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Technical Advisors Report

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Technical Advisors Report

  1. 1. CAR ALLOWANCES 2005 REPORT OF THE TECHNICAL ADVISERS 1 Introduction This is the report of the Technical Advisers following their review of the costs of motoring in relation to the agreed formula. 2 The Standard Car The vehicles chosen are set out in Appendix 1. It should be noted that cars have been chosen from the list of best selling cars where possible, with the exception noted below. Group One cars comprise only 1.4% of the total market at 36,000 units, this is a small proportion of the cars sold and has reduced since last year. The predicted uptake of alternately fuelled vehicles has not transpired; and the continuing trend of manufacturers to fit slightly larger engines to vehicles to meet EEC requirements militates against large sales within this sector. We have, however, been able to select four cars for Group One, but not all from the top twenty sellers. Groups Two and Three continue to represent the bulk of vehicles sold in the UK at about 60% of the total. Reversing the trend in recent years the percentage of private purchases has reduced by 4.4% to reflect 46.7% of the new car market. The private purchases however tend to mirror the vehicle types purchased by the fleet sector and this would confirm that the top twenty selling vehicles still have relevance to the “local government” market. Having said that, the consistent drive by manufacturers to meet the increasing EEC emissions regulations means that engine sizes are increasing and it will therefore become difficult to deal with both Groups Two and Three in future years. (See Future Developments para 12 below). Sales of diesel vehicles continued recent trends and increased to a market share of 32.5%. Although the majority of new sales are made to businesses in vehicle Groups Three and above, significant increases in sales in the past three years will result in substantial numbers appearing on the second hand market and being purchased by public sector employees. Car Allowances 2005 1
  2. 2. 3 Purchase and Selling Prices The figures are set out in Appendix 2. The difference between the average purchase price and the average selling price (after five years, or 50,000 miles) is divided by 5 to give an annual depreciation. 4 Fuel Consumption The data is set out in Appendix 3. The following rates result:- Band Miles Per Gallon 451 - 999cc 47 (previous - 48) 1000 - 1199cc 47 (previous – 47) 1200 - 1450cc 42 (previous - 42) The five years of figures which are taken into account to determine the average of fuel consumption for each group, are now derived entirely from the Official Fuel Consumption Test, based on EU Directive 1999/100/EC, which itself is based on the EU Directive 1993/116/EC. This Official Fuel Consumption Test is deemed to provide figures that are more representative of “real world” motoring. Details of its basis are shown at Appendix 3. 5 Fuel Price The petrol element is based on unleaded fuel at 82.45p per litre (374.8p per gallon) and using the fuel consumption figures would produce costs per mile as follows:- Band Cost Per Mile (p) 451 - 999cc 7.974 (previous – 7.215p) 1000 - 1199cc 7.974 (previous – 7.368p) 1200 - 1450cc 8.924 (previous – 8.245p) Averages are based on actual pump prices in the first two weeks of January, as surveyed by the Automobile Association on behalf of the Society of Motor Manufacturers and Traders. Car Allowances 2005 2
  3. 3. Fuel prices have remained relatively stable in the last three years despite recent conflicts although the impact of international market forces saw significant increases in the price of fuel during the Autumn Conditions currently existing in the national and international markets would suggest that this stability would not be disturbed by increased taxation during the coming year. The potential for disruption in the Middle East and the expanding market of China, could however have an impact on fuel costs in 2005. 6 Tyres Prices have increased by an average of 4.00% across the range of standard fitment tyres. This is the fourth year in succession that the major retailers have increased their prices. Additional costs are partly due to the increased mandatory costs of tyre disposal as well as the performance of the dollar and as a result of increased research to meet EU requirements for “drive-by” noise and economy standards. Percentage Previous Present Cost Increase Base Band % P P 451 – 999cc 4.00% 0.776 0.807 1000 - 1199cc 4.00% 0.920 0.957 1200 - 1450cc 4.00% 1.039 1.081 7 Servicing, Repairs, Renewals and Oils The same methodology has been used as for previous years i.e. the average cost per mile for each Group is determined for 2005 and then brought into a 5 year rolling average, with earlier years repriced using the relevant retail price index. Band Pence Per mile 451 – 999cc 2.874 (previous – 2.820p) 1000 – 1199cc 2.846 (previous – 2.933p) 1200 – 1450cc 3.883 (previous – 3.822p) The background data is set out in Appendix 4. Car Allowances 2005 3
  4. 4. Servicing costs have now reached a level of stability in Groups Two and Three but low levels of sales in Group One mean that manufacturers do not see the need to invest in the reduction of running costs. It is only the “free element” of Daewoo servicing that has contained the costs of Group One. 8 Insurances The agreed approach to calculating insurance costs has been to uprate the previous year’s figures by the relevant element of the RPI. The insurance element has increased from 422.3 to 424.9 over the last year, that is an increase of 0.6%. Applying this percentage to the previous amounts, gives the following:- Band £ 451 - 999cc 1,204 (Previous 1,197) 1100 - 1199cc 1,296 (Previous 1,288) 1200 - 1450cc 1,546 (Previous 1,537) 9 Depreciation Sales during 2004 only just failed to meet last year’s record showing a 0.5% reduction. This was largely due to a market that has remained remarkably stable and robust since the end of 2001. The stable pricing of new cars and the high volume of sales into the private sector in recent years has resulted in a surplus of vehicles on the second hand market, which has now resulted in an erosion of residual values. Depreciation is also affected when cars become obsolete, and when new models are introduced into Groups the depreciation of the five year old and obsolete design can increase significantly. This has been particularly relevant during 2004 when new mainstream models from Ford, Vauxhall and Volkswagen have resulted in reduced second hand values. Car Allowances 2005 4
  5. 5. The use of the figures of purchase and resale prices set out in Appendix 2 gives the following figures: Band Depreciation Percentage Change £ % 451 - 999cc 987 (previous - £873) 13.1 1000 - 1199cc 1,144 (previous - £1,116) 2.5 1200 - 1450cc 1,648 (previous - £1,529) 7.8 3,779 (previous - £3,518) 7.4 The calculations produce variations in the level of depreciation from 2004 i.e. 13.1% for Band 1, 2.5% for Band 2 and 7.8% for Band 3. The formula is based on real historical depreciation figures, whereas all other motoring organisations base their calculations on predicted future depreciation estimates. To smooth out variations from year to year, in previous reviews, an average depreciation percentage has been applied across all three groups. Your advisers remain concerned at potential variations arising between bands for reasons set out in the report. It is therefore recommended that previous practise is continued and the band results be aggregated. This would give an increase in depreciation of 7.4% which, if applied to the bands, would give: 2004 2005 £ £ Band 1 916 ) 984 Band 2 1,083 ) x 1.074 1,163 Band 3 1,520 ) 1,632 3,519 3,779 10 Vehicle Excise Duty Until 2006 the formula requires the banded duty to be split between vehicles registered before March 2001. The details are as follows: i) Vehicles registered before 1.3.2001 Not over 1,549 cc £110 Over 1,549 cc £165 ii) Vehicles registered after 1.3.2001 Car Allowances 2005 5
  6. 6. Band CO2 Emission (g/km) Rate (£) AAA Up to 100 65 AA 101 to 120 75 A 121 to 150 105 B 151 to 165 125 C 166 to 185 145 D 186 plus 160 The bandings of the standard cars are shown at Appendix 5. The Group average has been determined by assuming that local government officers’ cars used are up to 5 years old, and therefore one fifth are subject to the pre-March 2001 rates - £110 in all cases, and four fifths to the new bandings. This gives averages of £110 for Group 1; £106 for Group 2 and £122 for Group 3. The separate slightly lower duty for alternative fuelled cars and slightly higher duty for diesel cars, are ignored for the purpose of this review. 11 Summary The above items are summarised in Appendix 6 together with the formula based allowances that would result. 12 Future Developments The major areas for review have not changed and include: • As manufacturers strive to meet tightening emission regulations, new engines with slightly larger capacities are being introduced, generally around 1250cc. This has the effect of moving Group Two cars into Group Three and leads to distortions of operating costs and depreciation. A good example of this is the Ford Fiesta which although being in Group 3 for engine capacity has the size and running costs of a Group Two car. The capacity classes for Groups Two and Three should be the subject of a review. • The revised system for changing the index mark twice a year will affect the reporting of second hand car values. It is possible that one will no longer be able to establish second hand values for a vehicle in January of any one year but instead Car Allowances 2005 6
  7. 7. have an average residual value for a vehicle first registered between September of one year and March of the following year. • The number of diesel engined cars being sold is now significant and is likely to continue to grow. The cost of operating diesel engined vehicles should be researched for possible factoring into future reviews. • The formula used has a number of areas based on historic costing, an example of this is the element for tyres which updates previous year figures for inflation but does not take account of technical or other changes that affect the life of tyres. The formula should be reviewed in respect of such issues. K Dixon, P Gregory, Technical Advisers April 2005 Car Allowances 2005 7
  8. 8. APPENDIX 1 STANDARD CAR ANALYSIS 1 SMMT - Top Twenty Sellers 2004 BMW 3 Series Renault Megane V/W Golf Ford Fiesta BMW Mini Toyota Yaris Ford Ka Vauxhall Astra Citroen Xsara Ford Mondeo Vauxhall Vectra Peugot 307 Nissan Micra Vauxhall Corsa Ford Focus Peugeot 206 Fiat Punto Vauxhall Zafira Renault Clio V/W Polo 2 Standard Cars Related to Bands 451 - 999cc Nissan Micra 1.0 E (3), Seat Arosa 1.0 (3), Toyota Yaris T2 1.0, Daewoo Matiz 1.0SE (5) 1000 - 1199cc Volkswagen Polo 1.2E, Peugeot 1.1S, Renault Clio 1.2 Expression, Vauxhall Corsa 1.2 Life. 1200 - 1450cc Ford Focus 1.4LX, Volkswagon Golf 1.4S, Vauxhall Astra 1.4 Life, Ford Fiesta 1.25 LX. Car Allowances 2005 8
  9. 9. APPENDIX 2 PURCHASE PRICE AND RESIDUAL VALUE (RESALE VALUE) JANUARY 2005 Car Type Purchase Price Average Selling Difference Price 5 Years Old ÷5 50,000 Miles £ £ £ Band 1: 451 – 999cc Nissan Micra 1.0 E (3) 7,395 1,558 Seat Arosa 1.0 (3) 6,015 2,253 Daewoo Matiz 1.0 SE (5) 7,995 2,385 Toyota Yaris T2 1.0 7,145 2,613 Average Band 1 7,138 2,202 987 Band 2 : 1000cc to 1199cc V/W Polo 1.2 E 7,640 3,090 Peugeot 206 1.1 S 8,620 2,898 Renault Clio 1.2 Expression 8,650 2,648 Vauxhall Corsa 1.2 Life 8,565 1,950 Average Band 2 8,369 2,647 1,144 Band 3 : 1199cc to 1450cc Ford Focus 1.4 LX 12,545 3,833 V/W Golf 1.4 S 12,495 5,075 Ford Fiesta 1.25 LX 9,745 2,448 Vauxhall Astra 1.4 Life 12,295 2,758 Average Band 3 11,770 3,529 1,648 Car Allowances 2005 9
  10. 10. APPENDIX 3 FUEL CONSUMPTION ANALYSIS Miles Per Gallon Band 1 Band 2 Band 3 450 to 999cc 1000cc to 1199cc 1200cc to 1450cc Weighted Average (EC116-93) Five Year Average Band 1 Band 2 Band 3 2005 47.98 48.48 43.40 2004 47.98 46.98 42.75 2003 45.00 46.98 42.75 2002 48.27 46.98 41.58 2001 48.03 47.80 41.43 Average 47.45 47.44 42.38 Weighted Average for the Official Fuel Consumption Test Urban Cycle: from a cold start, the cycle consists of a series of accelerations, steady speeds, decelerations and idling, maximum speed 31 mph, average 12 mph and distance 2.5 miles. Extra Urban Cycle: This follows the urban cycle and consists of half steady speed driving, and the remainder accelerations, decelerations and some idling. Maximum speed is 75mph, average 39 mph and distance 4.3 miles. Combined Fuel Consumption: This figure is a weighted average of the two cycles, 48% for Urban Cycle and 52% for Extra Urban and has now been used for all calculations.. Car Allowances 2005 10
  11. 11. APPENDIX 4 SERVICE, REPAIRS, RENEWALS, AND OILS ANALYSIS (pence per mile) Car Type Source Fleet Management Services P Band 1 : 451-999cc Average Band 1 2.708 Band 2 : 1000cc - 1199cc Average Band 2 2.378 Band 3 : 1200cc to 1450cc Average Band 3 3.530 Car Allowances 2005 11
  12. 12. APPENDIX 4 (cont) Band 1 Band 2 Band 3 Oct 2003 Repriced Oct 2003 Repriced Oct 2003 Repriced Cost cost Cost P P P P P P 2005 2.708 2.378 3.530 2004 2.635 2.792 2.303 2.440 3.423 3.627 2003 2.553 2.705 2.683 2.843 3.642 3.859 2002 2.721 2.883 2.761 2.926 3.820 4.048 2001 3.099 3.284 3.436 3.641 4.104 4.349 14.372 14.228 19.413 5 year average ÷5 ÷5 ÷5 2.874 2.846 3.883 Note The repricing is achieved by applying the maintenance of motor vehicles index within the Motoring Expenditure element of the Index of Retail Prices. There is no completely accurate index that would reflect these costs but the RPI is generally understood. 2004 (Oct) 264.9 2003 (Oct) 250.0 Car Allowances 2005 12
  13. 13. APPENDIX 5 VEHICLE EXCISE DUTY Excise Band Duty Average £ £ Band 1 Daewoo Matiz 1.0 SE (5) B 125 Nissan Micra 1.0 S (3) A 105 Seat Arosa 1.0 (3) A 105 Toyota Yaris T2 1.0 A 105 110 Band 2 Peugeot 1.1 S A 105 Renault Clio 1.2 Expression A 105 Vauxhall Corsa 1.2 Life A 105 V/W Polo1.2 E A 105 105 Band 3 Ford Fiesta 1.25 LX A 105 Ford Focus 1.4 LX B 125 Vauxhall Astra 1.4 Life B 125 V/W Golf 1.4 S C 145 125 Average of cars up to 5 years old Band 1 1 x £110 = £110 4 x £110 = £440 £550 ÷ 5 = £110 Band 2 1 x £110 = £110 4 x £105 = £420 £530 ÷ 5 = £106 Band 3 1 x £110 = £110 4 x £125 = £500 £610 ÷ 5 = £122 Car Allowances 2005 13
  14. 14. APPENDIX 6 MOTOR CAR ALLOWANCES 451 - 1000 - 1200 - 999cc 1199cc 1450cc £ £ £ Standing Charges (per annum) Depreciation 984 1,163 ` 1,632 Tax 110 106 122 Insurance 1,204 1,296 1,546 2,298 2,565 3,300 Lump sum allowance for essential users based on 30% of standing charges (rounded to nearest £690 £771 £990 multiple of £3) Remainder of standing charge to be paid at a mileage rate over 8,500 miles 18.918p 21.106p 27.176p Running Expenses (per mile) P P P Petrol (unleaded) – 82.45p per litre 7.974 7.974 8.924 Tyres 0.807 0.957 1.081 Servicing, repairs, renewals, oil 2.874 2.846 3.883 11.655 11.777 13.888 Allowances Essential Users Lump sum per annum £ 690 £771 £990 Per mile first 8,500 miles 30.6p 32.9p 41.1p Per mile - after 8,500 miles 11.7p 11.8p 13.9p Casual Users Per mile first 8,500 miles 38.7p 42.0p 52.7p Per mile - after 8,500 miles 11.7p 11.8p 13.9p Car Allowances 2005 14

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