Your flexible friend: David Voss comments on how the Employee Car Ownership scheme has evolved and outlines its role in today’s complex fleet market
When Employee Car Ownership (Eco) first came to the attention of the fleet industry, it was under very different market conditions than today. Primitive schemes appeared in the early 1990s and were little more than PCPs marketed through employers and predominantly sold to employees not in existing company car schemes.
As Benefit in Kind Tax became more and more punitive, the idea of opting out became increasingly attractive, particularly to perk car drivers. A new market opened up drivers with personal cash to spend and a desire for the peace of mind that a company car gave them, without the tax implications.
In the mid-nineties, several schemes were set up to cater for ex-perk car drivers and the ‘cash-for-car’ market. They addressed directly the tax issues and were consequently aggressive in their approach, forcing the Inland Revenue to look closely into their set up.
When Provecta entered the market in 1995, it was with a product developed specifically to address the conundrum of how to provide suitable cars for employees without incurring additional expense or falling foul of the tax man.
Provecta developed an Eco scheme, whereby employees are given a monthly allowance in their salary, and have access to a wide variety of cars at ‘fleet discount’ prices. For a monthly payment, with no deposit required, the employees’ vehicles also receive full servicing, road tax, and can also include insurance. Drivers often have the choice of using their full allowance, or adding to it from their salary to upgrade the car, or select a cheaper option and pocket the difference.
Although driver choice and flexibility is increased, controls are put in place to ensure health and safety procedures are adhered to and all cars are fit for purpose. Drivers are reassured by a company-car type package, without the tax implications, and employers avoid the financial and administrative burden of a company car fleet and keep the finance off balance sheet.
The fleet industry’s response was mixed. Some embraced Eco as the answer they had been looking for, while others remained sceptical. The industry’s reluctance to accept Eco as a mainstream product echoed the situation when contract hire was first introduced. Ignorance and misunderstanding caused many to react defensively. This coupled with the bad press received by the aggressive schemes that came before it meant that Eco had to fight for acceptance. It is testament to the strength of the product and the skills and expertise with which it is successfully applied that it is still around and thriving today, 10 years on.
As the fleet market evolved, so did Eco. With its beginnings as a tax efficient alternative to ‘perk’ or low business mileage cars it has progressed to become just such an alternative for the high business mileage car. The changes to BIK tax in 2002, based on C[O.sub.2] emissions rather than business mileage, caused a fundamental shift in the demand for tax efficient company cars. Now the working fleet was affected, with many more company car drivers feeling the tax pinch.
In a recent survey, one in five companies would get rid of company cars if they could, while 79% had either an optional or compulsory cash allowance scheme in lieu of a company car (Source-Employee Benefits Fleet Management 2004 Survey). Employers are keen to find a solution to both the HR and the finance issues.
Now Eco is being talked about as a real alternative: providing flexibility and choice to drivers, maintaining suitable controls and potentially saving both employer and driver cash along the way.
As with any fleet finance product, Eco is not suitable in every case. It may be that Eco is appropriate for all or part of the fleet. Careful consultation is needed to assess the full fleet profile and evaluate the right mix of solutions to meet key objectives.
Eco is often sold into a fleet as a fast route to cost savings. This may be true in around 50% of cases, particularly if the fleet has a significant proportion of high business miles and higher rate tax payers. However, even if the costs are neutral, Eco can significantly improve employee benefits through the introduction of choice and flexibility.
One of the key differences between Eco and other fleet finance products is that the plan centres around the driver. This fundamental shift to ‘driver management’ rather than ‘fleet management’ is what makes Eco difficult for many fleet management companies to operate in a successful manner.
As with all great products, Eco has stood the test of time and is still with us, and with arguably Europe’s largest fleet management company entering the market with a new joint venture, Eco has finally been given the fleet industry’s stamp of approval.
David Voss is a director at Eco specialist Provecta, which has recently announced a joint veture with Arval PHH to sell Eco schemes
COPYRIGHT 2004 DMG World Media Ltd.
COPYRIGHT 2004 Gale Group