Chapter Corner

Warning: Reimbursement Can Cost More Than a Company-Owned Fleet

Posted in: Management Methods, January/February 2014

vans_Insights.pngWhen looking at the entire cost to own a vehicle versus reimbursing drivers at the 2013 IRS rate of 56.5 cents a mile, a company-provided vehicle can cost considerably less. Operating a fleet enables businesses greater control of the ownership-related expenses such as depreciation, interest, tax, registration fees, fuel, insurance, maintenance, and repairs. Right-sizing both the vehicle and the fleet can go a long way toward decreasing the operating expense even in lower mileage applications. But unlike the vehicle's dashboard, there are no blinking lights to warn businesses that reimbursing drivers for using their own vehicles could be dangerous to the bottom line.

One reason company-provided vehicles might be more advantageous than reimbursement is the increasing availability of vehicles with smaller, more efficient engines, resulting in lower fuel spend. In a recent analysis for a midsize sedan, instead of paying 56.5 cents a mile to reimburse a driver, the total cost of ownership for a company-owned vehicle was 44.4 cents a mile. This generated a savings of $7,260 per vehicle based on a savings of 12.1 cents per mile for 60,000 miles over four years. Multiplied by the number of company-provided vehicles in a fleet, the savings can be significant.

In addition to the hard costs savings, some drivers that are reimbursed may be driving vehicles that are unreliable and require frequent repairs that can take precious time and may not be completed by the most qualified repair facility. Reimbursing drivers whose own vehicles may be older and less reliable also can lead to lost revenue due to missed appointments when vehicles break down and are out of service.

Newer, well-maintained vehicles can present a better brand image, as well as improve driver satisfaction, retention, and safety. But the most important decision is to choose the right vehicle to achieve the best balance of cost and performance. A fleet management professional can help ensure drivers are equipped with the best vehicle for their job and the business' bottom line. He or she can assist with proper vehicle and equipment selection to help drive down depreciation by managing both the acquisition and remarketing processes.

Additionally, operating costs can be minimized with a company-owned fleet with a managed maintenance program to monitor and ensure regular service checks, examine invoices for accuracy, and arrange the most economical, timely, and high-quality repairs for fleet vehicles. This program also can yield maximum warranty benefits, rebates, price breaks, and other opportunities to minimize expenses.

Finally, a fuel card program can automatically monitor fuel purchases and mileage for each vehicle, while giving drivers maximum access to the most convenient fueling stations. With newer, more fuel-efficient vehicles, the resulting savings can be significant.

According to a recent article in Automotive Fleet (July 9, 2013), calculating the breakeven point of a company vehicle can be complex: "Three factors that influence the breakeven point of a lease versus reimbursement analysis are residual values and net depreciation, vehicle miles per gallon and fuel per gallon pump prices, and reimbursement rate." The article concludes that comparison calculations of company-provided vehicles versus driver reimbursement favor the company-provided option.

Jeff Krogen is Corporate Remarketing Manager for Enterprise Fleet Management. For more information about Enterprise Fleet Management's environmental stewardship and long-term commitment to the sustainability of the fleet management business, visit http://drivingfutures.com/fleetmanagement/. For more information about Enterprise Fleet Management, visit www.efleets.com or call (877) 23-FLEET.