November 2010, Business Fleet - Feature
Cost-Effective Vehicles for C-Level Executives
Rewarding your senior managers with a luxury company car doesn’t have to break the bank.
Figuring total lifecycle cost into the equation can give you more options than you might expect.
For many companies, the primary factor when choosing executive fleet vehicles is initial acquisition cost. For luxury vehicles, those costs can appear prohibitively high. But an analysis of the total cost of the vehicle's life in fleet - factoring in residual values, manufacturer's incentives, maintenance and fuel costs - reveals some luxury vehicle models that are within range of a more modest fleet budget.
The total cost picture is also important when considering executive compensation packages and attracting and retaining top talent. When moving up the compensation ladder, the higher cost to slide behind the wheel of a more luxurious class of vehicle is less, percentage-wise, than the salary increase.
In other words, giving your C-level executives a nicer car will give you more bang for your buck.
We asked the lifecycle cost experts at Vincentric to perform their comprehensive analysis on a range of luxury cars to see how the numbers bear this out.
The Image Conundrum
What is a luxury vehicle? The lines have blurred. Many premium marques now have reasonably priced compact models, while mainline OEMs offer sedans with performance and amenities rivaling the luxury names.
A more relevant analysis might be to match the vehicle with your company's image. "The image the vehicle projects to others is very important, especially now that we are in a world where extravagant spending is under much more scrutiny," says Trudi Beardsley, manager, strategic consulting and financial modeling at GE Capital.
A publicly traded company experiencing tough times and facing layoffs might think twice about putting its C-level executives in high-end sports cars or luxury vehicles that are significantly more expensive than an average fleet vehicle, Beardsley says.
Similarly, a green-minded company that chooses a large, all-wheeldrive SUV in a non-snow state would conflict with the company's business objectives.
Beardsley suggests that one way to manage the executive's needs with the company's image is to offer the executive a standard fleet model with an upgrade to the highest trim level or options package.
Smart Luxury Leasing Strategies
Aside from choosing a luxury vehicle for your fleet with low lifecycle costs, there are other ways to save.
To help offset costs, some companies allow drivers to choose a luxury base model and then let them upgrade out of their own pockets, to a higher trim level or even a different model.
On the flip side, company image is harder to control when drivers have leeway in model choice, Beardsley says.
Another tactic is lengthening the hold period in fleet. Depreciation is the steepest in the first two years, so utilizing a five-year lease will lower the cost per mile. This can be done creatively: Instead of cycling the executive's vehicle out of fleet at three years, redeploy it to a lower-level employee for two more years.
"It could even be used as a prize for the winner of a sales contest," Beardsley says. "The executive gets a new vehicle while the employee gets an unexpected perk, and the costs are about the same as if the employee was put into a new [nonpremium] sedan."
This steep initial depreciation also makes leasing a late-model used car worthwhile.
"One of our clients, a CFO, wanted a nicer car, so we got him a used model with low mileage at the same monthly payment as the ones given to middle management," says Ben Carfrae of Ruan Car Leasing in Urbandale, Iowa. Carfrae emphasizes that the used cars must be in the best condition possible, both mechanically and cosmetically.
To save on gas expense, look for luxury vehicles that don't require premium fuel, are hybrid-electric powered or run on diesel, which has a higher mpg. Again, check total lifecycle costs to see if the fuel savings make a difference to the bottom line.