Analysis
11 Apr 19

Why cash for car policies pose problems for fleets

The rapid rise in personal car contracts is posing challenges both for employers and for leasing companies.

Businesses are finding it difficult to maintain the same levels of control over staff who opt out of a company car, while leasing companies are having to address end of contract wear and tear issues with private individuals for the first time.

Increases in company car tax as well as a desire for greater vehicle choice have led to an increase in drivers deciding to accept a cash allowance in place of a company car, especially in the UK.

Some drivers are using this cash to lease their own car. The BVRLA has reported a 24% rise in the size of its members’ personal leasing fleet between the final quarter of 2017 and the same period of 2018.

Higher CO2 emissions

Other drivers, however, are spending their allowance on older, less environmentally-friendly cars, according to Lex Autolease, the UK’s largest leasing company.

Ashley Barnett, head of fleet consultancy, Lex Autolease (pictured below), said employees still see the company car as a benefit and appreciate changing their cars every four years. But, he added, drivers have become fed up with the limited choice of cars on fleet choice lists and disillusioned with the amount of tax. He anticipates the numbers of drivers accepting a cash alternative to their company cars will increase unless “the Government does a radical U-turn,” he said, referring to the steep annual increase in the UK’s benefit in kind tax regime and the complete absence of detail about how company cars will be taxed from the 2021 financial year.

“There’s a massive and growing number of cash takers. We have seen that in our own fleet and we’ve seen that in our industry,” said Barnett at the ACFO spring seminar.

“If a business has a policy around sustainability you don’t want a car policy that is at odds with it.” Ashley Barnett, Lex Autolease

This trend is creating a headache for companies that want to maintain a fleet policy, as experience indicates that drivers are failing to comply with company policies. An audit of one of Lex Autolease’s customers, for example, showed that the most common age of cars driven by ‘grey fleet’ drivers (employees using their own private cars for business journeys) was between seven and 10 years old, despite the business setting a maximum six-year threshold.

“When people go for cash they are not bothered about how old it [a car] is or how clean it is. They are not looking at the emissions figure as their first decision-making factor,” said Barnett.

More important factors, he suggested, are the badge on a car’s bonnet and the driver’s budget, leading to vehicle decisions that are completely at odds with the Government’s environmental intentions.

“If a business has a policy around sustainability you don’t want a car policy that is at odds with it,” said Barnett.

Cash allowancs increase costs

The issue also raises important cost implications, too, because “we tend to see other travel costs go up through the roof,” he said. Drivers in receipt of a cash allowance soon increase their use of trains and other transport options, the cost of which they claim through expenses.

“Too many businesses view company cars as a cost and not a benefit, but some policies have become too restrictive,” said Barnett. “Fleet managers have the ability to take back control, promote company cars as a reward and give employees the responsibility to select the car they want. We could then see an increase in company car take-up. Company cars should be valued because they provide a hassle-free comfort blanket for employees, particularly in terms of maintenance and insurance.”

The problems of fairness

Employers offering a cash alternative to their company car drivers also have to reconcile potential inequalities between employees in terms of access to the same cars, warned Mike Moore, tax director at professional services firm Deloitte.

“A company car enables an employer to provide a harmonised benefit which masks some of the personal issues that an individual may have,” he said.

Higher mileage drivers will need a larger cash allowance to maintain access to a similar car as their colleagues.

With the price of personal contracts based on individual mileage, both business and private, some drivers may not be able to afford the same car as their colleagues because of their higher mileages. This means employees at a low grade who drive high business mileages may require the cash allowance of a senior member of staff to maintain fairness in terms of their access to a car, creating a headache for HR departments.

There is also the risk that higher mileage drivers will face expensive end of contract charges for exceeding their mileage thresholds, because there is no longer an opportunity to pool mileages in the way that a fleet can.

End of contract charges

The rising incidence of end of contract issues has led the British Vehicle Rental and Leasing Association (BVRLA) to update its industry standard ‘Fair Wear and Tear Guide: Cars’, in order to explain end-of-contract standards to private individuals.

“Often drivers do not have the luxury of a fleet manager or anyone else to explain how to look after a vehicle – and there are a lot of people who do not know how to look after a vehicle,” said Nora Leggett, BVRLA head of member services.

She said that the BVRLA had been involved with 263 complaints about end of contract charges in 2015, which the customer and leasing company had failed to resolve between themselves, and that this figure rose to 993 last year. The association is also receiving 400 enquiries per week about end-of-contract standards.

“Many people do not know how to look after a vehicle. We need greater transparency. 71% of all complaints are about damage – alloy wheels feature very highly in the mix,” said Leggett.

Damage to alloy wheels is a frequent source of dispute at the end of contracts.

 

 

She added that private customers are generally not aware of their responsibilities to look after a vehicle, failing, for example, to put mats in the footwells or even to have cars serviced according to their maintenance schedule – a particular issue for leases that don’t include service and maintenance as standard.

“More ‘hand holding’ is required. It’s not acceptable to have no contact between the leasing company and the customer for three years of a lease,” said Leggett.

The updated BVRLA guide also recommends that drivers self-appraise their personal lease car 10 to 12 weeks before the end of the contract to give them adequate time to repair any damage or replace any missing items (such as a key).

“The aim of the guide is to describe the condition vehicles should be returned in and to be a source of advice to drivers. I don’t think that we can eradicate complaints, but we can make a much better job as to what ‘fair wear and tear’ standards are and how they can be implemented at end of lease,” said Leggett.

Authored by: Jonathan Manning
Advertorial: