NEW: Company vehicles – The challenges organizations need to deal with

Memory Nguwi

Over the past 10 years, Zimbabwean organisations started aligning company vehicles practices with regional and international practices.

Before that, most companies were providing a fully expensed company vehicle.

Having realised that the cost of buying cars and maintaining them was becoming a burden on their operations, a significant number moved to the total-cost-to-company model.

Under the total cost model, the employer facilitates the employee to get a car loan through a bank. The employer provides an allowance to cover the loan repayment, vehicle maintenance, and insurance. In some instances, the allowances also cover fuel costs. This model works very well in a stable economy. I am also happy to report that generally, banks have been helpful to organisations wanting to arrange such schemes for their employees.

The environment in Zimbabwe keeps shifting and bringing an element of instability in the economy. That has brought new challenges for those on the fully expensed company vehicles scheme, and those on a motor vehicles scheme {the total cost model}.

What cannot be denied, is that under the right conditions, the motor vehicle scheme under the total cost model is the most viable and most sustainable scheme for any organisation that cares about cost-containment.

Those employers on the total cost to the company model covering company vehicles are probably facing some challenges. Very few employers will be able to align the vehicle allowance to the market conditions (running cost of the car). The problem is that the employee will get Zimbabwe dollars under this scheme when we know that all vehicles in Zimbabwe are sold in foreign currency.

Reverting to fully expensed company vehicles is a big challenge as well. I do not see any company purchasing, for example, 100 vehicles for employees, given the foreign currency challenges and the cash required to do so.

If the employer manages to buy the vehicles by some chance, the running costs are so high that it could cripple the company if not well managed. For those companies that are on fully expensed company vehicles, our surveys show that they have been struggling to replace the vehicles when they are due for replacement, largely due to foreign currency shortages and cash-flow challenges.

Based on the research we carried out on company vehicles, I list below some of the findings:

Key Findings:

Total Cost Model

Currently, companies have not been able to give new vehicle loans to employees.
Companies are reviewing fuel allowance monthly in line with fuel price changes.
Most of the companies who participated in this survey on the total cost model reimburse their employees using AA rates if they use their cars for business.
When providing a vehicle under the total cost of employment policy, the most considered factors are maintenance cost (considered 77 percent of the time) and fuel cost (considered 85 percent of the time).
92 percent of the companies that offer a vehicle allowance said the allowance is meant to cover maintenance.
Companies that offer a vehicle loan instead of an actual vehicle (62 percent) give a direct loan to the employee instead of going through the bank.

The challenge companies face on the total cost model is that vehicles loans are given in Zimbabwe dollars while motor vehicles are sold in United States dollars.

Fully Expensed Company Cars

Most companies (74 percent) who offer fully expensed vehicles have a replacement period of five years.
29 percent of participants said an employee’s spouse could also drive the vehicle.
One other challenge with fully expensed cars is that companies have been struggling to buy new vehicles for new employees and replace the vehicles for those employees due for replacement.

Fully expensed company vehicle brings governance issues regarding abuse of vehicles leading to escalation of costs, hence the preference for the total cost model.

Many companies tend to put this cost under administration cost when this cost is a staff cost.

The cost of running a fleet of fully expensed company cars is enormous, and companies can only ignore it at their peril.

*Memory Nguwi is an Occupational Psychologist, Data Scientist, Speaker, & Managing Consultant- Industrial Psychology Consultants (Pvt) Ltd, a management and human resources consulting firm.

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