Beware hidden fleet costs

Businesses have been urged to look beyond short-term costs when selecting a fleet provider and remember low cost does not always mean value for money.

Venson Automotive Solutions has warned that selecting a fleet provider based on upfront costs alone can be a false economy. It suggests considering the costs across the lifetime of the contract to understand true value.

Danielle Tilley, Venson’s business development director, said:  “Fleet buyers may encounter ‘free FM’ (fleet management) but not understand that maintenance and repair invoices will be marked up, or they may see a low FM fee without realising they’ll receive an administration fee for each maintenance event. Pricing should always be clear and transparent, such as a monthly FM fee with maintenance costs passed on at net cost recharge concise, and show scalability so that you can see implications to changes in fleet policy.”

Venson recommends procurement and fleet decision makers employ a balanced score card approach. This means assessing and weighing up each aspect of the contract and scoring it individually, then going on to produce a final score to compare with other providers. The criteria to be judged should include capability, risk, service levels, financial stability, corporate social responsibility, value for money and price. Calculating the cost of all inefficiencies and extra charges will help procurement teams understand the potential impact on fleet operations as well as the actual costs and benefits of each offering.

Tilley said: “Vehicle leasing is the most common form of fleet funding for cars and vans, but we find that the up-front cost is all-too-often the main focus of the procurement process when it comes to making the final decision. Price is of course an important factor but so is customer service and minimising vehicle downtime when things go wrong.”

Venson believes that when scoring a tender response, price should account for 25-40 per cent of the scorecard in terms of capability. Anyone who scores more than 50 per cent for price is missing a trick and making price too important. The biggest issue for many organisations is confusing value for money with price.

Tilley said: “There are a multitude of elements to consider in fleet procurement, and it is not something the procurement department or fleet manager should tackle in silo. Fleet requirements can affect a number of departments in an organisation, so it is important to get input from others as part of the decision-making process. The final decision must be based on business requirements and operational objectives as well as on the budget available.”