Employers move away from car ownership plans

If you read nothing else, read this…

Communicate the move to an alternative scheme early, and make clear the business case and benefits to employees.

Failing to achieve predicted cost savings is often behind employers’ move away from employee car ownership plans (Ecops).

Company cars and those in an Ecop are maintained in the same way, overriding health and safety concerns. Ecops typically tie organisations into 24- to 48-month contracts so plan ahead.

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Employers originally put in employee car ownership plans (Ecops) for a number of reasons, including cutting costs. However, some are now having a re-think and are looking to transfer employees back into more traditional company car schemes.

A failure to generate anticipated cost savings is behind many employers’ decisions to move away from Ecops. Alistair Kendrick, director of PAYE and NI solutions at tax advisers Ernst & Young, explains: "The reason that people have generally [wound up Ecops] is that the estimated cost savings when benchmarked against other funding methods are incorrect." The predicted cost savings of an Ecop are typically based on the level of expected business mileage and number of cars in the scheme.

So if either number drops, then so will the resulting savings. Therefore, taking wider business issues such as a need to reduce business mileage or redundancy issues into account is vital at the planning stage. "If you’ve got the early termination of schemes because people are leaving [the organisation] that can severely disrupt an Ecop," he adds. Concerns over health and safety issues have also been touted as one of the main reasons that employers are choosing to move back towards company cars.

But Kendrick believes this is something of a red herring because the maintenance of company cars and those provided through an Ecop is monitored in exactly the same way. He believes that company car providers are often responsible for fuelling employers’ fears. "That’s the fleet industry trying to [persuade] people to have a company car." But, once in place, removing an existing Ecop isn’t that easy. One issue is communication. "Someone will have egg on their face because they will have recommended an Ecop as the best funding method, and now they’ve changed their mind," he adds.

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Employers will also have to explain to staff that the scheme is changing. Tackling this sensitive issue early is key, particularly if employers are to retain employees’ trust that they are being offered the best funding method for them. "[Employers] have probably gone to employees and sold [an Ecop] as the best option for them, so how do they then go back and say that it’s not," says Kendrick. Other potential losses result from the diminution of purchasing power inherent in a structured scheme. Gary Killeen, general manager, structured financial solutions, GE Commercial Finance, Fleet Services, says: "The [organisation] may have to subsidise ancillary services such as maintenance, insurance and tyres for example." It is also important to bear in mind that Ecops often involve terms of between 24 and 48 months, so it is vital for employers to plan ahead.

The only alternative is to buy back all cars from staff, however, this involves a huge amount of administrative work so is not recommended. "It is potentially very expensive to terminate a contract, so companies will have to do it with the goodwill of the employee. The major issue around exiting an Ecop is that employers can’t exit existing arrangements. You can’t wave a magic wand and terminate it overnight," explains Kendrick.