Feature – Employee car ownership shifts a gear

If you read nothing else, read this …
• An employee car ownership plan (Ecop) is an employee-based car ownership deal.

• Employers with large fleets, a high proportion of 40% tax payers, and a large number of drivers who do high mileage are most likely to benefit from switching to an Ecop.

• Construction, pharmaceutical and financial services companies have been at the forefront of moves towards Ecops, mostly because of the flexibility associated with these plans.

Structured employee car ownership plans (Ecops) are currently causing a lot of trouble in the fleet world. Instead of quietly slipping on to the tick sheet of an organisation’s car choices, Ecops are making more noise than a dumper truck at an off-road rally.

While there have been a number of high profile organisations replacing company cars with an employee car ownership plan including Siemens and the BBC, the number of firms which have implemented a scheme so far remains low. Employee Benefits’ Fleet Research 2004 shows that only 8% of organisations currently offer an Ecop.

However, this figure has not been helped by the fact that many fleet providers, especially those without Ecop products to sell, have been muddying the waters for the large numbers of firms looking at an Ecop as a future option. But the spreading of scare stories and unsubstantiated tales of employee car ownership disasters have not made employers afraid to act, but have simply slowed down an inevitable shift.

According to a survey by fleet provider Interleasing, more than half of HR directors and finance directors (FDs) who are in charge of their firm’s company car schemes are not sure what an Ecop actually is. (Answer: it is an employee-based car ownership scheme.) There are a number of points than an employer should consider before opting for an Ecop for their firm.

Firstly, a sizeable fleet is an essential ingredient. An organisation needs a significant number of company cars or cash allowance takers to warrant switching to an Ecop. Pete Nolan, commercial manager at Alto, the Ecop specialising arm of fleet firm Interleasing, believes Ecops are not worthwhile unless an organisation has around 350 cars or more. This is because the chances are an employer with less than that will be unable to garner a significant discount from the manufacturer to get a reasonable saving.

Secondly, Nolan adds that large organisations often have better HR, finance and payroll systems, which is crucial when it comes down to the nitty gritty of taking payments from staff.

Thirdly, employers that have low levels of staff turnover are better placed to benefit from the joys of Ecops. Alastair Kendrick, car tax expert at accountancy firm Ernst & Young, says this is because for an Ecop to be worth the financial risk the driver must have the car for at least 18 months. In a traditional company car scheme, the car can be redistributed if the employee leaves. But, under an Ecop the car belongs to the employee, so the company loses out and the employee is unlikely to keep the car because the benefit lies within the employer’s ability to procure a discount on the financing of the car.

Finally, Kendrick also says that if a company has many employees who are 40% tax payers, Ecops works best, as well as if there are a large number of high mileage drivers, such as sales staff. He highlights sectors such as construction, pharmaceutical and financial services as those that have bitten most into the Ecop arrangement. “HR people in the pharmaceutical industry like Ecop because it’s flexible. And if they don’t have an Ecop it’s a recruitment block because their competitors are likely to [have one],” says Kendrick.