When it comes to choosing the right way to run your company car fleet solution, you have multiple options, however, in this blog we’ll comparing fleet ownership vs having an Employee Car Ownership Scheme (ECOS) fleet.
Every business is unique and has different needs, so it’s important that your fleet solutions meet your business objectives, as well as being suitable for your employee population too.
We’ll help you understand the pros and cons, associated costs, flexibility and scalability for both options, so you can make an informed decision for your business.
If you’re a UK-based business considering making a change to your fleet solution, get in touch to see how we can help.
Owning your company fleet
Pros
Owning a company fleet can offer several advantages, particularly in terms of asset ownership and control over vehicles. Here are some key benefits.
Asset ownership
With fleet ownership, you don’t have the burden of a debt or a monthly outgoing to pay for your vehicles and you save you on interest charges, which you’d incur without an outright purchase. Any vehicle you own can also be sold or traded in, providing a return on investment that isn’t an option with an ECOS fleet.
Control over vehicles
Owning your fleet allows you to customise vehicles to meet specific business needs, this could include the types of vehicles as well as bespoke branding, if required. You have full control over the fleet maintenance schedule and quality of repairs, which can extend the lifespan of your vehicles and ensure they’re always in the best condition for your drivers. With ownership, you can make decisions about vehicle usage without restrictions imposed by ECOS agreements. This includes the ability to quickly adapt to changing business needs.
Cons
While owning a company fleet has its advantages, there are also some potential drawbacks to consider:
Higher upfront cost
Purchasing vehicles requires a significant upfront funding, which can impact cash flow and reduce funding that you might need elsewhere in the business. If you finance the purchase, you’ll pay interest, which can then add to the total cost of ownership.
To read more about costs, read our blog: Are Increasing Costs Causing You to Postpone a Fleet Upgrade?
Depreciation
Vehicle depreciation happens over time, meaning they lose value as they age and accumulate mileage. This can result in a lower residual value when you decide to sell or trade in the fleet vehicles. The resale value of fleet vehicles can be affected by market conditions too, which can be unpredictable and may result in a lower return on investment than anticipated.
Maintenance responsibilities
If you own your fleet vehicles, you’re responsible for all fleet maintenance and repair costs, and as the fleet vehicles age, they’ll require more frequent servicing. Managing fleet vehicle downtime for maintenance and repairs can be challenging, it could disrupt your business operations if you don’t handle it efficiently. All your fleet vehicles need to meet regulatory and safety standards – and again this is your responsibility if you own the fleet vehicles.
Employee Car Ownership Schemes
ECOS fleets involve transferring ownership of the vehicle to the employee when the car is delivered, rather than your business having to purchase the vehicles outright. This approach offers several benefits including:
With ECOS, you choose how much your employees contribute towards the running costs of their car, which is a fixed monthly amount. This provides reassurance and keeps your employees happy. Having ECOS vehicles means your business has access the latest models with advanced technology and safety features. This can enhance your company reputation and ensure that your employees are driving reliable, up-to-date vehicles.
To understand more about the most up-to-date vehicles, read our blog: Hybrid vs Electric Cars – Which is Right for your Fleet?
Cons
You have the freedom to choose which cars can be added to your ECOS solution, and this can be a combination of petrol, diesel, plug-in hybrid or self-charging hybrid vehicles. However, all car entitled employees might not have access to the full vehicle list, which could result in an unhappy employee population.
At the end of the ECOS term, your employees may face additional charges for excess mileage, wear and tear, or early termination. These costs can add up and should be considered when evaluating the total cost of ECOS.
If you want to learn more about how CBS can help you manage the drawbacks of your fleet solution, read our blog: The Benefits of Outsourcing your Fleet.
Cost comparison
Let’s take a look at the total cost of ownership for a company car fleet solution that your business owns vs a car fleet that operates ECOS.
Purchase price
Owning: The average purchase price of a new car according to Nimblefins can range from £19,000 for a small car to £33,000 for a larger vehicle depending on the vehicle type and specifications.
ECOS: Involves lower upfront costs, with monthly repayments instead of a large initial investment.
Depreciation
Owning: Vehicles depreciate significantly, this varies dramatically from vehicle to vehicle, but a general average is 20% in the first year and 15% annually in the following years.
ECOS: Depreciation is not a direct concern, as we as your car benefit provider would take responsibility for the resale of your ECOS vehicles.
Maintenance
Owning: Maintenance costs for fleet vehicles can vary, and can sometimes be unexpected.
ECOS: Our ECOS agreements can include maintenance packages, reducing the impact on your business and your employees.
Fuel & Mileage
Owning: The HMRC advisory fuel rates for company cars are updated quarterly and can be used to estimate fuel expenses.
ECOS: Employees in ECOS cars are eligible to receive Approved Mileage Allowance Payments (AMAP) for business miles that they travel.
Insurance
Owning: The average annual cost for commercial automotive insurance in the UK is about £511 per vehicle according to Uswitch.
ECOS: Insurance is typically provided by the employer through a fleet policy but the employee is responsible for paying for it. Insurance would either need to be made good by the employee, or recorded via P11D so that the employee is taxed.
Flexibility and scalability
If you own your fleet vehicles, you’ll have a large upfront investment, which could limit your ability to scale up your fleet quickly if required. Equally, you need to be cautious not to over invest in your fleet solution, in case you need to scale it back, as getting rid of the asset would take more time and planning due to you owning the vehicles.
Owning a fleet provides control over vehicle usage and fleet maintenance, which allows for better alignment with your business strategies and operational needs. However, it also means managing vehicle depreciation and potential obsolescence for your fleet.
With an ECOS fleet, there’s more flexibility to scale the fleet size up or down based on your current business needs at any given time, and this is without significant financial investment. An ECOS fleet could give you access to newer vehicle models more regularly, dependent on your contract length, ensuring the fleet remains modern and efficient, as well as providing a wider choice of vehicle types. ECOS also reduces the financial risk associated with vehicle depreciation and obsolescence, as these are managed by us.
Making the right choice for your business
Choosing the right company cars for your fleet solution involves evaluating various factors to ensure they align with your business needs and goals. Here’s a framework to guide your decision:
- Budget
Determine your available budget for purchasing vehicles or fleet leasing. Consider the total cost of ownership, including purchase price, financing, and ECOS options. Factor in ongoing expenses such as fuel, fleet maintenance, insurance, and taxes. Ensure these costs fit within your budget constraints. - Employee needs
Assess factors like mileage, type of driving and specific job requirements. Ensure the vehicles provide a comfortable and safe environment for employees, which can improve job satisfaction and productivity. - Long-term goals
Consider environmentally friendly options, such as electric or hybrid vehicles, to align with sustainability goals and reduce carbon footprint. Plan for future growth. Choose vehicles that can accommodate potential expansion of your fleet without significant additional costs. Evaluate the potential resale value of the vehicles to ensure a good return on investment when it’s time to upgrade.
Fleet solutions from CBS
Remember to consider your options before making a decision, as it could have an impact on your overall employee car benefits package.
If you’re looking for a fleet partner that can help you to effectively manage an Employee Car Ownership Scheme for your employee benefits, get in touch with us today.