February 2009 - Fleet Directory Q&A with Phil Moorhouse, Managing Director, Northgate Vehicle Hire.
Q: What major challenges do you foresee in the coming year for commercial fleet managers?
A: Cost control is the single major issue impacting on commercial vehicle fleet managers - indeed all fleet managers and all businesses.
With the onset of recession all transport operations, irrespective of their size and sector of operation, should instigate a root and branch review of all fleet-related issues.
Methods of vehicle funding, types of vehicles operated, replacement cycles, journey planning and route scheduling, occupational road risk management and a multitude of other issues should all be analysed to see where financial savings can be made.
Fleet chiefs must analyse the impact of the current economic turmoil on their own employer, and on the companies with which their firm undertakes business. Any hint of increased exposure due to companies closing or being taken over with job losses resulting must be countered with immediate action.
Fleet managers who continue to plough the same furrow and expect their employer to be untouched by recession and job losses are not living in the real world.
Q: How can Northgate help provide solutions to ensure fleet cost-effectiveness?
A: Northgate, although Britain'’s largest vehicle rental company with a nationwide fleet of 68,500 cars and vans available for hire from 80 locations, is far more than just a vehicle supplier.
Northgate is a one-stop shop fleet solutions provider that offers customers, big or small a range of services to meet every eventuality. As companies outsource more and more non-core activities they will turn to one or more of our services to meet their requirements.
Firstly, we will continue to focus on changing the perception that rental is mainly a short term solution to a vehicle need, such as temporary stop-gap situations while vehicles may be off the road or managing short up-turns in business.
All fleets, irrespective of size, should view rental as another vehicle acquisition route. It is extremely price competitive in comparison with other methods of acquisition, particularly when you consider there is no long-term funding commitment and businesses are able to eliminate the risks of ownership particularly residual values. An increasing number of companies are recognising this flexibility as a result of the current economic difficulties are turning to Northgate.
The majority of our customers understand the flexibility that vehicle rental provides, while still leaving them in full control of their operations with a fully utilised fleet. But, we need to convince more organisations of those benefits and to focus them on the idea of vehicle usership and not ownership.
Secondly, fleet management is provided through our Fleet Technique subsidiary. It provides a wide range of services to control excessive revenue and capital costs through the provision of a professional service. From fleet consultancy to vehicle acquisition and fleet administration to driver support, including accident management, Fleet Technique provides a comprehensive range of support services without any form of contractual agreement.
Northgate has also invested heavily in Vehicle Monitoring, which allows vehicles to be tracked by satellite while they are out on the road with the promise of helping companies make drivers safer on the road and cut costs in a range of areas - including fuel bills.
Benefits include:
- A potential 20% saving in fuel bills due to improved vehicle scheduling and journey management
- A 15% improvement in productivity
- A 15% saving on employee overtime claims
- A 30% saving in insurance costs due to a reduction in accidents
Q: Congratulations on recent Fleet Van Award as 'Van Rental Company of the Year', why do you think you were selected for the award?
A: We were delighted to be named Van Rental Company of the Year in the inaugural Fleet Van Awards.
I believe Northgate was successful because, as outlined above, the company is far more than 'just a rental company'.
Our wide range of ancillary services are designed to enhance our core fully flexible NORFLEX rental product.
Apart from the services mentioned above - fleet management and Vehicle Monitoring – we compile frequent publications detailing a range of best practice guidance and advice for customers on key issues that include occupational road risk management and achieving improved fuel economy.
Through our own network of workshops we service and maintain all vehicles. This ensures that all cars and vans are maintained in accordance with vehicle manufacturer recommendations thus meeting best practice duty of care obligations.
Indeed, Northgate was the first rental company in the country to license its mechanics through the Society of Operation Engineers' IRTEC Licensing Scheme - a nationally recognised safety and competence qualification in the maintenance and repair of vehicles in the light and heavy goods, service and passenger carrier vehicle industries.
In recognition of the focus Northgate puts on health and safety compliance both for our customers, and ourselves, the company was one of the first to be selected as a 'business champion' under the Department for Transport's safety-focused 'Driving for Better Business' initiative, which is managed by RoadSafe.
Northgate is also a corporate member of road safety charity Brake. Additionally, the company has won awards from the Royal Society for the Prevention of Accidents (ROSPA) and had its health and safety focus and staff training recognised by the British Safety Council.
Our service, maintenance and repair capability is further boosted by GPS Body Repairs Limited, our wholly-owned body repair workshop business that means a significant amount of body repair work is completed in-house, thereby reducing both downtime and wholelife cost to customers.
As the Fleet Van judges said 'Northgate has raised the benchmark for the spot rental industry'. It is something we intend to keep on doing through a strong focus on improving the service to our customers. We offer an excellent service, our people are amongst the best in the industry and are focussed on delivering the right service to all of our customers.
Q: Why are you promoting 'sale and rentback' as a good option for fleets?
A: Sale and leaseback has been a staple offering from contract hire and leasing companies for a number of years.
However, we believe by using 'sale and rentback' companies can benefit from the flexibility of rental.
NORFLEX has been our establishing rental solution for many years - a completely flexible vehicle rental package which gives customers the ultimate freedom in managing their vehicle fleet without any contractual commitment or early termination penalties.
More than 12 months ago it was clear to us that the economy was suffering and some companies were struggling to raise capital to invest in new vehicles. As a result, one of the first actions taken by companies is to axe or delay any capital expenditure. Therefore, we have been promoting 'sale and rentback' as the smart move for forward-thinking businesses. Not only can they budget more effectively but they also have the flexibility to increase or reduce the number of vehicles operated at anytime without financial penalty, unlike contract hire.
Companies that have taken up 'sale and rentback' offering have benefited from an immediate cash injection into their business. Simultaneously, they are benefiting from the removal of expensive depreciating assets from their balance sheet. With known monthly budgeted costs and no residual value risk attached to the vehicle, businesses that have opted for 'sale and rentback' now view rental as a method of vehicle acquisition rather than being burdened with a fixed cost that ownership entails.
They are also able to increase the number of vans they require in the event of business levels rising or, in the event of a slowdown, cut their fleet size without any financial penalty. A further benefit is that expensive depreciating assets are removed from a company's balance sheet.
This approach can improve a company's gearing ratio - the ratio of debt to equity - and enhance the bottom line. In short, 'sale and rentback' enables companies to operate an efficient and modern fleet as cost-effectively as possible.
Q: What changes do fleet managers need to make to deal with the introduction of the Health and Safety (Offences) Act?
A: The Act is aimed at punishing individuals just as the 2007 Corporate Manslaughter and Corporate Homicide Act, which was implemented in April last year, targets rogue organisations. The new Act was implemented on January 16 and toughens the sentencing provisions contained in the Health and Safety at Work Act 1974.
If a serious road crash were to occur, investigation of the incident is likely to result in the fleet decision-maker being asked questions about the condition of the driver, the condition of the vehicle and the purpose of the journey. Additionally, information on tyre condition will be required, maintenance documents will be checked and details relating to journey scheduling. As always, whether it is the police or Health and Safety Executive investigating they will be looking for policies being implemented and not paid lip service to and, most importantly, an audit trail confirming that the employer was undertaking health and safety responsibly. This is all essential if organisations were to comply with health and safety at work legislation, prior to the introduction of the tougher punishments.
Therefore, in essence nothing has changed in terms of what fleet managers should be doing to ensure their employers meet their at-work driving health and safety obligations. What has changed is that due to concerns among MPs and peers that existing punishments for individuals that breach health and safety laws were too low, punishments are likely to be harsher. Businesses must be able to demonstrate how they manage road risk and that someone is responsible for managing that risk.
In the event of a serious crash where no evidence of an organisation planning, delivering, monitoring and reviewing road safety can be found charges could result against both the organisation and individuals who were responsible for the failings.
Q: Parent company, Northgate Plc recently announced pre-tax profits down 46 per cent in the first six months of 2008. With a down-turning economy, how is Northgate recovering its business for 2009?
A: The deteriorating economic conditions in both the UK have impacted significantly on the results for the period, particularly in relation to the values achieved in disposing of used vehicles. However, we successfully renewed and re-profiled our banking facilities in September 2008, which removed uncertainty around the financing of the business. We remain focused on efficient fleet management which, when coupled with targeted cost reductions, will reduce the effect of external factors on our profitability and also increase cash generation.
Q: With the recent Department for Transport survey revealing that just 12 per cent of vans are leased or hired, (which must be a disappointing figure for Northgate) could you tell us how renting/leasing instead could benefit those van owners?
A: Far from being disappointing, the findings of the Department for Transport survey re-confirm the continued move away from outright purchase to more vans being outsourced through contract hire or rental. There is a massive potential for further switch to rental as 88% of the market that still buys its vans.
The figures came as no surprise to us and merely served to underline what we already knew from our own research – that there are thousands of companies that have yet to wake up to the benefits that rental can deliver.
As mentioned previously, we believe that the recession is leading to many companies to increase their cost management focus. In terms of fleet funding, a proper analysis will highlight the major financial benefits of flexible rental through our NORFLEX product.
Businesses that presently purchase vehicles need to appreciate that they can free-up much needed working capital by turning to rental through a 'sale and rentback' with Northgate.
Operating a fleet of vehicles for some businesses is typically the second highest cost after staff.
Therefore, fleet costs should be under the microscope as companies look to save money and reduce their risks. Businesses that have always purchased and owned vehicles are failing to appreciate the cash-saving potential of rental especially in today’s economic climate.
It is up to us to convince more organisations of the benefits of flexible rental and to focus them on the idea of vehicle usership and not ownership. Flexible, contract-free rental solutions like NORFLEX remove the burden of having cash tied up in a depreciating asset, and is the smart move for forward-thinking businesses.
