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The recession could give a new lease of life to company cars as part of employees’ remuneration and benefit packages, according to the boss of Britain’s largest independent fleet management company.
The last decade has seen a surge in businesses providing cash alternatives to company cars for employees. As a result, the number of company cars on Britain’s roads has dropped to about 1.1 million - 500,000 fewer than when the emissions-based benefit-in-kind tax was introduced in 2002 - according to HM Revenue and Customs’ figures.
Many employees taking a cash option have used the money to fund a car through a personal leasing scheme. However, as a new study by motoring magazine Auto Express has revealed, nose-diving residual values are leaving many drivers facing negative equity on their vehicles.
Geoffrey Bray, chairman, of Fleet Support Group, which has around 55,000 vehicles under fleet management, said: “Companies are being irresponsible when expecting staff to take-up cash alternatives in the current climate.”
FSG says it continues to receive inquiries from businesses on the merits of cash alternatives to the company car.
But Mr Bray, who is witnessing his third recession as an industry boss, said: “Cash-for-car is nothing but financial engineering from the corporate viewpoint. Businesses that value their staff should not be encouraging the take-up of cash alternatives in the current economic climate.
“Employees who are coming to the end of a PCP-style contract are going to be in for a massive shock when they return their car and discover its value is massively below the sum they anticipated.
“As a result they will more than likely hand the car back and walk away and look to return to their employer’s company car scheme. Meanwhile, employers that have shelved their traditional company car schemes in favour of cash alternatives may want to reintroduce them. Employees, typically a company’s most valuable asset, will in the main be loath to risk the prospect of negative equity in the future.”
Auto Express in its ‘New Year Special’ edition calculated that the negative equity shortfall for drivers across the UK could collectively total £272 million.
While not all motorists affected will be ex-company car drivers many are likely to be. Personal contract purchase schemes typically involve drivers making a series of monthly payments for their car over a pre-determined contract period, usually two or three years. Then a final ‘balloon’ payment is made to secure ownership of the car at the end of the contract period. This payment is based on the predicted end-of-contract value of the car at the time the agreement was taken out.
But the ongoing slump in used car prices caused by the economic turmoil means that many of the residual value predictions are thousands of pounds above the actual value of the car. As a result, to secure ownership of the vehicle drivers will have to pay significantly more than the car is worth. The alternative is to hand the vehicle back at the end of the contract period and walk away leaving a vehicle to be sourced elsewhere.
Mr Bray added: “It’s a case of once bitten, twice shy. Plummeting residual values caused by the wider economic situation means there is no incentive for employees to fund a car through a personal leasing type arrangement. As a result, the recession could ironically halt the slide in the popularity of the company car, as highlighted by HMRC figures.”
Fleet Support Group (FSG) is the largest independent vehicle management company in the UK and looks after approximately 50,000 vehicles.
The well-established organisation based in Chippenham, Wiltshire, has gained an enviable reputation within the industry by continually concentrating on delivering a consistent, quality service embracing full vehicle acquisition and disposal, vehicle outsourcing, fleet management, risk management and work-related road safety, maintenance management, accident management, breakdown recovery, short-term car rental and truck management.
Within the FSG team, there is significant industry experience and qualifications across the range of services provided. This in turn is supported by an in-house IT operation which is continuously upgrading the internal systems and applications to ensure that, by innovation and product development, FSG leads the field in the provision of vehicle management.
For further information contact: FSG chairman Geoffrey Bray on 0844 8000 700.