The Rising Costs of a Company Fleet

As the prices of new and used vehicles continue to rise and gas prices remain historically high, businesses are increasingly forced to ask whether the company car is still worth it.

Car prices and fleet operating costs

One of the highest costs of owning or leasing a fleet is the cost of acquiring vehicles in the first place. But just like ordinary consumers, companies looking to update aging fleets are facing higher-than-ever prices. Due to shutdowns in automobile production early in the pandemic and now supply-chain problems related to car computer chips, combined with high consumer demand, the average price of a new vehicle hit $42,736 in July.

CBS News reports that the chip shortage is "likely to keep car prices sky-high through 2023." With so many of the special features that come with today's vehicles run by computer chips, the current difficulty meeting demand will not easily subside – even though many of these features are used by fewer than half of all drivers.

Are today's vehicles actually worth the prices being paid for them? Many consumers have decided to stick with their used vehicles for now, which contributes to increased maintenance costs. Supply-chain disruptions have increased prices on certain car parts, while demand for maintenance of used vehicles has stayed robust, pushing mechanics to have to charge more.

All told, with car prices high, gas prices high, and fleet insurance premiums higher than ever, organizations that provide vehicles to employees face difficult challenges in maintaining and updating their fleet. With used car prices also at record highs (27% higher in September 2021 than in September 2020), there may not be a better time to begin selling off company vehicles and shifting course.

Fleet vehicle costs and employee benefits

The biggest objection to moving partially or fully away from providing company-owned or company-leased vehicles is the popularity of that benefit with employees. In many industries it is simply expected that the organization offer a vehicle as part of its benefits package – particularly for certain roles in the company.

That is no small concern and why it is important to have a thoughtful plan in place to help make the transition while making employees feel valued and provided for. It could involve assistance to employees looking to purchase a vehicle – especially valuable right now when prices are so high.

The plan must involve a carefully articulated plan for future reimbursement of vehicle expenses if employees are now expected to drive their own vehicle for work. To learn more about how to evaluate vehicle reimbursement options (such as our recommended approach, known as FAVR), here are two previously published posts that deal with different dimensions of determining if and how to proceed:

Or go ahead and read our complete guide to transitioning from a company fleet program to a vehicle reimbursement program: how to make that decision, what plans to consider, how to manage change with employees, how to craft a robust vehicle plan.