Mark Sinclair's Blog: 30 September 2009 - Banking on business cars
30 September 2009
Mark Sinclair is boss of leasing firm Alphabet
Flexibility and choice are two keywords in the world of benefits. It is as rare to find a company today that doesn't offer a choice between a company car and cash as it was to find one that did 25 years ago.
If you give people choices, they will exercise them. Since peaking at 1.9 million two decades ago, the number of company car drivers recorded by HMRC has fallen by almost half.
This trend led some observers to predict the complete demise of company car schemes. In fact, as any supplier can testify, the number of schemes has remained fairly constant even though the number of drivers opting out was increasing until recently.
Now it looks as if the tide of driver numbers is turning and recent figures from HMRC show a slight upturn car BIK payers. One swallow (or in this case 20,000 more company car drivers) doesn't make a summer but the figures support growing anecdotal evidence that increasing numbers of staff are taking the car rather than the cash option.
I now get asked why the company car is regaining its popularity. My first response is that, with over a million employees in company cars, their popularity never went away!
It is important to recognise that the reasons why employees opt for cash instead of a company car are often complex, whereas the decision to go for the pleasure of getting a hassle-free, all-expenses-paid new car every three or four years is a pretty straightforward one.
The trend towards cash, which is now showing signs of abating, began at a time when company car taxes were rising quite fast while consumer credit was becoming cheaper and easier to obtain. Some employees naturally decided that they wanted (or needed) to sacrifice the advantages of a company car for the lure of cash.
Today the situation has reversed for many employees. Low rates of BIK tax on cars with low CO2 emissions mean that it can often be cheaper, for both the employee and employer, if staff drive company-funded cars instead of acquiring private vehicles out of their taxed salary. This has led to the recent appearance of formal 'salary sacrifice' products (also known as motivational leasing).
At the same time, the explosion in personal debt in recent years has left millions of families financially over-extended. The average UK adult owes £30,000, including mortgage and credit card debt. Many people are now reluctant to take on more debt to fund big ticket items such as cars.
In such circumstances, what could be more attractive or motivating in a job description or advertisement than the words "+ car" after the salary figure?
With recession still biting into the economy, however, business leaders feel that this kind of consideration must play second fiddle to cutting bottom line costs. But there is a clear lesson from earlier recessions when it comes to effect of cutbacks on retaining key personnel.
Freezing salaries and curtailing allowances eventually lead to an exodus of good people, even during a slump. And one potentially disastrous way to score an own goal in a recession is to get rid of company cars when competitors do not.
The head of benefits at a firm with a fleet of 120 cars told me the other day that their car scheme is critical to their competitiveness. The business still offers staff a choice between cash or car (it has over 400 car-eligible staff altogether) but, where a car is an important issue for an individual employee or recruit, not being able to offer them a competitive package is often a deal breaker in their decision to stay or join.
This firm's situation is typical of many companies. It has a steady core of company car drivers and a larger number of cash-takers who make up its 'grey' fleet. Of course from a cost-cutting perspective the company cars represent a clearly visible cost whereas the grey fleet is invisible on the balance sheet and is therefore easily overlooked.
Wisely, this firm recognises that its company cars are a value centre, not merely a cost burden. It is cutting costs nonetheless, through a change in funding strategy, moving choice lists to a Whole Life Cost basis, and introducing a progressive cap on CO2 emissions.
Given the undiminished value of company cars in the eyes of a now-growing number of employees, when it come to looking for savings in the fleet budget, the winning strategy is definitely to take a flexible approach that considers all the choices that are available.