IFMI: Here's how to control fleet costs in 2023
The message is clear: in 2023, fleet cost control will get worse before it gets better. The troughs are deep but that also means the peaks are high. Many fleet managers will be tempted to make big decisions and take drastic steps this year to address rising costs but they should be mindful of the fact that they will have to live with those decisions into the future and things may change just as drastically as the other way.
These were just some of the messages and talking points raised at IFMI Europe, an online event that took place on 14th February 2023.
IFMI (International Fleet Managers’ Institute) is a private members club for fleet managers with international or multinational responsibilities. The Institute has been organising and hosting events and webinars for almost 20 years. A non-commercial, valuable learning opportunity, over 50 fleet managers from all over the world joined the event (the first IFMI of 2023) to listen to presentations from influential industry experts on the topic of How to increase cost control in 2023.
Cost control is a hot topic for fleet managers right now, not least due to an unprecedented set of issues that show no signs of abating. These include the war in Ukraine, continuing microchip shortage, and soaring costs (OPEX and CAPEX). Energy prices have shot up, alongside fuel costs, which is making the transition to electrification difficult to justify. And cost rises are affecting every business, including car manufacturers, which is demonstrated in higher vehicle list prices. This event was supported by ALD Automotive, Arval, Holman, MHC Mobility, and CUPRA.
Where’s the best place to start?
In light of the fact that many fleet managers feel lost with cost control, Andrew Wilson, European business development manager, of MHC Mobility, advises them to start at the beginning again.
“It’s about setting the baseline,” he explained. “You need to know where you are currently and where you want to get to, and this will vary country-by-country and fleet-by-fleet.”
Wilson showcased the concept of creating a fleet maturity diagnostic index to map all the elements you can control, such as car policy, decarbonisation, OEM discounts, and so on. List all of these elements and mark them 1-5 depending on where you are in terms of maturity 1 being the least mature and 5 the most.
“It could be that you are well ahead with car policy design, for example, so that would be marked 5, but perhaps you’re behind in decarbonisation because you run a commercial fleet so that would score 1.” Wilson described.
Once each of these areas has a score, it’s a case of planning the journey using strategies and tactics, such as company car policy and eligibility for a car, funding methods and how to save costs, and so on. Create a five-year plan and track and monitor it against goals and milestones along the way.
Primary fleet cost-saving strategies
Nicolas Michel, senior international consultant, Arval, introduced four cost-savings strategies:
- MaaS - moving from a car-based mobility solution to a non-car-based mobility solution can be less costly based on the mobility profile of the employee and the place where he/she works and lives.
- Energy transition - in an increasing number of countries EVs are less expensive and more TCO-attractive, but not in all.
- Car selection - new and somewhat less expensive brands and models are being introduced into European markets. Often these brands have a focus on EV. Switching brands may be a cost-saving opportunity and grant you access to new company cars more rapidly.
- Connected technology - managing your fleet can be optimised via telematics and connected vehicle tech, which has a small cost compared to the possible benefits with regard to cost-efficiency, driver safety and sustainability.
Fabio Carello, senior international consultant, EV Expert, ALD Automotive, Business intelligence, and consulting, cautioned against ignoring the macroeconomics such as inflation, which can vary from country to country by 5-10 percentage points.
“In December 2022, Spain and Greece were lower (5.5%), whereas continental Europe was at a peak of 12.3%.”
He warned that we should prepare for further rises in 2023. “The service sector is driving prices to higher levels. ECB is expected to raise interest rates again in March and they could be as high as 4% in December through 2024.” Carello warned.
What does this mean for fleet managers?
Overall fleet TCO is expected to increase by 7-14% by the end of 2023.
- BEV TCO will increase €100 a month.
- ICE TCO will increase €120 per month.
- BEV is 30-40% above ICE in terms of cost of production but OEMs are working to decrease these costs. By 2025 it should be at parity.
- BEVs are cheaper to operate in many countries. OEMs will continue to increase list prices during 2023 but high interest rates will scare off private customers. So, OEMs will need fleet customers more, which could mean rebates and incentives could be more favourable for corporate clients.
Turning data into insights
In times of uncertainty and volatility it's key to take the right decisions based on knowledge. Rory Mackinnon of Holman stressed out the importance of data management in order to understand TCO and be able to take the right decisions to save costs. "Fleet management is incredibly data intensive and the challenge is to accurately collect and analyse the data." With regard to TCO control he stated that traditional TCO models do not account for vehicle declining productivity, which could underestimate the impact of increased operating costs. His advice: consistently replacing fleet vehicles around the optimal time will reduce the cost per vehicle and give you room for a more accurate budget planning
Alberto Pasa, global sourcing director, of Xylem, a company that produces water solutions and runs 3,000 vehicles (passenger cars, sales vehicles, trucks, and service vans) in 29 countries, talked about the need for strong teamwork across departments (HR, Operation, procurement), and three pillars of the cost control strategy.
“Firstly, you have to know what you have, so number one is a database of the live fleet, all live information. Number two is Policy - especially when we have many company cars, we issued a new policy at end of 2022. Since April 2021, we have had a diesel and petrol ban in place for passenger cars. The third pillar for us was the introduction of a limited car choice list, which includes BEV and PHEVs.”
Alberto Pasa, who won the International Fleet Procurement Manager of the Year Award 2022, also said that the company has consolidated to just three leasing vendors across all countries but does not have a preferred supplier.
Daniel Schessler, implementation fleet agency model manager Europe at CUPRA, stressed that moving to electrification, even though BEVs are more expensive, is still a good idea because most OEMs are now launching a high number of BEVs at good price points.
Image: Andrew Wilson - MHC Mobility (top left), Fabio Carello - ALD Automotive (bottom left), Nicolas Michel - Arval (centre), Daniel Schessler - CUPRA (top right), Rory Mackinnon - Holman UK (bottom right).
