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.
Executive Fleet Programs
Non-financial factors also need to be considered when choosing a luxury vehicle for fleet. A vehicle's safety ratings and safety-related options are very important in fleet purchases, and companies often will mandate that their fleet vehicles carry nothing lower than a four-star rating,
Beardsley says. She points out that the National Highway Safety Traffic Administration (NHTSA) has made its crash-test ratings system more stringent (see Road Signs story on Page 7), so some scores will fall this year.
Non-vehicle related factors play a large part as well. Is the dealership easy to get to? Does it have customer service related amenities such as loaner vehicles and courtesy pickup and delivery?
Some luxury manufacturers cater to the fleet market with incentive programs and some don't. Acquiring vehicles under a fleet program may deliver a better total cost, though not necessarily.
However, fleet programs do offer other benefits such as priority-order placement at the factory, direct-order relationships with major fleet leasing companies and courtesy delivery via a dealership that is convenient to the driver's location. Qualifications vary, so check with manufacturers' fleet programs to see if your company vehicles qualify as a fleet.
A Baseline Comparison
The lifecycle costs for sedans in the charts below represent just a sampling of vehicles considered "luxury," from entry-level models such as the Volvo S40 to prestige models such as
the Mercedes S-Class. For an apples-to-apples comparison, we asked Vincentric to calculate base trim levels on each vehicle. Trim levels and options will vary lifecycle costs considerably.
These hard-number comparisons should help you establish a baseline of values on which to measure the soft benefits of attracting and retaining executives.
Lifecycle Costs for Selected Premium and Prestige Sedans
Vincentric calculates nine factors in its lifecycle analysis: estimated cap cost, depreciation, fees and taxes, fuel, maintenance, repairs, insurance, financing and opportunity cost.
All models are 2010 model year, using Vincentric data for October 2010. Fleet price includes fleet incentives, if any. Fleet price is calculated as invoice plus destination minus published fleet incentives. If there are no published fleet incentives, the fleet price is based on the estimated cost consumers pay for the vehicle.
Audi A4 Versus Mid Size and Large Sedan Averages
The total cost after three years and 60,000 miles for a base trim Audi A4 sedan (Vincentric's Mid Size sedan, Premium segment) is $35,929. The average Vincentric lifecycle cost of a non-premium Mid Size Sedan is $31,868. It is impossible to acquire an "average" fleet vehicle, though comparing against an average will provide a benchmark of costs.
Vincentric's non-premium Mid Size sedan category includes vehicles such as the Chevy Malibu, Toyota Camry, Honda Accord, Nissan Altima, Ford Fusion, Chrysler Sebring and Hyundai Sonata. The premium of $4,061 for the Audi does not seem as hefty when estimating the non-cost benefits of offering a premium sedan model to your drivers.
The case becomes more compelling when looking at an Audi A4 against vehicles in Vincentric's Large segment, which include the Buick LaCrosse, Chevy Impala, Chrysler 300, Dodge Charger and Ford Taurus. While these vehicles are more spacious than the A4, the average lifecycle cost for the Large segment is $39,356, well within range of many Audi A4 trim levels.
Chevrolet Impala versus Cadillac CTS
This model-to-model assessment compares three Chevy Impala trim levels with three Cadillac CTS trim levels (out of many) after three years and 60,000 miles. The Impala LTZ, the model's highest trim level, has a total cost of ownership within $400 of a base trim-level Cadillac CTS.
Note that volume fleet vehicles such as the Impala have greater leeway with non-published incentives. These numbers also demonstrate that the spread between the lowest and highest trim level can vary total lifecycle costs by thousands of dollars.