A company car is a huge perk. But operating a fleet of company vehicles is very costly. Here are five ways to reduce fleet expenses as vehicle costs rise.
The rising costs of a company car
Over the past five years, the costs of purchasing and insuring company vehicles have risen significantly. Gas prices have risen and fallen but remain relatively high. Maintenance costs have risen significantly. Insurance costs have skyrocketed.
Many businesses are either transitioning away from offering company vehicles or finding ways to reduce their fleet costs. If your organization is considering transitioning some or all of its employees away from a company car read "Everything You Need to Know about Transitioning from a Company Car to a Reimbursement Program" for helpful guidance.
Hidden costs of fleet vehicles
Supplying vehicles to employees comes with hidden costs beyond buying/leasing the vehicle and paying for fuel, maintenance, and insurance. Hidden fleet costs are expenses that are not immediately obvious.
Fleet risk exposure/liability
A company car creates 24-hour liability. The employer assumes liability regardless of any agreements between employee and employer. Even an accident during personal use can leave the business liable. Fleet vehicle insurance premiums have risen almost 50% since 2020 due to increasing repair costs, accident frequency, and jury verdicts.
Inefficient driver behavior
Poor route planning and aggressive driving can drive up the costs of a company car. When drivers idle a lot, take longer routes than necessary, or drive aggressively, they increase fleet fuel costs. They also increase wear and tear on the vehicle, such as increased wear on brakes.
Personal use of fuel
Many organizations have vague rules about personal use of company vehicles. When employees feel the freedom to use the company car outside of work, the company ends up subsidizing personal trips through paying for extra gas. Personal use is a major driver of company car costs.
Unexpected breakdowns
If any organization does not stick to a proactive maintenance schedule, then more breakdowns will occur. The unexpected downtime will prove costly beyond just the cost of repairs. When a driver is not on the road, there is opportunity cost as well.
Inefficient deployment of vehicles
Early lease terminations or storage fees can arise in the case of employees leaving the company. If a position goes unfilled for a long time, the cost of under-deployed vehicles goes up. Remember that depreciation as a vehicle ages is a cost that should be planned for.
5 ways to cut company car costs
With minimal effort an organization can reduce company vehicle costs. The key is to re-establish the qualifiers for a company vehicle. Here are five steps to follow (or use our cost reduction calculator):
1. Re-define qualified employees.
Re-define which employees qualify for a company vehicle, whether for business use or as a perk. Some positions are not valuable enough or do not require enough driving to justify the cost of a company car.
2. Transition to a reimbursement plan.
Based on the new qualifications, remove all unnecessary staff from the company vehicle program. Instead, provide a mileage reimbursement, car allowance, or FAVR plan. But first read our guide to making a successful transition.
3. Establish a Safe Driver Program.
A Safe Driver Program can decrease the risk of accidents while teaching cost-saving driving habits. These include efficient route planning, smooth acceleration and braking, defensive driving practices, and regular maintenance checks (tire pressure, oil level, etc.).
4. Manage company gas card carefully.
Create clear policies to manage the use of the company gas card or fuel reimbursement. Best practices include restricting frequency of fill-ups or days eligible for gas purchases without approval. Remember that personal use of company-purchased fuel is taxable.
5. Operate a clear personal use policy.
If your organization does not charge back employees for personal use, institute a charge-back policy now. The personal use policy guards the company from subsidizing personal use and prevents anyone having to pay taxes on personal use. A good mileage tracker that can categorize business and personal trips is an easy way to enforce the policy.
Managing fleet costs and company car usage
The last two ways to reduce company fleet costs are crucial. You need to properly measure personal use and to charge employees according to how much they use the company vehicle for personal time. Otherwise, company cars cost the organization severely. Employees may understate their personal use to minimize their charge back.
To learn how to properly manage a fuel card or fuel reimbursement system, read Three Things about Fuel Cards and Reimbursements You Must Know.
For tips on properly managing a company car charge back policy, read Two Money-Saving Tools for Company Vehicle Programs.
Mileage tracking and company car costs
To avoid paying for unnecessary fuel, an organization needs an effective mileage tracking system to support its fleet vehicle program. As long as the employee has control over reporting mileage, the company will pay for more gas than necessary.
Adopting an automated mileage tracking app will enable reporting of accurate business mileage while protecting privacy. A mileage app can also provide helpful route planning tools to increase efficient driving.
Please contact us for a demo of our mileage tracking software and get a free 30-day trial. The mLog app also comes with an administrative dashboard that can provide helpful visibility into driving habits, route planning, and business productivity insights.
Switching from company vehicles to mileage reimbursement
If your organization is ready to transition some or all of the company fleet to a reimbursement model, this is a challenging process. It will save money but needs to be managed properly to protect relationships with employees.
Read our "Everything You Need to Know Guide" to transitioning from a company car to a mileage reimbursement, car allowance, or FAVR plan.
