A company fleet costs more than the amount spent to purchase or lease vehicles. Employers must also account for depreciation, insurance, registration, fuel, maintenance, personal use, administration, accidents, vehicle downtime, and underused vehicles.
These costs are often tracked across different departments and systems, making the complete cost of the fleet difficult to see. For a practical overview of fleet management and mileage tracking, review our related guide.
A total cost-of-ownership review brings those expenses together so finance, HR, fleet, and operations leaders can calculate the cost per vehicle, cost per business mile, and overall value of the program.
The result may support keeping the current fleet, improving its administration, reducing selected costs, reassigning underused vehicles, or comparing part of the fleet with employee-owned vehicle reimbursement.
Quick Answer: What Does a Company Fleet Cost?
The total cost of a company fleet includes every direct and indirect expense required to acquire, operate, administer, insure, and replace its vehicles.
Employers should include:
Purchase or lease payments are only the starting point. The organization should calculate total annual fleet cost, cost per active vehicle, and cost per documented business mile. Employers can also review these ways to reduce company car costs.
Vehicle acquisition is one of the largest fleet expenses, but the purchase price or monthly lease payment does not represent the fleet’s complete cost.
Include:
Depreciation should also be included when the company owns its vehicles. Even when no cash payment is made during a particular month, the vehicles continue to lose value as they age and accumulate mileage.
Calculate acquisition and depreciation costs by vehicle class. Passenger vehicles, trucks, vans, and specialized vehicles may have different costs, replacement cycles, and operational purposes.
Avoid relying on one national vehicle-price statistic. Use the company’s actual purchase, lease, financing, upfit, and disposal records.
Fixed costs generally continue even when a vehicle is driven less than expected.
Include:
Review these expenses by vehicle rather than only at the total fleet level. This can help identify vehicles or employee groups with unusually high ownership costs.
Fixed costs should also be reviewed against vehicle utilization. A vehicle that remains assigned but is rarely used may continue generating insurance, depreciation, parking, technology, and administrative costs without producing enough business value.
Variable costs generally increase or decrease based on vehicle use, mileage, driving behavior, vehicle condition, and operating environment.
Include:
Review these costs by vehicle, driver, vehicle class, territory, and business mile when possible.
Large differences may be caused by:
A higher variable cost does not automatically mean a vehicle or driver is inefficient. The organization should compare the cost with the work performed and the conditions under which the vehicle operates.
A company vehicle may provide significant value to an employee, but personal use also creates costs and reporting responsibilities for the employer. Review the tax rules for personal use of a company vehicle when evaluating this category.
Review:
Administrative costs should also include the labor required to:
Administrative work may be spread across HR, payroll, finance, fleet, operations, managers, and outside vendors. Estimate the time spent by each group and include that labor in the fleet’s total cost. For additional context, review these mileage tracking and personal-use controls.
Some fleet costs appear only after a vehicle becomes unavailable, is involved in an accident, or is no longer being used effectively.
Include:
Do not automatically treat every accident, legal expense, or period of downtime as a predictable monthly cost. Instead, review historical records and create an annual estimate that reflects the organization’s experience.
Vehicle utilization should also be measured consistently. Useful indicators include:
A vehicle that appears inexpensive based only on its monthly payment may become costly after downtime, low utilization, and administrative work are included.
Once all fleet expenses have been identified, calculate the program at three levels.
Add all annual fixed, variable, administrative, personal-use, risk, downtime, and underutilization costs.
Formula:
Total annual fleet cost = fixed costs + variable costs + administrative costs + personal-use costs + risk and accident costs + downtime and underutilization costs
Divide the total annual fleet cost by the average number of active vehicles during the review period.
Formula:
Cost per active vehicle = total annual fleet cost ÷ average active vehicles
Do not use only the year-end vehicle count if the fleet changed significantly during the year.
Divide the total annual fleet cost by the fleet’s documented business mileage.
Formula:
Cost per business mile = total annual fleet cost ÷ total documented business miles
This calculation can help the organization compare different vehicle classes, employee groups, territories, and program alternatives.
However, cost per mile should not be evaluated without context. Specialized vehicles, low-mileage service roles, vehicles carrying equipment, and vehicles needed for emergency availability may produce a higher cost per mile while still serving an important business purpose.
Include the following in the review:
For each category, document:
A high total cost does not automatically mean the company should eliminate its vehicles. For a direct comparison of program options, review company car or car allowance considerations.
Keeping company vehicles may make sense when the organization needs:
The company may be able to lower costs by:
Some employee groups may be appropriate for:
For a comparison of the main options, see company car alternatives: allowance, mileage reimbursement, and FAVR.
Compare the fleet’s complete cost with each alternative rather than comparing only the lease payment with the reimbursement amount.
A mixed program may be appropriate when some employees need company-controlled vehicles while others can reasonably use personal vehicles for work.
Total fleet cost includes acquisition, financing, depreciation, insurance, registration, fuel, maintenance, repairs, tires, technology, administration, personal use, taxes, accidents, vehicle downtime, underutilization, and disposal.
The largest category depends on the fleet. Acquisition, depreciation, insurance, and fuel are often significant, but employers should use their own records rather than assume the same category is largest for every fleet.
Divide the total annual fleet cost by the average number of active vehicles during the review period.
Divide the total annual fleet cost by the total number of documented business miles driven during the same period.
Yes. Include personal mileage, company-paid personal fuel, chargeback administration, mileage reporting, and taxable fringe-benefit processing.
Conduct a complete review at least annually and after material changes in vehicle count, insurance, lease terms, employee eligibility, business mileage, maintenance experience, or company operations.
Not necessarily. The company may need to improve fleet controls, change vehicle classes, reduce underused vehicles, or transition only selected employee groups.
Yes. A mixed program may be appropriate when some roles need specialized or company-controlled vehicles, and other employees can use personal vehicles for business.
A complete fleet review should show what each vehicle costs, how effectively it is being used, and whether the current program still supports the organization’s operational needs.
mBurse can help evaluate:
For a detailed transition analysis, read our guide to transitioning from a company car to a reimbursement program.