Pros and Cons of Offering a Company Car to Employees

Companies often provide vehicles for their employees. Company cars reap several benefits, including access to transportation and low-cost branding and advertising. But with those benefits come trade-offs, including regular maintenance costs, increased liability and high upfront investment.

Appointment-based businesses often have a conundrum when it comes to transportation. Should they buy company cars for their employees?

For companies with mobile employees, providing a company vehicle to workers has benefits and drawbacks. Budget-conscious businesses know that company cars have immediate and long-standing impacts on the bottom line. Still, it can provide fringe benefits like 24/7 advertising and showcasing the company brand.

Companies considering the extra costs of providing vehicles to their workers should heed the pros and cons before deciding.

Pros of Providing a Company Vehicle

Buying or leasing company vehicles provides plenty of benefits to employees and employers. From ensuring access to transportation to advertising opportunities outside of traditional and digital media, a company car makes a lot of sense for the following reasons.

Branding Potential

Company cars provide an excellent opportunity for brand exposure. Allowing employees to drive a branded vehicle for occasional personal use means a company’s logo will appear where it otherwise might not: restaurant parking lots, neighborhoods where employees live and spots with captive audiences, like at traffic lights.?

Most employees do not want to add logos or decals to their vehicles. Company cars offer the best option for this practice. Besides, an employee’s vehicle may not represent the image a company wants to show the public.

Maintain Control Over Company Image

Company cars offer an opportunity to control a significant part of the first impression: appearance. It also increases the authority of the person behind the wheel, whether they are a handyman or a sales representative.

Showing up to appointments and meetings in a car that does not represent the company can be detrimental, whether the car is old and run down or a luxury vehicle that screams high prices. The only way a company controls the make, model and year of employees’ vehicles is to provide them.

Guaranteed Transportation

Access to transportation can be a barrier to employment. The company car eliminates that need. In areas where public transit is unreliable or nonexistent, a company vehicle allows those employees with only one vehicle or no vehicles to make it to work. For families who share a personal vehicle, a company employee can use the company car. Purchasing a newer vehicle can also lead to fewer car breakdowns.

Better Oversight Over Workforce

For employers with mobile workforces, employee oversight can be a challenge. How can the company trust that workers are where they should be during business hours? Company cars reduce concerns about employee activity through optional tracking devices.

Another benefit of company cars is the inclusion of standard safety features. Fleet vehicles often introduce assumed liability for business owners. A great way to counteract that risk is to ensure each employee has access to the same safety features, such as airbags, backup cameras and driver assistance technologies.

Cons of Offering Personal Use Company Cars

Buying a fleet or even a handful of company cars does not come without its pitfalls. Investing in vehicles for a company’s employees is not as simple as visiting a dealership and picking a few cars off the lot before handing over the keys. Any organization thinking about purchasing company cars should consider the following drawbacks.

Large Upfront Expense

Vehicles are among the most expensive assets a company can buy, especially as prices for new and used cars continue to rise. Buying one truck for a construction company can be a line-item cost of tens of thousands of dollars.

Vehicles require investing much capital into one asset, money an employer can use elsewhere. Even with vehicle financing and lease structures, buying many cars at once may be ill-advised.

Higher Risk and Liability

When it comes to cars, more drivers mean more risk. One of the most significant downsides to company cars is the liability for accidents. The company will likely be responsible for any damages if employees cause car accidents while in a company car.

Each company car (and driver) is likely to increase the cost of insurance premiums for those vehicles, especially if financing mandates carrying full coverage.?

Lack of Employee Choice

Employees may not always want to drive the company car, especially if they are uncomfortable with the make or model. People may choose cars for specific reasons, like safety features or accessibility. Other employees may have health conditions or disabilities that require modifications for them to drive.?

Extensive Record-Keeping and Reporting for Taxes

Vehicles are tax obligations, and companies must report them as fringe benefits. Because company cars are a benefit, businesses must pay taxes on them. Accurate record-keeping is essential, especially for depreciation due to mileage.

Continual Costs of Maintenance Add Up

Vehicles require regular maintenance and service, and those costs add up as a company’s fleet grows. Employees who regularly drive their cars for work (or personal use) may even need extra maintenance work or repairs. Someone must pay for those costs, and it usually falls on the employer to do so.

At the end of a vehicle’s life cycle — either because of high mileage or an accident that totals the car — the company will need to buy another vehicle to replace it.

Rapid Depreciation

Depreciation is a reality for car owners, and businesses with a fleet of vehicles are no exception. New vehicles lose up to 20 percent in value in their first year and up to 40 percent overall over the first five years. And while depreciation varies by make and model, cars with significant mileage per year (around 14,000) can lose their value faster.?

Final Thoughts: Should You Provide Employees With a Company Car?

The costs of a company car may make sense for an incredibly successful business, but it can be a monetary albatross to those just starting. Well-established businesses with dozens or hundreds of employees may not want to shell out money for company cars.

Providing vehicles is not the only way to help employees with transportation costs. Car allowances offer funds for employees to buy, lease or maintain a personal vehicle and provide more choice over what they drive. Some companies in areas with robust public transit purchase tokens or cards for their employees.

Companies that obtain vehicles for employees must outline policies surrounding vehicle use. Like any other business asset, a fleet of company cars can make or break a company’s financial well-being.

Top Takeaways

• Company cars are vehicles a business purchases for its employees.
• Companies can choose to brand these vehicles with a logo or leave them with the original paint scheme.
• Company cars allow employees access to transportation for appointments and sales calls.
• Companies that buy vehicles for employees usually assume additional risk and ongoing maintenance expenses.
• Company cars are rapidly depreciating assets that need replacement every few years.

(Reporting by NPD)