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

New car prices and the rising costs of a company fleet

Providing a company vehicle for employees is a great benefit. With vehicle prices so high right now, access to a company car is valuable provision for any employee. But the same factors that make owning a car costly for individuals are undercutting the sustainability of operating a company fleet.

One of the highest costs of owning or leasing a fleet is the cost of acquiring vehicles. Just like ordinary consumers, companies looking to update aging fleets are facing higher-than-ever prices. The average new vehicle cost $48,451 in August of 2023, $10,000 higher than in 2020, when the rapid increase in vehicle prices began. With the United Auto Workers strike ongoing, consumers could see prices rise again as shortages affect the market heading into 2024.

Auto insurance and maintenance costs for fleets

The costs of auto insurance and of maintenance and repairs have increased significantly as well. According to the Consumer Price Index, auto insurance rates increased by 19% from August 2022 to August 2023. And the costs of maintenance and repair rose by 12% in the same time period. 

Supply-chain disruptions have increased prices on certain car parts, while demand for maintenance of used vehicles has remained high due to more people holding on to older vehicles. These factors are 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 remaining historically high but gradually falling and expected to continue falling, 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.

Transitioning away from operating a company fleet

Any plan for transitioning away from company vehicles must involve a carefully articulated policy 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:

• Company Car vs. Employee Car Reimbursement
• Is It Time to Switch from a Company Car to FAVR Reimbursement?

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.