Back in 1993, Company Vehicle publisher Cathy Parker posed the question: should employees or companies own their vehicles?

In a very detailed article he looked at such issues as shareholder employees, employee relations, fringe benefit tax, minimum future payments and the packages available from vehicle manufacturers. His conclusion? This is a complex area.

He said, "we would recommend companies look long and hard before jumping into such schemes and seek independent advice."

In the 12 years since then, a lot has changed and nothing much has changed. It is still a complex area and there are many things to take into consideration. So, for this look at the question, Company Vehicle headed to South Auckland where a smallish company recently decided to experiment with the management of its vehicle fleet, allowing us to report the results.

When two key staff members left, the company took the opportunity to make alternative vehicle arrangements with their replacements: paying a car allowance to one and providing a company car to the other.

The plan was to see which worked best over a two-year period, after which the company would then consider changing the entire fleet over to the preferred method.

The new sales manager (SM) was given a car allowance, and was told this would have to cover vehicle repayments, servicing, insurance and repairs.

He agreed to this because his current vehicle needed replacing and the car would remain his, even if the job didn’t work out and he left the company.

He would also be able to choose what to buy. As he had a large family, he felt it would be best to buy something larger than he needed for work, even if this meant it would be older than he might have liked. The company was not altogether happy about his choice because it felt the age of the vehicle didn’t fit very well with its corporate image. But as it wouldn’t be sign-written, because it wasn’t theirs to paint, perhaps that wouldn’t matter terribly much, although the SM was out and about a lot representing the company.

For his part, the SM was a bit disappointed that the company didn’t value him highly enough to provide a company car even though it had been explained to him that the company didn’t want the capital expenditure or to have to worry about fringe benefit tax. And, this way, the SM would be able to use the vehicle for his own private use without worrying about having to keep a log-book or ask permission.

For a time, it all seemed to be working out fine.

Then one of the SM’s children became ill and on several consecutive days his wife needed the car to get to medical appointments. This confined the SM to the office and, while he was able to catch up on his paperwork and telephone calls, it meant he wasn’t out on his sales beat. The MD wasn’t happy about the resultant loss in income.

Not long after this, the vehicle broke down and needed major repairs because of its age. The SM had been having some personal finance problems and wasn’t in a position to pay for the repairs.

During a discussion with the MD over advancing part of his salary to pay for the repairs, he admitted that the vehicle was covered only by third party insurance. This was contrary to company policy.

The MD also discovered that the SM had been using his car allowance to pay household bills, and that the vehicle had not been properly serviced, potentially the cause of the current breakdown.

The MD realised that the vehicle had been looking quite shoddy recently. It wasn’t clean and there were unrepaired dings which were not good for his company image. But as it wasn’t the company’s vehicle so the MD wasn’t sure he was in a position to dictate how the vehicle was looked after.

He wondered if the SM was keeping up with the vehicle repayments and decided to ask the chief financial officer to check this out. (When the CFO did this, he also discovered the vehicle wasn’t even registered in the SM’s name, but his wife’s, because the SM had a dodgy credit history which meant finance companies wouldn’t lend him money.)

The repair issue was eventually resolved, although not exactly satisfactorily, and the MD had no confidence that such problems might not arise again. And he was right. Just a short time later, the Office Manager’s car was off the road for servicing and she had no way to get to the bank other than to use the SM’s vehicle. However, the SM refused to allow her to use it, saying it was his car not the company’s.

He did this because he was embarrassed by the shocking mess the car was in. This did not assist inter-office relationships.

 Meanwhile, the new office manager (OM) had been given a company car. She was chuffed to bits about the status this conferred, but was less keen when told she would have no say in what she would be driving.

The one chosen for her by the Chief Financial Officer, who was swayed more by economics than safety, convenience and aesthetics, didn’t exactly fire her enthusiasm and she wasn’t overly happy with it.

It was fine for running about town but it didn’t meet her private needs because under the FBT rules the back seats had to be removed, and she had three children. Still, it would get her to and from work, so that at least was an advantage. She was somewhat surprised to learn that this was considered private use, however.

By nature a neat and tidy person, the new OM easily adhered to the company’s rules about how the vehicle would be driven, looked after and serviced.

She didn’t take much time off, either, so the vehicle was always available to other staff for company business. And, when she was on leave or ill, she left it at the office. There was no long-term liability, if she left the job, she would also lose the car but as she wasn’t using it much privately, that wasn’t considered a problem.

From the company’s viewpoint, the arrangement worked well although admittedly it was a hassle for the CFO to administer.

Cars were not the company’s core business so managing the fleet was added to the CFO’s duties. It meant he needed to acquaint himself with vehicle valuations, employee ownership policies, insurance, repair and servicing issues and costs, and residual and maintenance risks.

With all the time this took, he wondered if it wouldn’t have been better to lease the OM’s vehicle so that all the costs, except fuel, would be tied into one monthly payment. There were advantages, too, from bulk purchasing or leasing which meant it might be more affordable than the employee ownership scheme the SM was on.

It would be worth investigating as at the end of the lease, the vehicle could be returned and a new one arranged, rather than having to go to the effort and expense of selling a vehicle when it was no longer needed.

But this would have to be balanced with possible restrictions on the annual mileage and potentially harsh penalties if the lease was broken of if the vehicle was not well maintained.

In the interests of journalistic balance (yes, there is such a thing!), it must be said that the above scenario is a little biased against employee ownership.

In fact, your organisation might have very good reasons for paying staff car allowances and in most cases this will work well. It certainly does at Hasler Ltd, on Auckland’s North Shore (see story page 44) and others.

The answer then to the question of employee ownership versus company owned or leased vehicles is: it depends.

It depends on how many vehicles are in the fleet, the contribution the fleet makes to the company’s profile, whether a specific type of vehicle is required (eg van or ute), and whether the employee is likely to behave responsibly if paid a car allowance, unlike the Sales Manager above.

And the best advice we can give you is to get the best advice you can. Your circumstances will differ from other companies and the better informed you are of the many legal, insurance and cost issues involved with this decision, the better the chance you have of making the right one.