What is a Fleet Vehicle Program?: The Pros and Cons of Company-Provided Vehicles
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What is a Fleet Vehicle Program?: The Pros and Cons of Company-Provided Vehicles

Woman's headshot with blurred background By Lara Gibbons August 10, 2023

Categories: Mobile Workforce Vehicle Reimbursement

Most organizations have mobile employees. Without them getting where they need to go, companies don’t get where they want to go. That’s where vehicle programs come in. One of the most popular vehicle programs is the company-provided vehicle program. This program, also known as a fleet program, can be a great option for your mobile workforce. And, like any other program, it comes with unique challenges. Looking to understand the program better? Here we’ll outline what it is, the benefits and the downsides of company-provided vehicles, the ways it can be improved and the areas that are sticking points.

What is a company-provided vehicle (fleet) program?

With a company-provided vehicle program, businesses provide their employees with a purchased or leased car to meet their driving needs. Companies can manage their fleets internally, or outsource to a fleet management company. Regardless of management, this program has a number of benefits and downsides. We’ll start with the benefits.

Benefits of Company-Provided Vehicles

There are a number of benefits to a fleet vehicle program. Those include specialized vehicles, employee benefit, control of corporate image and vehicle branding. Let’s dig in a little deeper, starting with the specialized use.

Specialized Vehicles

This is an important consideration if your employees are transporting equipment or need access to a specialty vehicle like a service truck, van, or delivery vehicle. The more specific the type of vehicle needed, the stronger the case for providing that employee with a company car.

Personal Use

When the industry doesn’t require specialized work vehicles, employers typically allow employees to drive them for personal reasons. There are a few caveats that keep it from being an employee-owned vehicle. Businesses spell out rules in their company-provided vehicle policies. They typically include restrictions on using fuel cards outside of business hours, prohibiting friends or family members from using the vehicle and a required  personal-use chargeback.

Corporate Image

For some companies, employees’ vehicles play a large role in how their brand is perceived. Showing up to a meeting in an old, rundown vehicle may make the company look unsuccessful. On the other hand, rolling up in a luxury car may come off too showy or may raise eyebrows about company prices and spending. For many companies, the only way to control the make, model and year of the car that your employees drive is to provide them with a corporate vehicle.

Companies may also choose to showcase the brand on employees’ cars. As much as employees may love the business they work for, they may not want the corporate logo plastered on their personally-owned cars.

Full Control and Oversight

With fleet vehicles, companies not only choose the car, they also manage employees’ insurance and upkeep of vehicles. Businesses can also choose any safety features they find important. This might mean installing telematics to track vehicles and gain 24/7 insight into vehicle location. That’s not something employees are likely to volunteer to install in their personal cars. 

Challenges of Company-Provided Vehicles

We’ve walked through the benefits of the company-provided vehicles. But there are also downsides to having a fleet of company-owned vehicles. Those downsides include risk exposure, considerable costs, driver choice and audit exposure. Let’s dive into each of these, beginning with risk.

Increased Risk and Liability

When an employee driving a fleet vehicle is found at fault in an accidents, the company is often targeted for negligent entrustment. Because of the perk of personal-use, that risk isn’t limited to business hours. Too many companies have put off considering the fallout of this until they’re faced with it.

Large, Upfront Capital Expense

Purchasing an entire fleet of cars requires a large amount of capital. For small businesses, this presents an especially big challenge, since it can mean choosing between funding cars or inventory. To reduce the upfront expense, companies may choose to lease vehicles rather than purchase. Businesses should evaluate the advantages and disadvantages of both before making a decision.

Other Costs

Outside of the cost of the vehicles themselves, and potential lawsuit, there are other costs to consider. When a company has a fleet of vehicles they have to pay for automotive repairs, for oil changes and upkeep. Those costs may only come once every three months or so, but across a fleet, they add up quickly.

Fuel is another expense to consider. Businesses typical provide employees with a gas card. Even when employees are limited to using it during the week, fuel spend is incredibly difficult to control.

The Costs of An Idle Fleet

Company-owned cars are sitting idle, but the fixed costs to own those cars haven’t gone away. Companies are still paying for things like leases, insurance and maintenance. For companies with 100 idle fleet vehicles, that’s costing them $60,000 each month. Add in the fact that companies lose $13,000 per year to idle vehicles from employee turnover alone. Not to mention, Motus research finds that most employees prefer driving their own vehicle.

Downsizing a fleet program also requires finding a place to store idle vehicles and a way to transport them there. That’s another expense added to the fixed costs of a fleet program. Imagine if you could save that $70k+ and reinvest it back into the initiatives that matter most right now, whether that’s saving jobs or improving your bottom line? That could make a serious impact.

And the drawbacks of fleet programs don’t stop there. The risk and liability the company takes on can result in costly lawsuits. There’s also the administrative burden of managing a fleet program, think about how that employee’s time could be focused on more strategic initiatives.


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Cyber Risk of Fleet

Much like an enterprise server or network, fleet vehicles become subject to risk once they’re connected to the Internet. This opens the door for hackers to infiltrate the vehicle, backend servers or telematics systems within the vehicle. This type of risk could potentially jeopardize user and corporate data – something that companies of all sizes can’t afford to put at stake.

Employees Choice

While this can be a benefit for companies (i.e. control of corporate image), it also means inflexibility for employees. Employees with families may want a car with specific safety features for their kids. Employees with medical conditions, like back pain, may want a car that’s more comfortable to drive around in all day. These employees will either need an exception to use their own personal vehicle, or they’ll be stuck with a car that doesn’t quite meet their needs.

Capturing and Reporting Personal Use

Many companies allow their employees to drive corporate vehicles outside of work, without insight into how often employees are using the vehicles for business vs. personal reasons. This lack of insight exposes organizations to audit risk and increased costs. Companies are required to report personal use of fleet vehicles to the IRS as a fringe benefit. Inaccurate reporting could lead to penalties or back taxes in the event of an audit. Unless companies have a process in place to accurately charge employees for their personal use, organizations may be losing money each month in foregone personal-use chargebacks.

Fleet Mileage Tracking App

Even with the risk of IRS audit, employees can find tracking their personal use a challenge. Manually recording every non-business trip isn’t anyone’s idea of a good time. However, with the right technology, employees can accurately capture their personal miles. This ensures they’re charged an accurate amount for their personal use. No more, no less. Additionally, with an accurate measure of personal use companies can achieve a high level of visibility without resorting to costly telematics.

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Alternatives to Company-Provided Vehicles

Sometimes, a fleet program isn’t the right choice. It could be the size of the company’s mobile workforce, the lack of need for specialized vehicles or potentially the cost. Regardless, there are alternatives to a company-provided vehicle program, including: car allowances, mileage reimbursement and fixed and variable rate (FAVR) reimbursement.

Car Allowance

With a car allowance, employers simply pay employees a flat amount each month. This is easy on administration and easy to plan for financially. It’s also taxable. Typically, all employees receive the same amount, which may be providing some drivers with more than they need while not giving others enough.

Mileage Reimbursement

With a mileage reimbursement, employers pay employees at a cents-per-mile rate. Most companies that provide mileage reimbursements do so at the IRS mileage rate. Like car allowances, businesses provide mileage reimbursements at the same rate across their mobile workforce. Again, this can create winners and losers.

Fixed and Variable Rate (FAVR) Reimbursement

With a fixed and variable rate (FAVR) reimbursement, employers pay employees for both the fixed and variable costs of driving. The right vendor ensures these payments are specific to each employees location. Unlike the other options, mobile workers must drive 5,000 miles monthly to qualify for FAVR.

Weighing Your Options

Company-provided vehicles clearly have a unique set of advantages and challenges to consider. In general, the more specific the car your employees need or the more control your organization wants over the vehicles, the more reason to provide company cars. On the other hand, if your company wants to mitigate risk or provide more flexibility to employees, reimbursement for personal vehicles may provide a better option.

Regardless of which works best for you, to maximize the benefits of your vehicle program while minimizing the drawbacks, it’s important to have a company policy in place that promotes driving safety, provides visibility into driving behaviors and ensures a fair and cost-effective program for your employees and your company.

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Next Steps

Adopting a new vehicle program or transitioning from an old one is a big decision. Learning everything about the potential alternatives would be a good next step. With a proper understanding, you’ll be able to make the best decision for your company. If transitioning from company-provided vehicles to personally owned vehicles seems like too big of a step, you might want to consider implementing a fleet mileage tracking app. Interested in learning more?

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