Why ditching diesel may not be best for your company cars

Choosing the right fuel for your company cars is an essential part of fleet management, but changes to the way emissions and consumption are measured will have an impact on your costs. We look at your options.

Negative media coverage about diesel in the past two years has led to company car drivers and their employers re-evaluating vehicle choice. Indeed, diesel sales saw a drop of 17% last year and that trend is continuing in 2018.

It seems that petrol and hybrids are taking over – recent figures suggest half of all fleet vehicles are now petrol-powered, a level unheard of in the past 15 years. However, the choice of which fuel powers your vehicles is not as straight-forward as it might seem.

Diesel vs petrol and hybrid vehicles

For many of the businesses that ignore the headlines or delve into the facts of the issue, diesel is still the best choice for their vehicles.

As the Society of Motor Manufacturers and Traders says: “Anti-diesel rhetoric and the potential for tax hikes is causing buyers to hesitate. However, these cars remain the right choice for many motorists – especially those who travel longer distances – with lower CO2, better fuel economy and, with these newer vehicles, dramatically reduced air quality emissions.”

A survey of UK firms carried out by RAC Business found that a third of small businesses are considering phasing out diesel vehicles, and nearly half (47%) of businesses of any size say they are thinking about moving away from diesel.

However, RAC Fuel Watch spokesman Simon Williams said many new diesel vehicles perform significantly better in terms of nitrogen dioxide emissions than their predecessors and even some older petrol vehicles.

He added: “During 2017 there was a lot of debate about emissions from diesel vehicles being harmful to health and the possibility of charges being introduced for certain vehicles in some cities to combat the issue. This has undoubtedly affected attitudes among consumers and fleets and left them uncertain as to what type of vehicle to choose next.”

Whichever fuel you choose, costs may rise

After depreciation, fuel consumption is the single biggest fleet cost to any business, and it is also the cost that can fluctuate most.

However, from the end of this year, your theoretical fuel costs are going to rise significantly too if you budget for them from officially published figures.

This is because the system the government uses to create MPG data – estimates of fuel consumption per car – has changed. The new tests are likely to see an increase of around 20% on official MPG and CO2 figures (more on this below).

On top of that, your employees might well be paying more company car tax, and you more National Insurance and road tax, in the next few years.

Oddly though, despite these increases, the real-world cost of paying for fuel won’t change, because those cars, now theoretically less efficient, won’t be any different.

What are the testing procedure changes?

The reason for this confusing state of affairs is a change in the official testing procedure, intended to give customers a more accurate indication of how the cars will perform on road.

This issue is at once both very complex and quite simple: the NEDC (New European Drive Cycle) Official Combined Fuel Economy figure that every vehicle has historically been given is produced in laboratory conditions, and a such was intended as a benchmark rather than a ‘real world’ figure.

This has led to a divide between expectation and reality and as a result, from September 1, 2017, the NEDC could not be used to generate fuel consumption and CO2 figures for new cars.

Its replacement is the World Harmonised Light Vehicles Test Procedure (WLTP), which is designed to better represent real-world performance.

Although the tests are still conducted in a laboratory, they include higher speeds which are more representative of real-world driving, and also feature more aggressive braking and acceleration.

The results of the changes

Industry experts have suggested that the WLTP test will see official CO2 and MPG figures on a car-by-car basis increase by about 20%, but because of the scale of the programme, not every car will be tested until April 2020.

Of course, in the real world, it will make no difference in actual fuel consumption and what your drivers achieve.

However, you should see a closer correlation between on-paper and on-road figures. For businesses this is a positive move, which means you should be able to plan your fuel costs more accurately.

How tax will increase

One of the issues is that Vehicle Excise Duty (VED) and Company Car Tax (CCT) – and therefore an employer’s NICs – will be based on computer-generated NEDC fuel economy and CO2 figures until April 2020, produced for new cars through a complex calculation from the new WLTP figures. This effectively means reverse engineering the numbers.

The problem is that with more stringent WLTP testing in place, and NEDC figures worked out from them, it is likely official CO2 emissions for new cars will rise – relative to where they would have been under the outgoing regime. This is relevant for both petrol and diesel vehicles.

Added to that, from April 2018, the Company Car Tax diesel supplement went up by one further percentage point, to four percentage points more than petrol cars.

So what should you do?

The new WLTP figures will give you a much better indication of the real-world fuel economy of new cars, so use these when budgeting for fuel.

Company Car Tax, VED and National Insurance is likely to rise slightly, but the rule of thumb that existed before the changes still applies, possibly even more so: choose low CO2 cars and vans. The lower the CO2, the lower the tax bill.

That means diesel cars, many of which still have figures around the 100g/km mark will still be the most efficient on the market – and perhaps prove to be even more so. If you want to minimise bills, choose vehicles at these levels, but use the NEDC figures for working out the tax bill.

If your drivers are doing high mileages, diesel will usually work out cheaper in the long run. But if they are doing lots of short runs or commutes, petrol can prove much cheaper.

Petrol v Diesel

Petrol pros

  • More driving enjoyment, with higher-revving, responsive engines
  • Cheaper to buy
  • Less NOx (nitrogen dioxide) and particulates produced

Petrol cons

  • Petrol vehicles often depreciate faster
  • Produce higher levels of CO2 (carbon dioxide)

Diesel pros

  • Often lower wholelife costs because of lower depreciation and better economy
  • Engines last longer and tolerate much higher mileages
  • More efficient (by around 25% compared to petrol) so fuel costs are less, providing pump prices stay close
  • Better mpg over long distance journeys
  • Produce less CO2
  • Higher torque or pulling power

Diesel cons

  • Generally, more expensive than petrol to buy
  • Produce nitrous oxides, hydrocarbons and particulates
  • Insurance is higher for diesels than petrol vehicles, by up to 15% – because they cost more to replace or repair

by Steve Moody for startups.co.uk (2018)