The company car is dead… Long live the company car

April 29th, 2019

A client and friend asked me the other day, “how’s business?”. I was standing over a three-foot putt and he caught me off-guard. “Same old, same old” I replied. In actual fact, I was side-stepping  answering honestly so I could concentrate on the matter at hand.

Having spent 23 years helping clients respond to fleet needs, including navigating through the 2008 crash, I can rarely recall a more challenging time for British fleet decision makers, company car drivers and the automotive industry as a whole.

There is a lot of new information, but unfortunately there is also misinformation and spin. It feels a lot like Brexit – a lot of uncertainty and confusion.

Diesel, petrol, hybrid or full electric? Company car or cash allowance? How do I respond to clean air zone challenges and charges? Can I be confident about alternative fuel options, their resale values, the charging infrastructure and my driving range expectations? The autumn 2018 newsletter contained a well-informed piece by Karen Christer on the challenges presented by WLTP, a component of a new set of EU-driven vehicle testing measures that show cars in a truer light in terms of tested performance. Manufacturer self-assessment is being replaced by real world driving tests and externally moderated outcomes. The resulting figures have created a new set of CO2 outcomes which, linked as they are to the formula by which company car BIK tax values are calculated, further increase the burden.

So, are we approaching the end of the road for the company car? According to figures from the British Vehicle Rental & Leasing Association (BVRLA), Personal Contract Hire (PCH), in the small fleet and leasing sector, has increased from 46% of all contracts in 2016 to 57% in 2018; this alongside a corresponding reduction of business contract hire (BCH) from 47% to 38% over the same period.

On the face of it, company car drivers are turning en masse to personal leasing, fed up with a progressively hardening tax regime. Actually, this isn’t what is happening at all, or at least not as some suggest.

The BVRLA Member Corporate Lease contracted fleet is actually 9.5% greater than it was in 2014, while the number of car registrations is down over the same period. At the same time, HMRC figures to 2018 show only a 2% fall in the number of taxed company car drivers over the previous 12 months; and this runs interestingly alongside a corresponding increase in BIK taxed commercial vehicles, which include multi-passenger capable double cab pick-ups and ‘combo’ vans.

While we have seen definite evidence of those with greater discretionary freedom exiting the company car; this is proof mainly that the stepped taxation regime is actually working, by penalising those elite few with scope and ambition to drive more expensive, higher emission vehicles.

In actual fact, most of the increased PCH uptake has come from within the existing retail funding marketplace, rather than being through absorption of company vehicle market share. PCH as a method of personal finance is outperforming other forms of new car funding such as loans, HP and PCP – largely at car dealer level, but also online. So leasing as a whole is on the up.

In my view there are two main reasons for this. Firstly, there are many attractive ‘deals’ to be had at a time when the leasing companies and car manufacturers are equally keen to commit to each other on volume purchase terms, and secondly, this evolving supply dynamic has converged with an evolving demographic-led change in ‘buying’ habits, where Usership, i.e. renting, has become the norm.

So, what then is going on with the company car? While we have seen some clients move their staff offering wholly towards a cash alternative, the numbers haven’t been significant. In some regards the referred voluntary take up of PCH contracts by the wider employee base can give the impression of a greater swing to PCH. We have instead seen a continued engagement with the company car, or in some instances the development of a hybrid scheme offering the choice between company cars and cash alternatives.

For most drivers, the company car still has its appeal, even if conceded ever so slightly through gritted teeth, and usually after the net of tax position of an otherwise cash alternative has been scrutinised and the calculator put back in the desk drawer.

For the business owner, a company car allows greater control over driver/car engagement and performance, and duty of care responsibilities, at a time when it is increasingly important to demonstrate these are in hand. Allowing a business-mile driver to ‘opt out’ results only in a continued ‘grey fleet’ oversight risk, not a divestment of responsibility by the company. Hefty fines and even Director custodial sentences await in instances of extreme failure.

For both parties, the right vehicle choice remains essential, but this is nothing new and has long been a required response to the prevailing company car tax regime. The CO2 threshold for the 85% lease rental restriction reduced from 130 g/km to 110 g/km from April 2018, so this represents a sensible choice-defining start point.

Alternative fuels are the future. However, while the reduced fuel consumption offered by current alternative fuel vehicles often makes the vehicle ‘whole-life’ costs stack up, the vehicle purchase/ leasing costs otherwise remain typically higher for those vehicles than for traditional fossil fuel equivalents. And the range of car choices, though improving, remains limited.

The cleaner generation of diesels and petrol alternatives will have an important role to play. The vehicle manufacturers continue to improve engines in recognition of that and so in this regard WLTP et al can be seen as just another bump in the road navigated by the company car. Drive with due care, but otherwise, for the time being at least, much as you were. I still missed the putt.

David Whitehead is the managing director of Allied Vehicle Contracts, a specialist provider of managed vehicle lease and purchase funding solutions for business fleets. David has 23 years’ experience supporting businesses with their car and van acquisition strategies around cost effective and compliant outcomes. David can be contacted on 01422 329111 / david@avccontracthire.co.uk


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