If you’re the CEO of a growing company, you might consider purchasing a company car for you or your top employees. The idea is simple: Provide a company-owned vehicle to the people who need it, both as a benefit for the employee driving the car and as a way to improve the company’s performance in a handful of subtle ways.
But before you move forward with buying a company car, there are some pros and cons you’ll need to weigh.
The Disadvantages of Company Cars
Let’s start with some of the cons of company car ownership:
1. The risk of an accident: If the car is involved in an accident, it can result in legal complications and potentially harm your brand’s image. Determining fault and responsibility can get messy, and if your company or your employee is found responsible for the accident, it can reflect poorly on you. Of course, accidents aren’t particularly common.
2. The costs: A bigger concern is likely the costs associated with purchasing a company vehicle. Depending on the model you choose, you’ll likely spend tens of thousands of dollars upfront. On top of that, you’ll need to spend money on periodic repairs and maintenance. Depending on your arrangement, you may need to pay for insurance, fuel, and more.
3. Depreciation: In some ways, you can think of your company car as an investment; it’s an asset that belongs to your company. However, new cars make poor investments due to depreciation. You can write off depreciation for tax purposes, but there’s only so much you can recover.
4. Tax complexity: The tax implications can also be complicated. A business car is only tax deductible when used for business purposes. If the business car is used for personal trips, these costs won’t be tax deductible for the business.
The Advantages of Company Cars
Of course, there are several advantages that make the choice worth it for many businesses:
1. A benefit for employees: One of the biggest motivators for purchasing a company car is to offer a benefit to employees. Job candidates who are considering your open position will be swayed if they know they’re going to get an impressive company car. You may be able to consider the costs of the vehicle as part of your total employee compensation.
2. Travel capabilities: If you or your employees need to travel frequently for the job — such as meetings in different areas of the city — a company car can increase the reliability of your transportation. You won’t have to depend on an employee providing her own means of transportation. You can also act proactively to make sure the vehicle stays in top shape.
3. Company image and reputation: You can use a company car to boost your company’s reputation. If you want your employees to show up for company meetings in a luxury vehicle, this is the way to do it. The mere fact that you offer a company car could convey a degree of financial success.
4. Vehicle retention: If you purchase a company car for an employee and she chooses to leave, you’ll retain ownership of the vehicle. If you hire a replacement, you can transfer the vehicle to his possession or sell the vehicle to recover some of the costs. It’s not a benefit that’s permanently attached to the employee you hire.
Key Tips for Success
If you want to be successful in the purchase and maintenance of a company car, make sure you:
- Choose the right model. Make sure you invest in the right vehicle. Some cars will be less expensive to buy and maintain while giving you everything you need. Some cars make a better first impression than others. There’s no “right” vehicle to choose as a company car; you must consider your goals and priorities and weigh the pros and cons of each option.
- Invest in maintenance. The more proactively you maintain your vehicle and make repairs, the longer it’s going to stay in good shape — and the more likely it will be to preserve its resale value.
- Keep good records. Because tax and liability issues can get complicated, it’s important to keep detailed records of things like expenses and maintenance.
Purchasing a company car isn’t the right choice for every business, especially those operating with a restrictive budget or those with limited need for employee travel. However, if you find a company car that could work well for your business, it may be a worthwhile investment — as long as you understand the variables and work to make it a success.