Are high fuel prices hurting your drivers?

Are high fuel prices hurting your drivers?

Posted by

Robert Wentworth-James

May 2022

We are in extraordinary times. We are in the days of a litre of diesel costing over 1.81p a litre. Astonishing.

To fuel a BMW 5 Series 520d M Sport, for example, costs £119.46. How about a Ford Focus? Well, with that you will deplete your wallet to the tune of £85.

Never before have fleet drivers faced such card-melting driving costs. No wonder there has been disquiet among drivers of ICE (Internal Combustion Engine) cars. Using the most recent (March to May) HMRC Advisory Fuel Rates (AFRs) to avoid free fuel tax, drivers have been left desperately out of pocket.

Let’s consider that BMW 5 Series. The AFR was calculated at a fuel cost of 86.8p a litre providing an advisory fuel rate of 13p per mile. So for a 250 mile business trip the reimbursement was £32.50. The real cost to the driver, however, is different: £35.39. And that’s assuming the driver managed to achieve the BMW’s official average of 57.6mpg during that business trip.

For a fleet driver at the wheel of a Ford Focus there’s a lower advisory fuel rate of 11p per mile (the AFRs are banded on engine capacity). For that same 250 mile business trip the AFR reimbursement was £27.50. However, the real cost to the driver – again assuming they managed to hit the official 67.3mpg average – is £30.40.

In both cases, the drivers are out of pocket and effectively subsidising their businesses. And don’t forget, the disparity is likely to be greater since it assumes both drivers were hitting their respective car’s average mpg.

Beyond the business miles, of course, there are the private miles driven, placing further strain on personal finances.

It’s true that the latest AFR rates introduced from 01 June will help matters. For the BMW these will rise to 16p per mile and for the Ford to 13 pence per mile. But pump prices remain highly volatile and are likely to rise again.

But there’s a simple way to change the dynamic of such fleets: transition drivers from diesel to electric.

At a stroke issues about skyrocketing fuel prices meeting mismatched AFRs are a driver/fleet manager tension of the past.

That’s not all, though.

The reduction in company car taxation by moving to EVs is a significant win for drivers, and a welcome reduction of National Insurance for the business providing the vehicles.

With such a switch there will be some inevitable mindset changes and fleet choice restructuring, but that can be overcome with effective communications and EV champions. With current restrictions on vehicle availability, choice lists might need to be more flexible, as well.

The other major consideration is the cost of electric vehicles. We can help in several areas here. The first is that we use a competitive tendering process to access the best price for the vehicle on the day. Different funding providers take differing views on how much risk they wish to take on EVs.

We understand this. So any quotation for a new electric car is sent to a panel of funders for tender, where we see the rental difference can be as much as £100 per month between different providers. The best value on the day wins the contract.

Nevertheless, there is no escaping that electric cars are currently more expensive than diesel or petrol equivalents. But while their headline prices are more onerous than equivalent ICE vehicles, if we look at their overall running costs – often referred to as whole life costs or presented as a total cost of ownership – then a different picture emerges.

Electric cars are cheaper to run than ICE vehicles.

That fact is thanks to less maintenance (no oil, spark plugs and so on), lower taxation, absence of fuel costs, and in our experience of fleets to date, fewer vehicle off road incidents because electric cars tend to be driven in a different, less aggressive manner. (This is, no doubt, partly due to their operational silence, which has a calming, stress-reducing effect.)

However, turning to whole life costs to evaluate fleet choice entails a change to driver fleet bandings; a move from monthly rental costs to whole life cost grades. This is not difficult but takes some organisation and planning which we have the experience to help you with.

Moving to Whole Life Cost analysis

Let me give you two examples based on our two featured cars: the BMW 520d M Sport and the Ford Focus ST diesel.

If we look at the whole life cost of the BMW 520d first (referred to as ‘Actual monthly cost’), this is what we see:

BMW 520d MHT M Sport 4dr Step Auto Saloon

  • P11D value: £44,410
  • Monthly car rental average: £707
  • Actual monthly cost: £984
  • Driver average monthly BIK @ 40%: £444

Next we should compare the 520d with the all-new electric BMW i4.

BMW i4 250kW eDrive40 M Sport 83.9kWh 5dr

  • P11D value: £53,350
  • Monthly car rental average: £723
  • Actual monthly cost: £803
  • Driver average monthly BIK @ 40%: £36

 

While the BMW i4 is substantially more expensive on P11D, its actual running cost per month is over £180 a month less than the 520d, while the driver saves a whopping £400 plus a month in tax. I’ll just repeat that: a £400 plus a month saving on BIK tax.

The calculation for the Ford Focus provides a similar example.

Although there is no alternative Ford model to compare with at the moment, we have chosen the Kia e-NIRO as a fleet car alternative. Here are the costings:

Ford Focus 1.5 EcoBlue ST-Line 5dr Hatchback

  • P11D value: £25,210
  • Monthly car rental average: £371
  • Actual monthly cost: £573
  • Driver average monthly BIK @ 20%: £112

Now we will compare that with the electric Nero.

Kia e-NIRO 100kW 2 39kWh 5dr Auto

  • P11D value: £32,840
  • Monthly car rental average: £473
  • Actual monthly cost: £547
  • Driver average monthly BIK @ 20%: £11

As before, the electric car is more expensive on P11D value, and its monthly rental is over £100 above that of the Ford. But, as with our BMW example, the actual monthly price the business pays for the vehicle each month is less. And then there’s that £100 BIK tax saving for the driver to take into account as well.

I do understand that looking at fleet costs in this way requires some reorientation, a reset of traditional fleet thinking. But it’s the only way to fully understand the advantages of taking away driver fuel pain and benefiting all round – driver and business – from switching to electric.

Certainly choice lists will look different; undoubtedly drivers might find themselves in vehicles previously beyond their grade; but the overall effect is to lower fleet costs, take away the pain of escalating fuel costs and deliver a substantial cost of living upgrade to drivers thanks to the vastly reduced benefit in kind payable.

We must also remember that the savings are not only fiscal: switching to a zero emission fleet has substantial benefits for local air quality too.

Salary sacrifice can also deliver savings for grey fleet drivers

The good news about electric cars is that it’s not only company car drivers that can benefit from the electric switch. Grey fleet drivers – those using their own vehicles for business purposes – will also be feeling the high price of diesel and petrol.

The opportunity to offer those drivers electric cars through a salary sacrifice scheme – and benefit from tax breaks – should not be overlooked.

Let’s take the example of the Audi A1 versus the Mercedes-Benz EQA – comparable in size but with a vast disparity in P11D: £24,915 plays £48,955.

However, with our salary sacrifice scheme in place, the Mercedes will be cheaper to run per month than the costs the grey fleet driver is paying on a Personal Contract Hire (PCH) agreement for the Audi.

Here are the numbers (which include maintenance and insurance) for a driver of the Audi on a PCH rental.

Audi 25 TFSI Black Edition 5dr Hatchback

  • P11D value: £24,915
  • Monthly PCH cost: £592

Now we’ll compare it with the electric Mercedes on our salary sacrifice scheme.

Mercedes-Benz EQA 250 140kW AMG Line 66.5kWh 5dr Auto Hatchback

  • P11D value: £48,955
  • Monthly gross sacrifice: £816
  • Monthly net sacrifice (including BIK): £563

 

It might seem slightly odd that a car costing double the value comes out cheaper per month, but that’s the advantage of switching to electric and making the most of the tax breaks available under salary sacrifice agreements.

And you’ll save the driver of the Audi from the world of pain of unleaded at 171.04p per litre and over £68 to fill up at the pumps.

Once again it is worth noting that salary sacrifice propositions are traditionally offered to corporate enterprises as a sole supply leasing solution: one funder offering a salary sacrifice solution to business employees. This means you get only one perspective on what the lease rental should be. That’s not the case with the Fleet Alliance salary sacrifice product.

In the same way that our leasing proposition is put out to a panel of leasing providers, so is our salary sacrifice scheme, which benefits both drivers and employers with lower costs.

With the 2030 ICE ban rapidly coming into focus, now’s the chance to pivot your fleet to electric, save on costs, reduce the carbon impact of your fleet, and offer substantial savings to your drivers.

Not least at the fuel pumps.

 

All whole life costs are calculated using the Fleet Alliance tax calculators. Figures correct at 29.05.22 


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