Executive fleets keep on rolling

Corporate Canada continues to offer its management and leadership teams capital cost or monthly vehicle allowances despite the recent credit crunch and economic downturn

March 2, 2011
by By Kara Kuryllowicz

FLEET MANAGEMENT, Jan-Feb 2011 Print Edition:

When John Smith and Jane Black are contemplating comparable executive positions with similar corporations in a particular sector, the vehicle allowance may sway them one way or the other. That’s why corporate Canada continues to offer its management and leadership teams capital cost or monthly vehicle allowances despite the recent credit crunch and economic downturn.

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“The companies and the executives prefer the company-owned or leased vehicle because both parties benefit from a well-planned and researched fleet program on a variety of levels,” says Deborah Pavao, account manager for FleetSource at Foss National Leasing in Thornhill, Ontario, which manages 48,200 vehicles across Canada.

If a company already runs a fleet, chances are executives will enjoy a capital allowance on a company-leased vehicle and the services of internal or external fleet experts. Otherwise, executives will be paid a monthly or annual car allowance to buy or lease their own vehicle, cover the maintenance, fuel, insurance and self-manage all vehicle-related administration. In most cases, the executive would net less on the car allowance than on the company vehicle.

Executives appreciate the company-supplied vehicles for a variety of reasons. First, they’d rather pay the taxable benefit than be out of pocket on purchase or lease payments. As well, many executives have been able to purchase their leased vehicles outright at the end of the three-year term for a fraction of the market rate.

In addition, the executive may get more vehicle for the money with certain manufacturers and on particular models, thanks to fleet discounts, typically eight to 10 percent, and fleet incentives, generally a fixed rebate over a specific time period.

BMW Group Canada is unusual because its discounts are tied to the total purchase price, which includes options and packages. “The higher the price, the bigger the discount,” says Allison Scarangella, national fleet manager, BMW Group Canada.

Added benefit: peace of mind
As importantly, they benefit from the peace of mind that comes when the fleet experts handle the process from start to finish as well as special pricing on the insurance, maintenance, fuel and parts such as tires.

“A company vehicle gives executives more bang for their buck and fleet experts make sure they’re getting good value,” says Shirley Fernandes, manager, TotalFleet at Transportaction in Toronto.

Executives can leverage the fleet experts’ ability to quickly access vehicle information as well as their objective perspective and experience around the performance, safety and reliability of various manufacturers and models. Fleet administrators also arrange the test drives, handle the negotiations and manage everything from vehicle delivery to licensing and related paperwork, including title and insurance.

“Keep your executives and fleet administrators focused on their respective key competencies—leading the company and managing the fleet,” says Tony Dagostino, department head, strategic account management at ARI Canada in Mississauga, Ontario, which manages 128,000 vehicles Canada-wide.

Executives also benefit from the scheduled maintenance and fuel-card programs that are invariably part of their companies’ fleet packages.

“Fleet administrators make sure the company vehicle is properly insured, but a company that pays a car allowance (e.g. a flat monthly rate) or mileage may be at risk of vicarious liability,” says Jim Forbom, vice-president, client services at Foss. Vicarious liability law lets the injured party hold an employer and their agent(s), such as a leasing company, responsible for an employee’s actions.

Precisely because the executive fleet vehicle is a perq, companies tend to dictate only a maximum capital cost on an “appropriate four-door sedan” rather than limit their employees to a selector. Cap costs typically range from $35,000 to $50,000, although some go as high as $75,000 for the president and/or CEO. Most firms also give executives a driver-pay option (DPO). Some let the executives top up the amount however they see fit, others limit the DPO to no more than 10 to 15 percent of the cap cost due to the potential impact on operating costs (insurance, repairs), resale potential, employee morale and public perception.

Vehicle choices reflect corporate values
Executives generally select vehicles consistent with their company’s image and recognize that unique or high-end vehicles, such as a Jaguar, Bentley, or Porsche, may reflect negatively on the company and its executives. In addition, such vehicles may be particularly challenging in terms of repair costs and associated downtime as well as at resale.

“Executives typically had a hand in creating the very policies we’re asking them to respect, so they tend to lead by example,” says Fernandes.

Because there are so many appealing options, fleet administrators may end up researching and pricing 10 to 12 vehicles and fielding myriad follow-up queries before the executives commit to a vehicle. While the human touch is always a valued part of the perq, ARI will soon give executives the option of viewing and pricing a number of models online.

“As fleet administrators, it’s our job to ask a series of carefully considered questions designed to help us understand their lifestyle and reveal their real needs. If the executive’s family skis every weekend, she may need a seven-passenger vehicle with roof racks,” says Dagostino.

Some executives are personally and professionally interested in greening their fleets with hybrid vehicles as part of sustainability policies. “However, once they do the financial analysis and figure out it’s not cost-effective—they start to look at other alternatives,” says Forbom. “You pay a premium for a hybrid and currently you don’t get it back at resale.”

Dagostino notes that a firm may recoup the additional capital cost in fuel savings, if fuel costs skyrocket or if the typical three-year cycle is doubled and/or the mileage is incredibly high. To cost-effectively do right by the planet, Forbom suggests putting a fuel consumption cap on all fleet vehicles, from the executive level on down or implementing a policy limiting engine sizes.

Yet some executives, such as Delta Hotels and Resorts’ president and CEO Hank Stackhouse still go green because it’s the right thing to do. In 2009 and 2010, as part of a community-based fundraising effort, Delta employees took turns driving a Toyota Prius hybrid to visit 34 communities, from Victoria, British Columbia to St. John’s, Newfoundland and Labrador. The 12,000-kilometre trip used just $600 in fuel.

Stackhouse was so blown away by the Prius’s fuel consumption and sustainable performance that Delta’s 45 general managers and vice-presidents were given a choice of three Toyota hybrids, the Prius, Highlander or Camry, or two Lexus hybrids, the RX450H and HS250H, as part of the hotel chain’s company fleet program. Stackhouse himself now drives a Prius.

Choices, within limits
While green policy can affect vehicle selections, policy rarely limits the manufacturer pool, because that would have a negative effect on how the perq is perceived. However, some firms do impose additional restrictions, for example, no sports cars, no pick-up trucks, two-doors or options that increase operating costs, such as certain upgrades. Some also prohibit manual transmissions because so few people know how to drive them, which can reduce demand at resale. In addition, vehicles that require premium-fuel may also be discouraged.

Finally, fleet administrators and management tend to thoroughly reassess the executive fleet program every three to five years. The savvy ones also review their policies annually to address current issues such as hands-free and snow tire regulations as well as updated tax laws.

“It’s important to address and incorporate changes as they arise,” says Fernandes.