Market Trends

Loss of Control is Reimbursement’s Fatal Flaw

March 17, 2008

by Mike Antich - Also by this author

 By Mike Antich 

Score one for our side!

Recently, a Fortune 100 company gave (very) serious considerationto eliminating its company-provided vehicle fleet program and switching to driverreimbursement. Initially driving this initiative was senior management’s desireto cut cost by removing the vehicle assets from the books. The option to moveto an operating lease was not viable since it violated the company’s accountingpolicies set by finance. Management reasoned that by moving to an allowance,the company could write off the fleet as an expense and eliminate the financialliability of an asset. The fleet manager was given the opportunity to justifythe need for a company-provided fleet.

He succeeded. Interestingly, the winning argument was not based oncost. The nail in the coffin was management’s fear of the loss of control overwhat employees would drive and the implications for corporate image andliability exposure.

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Sending the Wrong Message

A company vehicle is part of the corporate image presented tocustomers and the community. With driver reimbursement, an employee determineswhether a vehicle is appropriate for the type of image the company wants toproject. When an employee provides the vehicle, the company surrenders thiscontrol. The wrong vehicle can send the wrong message to customers.

If the company doesn’t provide the vehicle, it has no control overwhat the employee drives to a customer location. Customer perception iseverything, especially when it involves prospective customers. Employees may berequired to entertain customers, and you don't want them to drive customers inan unsuitable vehicle. With driver reimbursement, an employee determines whethera vehicle is appropriate for the type of image the company wants to project. Areimbursement program creates a problem when someone is hired who already ownsa vehicle. The company will most likely have to accept whatever he or she isdriving. On the other hand, a company-provided program allows you to controlthe suitability and appearance of the vehicles used for your business.

Increased Liability Exposure

With an employee-provided vehicle, how do you ensure it isproperly maintained? How do you know the condition of the tires? What about thebrakes? How do you know when an employee postpones a safety-related repair? Ifan accident is caused by deferred maintenance, what is your liability exposureif the accident occurred while the employee is conducting company business? Thereality is that it is difficult, if not impossible, for a company to be awareof the condition and maintenance of every employee’s vehicle. In fact, areimbursement program may actually contribute to poorly maintainedemployee-owned vehicles. For instance, if the reimbursement is not sufficientto cover actual expenses, the employee may defer preventive maintenance. Also,since maintenance is an out-of-pocket expense, there may even be a temptation(or financial necessity) to postpone more expensive mechanical repairs. Thebottom line is that a business has little or no control over the condition ofan employee’s personal vehicle.

In the final analysis, loss of control was the fatal flaw to thisdriver reimbursement initiative.

Let me know what you think.

[email protected]

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Mike Antich

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Mike Antich has covered fleet management and remarketing for more than 20 years and was inducted in the Fleet Hall of Fame in 2010.

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