While some industries had a great year, for many 2020 was a year of loss, forcing them to re-evaluate priorities and figure out how to survive. Covid-19 is now forcing many organizations to decide whether to continue offering a company vehicle to employees.
Covid-19 and company vehicle fleets
Covid-19 has forced many organizations to perform an extensive review of necessary and unnecessary expenses. Many organizations and industries faced lower sales and reduced operational success, and their leadership made frequent calls to identify savings opportunities with the goal of surviving or even thriving in the midst of the pandemic.
Expenses that were once an afterthought or off limits were suddenly on the table for discussion. For many industries, this has meant a renewed willingness to question company-issued vehicles for employees. Undoubtedly one of the most desirable perks available, the company car has long been seen as an essential tool for hiring and retaining top talent.
In the past, operations and sales divisions have viewed the company vehicle as a tradition woven into the inner fabric of an organization. Removing such an attractive perk has often been avoided at all costs because it would be such a disruptive move. But now considering a move or partial move from a fleet is being viewed as a fiscal responsibility or even an operational necessity.
Fleet management problems and Covid-19
Apart from economic pressures triggered by decreases in sales and demands for services, unique circumstances brought on by the pandemic exposed or exacerbated existing challenges to managing a company fleet.
1. Idle fleets and fixed vehicle costs
With so many people working from home during 2020, many company fleets were underutilized. At the same time, the fixed costs associated with operating a fleet remained relatively unchanged. Such fixed costs include leasing payments, depreciation of company-owned vehicles, auto insurance, and property taxes, which together often form the largest portion of overall fleet expense.
These months of continued expenses without requisite cashflow from sales put some organizations into a financial hole. With remote work and Zoom sales calls likely to play an increased role even after the pandemic ends, some organizations may find that it is simply unsustainable to pay for an underutilized fleet.
2. Personal use of company vehicles
By far the biggest challenge to cost-effect fleet management is personal use. This was a reality before the pandemic, it remained a reality for essential businesses in 2020, and it will remain a reality for the foreseeable future. To what degree does an organization subsidize its employees' personal use of the company vehicle? Often this question is difficult to answer because management simply does not have sufficient visibility into the employees' use of the vehicle.
For organizations that allowed employees working from home to continue using the company vehicle, it is possible that most of the company expense put toward the vehicle was actually subsidizing personal use. It is not that employees are dishonest; but let's face it, convenience is king, and it takes a lot of time and attention to accurately track and report personal use of a vehicle as distinct from business use.
In addition, operating a company-wide personal use chargeback policy is complicated and time consuming, even though it is required by the IRS in order to avoid taxing company vehicles and employees' benefit from them.
All in all, the pandemic exposed businesses with inferior personal use policies and is now forcing them to either manage the program more effectively or pivot away from company-issued vehicles.
(Read 3 Steps to Reduce Company Car Costs to learn more about proper management of personal use policies.)
Post-pandemic future of company cars
The company car has a long tradition in American business. When managed properly, a fleet program is a huge benefit for employees and a helpful tool for employers to attract and retain an effective workforce. We are now at a crossroads where companies are going to have to choose between more effectively managing their fleet programs or reducing or even abandoning their fleets.
Company car programs must be managed to control costs. If left unmanaged the costs are significant and catastrophic. You can’t manage what you can’t see. This means either adopting a personal use policy that provides greater visibility or adopting a different approach entirely, such as a reimbursement program for personal vehicles.
While many struggling organizations will rebound in the near future as the pandemic ends, if they do not take a hard look at their company vehicle program, they will have missed a golden opportunity to embrace more sustainable business practices. With gas prices on the rise again, maintaining company fleets will only get more expensive.
Stay tuned for our upcoming deep dive into how to successfully transition from a company car program to a reimbursement program. In the meantime, try this company car savings calculator if you are interested in adopting an app that helps bring greater visibility into company vehicle use.