December 22, 2017 What’s Your Fleet Really Costing You?

How to optimize your investment and cut costs.

By Nick Edwards

We may be living in the digital age, but business still gets done in the real world, and that means getting out of the office and behind the wheel. Many companies depend on a mobile workforce to deliver products or services, and the go-to solution for some is investing in a fleet of company cars for their mobile employees to use.

While a fleet program may seem ideal for several reasons – it can be perceived as a benefit or perk for employees; it lets a company control the vehicle types its employees drive; and it offers predictable lease costs – there are certain expenses adding to a fleet vehicle’s total cost of ownership that companies might miss.

Idle Vehicle Costs

It’s obvious that a company with a fleet of cars would need one for each mobile employee – otherwise, people can’t do their jobs. But that becomes a problem when an employee exits the company, leaving the extra vehicles sitting unused. And even though it’s unused, it continues to rack up costs for the company.

While the car sits idle, waiting for a new hire, the company is still paying the lease payment (including principal and interest) on the car – even though no one is driving it – as well as insurance. The company also must pay to recondition the car by detailing it inside and out, fixing any scrapes or body damage so it doesn’t look used when the next employee sits behind the wheel, and pay to transport the car to a new hire, who might not be based anywhere near HQ.

Simple math shows how much these costs add up:

• Say Company A employs 100 drivers across the country.
• Whenever an employee leaves, it takes 42 days to replace them (per the 2016 national average, according to SHRM).
• Company A sees the average 2016 turnover rate of 19 percent.
• Company A pays approximately $500 a month for a lease payment and insurance.
• Because of those 19 drivers who leave each year, Company A pays more than $13,000 annually for vehicles sitting unused.
• That $13,000 doesn’t account for reconditioning costs and storage costs – which can add a couple hundred dollars a month – or any transport costs associated with getting the idle vehicle to the new hire.

Insurance Claims and Liability

Insurance for a company with a fleet has a significant impact on the bottom line. Many larger companies are self-insured, and sometimes overlook insurance as a cost entirely. Other companies are fully aware that they must pay for insurance if they offer company cars, and they’re fine with it – as long as the insurance costs only comprise the monthly premium. But that is never the case for either type of company.

For starters, a company is liable for its fleet of vehicles 24/7. This can mean, by an amazing coincidence, no dent or scratch ever happens when the vehicle is off the clock, but instead appears after 9 a.m. on a weekday in a client’s parking lot, when the driver was in a meeting and didn’t see the offender who opened their door on the company car.

Of course, there are plenty of honest employees who will take responsibility for backing into a telephone pole while off the clock, and pay out of pocket to fix the car. But there are just as many who won’t. Even employees who would never steal actual cash from a business might not shy away from reporting an accident as happening on the clock regardless of when it occurred – either because they assume the company can afford to foot the bill more than they can, or because they see the car as not really theirs in the first place.

And fender-benders are not even close to a worst-case scenario. If an accident results in injuries or even a fatality, the company can be liable, because it holds the title to the vehicle. That means, in addition to dealing with the tragic circumstances of the accident, the business also faces third-party claims and even a lawsuit, as most attorneys would hold the company liable to get their client a higher payout.

The costs of accidents – minor and serious – add up to quite the expense. While the company probably can foot the bill for a dent here and a scratch there, the aggregate cost across an entire fleet is hardly pocket change. In fact, motor vehicle crashes cost companies $47 billion in 2013, at an average of 16 cents per mile driven.

Fuel Costs

There are generally two main ways to manage fuel expenses for a fleet: a fuel card, or a credit card. Neither of these is a perfect solution. For starters, both create reams of paperwork; every time someone fills up, it’s another line item to be accounted for. The more drivers in a company, the more accounting needs to be done.

And both fuel cards and credit cards invite the temptation of filling up for personal use – a driver’s personal car, their spouse’s car, their kid’s car, or all of the above. Even if a driver isn’t filling up other people’s cars, he might fill up on Friday afternoon and Monday morning and use the company car for personal travel all weekend.

With fuel and credit cards, it’s difficult to substantiate business versus personal miles driven on a tank of fuel when an employee uses a fuel/credit card and self-reports. What seems like a legitimate fuel expense might be substantially – and artificially – inflated by personal use.

How to Lower Fuel Costs

Technology – in the form of a mobile app that prompts drivers to indicate whether they are driving for personal or business purposes in their fleet vehicle, and logs mileage appropriately – can simplify the reimbursement process and better manage personal versus business fuel use.

Instead of using a company fuel or credit card, drivers pay their own costs, and are reimbursed at the end of the month for every business mile they drive. The reimbursement is calculated based on an odometer reading and the data captured by the app, and takes into account the type of fleet vehicle they used, the geographic market they serve, the price of gas in that region, and any other information relevant to that particular vehicle.

A mobile app will help a business reduce its fuel costs by accurately determining business versus personal use, ensuring the fuel costs the company pays are only what it needs to. This also allows the company to appropriately tax the personal-use fuel, putting the company in full compliance with the IRS – because the technology does all the work capturing business versus personal use, without a company needing to rely on a driver’s personal log, giving the company assurance of accuracy.

How to Manage Risk and Eliminate Idle Vehicle Costs

While a mobile app that tracks fuel use helps cut down on fuel costs, a fleet company still needs to worry about idle vehicle costs, insurance costs and 24/7 liability – and that might mean seeking an alternative to a fleet of vehicles.

Especially for companies that operate nationwide, have many mobile employees, or have a high turnover rate, it can make business sense to move away from a company car program and instead implement programs that reimburse employees for using their own vehicles for work purposes.

There are three main reimbursement program options:

A car allowance program gives employees a set monthly allowance to offset their business-related driving costs. This makes it simple for a company to give out a predictable amount of money every month. It’s important to note, however, that reimbursements don’t account for differences in fuel costs, vehicle taxes or insurance premiums in different parts of the country. The employee also receives the allowance as part of a paycheck, meaning it’s taxed like income, which can be seen as a negative by employees. Additionally, companies have little control over insurance beyond asking an employee to provide initial proof of coverage, which adds an element of risk.

Another type of program, cents-per-mile (CPM), reimburses on a flat per-mile rate for distances driven or reported, and is generally best reimbursing infrequent business drivers versus the road warriors who are in their car for hours a day. Generally, the rate is the IRS’s predetermined mileage deduction, but companies can actually offer any CPM reimbursement they think is fair. CPM might be less equitable for employees who work for the same company in different geographic areas; a fair reimbursement for someone in Des Moines might not be fair for someone living in Los Angeles, because of gas price differences.

A third option is a fixed and variable rate (FAVR) program, in which employees receive non-taxable reimbursements for their fixed (e.g., tires, depreciation) and variable (e.g., fuel) vehicle costs.

This program offers several benefits to the company, including flexible program design and control of image and risk. It also provides fair and accurate, geographically based reimbursements, and IRS-compliant mileage substantiation. Employees benefit as well: Their reimbursement is the closest match to the actual expenses of owning and operating their vehicle where they live and work. The plan is consistent, simple and allows flexibility in vehicle choice.

The common benefit of all these programs is the elimination of the fleet entirely – meaning depreciation, insurance, reconditioning and storage/towing costs are worries of the past, regardless of how many employees leave the company.

Improving a Mobile Workforce

Companies that require a mobile workforce have several options for how to better manage a vehicle program. Technology can help reduce extra fuel costs associated with personal use of a fleet car, while moving away from a fleet and toward an allowance, CPM or FAVR reimbursement program can reduce risk and financial exposure.

While all of these options may seem complicated to execute, there are reputable third parties that can help. Any company that requires a mobile workforce and wants to improve on their vehicle programs should consult a business vehicle solution provider to develop a program that meets their requirements and strategic objectives. Business vehicle programs are designed to meet different business needs, and the best solution is dependent on what works best for an individual business and their mobile employees.

Most businesses don’t want to be in the vehicle business, and would prefer to focus on what they do best: their own business. Outsourcing the vehicle program to an expert that can sign a tailored, data-driven business vehicle program can save on administrative costs, reduce physical and monetary risks, and give drivers more convenience and better support.

Nick Edwards is general manager, central U.S., for Runzheimer International. Edwards can be reached at nde@runzheimer.com.

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