Cutting costs on the road - cutting company motor vehicle costs

Nation's Business, May, 1990 by Julie Candler

"We operate 24 hours a day, seven days a week, so we can respond when hospitals call for special beds," says Finneran. "We treat all of our calls as emergencies. We need to get a bed there as soon as possible. A breakdown is serious. If a truck breaks down on a Sunday, you can't find a garage to repair it. But if you have full-service leasing, you can call and they will send a replacement. All three of our leasing companies have proved reliable in replacing breakdowns."

Leasing or owning vehicles are not the only choices for a company looking for transportation services, of course. A hot trend in the trucking business, says Douglas Slack, senior vice president of sales and marketing for Ryder Truck Rental Inc., in Miami, is arranging for distribution services through third-party sources. It is a reason for the growing use of so-called dedicated contract carriers, which supply equipment, drivers, system management, and distribution design. "We expect DCC to grow 12 percent to 15 percent in 1990," Slack says.

There's also a move toward using one company to handle all train, truck, airline, and other transport services for a company. Among the major so-called multimodal companies are Consolidated Freightways, Rochester, N.Y.; American President Companies, Oakland, Calif.; and CSX Transportation, Jacksonville, Fla.

Despite the attraction of programs such as leasing, Runzheimer International says it sees a move by companies toward having executives, sales people, and service employees use their own vehicles for business. The employees are reimbursed by their companies on a per-mile or a monthly basis--or a combination of both. Last fall, Runzheimer reported that fleets with employee-owned vehicles exclusively grew from 12 percent in 1987 to 19 percent in 1989.

In a survey that he completed recently, Kenneth Groh, a publications director at Runzheimer, found a drop in company-owned executive cars. He attributed it to the 1986 tax-reform law, which made it less advantageous to provide cars as a benefit, and to companies' efforts to control insurance costs. Employee-provided vehicles, Groh says, "are significantly more cost-effective for employers than company-provided programs."

The opposite conclusion was announced recently as a result of a study commissioned by the National Association of Fleet Administrators and carried out by the accounting firm of Ernst & Young. The firm concluded that over the life of a typical vehicle, a company saves $1,160--the difference between $9,924 and $11,084--if the company provides the car instead of reimbursing the employee for business use of a personal car. The survey assumed 85 percent business use and 15 percent personal use of cars by employees.

Ernst & Young also said it found that when a company provides cars to employees (rather than reimbursing employees for business use of their own cars), productivity and morale are boosted, and there's a drop in potential losses from theft and dishonesty.

As long as the prices of cars, trucks, and vans continue to rise, leasing will grow right along with them as a cost-effective way for companies to acquire, use, and dispose of vehicles, many experts predict.