Fleet and vehicle manufacturer strategies on company car optional extras are expected to be reconsidered with the introduction of the new vehicle emissions and MPG test procedure, known as the Worldwide harmonised Light vehicles Test Procedure (WLTP).
Until now, vehicle options have not impacted the defined carbon dioxide (CO2) levels of cars with the exception of wheel size, number of seats and transmission type. But WLTP takes into account all available options such as air conditioning, leather upholstery and the addition of a sunroof thus making the variation in CO2 levels – and thus tax rates – vast.
The new vehicle mileage and emission testing regime was introduced this month (September) to replace the 20-year-old NEDC (New European Driving Cycle) procedure and is designed to provide fleet operators and company car drivers with a more realistic ‘real-world’ driving view of the data.
WLTP is being introduced in two phases:
- From September 2017 for all new car and van models requiring a new type approval number
- From September 2018 for all cars and vans
WLTP car performance figures are expected to be highlighted on manufacturer websites and in brochures from late 2017, as new models are approved.
A new white paper from automotive data analysts JATO – ‘WLTP: The Impact on Tax and Car Design’ – says: “In the future, all car configurators will specify and price vehicles via their real CO2 footprint. As such adding optional extras will typically increase prices and also taxation levels if the vehicle moves from one CO2 tax band to another.”
As a result, JATO suggests that drivers “may choose simpler lower option vehicles” as vehicle CO2 is the tax driver. Furthermore, the white paper makes clear that it will be “increasingly important” to evaluate vehicle selection using whole life costs as MPG can change significantly with each model configuration.
JATO says: “WLTP will impact many elements of the decision-making process for someone choosing a fleet vehicle – taxes will be applied based on the CO2 emission level and whole life cost will be impacted by the real-life fuel consumption values.”
Commenting on the impact of the switch to WLTP on optional extras, the white paper predicts that will have two main implications:
- How vehicle manufacturers design the various optional extras available. JATO suggests that the “option offer strategy will be reconsidered in the interest of simplifying it in light of the WLTP calculation, to evaluate how options will affect the resulting CO2 levels and therefore the tax thresholds. This means that WLTP will add a further layer of complexity for manufacturers when localising vehicles, making additive elements simpler and bundling low impact additions together in markets where CO2 taxes are applied will become crucial”.
- How option design will become a key driver in fleet, company car driver and consumer decision-making. JATO suggests that “simpler vehicles with fewer options may become more popular as consumers seek more affordable models. The industry may see a decline in extras such as a memory function for seats, leather interior or ‘wooden’ accessories which raise weight and emissions without any corresponding improvement in performance. Indeed, few options improve CO2 performance as most add weight or increase energy use. In addition, since features that reduce CO2 emissions are made standard quickly, it’s possible that the automotive industry will move towards more simplified models as standard. Options that can positively impact CO2 levels, such as new dual clutch automatic transmissions or intelligent electrical systems are likely to appeal more to consumers and become more widespread”.
The white paper continues: “Higher CO2 readings under WLTP may result in higher tax levels and because of the need to calculate the effect of all accessories on emissions, communicating pricing to customers will become more complex. Pricing will need to consider additional options, as well as WLTP and NEDC figures.”
The results of WLTP MPG and emissions testing is that, in most cases, official vehicle MPG figures will be worse than equivalent NEDC figures, while CO2 emissions figures will be higher. Industry experts have suggested that CO2 figures on a car-by-car basis could increase by about 20% with introduction of the WLTP (The Buzz: August, 2017).
The new tests, which measure everything from fuel consumption and CO2, to nitrogen oxides (NOX), particulates by mass and number (PM/PN) and carbon monoxide (CO), are part of European regulations designed to improve air quality and tackle climate change.
As well as a tough new laboratory test, all newly launched car models have to undergo robust official on-road testing before they go on sale – an element that no other vehicle testing regime in the world requires.
Regarding vehicle-related taxes – company car benefit-in-kind tax, Vehicle Excise Duty and capital allowances – currently linked to the NEDC test, HM Treasury has yet to decide when to link the tax system to WLTP data. Industry speculation suggests that 2020/21 could be the financial year for changes to be introduced.
An HM Treasury spokesman has previously said it would “look to agree a suitable moment to move the tax system from NEDC to WLTP, based on industry input”, but JATO in its white paper assumes January 2019 will be the changeover date.
During a transitional period between September 2017 and September 2020, the certificate of conformity issued by the Vehicle Certification Agency will show both WLTP and NEDC CO2 values. From 2020 new vehicles will only be tested using WLTP type approval procedure. However, it is not clear yet when the Driver and Vehicle Licensing Agency will start recording the new WLTP figure on V5 vehicle registration documents, or if it will record both WLTP and NEDC figures.
JATO’s white paper concludes: “Changes to taxation at a national level, real life CO2 readings for vehicles and an increased volume of data configuration required for the industry, will immediately change the sector.
“In the longer term, it may impact the way cars are designed. Locking in CO2 efficiency at the start of the manufacturing process will become critical to remaining competitive. WLTP and its impact on tax, may be the first step in making CO2 a fundamental element in the decision-making process.”