ACFO: DRIVER EDUCATION KEY TO ENDING FLEET DISPUTES OVER END-OF-CONTRACT VEHICLE DAMAGE CHARGES
- ACFO calls for greater leasing company consistency over charges
- Damage charges are “completely avoidable” in many cases
- Top tips for fleet managers to avoid end-of-contract damage charges
- Vehicle preparation is key to strong sale values being achieved
- Three directors elected to ACFO board at 2015 AGM
Meanwhile, there has been a call to action for ACFO, the leading UK representative body for fleet decision-makers, to work with the British Vehicle Rental and Leasing Association (BVRLA) to achieve greater consistency in the application of damage charges when company cars and vans are defleeted.
End-of-contract charges, particularly those related to vehicle damage – end-of-contract excess mileage charges are also levied – were highlighted as the “cause of the biggest degree of conflict” between fleets and leasing companies at an ACFO seminar entitled ‘The End is Nigh’.
For many years the BVRLA has published a regularly updated ‘The Industry Fair Wear and Tear Standard’, which has been adopted by most of its leasing company members as the definitive guide to an acceptable condition for vehicles to be returned on defleet.
However, ACFO deputy chairman Caroline Sandall called for a greater consistency from leasing companies in the application of charges. She suggested that in many cases, vehicle drivers did not recognise’ damage’, particularly in relation to stone chips and alloy wheel scuffs, even though they resulted in a charge being levied.
Some leasing companies use a matrix to assess vehicle damage charges and others use actual charges, although repairs may not be carried out prior to a vehicle being sold.
Ms Sandall said: “Fleets want to see a greater consistency in the application of charges. We want to work with the industry and industry bodies to improve the situation. Damage costs on defleet must be tackled. Fleets want to understand how costs are calculated and ensure they are transparent and fair.”
Her call to action followed a plea from Ian Hughes, commercial director at contract hire specialist Zenith, for ACFO to work with the BVRLA on behalf of fleets to create “a modern solution” embracing mobile phone apps and other technologies to ensure drivers better understood fair wear and tear guidance and provide fleets “with a more workable solution”.
Not surprisingly, Jim McNally, chairman of the BVRLA’s Residual Value and Remarketing Committee, and head of asset risk at leasing provider Alphabet, and Mr Hughes denied end-of-contract damage charges provided a “profit centre” for suppliers.
Mr McNally said: “If we are perceived to be ripping fleets off relationships will last one contract and that is bad news. We don’t want that to happen. End-of-contract charges are not a profit centre.”
He highlighted that sometimes fleet operators were not aware or understood the cost to repair vehicle damage or that the cost to replace a lost car key could amount to “several hundred pounds” and added: “As an industry we need to make drivers more aware of what is included within fair wear and tear and what isn’t.”
Consequently, Mr Hughes said: “Driver communication is key. We have a common interest in what is a deeply emotive topic. During the fleet life of a vehicle there are a number of opportunities to assess it and get feedback, but there are too many times where that is compressed into the last four months of a contract.
“It is essential that drivers meet leasing company representatives at the time of vehicle collection for face-to-face discussions on vehicle condition assessment. Too often the keys are simply left at reception for collection.”
That, he suggested, was ultimately a recipe for conflict when fair wear and tear damage reports were subsequently sent to fleet managers outlining charges.
Arguing that leasing companies wanted to be “fair and balanced” when levying damage charges, Mr Hughes said: “Leasing companies are in the middle between the guide and the driver. There needs to be pro-activity in management of vehicles and that means mid-life notification of damage, pre-return inspections.
“Fleet managers and ourselves should perhaps carry out random condition checks in company car parks; employee workshops could be held to explain policy and procedures and an annual appraisal of vehicle condition should be part of an employee’s annual review.
“Currently there is very little evidence of pro-activity on an on-going basis about vehicle damage and there needs to be an increased emphasis particularly on the lead up to the end of contract.”
Graham Short, chairman of ACFO’s East Anglia Region and fleet engineer at Anglian Home Improvements, which operates a 1,400-strong fleet comprising 800 light commercial vehicles and 600 cars, said: “We need to make drivers aware of damage costs and tell them to keep cars in good condition and what happens if they don’t.”
Nora Leggett, the BVRLA’s head of member services, said the organisation could not dictate profit levels to leasing company members or that they should introduce a “uniform matrix or policy on recharges”, but added: “We can bring to the marketplace something for members that will work to suit their stakeholders and client base.”
Damage charges are “completely avoidable” in many cases
The majority of company cars (71%) returned to vehicle leasing provider Zenith are subject to end-of-contract damage charges, but in 45% of instances the costs are “completely avoidable”, according to Mr Hughes.
Driver education and engagement was critical to charges being avoided, he said, highlighting that of 5,000 cars returned last year, 3,550 were the subject of damage charges. Yet, on almost 1,700 of those vehicles the charges related to missing car keys and documents. In cases where end-of-contract damage charges were levied they totalled £250 or more on 1,953 cars (55%)
The average wear and tear damage charge applied by Zenith across all returned cars was £245 last year, which is slightly below the average recorded across Britain’s 50 largest contract hire and leasing companies in last year’s ‘FN50’ report from trade publication Fleet News.
Describing end-of-contract damage charges as “an irritation”, Mr Hughes called for pro-activity in vehicle management explaining that fleet procurement practices was driving down monthly lease rates.
“There is no provision for me to waive costs. However, I have seen much evidence of charges not being passed on to drivers and no accountability for damage to the car and that is not great,” he said.
Top tips for fleet managers to avoid end-of-contract damage charges
Advice to help fleet decision-makers curb end-of-contract damage charges has been issued by ACFO with further best practice guidance from Mr Short.
ACFO’s hints and tips to fleet chiefs include:
- Make sure there is a clear understanding of the contract with lease providers: what constitutes fair wear and tear, what will be charged and the matrix that will be used for charges; the collection and inspection process; the recharge process including timings and supporting documentation such as handover sheet to be signed by drivers, photographs of damage, and cost breakdown of damage.
- Ensure company car policy and associated communications details the rules and procedures for drivers, what they will be charged and how that will be collected from them.
- Remind drivers weeks or months prior to collection of the expected return condition of the car; the process to report any incidents to enable repairs to take place prior to return; the process for handover at the point of collection; the consequences of unacceptable condition and how any excess wear and tear will be handled.
- Have a clear process in place for managing complaints.
Mr Short, a poacher turned gamekeeper having previously worked as a vehicle remarketing manager for a contract hire company, agreed that end-of-contract damage charges was “one of the most contentious aspects of vehicle leasing”.
But, he admitted: “As fleets we are asking leasing companies to take a risk so it is fair that they make a profit, but there are steps fleet managers can take to limit their end-of-contract damage charge exposure.”
However, he said it was critical for fleet managers to explain the uses to which leased vehicles would be put during their fleet life so providers could “adjust contracts and any end of contract charges during a vehicle’s operating life”.
Anglian Home Improvements leases its company cars but outright purchases its vans to avoid the potentially huge end-of-contract charges on the latter given their usage.
Both Mr Short and Mr Hughes advocate a profit share related to the sale price of a vehicle returned in good condition as a mechanism for encouraging drivers to take pride in their company car.
Mr Short continued: “Drivers need to be told to keep cars in good condition and what will happen if they don’t.”
A seminar delegate vote suggested that around 75% of fleets recharged vehicle damage to drivers with Mr Short saying: “Drivers should be encouraged to look after company vehicles as if they were their own.”
He also advocated:
- Pre-return checks with drivers one month before vehicles were due to be returned
- The use of reputable SMART repairers to undertake work prior to defleet
- Checks to ensure vehicle service books, wheel nut socket sets, spare keys, parcel shelf, load cover and head restraints were all returned with a vehicle
- If vehicle recharges were high then obtain a purchase price for a vehicle and sell it yourself
- Fleet managers being present at the time of collection.
Among a host of “common concerns” expressed by fleet managers in relation to end-of-contract damage charges among the biggest were what was acceptable; there was less tolerance from leasing companies if a vehicle contract was not going to be renewed; a charge for repairs not carried out ahead of vehicle sale; vehicles supplied with livery but then charged for its removal; and the inability to claim for charges on insurance.
BVRLA figures reveal that complaints relating to end-of-contract damage charges increased significantly last year, but Ms Leggett suggested that was due to huge rises in the number of cars leased via personal contract purchase schemes rather than from vehicle fleets where decision-makers understood the procedure.
She added: “We recommend that members are proactive in reminding customers about the recharge process and recommend all visible damage is recorded and signed for. We also recommend that no comment is made about the condition of a vehicle at collection time ahead of communication from the lessor.”
Vehicle preparation is key to strong sale values being achieved
Vehicle condition is critical to defleeted company cars and vans fetching top money when sold, but industry data suggests that an increasing number of poor quality models are reaching the market place.
Rupert Pontin, head of valuations at vehicle information provider Glass’s Guide, provided a string of data revealing that the first time sale of vehicles entered at auction was on the slide alongside vehicle condition gradings.
In urging vehicle vendors to do everything in their power to ensure a vehicle stood out at sale time to fetch strong money, Mr Pontin said: “Defleet volumes are increasing and will continue to increase.
“Condition grades have dropped significantly so it is important that with the increase in vehicle numbers reaching auction halls that vehicle condition stabilises and improves because that is the only way that leasing companies will meet their residual value forecasts. Vehicle preparation levels must improve to gain the best return.”
Three directors elected to ACFO board at 2015 AGM
ACFO members at the 2015 AGM have re-elected to the board of directors John Pryor, fleet and travel manager at Arcadia Group and the chairman of ACFO for the past year, who was first elected in 2006; and Caroline Sandall, fleet manager at Barclays Bank, ACFO deputy chairman for the past two years and a board member for three years.
Additionally, Denise Lane, head of group fleet at Capita, has been elected for the first time having been co-opted on to the ACFO board late last year in succession to Julie Jenner, who resigned following a work promotion.
ACFO has a six-strong board which is completed by Phil Redman, fleet manager, IBM UK; Debbie Floyd, group fleet and risk manager at Bauer Media; and Richard Baird, head of new business development at Marshall Leasing.
ACFO Ltd is a non-profit making organisation. It is the largest UK body representing the interests of businesses which operate cars and vans as part of their normal commercial activities
Members are represented within ACFO by a named delegate, often but not exclusively, the fleet or transport manager of the member organisation. There is, however, a very wide range of job titles involved, reflecting the different styles of fleet operation. ACFO provides both a national representation platform, and regional networking opportunities, to support its key objective of improving the discipline and craft of fleet management, and its status.