Homepage / Blog / Mobire news / CEO of Mobire: the state lacks a clear overview of the total cost of procured vehicles
Car leasing is undoubtedly the most common method of financing car purchases in both the private and public sectors, even though it is clear that this is not always the wisest choice, financially-speaking. Having said that, the state could approach this topic in a considerably smarter way, by replacing vehicle leasing with a needs-based car rental system or one that includes all expenses. This would reduce the total cost of the vehicle fleet and the risk of corruption.
State employees’ car ownership and their (un)purposeful usage is a timeless subject, as it involves taxpayers’ money. Discussions on this topic are always welcome because fleet management, which involves purchasing the cars, technical maintenance and trip calculation, takes up a great deal of officials’ time and government money. However, the present system could be optimised from a number of angles, thus saving at least a fifth of total current costs.
Today, vehicle procurements by government authorities are already partially centralised by the State Shared Service Centre. However, in terms of cost effectiveness, nothing much has changed compared to the time when each government authority procured its vehicle fleet separately. Instead, an additional layer of bureaucracy has been added, making the procurement and fleet management processes even more cumbersome and costly. Costs related to the procurement process can be optimised by creating a common public procurement system and technical requirements, which can be used by all government authorities on equal terms. The procurers should also let go of the outdated idea that leasing is the most prudent financing method. So, what should be changed?
First, we should establish a classification or common standard of procured vehicles, which sets out both the price and technical description for selecting vehicles. In other words, in public procurements it would be unequivocally understood which vehicle class is being procured – procurement participants would find it easier to formulate their bid, and procurers to evaluate the bids. This would also simplify the conditions for implementing a joint procurement, which ensures bigger discounts from car dealers. In addition, with a common classification in place it would be easier to avoid situations where a certain government agency’s requirements for a new vehicle have been made so specific that the only suitable vehicle is a Volkswagen Touareg with a 12-speaker sound system.
Lease payments make up only about 60% of the total costs of using the car (excluding fuel), because there are additional costs such as periodic maintenance, traffic and comprehensive insurance, tyres, tyre change, consumables, etc. Public procurements, however, usually favour the lowest interest rate or monthly payment. Procurements do not include the costs incurred at later stages, and therefore lack clarity on how much the government actually spends on vehicles, and whether the winning bid actually is the cheapest one, when total costs are taken into account.
The solution that provides the most transparent and optimal use of funds is full-service lease, as it allows for pre-calculating all costs and keeping records based on price per kilometre, as opposed to monthly payments. There are certainly situations where predicting the mileage is more complicated, but most institutions should be able to predict their five-year mileage with about 5,000 km accuracy. This would also ensure that business travel is no longer liberally confused with personal travel.
The maintenance time for a single vehicle in government use (tyre change, periodic maintenance, car wash services, claims handling, guarantee work, etc.) is approximately 20 work hours per year. The number of government vehicles amounts to thousands. With a full-service lease, the government would not need to worry about such costly administrative work, as the work currently done by the fleet administrator would be carried out by the rental company. This means that for the same price, the government would get a much better service.
We have several examples from the recent past where taxpayers’ money was abused – be it leasing a car from one’s own company or using government money to lease a car for one’s spouse and son. What is more, one might also attempt to purchase the car outright at the residual value at the end of the lease period, which means that the car’s value is considerably reduced thanks to taxpayers, and is acquired by officials at a far cheaper price than the market price.
With full-service lease, such corruption is no longer a threat, because cars are returned at the end of the lease period and a buyout is not an option. With full-service lease there would also be no scheming with service invoices and other incidental expenses. These generalisations are not meant to offend anyone, but just a few exceptions are enough to highlight the weaknesses in the system and the need for change.
To get the process going, the government might first clarify the job positions for which a vehicle is absolutely essential, and in which cases a vehicle could be replaced with more cost-effective solutions, such as needs-based rental service (CityBee, Bolt, etc.). Also, cars that are currently idle can be made useful by cross-using them, for example within a government entity. To optimise costs even further, idle vehicles could be rented out, such as on the Autolevi.ee platform.
The government could also set an example by meeting the green goals – at least 25% of vehicles used by officials could be electric. The charging infrastructure in larger cities is sufficient to ensure that all work-related journeys are powered by electricity. It would also help achieve cleaner city air and reduced air pollution. Moreover, this could help promote the use of electric cars in general, as it would be the first time for many officials to drive an electric car, and this could potentially lead to them re-evaluating their consumption habits. A good role model here might be our neighbour Latvia – they already have the hybrid vehicle proportion requirement included in their public procurements, and in 2026 it will be replaced by electric cars. Only one question remains – is Estonia ready to face its fleet and seriously consider how to make the system more efficient? We will see.