New Tax Law, Insurance Rates Sideswiping the ‘Company Car’

Tax law changes and rising insurance costs have caused many companies to eliminate that time-honored extra known as the “company car,” according to a new survey by a management consulting firm.

But, then again, maybe not. The nation’s two largest fleet leasing companies dispute the results of the survey by Runzheimer International and say their businesses are doing well.

“The company car is not quite the perk it used to be,” said Peter Packer, a spokesman for Runzheimer of Rochester, Wis. “Companies are basically getting out of the car business.”

“We don’t see any evidence of this,” said Greg Bachman, a spokesman for Peterson, Howell & Heather Inc., which manages a fleet of nearly 300,000 vehicles, some of them under the Avis name, for companies in the United States and Canada. “We’re having a fantastic year.”

Runzheimer’s survey of 2,000 North American fleet executives managing more than 600,000 vehicles found that more companies changed their business car programs this year than in 1985 or 1983, when Runzheimer conducted its most recent biennial studies. The most common change discovered by the seventh edition of the study was to employee-provided cars from vehicles that are owned or leased by the company.

The number of respondents with leased fleets dropped to 18% from 24% in 1983, while companies that require employees to provide their own cars rose to 12% from 7% in 1983, the survey found.

Among companies that lease cars for employees, 51% gave them to high-level executives, compared to 74% in 1983. Executives got cars in 76% of the firms with company-owned fleets, down from 84% four years ago.

The main reasons given for the changes were soaring insurance costs, changes in the tax law and corporate efficiency programs, Packer said. Also, selling used company cars has become a primary concern because of the “soft” used car market, he said.

The median cost of insuring a car was $600 in 1986, compared to $324 in 1984, the survey stated.

The new tax law limits depreciation for cars and took away companies’ investment tax credits for buying cars, Packer said. In addition, the Internal Revenue Service has tightened reporting requirements on the amount of personal use of company cars, he said.

Some companies have found that reimbursing employees for business use of their personal cars “is a lot cleaner and simpler,” he said.

But Peterson Howell and Gelco, another large fleet leasing company, contend that leasing is still cheaper than buying a car and that they have actually benefited from changes in the tax law.

At Gelco, the leasing business is up 22%, compared to last year, said Frank Churchill, executive vice president of Gelco Fleet & Management. “We’ve put more vehicles on this year than in the history of the company,” he said.

Peterson Howell does not break out its sales results, but “the evidence that we get simply from going out on the street and signing up new business is that the leasing business has real credibility and that is founded on some real dollar savings,” Bachman said.

Employees Upset

Churchill said the tax law has made it more expensive for an individual to own a car because the sales tax deduction was eliminated and interest deductions are being phased out.

What’s more, the employee can deduct only those unreimbursed costs of using a car on business that, when combined with other business expenses, exceed 2% of the employee’s adjusted gross income. Since the average cost of owning a car is about 35 cents a mile and most companies are reimbursing at a rate of about 22 cents a mile, employees are becoming upset, he said.

“What drivers are saying to companies is 22 cents per mile used to be unfair, now it’s downright unethical,” Churchill said.

Companies can provide servicing and other necessities more cheaply for their fleets than individuals can, Churchill said, adding that he considers the Runzheimer survey suspect because the company works as a consultant selling driver-reimbursement programs.

But Packer of Runzheimer objected strongly.

“We have been putting that survey out since 1975, and that survey is objective, unbiased survey information,” Packer said. As part of its management consulting services, Runzheimer does design driver-reimbursement programs for clients, but it also works with companies that lease or buy fleets of cars, he said.

“We consider ourselves car cost consultants,” Packer said. “We are not afraid to say that bottom line . . . leasing is more expensive than owning.”

WHO GETS COMPANY CARS? Employees who drive company-owned cars on business

Percent* of respondents Type of employee 1983 1985 1987 High-level executives 84 84 76 Sales representatives 69 61 65 Middle-level managers 73 69 63 Service representatives 58 43 39 Professional/technical NA NA 33 Miscellaneous 21 22 11

Employees who drive leased cars on business

Percent* of respondents Type of employee 1983 1985 1987 Sales representatives 79 90 77 Middle-level managers 60 63 57 High-level executives 74 67 51 Service representatives 46 48 38 Professional/technical NA NA 21 Miscellaneous 13 12 6

* Totals exceed 100% because of multiple answers

NA = Not asked

Source: Runzheimer International