Are company cars still a cost-effective benefit to offer employees?

No matter what type of business you manage, it’s most likely that you use cars to run daily affairs. It’s a necessary commodity that has been affected by tightening tax legislations in the past several years. Therefore, the world of company cars, and the cost value of offering them to employees have come under evaluation in many companies. While the changes are primarily cost related, its effects reach farther than finances; it has completely changed the profile of who benefits. This, in turn, has caused changes in company attitudes and buying patterns and has attracted a different kind of company car driver.

Beginning in the 1990s, the criteria on which company cars were taxed has gradually changed, and more recently it has been closely linked to environmental issues. This is a great divergence from the previous system when taxes were almost solely based on the size of the vehicle and the kilometrage used. With this old calculation, you actually received more tax breaks the more you drove. But with the introduction of the new system, the amount of tax you pay is based on how environmentally friendly the car is.

For this reason alone, some drivers are swapping to more ecological cars because they’re more economical and emit lower levels of CO₂. And Euro IV compliant cars aren’t charged the three per cent surcharge. Companies that are evaluating the cost-effectiveness of their company car policy are now considering environmentally friendly cars like the Toyota Prius.

Toyota is a pioneer in the development of environmental friendly products

Toyota is a pioneer in the development of environmental friendly products and an important milestone in this respect was the launch in 1997 of the first mass-produced hybrid passenger vehicle, the Prius. It is the first car ever to comply with the European Euro IV emissions regulations.

The Prius

A second-generation Prius was launched at the New York Motor Show in 2003 and delivers higher power and better fuel economy than its predecessor. The new Prius proves that Toyota has achieved its goal – to create an eco-car with high-level environmental performance with the conventional draw of a modern car.  With the introduction of the latest Prius, it had become one of the most technically advanced cars on sale anywhere. It is now the cleanest family car due to its combination of very low CO₂ and extremely low pollutant emissions. These features combined with its efficient handling and attractive design is proving to be a popular choice by individuals and companies alike.

Diesel cars

Diesel cars are another alternative for drivers considering the switch to a more ecological car. Once again, Toyota has taken the lead and is launching a new era of clean diesel engine performance with the introduction of the Toyota 2.2 litre D-CAT (Diesel Clean Advanced Technology) engine, the world’s cleanest diesel in terms of nitrogen oxides and particulate emissions.

In Europe and other regions where diesel vehicles are common, the development of clean diesel systems that reduce CO₂ levels in the atmosphere is attracting considerable attention.  Based on the Toyota D-Cat concept, Toyota has developed engines with cleaner emissions by introducing such advanced technologies as the Diesel Particulate Nox Reduction (DPNR) catalytic converter system. Combined with Toyota’s extremely high-precision, electronically converted common rail fuel injection system, Toyota’s newly developed DPNR catalytic converter system achieves initial reductions of 80% in particulate matter and 50% in Nox in diesel engine exhaust systems.

Offering company cars to staff is one of the highest costs for many businesses, and with the new tax restrictions, many companies are reconsidering its value. There are different kinds of company cars including light commercial vehicles (small ‘car-driven’ vans used by cleaning companies, cars to perform specific jobs like sales reps and home nurses and executive company cars (as a part of a compensation package). Certain employees, due to the nature of their work, can’t perform their job properly without the use of a car. Therefore the benefits of providing these employees with a company outweigh the tax burden.

Total Cost of Ownership (TCO)

But determining the value of providing company cars to employees is not just a question of finance. Other factors play a role in establishing the worth of offering this perk. They include: total cost of ownership (TCO), brand image and company policy. TCO includes depreciation (difference between purchase price and residual value), interest, taxes, insurance, fuel consumption, cost of service, maintenance and repair. The expense of purchasing and maintaining a fleet is great so you must consider if your money could be better spent elsewhere. There is also a potential financial risk because cars depreciate and maintenance costs can be unexpectedly high. On top of this, insurance and the already-mentioned green tax add to company costs.

The image of the brand includes considerations like prestige, which is especially important for executive company cars, economy (diesels) and ecology (Toyota Prius), which were mentioned earlier. There is a growing interest in this area, as companies like to be seen as strong supporters of the environment. Toyota is recognised as a leader in the industry and received acclaim as the ‘most admired car manufacturer’ and ‘most valued brand’ by Fortune Magazine.

For many individuals, company cars are status symbols and there is a lot of emotion attached to them. In fact, cars are one of the most appreciated benefits by employees leading to staff retention and reward. It gives employees the feeling that they are valued and that they are part of a company. And employees meeting with existing or potential clients must present a suitable image of the organisation to the outside world.

Company policy includes the following factors: driving experience, reliability, hierarchy of cars/hierarchy of management levels and deals with leasing company. Providing company cars is a way to designate different levels of hierarchy within the employee structure leading to recognition and reward. When considering your company policy, it’s important to distinguish between employees who need the cars to perform their job (those who drive many kilometres) and those who should receive one according to their status. In this way, you can determine vehicle grades (based on need, status and salary level) and decide on the maximum cost of each grade. Then you can offer a range of cars within that grade for employees to choose from.

At Toyota Fleet, we are ready to help you find the best solution for your employees in terms of offering them a company car that makes them feel that they’re valuable assets to your organisation.