Examining the company fleet options

Company car lovers were far from thrilled with last year's budget

Company car lovers were far from thrilled with last year's budget. Bad and all as Benefit-in-Kind (BIK) was, employers offering the perk of a complimentary motor now had to pay tax on the set of wheels they offered. Catherine Cronin reports.

This could entice them to consider replacing "Mercs" with other perks.

But many firms were already doing it for cost reasons, or to give employees more choice as to the car, and whether they wanted to be incurring BIK at all. Some were already offering car allowances as an option, or the only option.

For fleet managers it could mean watching some of their drivers walking away and knocking first on the doors of those selling car finance.

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Most of the major fleet management companies claim the tax changes had only a marginal effect on their business. The backbone of their business is supplying job cars or essential business cars.

"Leasing these for employee usage is the most cost-effective way when business mileage exceeds 20,000 a year," according to Conor Kelly, managing director of Merrion Fleet Management.

"The car allowance is worst when the annual business mileage is less than 8,000," he adds.

For this reason, it's mainly the "perk cars" that are being replaced by allowances, though most fleet managers claim fewer than 3 per cent of their drivers were moved to allowances this year.

Perk cars are rarely used for business miles, and form part of a senior executive's remuneration package. "Of course this may increase in the coming years as leases come up for renewal. I'd say companies are keeping the matter under review," according to another leasing firm spokesman.

But they are closely watching the British market where health & safety and employer duty of care issues have enticed firms to re-offer company cars and withdraw cash in lieu of perk.

"Companies want to regain control over the fleet, which they see as also important for employees regularly meeting customers. Many car preferences involve a lot of horsepower, ideally wrapped in metal hammered to shape in a small town in Italy or Germany.

"The more affordable older and jazzed-up versions did not always have the image a company wished to be associated with," says one company director, explaining why his firm might just be returning to the leasing arrangement after changing to cash allowances at the start of this year.

But the leasing companies did not stand idly by as the BIK rules were changed, and their business started to peter out.

Some are coming up with new packages to retain those now waiving car allowances. These include offering contract hire packages to personal customers for the first time. Until recently contract hire was available mainly to companies as the main way of paying for cars supplied by fleet managers.

With contract hire, the car's residual is calculated depending on factors like the make and model of the car, and the estimated mileage at the end of the hire period. Repayments cover the difference between the price as new and estimated residual value, with an element of risk premium added in.

For employees, it's often the only way of maintaining the similar car to the one they had before the cash allowance.

Lease Plan, the largest fleet manager here, has developed its personal contract hire-based package called "Personal Plan". It says initial car prices are based on fleet-acquired discounts and the package includes full maintenance, tyre replacement and road tax.

Merrion Fleet Management is pioneering a Structured Employee Car Ownership Scheme which is a feature of the British market. It's a joint customer /company initiative where the company decides on the fleet with the cost being shared with the employee. The scheme covers maintenance tyre replacement, road tax and fleet management.

The car is in an employee's name, and he makes the repayments under a contract hire agreement, which is guaranteed by the employer. This is suitable where annual business mileage ranges from 8,000-19,000 miles.

Involving the employer makes these packages more attractive to fleet managers. Not all offer personal contract hire packages.

The contract now falls under Consumer Credit Act and an employee may lose his job, leaving some €30,000 in car-debt, or fail to service the car and meet NCT requirements.

But contract hire is only one of a number of ways of financing a car. Others include hire purchase, leasing and personal loans.

GE Consumer Finance notes a significant increase in finance applications for privately financed new cars this year, claims marketing director Eoin Lynam.

"There is also evidence of a trend towards second-hand high quality executive models in favour of the traditional new family saloon, especially with people coming out of company car schemes in their late thirties and even their forties, who have never purchased a car before."

Lynam says there's an element of the "kid in a sweet shop" with some of them choosing to spend their allowance and a bit more on that car of their dreams, and company car parks are now likely to have a sprinkling of convertibles, 4x4s and other larger executive saloons - though there's also a secondary group who took the allowance, purchased their ex-company car at a knock-down price and are enjoying the extra cash in their pockets.