How One Business Cut Operational Expenses 12.5% in “Year One” with CarData VRP
When a major industrial company was acquired, the time was right to evaluate risks, chart a path for growth, and find ways to inject new energy into the company culture.
Out with the Old
Relationships are a big differentiator in commodities industries, which means that regular customer visits are essential. The industrial company had leased 200 vehicles from a fleet management company to ensure that their team of sales “road warriors” and other employees could deliver a winning customer experience. Employees were driving an “all costs paid” vehicle, under a policy that covered both business and personal driving expenses. Each driver was given a corporate fuel card, and every car was a Chevrolet Fusion or Malibu.
Leasing from a fleet management company was a good decision when the program was implemented. That changed when lease accounting standards changed, shifting the operational costs of company cars to a capital asset (and liability) instead of an operational expense. Other consequences accompanied the new regulations. Their accounting process became more complex and they were now required to frequently reassess lease terms.
Then there was the issue of risk. Comprehensive review of the program showed three areas of corporate liability:
• The company was responsible for property and casualty damages even when the car was used for personal travel or was driven by someone other than the employee.
• Fuel cards, convenient for employees, added exposure for the company. There are all kinds of fraudulent schemes that add non-work expenses. Four years ago, Shell released a report named “Fraud Matters” in which fleet managers in the U.K. said that card cloning, account hacking and PIN interception were known, significant issues.
• Finally, the company bore asset responsibility in the company financial statements, and for factors such as gain/loss on sale, unforeseen maintenance and loss of value due to collisions.
Sound familiar? The next question is: “What did they do that might make sense for my company?”
In with the New
Companies looking to pivot how they operate often come to us with a set of goals. This industrial company’s aim was to reduce vehicle-related costs 15-20% over three years and breathe new life into their culture. They wanted to:
• Eliminate risk where possible
• Implement a non-taxable allowance/reimbursement that benefited both the company and drivers
• Create a new culture of responsibility, entrepreneurship and engagement
• Make the transition a smooth, positive experience for everyone involved
With those objectives in mind, we got to work on designing their vehicle reimbursement plan. We identified a strategy that achieved the goals of cost reduction, risk avoidance and non-taxable payments. We also made sure the plan was fair and flexible for salespeople, who had the option to buy the car they had been driving or a vehicle that better suited their preferences, within company policy. Our team offered advice and guidance on how a fixed and variable program works, for example making sure each person understood that vehicle expenses were based on their territory and even changing gas prices would be factored into reimbursement.
When any significant change happens in a company, there naturally is apprehension about new policies. People have quiet conversations in hallways and behind closed doors, where they speculate about the changes to come. That’s why we take a holistic approach to our programs. In addition to mapping out a strategy that met new corporate financial goals, multiple messages which explained the program were delivered during manager meetings, then on conference calls and in email correspondence. We assigned support personnel experienced in company car programs who could explain exactly how the new VRP would affect them. We also helped coordinate the vehicle sale process, influencing speed-of-sale and gain/loss results.
Our client cut 12.5% in related expenses in the first year, well on their way to the 20% goal they set. As an aside, 40% of the people bought the car they had been driving.
Please get in touch to find out how we could help you, too.
About CarData Consultants CarData provides precision vehicle reimbursement programs for the mobile workforce. CarData services save money, reduce risk, and remove administration. CarData programs are compliant with the IRS and the CRA procedures.