The Company Car Debate

When it comes to providing company cars for salespeople and key managers, gases and welding distributors have several options. The most common programs include: offering company-owned or -leased vehicles, providing a vehicle allowance or offering mileage reimbursement. Each has its costs, and each its benefits. So how do you know which program is right for you?

Welding & Gases Today Survey
Company cars, allowance, or reimbursement? Read the results of the Welding & Gases Today survey in the follow-up article, “The Results Are In: Company Vehicle Options.”

Brad Armstrong, executive vice president at General Air Service and Supply Company (Denver, CO), whose salespeople drive an average of 1,500-2,500 miles each month, brings a unique perspective to the question. The company provided vehicles up until seven years ago, when it switched to a vehicle allowance program. “The decision to switch was based on feedback from employees. They wanted greater decision-making ability in the vehicles they were driving.”

Under the current program, General Air’s allowance is structured to cover insurance and vehicle payments for a $26,000 vehicle. Additionally, the company reimburses 100 percent of business miles on a varied rate. Employees track vehicle fuel economy and business miles, while the company determines the monthly average price of gas based on the national index. (The U.S. Energy Information Administration provides average fuel prices for several regions and product grades.) The price of gas is divided by fuel economy (to a floor of 16 mpg), and that number is multiplied by business miles.

With the vehicle allowance program, employees are now free to use the vehicles for personal use. “Freedom is the primary advantage of a car allowance system. People appreciate the ability to use their vehicles how they please,” says Armstrong. “If they want to take a trip to Disneyland, it’s their choice—it’s their vehicle.” This freedom extends to car selection, as employees enjoy the ability to select the vehicle’s make and model.

Keeping Up Appearances
Choosing their own vehicles is a nice benefit for employees, but it does come at a cost to General Air. Says Armstrong, “When we provided our own trucks, we had a unified image. When you saw a General Air pickup, it was a consistent color, and it had the General Air logo on it. Now we have no logos and our people drive everything from Honda Accords to Dodge pickup trucks.” Armstrong continues, “We’ve thought about putting magnetic logos on the vehicles and paying our salespeople to do so. It just felt like we were complicating a program that was already working.”

The Company Car DebateAlthough the company has less of a unified look, General Air is insistent on maintaining a professional look. “We want our employees to turn over a car every five years so that they are not driving old cars when customers ride along,” says Armstrong. To make sure vehicles fit the company’s image, General Air designed its allowance program to encourage employees to buy vehicles at or above the $26,000 price point. Below that mark, the allowance is discounted. Furthermore, all vehicles are subject to company approval. “You never know what an employee might think is appropriate for the job until you have a conversation with them,” says Armstrong.

Another Alternative
Mileage reimbursement is another option that is popular among gases and welding distributors. Mike Higgins, Abbott Welding Supply Company (Olean, NY) president, says, “We used to provide cars, but now we reimburse at the federal mileage rate up to a fixed monthly maximum. When the employees own their own vehicles, it simplifies the process for the company and reduces our exposure. We also believe the employees take better care of their own cars and try to minimize miles driven.” Corp Borthers (Providence, RI) Sales Manager John Amato chimes in via LinkedIn, “Our salespeople use their own cars and the company reimburses them. It works out well.” Join the discussion on LinkedIn.

How Much Should You Reimburse?
Every year, the IRS recalculates the federal mileage rate based on an annual study of the fixed and variable costs of operating an automobile. Below are the rates for the most recent five years.

2007: $.485

2008: $.505 first half; $.585 second half

2009: $.55

2010: $.50

2011: $.51

While there are many considerations when choosing a vehicle plan, two that should not be overlooked are insurance and liability. Tony Hopkins, sales executive at Welding Distributors Partnering Group (WDPG), a division of The Horton Group, says, “While a company car might be an enticing benefit, many businesses are unaware of the 24-hour exposure a company car creates.” He outlines the insurance implications behind all three company car options in “How A Small Perk Can Cause Big Problems.”

No matter the program, providing a company car to salespeople and key managers has become more than a perk; it has become a necessity. Says General Air’s Armstrong, “We cover a large geography, and we put a lot of miles on our vehicles. We don’t want salespeople thinking about whether or not they should go visit a customer 45 minutes away because of the miles they are going to put on their vehicle.”

Which vehicle program is best? Let us know which program you favor by leaving a comment.

Gases and Welding Distributors Association