Reimbursement vs. Company-Administered Executive Vehicle Program
Recently, Bristol-Myers Squibb (BMS) decided to switch its executive fleet to reimbursement. This is significant because BMS operated the fourth-largest executive fleet in the U.S. with 423 vehicles. Was this the right decision? There were a number of factors, specific to BMS, making this the right decision for the company. Another Fortune 500 fleet, wishing to remain anonymous, also decided to eliminate a good portion of its executive fleet. The reason? “We found that 75 percent of our time was spent on 25 percent of the fleet, which didn’t bode well for the service levels and/or productivity of our service and sales group,” said the fleet manager.
Although in-house management of an executive fleet is extremely time-consuming, reimbursement is a less cost-effective alternative. I argue that, in general, a company-administered executive vehicle fleet is a better choice than reimbursement.
Five Reasons Against Reimbursement
Reimbursement vendors argue they can reduce executive vehicle costs by 28.5 percent. They maintain that reimbursement pays for only five days instead of seven days as in a company-provided program that allows personal use. They also argue that reimbursement shifts some of the liability away from the company to the executive. Likewise, the financial burden is also shifted to the executive, who is more likely concerned with the type or status of vehicle instead of saving out-of-pocket expense.
However, when compared against a well-run executive fleet, reimbursement does not fare well. A case in point is Otis Elevator. “Companies must do their homework,” warns Phil Schreiber, fleet manager, North America for Otis. “In my case, when a reimbursement company looked at our fleet, they promised me a $1,000 minimum savings per unit per year.” Schreiber was skeptical and set up a comparison test with 20 vehicles dispersed geographically from New York City to San Francisco. The real-world test results were completely different than what was promised upfront by the reimbursement company.
“Needless to say, Otis opted to leave its executive fleet the way it was. The lesson learned is do your homework before switching to driver reimbursement. Not all promises of projected savings are accurate,” said Schreiber.
At most companies, executive fleet programs are tied to compensation. The company vehicle is part of the compensation package. It is usually a tiered system, depending on rank, in which the executive receives a monthly flat compensation payment. Many companies offer execs the choice between a cash allowance and a company-provided car. Here are five reasons why a company-provided executive fleet program is the best choice.
1. Loss of CAP Monies from Factories. Full-line OEMs offer a range of vehicles from compacts to high-end luxury models. Oftentimes, manufacturer fleet incentive programs, such as competitive allowance programs (CAP), are structured based on reaching tiered volume purchasing levels. A reimbursement program would decrease a company’s fleet volume.
2. Time Savings for Executives. A company-administered program frees executives from mundane vehicle matters such as registration renewal, insurance coverage, warranty issues, etc. “The real value lies with time savings and having one touch point of contact for the executive,” said Michael Bieger, director – fleet management for Automatic Data Processing. “As a manager rises through the ranks, greater responsibility is assumed and their time to the company becomes much more valuable, hence the need for services such as corporate jets. Having a dedicated fleet department to handle all the myriad details from vehicle purchase, operation, and disposal, frees up untold hours for the executive driver. This service is like a poor man’s corporate jet.”
3. Increases Stature and Clout of the Fleet Manager. If a senior manager is provided with a vehicle subject to corporate fleet policy, the fleet manager has a powerful ally to enforcing fleet policy. This makes it easier for the fleet manager to implement and enforce fleet policy. When executives follow fleet policy, so too will their subordinates.
4. Buy-in to Corporate Green Fleet Initiatives. As more corporations implement green fleet initiatives to reduce corporate greenhouse gas emissions, it is a non sequitur when corporate management is reimbursed for the use of large SUVs with low fuel economy or other models that don’t conform to the green corporate image a company wishes to convey to the public.
5. The Perk of Buying a Used Vehicle is Eliminated. An executive can drive a new company vehicle for free for 36 months. At the end of this period, he or she can buy it at a substantially reduced price by saving on the first three years of depreciation.
Most fleet managers will tell you that managing an executive fleet is a colossal headache. But sometimes you have to do what is right for your company.
Let me know what you think.