Many manufacturers have resorted to list price cuts, free finance, extended warranty, low-cost specification improvements- a whole host of techniques to shift unwanted metal. A number of larger companies have taken advantage, obtaining discounts of up to 40 per cent on list price. However, it should be said that such deals can normally be obtained only when cars are replaced annually and where the customer uses a very narrow choice of (often just one) manufacturer for car provision - not a popular decision with employees.
However, all is not good news for car users. heavy discounts are normally accompanied by steep drops in residual values, 1990 and 1991 being no exception. Some two and three years old cars have fallen in value and purchase and supposal price, has tended to rise. At the root of all these problems is excess capacity - more cars being produced than buyers. While Europe's car market remains fragmented, this situation is likely to continue. Faced with this situation, how should a company go about determining and operating the corporate car policy?
The first two decision points that have to be crossed are:
1. What are the company’s needs, as determined by the nature of the business?
2. What is the company's reward policy and how does the car fit into that?
The next stage is to decide the replacement cycle. Many companies have responded to the current economic recession by extending their replacement cycles for vehicles. This means that those companies that buy cars will avoid heavy residual losses and the need to find cash at a time when most businesses are having to constrain their borrowings.
However, maintenance costs for vehicles tend to rise when the 50000 to 60000 mile mark has been reached. A general rule of thumb is that maintenance costs could well grow by 50 per cent between 40000 and 60000 miles, and by a further 75 per cent between 60000 and 80000 miles. Unless a company has good management information systems, these costs tend to be hidden but are no less real.
Most companies would be well advised to consider a wide range of issues before deciding on their car replacement cycle. For example:
1. What are the needs of essential users, for example, annual mileages, types of journey, load-carrying capacity?
2. How much choice should be given? (this should be related to industry practice to ensure that it is competitive).
3. When is the best time of the year to acquire and dispose of cars?
4. What happens to cars when people leave? Get promoted?
5. What is the company's financial situation? How should vehicles be financed, for example, on or off-balance sheet?
However, all is not good news for car users. heavy discounts are normally accompanied by steep drops in residual values, 1990 and 1991 being no exception. Some two and three years old cars have fallen in value and purchase and supposal price, has tended to rise. At the root of all these problems is excess capacity - more cars being produced than buyers. While Europe's car market remains fragmented, this situation is likely to continue. Faced with this situation, how should a company go about determining and operating the corporate car policy?
The first two decision points that have to be crossed are:
1. What are the company’s needs, as determined by the nature of the business?
2. What is the company's reward policy and how does the car fit into that?
The next stage is to decide the replacement cycle. Many companies have responded to the current economic recession by extending their replacement cycles for vehicles. This means that those companies that buy cars will avoid heavy residual losses and the need to find cash at a time when most businesses are having to constrain their borrowings.
However, maintenance costs for vehicles tend to rise when the 50000 to 60000 mile mark has been reached. A general rule of thumb is that maintenance costs could well grow by 50 per cent between 40000 and 60000 miles, and by a further 75 per cent between 60000 and 80000 miles. Unless a company has good management information systems, these costs tend to be hidden but are no less real.
Most companies would be well advised to consider a wide range of issues before deciding on their car replacement cycle. For example:
1. What are the needs of essential users, for example, annual mileages, types of journey, load-carrying capacity?
2. How much choice should be given? (this should be related to industry practice to ensure that it is competitive).
3. When is the best time of the year to acquire and dispose of cars?
4. What happens to cars when people leave? Get promoted?
5. What is the company's financial situation? How should vehicles be financed, for example, on or off-balance sheet?
