The Pros and Cons of Variable Personal-Use Charges
Fuel prices are forecasted to increase again in 2008. Fleets are employing a multitude of strategies to control fuel costs; however, one area often overlooked is personal use. Admittedly, many fleets have already increased personal-use charges in reaction to higher fuel prices, with the industry average now around $100 per month. However, in this era of ongoing high fuel prices, the industry needs to take a closer look at personal use and consider adopting a new, clean-sheet approach.
One idea is the creation of a variable or tiered personal-use rate that charges higher rates for certain categories of drivers. These include:
Family members, if personal use extends to them.
Those who exceed a predetermined ceiling of annual personal-use miles.
Drivers who opt for less fuel-efficient vehicles on the company selector.
“In light of the soaring gas prices, a variable personal-use rate could be the way to go,” said Al Cavalli, a fleet management expert and former NAFA president. This concept isn’t revolutionary. Some fleets already charge a higher personal-use charge to drivers who select higher-priced executive fleet vehicles.
A Surcharge for Family Usage
If personal use is extended to significant others and licensed children, why shouldn’t they be charged a higher personal use fee? This wouldn’t be a foreign concept since many employees already pay a surcharge for other family benefits, such as medical and dental insurance. Why should personal use be different?
The counterargument is that it would be difficult to segregate non-employee personal use miles from those incurred by the employee. “Reporting personal miles is always a struggle. Under such a tiered system, what electronic system can I use to separate family personal miles from driver personal miles?” asked Stephen Levine, director, corporate fleet operations for Pfizer.
Exceeding a Predetermined Mileage Ceiling
Personal use is an emotional issue for both drivers and management. However, most acknowledge there are drivers who abuse the privilege. Under a tiered personal use program, drivers would be limited to a predetermined number of annual miles. Those whose personal use mileage exceeds a predetermined ceiling of annual miles would pay a higher rate.
“Personal use charges could be set at more than one level of mileage, say two or three, with increased charges at each level such as 0-4,999 miles, 5,000-9,999 miles, and more than 10,000 miles,” said Cavalli. Most drivers would be able to relate to this since it is analogous to cell phone payment plans. The key challenge is addressing under-reporting of miles. “If you put a cap on personal miles driven, I suspect reporting will drop as drivers get closer to the limit. There would be no way to monitor it,” said one fleet manager.
Admittedly, the establishment of a personal use mileage ceiling creates an additional process at year-end mileage reporting to verify mileage logs and confirm odometer readings. This additional administrative burden is not an insurmountable one.
Higher Rates for Less Fuel-Efficient Vehicles
Why shouldn’t drivers who opt for less fuel-efficient vehicles on the company selector be charged a higher personal use fee? Companies already sway selector decisions by providing higher content to more fuel-efficient vehicles. Why not incentivize drivers by having higher personal use charges on less fuel-efficient vehicles? One counterargument is there are some drivers who truly need a larger vehicle or one that has 4WD for their jobs. These drivers would be unfairly penalized. In addition, higher fuel prices impact all vehicles, regardless of fuel economy. “Fuel costs are going up for all vehicles, including those more fuel-efficient,” said Larry French, fleet operations coordinator for FIG Leasing.
The Devil is in the Details
The key argument against a tiered personal use program is that its added complexity and administration costs would outweigh any return. “A tiered program has merit, but it has the potential to be hard to administer, justify, and it may possibility lower morale,” said Michael Bieger, fleet manager for ADP.
Levine agrees. “Let’s say a colleague leaves and a new colleague, through no fault of theirs, receives a vehicle determined to be a ‘gas guzzler.’ It’s not fair or equitable to penalize this colleague. Also, suppose, because of large territory size or weather, drivers need a larger vehicle. Again, it’s not fair to penalize them. Or, if a colleague wrecks a fuel-efficient vehicle or it’s stolen and I only have an SUV to give him, should he be penalized?”
All of these are valid counter-arguments to a tiered personal use program. However, there could be substantial rewards for fleet service providers who can surmount these obstacles and produce a variable personal use system that is fair and easy to administer.
Let me know if you think a tiered system is feasible.