UK: Enduring love.

UK: Enduring love. - In spite of the recent Government White Paper on transport, the company car seems set to retain its popularity. More employees than ever want and expect them.

by Bob Murray.
Last Updated: 31 Aug 2010

In spite of the recent Government White Paper on transport, the company car seems set to retain its popularity. More employees than ever want and expect them.

A car on the company - that enduring part of British business life - has a future in the fast lane, not the garage. Results from an exclusive Management Today/ PHH Vehicle Management survey of 100 company car fleet decision makers points to more cars, more employees driving them and bigger budgets to pay for them - a message that sits uneasily with the objectives outlined in the Government's recent White Paper on transport policy. People love their company wheels and the survey shows that it would take drastic action, probably more drastic than the Government is currently proposing, to encourage drivers out of their company cars and on to public transport.

Even before the Government's recent announcements (see box, page 85), 99% of those surveyed said they were aware of the Government's transport aims, although only 8% said their company car policy had been significantly influenced by them.

Although six out of 10 managers claimed they were personally in favour of policies to reduce dependence on company cars, only just over a quarter said they were doing something to reduce the number of employees eligible for their company's schemes. Many of those surveyed even doubt whether reducing the number of company cars would reduce road congestion and pollution at all. And because of this, only a quarter of those surveyed said they wanted a situation where company cars were much less attractive for employees than they are at present. Paul Eyton-Jones, head of marketing at PHH Vehicle Management, puts it thus: 'Even if companies did away with their fleets, it probably would not mean fewer cars on the road. For that to happen, individuals will need to feel differently about cars and how often they use them.'

Such a negative view on the Government's transport policies becomes easier to understand when one looks at the personal transport habits of those surveyed. Almost three-quarters of them have their own company car, with just 3% paid a cash alternative.

Virtually all drive to work in their cars, with only one in 50 coming into work via public transport. Half of them never use public transport at all, while just 7% use it once a week. Of the reasons why company car managers shy away from using the bus or train, an awkward and long journey is the key consideration. Seven out of 10 consider their work location either not very well or not at all served by public transport.

David Ward, managing director of Brunel Components, is among them. Commuting between Brunel's two sites at Daventry and Tamworth in the Midlands without a car would be difficult, he says, but not as difficult as getting to work in the first place. 'I live about 20 minutes away from Daventry by car. Without a car, I would have to take a train into Birmingham and then a bus to Daventry. It would take two-and-a-half hours. There is no train station in Daventry. It would be completely impractical.'

At the top of Ward's wish-list is an improved and cheaper public transport network, and this was the most popular response when company car fleet managers were asked to specify the most effective things the Government could do to encourage drivers out of their cars. Just how the fleet decision makers expected the Government to achieve this was less clear. There was the general suspicion that extra funds raised via any form of taxation or extra charges on the use of motor vehicles would not necessarily be spent on public transport. This may explain John Prescott's promise to 'ring fence' all money raised in this way exclusively for public transport needs.

Just over 20% of those surveyed said one major incentive for the reduction in the number of company cars would be a Government promise of cash alternatives to the company car scheme. Incentives like this - effectively the 'carrot' in a 'carrot and stick' approach - were judged most effective at getting company drivers off the roads. As for the 'stick', the managers considered increasing tax on company cars the strongest anti-car measure, with 27% saying it would be 'very effective' in encouraging company car opt-out.

Just over half felt that switching company car taxation from business mileage-based to private mileage would also be a fair way of curbing car use, although only one-third thought that such a system was workable.

Fewer managers (only one in four) considered that tolls for driving into city centres would be an effective encouragement for opting out of company car schemes. Two other suggested changes - taxing parking spaces and introducing motorway tolls - ranked even lower. In each case, only 12% thought these policies would be effective incentives for opting out of company car schemes.

Liz Blythe, fleet co-ordinator at Basingstoke-based Wiggins Teape, sums up the mood: 'Drivers wouldn't like a tax on parking, but it probably wouldn't amount to the cost of the bus fares. It wouldn't put people off.'

Mohammed Moledina, financial director of Barrett Berkeley in Kennington Park, also thinks it will be difficult to convince employees to switch, even given the likely financial penalties for a London-based company.

According to Moledina, 10 staff get cars as a standard part of their remuneration, but only two sales reps actually need their cars for work. Of the remaining eight, one leaves the company car at home for his wife to drive and gets the train in. The others drive, despite the fact that the company base in London is accessible via public transport. 'They are quite happy to fork out £500 a year to park their cars,' says Moledina, 'and they tell me they are still better off driving rather than commuting by public transport.'

For employees of Barrett Berkeley, the issue is the cost and quality of public transport. 'The cost is colossal,' says Moledina. 'For a London company, this is the biggest issue in encouraging people to opt out and take cash in lieu of a car.' He adds that people bring in their cars in spite of limited parking, as Barrett Berkeley provides just three parking spaces (for its directors), with everyone else making their own arrangements.

The firm is one of 28 in the survey - most of which are located in London and the South East - that does not provide parking facilities for all its employees.

Even if a fleet manager's decisions were heavily influenced by Government policy and he or she had the authority to change the firm's policy on company cars radically, it would be unwise to dig up the company car park just yet. The reality in 1998 is that more people - especially those who don't need company cars - expect them.

Most fleet decision-makers agreed that sales and middle managers need cars more than their bosses. Eighty five per cent claimed that the main reason sales or customer services staff are entitled to a car is because their work requires it. Only 18% claimed it is because a car is merely part of an overall pay and benefits package - almost four times fewer than the response of managers when asked about the cars driven by their directors or senior managers.

At the top of the tree, company cars and directors/ senior managers seem to be inseparable: almost all enjoy a car provided by their firm. The majority can choose whichever car they want within their budget and most see it as a standard (and tax-efficient) part of their salary package.

Typical of those put in charge of policy on company cars is Roger Williams, managing director of Walsall-based Coin-a-Drink, which employs about 90 people. He sums up the dilemma: 'You need to offer a good car to attract new people into a job, even though they don't need it to do that job.

We have at least six cars in our fleet that are totally unnecessary.'

While sales staff and middle management have a greater need for cars for their work, not as many get them - and fewer of them have a free choice in deciding which car they drive. At this level, however, most employees are still able to choose their own make and model within a specified budget.

For example, Alliance Paper Group of Manchester runs 120 cars. Because of its free choice policy, it has 10 different manufacturers and 30 different models represented. According to managing director David Rogan, that is not a problem since all the cars are on contract hire. 'Apart from benefiting our cash-flow, it makes maintaining a diverse fleet much easier,' he says.

The benefits of a company car are common to every type of driver. By far the overwhelming plus is the security that a company car brings.

Employers and employees agreed on the value of this, but for the employees, other benefits were close behind. In order of importance, these were: convenience (not having to pay for insurance or road tax and free vehicle servicing), financial benefits and prestige. Unsurprisingly, from the point of view of the employers, all these factors rated less highly, although a fifth did admit that the automobile's prestige was important to the company.

Reliability and durability are the most important factors to John Milligan, an estate accountant at Atholl Estates in Blair Atholl, Perthshire. 'The company's four-wheel drives are the only way of getting around the estate.

They have to be reliable, but unfortunately some aren't.'

Atholl Estate cars are provided to staff for work, with only a handful of drivers authorised to use the cars for private use as well. 'They can opt out of private use if they want to. We are doing everything we can to make people aware of the costs, but company cars aren't as tax-efficient as employees think.'

Others seem to disagree. The survey indicates that the majority of company car drivers believe they are financially better off with a car rather than cash. Six out of 10 fleet managers believe company cars are a tax-efficient benefit. Blythe at Wiggins Teape says: 'A lot of drivers would prefer to choose a more expensive car than a cheaper one, so they must think it is tax efficient.'

Williams at Coin-a-Drink wants to encourage more drivers to opt out and take salary compensation instead. The question for him, though, is how much is needed to make the switch worthwhile? 'Employees' current packages reflect the fact that the company provides them with a car at not inconsiderable expense. They pay tax on that car, but it is nothing compared to what it would cost them to own a car themselves.'

All of this, of course, is good news for manufacturers. Because of the continuing demand for company cars, more than a quarter of fleet decision-makers expect to increase their expenditure on company cars over the next 12 months. Just one in 10 of the companies is looking to reduce spending on their fleet. So manufacturers will continue to benefit, having already enjoyed increasing demand from companies over the past three years.

During this period, almost a third of the companies surveyed have increased the proportion of employees who are supplied with a company car, and over 40% said the amount spent per employee has increased above the rate of inflation.

Only half as many companies have reduced costs or the number of eligible employees.

Part of this greater expenditure is due to a move towards more cars at the luxury end of the market. Milligan at Atholl Estates confirms this.

The reason, he says, that his costs are going up is 'because we have been buying more expensive vehicles over the past two or three years'. The cost of running vehicles is also becoming more expensive, he says. 'We have mostly four-wheel drives and they can be horrendously expensive to maintain. A service charge for a car like the Land Rover costs £600 to £700.'

Even so, only one in five car fleet decision makers considered servicing and repair costs too high. Of greater concern to most is the cost of new cars: two-thirds said it is much too high.

'Our cars (in the UK) are the most expensive in Europe. And it's because of the fleet market that prices are kept artificially high,' according to Williams. Rogan agrees: 'When you travel abroad, it's easy to see how overpriced our cars are. In the US, a new BMW costs in dollars what it costs us in pounds.'

Despite this, most said they would not be tempted to increase their fleet if the manufacturers reduced prices. Only one in 10 said they would definitely increase company car provision in such a situation, although specialist fleet managers are twice as amenable to the suggestion as general managers charged with the responsibility of doing the paperwork on company cars. Other costs play a role as well. The price of optional extras, in particular, was condemned as much too high by almost half of all the decision-makers.

On a more positive note, more than half of our interviewees who have had direct dealings with car manufacturers said they were generally satisfied with the service they received, although they said they would like more information on costs. Most were satisfied with car servicing as well. More than half of them rated it as good and only 7% as poor.

There is a very long way to go before the love affair between employee and company car comes to an end. The Government's policies will take years to result in any meaningful change in attitudes towards motor vehicles. And for those who are managing company car fleets, the demand for a company car remains strong as ever.

COMPANY CAR POLICY: EMPLOYEES' CHOICE OF MAKE AND MODEL

Directors/ Sales/ Middle

senior customer management/

managers services staff other staff

Free choice within

specified budget 67% 49% 57%

Choice of only one or

two basic makes of models 11% 24% 21%

Choice within a restricted

group of makes and models 21% 24% 21%

Table excludes 'don't knows'.

Source: Management Today/PHH Vehicle Management.

THE BENEFITS OF COMPANY CAR PROVISION

VERY IMPORTANT TO EMPLOYERS VERY IMPORTANT TO EMPLOYEES

Security of reliable transport 63% Security of reliable transport 72%

Convenience 29% Convenience 72%

Prestige 20% Financial advantages 51%

Financial advantages 15% Prestige 37%

Table excludes 'don't knows'.

Source: Management Today/PHH Vehicle Management.

POSSIBLE POLICIES TO ENCOURAGE CAR SCHEME OPT-OUT

Very Very or

effective fairly

effective

Increasing or improving the public transport

network 48% 88%

Reducing the costs of public transport 31% 67%

Increasing tax on company cars 27% 64%

Tolls for driving into city centres 25% 52%

Incentives to offer employees cash alternatives 21% 77%

Taxing parking spaces 12% 42%

Tolls for using motorways 12% 40%

Source: Management Today/PHH Vehicle Management.

PRESCOTT CLAMPS DOWN ON ROAD USERS

The Government's White Paper tackles all aspects of policy towards public and private transport in Britain. Deputy prime minister John Prescott's objective is to tackle congestion and pollution by persuading people to leave their cars at home as often as possible.

Improved public transport and traffic management lies at the heart of this initiative, but because money has to be found to finance the improvements, measures will be introduced to require motorists to pay for the privilege of using their cars. Legislation will allow local authorities to charge road users as part of a local 'transport plan'.

The charges will provide a guaranteed income for councils to improve public transport systems in their area. The Government hopes that the availability of this income will encourage private sector involvement in the development of better public transport links.

Potential ways of charging road users include the implementation of an electronic recording system for entering and leaving city centres, systems in which drivers are forced to buy and display a permit and toll-based schemes.

Road user charging may also be introduced on motorways and major trunk roads to reduce bottlenecks during busy periods.

There will also be a clampdown on free workplace parking, which the Government believes is responsible for much of the rush-hour congestion. Local authorities will be given the power to levy a workplace charge which could require businesses to apply for a licence to allow a certain number of vehicles to be parked on site. Companies are already lobbying against this proposal.

THE MOST POPULAR COMPANY CARS

Our survey revealed that BMW and Ford were the decision-makers' most popular choice of company cars. Among the 100 companies surveyed, BMWs account for one in five of all company cars for directors/senior managers, while Fords make up a quarter of all the cars given out to other ranks.

Other makes mentioned include Rover, Vauxhall, Mercedes and Citroen.

The survey also reveals the reasons for this, with BMW and Ford outscoring all others in the decision-makers' list of most important car-buying factors. That list puts durability and reliability ahead (over half mentioned it first - a clear win for BMW over Mercedes) followed by running costs, initial purchase cost and dealer network. In all these areas, Ford consistently outscores Vauxhall. On the question of prestige, over half place BMW at the top.

BMW and Ford are also rated as the most popular cars among employees, with Ford as the top choice for delivery times and BMW making a clean sweep on design/style and engineering. Alliance Paper's Rogan is a fan of BMWs.

He says: 'Of all the cars, the staff are keenest on BMWs. Partly it's a prestige thing - people want to have the BMW badge - but it is also because they are well built, reliable cars, and durability and reliability are important to us.' David Broadbent, financial director of Grimsby and Scunthorpe Newspapers, has about 20 Fords on his 80-car fleet. 'We use the bottom-end models - Fiestas and Escorts - because they offer value for money.

They are economical and the staff like driving them.'.

Find this article useful?

Get more great articles like this in your inbox every lunchtime

Subscribe

Get your essential reading delivered. Subscribe to Management Today