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Loss of Control is Reimbursement’s Fatal Flaw

March 17, 2008, by Mike Antich - Also by this author

 By Mike Antich 

Score one for our side!

Recently, a Fortune 100 company gave (very) serious consideration to eliminating its company-provided vehicle fleet program and switching to driver reimbursement. Initially driving this initiative was senior management’s desire to cut cost by removing the vehicle assets from the books. The option to move to an operating lease was not viable since it violated the company’s accounting policies set by finance. Management reasoned that by moving to an allowance, the company could write off the fleet as an expense and eliminate the financial liability of an asset. The fleet manager was given the opportunity to justify the need for a company-provided fleet.

He succeeded. Interestingly, the winning argument was not based on cost. The nail in the coffin was management’s fear of the loss of control over what employees would drive and the implications for corporate image and liability exposure.

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Sending the Wrong Message

A company vehicle is part of the corporate image presented to customers and the community. With driver reimbursement, an employee determines whether a vehicle is appropriate for the type of image the company wants to project. When an employee provides the vehicle, the company surrenders this control. The wrong vehicle can send the wrong message to customers.

If the company doesn’t provide the vehicle, it has no control over what the employee drives to a customer location. Customer perception is everything, especially when it involves prospective customers. Employees may be required to entertain customers, and you don't want them to drive customers in an unsuitable vehicle. With driver reimbursement, an employee determines whether a vehicle is appropriate for the type of image the company wants to project. A reimbursement program creates a problem when someone is hired who already owns a vehicle. The company will most likely have to accept whatever he or she is driving. On the other hand, a company-provided program allows you to control the suitability and appearance of the vehicles used for your business.

Increased Liability Exposure

With an employee-provided vehicle, how do you ensure it is properly maintained? How do you know the condition of the tires? What about the brakes? How do you know when an employee postpones a safety-related repair? If an accident is caused by deferred maintenance, what is your liability exposure if the accident occurred while the employee is conducting company business? The reality is that it is difficult, if not impossible, for a company to be aware of the condition and maintenance of every employee’s vehicle. In fact, a reimbursement program may actually contribute to poorly maintained employee-owned vehicles. For instance, if the reimbursement is not sufficient to cover actual expenses, the employee may defer preventive maintenance. Also, since maintenance is an out-of-pocket expense, there may even be a temptation (or financial necessity) to postpone more expensive mechanical repairs. The bottom line is that a business has little or no control over the condition of an employee’s personal vehicle.

In the final analysis, loss of control was the fatal flaw to this driver reimbursement initiative.

Let me know what you think.

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Author Bio

Mike Antich

Editor and Associate Publisher

Mike has covered fleet management and remarketing for more than 20 years and entered the Fleet Hall of Fame in 2010.

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