January 2008, Automotive Fleet - Cover Story
Why Reimbursement Doesn't Work
By Mike Antich
13 More Reasons Why Reimbursement Doesn’t Work
1. Increased Temptation to Defraud the Company.
Reimbursement opens the door for the padding of business mileages in order to increase allowances.
Drivers keep poor records of where they drove and for what reason so you pay without guaranteed knowledge that you are only paying for business mileage. The cents-per-mile on reimbursement, which the IRS raises annually, can be higher than the cost-per-mile cost of having well-managed fleet vehicles.
Also, some employees may attempt to get reimbursed for unauthorized expenses and there may be a deception of the true operating costs. It takes time and labor to monitor these issues.
2. Employee Productivity Will Decrease.
A business that does not provide a company vehicle has little or no control over the condition of the employee’s vehicle. If the amount of reimbursement by the company is not sufficient to cover actual expenses, the employee may defer preventive maintenance, which can lead to breakdowns, downtime, and unnecessary car-rental expense. Also, since preventive maintenance is an immediate, out-of pocket expense, there is a temptation on the part of the employee to postpone routine maintenance, as well as more expensive mechanical repairs.
Depending on an employee’s financial wherewithal, some may find it difficult to pay for repairs out-of-pocket. If unable to pay, the vehicle may have to sit idle at the repair facility forcing the driver to either rent a vehicle (if he or she can) or wait for a check from the home-office to get the vehicle out of the shop and back on the road. Corporate fleets generally have fix-now, pay-me-later arrangements in place that keep downtime to a minimum.
A reimbursed driver will be required to spend an inordinate amount of time coordinating repairs, maintenance, and registration renewals, which could otherwise be devoted to selling.
In the event of an accident, with a company-provided fleet, drivers do not have to manage the repair of the vehicle and get a rental replacement vehicle, which is a tremendous productivity enhancement.
Also, with driver-owned vehicles the employee will probably be shopping for a new vehicle or disposing of an old one on company time.
3. High-Mileage Drivers Upside Down with Reimbursement.
High-mileage drivers will usually be upside down at the end of a lease with a balloon payment due for over-mileage. When the driver leases a vehicle in a closed-end lease, excess mileage charges can be expensive.
Replacement cars are needed sooner because they quickly accumulate high mileage, but negative equity prevents employees from doing so unless the company intervenes with special compensation assistance.
The high mileage, an average of 30,000 miles per year, would preclude many employees from obtaining a personal closed-end lease.
4. Loss of Competitive Allowance Program Monies from Factories.
Oftentimes, manufacturer fleet incentive programs, such as competitive allowance programs (CAP), are structured based on reaching tiered volume purchasing levels. A reimbursement program, in which employees acquire their own vehicles, would eliminate a company’s fleet volume and its eligibility for CAP monies. Many companies have grown to rely on these monies to assist in lowering their vehicle-related overhead expenses.
5. Unable to Monitor Condition of Employee Vehicles.
With a company-provided vehicle, how do you ensure it is properly maintained? With driver reimbursement, the company is not aware of the vehicle’s condition and maintenance.
How are you going to monitor the condition of an employee’s car? Is the oil being changed at factory-designated intervals, as it is done on fleet units? Are the tires in safe driving condition? What about the brakes? Who will be monitoring this? How will repairs be handled?
6. Reimbursement Perceived to Be Part of Compensation
Often a reimbursement allowance is seen by the employee as part of his or her personal income. When it is time to replace the current vehicle, the employee may resent the outlay of a large sum of money.
7. Inability to Regulate Personal Use Of Employee Vehicles
With driver reimbursement, there is an inability to restrict who can drive a vehicle. For instance, with some industries, it is important to regulate who can drive the car (such as no one other than an employee and spouse) because, as is the case with pharmaceutical companies, some of these cars may contain drug samples.
8. Ability to Provide Proper Vehicles for Fleet Applications is Restricted
A key problem with reimbursement is the inability to provide the proper vehicle for the job function. Specific fleet applications require specific types of vehicles; however, in a reimbursement program a company loses control of this. With a company vehicle, you are able to make vehicle modifications and enhancements to protect the driver and cargo.
Service vehicles often require specialized outfitting which requires they be company-provided to maintain safety and weight standards.
9. Lack of On-Vehicle Advertising Opportunities
An important reason to frown on employees using their personal vehicles in their job is because of the inability to advertise a company on a personal vehicle. Drivers using their own vehicles would most likely not allow them to be used for advertising.
10. Employees Are Reluctant to Perform Work That May Damage Their Personal Vehicle
With a company-provided vehicle, you know it will be used for company business rather than having a truck rented because an employee does not want to damage the inside of his or her own vehicle.
11. The Perk of Buying a Used Company Vehicle is Eliminated for Employees
Employees may be interested in the benefit of buying the vehicle when its useful life at the company is completed. This perk is eliminated when employees are reimbursed for their personal vehicle.
There is also the employee perception that a perceived fringe benefit has been eliminated. Many sales and service personnel consider the purchase of their used vehicles a fringe benefit.
12. Company Loses Dividends of Resale Profit
In a strong used-vehicle market, the additional revenues derived in the resale of a company vehicle go straight to the company’s bottom line. This revenue source, albeit unpredictable, would be lost in reimbursement.
13. Advantages of Professional Fleet Management Not UsedProfessional fleet management, especially by those with a CAFM certification, will make better fleet-related choices than individual drivers.
There are 11 advantages of a professional fleet manager:
1. Ensures correct vehicle specifications.
2. Expedites vehicle maintenance.
3. Monitors and negotiates on vehicle maintenance, parts availability, service work, and scheduling.
4. Pursues accident reimbursement.
5. Serves as liaison in lawsuits resulting from auto accidents.
6. Audits and/or pursues warranty reimbursements.
7. Audits and/or pursues manufacturer and lessor rebates.
8. Keeps daily rental car rates to a minimum.
9. Audits sales of used vehicles.
10. Ensures that fleet reporting is consistent and in compliance with applicable tax laws.
11. Provides safe driving information to reduce accident expense and time away from work.
Professional fleet management, especially by those with a CAFM certification, will make better fleet-related choices than individual drivers.
There are 11 advantages of a professional fleet manager:
1. Ensures correct vehicle specifications.
2. Expedites vehicle maintenance.
3. Monitors and negotiates on vehicle maintenance, parts availability, service work, and scheduling.
4. Pursues accident reimbursement.
5. Serves as liaison in lawsuits resulting from auto accidents.
6. Audits and/or pursues warranty reimbursements.
7. Audits and/or pursues manufacturer and lessor rebates.
8. Keeps daily rental car rates to a minimum.
9. Audits sales of used vehicles.
10. Ensures that fleet reporting is consistent and in compliance with applicable tax laws.
11. Provides safe driving information to reduce accident expense and time away from work.