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GREY FLEET: Why non-fleet cars are a grey area

Date: 10 August 2010

Grey fleet numbers may have peaked, but the issue of staff using their own vehicles for work purposes can still give fleet managers a headache, reports Rachel Burgess

Grey fleet always sparks debate in the fleet industry. Some people say it's in decline, as companies wise up to its downfalls, while others say it's on the increase as (mostly misinformed) management decide the alternatives are expenses that can be cut out of their business.

Employees driving their own vehicles on business have always existed as part of a firm's fleet. Grey fleet drivers range from those who use their cars regularly for work (excluding commuting) to those who use it once a year to pop to the post office on behalf of their employers.

Due to the broad definition of what constitutes a grey fleet, there is no definitive figure on how many grey fleet vehicles exist in the UK, although four million is a loose number bandied around by business car experts.

Fleet expert Colin Tourick says the figures are fairly static now: "There was an increase some years ago - when some businesses tried to move away from having company cars - but that trend was reversed once they realised they were causing themselves even more problems."

Alphabet director Mark Sinclair agrees: "Grey fleet travel increased over most of the last decade but it now looks as though that trend has peaked for a number of reasons."

According to Sinclair, one significant reason was the credit crunch. Previously, the availability of cheap credit meant an employee would find it preferable to provide their own car rather than take a fully-expensed, no hassle company car.

Sinclair explains: "Employees could take their cash allowance, leverage some of it into a used car and spend the rest on whatever they liked. Never mind the fact that the average tax bill for a company car is £96 a month whereas privately funding, insuring, taxing and maintaining a newish car cost two or three times that amount. Employees' perception was that the cash option gave them more choice and flexibility.

"Now the credit bubble has burst, finance is harder to come by and so the cash option isn't as attractive. A lot of our customers are getting enquiries from staff who are thinking about taking a company car again. The message is getting through that there

is a fast-growing choice of attractive, low-CO2 company cars to choose from, which means not only a smaller tax bill but also lower private mileage costs."

He added: "Drivers have also seen the real value of the widely used AMAP rate steadily eroded by inflation. So clocking up business miles in their own car no longer pays the way it used to.

"On the other side of the deal, a lot of employers were fairly relaxed about the cash-for-car issue because they structured their cash offers to be cost-neutral relative to company cars. Some, mistakenly, thought that cashing-out drivers was a way to offload cost and their liability for road risk."

Mike Roe, sales and marketing director at Pendragon Contracts, echoes Sinclair, highlighting two reasons why he thinks grey fleet numbers are decreasing. "Firstly," he says, "CO2 emissions are coming down and providing a more cost-efficient solution so people are coming back to contract hire. Secondly, companies haven't increased cash allowances in line with price increases of new cars so people are having to downgrade."

Car fleet association ACFO's chairman Julie Jenner says she is seeing a move away from companies allowing drivers to use their own cars. "More are moving back into traditional company cars," she says. "There are a couple of reasons for this. Firstly, the liability around ensuring that grey fleet drivers are using vehicles that are 'fit for purpose' and portray the right image, have the correct business use insurance and valid MOT certificates, service records etc. to ensure duty of care obligations are met and there is no risk of corporate manslaughter prosecutions. Secondly, selecting the right company car is not necessarily expensive when it comes to benefit-in-kind taxation that a driver pays due to the range of low CO2-emitting vehicles."

Lack of control

The majority of problems around grey fleet involve fleet managers having little control over the cars and drivers.

"Lack of control, lack of information, potentially much increased risk and lack of clarity and control over costs" are the key issues according to TMC managing director Paul Jackson. "Lack of resources can be an issue, too," he says. "The company realises that it needs to manage the costs and risks of grey fleet so it hands responsibility to the fleet manager but it doesn't provide them with any extra resources."

Pendragon's Roe adds: "Fleet operators haven't got control over grey fleet cars. There are duty of care responsibilities, they have no control over what employees choose, they don't know if it's insured, they don't know whether the car is being serviced."

Kenneth Bowling from Driving Risk Management says that it is also common for employees to be slow when it comes to producing documents.

"Managers need to perform occasional vehicle checks to ensure compliance with policy. Training and assessing drivers may also be required. The key here is to ensure that the reasons for all these actions are communicated effectively and tactfully, in order to get buy-in from employees. Understanding this supports and aids compliance and ultimately produces many of the benefits that are seen in managing a non-grey fleet."

Putting grey fleet drivers into company cars is the obvious solution to the grey fleet problem. Bowling says there is a tipping point of around 80 miles a day - above that figure, it is generally more economical to have a company car. He adds that use of rental vehicles is a popular choice and "solves many of the problems such as ensuring vehicles are appropriate for purpose, meet the latest safety standards, have been tested for emissions etc.".

Enterprise's director of business rental Rob Ingram says: "There are more and more valid arguments for companies to look at their transport policy and consider alternatives [to grey fleet]." He not only advocates daily rental to its customers but also public transport and walking where appropriate. He adds: "A car-sharing scheme, which is beginning to replace pool cars, is another substitute."

Businesscar blogger, ICFM chairman and Leasedrive Velo commercial director Roddy Graham says joining a car club can not only save money but can replace paying mileage allowances as well as tackling the grey fleet issue. "As a viable alternative to pool cars for organisations based in towns and cities, car clubs make eminent sense," he says. "For occasional business use we would normally see short-term rental or a car club-style operation as a much better solution than pool cars. Pool cars can be a reasonable option assuming the company has strict controls over the vehicles condition and serviceability, this would require an appointed individual to take responsibility for this. Becoming a member of a local car club can not only prove more cost-effective than running a car pool fleet but can also immediately boost an organisation's green credentials and enhance its corporate social responsibility position."

Alphabet's Sinclair says: "If employees are covering high mileages, you need to ask whether the costs and risks add up. If they only travel occasionally, then hiring a car for trips over 100 miles is usually cheaper than paying them up to 40p a mile to use their own. For frequent long distance use, you should definitely consider a company car, employee car ownership (ECO) or salary sacrifice for reasons of cost and risk."

Roe also believes salary sacrifice is a good alternative. "If a fleet manager can get someone back into a car through a salary sacrifice scheme, then they can actually get a better car rather than taking the fleet option." And it will be cheaper for the business, too.

In terms of managing grey fleet, TMC's Jackson says it is absolutely essential for the employer to put a clearly defined policy in place around grey fleet car use.

"The policy should define the driver's responsibilities, set parameters for cars used on business (such as maximum age, mileage and CO2 emissions), and - equally importantly - state where management responsibility lies. For example, the fleet manager should obviously be closely involved in drawing up the policy, but since they have no direct control over grey fleet drivers or cars, the task of ensuring that staff comply with policy might better be given to line management."

Jenner adds that better controls are needed over some grey fleets and firms should ensure any cash allowance policy mirrors that of the company car policy. "For example," she says, "if the company car policy prohibits coupes, convertibles or 4x4s why should these be allowed when a driver takes cash in lieu of a car? It should also be cash-neutral to the company so there is no incentive for one scheme over and above another."

The future

Grey fleet will never disappear, but it is gradually becoming better managed by companies. Jackson says firms realise that costs and risks of casual car use are too great to ignore. "One of the biggest challengers they face is tracking grey fleet activity and costs in real time."

Sinclair believes more businesses will require essential users to take company cars while mandating the use of hire cars or pool cars for irregular journeys. He concludes: "Company cars came to the fore in the tough economic era of the 1970s. Their numbers only fell significantly during the UK's unprecedented period of growth from 1995 to 2007. A company car is now an attractive perk again. Tax is low on the greenest; ownership is hassle-free; there's no credit risk for the employee and a car is a visible sign of your value at work in an uncertain employment market. What's not to like?"

Bowling predicts a split in grey fleet. "There will be those that embrace the challenge and fully appreciate the legislation requiring them to act, and recognise the many benefits of a well-managed fleet. They will take effective and robust control.

"Then there are the small/medium enterprises that often don't have a specific fleet manager. The role is often handed to someone as an add-on to their primary job within the company. Here, the learning curve is bound to be far steeper. But with more publicity and better understanding of the benefits around a well-run fleet (and the penalties of non-compliance) then compliance will grow in this sector, albeit somewhat slowly."

The need for correct insurance

Many grey fleet drivers do not have the correct insurance to use their vehicles for business purposes, and with so many different types of cover, insurance for grey fleets can get confusing. As reported in the previous issue of BusinessCar (27 July), Barclays is just one firm which struggles with ensuring its grey fleet employees have the right insurance policy. As a result, the bank's fleet manager Caroline Sandall is calling on insurance firms to introduce standardised text for business cover: "Clear and concise wording within insurance documentation would really help employees to understand their current cover - we see such variations across the documents that are reviewed that it is often difficult, even for the experienced reviewer, to be clear that business cover is included."