Currently reading: Analysis: Will the company car be a victim of Covid-19?
Fleet industry figures are bullish about its future, despite the rise of home working
Autocar
News
5 mins read
22 March 2021

Company cars have always been widely seen as status symbols. Whether you’re a high-flying executive or a salesperson who spends hours trawling up and down Britain’s motorways, the company’s list of available cars is always pored over in detail, balancing costs with desirability.

However, the outbreak of Covid-19 shook the company car industry almost overnight. With the government’s ‘stay at home’ messages, the need to travel for work just hasn’t been there and online meetings have replaced almost all face-to-face interactions, leading many businesses to suspend leases in order to save money.

“Company car policies shut down because people were furloughed and firms were unsure what was going to happen to their businesses. At the peak of lockdown one, 70% of our corporate customers had put their policies on hold,” Rob East, BMW’s general manager for corporate sales, told Autocar.

However, he added that, since then, his order rate “is back to, if not slightly beyond” where it was before the first lockdown occurred, suggesting that businesses aren’t about to cast the company car aside in favour of video conferences.

East credits the rise in demand to the generous incentive that are currently on offer if employees choose an electric company car. Do so in the 2021/22 financial year and your car will fall into the 1% benefit-in-kind (BIK) tax bracket; in comparison, the BMW 320d diesel saloon, which officially emits 123g/km of CO2, will fall into the 28% tax bracket.

“The interesting trend is that we’re seeing people returning to company cars if they can choose either a plug-in hybrid or an electric vehicle,” said East. “This is someone saying ‘I recognise I can take an EV, pay 1% BIK and not have the hassle of operating my own car’.

“We’re seeing a migration of people coming back into company cars and we’re seeing positive trends. We’re predicting that over the next three or four years, there may be growth in the marketplace.”

The fleet industry has been through a difficult few years. The introduction of the WLTP testing regime raised official CO2 emissions and thus tipped cars into higher BIK brackets, while diesels have been hit with a 4% tax levy since April 2018. As a result, fewer people have been paying BIK (see chart below), instead opting to take a monthly cash allowance.

“Fleet operators went through a phase of complete uncertainty from a BIK perspective, so it was really hard for them to advise their drivers on what route to go down,” East explained.

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Although it isn’t yet clear what long-term working patterns will emerge after the pandemic, East said that he’s already seeing a shift in buying behaviour from fleets.

“The switch to electrification is happening quicker than the industry predicted, and that’s Covid-related. People have a very different working pattern: they’re not going into the office five days a week, and therefore an EV can work well, whereas 12 to 18 months ago, their mileage profile prohibited it. The level of acceptability of EVs is rising exponentially.”

This view is backed up by Paul Hollick, the chairman of the Association of Fleet Professionals (AFP).

He told Autocar: “The number of people who have switched from their 30% BIK-tax-bracket diesel vehicles to EVs has been incredible. There are statistics coming out from leasing companies showing that 50-60% of their orders are for EVs.

“AFP members are being quite relaxed about getting people back into company cars instead of them taking a cash allowance.”

Traditionally, company car leases have worked on a three-year/60,000- mile basis. But Mark Main, the UK transportation leader at professional services network Ernst and Young, suggested to Autocar that businesses could scrap this in favour of different arrangements in the future if workers aren’t travelling as much.

“The future of work isn’t going to involve us being in an office five days a week, but equally it isn’t going to involve us being at home for five days a week,” Main said. “I think there’s going to be a hybrid model where there’s more flexible working.”

“I remember seeing in the last financial crisis that a number of vehicle [leases] were extended partly to mitigate against residual value risk but also because there was uncertainty about demand. So you could move to a position where vehicles are retained for longer because usage is reduced. There’s definitely a future for the company car, but it’s going to evolve.”

Whether or not a widespread move to EVs will be enough to grow the company car market is yet to be seen (statistics for the 2019/2020 tax year are likely to be released in September), but Hollick is bullish about the sector’s prospects for the future.

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“The company car has resilience. That social stigma of wanting to have a company car on the driveway still exists for many people,” he told Autocar.

East agreed with this, but he added the fleet industry needs to do more to win over drivers in the future instead of relying on employees to simply take on a company car for tax reasons alone.

He said: “The company car culture is so embedded within our psyche, and I don’t think that will change. We certainly don’t see the death of the company car coming. But what we need to do as an industry is give company car drivers the same experience as retail customers.

“They buy with the same mindset, but because they don’t visit a dealer to choose a car or collect a car, they don’t get the same experience. That’s not just a problem for us but a problem for all brands.

“We’re looking to engage user-choosers to give them that full brand experience, because when someone selects a BMW or a Mini, they expect that experience. So we have to make sure we deliver.”

Daniel Puddicombe 

READ MORE

Britain's Best Company Car 2020: BMW 3 Series 330e 

Electric car users to pay no company car tax in 2020 

Coronavirus: What motorists need to know

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LP in Brighton 22 March 2021

Is there still a need for company cars?  They were introduced in this country over half a century ago to support a growing UK car industry and as a tax efficient way for companies to reward employees. Now, they mostly support the German car industry and are mostly heavily taxed. Would it not be better for employees to be simply paid a little extra to give them a free choice of vehicle for which they were responsible.    

The Apprentice 22 March 2021
LP in Brighton wrote:

Is there still a need for company cars?  They were introduced in this country over half a century ago to support a growing UK car industry and as a tax efficient way for companies to reward employees. Now, they mostly support the German car industry and are mostly heavily taxed. Would it not be better for employees to be simply paid a little extra to give them a free choice of vehicle for which they were responsible.    

There was a move towards that, but the HMRC saw it as a loophole and moved to close it by treating private cars as company cars if used for business and what could be idenified as a car allowance paid to the employee.
Its not fair to dismiss company cars only as perks, we have hundreds of people ferrying themselves, parts and tools to customers every day for work purposes. They don't need a commercial vehicle and it would be daft to only use a perfectly good vehicle just for work and own another of your own for personal use, but work/private split is 85/15 yet the current tax system doesn't reflect that typical situation. Yes plenty have perk cars and I would like to see that made less attractive.

The Apprentice 22 March 2021
Its not easy at the moment, the only tax efficient cars are PHEVs, the burden of anything else is excessive. But most PHEVs are under 2L and do sub 30mpg real world on working trips instead of commuting so drivers on AFR rates will lose personal money. This is a function of our technically clueless tax system. Another issue is the slow technical grasp by companies, mine is just trialing EVs for a few people but cars like the model 3 or Mustang-e already available fit our typical driver budgets and the range is more than enough for our daily use, 99% of our people own homes and can charge at home.. so let us have EVs now.
Torque Stear 22 March 2021
The Apprentice wrote:

Its not easy at the moment, the only tax efficient cars are PHEVs, the burden of anything else is excessive. But most PHEVs are under 2L and do sub 30mpg real world on working trips instead of commuting so drivers on AFR rates will lose personal money. This is a function of our technically clueless tax system. Another issue is the slow technical grasp by companies, mine is just trialing EVs for a few people but cars like the model 3 or Mustang-e already available fit our typical driver budgets and the range is more than enough for our daily use, 99% of our people own homes and can charge at home.. so let us have EVs now.

Sounds like a company specific issue, most of the lease car providers have electric cars availible.

At my company the company car is a perk, senior staff have an allowance but anyone can buy in to the scheme. You can have any car from the provider (ARVAL) but obviously you pay anything above your allowance (if any).

I have noted that the rates for EVs are not amazing particulary on Teslas given their rock solid residual at the moment. However as the leases are about 45% off given they are tax and NI free it doesn't matter that much to the employee.