In the ever-evolving landscape of business operations, the decision to change vehicles is a significant one that requires careful consideration. As businesses weigh the options, one crucial factor that often takes centre stage is the total cost of ownership or Whole Life Cost (WLC). This encompasses not just the upfront costs but also the operational expenses over the vehicle’s lifespan.
When a business looks at acquiring a vehicle, what factors do you look at? Cost price, engine size, CO2 value, colour, fuel consumption, resale value? All these can affect the overall cost of running the car. These factors and more are what is called Whole Life Cost (WLC).
Purchase costs
The initial cost is only part of it. The resale value is a big factor and vehicles depreciate quite differently. The discounts on new cars can vary greatly, with some manufacturers offering no discounts and others offering some substantial deals on certain models.
While we race headlong to an all-electric car future, the resale price of all-electric cars is falling much more than traditional internal combustion engine (ICE) cars. Some cars hold their value well while others plummet. Colour can also be a factor as vibrant choices may not resonate well in the second-hand market.
Running costs
The ongoing running costs while using the vehicle can be very different as well – which fuel you use, the average fuel consumption and how often the car needs maintenance, servicing and tyres.
Fuel consumption can vary quite a bit between petrol and diesel cars but if you’re doing quite low mileage each year, the relative cost of fuel compared with the generally higher cost of a diesel engine car can make petrol a cheaper option, especially when you look at the cost per litre of diesel and petrol.
Electric cars that are charged at home on a cheap tariff can be very economical to run but as soon as you start charging at motorway service stations on fast chargers, this can be ten times the cost of home charging.
Most vehicles require an annual service or when they hit a certain mileage, but some have long life servicing so may not need servicing every year. Electric cars generally need less maintenance than ICE vehicles, due to fewer moving parts, but the cost of tyres is more due to the added weight of the cars.
Other costs
Factors like insurance costs often go overlooked. Some vehicles, like Range Rovers, may pose challenges in obtaining affordable insurance, with premiums reaching substantial amounts. Electric vehicles, while environmentally friendly, may have higher insurance costs due to potential expenses associated with battery replacement.
When we look at company cars, many people are turning to plug-in hybrids and fully electric cars to reduce the Benefit in Kind (BIK) tax they pay. A driver with a high-value CO2 car can be paying 37% BIK tax on the value of the car, whereas a driver with an electric car can be paying only 2% BIK tax on the value of the vehicle. For a £40,000 car, for a 40% taxpayer that is the difference between £5920 and £320 per year. The company will also be paying National Insurance on the BIK the driver is paying.
While the allure of electric vehicles is undeniable, the decision to switch should be informed by a comprehensive assessment of WLC, charging infrastructure and various other factors. Businesses must weigh the immediate costs against the long-term benefits to determine whether now is the opportune moment to embark on a greener and more sustainable journey. So, if you need some help navigating the whole car market, please get
in touch.
