Why You Should Benchmark Your Car Allowance

Written by mBurse Team Member Feb 13, 2018 9:07:24 AM

According to AAA, the average cost of owning and operating a new motor vehicle in 2017 was $8,469. But it’s not actually that simple. If you drove a small sedan, you may have spent closer to $6,000. If you drove an SUV, it may have cost you closer to $9,500.

The cost of vehicle ownership gets even more complicated when you factor in geographic location. A 2016 study by the personal finance site GOBankingrates.com found a wide disparity in three-year ownership costs by state. Owning and operating a vehicle could cost you 75% more in expensive states like Michigan or California than in less pricy states like Missouri and New Hampshire. And it’s not just high gas prices that drive up costs—insurance rates, registration fees, property taxes, maintenance costs, and environmental factors all can affect how much it costs to own a car. 

Given that reality, why do so many companies pay the same car allowance or mileage reimbursement rate to all their employees, regardless of geographical location? The answer is probably that it keeps things simple, and it seems pretty fair—that is, until you examine the actual costs vehicle owners face across the country.
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Gas Prices
To get a general idea of fuel costs GasBuddy.com's heat map shows a wide variety of gas prices across the country. The west coast is mostly red (>$2.99/gal), whereas there’s lots of green across the southeast (<$2.20/gal). In December 2017 in Santa Barbara, CA, the average price was $3.17, but in Calhoun, TX, it was only $1.97. That’s a difference of $18 for a 15-gallon fill-up, which adds up over the course of a year.

Insurance, Registration, and Fees
Similarly, the average cost of insurance can vary widely. In Michigan, the average yearly rate is $2,551, but one state over in Ohio, it’s only $926. Different states have different regulations as well as accident rates and repair costs, all affecting insurance premiums. Different states also have different registration amounts, personal property taxes, and additional fees levied on vehicles, adding to the variations in ownership costs.

Maintenance and Repairs
The disparities deepen when we compare maintenance costs. If you’ve ever used the repair estimate website RepairPal, you’ll know they don’t just ask you for the make, model, and year of your vehicle; they also ask you for your zip code. This is because mechanics in different parts of the country charge widely varying rates for the same services. For example, if you drive a Honda Accord, a routine service like replacing brake pads will cost you between $177 and $307 in Iowa, but in San Francisco, you can expect to pay between $216 and $357. That kind of difference can add up over time, especially when it comes to more labor-intensive jobs.

Environmental Factors
Some geographical locations are harder on cars than others. Extreme cold and extreme heat both can affect a car’s maintenance schedule, and salty roads in snowy states can cause the undercarriage to rust. Driving regularly in any of these conditions will increase maintenance costs, adding once again to the disparities in vehicle ownership costs.

Conclusion: Varying Costs Require Flexible Reimbursement Policies
Given the disparities in vehicle costs across the United States, it makes sense for companies with mobile employees to re-evaluate their car allowance or reimbursement policies. It simply isn’t fair to pay two employees the same monthly allowance or mileage rate when one employee faces higher costs than the other.

An equitable approach to travel reimbursement requires customizing the allowance or reimbursement to the actual costs experienced by different employees. This may sound complicated and time-consuming, but at mBurse, we make it simple. Contact us today to learn more about our fair and flexible reimbursement plans.

2017 car allowance survey results

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