This is probably the most common question we are asked by our clients, born of recent problems for both employees and employers operating company car schemes, who often think we will be helping them transition Fleets from Company Car to Car Allowance. Certainly, HMRC has reported significant drops in individuals receiving a Company Car Benefit (Fleet News – Dramatic Company Car Decline). But is this really the end?
Unfortunately there is no simple answer. It will be for some employees, it won’t be for others, and some will end up with a hybrid style of car ownership that sits somewhere in the middle.
To some degree they must always exist. Asking employees to do 20,000 business miles (or more) a year in their own vehicles is reckless and leaves the business open to many risks. Especially if those employees are area based or cover a region.
The Company Car is changing though. With the recent Benefit in Kind increases, mainly brought on by Worldwide Harmonised Light Vehicle Test Procedure (WLTP), the cost of running and being provided a company car have increased exponentially. Even with July’s company car tax revision by the Treasury (which is positive), it’ll barely stem the tide before the next stage of vehicle testing in April 2020.
Whilst the very reasonable rates for Ultra Low Emissions Vehicles have outlined where the Government sees the future of the company car going, they’ve failed to account for a number of problems of expecting that switch to happen right now and in reality, have made many employers offer a cash alternative, and with many employees all too happy to consider it. (In a future blog I’ll explain why that’s actually bad for the environment, economy and treasury).
So essentially, that’s the basis behind the question. Fleets are shrinking due to an increased cost to both the business and employee, until any problems or objections to the Electric Vehicle can be overcome.
Saying that though, the problems and objections (to Electric Vehicles) have largely been overcome, the product is there! Issues that our fleets have experienced seem to be about supply, cost (both list price and residual value), internal policy and driver perception.
Because of this we actually consider the recent, alarming drops in company car numbers to be relatively reasonable. Especially considering fallout from WLTP, problems with supply and businesses looking to reduce Fleet overheads. We doubt all of these employees will opt back into company cars (or if that option is still open) but certainly, the trend of leaving company cars appears to be slowing and whilst quite alarming in isolation, when you take a manufacturer that came out of WLTP quite positively (Lexus/Toyota and Volvo) then they are actually seeing increases in sales numbers.
We like to think of the two main types of company vehicle (Job Need and Perk) on a sliding scale of financial sense that seems to be getting further and further apart. You only have the highest mileage of Job Need users on one end of the scale, and the only Perk users will be those who can make an Ultra Low Emission Vehicle work for their circumstances (so either very expensive, or low mileage).
As well as that, we have more businesses getting creative with those leaving the car schemes. Salary Sacrifice, Internally promoted affinity schemes and other car related benefits seem to be considered as a half way measure for those leaving car schemes, offering a product that acts and feels a little like a company car but gets employees used to self funding their own vehicles.
Despite that, there will always be employees on the high mileage side of that scale. For the driver doing over 20,000-25,000 miles p/a, we doubt that there are any cash allowances offered that would cover the cost of an equivalent vehicle at those sort of mileages. And that’s only considering the commercial aspect, not even considering risk, environmental impact and reimbursement costs.
If you’d like to talk about any of the issues discussed then please get in touch.
Simon McKee
Senior Fleet Consultant