Managing the Financial Side of Commercial Fleets

Company Vehicles Used as a Retention Tool, Says Study

November 2014, by Adam Pringle

Photo via istockphoto.com.
Photo via istockphoto.com.

Conventional wisdom suggests that, when it comes to company vehicle programs, reimbursing drivers makes more financial sense than using company-provided vehicles. After all, fewer company vehicles equates to fewer dollars spent, right?

However, the results of a recent research study, “Choosing Between Company-Provided and Personal Vehicle Programs,” commissioned by GE Capital Fleet Services, suggest that conventional wisdom may not always be the best route, and that the company-vehicle route may be worth a second look.

Preferring Company Vehicles

According to the study, which included 154 full-time drivers who drove more than 5,000 business miles during the 2012 survey period, 97 percent of employees who drove a company vehicle, and 70 percent of employees reimbursed for using personal vehicles, preferred using company-provided vehicles.

Survey respondents cited wear-and-tear, personal cost, maintenance, insurance, and fuel costs as the reasons why they preferred using company-provided vehicles.

“The main selling point is ease of use, always having a new or newer vehicle, and having everything managed for drivers by the company’s fleet,” said Tim Mundahl, senior strategic consultant at GE Capital Fleet Services.

In company vehicle programs, companies — rather than individual workers — have control over the condition and maintenance of the vehicle. By contrast, reimbursed employees are required to personally handle many more vehicle-related duties, such as setting up a loan or lease, or paying for maintenance.

Also, while gasoline prices fluctuate, reimbursement programs generally aren’t as flexible in taking into account the volatility of fuel prices, Mundahl said.

Boosting Morale

The study found that potential employees not only are more likely to apply to companies that provide company vehicles — they’re also more likely to stick around once they get the job, saving companies the expense of regularly recruiting and training new employees.

According to the GE Capital Fleet Services study, 64 percent of company vehicle drivers said they would be less likely to leave their current job because of their company’s vehicle program, while 61 percent of reimbursed drivers said they would not be less likely to leave their current role because of the vehicle program.

In addition, 42 percent of employees with company-provided vehicles said they were very satisfied with their company vehicle program, while only 18 percent of reimbursed employees were very satisfied with their company’s vehicle policy. And, 87 percent of company vehicle drivers said they would not consider performing their current role at a company that did not have a company-provided vehicle program.

Mundahl again cited the convenience of company vehicle programs for employees as the main reason for the programs having a positive effect on company recruitment and retention.

“I think that, for people who have experienced both programs and are on a company vehicle program now, they realize that it’s just so easy. They get a vehicle. Typically, it’s replaced every three years or roughly 75,000 miles; it’s always maintained, and when it does have a maintenance issue, they take it in and it gets fixed. There’s no out-of-pocket for them. When they need gasoline, they typically have a designated fuel card that they can use at the fueling station. They never see the bills — they just drive the vehicle,” Mundahl said.

Saving Dollars

Company-provided vehicle programs could also potentially save money. One way company vehicles can help a business’ bottom line is through drivers’ tendency to drive fewer miles when using company vehicles.

According to the study, company vehicle drivers drove an average of 21,138 business miles per year, while personal vehicle drivers averaged 32,523 – an increase of 50 percent.

Mundahl said this discrepancy is likely related to employees’ tendency to not be as accountable when using reimbursement programs compared to company vehicle programs.

“It’s very easy to not be diligent in how you’re recording those miles. And, a vehicle’s odometer doesn’t lie on a company vehicle. It is 100-percent accurate when it says how many miles are being driven.

When keeping an expense report or a mileage report, drivers may round or transpose a couple of numbers. In extreme cases, they may feel like they’re not getting reimbursed enough, and they may pad their expense reports or mileage reports a bit,” Mundahl said.

In addition, with company-provided vehicle programs, there is a certain aspect of the cost that can be leveraged. Essentially, the more miles employees drive, the more leverage there is in the fixed portions of those costs.

Under a typical reimbursement program, or a per mile reimbursement, costs are variable. The IRS rate for reimbursing drivers is 56 cents per mile. By contrast, according to Mundahl, GE Capital Fleet Services’ benchmark average cost for a company vehicle was 36.2 cents per mile in 2013.

“When you see the potential for nearly 20 cents per mile in savings for the average driver, it makes financial sense,” Mundahl said.

Company-provided vehicle programs could also have some indirect benefits: A higher retention rate means businesses would not have to spend as much on the costly process of training new employees, while payroll departments would not have to process hundreds or thousands of expense reports, Mundahl added.

Companies can also use company vehicles to help control their brand image, according to Mundahl.

“If a pharmaceutical rep drives a 20-year-old beat-up pickup truck to go visit doctors, that doesn’t necessarily project the image that the company would want it to,” Mundahl said.

Treading Carefully

Mundahl acknowledged that a company with employees who drive a low number of business miles — under 8,000 miles per year — would be better off with a reimbursement program. This is because the administration necessary for establishing a company vehicle program can be an inconvenience.

“There’s some movement that has to happen with the vehicle: drivers leave the company and people move or transfer from state to state. When a vehicle reaches the end of its cycle, there’s the administration of cycling it, getting a new vehicle ordered, having the driver pick it up,” Mundahl said.

However, Mundahl added that a fleet management company should be able to handle all of those functions, freeing the company’s fleet manager from these administrative burdens.

“While there are some tasks that need to be done, partnering with a fleet management company really abates a lot of those disadvantages,” Mundahl said.

As for advice for businesses looking to transition to company-provided vehicles, Mundahl recommended partnering with a reliable, experienced fleet management company that knows “best practices” and “what not to do.”

“Make sure you have a good data set of your drivers to determine who does qualify and doesn’t qualify for a company vehicle. Understand which vehicle represents the type of image you want your business to portray. Finally, set a start date that is aggressive enough to hit your financial targets, but still allows you to get all of the processes in order to move forward,” Mundahl said.

In addition, for businesses looking to transfer from reimbursement to a company vehicle program, Mundahl recommended conducting a driver survey to determine whether each currently reimbursed driver owns, leases, or has a loan on their vehicle. Above all, Mundahl said, being flexible and considerate when implementing a company-provided vehicle program is crucial.

“If an employee is in a three-year, closed-end lease and can’t turn their vehicle in for 36 months without paying a penalty, you want to give them a little bit of leeway when it comes to when you’re going to require them to shift to a company vehicle program. If you force somebody into a position where they’re going to lose a substantial amount of money, you’re not going to help your goal of employee retention,” Mundahl said.

Ultimately, the myriad benefits of company-provided vehicles are nudging more businesses in that direction, according to Mundahl.

“When faced with a high turnover rate, it’s an avenue that companies pursue knowing that it potentially puts them in an advantage versus their competitors when their employee base is highly transient and moves from company to company fairly easily,” Mundahl said.

Related:

High Cost of Fuel Rekindles Reimbursement Debate

9 Mistakes to Avoid When Playing 'Musical Cars'

Most Company Car Accidents in Israel Caused by Family Members

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