By Clive Buhagiar, head of operational services at Alphabet (GB)
If your organisation offers company cars, you’re likely to have seen a growing tendency for businesses and individuals to consider switching from a traditional car scheme to a cash allowance.
This movement to cash often leads to employees taking a new vehicle on personal contract hire (PCH), but it’s vital that both companies and employees understand their responsibilities in this scenario.
The latest figures from the car rental and leasing industry back up this trend, with PCH - also known as personal hire - rising by 24 per cent year-on-year in the last quarter of 2018.
Although there are numerous reasons organisations offer company cars, ranging from vehicles for essential users to a ‘perk’ for employee recruitment retention, every business has a legal obligation to ensure their employees’ business journeys are made in a safe, responsible manner.
Far too many businesses are still unaware that employers retain responsibility for employees’ safety and conduct when they’re travelling on business, even if they use their own car.
Similarly, many employees aren’t aware that if they use their private vehicle even for a single business journey – such as attending a meeting or delivering goods – then this needs to be included in their insurance policy.
But one of the most overlooked factors when switching from a company car to PCH or other personal arrangement is the issue of maintenance, which can potentially have significant implications for employee and employer alike.
So, what does your organisation need to know in order to help advise and guide employees when they are considering how to finance and run their next vehicle?
False sense of saving money
Ex-company car drivers can easily under-estimate the costs, responsibilities and burdens of vehicle ownership.
Our latest research among UK drivers revealed that two-thirds of owners have never added up the total cost of how much they spend on their cars in a year.
It is not surprising that employees with a cash allowance only look at the headline PCH cost per month, instead of the total costs of ownership, including insurance, fuel and running costs.
Think of it like buying a dream holiday and assuming it’s all inclusive, only to find out that you still need to pay for flights, travel insurance, meals and transfers.
Most new cars come with a warranty but anyone considering a cash allowance also needs to factor in insurance and fuel costs, as well as everyday ‘wear and tear’ expenses, like new tyres, brakes, batteries, fluids, servicing and MOT.
As a start, employees interested in personal leasing need to understand that these vehicles will need maintenance, servicing and possibly a new set of tyres during a typical three-year agreement.
Some drivers also fail to appreciate that the vehicle needs to be returned to the leasing or finance company with a complete service history.
As with any leased vehicle, it’s the responsibility of the individual taking out the contract to ensure that the vehicle is serviced on time when required – failing to do so puts both your finances and personal safety at significant risk.
Drivers used to a traditional company car programme may not have had to pay for servicing or tyres for several years and are often unaware of the actual costs of these essentials today.
Taking on a PCH agreement without a maintenance package may give drivers a false sense of saving money; but they need to ask themselves whether they’re putting away money each month for the inevitable ‘rainy day’ when the car needs attention. A maintenance package can actually lower your overall running costs of a vehicle, as well as reducing the risk of unexpected bills.
Be honest with yourself on mileage
When selecting a PCH contract, it is vital drivers are realistic from the outset and accurately estimate their annual mileage. Unlike traditional company car schemes, additional contract mileage and associated maintenance costs are borne by the drivers themselves.
Again, employees might think they’re saving money each month by ‘chancing it’ with their mileage, but you’ll undoubtedly face costs if you return the vehicle over its agreed mileage at the end of contract.
For someone who travels 10,000 miles a year, servicing costs could easily be more than £1,000 over three years.
What’s more, these costs can happen at any time, often when it’s least convenient. A new set of tyres and brake pads just before a summer holiday or at Christmas is never a welcome expense.
In our experience, PCH agreements can often be used by ex-company car drivers to finance higher specification, higher power output vehicles, which by their very nature incur higher fuel costs, greater maintenance requirements and higher servicing costs. A set of new tyres for these vehicles could easily cost £500 or more, depending on the model.
Understanding the risks
So, are your employees and drivers prepared for personal cash flow issues if they suddenly need to buy new tyres? Do they have enough saved to cover likely servicing costs in future? Do they have a plan in place in case their vehicle is off-the-road for a while due to maintenance?
The final, most important question to ask employees is whether they can be sure they’re not compromising the safety of themselves, their vehicle’s occupants (likely to be family, friends or colleagues) and other road users with a poorly maintained and serviced vehicle?
It’s absolutely essential that scheduled maintenance intervals are met on time and any warning messages are dealt with immediately to ensure the vehicle is safe on the road.
Company car drivers are likely to be used to a seamless experience of making a simple phone call when maintenance is required and then collection, replacement and delivery of the vehicle are taken care of – hassle free.
Often the car will be collected from the workplace, serviced, repaired and delivered back before the end of the day.
With a private vehicle, the onus is on the driver to arrange the appointments, drop off the car and collect it.
It’s crucial that drivers don’t let this additional time and effort lead to delays in maintenance of the vehicle or risk compromising its safety.
If employees do opt for a PCH agreement rather than the traditional company car programme, then taking a maintenance package with their contract means that drivers spread the servicing and maintenance costs over the term of the contract.
They also protect themselves from the risk of unexpected financial outlays resulting from fair wear and tear.
In addition, they enjoy ‘economies of scale’ from their leasing provider, benefitting from the bargaining power of a large fleet with servicing and maintenance providers, as well as their expertise and support when dealing with disputes.
Plus drivers will benefit from support from their leasing company to ensure downtime is kept to a minimum.
In our experience, it is only when a vehicle needs servicing or something needs replacing that drivers understand the value and benefit of having a maintenance package with their PCH contract.
Essentially, the question is whether the additional monthly cost of a maintained contract matches the price they put on their own peace of mind.
Remember, even with employees taking cash for PCH agreements, as an employer you still retain responsibility to evidence your process for managing driver risk for business journeys and a fixed cost maintenance package is a positive first step towards achieving this.