Strategic Benefits: top gear - the company car is as relevant and desirable as ever
Rob Gray, September 16, 2011
Wrecked and heading for the scrapyard, or cruising along smoothly in top gear? Of late, it has been hard to get a handle on the general health or otherwise of company car schemes, but despite some ostensibly contradictory findings, overall indications are there is growth in this market once more.
Research released in July 2011 by fleet database specialist MIB Data Solutions found 23% of company car fleets have shrunk since the technical end of the recession in late 2009, with just 17% growing and 60% remaining unchanged. However, a brighter picture is painted by recent Society of Motor Manufacturers and Traders (SMMT) figures, which point to growing fleet demand, with a 2% rise in June and demand up 3.4% over the first half of 2011.
"When the financial crisis triggered a severe recession, many organisations took the knee-jerk decision to reduce their fleets in an often short-sighted effort to cut immediate costs," says Matt Dyer, commercial director of fleet management services company, LeasePlan UK. "The most farsighted employers, however, saw that cutting fleet can lead to much higher costs in the long term - such as expensive personal mileage claims or vehicle rental costs - and we now see a greater understanding of fleet's value to an organisation. This is one reason why fleet is thriving."
Fleet cars now account for more than 52% of the new car market - up 5% on 2010. It seems both businesses and employees alike are beginning to recognise the value of fleet over private purchase.
Company cars remain a much-loved perk in employee benefits packages and can act as a powerful motivational incentive. Salary sacrifice offers employers a way of extending the perk to employees who would not otherwise expect to be eligible for a company car. With the war for talent now re-emerging in some sectors, suppliers are cannily arguing that salary sacrifice for company cars greatly enhances a remuneration package. Given that salary sacrifice can deliver a valued benefit at a lower cost to the employer than a pay increase, the stage is set for a continuation of market expansion. Moreover, a focus on low-emissions vehicles means schemes can sit easily with CSR goals.
When telecoms company Cable&Wireless Worldwide launched its 'iDrive' scheme through fleet solution provider Zenith Provecta last year, 114 cars were ordered in the first eight weeks alone. "After reviewing our benefits package, we decided that a salary sacrifice scheme, which enables our employees to drive a low-cost maintained car, would make a great addition," says Cable&Wireless Worldwide head of reward, Paul Bissell. "The facts that it can be provided at little or no cost to the business and encourages the uptake of low-emission cars were other key attractions." The iDrive scheme is part of C&W's 'Flex Anytime' offer, which means the benefit can be taken when a need arises. Bissell says he has been delighted with the implementation of the scheme and adds that the take-up rates "speak for themselves".
John Ricketts, compensation and benefits director at global services provider Alcatel Lucent, is also bullish about the future of car salary sacrifice schemes. There are about 350 cars in the Alcatel Lucent fleet, offered to staff either as perks or to employees doing more than 12,000 business miles a year. Participating drivers are also eligible for a fuel card, which can be traded for cash. Approximately 40% of eligible staff opt for the car, rather than the cash equivalent. The percentage has been rising.
"If someone is doing 15,000-20,000 business miles a year, do they really want to put that mileage on their own car?" says Ricketts. "From a company point of view, we need to maintain the company car scheme to attract people into the business. And in terms of corporate liability, it makes sense to offer it."
Clearly, 'grey fleet' (where staff use their own car for business) safety is of concern to employers. What about the costs of company car schemes, however? Wouldn't it be easier and cheaper to deal with manufacturers directly?
Ricketts is convinced otherwise. Alcatel Lucent works with fleet provider, ALD. Outsourcing in this way suits the company, says Ricketts, because it removes the admin burden and helps keep costs in check. Outsourcing advantages he identifies are: there are established systems in place for checking driver eligibility; the 70-80-strong list of cars is reviewed quarterly to ensure vehicles offered continue to be greener and more attractive to staff; bulk discounts are negotiated with manufacturers; and the HR department can rest assured the scheme will keep abreast of any legislative changes.
"With all the changes in taxation we have had over the years, I would like to think the [company car] industry is resilient and future-proof," says ALD national sales manager, Ian Turner. "Our customers are asking us to do more for them. Increasingly they want consultancy advice, a more rounded solution. With changes in legislation down the road, we are working to support customers going forward."
Fleet issues are not always as straightforward as employers might like, but it seems the company car, while becoming greener and greener, is as relevant and desirable as ever.
Case Study: Telegraph Media Group
In March this year, Telegraph Media Group (TMG) launched its Benefits Xchange scheme, with car salary sacrifice considered a logical addition to TMG's staff benefits package. "It is attractive because it provides our staff with access to new cars at preferential rates, with the added advantage of tax and National Insurance savings," says TMG head of human resources, Richard Morgan.
The biggest challenge, Morgan says, was finding the right partner that could "dovetail into our processes and systems, while keeping the administrative burden of the scheme to a minimum". Contract car hire firm Tusker was chosen for its industry expertise.
TMG believed dealing with manufacturers directly would "put too much pressure on the HR Team" from an admin point of view.
"There has been an amazing buzz around the scheme internally and the initial take-up has exceeded our expectations," says Morgan. "The scheme is open all year round and staff are able to access the benefit when it suits them." Morgan takes the view that the scheme is fairly future-proof, given that it is more favourable for employees who choose cars with lower CO2 emissions. As the Government is "keen for people to have new cars that are greener", the scrapping of such schemes is highly unlikely, he argues.