Should You Allow Driver-Paid Options?

One of our sales managers called me from the dealership to say his car was in for repairs - again. It was the third time in as many months Bob was at the dealer for a stubborn and malfunctioning moon roof. Bob was complaining about all of the time he was spending trying to get his moon roof fixed and was wondering about the capabilities of the dealer. I was wondering too-not about the dealer's competence but about Bob's downtime and the cost for the repair, especially since the moon roof isn't standard equipment in our company cars. It was an option that Bob paid for.

Driver-paid options were on my mind a lot that day. I just finished ordering more than 100 vehicles for my fleet at Van Waters & Rogers and had sometimes struggled with these options that drivers can add to their vehicles at a personal cost. What should be allowed, denied, and how much time could I spend researching them? These questions, and situations like Bob and his moon roof, prompted me to question the experts, survey 65 companies with similar fleets to my own and ask our drivers what they really want.

Work-mobile or Perk-moblie?

How an organization views a company-provided vehicle will influence whether or not it allows options and what kind.

"Some companies look at driver-paid options as something unnecessary and extra. They figure they're providing a work tool to get the job done, not a perk-mobile," says Steve Guertler, director of client services at Wheels Inc. Guertler is a 15-year veteran of the fleet industry and has seen plenty of options roll off the assembly line. Though he didn't know exactly what percentage of companies offered driver-paid options, he said more do than don't. This was verified by a survey of 65 companies with fleets similar in size to our 450-vehicle fleet. The survey indicated 90 percent offered driver-paid options, while 10 percent did not. The latter said fleet standardization was the main reason they don't offer options.

One participant wrote: "Vehicles are considered a business tool. We reduce liability with standardization and disparity among employees. Some drivers can't afford all of the options that other drivers can."

Another wrote standardization "reduces squabbling at the local/regional level." However, these companies are in minority. Most give their drivers choices.  

Guertler says options were rarely given to drivers years ago. "Basically if you were south of the Mason-Dixon Line, you got air conditioning. If you were north, you got a rear window defroster. And probably, you got an AM radio." At the same time, there used to be a lot more options to give. "Vehicles now come more heavily stocked with items that are considered standard. There's few things to add anymore," says Guertler. Most vehicles come with cruise control, tilt wheel, cassette, power locks and windows. Many cars, such as the Taurus and Lumina, are equipped with a power seat, or with special offers to obtain a power seat.

So why do companies offer driver-paid options? There are basically two reasons:

1.      To give the driver a stake in the vehicle.

2.      To make money.

If a driver has paid for additional options and intends to purchase the vehicle when it's due for replacement, it's assumed the driver will take better care of the vehicle. He or she will get the oil changed on time, keep it cleaner, and stay abreast of the preventative maintenance schedule. Whether the driver buys it or not, this car care should result in fewer problems and a higher resale value.

In terms of making money, most organizations want the quickest and cleanest way to dispose of the vehicle and avoid additional financing and the possibility of a continuing lease while the sale is being processed. The best way to make that sale is to sell it to the driver. It decreases the termination time and interest paid by the company. In short, the company doesn't have to carry the vehicle until it's sold.

As shown by the survey, most companies believe this conventional wisdom to be true - 84 percent thought drivers were more likely to purchase their company vehicles if they offered them driver-paid options. Of the drivers surveyed, 63 percent indicated they would be more likely to purchase their car because of the options they paid for, while 37 percent did not. It seems the companies are a little more optimistic about a quick sale to the driver than the driver's willingness to purchase the vehicle.

What Do Drivers Want?

We wanted to know if the options on the Van Waters & Rogers selector forms were adequate, or if there was anything missing the drivers would like to have. To find out, 100 drivers were surveyed. Approximately 77 percent of the drivers surveyed said options were important to them and wanted the opportunity to buy them. Drivers were asked to rank the options by their importance, with one being most important. Here are the results in order of importance:

1.      Keyless entry

2.      CD player

3.      Security package

4.      Power seat

5.      Upgraded stereo

6.      Upgraded tires and wheels

7.      Leather seats

Keyless entry was by far the most popular option followed closely by the CD player. The security package was rated slightly higher than the power seat and the upgraded stereo, while upgraded tires and wheels were rated less important. Least important was the leather seats option.

[PAGEBREAK]

When drivers were asked about the options they would like to see but currently weren't being offered, they cited larger engines and sun/moon roofs. Other requested options included:

• Dark tinted windows
• Bigger cars
• Hands-free cell phone
• Special paint options
• Temperature electronics
• Side-impact airbags
• Towing package
• Truck bed covers
• Lumbar support
• Child seats

What Companies Allow Drivers

Of the options included in the survey, here's what companies allowed and how they stack up against the driver's rating. (See Chart 1.)

Approximately 30 percent of the companies surveyed equip their cars with keyless entry and security packages and standard equipment.

It was evident from the survey that an option that is becoming standard equipment among many companies is the security package. Security packages usually include some combination of remote keyless entry, automatic lights and locks and panic button. One third of the companies surveyed are adding remote keyless entry to their list of standard equipment since it's typically seen as a safety option. Van Waters & Rogers pays for theft deterrent systems such as an alarm and a kill switch for their drivers who frequently cross the border into Mexico.

"We've had some unfortunate occurrences with our vehicles in Mexico, including a stolen vehicle," says Linda Jennings, fleet manager.

Other options commonly offered to drivers by organizations include sun/moonroof and sunscreen or dark-tinted glass. However, these items also showed up at the top of the list for what companies don't allow. The following are options most companies do not allow their drivers to have (see top of the middle column):

Options Not Allowed (in order of frequency mentioned)

1.      Sun/moon roof

2.      Larger/upgraded tires

3.      Tow packages.

4.      Larger engines.

5.      Dark window tint.

6.      Sport packages.

7.      Spoilers.

8.      Roof racks.

9.      Upgraded option packages.

10.  Leather interior.

Liability issues, repair costs, and downtime were cited as the main reasons some options aren't offered to drivers. For example, if a driver is towing a boat with his company-owned vehicle and it breaks loose on the freeway and knocks out 10 other vehicles, who's liable? Most likely, the company.

As for repairs, these add up. As shown by the survey, upgraded tires and wheels are usually on the list of options denied drivers. A driver may pay for larger tires and upgraded wheels, but if they hit a pothole, blow a tire, or dent a rim, it's going to cost the company more for the repair than if the driver had standard issue wheels and tires. Downtime on the driver's part to get the car repaired and the added burden of rental car fees can make additional options unattractive.

Aside from liability, repair costs, and downtime, a few companies don't allow certain options because they are at odds with the company's philosophy, goals, and image. CD players fall into this category. One communications company said its drivers are required to listen to training tapes between sales calls, but the training materials come only on cassette. A number of car models don't accommodate both CD players and cassette players simultaneously - it's one or the other. As a result, CD players aren't allowed as an option. Spoilers, sport packages, and flashy paint jobs often present an image that is incongruent with the company and are consequently not allowed.

How Much Is Too Much?

While some drivers may want a few luxuries for vehicles they spend most of their days (and lives) in, other drivers want more out of their vehicles and are willing to pay for it. Those drivers want serious upgrades such as better packages and models. A small percentage of companies surveyed allowed their drivers any options, including package and model upgrades, as long as the options don't raise the price of the vehicle 10 percent. At that point, the IRS has a rule limiting the expense that can be added to the lease and still have it qualify as an operating lease rather than a purchase.

OPTION	% OF COMPANIES OFFERING OPTION	DRIVER'S RANK OF OPTION
CD player	94%	2
upgraded stereo	88%	5
power seats	87%	4
keyless entry	82%	1
leather seats	80%	7
upgraded wheels	63%	6 (tie)
security package	58%	3
upgraded tires	38%	6 (tie)

Betsy Roberts, CAFM and fleet manager at square D Company, has been in the fleet business for almost 10 years. Square D's business is heavy-duty electrical equipment and Roberts' fleet has close to 1,200 vehicles, which include 1,000 sedans. One of the more generous companies, Square D allows drivers to add virtually any option they want. Roberts says, "If the drivers want to put extra money into their vehicles and it makes them happy, we as a company don't have a problem with that." Roberts has the data to back up that claim. She actually runs two programs - a leased vehicle program for 1,000 cars and a Runzheimer program for 200 cars. The leased program has several vehicles and levels of vehicles to choose from, while the Runzheimer program allows drivers to purchase their own personal vehicles and receive an allowance.

"I surveyed all of the drivers and the ones with the leased vehicles were actually happier with their cars and the program than the drivers who bought their cars."

The majority of the companies surveyed have stricter policies concerning driver-paid options and upgrades. Jennings of Van Waters and Rogers says, "If an employee pays to upgrade to another model or package, it could create a perception problem among other employees. The other concern is we don't want employees pouring several thousand dollars of their own money into a company vehicle since there is no guarantee the employee will drive the vehicle for its entire life and be eligible to purchase it when it's time to turn it in. It's possible the employee could be terminated, transferred, or we may have to reassign the vehicle to another employee. All of these possibilities would cause a problem for the employee." Her sentiments are echoed by 90 percent of the respondents in the survey.

Somebody's Gotta Administer It

Ordering vehicles once or twice a year can be the busiest time in a fleet manager's schedule. Ordering additional options beyond the standard specifications makes it even busier. At times, fleet managers question whether or not the extra time (and sometimes, frustration) is worth it.

"It definitely complicates the ordering and processing," says Guertler. "There's a lot of front-end work on the selectors." Frequently, the options a company wants to offer are incompatible with the package they've selected, so they find themselves going from an SB package to an SC package or even choosing other vehicles to meet their needs.

While fleet managers often research the options themselves many employ their leasing company to do so if they have one. A small percentage of fleet managers go straight to the manufacturer for help, while others have their drivers get involved.

"A lot of information is provided on the Internet, so the drivers do much of it themselves," says Roberts of her drivers at Square D.

When it comes to collecting payment for the options companies collect in various ways as shown below:

Payment Method	% of Companies Using the Method
Check made out to leasing company	57%
Check made out to company	19%
Payroll deduction	19%
Direct credit card payment to lease company	5%

 

The collection of fees can slow down order processing, not to mention complicate matters if a check comes back with insufficient funds. That turns the company or the leasing company into a collection agency. "Some companies question if they really want to see themselves in that role," says Guertler.

Several drivers indicated they would like to see payments for options come out of their paycheck over a period of time, rather than having a large output of money upfront. Payroll deductions of this nature would, of course, increase administration time as well.

Do Options Increase Resale?

More than 60 percent of the companies surveyed do not add the options to the capitalized cost of the car. The remaining organizations add the options to the full value of the car. Depending on how companies sell their vehicles to employees, this could result in drivers paying for the options twice. Generally, options do not add that much resale value to company cars. The majority of company vehicles already come with power locks and windows, cruise control, and tilt wheel.

"Other than leather, CD, and a moon roof, there's not a lot that will add value to the car," says Guertler.

Here to Stay

Driver-paid options are most likely here to stay to keep drivers happy. Like it or not, as corporate America becomes more and more competitive, vehicles are being used to retain drivers. Guertler explains: "Some employees look at the company car as a deciding factor in a job. They may jump over to the competition because of the car. Is your competition offering Tauruses or Bonnevilles? Employers don't want the car to be an issue and it shouldn't be, but it is."

Kathleen Schultz is fleet administrator at Van Waters & Rogers in Kirkland, WA, where she runs a 450-vehicle fleet.