Driver education key to ending damage recharge disputes, according to ACFO debate
Driver education is key to putting an end to the contentious issue of end-of-contract vehicle damage charges levied by leasing companies on fleet customers.
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’, held at Fleet News' Company Car in Action event.
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.
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”.
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.
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.”
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.”
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.”
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 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”, 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.
Short, who 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 Short and 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.
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 Short saying: “Drivers should be encouraged to look after company vehicles as if they were their own.”
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, 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.”