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Tackling fuel prices

THE introduction of a fuel price stabliser – demanded by leading business organisations – would certainly help small businesses meet the increasing cost of fuel. But relying on political intervention is a dangerous game. In order for SMEs to survive, businesses must take control of fuel prices – and work to minimise their impact. Business Car Manager editor Ralph Morton files this special report.

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10 January 2012

THE introduction of a fuel price stabliser – demanded by leading business organisations – would certainly help small businesses meet the increasing cost of fuel. But relying on political intervention is a dangerous game. In order for SMEs to survive, businesses must take control of fuel prices – and work to minimise their impact. Business Car Manager editor Ralph Morton files this special report.THE coalition government is coming under heavy fire from two small business representative organisations regarding the high cost of fuel.

The recent double hit – a rise in fuel duty (of 0.76p) and the rise in VAT (to 20%) – has focused everyone who runs an SME business clearly on transport costs: it wasn’t difficult to see this one coming, but the reality of paying over L1.30 a litre for diesel has concentrated people’s minds.

The Federation of Small Businesses (FSB) has warned that the rises to fuel duty and VAT have put small businesses on a knife-edge, placing additional pressure onto the already stretched cash-flows of hard-hit small firms.

The FSB, along with the Forum of Private Business (Forum), both suggest the government looks to its pre-election promise to introduce a fuel duty stabiliser.

The stabiliser, says the Forum, would be a mechanism designed to reduce the tax on petrol and diesel as the price of oil rises, and visa versa, in order to keep fuel prices relatively constant.

Forum chief executive Phil Orford has this to say: “The idea of the fuel price stabiliser was sold to the public quite heavily by the Conservatives before the election. However, since gaining power, Mr Cameron’s government has failed to follow through on the stabiliser concept.”

Mr Orford continues: “Obviously, smaller firms in the haulage and transport sectors are particularly badly hit by ever-increasing prices at the pumps but companies of all types ultimately suffer the inflationary knock-on effects, as costs are passed on and consumers have less disposable income to spend.”

The UK has the second highest diesel price in Europe, continues the FSB, yet it says on average a litre of diesel is made up of 51% product price and 49% tax, whereas in the UK the average is 38% product price and 62% tax.

Fuel duty will continue to go up

In real terms, fuel duty will rise by 1% above inflation each year from April 2011 to April 2014. The FSB says small businesses will not be able to sustain such high prices.

That may be. But while the prospect of a fuel duty stabliser might be welcome, it remains a political issue. As such, there’s little SMEs themselves – apart from supporting organisations like the FSB and Forum – can do to influence such an outcome.

Apart from anything else, high fuel prices are here to stay. So as an issue, fuel costs are not going away. How then, if you’re a business car manager, do you minimise their impact? That, truly, is the crucial issue. Here are three suggestions.

Choose low emission company cars

Whether your business runs company cars or staff run their own private cars on business, filling up with fuel hurts. But the pain can be ameliorated by making the spend go further. And that’s by choosing low emission cars.

“Cars provide your business with mobility, loyalty and motivation and project its image,” explains Mark Sinclair, boss of leasing company Alphabet.

“At the same time, it takes a lot of CO2 to keep them moving. So the less CO2 you buy for a given amount of work, the more productive your fleet is.” In other words, the lower the CO2, the lower the carbon cost.

It seems many businesses are getting the message. Mark says that over a quarter of the cars Alphabet supplied to companies last year were below 120g/km; a further 8% of orders were for cars rated below 110g/km; and 1% were for cars under 100g/km.

Many businesses are getting the message – take grounds maintenance specialist, John O’Conner, for example. The company, a customer of Fleet Alliance, has recently set its CO2 emission limit for company cars at 120g/km CO2.

Transport manger Simon Redhead explains the thinking: “Switching to cars below the 120g/km mark has been a really tax efficient move for our drivers as it keeps their benefit-in-kind tax and fuel bills as low as possible.”

Even if, as a business owner or SME company director, you want to reward yourself with something bigger than a sub 120g/km business car, then choosing prestige and low CO2 is hardly a problem: the new BMW 520d has emissions of just 129g/km (57.6mpg economy) figures matched exactly by the new Audi A6 saloon. Even Mercedes, the Johnny-come-lately to the CO2 emissions reduction game, has just announced its revised C-Class with emissions of 125g/km CO2 for the C220 CDI automatic model.

Reducing business travel

So reduce CO2, reduce fuel costs is one way to minimise fuel spend. But that’s just one aspect of an increasingly tricky balancing act for business owners.

Alphabet’s Mark Sinclair again: “Getting drivers into low-CO2 cars is essential but, on its own, it isn’t enough. Fuel prices have been winning the race against vehicle efficiency lately and, unfortunately, that gap will go on widening.

“To stay ahead of rising fuel costs, business car fleets will have to bring down the amount of fuel they use more quickly than prices go up. Businesses need to find a formula for mixing sustained productivity with real cuts in fuel volume.”

That can only mean one thing: reducing business miles. There are plenty of means to do this, from video-conferencing – Regus, the flexible office solutions provider – calculates a videoconference cuts the average cost of business travel by 75% and removes the hassle of business travel.

But if serviced offices aren’t your thing, then there’s Skype video for instance which is free and a useful way to stay in contact face to face, while public transport between major urban hubs remains viable and productive, if an increasingly costly choice.

If driving is the only answer, however, more efficient driving techniques will help the fuel go further – by as much as 20%.

Nevertheless, encouraging your company to be alert to alternative ways to conduct business that reduces business mileage and carbon consumption will benefit your business and its bottom line.

Consider a fuel card

So we’ve considered reducing the company car CO2; considered reducing the number of carbon miles; now it’s worth considering the actual spend itself.

Fuel cards. Fuel cards have the ability to organise your fuel expenditure and reduce company time spent on expenses administration. What’s more, they can reduce the amount you pay for fuel by as much as 10p a litre at motorways – but more usually 3p-4p a litre.

However, one of the greatest benefits to your business is the management control it provides – you’re not having to deal with lots of bits of different paper and sales bills and funding it from your own cash flow – because you get one centralised bill, which also makes VAT reclamation easier, along with extended time to pay credit.

Steve Clarke, general manager of The Fuelcard People, a fuel card comparison site, says fuel cards are worth it if you’re spending more than L500 a month on fuel.

“Anybody wanting to cut their diesel and petrol costs just needs to ask fuel card companies two basic questions,” explains Mr Clarke.

“Can you offer me a discount on pump prices? If you have to pay the same price for fuel as you would without a fuel card, there is little point in having one.

“Secondly, can you offer me a choice covering all of the ‘Big Five’ fuel suppliers? This means that BP, Esso, Shell, Texaco and Total all have to be included in the choice on offer.”

Fuel cards aren’t the answer for every small business: but if you run a sizeable number of business cars, then fuel cards can help you achieve cost savings.

Greater efficiency

The Forum’s Mr Orford provide a highly practical endnote to this special report: “The debate over fuel prices is often skewed by the wider environmental debate,” Mr Orford says.

“But the fact remains – our economy currently relies on transport, and therefore oil, at virtually every level, and until alternative technology become widespread and affordable, businesses have no choice but to use petrol and diesel in order to function.” So controlling costs is vital to business longevity.

However you decide to control fuel costs, becoming more efficient with your business transport solutions is essential. Otherwise company profits will be gradually eroded by the inevitable: strangulation by fuel price creep.

Fleet Alliance comment on controlling fuel prices

“As the article makes abundantly clear, fuel is an increasingly important factor for any business running company vehicles.

“To me, there are two main aspects to consider; first, choosing the correct vehicle – low CO2 tends to mean good fuel economy and therefore lower costs.

“The second aspect then becomes the management of the fuel process. Fleet Alliance covers these aspects for our clients as part of our standard service: the right vehicle will be selected by utilising our whole life cost analysis, and our fuel cards and e-fleet system (online fleet management system) will manage recording of business and private miles.”

Martin Brown

managing director of fleet solutions provider, Fleet Alliance

Further information

You might also like to read more on the subject in the Editor’s Blog A five point plan for tackling fuel costs.

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Ralph Morton

Ralph Morton

Ralph Morton is an award-winning journalist and the founder of Business Car Manager (now renamed Business Motoring). Ralph writes extensively about the car and van leasing industry as well as wider fleet and company car issues. A former editor of What Car?, Ralph is a vastly experienced writer and editor and has been writing about the automotive sector for over 35 years.

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