FLEET MANAGEMENT : CARROT or STICK? – Sweetener or bitter pill?

It’s matter of record now that the Labour-led government wants us all to be carbon-neutral in our economy and our way of life. To underline that it means business, as the Department of Internal Affairs’ VIP car fleet is replaced, vehicles that are more fuel efficient and have lower emissions will be acquired.
The Government estimates that this will lead to 550 fewer tonnes of carbon dioxide being emitted, 400,000 fewer litres of fuel being used, and $500,000 being saved over three years.
Charles Willmer, managing director of LeasePlan New Zealand, welcomes the government move. “They’re showing certain degree of leadership.”
What does this mean, though, for large companies with anything up to 400 vehicles under fleet management?
Willmer: “You could be cynical and say they’re leading now, [but] the next thing is going to be legislating for everybody else.”
He hopes the Government will use its sustainability campaign as an opportunity to incentivise, rather than penalise, business. For some companies, there is no doubt that moving to more carbon-friendly technologies for vehicles is economically, at the moment, “the wrong decision”.
An average hybrid car now costs $35,000 to $40,000 whereas an equivalent, but more conventional, car would be about $25,000.
“There is going to be no measurable increase in second-hand value, not at this stage, and certainly you’re not going to get that sort of cost differential back in fuel savings, over the typical life of company car,” says Willmer.
He believes some form of relaxation in vehicle-related taxes would be one way of getting business onside, possibly through tax breaks in FBT, vehicle registration or fuel.
Otherwise, he believes the private sector won’t keep pace with the public in changing vehicle procurement programmes.
“Some companies have the token two or three hybrid-type vehicles in their fleet. number of larger organisations, where vehicle status isn’t really an issue, are looking at more economic, lower-emission vehicles.”
The new Euro IV diesel vehicles the Government is moving to will use an average of 30 percent less fuel than similar petrol vehicle and will emit significantly less greenhouse gas, says Energy Minister David Parker.
“We’ve also committed ourselves to reviewing this standard annually so we can keep pace with new sustainable vehicle technologies as they’re introduced to the market,” says Parker.
Since as far back as 2004, fleet management companies like Custom Fleet NZ have been aware of an incremental shift in environmental awareness and of the need to keep pace with that mindset.
Managing director Geoff Tipene says that awareness has lifted again in 2007 with the increasing profile carbon trading has gained.
Custom Fleet is busy doing comparisons based on manufacturer specifications for clients who want to know the relative efficiencies between petrol-based vehicles and diesel or hybrid-based vehicles.
Tipene says five years ago lot of local corporates’ vehicle procurement policies focused heavily on occupational health and safety. That has changed as greater environmental awareness has percolated through the business community.
One of Custom Fleet’s largest South Island customers is negotiating to replace with hybrids some of its petrol-based cars before the expiry of their contract. While, in normal circumstances, the client would be financially penalised for doing that, Tipene says his company is working with them to minimise any penalty. “We’re trying to support that kind of activity.”
Demand for hybrids can’t be universally satisfied, not only because of health and safety considerations, but because of restrictions on their availability. That means in some cases companies need to retain vehicles which Tipene says fall outside the realm of environmental friendliness.
“We have limited allocation compared to North America or parts of Europe, so whatever enthusiasm company like Custom Fleet might have for hybrid vehicle and the support that it gives it, would be short-lived because of the availability or lack thereof.”
To combat this, Custom Fleet has, over the past year, improved its residual value of light passenger cars in its book value to attract cheaper rental for clients.
“So, if company is looking at cost-effective, environmentally friendly vehicle, we’ve positioned ourselves to direct them into that smaller four-cylinder market.”
That’s born of realisation that changing vehicle policy isn’t straightforward for many corporates. “People won’t just jump out of six-cylinder into four-cylinder just because it’s the right thing to do.”
Ben Unger, chief executive of Cardlink Systems, says everyone’s got an environmental policy on vehicles at the moment.
“It’s certainly hot topic. The Government in particular has been hotting it up with talk of diesel and hybrids. We tend to take slightly different approach.
“With company cars there are thousand different things that have to be built into the mix on what vehicle you should get,” says Unger. “That goes from financing to the colour. There are all these soft, touchy-feely things that people want.
“We don’t lease vehicles, we just manage other people’s vehicles. Our approach is to make sure that they are aware of the components in their decision. [We want to ensure] that they don’t make decision emotionally, that they make it based on facts.”
Each customer is different, says Unger. Because an organisation such as Auckland City Council cares about environmental factors, it wants to know the environmental footprint of the vehicle.
“They also want to know, for example, that their parking meter people are safe, and so OSH is huge requirement. They want to make sure they have fuel efficiency – which doesn’t always go hand in hand with environmental friendliness,” says Unger.
Certain companies and organisations are keen to be seen as ‘green’ for public profile reasons.
Other companies aren’t worried about environmental factors because of the type of the business they are in, and because they want their vehicles to be ‘rugged’.
Unger: “We take the approach that we’ll tell them of the environmental impact, but ultimately, it’s not going to be the decisive factor. It’s got to fit the purpose.
“We’ve deliberately avoided the approach of paying lip service and saying we’ll run your vehicle cleaner and that sort of stuff.”
For companies needing large vehicles, the current trend is move towards fuel-efficient diesels, says Unger.
For smaller, personal vehicles, everyone’s talking about hybrids. Unger says the jury is still out.
They haven’t, he says, been around long enough for the market to be able to accurately assess ongoing maintenance and disposable costs.
“Normally, when you do the numbers there are non-hybrid vehicles that are about the same cost,” says Unger.
Despite announcing that the fast-rising South Korean brand will begin selling hybrid vehicles in the next year or two, Hyundai in New Zealand cautions not to read too much into the trend.
“While there’s lots of noise about hybrids right now, the marketplace experience is that people simply don’t buy these vehicles in any real numbers,” says Hyundai Automotive NZ managing director Philip Eustace.
He points out that for the year to February, 1198 diesel passenger vehicles have been sold and only 120 hybrids.
“The reality is that hybrids work only if government supports them with tax incentives.
“That’s because manufacturing of hybrid vehicles adds significant cost which must be passed on to the customer but which can be minimised with some kind of tax break,” says Eustace.
Eustace says there are tax incentives in Japan and the US, as an environmental gesture, but even then it’s not enough to bring the selling cost back to par with conventional vehicles.
Hybrids are not huge sellers in those markets either.
Eustace noted that in New Zealand there’s no sign of any such incentive or tax break. “Indeed the current government is noted for its av