is done externally, you can still keep a close eye on how your vehicle assets are being managed.

Most major oil companies make a fuel card available offering reduced costs in return for loyalty. This is a fundamental aspect of any fleet management system as it allows the collection of valuable fleet management data including mileage, amount of fuel used, and how often the vehicle is being refuelled. The company controls what products a particular employee is able to buy with their fuel card: ranging from fuel and oil only, to anything.

"Within the mix of leasing companies, vehicle manufacturers, oil companies and the agreements they enter into amongst themselves, FleetSmart occupies a unique position in that it is a truly independent operator," says spokesperson Emma Sturgess. As such, it is in a favourable position to constantly benchmark suppliers and challenge existing fleet management models. As a sort of self-appointed fleet management watchdog, FleetSmart operates in the public interest.

In addition to CardLink, FleetSmart also offers Dual Card, which is unique in that it offers favourable rates at both Shell and Caltex garages. FleetSmart’s fleet management solutions also utilize data extracts from all other major fuel cards, which means clients can go on using their card of choice and still get one single monthly invoice in which all expenses to do with the fleet are consolidated.

At a time when environmental issues (in particular vehicle emissions) are of primary concern around the globe, fleet lease companies, too, are going green. FleetSmart, for instance, has an accreditation programme called ‘Ecofleet’ which checks vehicles against international standards to assess factors such as lower-than-average fuel consumption, a positive greenhouse gas rating, and a positive air pollution rating.

Using such measures, FleetSmart has been able to demonstrate that their Toyota Prius hybrid is an extremely ecologically friendly vehicle, compared with others on the road.

With his highly innovative Green Plan, LeasePlan’s Willmer is a ‘green pioneer’ in New Zealand’s motor vehicle industry. The vehicle industry, he says, "is one of the most resource hungry industries worldwide. It consumes half the world’s oil, half the world’s rubber and 15 percent of the world’s steel." It should therefore assume responsibility for the environment on which it is having such a dramatic effect.

Willmer has come up with an innovative and effective solution to this problem that has grabbed the attention of forward-thinking fleet managers around the world. Green Plan has already been adopted by all 26 other countries in which LeasePlan has a presence.

Essentially it boils down to packaging up the data that LeasePlan already has at its disposal, such as carbon output and fuel consumption, in such a way that it is possible to quantify the impact of a vehicle on the environment. The idea then is for fleet owners to cancel out the impact their vehicles have had on the environment, during the course of their useful lives, by planting trees. With Green Plan it is possible to calculate exactly how many trees are required to do so. LeasePlan customers such as Cerebos Greggs, Fuji Xerox, Lumley Insurance and Public Trust who subscribe to the Plan, pay for the trees required and the funds are channelled by Willmer to various environmentally friendly organizations who are only too happy to undertake the actual planting of a tree donated to the cause.

The use of a car is the most valuable non-cash form of remuneration an employer can give an employee. As in the case of the cash remuneration, the employer is liable for the tax on this form of remuneration. Budget Day this year saw the introduction of changes to FBT which will take effect from 1 April 2006 (unless an employer pays FBT on an income year base, in which case the new rules take effect from the income year beginning on or after 1 April 2006).

Glenn Tasker, national business manager of Orix New Zealand explains:

"In future the treatment of leased vehicles for tax purposes will be aligned with that of owned vehicles – that is the fringe benefit from a leased vehicle will be based on its cost or tax book value, not its market value as is currently the case. Using the book value makes sense as it is clearly unfair to continue to assess the value of the fringe benefit based on the original cost price of a vehicle which is, by now, three to four years old."

Based on the cost price, the FBT liability will, in future, be a percentage which is to come down from the 24 percent (currently applicable to owned vehicles) to 20 percent across the board, "in recognition of lower real motoring costs since the 1980s," says Tasker.

As an alternative, employers will be able to use the motor vehicle’s depreciation value (tax book value) to value the benefit for FBT purposes. "However," says Tasker, "as this rate (36 percent) is higher than that under the cost option and it has been specified that the value cannot fall below the minimum of $8.333, an employer would need to lease a motor vehicle for four years before they’ll be paying less FBT than if they had used the cost price method – which acts as somewhat of a disincentive."

The changes will also do away with the ‘flip-flop’ lease in terms of which a shareholder-employee leases their vehicle to their employer during working hours and suspends the lease when private use occurs outside working hours – thus avoiding paying FBT on the private use of the vehicle.

A change has also been made to overcome the problem of an employee who takes a vehicle home at night in order to take it to another work site the following morning. Currently, the vehicle is regarded as being available for two days rather than one. In future the employer will be able to choose the 24 hour period in which the FBT day starts, via an election to the Commissioner.

The Bill does not signal any transitional arrangements for those leases that are part-way through their term when the legislation comes into force. The impact of this will mainly be felt by those in the final year of a consecutive (1+1+1) lease.

The rationale for not providing any transitional period is that the reduction of the FBT rate to 20 percent will help to reduce the amount of extra FBT to be paid, and that there has been advance warning of these changes, says Tasker.

As market value can no longer be used for FBT purposes, that particular benefit of a renewable lease falls away, explains Nicholson. But as the main benefit of this option is to lease for subsequent periods at a predetermined rate, CustomFleet for one, will continue to offer the consecutive lease product, he says.

"Since the legislative changes will
affect the figures, speak to your accountant and fleet lease operator for further clarification."