Wed | 28.09.2022
What to look at and what to look for to keep your Total Cost of Ownership under control
The real cost of driving a car, or Total Cost of Ownership (TCO), is impacted by many factors such as the net catalogue price of the car, the preventive maintenance and mechanical repairs cost, the labour cost, the taxes, the insurance prices, the funding rates and the used car market prices, the Total Cost of Ownership price has steadily increased in the past years, in line with the inflation rates.
Raw material and semiconductors shortages, the war in Ukraine that followed the COVID- 19 pandemic are now making costs even more challenging to predict or anticipate. Furthermore the environmental concerns regarding air quality and global warming are creating new constraints that have forced the car manufacturers to reconsider their business model.
Under the given context the main concern for the fleet managers nowadays is to keep costs under control and find solutions for savings.
We identified four key areas on which fleet managers could focus to keep their TCO under control.
Pay special attention to the mix of cars in your Fleet
Fuel represents between 15% to 30% of the TCO, therefore, optimizing fuel consumption should be among the main concerns of Fleet Managers. But although electric vehicles are among the most appealing from the consumption point of view, the poor infrastructure leaves no room for fleet managers to go big. A more convenient solution that could be considered are keep plug-in or mild hybrids, especially for urban area usage which may bring a -20% to -30% decrease in fuel costs.
Telematics is a great tool when it comes to understanding driving behaviours and provides fleet managers with useful insights, that can highlight key areas to be improved. And nowadays the range of GPS solutions go from applications monitoring the routes in minutes details to minimum invasive, GDPR friendly solutions that only point out the deviations. Implementing telematics solutions such as SafeDrivePod ®, for example, could be the start of a positive internal competition in terms of who reached a lower consumption level or got a better safe drive ranking.
Plus, another initiative fleet managers might consider to maximize driver education is a Defensive Driving Course.
Choosing the right financing solution
There is no secret for anyone that the prices of cars, and not only, have reached a record high and the increase of inflation and instalments is not going to be tamed soon. The disruptions in the logistic chain made the stocks to operate at record low levels and pushed the price of new cars higher. Therefore the classical financing solutions such as Financial Lease or outright cash purchase are no longer appealing solutions for companies.
Operational Leasing finances the difference between the purchase price and the resale price after the operational leasing period. Under the current context the resale prices after the operational leasing period have also increased, therefore the impact of price increase on the depreciation remains minimal through operational leasing.
Choosing the right way to manage your Car Fleet
The way a company decides to manage their fleet has also an impact in the TCO. Operational leasing has the advantage of clear contracts, discounts based on the volumes negotiated, but also control through experience and expertise. But this is not a one-size-fit-all solution. Therefore, fleet managers need to make sure the contract terms are first in line with the use of their fleet and that they regularly assess the opportunities to save money (evaluate the situation of under-mileage vehicles, car sharing solutions and alternative mobility services to decrease fleet and mobility costs).Although it is premature to assess the impact of the crisis generated by the war in Ukraine, in the leasing market, the increase in inflation has impacted most of the cost categories reflected in the total cost of ownership: insurance, maintenance, tires, replacement car, taxes, administration costs. Once again operational leasing has the advantage of fixed costs over long periods of time, working as a form of protection against inflation and proving that outsourcing can work if done right.
This article was provided by our Mobility Partner, Business Lease Romania.