It may seem a daunting task at first but using total cost of ownership (TCO) modelling as the basis for methodology for the fleet has proven benefits.

Incorporating data such as purchase/rental price, Service/Maintenance/Repair (SMR) figures, insurance, fuel costs and taxes, as well as more hidden costs including vehicle downtime into a final TCO figure provides companies with an effective prediction of the expected cost of individual vehicles over their fleet life. This can then be used as the benchmark data for specific projects such as cost-saving programmes or environmental initiatives.

But due to the sheer nature of some of the data on which TCO is based, it is likely that there will be wide variations in TCO on a local level. This can be due to differing RVs of particular models, due to their increased or decreased popularity in a particular region and varied service costs, although probably two of the biggest variables will be the different taxation regimes and big fluctuations in fuel prices. And these variations have to be taken into account when putting together a pan-European fleet policy.

Data from Arval shows just how wide these variations can be. Head of consulting Denis Ferault comments: ‘For example, local government may consider – or not –CO2 emissions in its car taxation schemes to leverage the country’s environmental policies. This CO2 based tax may represent from 60% of total taxes in France to less than 1% in Poland. Not only CO2 based taxes but also VAT, registration and road taxes may represent 17% of the total vehicle TCO in Czech Republic or 39% in Spain!’

He adds: ‘We know that the driver, or more precisely the driver behaviour, accounts for 35% to 45% of the fleet TCO. Costs, including fuel and accidents, may be significantly reduced by eco driving and safety training. But once again, country differences come into play as driving style includes not only individual preferences but also cultural behaviour, which directly impacts the fuel consumption.

‘A recent study conducted by Arval for a major global customer showed that the average individual distance covered was limited in either the smallest or the largest countries, (about 10,000 km a year) and much higher in average sized countries (35,000 to 45,000km a year), with a direct link to the total fuel cost. Last but not least, the local fuel price differences themselves will seriously distort the global fleet TCO picture!’

A recent survey carried out by Fleet Logistics also highlights the variations in TCO across different regions. The research was carried out across five EU countries and found significant disparities from country to country, due to different tax regimes, differing views of residual values and different front-end rebates from manufacturers.

Other factors that influenced costs of ownership by country were:

• Fleet composition
• Leasing company profile (single vs. multi-supply)
• Driver recharges/contributions
• Effects from exchange rates.

The study looked at five major European markets: Belgium, France, Germany, the Netherlands and the UK. Taking the average across the five markets at 100%, the cheapest TCO the study identified was in the UK at 85% of the average.

However, an element of this was due to a fall in the exchange rate between the pound and the euro, which had made the UK‘s costs of ownership comparatively cheaper than the other countries surveyed.

However, when the effect of exchange rate fluctuations was removed, France had the lowest costs of ownership of the five countries at 95% of the average.

The most expensive country was the Netherlands, largely because of the registration tax that was imposed on the initial front-end price of the vehicle, followed by Belgium (116%) and Germany (110%). 

One of the major influencing factors on TCO was the national tax regime and the differing types of carbon tax that countries levied.

For example, both Germany and the UK have a tax regime based on carbon emissions. Additionally, German taxes are also dependent on the engine capacity. Several countries have a tax scheme that takes effect on acquisition of the vehicles, including Belgium and France which are based on carbon emissions, and the Netherlands which is based on price and carbon emissions combined.

VAT also plays a part in affecting TCO by country, with a variety of different VAT regimes. These range from Netherlands which has a VAT rate of 19%, and 100% recoverability of VAT on leasing rentals, as does Germany which has the same rate and again 100% recoverability, to France which does not allow any VAT recoverability for passenger cars.

In the UK where VAT has recently increased to 20%, there is 50% recoverability on the finance element and 100% on the maintenance element of the rental while Belgium has 21% VAT, of which 50% is refundable on leasing rentals.

Residual values, too, have an important part to play, but vary significantly across Europe. The Fleet Logistics study, which also included a case study of an unnamed client fleet, found an 8% residual value variance in the five countries studied.

For example, in the client case study, France and the Netherlands had average residual values of 45%, the UK 42%, France 39% and Germany just 37%.

‘It can be seen from these examples that, in implementing a pan European fleet policy, there are many local factors that have to be taken into consideration,’ said Tobias Kern, strategic consulting manager at Fleet Logistics, adding that this often requires expert help and advice.

He continues: ‘Knowing what these factors are and which have the biggest influence on fleet TCO is very important in arriving at the optimum policy for your company both on the European and national level. 

‘We benchmark the best market practices in the local market and apply them across the whole fleet on a European basis to achieve the optimum results for our clients,’ he adds.

LeasePlan International has conducted its own research of TCO variations in different regions, which also highlights that the costs of all the service components required in the operation of a car will differ from country to country as may the content details. 

Consultant Nathalie De Vries says: ‘If you were to buy the same car with the same specifications in two different countries, you will pay two different prices. This has to do with taxation but also with the popularity of the car in that market and the marketing strategy of car manufacturers. 

‘Typically, the Netherlands and Portugal are “expensive” countries from a purchase point of view but as the resale values on the second hand car market are higher too, the relative share of depreciation and interest costs in a lease are comparable to other European countries. 

‘Generally, the breakdown of cost components is rather comparable across European countries.’

Ms de Vries says that the challenge for the international fleet manager is in setting vehicle budgets because a €800 budget in Spain allows for a different car selection than a €800 budget in Germany.

She adds: ‘A budget should therefore reflect the local market conditions and price levels (difference in purchase price, maintenance costs, fuel costs etc.). A lease provider such as LeasePlan is able to help you set the appropriate budget for each job segment in each country.

‘Dependent on the job grade, a basket of representative vehicles can be quoted which can be used as the norm amount. Using this methodology results in a realistic country specific budget as well as a set of representative cars per job grade that are in line with the overall (international) fleet strategy.

‘By using this approach you will also tackle another country difference namely the car specs; a senior manager in Switzerland would expect another car than a senior manager in the Czech Republic because of culture and economic climate.’

She concludes: ‘In summary: international fleet management is about acknowledging the local difference but applying the same approach and methodologies. The policy and processes can be harmonised from an international level but local content and specifications should be added to make it practical and applicable in each country.’

Arval has its own advice, saying that the best strategy to get meaningful and comparable TCO figures would be to run a multi-country Consulting Mission defining the common elements of a fleet policy supported by country-specific car policies with TCO / CO2 optimised car selection lists. 

Mr Ferault adds: ‘The next step would then be to understand the impact of driver behaviour and to move toward best practices through continuous improvement programmes (such as Arval’s telematics Measure & Management programme). This process could be validated with a multi-country view of the actual consolidated fleet and its performance variances over time, as obtained with a strategic decision-making tool such as Arval Analytics.’

ARE THE BENEFITS WORTHWHILE?

It’s clear that many variables have to be examined when building up a picture of different TCO across different regions, and to add to the challenges key data can change regionally or locally, making comparisons fairly complex.

But the benefits do make it worthwhile, since TCO permits a company to understand the pivotal factors that influence costs, according to Alphabet.

The firm’s Dr Nancy Storp, head of international sales and marketing, and Mario Hermans, international sales manager, comment: ‘When it comes to cars, some TCO variables are relatively straightforward, such as interest or fees. A company's major partner here will be the fleet management provider, particularly one with international presence, experience and know-how to understand the subtleties of different markets and provide regular reports on changes and opportunities. Nowadays, too, service and maintenance contracts that include expenditures for spare parts or items like tyres that are subject to wear and tear, are mostly integrated into the leasing contract. This means consolidated management of accounts and, therefore, greater transparency, cost stability and control.

‘One of the more difficult variables to compare, however, is fuel costs, as these vary not only from one region to the next, but also depend on specific features in, and usage of vehicles. While the actual price of fuel at the pump may be unpredictable due to political or economic factors, the lower fuel consumption in a more expensive car – a hybrid, or “green” version for example – might easily compensate for the higher fuel mileage throughout the lifecycle of a cheaper one.

‘In addition, another important item regarding TCO is to identify the so-called “hidden costs”. These costs include for example refurbishment costs at the end of the contract, additional labour costs of the fleet manager or driver or additional costs because of breakdown. To unhide these costs, the cooperation with a professional and experienced fleet partner is necessary. These costs will be identified during implementation by using clever TCO Tools and process planners.

‘Road, state and local taxes are another variable that may well intersect with fuel costs at certain levels. They, too, can vary depending on a vehicle's specifications. While CO2 emissions standards are generally accepted as a relevant basis for assessment, there are substantial differences from one country to the next, and from one continent to the next. Some countries tax higher-polluting cars more, or offer bonuses for cars with lower CO2 emissions to support what is known as green fleets.’

It’s clear that there is a lot to embrace with adopting a TCO approach in understanding the large differences between markets. But finding the right partner with a robust global reporting tool is the key to overcoming this hurdle.

Alphabet’s Dr Nancy Storp and Mr Hermans conclude: ‘The point is not to focus merely on the fleet. A leasing partner with an innovative approach and knowledge-based sense of where markets are going will develop comprehensive mobility solutions that are genuinely sustainable and will anticipate regulatory changes. To make TCO not only an elaborate accounting tool, but a genuine and effective component of a cost-controlling strategy, smart solutions like car sharing concepts will complete the package offered by the fleet provider.’