Why TCO is essential for fleets

November 01, 2016

A detailed understanding of total cost of ownership (TCO) can have a dramatic impact on fleet choice lists by proving that cars with the lowest price may not be the cheapest, fleets have been warned.

List price is just one of a number of elements that need to be considered when assessing new models for company use, ranging from depreciation and fuel costs to insurance and taxation.

Companies attending Fleet Management Live in the UK last week were told that total cost of ownership is critical in obtaining the best value for fleets.

Jo Hammonds, fleet manager at Mears Group, told Fleet News: ‘[Total cost of ownership] can sway the way you look at a vehicle. The best value is derived from all things considered. The cheapest vehicle is not always the best.’

His comments were echoed at the event by Matthew Walters, head of consultancy at LeasePlan, who said that TCO should be a key focus for fleet operators.

Autovista Intelligence analysis shows the impact that TCO calculations can have when comparing cars. An Audi A3 1.6TDI SE with a net price of €19,952 was compared to a Ford Focus 1.5 TDCi Zetec costing €18,268. They were reviewed over a three years/ 90,000km replacement cycle in the UK.

Although the Ford is cheaper to buy, a combination of higher depreciation, insurance, tyre costs and taxes make it more expensive over the replacement cycle, with a TCO including fuel costs and financing of €30,606 compared to the Audi’s €28,816.

Fleet operators will need to rely on a range of sources to accurately predict TCO because one of the most important figures they use has been widely discredited.

Official fuel consumption figures based on EU test results can overstate a vehicle’s fuel economy because tests are carried out in laboratory conditions that are not representative of real-world use.

The EU is working towards introducing new tests, but until then companies will have to rely on alternative sources of data to create an accurate picture of TCO.

The large potential difference was revealed earlier this year during real-world fuel consumption tests carried out by PSA Group on 30 of its core models.

The results show a fuel consumption increase across the 30 models of more than 30% on average compared to current EU combined fuel economy figures.

Over a typical three years/90,000km cycle, using the new figures for TCO calculations would increase fuel use by 1,500-2,000 litres compared to official EU figures, increasing average fuel spend by more than €1,000, depending on the model and national fuel prices.

Fleets may have to visit several different sites to provide an accurate view of a car’s performance.

Official EU test figures will remain critical in many countries for calculating tax bands and company car tax, but to understand on-road running costs and actual emissions, companies may have to turn to independent tests.






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