U.S. companies could save a considerable amount of money by providing their employees with the cars they need for work instead of reimbursing them for using their personal cars, a study concludes.
From the joint company/employee perspective, company provision of cars is much more economical, says the study conducted for the NAFA Foundation, a non-profit educational organization formed in 1976.The NAFA Foundation, formed by members of the National Association of Fleet Administrators, provides grants to research projects and teaching programs relating to the administration of fleets of automobiles.
The study compared identical fleet cars with identical annual mileage and retention cycles and found that company-provided cars can cost about $1,200 less to own and operate than employee-provided vehicles.
"The company may be substantially better off or worse off economically under company provision, depending primarily on the employee reimbursement or personal use charge-back method used," said the study conducted by Ernst & Young, an international accounting and management consulting firm.
Also, the employee is either "marginally or substantially" better off economically under company provision, the firm said.
Paul Lauria, who co-directed the research, saidthe study confirmed what many company executives already suspected - that it can be more cost-efficient to provide company cars.
"Most company fleet supervisors are breathing a sigh of relief that we confirmed that," he said. "One of the things that we found quite significant, quite surprising, was the result of Internal Revenue Service guidelines."
Using the base case analysis of an employee using a personal car 25,000 miles for business, the IRS guideline of 24 cents per mile for an employee-owned car "doesn't come anywhere close to the costs incurred by the individual," he said.
"What it says is companies need to look very carefully because there can be some unrealized and unintended consequences," said Lauria. "One would think the IRS guidelines would have been subjected to study and scrutiny."
Companies need to analyze what is appropriate in terms of reimbursement or charge-back procedures when workers are using their own cars, he said. "They really should go back and look at those in light of the study findings."
The case study showed that the net present value, after taxes, of a mid-sized sedan (Chevrolet Celebrity, Dodge Dynasty or8Fotd Taurus) under company provision is $9,925. The same car, the study said, would cost $11,075 if provided under an employee reimbursement plan.
Most of the savings, the firm said, were linked to lower purchase prices available to leasing companies that service corporate fleets.
Assuming 85 percent business use and 15 percent personal use of the vehicle, company provision of a fleet car would cost the employer $7,600, compared to $8,325 if the same car were provided by the employee, the study showed.