Paul Ashton, Accountancy Age, Thursday 27 May 2010 at 00:30:00

The recession has forced businesses to keep hold of company cars far longerthan they have in the past, but there are other options


Look across your company car park and you will see a lasting effect of therecession ? old cars. Well, not exactly old, but older. It is not unusual in2010 to see a company car on a 56 plate, or even a 55, meaning that they are intheir fourth or fifth year.

This is unusual as, for decades, the vast majority of company cars were runon an industry standard life cycle of three years and 60,000 miles. This wasbelieved to be the best balance between financial considerations, where residualvalues were the main factor, and human resources, where employees generallywanted the newest cars possible. If you asked a leasing company for a quote on acar, three years/60,000 miles was the default.

But the recession has changed this. One of the first things that employerstended to do as an immediate response to the economic downturn was to halt notjust any unnecessary expenditure but the process of signing up to any futurecommitments. The idea of buying or leasing a new company car on the standardcycle seemed irresponsible to any decent accountant. At a point in time when youweren?t really sure that your bank would open tomorrow, how could you commit toa three year lease?

So what did employers do? Well, those that bought cars simply kept hold ofthe ones they had. They swallowed the kind of costs that a fleet car in itsfourth year incurs ? putting the vehicle through its first MoT, paying any majorbills that arise after the manufacturer warranty ends and spending largeramounts on maintenance because cars of this age often require major mechanicalwork.

Similarly, employers that leased cars simply extended their leases, ofteninformally. Lessors were only too happy to see this trend because the used carmarket had slumped to a point that the residual value forecasts on which theybased their calculations were adrift, frequently by thousands of pounds.

Fast forward two years and a glance at new car sales figures will tell youthat fleet sales are starting to rise but remain sluggish. Employers arebeginning to replace their older company cars but are in no rush to do so.Significantly, many have come to the dual realisation that in the current jobmarket, good employees are extremely unlikely to jump ship at the prospect ofbeing offered a newer, more expensive car and that it is possible tosuccessfully run cars into a fourth or fifth year while controlling costs.Modern cars are simply much more reliable and better built than when the threeyear/60,000 mile cycle was established and driving a four or five year-old caris no real hardship for the employee and is financially viable for the employer.

What is interesting about these changes is that they have lead many fleetdecision makers ? specialist fleet managers, accountants, human resourcesmanagers and others ? to take a good look at the whole issue of company carprovision. The first thing that many have done is to examine the way in whichtheir company cars are used and take a higher degree of control.

This has traditionally been a weak point in fleet management because mostemployers simply hand over the keys to a car and then pay fuel and maintenancebills as they roll in. However, sitting down with an employee and seeing if theyreally need to cover the miles they drive, whether they can share a car for aregular journey or whether they can do more to group together appointments inthe same area, can all have a substantial effect on overall fleet costs at atime when the 120 pence litre of petrol or diesel is a reality, while at thesame time benefitting the environment.

Some employers have also discovered that there are a whole range of othermethods becoming available through which to provide a company car. Quiterecently, the choice was limited to renting a car on short-term hire, buying oneor taking out a lease for a minimum of three years. More recent times, however,have seen the arrival of new options such as car clubs, which allow you to gethold of a car for as little as an hour, and short-term leasing arrangements thatcan be as short as three months. What these developments mean is that somecompanies are starting to match their car needs to a method of provision muchmore exactly.

How does this work in the real world? Well, if you are in an urban area andan employee needs transport occasionally, a car club is a genuine option. Mostwill allow booking at very short notice and, importantly, will only charge youfor the time that the vehicle is actually used. It can be effectively apay-as-you-go company car and a highly cost-effective alternative to a pool car.

Short-term leasing is similarly flexible. We see it applied to all kinds ofsituations but, notably, employers are leasing cars over three months foremployees on probation when before the recession many would have ordered a newcar. We also see some employers, who are still tentative about the obligationsof long-term leasing, use it as rolling provision for their company cars. Again,a solution that can make sound sense in cost terms.

These newer options let employers change their financial relationship withthe company car, either by reducing their commitment or allowing them to onlypay for a car when it is really needed. Along with lengthening replacementcycles, they mean that the company car park of the next few years might be setfor even more change.

Paul Ashton is managing director of short-term leasing specialistEqualease.