Of the four major vehicle programs, company-provided vehicle programs make up a significant number. According recent benchmarks, they were the second most popular. A company-provided vehicle program is simple: the company provides its mobile employees with a fleet vehicle for necessary business travel. What’s less simple is the continued expense.
What are the expenses associated with the company-provided vehicle program?
In short, they are:
And those don’t even include the liability of unreported personal use.
If you want a more in depth look at these costs and what they mean to your business, check out our guide, The Total Cost of Company-Provided Vehicles.
The Standard Prices of Fleet Programs
Whether it’s a construction company or a pharmaceutical company, there’s a number of costs every fleet incurs. Big contributors to fleet prices include purchasing or leasing costs, maintenance and repairs, legal costs and fuel costs. Let’s dig a little deeper into each of these costs, beginning with purchasing or leasing.
Purchasing or Leasing Costs
First, there’s the purchase or lease of the vehicles themselves. There are benefits to either side, but in general, leasing is going to cost less upfront with an easier path to replacement in the future. Owning vehicles outright is going to cost more upfront, but that vehicle could be in the field for 10 to 15 years minimum. The price of each vehicle also varies by industry. A sedan might be on the cheaper side, but you won’t see too many oil and gas workers driving out to the field or construction workers showing up to the jobsite in a car.
Those companies are more likely to lease a fleet of F150s, while a pharmaceutical company will opt for a fleet of upscale SUVs. The size of the company and its driver pool will also have an impact on fleet prices. It’s simple math: the number of employees in driving roles determines the number vehicles needed. That will also impact the terms of the lease or purchase. Smaller companies may opt to purchase a number of vehicles while a bigger company may lease 50 or more.
Maintenance and Repair
Like any other car, fleet vehicles require regular maintenance. That means an oil change every 3,000 miles or so, tire rotation every 6,000 miles or so. For some companies, this might happen every quarter. For others, for companies with higher mileage drivers, this will be more frequent. Then there are other parts that need replacement less frequently: air filters, brake pads, windshield wipers. Additional maintenance comes into play when an employee leaves. Now the company has an idle asset to maintain and store until the previous employee is replaced.
Finally, if a fleet vehicle gets into an accident, the company must repair it. Replacing air filters and brake pads is one thing. Start replacing fenders and other auto-body parts and fleet prices take a big jump. Part of that is the price of labor. Another, more recent piece, is the recent updates to vehicle safety. With sensors and cameras built into the vehicle, replacing these parts increases the price. And then there’s the issue of fleet vehicle liability.
Legal Costs
Let’s say an employee driving a fleet vehicle is found at fault in an accident. The other party in this accident is going to want their vehicle repaired. In any other vehicle program, this would be paid for by the driver’s insurance. However, unlike other vehicle programs, fleet vehicles are owned by the company. According to the CDC, that will cost the company somewhere around $75,000.
Now, let’s say the accident was fatal to the other party involved. Now those pressing charges are likely to go after the company. Unlike the cost of repairs, there are other damages the company may be charged with. The cost here isn’t just the amount they’re being sued for or the potential settlement amount. It’s also the cost of the legal team representing the company through the lawsuit.
Fuel Costs
One of the biggest contributors to fleet prices is fuel. It’s standard practice among most companies to give fleet vehicle drivers a fuel card. With a fuel card, employees can gas up at their convenience. As many companies offer allow fleet vehicles to be used personally, fuel cards are ripe for overuse. Some companies account for this by setting up a personal-use charge back. The personal-use charge back is intended to cover the costs associated with personal use of the company vehicle. However, without a record of personal mileage, these personal-use chargebacks are inaccurate and may expose the company to audit risk.
Why do companies continue to use a company-provided vehicle program?
There are a few reasons. One is image control. Your company can choose what vehicles your employees drive to meetings with prospects and clients. Another often mentioned reason is the benefit to employees. Mobile workers get a car out of the bargain, and that’s seen as a plus. Though, as the mobile workforce fills its ranks with more and more millennials, their preference is to drive their own vehicle. There are also industries and businesses that fear that they would have a more difficult time attracting top talent or getting business done if they weren’t using fleet vehicles.
A final reason? It just seems easier. Your company doesn’t have to worry about reimbursing its employees for business mileage in personal vehicles, or what condition those personal vehicles are in. You have the leases, carry out maintenance and repairs, control fuel. But, spelling it all out like that hardly makes it seem easier, does it? Your company shouldn’t have to worry about managing vehicles.
What alternatives do companies with fleets turn to?
As mentioned at the beginning, there are four major vehicle programs. Besides a company-provided vehicle program (fleet), there’s cents-per-mile, car allowance and fixed and variable rate (FAVR) reimbursement. We’ll dive into each one in further detail here.
Cents-Per-Mile
The most popular is a mileage reimbursement, or a cent-per-mile (CPM) reimbursement program. Employers reimburse the business mileage of employees who drive their personal vehicles. The rate that employees receive is heavily dependent on the IRS rate. Whether the reimbursement they receive is enough, or too much, depends on costs like the price of gas in their region. Unfortunately, most CPM programs have problems of their own.
Car Allowance
Another option many employers look to is the car allowance. Those who found a company-provided vehicle program simple would be shocked by how simple managing a car allowance can be. Employees drive their personal vehicles for business purposes and receive a sum each month. Super simple. But, also super wasteful. When an employer uses a car allowance, the IRS considers the sum of the allowance additional income. This sum is therefore taxable. That means the employer pays more than the stipend while the employee receives less. According to our tax waste report, for every $100 companies with car allowance programs give in stipends, they lose $38 to taxes. There is a way to substantiate mileage and remove at least some of that tax waste from your vehicle program. You can learn more about an accountable allowance program here.
FAVR
Perhaps the most accurate option is the fixed and variable rate (FAVR) reimbursement program. This reimbursement program divides the costs of owning and operating a vehicle into the fixed costs (depreciation, insurance, license and registration and taxes) and variable costs (fuel, oil, maintenance and tires), then pays employees both for the business use of their personal vehicles. This program benefits both employer and employee as it is the most individualized, productivity boosting and optimized to avoid tax waste.
What do I do if I’m looking to offload my company’s current fleet?
Switching from a company-provided vehicle program to another option in the next week, or even month, might not be in the cards for your company. But that doesn’t mean you can’t plan for the eventuality. Check out our guide on transitioning away from company-provided vehicles.
