Both new vehicles and used vehicles are selling at higher prices than ever. Are there any signs that this trend will abate?
Pandemic pushes used car prices higher than ever
Due in part to loss of production by automakers when COVID-19 first hit the U.S., a relative scarcity of new cars pushed up demand for used cars this summer. Demand for personal vehicles increased overall as people looked for ways to avoid mass transit and ride-sharing due to the pandemic.
In August 2020 alone, used car prices surged by 5.4% compared to July. The high demand is expected to continue through the fall, though with production of new vehicles returning to normal, and with the influx of used fleet vehicles for sale in the wake of Hertz's bankruptcy, the spike in prices may moderate.
New vehicles also seeing record prices
New vehicle prices in August 2020 increased by 3.9% over August 2019 and by 0.4% over July 2020. With consumer demand levels so high for both new and used vehicles, it is more expensive than ever to purchase and own a vehicle.
As reported by MarketWatch, "the average American vehicle owner spends $773.50 a month, or about $9,282 annually – up from a year-earlier figure of $8,849." With the overall cost of purchasing and owning a personal vehicle on the rise, what are the implications for your company vehicle program?
Company vehicle programs and car prices
Right now, operating a fleet of company vehicles is going to be costly and challenging, especially if employees are not driving very much. The company still has to make payments on the vehicles. If the fleet is aging and it is getting time to replace vehicles, now is a costly time as well.
If your organization instead relies on employees to drive personal vehicles for work, flexible reimbursement options are more necessary than ever. Many workers are driving less as employers make face-to-face visits to clients or potential customers optional. Some may face unpredictable amounts of time on the road based on levels of COVID-19 within their territory.
All of them will be facing increased expenses for vehicle ownership, especially if they buy a new or used vehicle during this time. Together these pressures make flexible reimbursements more a necessity than ever.
Reimbursements using mileage rates cannot adequately reimburse low-mileage drivers. Standard car allowances lose 30-40% of their value to taxes. All of these approaches create inequities between employees because some employees drive more then others or live in more costly regions.
Explore flexible, customizable vehicle reimbursements that are non-taxable as you consider your organization's plan heading into 2021.