Sometimes, it’s best not to believe everything you hear or read. For years, as companies trim expense to the bone, “experts” have been saying that company cars are no longer in vogue as part of an executive compensation package.
Don’t believe it. Executive cars remain the most sought-after non-cash perquisite for talented senior managers. Companies that continue to make them part of executive compensation carry a distinct advantage in recruiting, hiring, and retaining talent.
Why Offer an Executive Car Program?
Why should a company offer a car to a senior executive? Wouldn’t a simple cash increase in compensation provide just as much incentive? The answer, provided one views the question on a comparable basis, is no. The fact of the matter is that the company can provide a vehicle, any vehicle, at an overall cost lower than the executive can provide for him or herself. Volume purchasing, fleet incentives, and fleet programs for maintenance and accident repair all make a company car substantially less costly than the retail cash equivalent.
Beyond pure dollars and cents, talented and experienced executives know that the hassles of car ownership - buying insurance, paying for maintenance and repairs, obtaining and renewing tags, annual inspections - are all alleviated or eliminated entirely when a company car is provided. Such savings in “personal administration” are difficult to quantify; however, they add to the gulf between the cost of providing a vehicle and the equivalent cash benefit.
The First Question to Ask in Creating a Program
As with establishing any corporate program, the first question to ask is “What are we trying to accomplish?” Essentially two levels of executives are covered by an executive car program:
The most senior managers in the company, they are based in the corporate headquarters, and the vehicle is purely compensatory in nature.
Usually sales and/or service executives, they can be based either at the corporate office or in the field. These vehicles have a dual purpose; they are both compensatory, as well as practical, in that field managers have occasion to entertain customers.
Within these two groups, there can be sub-groups. For example, one program for corporate executives might be reserved for the most senior managers, such as the president, CEO, and CFO. Another might cover executives at the next level, such as vice presidents and directors. Often the difference between these groups, vis-à-vis an executive car program, is in both the value of the benefit and the flexibility of the program.
The next step in creating an executive fleet program is determining what level of compensation the company wishes to provide and, in the case of field executives, how much utility the car must have. Once these factors have been established, the costs of various vehicles can be researched and compared before the selection is made. In the case of the most senior executives, only a cash equivalent is determined, and the executive makes his or her choice from there.
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Program Flexibility is Valuable for Senior Executives
At the highest levels, where the car is pure compensation, the more flexible the program, the more attractive it will be to candidates, and the more valuable it will be in hiring and retaining them.
Some companies go so far as to simply provide the manager with the dollar limit the company will allow and permit him or her to “cut a deal” at a local dealer, i.e., choose the vehicle and have the company buy or lease it locally.
Flexibility, however, should have some limits. Allow the driver to choose a vehicle, but either factory order or purchase from stock through the fleet department or the company’s fleet lessor. The difference can be measured in thousands of dollars. To create a dollar-limit program:
Have the human resources department determine the car dollar value.
Executives notify the fleet manager what vehicle(s) they are interested in and what cost will be applied to the limit.
Once the decision is made, the fleet manager either orders the vehicle from the factory or, if preferred, the employee chooses a vehicle from dealer stock and the fleet manager negotiates the purchase directly.
One of the keys to the ongoing success of this type of program is to develop a relationship with a local dealer, from whom the vehicle is purchased or through whom it is delivered. Local dealers can provide the kind of “high touch” service to busy executives that a standard fleet program cannot, including:
Loaner cars while the vehicle is in for service.
Pick-up/drop-off of vehicles scheduled for servicing.
Special retail incentives for the executive for personal purchases and/or service.
The company’s most senior executives are busy people, with enormous responsibilities. Providing a company car as compensation should also include eliminating as much downtime and personal involvement in handling it as possible.
Offer Refined Selector for Corporate Executives
The next “tier” of executives, those at the vice president or director level, can be provided a well thought-out selection of vehicles. Most companies don’t offer this level of executive the flexibility (dollar-limit programs) provided the CEO. Fleet managers should consult with human resources to determine what level of compensation the car is to provide.
A selection of vehicles is established, based upon the compensatory guidelines provided by human resources. For example, a vehicle selector can be developed from a list of approved models and vehicle types:
1. One four-door luxury sedan
from each of the domestic
manufacturers.
2. One four-door luxury import.
3. One luxury or high-end SUV.
4. One luxury sport model.
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If the corporate executive requires some level of utility in the vehicle, the sport model can be omitted.
These tier vehicles can be acquired via the normal procurement channels, i.e., factory ordered from the company’s fleet lessor and drop-shipped locally. Service can also be performed at local dealerships with which a relationship has been established or through a local repair facility that participates in the normal maintenance management program.
Field Executive Program Presents Some Challenge
A company car program for field executives - regional vice presidents, regional directors, and other sales and service executives based in the field - presents a slightly greater challenge. Often, field executives will entertain important customers or participate in presentations to large or prestigious prospects. For that reason, the utility of the car has a greater role in establishing the program. (These managers are distinct from middle-level managers, such as branch managers, whose vehicles are included in the overall fleet selector).
Generally, field executives fall under the general fleet program, with their vehicles simply a higher-end, luxury version, or larger model of those the company uses. It is difficult to establish a relationship with a dealership local to these managers , but more convenient to handle service via the company’s maintenance management program.
How to Deal with the Issue of Personal Use
Sometimes, personal use can be a point of contention, particularly if the regular fleet policy has restrictions or prohibits personal use. Obviously if personal use is prohibited under normal fleet policy, this prohibition would not apply to executives with cars awarded for personal use.
Other restrictions, such as spouse or other family member driving privileges, should be dealt with on a case-by-case basis. Realistically, it is difficult to tell the CEO that, although the car is provided for personal reasons, he or she cannot allow a spouse to drive it. But do not exempt the executive from pulling MVRs, both for the executive as well as a spouse or children who may be driving the vehicle. Indeed, you’ll often find that good executives don’t expect exceptions, and requiring regular MVR checks will signal how important this practice is for all fleet drivers. Support for safety and risk management programs from the highest levels in the company, as all fleet managers know, is the key to their success.
Reviewing the company car policy with executives, noting what will be applied and at which levels can avoid conflicts. If executive knows the ground rules up-front, most fleet managers find that cooperation isn’t difficult to get.
Make Servicing Process Transparent
As previously stated, it is critically important to establish a relationship with a local dealership, so that maintenance and other service can be provided quickly and smoothly. Making the process as transparent as possible for the executive can keep problems from developing. Here are some tips:
Keep detailed records of mileage and servicing.
Create a proactive method of scheduling preventive maintenance. For example, obtain weekly mileage updates and stay updated on the executive’s schedule. In this way, you can determine when the vehicle will be available and schedule maintenance at that time.
Communicate with the executive, or his or her secretary, in advance on all maintenance scheduling. If, for example, you can determine that the CEO will be in the office on Friday, contact the CEO’s office and tell the staff you’d like to schedule the car for service at a particular time that day.
Communicate also with the dealer.
Let the dealer’s staff know that you’ll need the car picked up at 9 a.m. Friday, tell them exactly what you want done, and if a loaner car is required.
On the day the car is serviced, get the company car keys and tell the dealer to come to your office to pick them up and to drop off the keys for a loaner, if necessary.
Deliver the loaner keys to the executive’s office.
When the serviced vehicle is returned, swap the keys and let the executive know that the car is ready and parked (and notify the dealer of the loaner’s location as well).
One important piece of advice: while good managers delegate responsibility, the reality is that fleet managers are smart to personally handle at least the most senior executives’ cars. If a problem occurs, you won’t be able to blame anyone else; the executive will hold you responsible. And a senior executive is always a good person to have on your side.
Tips for Executive Employee Vehicle Sales
Executives often are a better market for the purchase of vehicles than regular fleet drivers. On principle, however, it is smart to sell at a price policy identical to the fleet as a whole. Whatever method you apply to the fleet - wholesale, auction, book value, “wholetail” - should be applied to the executive fleet as well.
Service and transparency are the keys to an executive program your execs will love. Keep them out of the process, be proactive by getting out in front of potential problems, and communicate regularly.
