Always a thorny subject for the fleet industry, the issue of damage recharges has become ever more contentious since the economic crisis and, in particular, the collapse of the used car markets.

Hit by heavy financial losses on their vehicle fleets, some leasing and rental firms have started to take a less lenient view of any damage on returned vehicles and sharpen up practices of passing on any charges accordingly.

It’s something that Manheim Continental Europe has evidence of – the remarketing specialist has highlighted that the cost of damage identified when end-of-contract fleet vehicles are inspected increased significantly in 2010, by an average of 12% (€40), compared with 2009.

Manheim adds that average lease-end charges are now running at €328 per vehicle compared with €288 in 2009 and over the same period the percentage of vehicles returned with no damage at the end of life fell from 22% to 18%.

And international fleet consultancy Fleet Vision has also noted the trend of increased damage recharges. Hans Damen, managing partner global, comments: ‘We can confirm that end-of-contract charges disputes have seen a steep increase over the last three years. This is clearly related to lower residual values and the risk that leasing companies have taken on this cost component.’

Of course, being aware of the increased likelihood of end-of-contract charges and actually actively managing them are two quite different things. So how can fleets mitigate or even actually avoid such charges?

Certainly one well-discussed area is to pass on damage charges onto drivers – but this approach needs to be carved out in stone in the fleet policy and drivers’ terms and conditions. And damage penalty schemes, like incentive programmes, can be fraught with problems including drivers being careless with the truth, leading to unreported accidents and the possibility of increased costs. The boxout overleaf provides some advice on how to treat such schemes.

According to Manheim Continental Europe, the success of reclaiming end-of-life charges depends on a robust inspection, reporting and recovery process that, over time, could result in drivers taking greater care of their vehicles to avoid incurring these charge.

Managing director David Mercer explains: ‘Considerable money can be saved by implementing a robust inspection process to ensure a vehicle is thoroughly appraised upon return. Any damage incurred should be properly costed, the costs agreed by the driver at the point of return and invoiced in a timely manner.

‘The increased focus on the recovery of end-of-life charges may encourage drivers to take greater care in future. Research by Manheim shows that most lease and finance houses are now inspecting and charging for damage at end-of-life and that damage recovery is now seen as a mainstream collection activity. A typical fleet of 20,000 vehicles could incur charges of €5.2 million per year, of which at least 70% would be expected to be reclaimed.’

A fair approach to wear and tear

Of course, any inspection process needs to be underpinned by clear definitions of what is acceptable damage and what is very clearly not acceptable. As such, it is important to establish clear guidelines on the “fair wear and tear” of company cars, as FleetVision’s Hans Damen explains.

‘There are various standards available in the market place that can be applied, even if the standards are not commonly used in each market place. The principle of a “fair wear and tear guide” is not only a way to manage excessive end-of-contract charges by your leasing provider. The same documents should become an integral part of your (inter)national car policy and or “driver code of conduct”. Because not in all cases the claims made by your leasing provider are unjustified.’

So a fair wear and tear guide is not only essential in holding your drivers to account but also your leasing supplier if they are not making reasonable claims.

Mr Damen also says that operators’ employer responsibility in managing the company car fleet exceeds the payment of the monthly invoice.

He comments: ‘We therefore recommend our customers to hold their drivers accountable for the proper use of a company car and putting the following measures in place:

• Implement a fair wear and tear guide between you and your preferred fleet leasing provider and include a price-list for typical repairs. This should also be part of your next RFP – RFQ process.
• Hire an independent third-party provider to record the end-of-contract status of your vehicles.
• Link your company policy to the agreed fair wear and tear guide
• Distribute this fair wear and tear guide to all company car drivers (email – intranet – hardcopy)
• Monitor your fleet more closely during a 3-4-year lease by executing annual vehicle checks through an independent company. This annual check can include interior and exterior vehicle check, maintenance schedule, accurate mileage logging, tire condition and pressure. This effort could even render an interesting return on investment.
• Perform a pre-contract termination check to evaluate smart repair costs over end of contract charges. (Do we spend €50 to polish a scratch instead of €150 on the charge by the lease company?)
• Increase driver accountability by mobilising line management in case of deviations or clear vehicle abuse. This is important and should help shape a clearer picture of your corporate culture around do’s and don’ts. Charging drivers for “at fault” damages is still complicated in some countries because of legal restrictions, but not an excuse to fully waive the topic.’

LeasePlan agrees that it’s vital to have a fair wear and tear policy that is clearly established with the leasing company and also with fleet drivers.

Consultant Nathalie De Vries says: ‘For many years, LeasePlan has applied the so called fair wear and tear policy. In this policy it is clearly documented what is normal wear given the age of the car at the end of the lease term. Damages have received growing attention from fleet managers in recent years as the realisation of the costs involved and potentially the cost-saving possibilities have grown. All direct and indirect costs easily add up to some €700 per incident/accident; driver downtime, rental car costs, insurance excess, impact on bonus/malus schemes etc. Moreover, it links into driver care and driver safety and the overall corporate social responsibility of a company.

‘End-of-contract damages can also cause a significant cost to the company. Once the lease term of the car is terminated, so is the insurance and non-reported damages can no longer be claimed. Therefore, if drivers do not report the damage to their car during the period of the lease contract, the cost of repair (or the cost of the devaluation of the car) will be charged to the lessee.

‘To manage the cost of damage (handling) down you need the involvement of the drivers. There are different ways to create driver participation:

Awareness:

Make drivers conscious of the implications of their driving style/attitude. For example, report on a regular basis their number of damages, downtime, costs involved and perhaps also their fuel consumption and traffic fines. Drivers will only start acting differently if they are aware.
Other than in a letter or a report, this information could be shared and discussed during an appraisal of the driver.

Attitude: 

In a car policy it should be clearly stated what is expected from the driver with respect to treatment of the car, the procedure that should be followed in case of an accident, the speed and accuracy of completing damage reports etc. Having a comprehensive and transparent policy will result in well-maintained cars and fewer end-of-contract charges.

Driver training:

Drivers who structurally have high damage statistics and/or fuel consumption can benefit from a driving training course. Though training involves an upfront cost, there is a serious cost benefit as the accident ratio and fuel consumption will improve significantly. A reduction of one accident per driver per year means that your company avoids the costs of €700, which is typically more than the costs of driver training.’

Put it like this and it seems that there is a clear case for using driver training for those employees causing a high amount of damage – and that it can play a vital role in reducing the number and level of charges by targeting behaviour over the longer term.

Arval also has evidence of this and says that through driver training, road safety and eco driving, it can reduce the number, the intensity of damages and the refurbishment cost linked with vehicle damages.

As an example in France, the leasing and fleet management firm says it can bring about a significant decrease in damages of up to -30% compared to other customers with the same activity within three years of implementing driver training.

But there are also other preventative measures that can be used alongside driver training to help reduce the risks of drivers having an accident. And Alphabet has some interesting suggestions.

Bernward Spreng, head of fleet insurance of Alphabet, says: ‘The company itself must see to it that employees’ calendars leave enough time to travel without needing to rush and with appropriate rest periods. Technology, too, can come to the rescue in various ways. Telematic systems are being developed to aid drivers and fleet managers carry out daily operations. Real-time tracking, for instance, allows for better control of the driver’s performance and the car’s movements.

‘Reports on vehicle performance might also reveal potential problems and areas requiring intervention. Another prophylactic measure is purchasing cars that have special features designed to reduce accidents, like brake assistance, park distance control, night view, dynamic stability control and so on.’

According to ALD International SA, it is also essential that fleets work with their leasing partner to help deal with the issue of end-of-contract damage assessment charging and billing. And the firm makes the very valid point that all three parties involved – the driver, the lessor, and the lessee – all have the common goal of wanting to keep end-of-contract damages to a minimum.

And that’s why an integrated approach that allows for a lessor, lessee, and driver to work together towards the same result will give the best chance for reducing end-of-contract damages, according to Miel Horsten, products and services director.

He says: ‘An approach that involves the cooperation of all three parties starts at the time the vehicle is ordered. A driver who is satisfied with the vehicle he is driving is more likely to take care of it better; as if it were his own. Therefore, vehicle selection is the logical starting point to the process.

‘An important step for the lessor, lessee, and driver is the development of a car policy. This policy clearly defines what a company expects its drivers to use their vehicles for and outlines all the responsibilities involved. Those responsibilities include both practical and financial considerations. They entail a holistic approach in which policies for end of contract damages and damage insurance (highly recommended for deductible policies) are coordinated. This helps avoid costs that can be transferred from one area to another; rather than being reduced.

‘The third step in the process is the assessment of the vehicle. This is a very important step that requires exceptional documentation. In most cases, an assessment happens at the end of the contract. However, within this period of high staff rotation it is very important to make sure that the vehicle is re-assessed each and every time it is transferred from one driver to another. We are very fortunate to be living in an era of instant communication to make this process be simplified, not tedious. With instant digital imaging and communication it is easy to ensure speediness and clarity to this process.’

Even with all of this, it is unlikely that fleets will ever completely eliminate disagreements over vehicle damage. But with the help of a robust assessment process to discover any damage and a clear wear and tear policy to establish whether or not it’s acceptable you can at least keep any disputes to a minimum.

Best practice tips for implementing a driver incentive programme

Although a driver incentive scheme can help play a role in reducing vehicle damage,  any driver incentive scheme needs to be well thought out, and vigorously managed as part of a much wider work-related road safety programme.

So say the fleet risk management experts at Interactive Driving Systems who add that essential ingredients for a successful bonus or incentive programme include the following 10 points:

1. Management vigour and commitment.

2. Mangers should consult and communicate with target population and make the incentive group or team-based to enhance peer pressure.

3. Built into contracts of employment and annual appraisals.

4. Encourage crash rather than claim avoidance, ideally based on total fleet costs – including wear and tear, maintenance, fuel and all vehicle damage – rather than just claims.

5. Simple, continuous, fair, short-term and attainable rewards, be positive and inclusive – for example based on an organisation wide driver of year competition.

6. Discouragement of under reporting with thorough vehicle checking, wear and tear, crash reporting and investigation policies and KPIs – supported by an excellent management information system.

7. Inclusion of multiple levels including the drivers, work schedulers and managers.

8. Supported by clear “corrective action” and “communications” programmes.

9. Thorough cost benefit trade-off analysis is required, based on total fleet costs – rather than just safety costs.

10. Supplements, rather than replaces, a proactive approach – including safety audits, risk assessments and appropriate training.

Source: Interactive Driving Systems