Regardless of size, fleets are known to be a major expense for any business. While monitoring the total cost of ownership has proven to be an effective measure to maintain profits, inflationary pressures alongside market changes such as shortages in vehicle supply have thrown a curveball at fleet management. Upon evaluating both the short-term purchase price and the long-term costs of operation; fleet managers are now opting for flexible alternatives, such as car subscription, as a solution to the current landscape of the automotive and financing space.
The impact of car subscription on the total cost of ownership
Business profit margins are largely dependent on both the costs and utilisation of vehicle assets. Such costs are broken down into two categories:
- Fixed costs - taxes, licenses, loan payments, insurance and registration, vehicle depreciation
- Variable costs - fuel, maintenance, part replacements and toll fees
Businesses sourcing vehicles under traditional financing methods become responsible for all the above costs as well as the potential residual value that is carried with the vehicle. This is further impacted by hidden costs associated with fleet management such as unexpected vehicle repairs, increases in insurance premiums and fuel prices; and the underutilisation of dormant vehicles due to reduction in business activity.
Contrastingly, car subscription programs will cover servicing, maintenance, insurance and registration as part of a standard all-inclusive offering. Rather than having to monitor if a vehicle is fit for business purposes and bearing the costs for excessive wear and tear, businesses who subscribe to their fleet are able to conveniently swap the vehicles. In the context of efficient and cost effective fleet management, this translates to reductions in vehicle downtime by avoiding unplanned services which ultimately ensures that businesses have the right fleet for their needs.
In addition to this, car subscription programs help businesses to further reduce expenses by avoiding interest as well as termination or exit fees when returning a vehicle early. Provided that the majority of subscription agreements are less than 12 months, businesses are also able to keep their monthly payments off their balance sheet leading to a reduction in the amount of debt reported. When factoring this flexibility in balance sheet accounting and reporting and the ability to scale fleet size without any penalty fees, fleet managers are able to benefit from the ease of significantly alleviating capital expenditure and reallocating these resources in other areas of the business.
Providing flexibility to changing business needs
Inflationary pressures and rising interest rates are causing business needs to change quickly in an attempt to reduce costs, evident with the recent staff reductions across several industries. Combining this with the current new vehicle supply delays and inflated used car prices have called for new agile fleet solutions. Car subscription provides businesses and fleet managers with greater responsiveness by allowing them to:
- Scale up or down their fleet size to meet changing business demands and peak/off-peak seasons
- Allocate the appropriate vehicle and agreement duration for particular employee needs and contracts
- Upgrade their vehicle fleet quickly to improve fit for purpose checks and reduce vehicle downtime
- Swap for more fuel efficient vehicles upon recognising fuel consumption patterns
- Upgrade or downgrade subscription plan to accommodate for changing mileage use
In addition to the above benefits, many car subscription arrangements offer a fully digital experience meaning that any changes made are done so with reduced administrative effort and minimal paperwork.
Paving the way for future EV adoption
Delayed wait times on new vehicles has lead to car subscription becoming a popular means for motorists to trial the electric vehicle experience without any long-term commitment. More OEM car manufacturers have announced their plans to launch new battery electric vehicle models as part of their commitment to EV targets, indicating that the turning point for EV adoption is imminent and prompting businesses to begin planning for a seamless fleet transition. Subscribing to a fleet of electric vehicles will provide businesses the flexibility to tangibly experience the value of electric vehicles which in turn can help them further explore and pivot their respective emission reduction strategies.
Loopit believes that a new wave of EV demand will rise as more OEM manufacturers begin to roll out their new models to market. This will open opportunities for businesses to introduce employee benefits such as implementing salary sacrifice arrangements as a way for employees to gain easy access to a fully insured and maintained company electric vehicle. As government investment and tax incentives emerge to accelerate the mass transition towards EVs, businesses must set themselves up for early success by trialling EVs and understanding how to optimise use for their respective business needs. Doing so will mean that businesses can further reduce total costs of ownership, whereby variable costs such as fuel become negligible due to EV charging at work becoming a potential reality.
Interested in learning more about how car subscription can increase the lifecycle opportunity for your fleet? Watch the latest live webinar on demand from Loopit.co: www.loopit.co/live-webinars