TCO: Total Cost of Ownership helps you make the most of your budget
TCO: Total Cost of Ownership helps you make the most of your budget
What if the price you pay for a car is not the amount it actually costs you?
That's the question behind the concept of Total Cost of Ownership . It means that as well as the lease payment, there are hidden costs that come with owning a car. The cost of maintenance, insurance, repairs, fuel and mileage, as well as CO2 emissions charges, taxes, VAT, etc., can have a significant impact on the budget.
How to calculate a car's full TCO
To calculate the total cost of a company car, you need to assess the impact of business taxes on total non-deductible expenses. Given that under tax rules, some use of the vehicle is considered private and therefore outside the scope of the company's business activities, non-deductible expenses have the effect of increasing the tax base. In short, the amount on which tax is calculated is higher.
At Arval, we add the extra non-deductible costs to the vehicle lease payments. In fact, the non-deductible costs of a company car are not deducted from the TCO but added in order to give the most accurate picture possible. This gives the impression that our cars are more expensive, even though we calculate the right cost!
= Vehicle costs incl. 'Power' + Non-rec. VAT + CO2 emissions charges
+ tax on total non-deductible expenses
To sum up, the best way to get an idea of a vehicle's TCO budget is to choose an 'all-in' operational leasing plan. Cost and risk management is transferred to a third-party, the leasing company. You pay a fixed amount per month, with no nasty surprises. Apart from the financial aspect, you also save your company time and guarantee that your staff always have the equipment they need.
How to compare plans and make the right choice
The best way to compare plans is to work on the basis of the full TCO to determine the choice of vehicle, and then ask various market players for direct leasing plans. In this way, you will be able to compare like with like.
The benefits of full TCO
Full TCO therefore provides an accurate picture of the total cost of a vehicle, including the tax implications. As you know, in Belgium, tax is mainly based on a vehicle's CO2 emissions. This allows us to take into account tax incentives to include greener vehicles in the fleet and to compare vehicles with different power sources.
Finally, full TCO makes it easier for you to put a mobility budget in place along with a cafeteria plan in which a vehicle is offered to employees.
People also say that buying is better than leasing. Is that really the case?
Although this is generally true for a house or an apartment, this is much less the case when it comes to a car because it loses its value over time. In short, from the moment the value of the car begins to depreciate, leasing is the best option.
Questions about the Full Total Cost of Ownership?
At Arval, we have an independent body whose aim is to help you define and implement your fleet and mobility strategy. Arval Consulting, in business since 2008, can answer your questions and help you make the transition from a simple budget to a full TCO budget. Feel free to contact us by e-mail at yves.ceurstemont@arval.be or by phone on 02 240 01 99.
In the end, whether you're a company director or a vehicle fleet manager, having a clear and transparent view of the full TCO of the vehicles in your fleet is essential when it come to keeping your budget under control and helping to reduce costs!
