Additional vehicle equipment: What should fleet managers consider?
After choosing a vehicle the next question arises. What additional vehicle equipment do we choose? We're zooming in on what the must-have equipment and what the differentiators are. What are the tax implications, the regional differences and what is the impact on TCO?
Let’s start with the basics. When we talk about ‘equipment’ we can differentiate between options and accessories. Options are installed at the factory, whilst accessories are usually add-ons after the car has been registered.
Options vs accessories: tax differences
Options can have a tax impact. Options are subject to both VAT and/or luxury tax as well as the driver benefit in kind (BIK). In some cases (e.g. The Netherlands), accessories are exempt from luxury tax (called BPM) and BIK, making it interesting to install as much equipment as possible after registration of the vehicle. This may reach further than one would initially think; not only the typical tow bar can be considered an accessory, but also tinted windows, parking sensors, and leather seats can be installed after registration of the vehicle and will then be considered an accessory.
The number of choices is increasing
Consumers have an increasing choice of additional equipment to choose from. External analysisi for Germany suggests that the number of potential combinations when selecting a vehicle have grown by 11% per year over the past approximately 20 years. This is due, to a lesser extent, to new models coming to market. The majority of this increase however can be explained by new features as well as trimline, and option package strategies deployed by OEMs.
The current chip shortage is a growing challenge in light of the increasing number of available features and trimline packages. Options often require chips (think sunroof, power seats, and lane assist). Additionally, OEMs apply strategies whereby selecting a particular package or option requires the addition of other options, increasing the required number of chips. Keep in mind that the more specific and extensive your order is, the more likely it is that the vehicle will take longer to be delivered.
Features typically flow down from the larger or more premium vehicles down to the smaller segments. Whereas ABS and airbags were very rare options when they first came out, nowadays no car is without. The same can be said for** navigation systems**, although the external analysisii is showing an interesting development here. The offering of navigation systems in the A and B segments is topping off at just below 50%, **being overtaken by smartphone integration, **which is now offered in almost 70% of configurations.
There are clear differences between regions when it comes to equipment preferences
It doesn’t take a scientist to understand that heated seats are less of a necessity in southern Europe compared to the Nordics. According to the external dataiii, Central and Northern Europe prefer higher equipped vehicles, whereas Southern and Eastern Europe are more price sensitive. It has to be said that because of the price sensitiveness of Southern Europe, well equipped second hand vehicles will clearly sell quicker as there is fewer on offer.
Based on its own analysis, LeasePlan recognizes the differences between countries. In the twelve countries included in the analysis (Austria, Belgium, Czech Republic, France, Germany, Italy, Netherlands, Poland, Romania, Spain, Switzerland, United Kingdom), the average percentage of options included on the net catalogue price is around 10%. The average net catalogue price is around €35,000, which means there is an additional €3,500 added to the required investment.
Countries such as Germany, Austria, and Switzerland score on or above average.
Germany is a typical country where employees value the possibility to add additional options when configuring their car. Our external benchmark data also confirms that almost half of organizations in Germany allow some sort of ‘trading up’. This could be an upgrade of the model (e.g. from Golf to Passat) or simply adding options. Additionally, over 20% of the organizations that allow trading up, have no limit in place. This means the driver can select a vehicle within their category but from there on add whatever option they would like.
Additional equipment and impact on TCO
LeasePlan sees plenty of examples where the percentage of the net catalogue price of additional equipment is in the double digits. Take the Mercedes S-class at €106,000 with an additional €39,000 of options. But also the more average Volkswagen Passat at €38,000 with an additional €26,000 of options.
Additional equipment is a breed of its own when it comes to determining the residual value. Some options can create an additional investment but keep TCO relatively steady. This is not very common, but you may think of something like metallic paint. It better protects the paint and cars with metallic paint are more sought after than without, improving residual value.
More often than not,** additional equipment will lead to increased TCO.** And there is not one way to understand the impact of options on the monthly TCO. Of course it depends on the type of option, for example a sunroof versus larger wheels. But, variables such as make, model and country will also impact the residual value of that particular option.
It seems the premium brands are better at upselling. Audi, BMW, and Mercedes lead the way both in absolute and relative terms. Drivers of these brands typically add around 15% worth of options. The only non-premium brand in line with these numbers is Seat, interestingly outperforming Volkswagen from the same VAG family at 8%. Drivers of Renault, Toyota, Peugeot and Citroen are much more modest with options adding up to the 2-5% range.
Implications for fleet managers
From a fleet manager perspective, the topic of additional equipment ties in closely with car policy and lease budgets. There are two specific things to include in the car policy:
- 1.A car matrix including maximum budgets
- 2.A limit to trading up
The car matrix is an overview that identifies which job grades are entitled to a car and what the accompanying maximum budget is. For example, a sales manager in Germany, with a maximum budget of €750 per month. The limit to trading up can be expressed in ways such as a maximum percentage of the monthly budget or a fixed maximum amount. Or as mentioned above without any limits, but this is not advised.
Additional vehicle equipment in short
- Consumers have an increasing choice of additional equipment to choose from. This is due to new models coming to market, but mainly because of new features as well as trimline and option package strategies deployed by OEMs
- As options require chips, the current chip shortage is a growing challenge in light of the increasing number of available features and trimline packages. The more specific and extensive your order is in terms of options, the more likely it is it will take longer for the vehicle to be delivered
- Additional equipment is a breed of its own when it comes to determining the residual value. Some options can create an additional investment but keep TCO relatively steady. More often than not, additional equipment will lead to increased TCO
- Fleet managers need to ensure their car policy contains at least a car matrix including maximum budgets as well as a limit to trading up
LeasePlan International Consultancy Services can assist with advise on car selection, budgets, and benchmarking on a country level, taking into account local preferences.
**Sources **i, ii, iii Autovista webinar - specification trends 2021-2025
