Economic forecasters are predicting 2009 will be even tougher than 2008. So the pressure is on for businesses to eliminate unnecessary costs. Lombard’s Rob Bailey offers advice. Economic forecasters are predicting 2009 will be tougher than 2008.
For many enterprises, business cars account for a high proportion of spend. Yet many SMEs (Small- and Medium-sized Enterprises) do not have the in-house expertise to ensure that these business cars are being run cost-effectively.
So here are my suggestions for key ways to reduce spend on business cars.
1, Lease your vehicles
If you do not lease your vehicles, reconsider your funding strategy. Leasing comes into its own during difficult economic circumstances.
It frees up capital at a time when the cost of funds is increasing. And removes heavily depreciating assets from the balance sheet.
Additionally, there’s the benefit of outsourcing much of the basic admin that goes with managing the cars.
2, Extend your existing contracts
If you already lease and the end of your contract term is approaching, consider extending the contract.
3, Go large
When it comes to funding providers, size does matter. A large leasing company will have the economies of scale to buy vehicles more economically – and pass the savings on to you.
4, Understand forthcoming legislation
April’s tax changes represent the biggest upheaval in this business for a generation.
Under the new regime, cars producing more than 160g/km of CO2 will be subject to a writing-down allowance of only 10%; those producing 160g/km or less will qualify for a 20% allowance.
Leased cars in the higher category will have 15% of the relevant payments disallowed. While those in the lower category will have no disallowance. This will make a massive difference. For example, a company could claim over L8500 on a sub-161g/km CO2 car – such as a 1.6-litre diesel-engined Focus – with a new value of L20,000 and 70% depreciation after three years.
However, if the car produced 161g/km CO2 or more only just over L4800 could be claimed. The relationship between CO2 emissions and Vehicle Excise Duty levels is also being strengthened from April. There are differences of up to L250 per year on cars in the two categories.
5, Go green
Whatever your attitude to the environment, a green vehicle policy will save you money. In simple terms, the lower the CO2 emissions, the lower the whole-life cost.
Going green doesn’t mean you need to short-change your drivers, either: premium makes like Audi, BMW, Mercedes and VW have all introduced low-CO2 model variants. Such cars also reduce the financial liability for employers, as they have to pay Class 1A National Insurance contributions on the value of employees’ benefits.
6, Get more business cars
Strange thing to say, I know, but there’s some sound reasoning here.
If you offer drivers a cash-for-car option you are probably paying considerably more than providing them with vehicles through a well-structured company car policy.
