A company car is a huge perk. Employees get to drive a nice vehicle without all the expense and liability. The company can attract top talent while projecting a uniformly classy and trustworthy image. But company cars come at a cost.

The increasing costs of a company car

Over the past three years, the costs of purchasing and insuring company vehicles have risen significantly. Gas prices have risen and fallen but remain relatively high. Under the current circumstances, many businesses are either transitioning away from offering company vehicles or finding ways to reduce the costs of operating a fleet.

If your organization is currently considering transitioning some or all of its employees away from a company car and into a vehicle reimbursement program, take a look at "Three Alternatives to a Company Car" as well as "Everything You Need to Know about Transitioning from a Company Car to a Reimbursement Program" for helpful guidance.

If you are not ready to explore that drastic change, read on for some helpful tips on cutting costs while still providing a company vehicle to employees.

The financial risks of company vehicles

A company car creates 24-hour exposure to liability. The employer assumes liability regardless of any agreements or signed documents between the employee and the employer. Even if the employee or employee’s family has an accident during personal use, the business is still likely to be held liable.

Plus, companies pay for fuel, licenses, maintenance, and taxes and incur the cost of depreciation. And don’t forget, early lease terminations or storage fees can arise in the case of employees leaving the company.

There's also the significant expense of commercial auto liability coverage. Without the protections of a good insurance policy, your organization will be at significant risk of costly lawsuits in the event of an accident or injury related to the use of the vehicle. The end of 2022 saw the 45th straight quarterly increase in commercial auto insurance premiums. It has not been usual during the past few years to see annual increases of 20% to 40%, largely due to increased awards by juries in lawsuit verdicts.

4 ways to reduce the risks and costs of a company car

With minimal effort and without additional cost, your company can easily reduce operational risk and costs by re-establishing the qualifiers for a company vehicle. Here are four steps to follow (or use our cost reduction calculator): 

1. Re-define employees that need a company vehicle either for business use or a perk.
2. Remove all unnecessary staff from the company vehicle program and provide a vehicle reimbursement or allowance instead.
3. Establish a Safe Driver Program to decrease the risk of accidents and negligent entrustment suits.
4. Create new policies to manage the use of the company gas card or fuel reimbursement policy.
5. Re-evaluate how you manage the personal use and charge back policy. 

The last two steps 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, your company cars are costing you severely. More often than not, employees grossly understate the amount of personal use to minimize their charge back at the expense of the company. Often personal use is a manual process and self-reported on the honor system.

For more information on how to properly manage a fuel card or fuel reimbursement system, read Three Things about Fuel Cards and Reimbursements You Must Know.

For more information on how to properly manage a charge back policy, read our Two Money-Saving Tools for Company Vehicle Programs. 

The importance of a mileage log to decrease the costs of a company car

Because you must reimburse the fuel costs of company cars, and because you don't want that reimbursement to include personal fuel, you need an effective mileage tracking system. As long as the employee has full control over reporting mileage, you're going to be paying for more gas than is necessary.

That's why you'll want to take advantage of the new generation of automated mileage tracking apps that reside in the employees smartphone or tablet and that report accurate business mileage while protecting privacy.

It may sound daunting to get this problem under control, but there are many tools on the market that will help accurately measure personal use. Take a look at some of our tools that will control costs and reduce redundant administrative time here. Please contact us for a demo of our products or tools that will save your organization.

Or go ahead and take the next step and read our "Everything You Need to Know Guide" to transitioning from a company car to a different program.