The return of the company car

The past few years have seen company car schemes die out, but there are compelling reasons to re-build corporate fleets, as Alex Blyth discovers.

The company car scheme has become increasingly unfashionable as a benefit over the past five years. Many organisations have opted to offer cash alternatives and have dramatically reduced corporate fleets.

But in November 2005, financial services provider Barclays announced that it wanted to encourage its employees to take company cars rather than cash, suggesting the company car scheme may have regained popularity.

The Barclays scheme covers around 3,500 employees who currently take the cash option under the organisation’s existing benefit scheme.

Catherine Redmond, head of employee reward and benefits, believes there are two good reasons behind its decision to reinstate a company car scheme.

“If someone’s role involves regular driving, we want to be certain they are as safe as possible on the road. Also, we want our company car choices to be as environmentally friendly as possible.”

Barclays may be one of the UK’s largest employers, but that’s not to say all organisations of its size have re-embraced company car schemes.

Between 1999 and 2004, the percentage of companies offering a cash alternative climbed from 60% to 89%; and in 2005 it dropped back to 88%, according to reward analysis firm Monks Partnership.

Fleet street

However, Andrew Cope, chief executive of Zenith Vehicle Contracts, believes that many companies, if they did the sums, would find it cheaper to own a fleet rather offering a cash alternative.

“Many companies set the level of their cash alternatives several years ago. Since 1997, bus fares have risen in real terms by 16%, and rail fares by 7%, while the cost of motoring has fallen by 6%. This means that, unless those companies have reduced the cash alternative by 6% in the past eight years, the company car option is cheaper for them,” Cope says.

The arguments around duty of care are even more compelling. The government plans to extend a company’s duty of care for its staff to the time during which they are driving their cars on business. This means that companies may need to take safety precautions such as restricting the age and mileage of vehicles used by their staff, as well as checking insurance documents and driving licences.

Eddie Amaro, a partner specialising in employee reward at accountancy firm RSM Robson Rhodes, says: “Many companies have failed to look into the full implications of cash alternative schemes. The new duty of care regulations will mean they need to implement a regularly reviewed, up-to-date, clear policy to ensure that drivers on business in a company car or their own vehicle, keep it properly maintained and insured. This, more than anything, will lead to the return of the company car to the UK’s corporate car parks.”

As a general rule, company cars tend to be newer and more environmentally friendly than private vehicles, so as organisations seek to become more socially responsible, they may wish to rebuild their corporate fleets.

Peter Hollinshead, head of vehicle finance at HSBC bank, says: “Manufacturers are now producing diesel cars that are good to drive. If anyone doubts that corporate fleets are popular again, I’d advise them to look at what the finance directors are doing. They were the first to move into cash for cars, and now they’re the first to go back.”

Be flexible

Some believe the answer is not for companies to choose between company cars and cash alternatives, but for companies to offer that choice to their staff. For example, adhesives manufacturer Henkel gives its staff three options. They can have a company car, join the employee car ownership scheme or take a cash allowance, so long as they do not spend it on a car that is harmful to the environment.

Alan Thomas, staff resourcing and development director, says Henkel has tackled the duty of care and cost aspects.

“We have treated the car as an extension of the workplace since 1996, so the impending duty of care rules are not new for us. Every three years anyone who takes any of our three options has to undertake driver training. Through doing this, we save 96,000 a year in reduced accident claims and insurance premiums. We also believe that offering employees this choice helps us to motivate and retain them,” he says.

As with every area of staff reward, flexibility is the key. In a recent report by accountancy firm Deloitte, entitled Goodbye Company Car?, Alison Haynes, a partner at the firm, concluded: “No longer… is the company car the panacea for every single employee. Instead, employers must provide a range of solutions embracing company cars, straightforward cash allowances and employee car ownership schemes.”