How this large Australian retailer remarkably transformed its fleet

Company cars

Find out how this large Australian retailer avoided a costly and depreciating fleet while upgrading its car policy to also benefit their employees.

*Company name has been omitted due to privacy.

 

Years ago, a large Australian retailer implemented a company car policy. This policy proudly supported Australian car manufacturers by providing all store managers with fit-for-purpose Australian built cars.

For years, this was a highly effective policy. Employees had the ability to use the cars for business and personal use. This was considered a fantastic incentive and benefit for store managers.

As time moved on, significant changes impacted the efficiency and value of the policy, which made it out-dated and now costly.

The policy must be relevant to the times

When INSIDE EDGE evaluated the company car program and policy, a few concerns were raised:

  1. Climbing fleet management costs

Not only had fleet management costs increased, but the purchase price of the once beloved station wagon and its running costs had too. This meant the retail company had continually increasing costs on their fleet seemingly each year.

  1. Accounting Audit and Compliance changes

The impending introduction of the new accounting standard, AASB 16, will compel disclosure of company cars and all leased assets on the balance sheet — triggering more headaches (while costing more money).

  1. Significant change in business usage

The justification for providing station wagons first and foremost was to empower managers to carry out work on behalf of the business and deliver products when required to customers and stores alike.

The analysis highlighted that business use of company cars had reduced significantly, due to the rise in technological communication improvements, which eliminated the need to travel. And the increased awareness of transportation and delivery of products by store managers was a looming OH & S hazard.

  1. Restriction of car availability

The unfortunate redundancy of Australian car manufacturing rendered the “proudly Australian-made” clause of the policy null and void.

After being surveyed, employees revealed that station wagons were perceived as being extremely old-fashioned. Their lack of choice in company car — caused a great amount of frustration to employees, especially as SUV’s rose in popularity.

 

With all of this information at hand, something needed to change. The policy needed updating, without turning the store managers against the retailer.

Seeking a mutually-beneficial solution

INSIDE EDGE consulted with the retailer to understand why and what they required from its company car program. It was decided the new program must:

  • Reduce and stabilise the overall car expenditure
  • Reduce the capital cost of cars
  • Provide employees with appropriate transport to complete tasks as required
  • Provide employees with appropriate compensation for loss of traditional company car
  • Improve the company’s employee benefits program.

Upon setting these objectives, INSIDE EDGE got working on the best way to move forward.

Shifting away from company cars

The suggested solution seemed unachievable at first: to completely move away from providing company cars.

But rather than just take this benefit away from employees, the retailer was going to provide employees a car allowance and enable them to take advantage of a novated lease.

To ensure store managers were on board, and to provide fair compensation for the company car, a car allowance was set at $18,000 per annum.

Why $18,000?

Because owning and running each company car was costing the retailer approximately $18,000 per annum currently — however, as the cost of the car increased, so too did all of its associated running costs. By stabilising the car allowance, the company was ensuring that their costs wouldn’t increase. Providing a car allowance for a novated lease rather than owning a car outright also ensured that the cars did not need to be placed on the company’s balance sheet as per AASB 16.

To satisfy managers, the following two options were offered:

  1. Be provided a new company car that was suitable, but was cheaper and more economical than the station wagon. This cost the retailer less, but also ensured the satisfaction of those who wanted to stick with the company car policy.
  2. Be offered a car allowance of $18,000 per annum as compensation for the company car. The employee could then utilise a novated lease to have any car that suited them. A novated lease also allowed employees to maximise the value of the car allowance in a tax effective manner.

This Australian retailer’s impressive results

Two years later…

Since the implementation of the car allowance and novated lease program, the company has freed itself of 160 company cars and their depreciating value. In addition to the ever-increasing purchase price and associated running costs.

More importantly, the overwhelming consensus of store managers are thrilled with the car allowance and the option to take out a novated lease with a car that suits their lifestyle, personality and financial situation, while still fulfilling work commitments.

How did they experience such success?

The retailer puts their successful implementation down to having a clear and concise communication strategy towards all stakeholders.

INSIDE EDGE handled all communication on behalf of the retailer. This gave each store manager an opportunity to ask questions, vent concerns or issues and gain an independent understanding about the options available.

Want to experience the same program transformation?

INISDE EDGE are specialists in the provision of novated leases. We provide expert, savvy advice to businesses reviewing car policy and structure.

We provide effective solutions for all the automotive needs of your company, from providing effective employee benefit programs to maximising tax and cost savings.

If you would like to learn more about generating fleet efficiencies in your business, please refer to our “driving more with less” blog.

If you are ready to discuss the options available to your business and to learn how we can transform your company car or novated lease program, then please contact me on 1300 551 987, or alternatively email me at Bradley.Davidson@iedge.com.au
0 replies

Leave a Reply

Want to join the discussion?
Feel free to contribute!

Leave a Reply

Your email address will not be published. Required fields are marked *