Company cars have been popular for decades as a way to provide transportation to company employees. In fact, many companies bought fleets of new vehicles believing that they were controlling costs and saving money for many years. After analyzing their actual costs, however, many of those same companies are discovering that these cars cost more than originally thought.
There are essentially three times when a company spends money on a car; the initial purchase, the maintenance, and selling the car. Because cars are bought in large quantities, nearly every company decides to purchase new cars. This allows companies to specify exactly what they want and save money by buying everything at the same time. New cars also have the advantages of being easy to manage. Since the cars are nearly always purchased simultaneously, it's easy to schedule maintenance. While that's easy for scheduling, it overlooks one key element in the overall cost equation: new cars are far more expensive than purchasing a used vehicle. The truth is that companies with a fleet of vehicles, more often than not, have spent thousands or even millions more on their cars than an individual consumer.
After the cars are purchased, the company is responsible for gas and maintenance. Not long ago the price of gas was fairly constant, allowing a company to save a lot by filling their own cars as opposed to reimbursing employees for the miles they drove. With the price of gas fluctuating wildly over the past several years, however, it is hard to accurately estimate these costs. In many cases, this means that a company ends up paying more in gas alone than it would if it simply paid employees the IRS standard reimbursement rate for miles driven in their own vehicles. In addition, most companies tend to underestimate the true costs of maintenance. For a company, the real cost of maintenance is more than the repair. A company also has to factor in the cost of the employee whose job it is to take the car to and from the maintenance depot, the extra gas, and the cost of a replacement vehicle while the car is in the shop. Simply put, most corporations tend to look at maintenance expenses the way an individual would, when the costs at a corporate level are obviously much greater.
Finally, a company has to look at the cost of selling the vehicle. While an individual simply has to go to a dealership and trade-in their old car, it can actually cost money for a company to sell a lot of vehicles at the same time. Most local dealerships cannot accept a large inventory of the same type of vehicle, so most companies have to sell them for below market prices to a wholesale dealer.
When combined with the higher purchase price, increased cost of gas and maintenance, buying and operating company vehicles might not make sense. If your company is thinking about buying cars or replacing its fleet, make sure that it makes financial sense.
Amanda Sozak is an automotive blogger and contributor to several automotive websites including Auto Warranty One, an extended service contract provider.
