Some fleet providers are starting to offer schemes that involve setting up contracts directly between the company and the lessor. Is this a perfect alternative to corporate fleet schemes? Lorenzo Migliorato takes a closer look.
The company car has long been regarded as a status symbol in European corporate culture.
Whereas US company employees would usually be expected to use their personal sedan or SUV for work-related travel – or make do with rentals as needed – their overseas counterparts could be fairly sure that an employer would take it upon itself to procure a vehicle of their specification.
Now, as tougher emission controls and a more nuanced mobility landscape make cars a less obvious choice for work travel, PCH is finding its way into the product line-up of fleet providers looking to diversify revenue opportunities.
In September, Arnold Clark Vehicle Management (ACVM), the fleet arm of the Glasgow-based car retail group, launched Affinity Cars, a contract hire scheme directly targeting company drivers.
By signing up to the scheme – free of charge – businesses give employees access to a selection of PCH deals, with the contract ultimately signed between Arnold Clark and the individual employee.
Effectively, Affinity Cars is a ‘lighter’ version of a company car scheme: the employer has an opportunity to reward employees, without themselves taking on the risk burdens around residual value, procurement and disposal, and fuel restrictions.
BMW Group’s Alphabet unit had been experimenting with a similar product as part of its foray into the personal leasing space.
In September last year, it launched My Personal Lease in Belgium, allowing companies to introduce employees to PCH deals, without going through salary-sacrifice arrangements.
The product, which Alphabet categorises as a long-term rental – a notable parallel with
the US market, where employees normally rely on car hire to move around – has much in common with ‘car subscription’ packages: insurance, maintenance, roadside assistance and taxation are all included, and Alphabet encourages customers to “roll” onto another vehicle when the agreement comes to an end. Customers even have access to replacement cars in certain circumstances.
While Alphabet and ACVM emphasise customisation and speed of delivery as selling points for their propositions, there are clear factors than can incentivise employers to sign up to ‘business-to-employee’ (B2E) schemes.
For starters, as IFRS 16 – the new global accounting standard which brings all operating or financial leases onto lessees’ balance sheets – is implemented, companies with large fleets might be looking for company car arrangements that do not hit their profit lines with asset depreciation.
If an agreement is concluded between the employee and lessor, the employer would not have to recognise liabilities in its financial statements.
While it is unlikely that IFRS 16 will bring about the end of corporate fleets in favour of B2E, the depreciation angle is surely an incentive to large-volume clients.
Additionally, in a B2E agreement the taxation burden – if not compounded in the monthly payments, as in Alphabet’s offer – is shifted onto the employee. The company will neither have to contend with restrictions around fuel types – the kind German city administrations are looking to implement – nor tax rate hikes on older vehicles.
Trade bodies in the UK fleet market have long lamented jumps in vehicle excise duty and employee benefit taxation: last September, after Chancellor of the Exchequer Philip Hammond announced an increase in taxation on employees’ benefits-in-kind, the British Vehicle Rental and Leasing Association (BVRLA) warned the hike could push employees away from company cars towards privately financed – and crucially, morepolluting – vehicles.
Nevertheless, ACVM says the rationale for introducing Affinity Cars was based around shifting needs on the part of drivers, and the potential to offer company car schemes to a wider number of businesses. “Having a one-size-fits-all car plan really doesn’t suit a corporate market,” says Jim Blair, operations manager at ACVM.
“The Arnold Clark Affinity Cars plan came about after seeing the way the market around us was changing,” he adds. A wider acceptance of leasing in the consumer space meant drivers became more comfortable with the idea of contract hire for business purposes.
Blair notes that ACVM anticipated that some fleet managers would be wary of creating “grey fleets”, but the all-inclusive aspect of the Affinity Cars offer outweighed concerns over a loss of fleet control. “We’re taking care of all the hard work,” he explains. “Employers are still fulfilling their duty of care.”