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Article | Beyond Data

Globally, organizations are maneuvering bumps on the road to company car benefits

By Lisa Grunditz | August 5, 2024

Multiple factors are affecting how organizations around the world are approaching company car and car allowance programs.
Compensation Strategy & Design|Employee Experience|ESG and Sustainability|Health and Benefits|Ukupne nagrade
Beyond Data

Soaring vehicles prices and fluctuating fuel and electricity prices are creating headaches for fleet and HR departments. Employee benefits programs are already complex to manage; add company cars to the mix, and that complexity increases.

As these programs come under review, certain questions are rising to the top: Do we really need to offer company cars as a benefit of employment? Are company cars still even relevant? What about cash allowances instead of vehicles? Do we need to offer those?

Answers to these questions go beyond simply understanding whether employees value the benefit. Multiple factors must be taken into consideration, including the organization’s purpose, mission, workforce profile, working patterns and geographic location.

So, how do you move through complexity to clarity?

Take advantage of the landscape view

Start by looking beyond your organization’s decisions around company car benefits. Yes, internal factors such as business needs will influence plans, but external factors – like market practices – also are important to watch.

Worldwide market practices have probably never been as varied as they are today, according to WTW’s 2024 Company Car Benefits Reports. In some markets like China, Hong King and Japan, company cars and car allowances are relatively low, as less than 40% of organizations participating in the survey reported offering these benefits. Meanwhile, 85% to 92% of responding organizations in locations like Austria, Belgium, Croatia, France and Hungary reported offering cars and/or car allowances.

Figure 1. A comparison of 2024 data against historical data reveals that, even if there are differences among countries, overall plan prevalence is relatively stable over time and across regions.
Global map depicting the prevalence of company cars learn more
Source: WTW 2024 Company Car Benefits Survey Report. Canada and the United States: 2023 HR Policies and Practices Report
Global map depicting the prevalence of company cars and/or car allowances in ranges of 0% to 49%, 50% to 74% and 75% to 100%, based on findings from the WTW 2024 Company Car Benefits Report.

Car vs. allowance: What are organizations offering?

Once an organization determines its willingness to offer company cars and/or car allowances as well as which employee categories are eligible, the question of benefit type often arises. For some markets, cars are a given. In other locations, cash allowances may be a valid option.

Frequently, we find that organizations are keen to move from a company car benefit to a cash allowance; after all, managing an allowance is far easier than managing a fleet of vehicles. So, why are they putting on the brakes?

One common reason is that employees aren’t fond of the responsibility that comes with owning their own car, especially if they are expected to use it for business purposes. Another reason is the tax efficiency of cars vs. cash. In some countries, when allowances replace cars, it costs the organization more to ensure the employee receives the same net value.

Different scenarios emerge when looking at the market data across years and geographies for non-sales middle managers and senior professionals. Globally, there are relatively few countries where car allowances are more common than cars.

European examples of this practice include Ireland, Norway and the United Kingdom. Meanwhile, Asia Pacific and the Gulf region tend to see more cash allowances than cars for the same roles. The most common changes are either an increase of car allowance prevalence or a reduction in eligibility for either cars or car allowances.

In countries in which company car benefits are more prevalent, the proportion of companies only offering company cars to non-sales middle managers and senior professionals is decreasing. Rather than offering a car, more organizations are providing employees with an option of a car or an allowance. In some markets, we also see a decrease of eligibility for any benefit at all.

It is worth noting that the type of benefit provided can differ by employee category, depending on seniority or the need to be mobile in the job. In many markets, company cars are more common for roles that require a vehicle to efficiently carry out their duties or secure business (Figure 2).

Sustainability and flexibility are key considerations

Other factors influencing the type of benefit provision offered include the change in work patterns (i.e., more employees working from home) as well as the increased focus on sustainability. These factors have brought additional layers of complexity to the way organizations want to enable employee mobility. Alternative mobility solutions and the electrification of fleets are two on-trend topics.

Alternative mobility solution such as carpooling, biking or subsidies for public transportation may help meet sustainability goals, as these types of alternatives produce less pollution than a traditional fuel car. They also can meet employee expectations in terms of flexibility and access to mobility solutions that are more adaptable to their work and lifestyle.

In some countries like Belgium and the Netherlands, governments also are promoting the introduction of tax efficient mobility allowances that allow the employee to choose a smaller company car in combination with other mobility solutions.

Figure 3. Organizations providing access to bicycles for employees eligible for a car benefit, either instead of or in addition to the car benefit
Figure 3. Organizations providing access to bicycles as an additional mobility solution for car/allowance-eligible employees, select countries

Source: WTW 2024 Company Car Benefits Survey Report

Sustainability goals also can be reached by adapting the current fleet. The introduction of electric vehicles (EVs) and plug-in hybrid vehicles (PHEVs) is not news, even if the pace of introduction varies significantly from geography to geography.

The charging infrastructure available where employees do business or commute has a significant impact on the electrification of fleets. Regulations are another important factor. There are regions and countries where we know that new fuel cars will not be available for purchase. There are cities where you no longer can drive cars that create too much pollution. The European Commission’s Corporate Sustainability Reporting Directive (CSRD) requires organizations to account publicly for their CO2 emissions from 2024, and that also is influencing the pace of adoption on a broader scale.

It is worth noting that the introduction of EVs typically happens gradually, as company cars are only replaced every three to five years and organizations typically don’t replace the entire fleet at once. This makes it important for fleet and HR departments to not only keep up with current regulations, but also future legislation so that the cars they buy or lease today remain compliant and cost effective into the future.

Indeed, Europe is at the forefront of electric company car provisions, but we are starting to see the introduction of these elsewhere. Approximately 1% of company cars represented in our survey from Mexico and South Korea are now electric. It will be interesting to see if the evolution will be like that in Europe.

In Norway, 33% of company cars reported in the survey were electric, with the Audi e-tron being the most common model. Another example is the Netherlands, where 23% of reported cars are electric, with the Tesla Model 3 being the most common EV in the sample (Figure 4).

As always, affordability is a priority

In general, inflation has increased the price of vehicles. Additionally, EVs come with a higher price tag in most markets. Naturally, this is putting pressure and focus on organizations’ car policy budgets and the affordability of car programs in general.

Many organizations have had to review their budgets to keep up with these cost changes. As a result, the maximum leasing values and car purchase values that survey participants reported as part of their policies have increased across many locations in the past few years.

There are extreme situations, as in Turkey, where budgets more than doubled because of economic conditions. There also are some locations in which organizations have reduced the budgets for company cars to control costs (Figure 5).

Looking to the horizon

Moving from complexity to clarity in car programs requires a thorough review of the organization’s own ambitions, goals and business needs at the global, regional and local levels. However, it is equally important to understand market trends around mobility, regulations and employee expectations.

Robust and up-to-date market data will enable you to understand the shifts in practices. It also gives you insights about what your competitors do, and indirectly reveals what employees can typically expect in the given market. Having access to sound market data and external sounding boards will help your organization design and deliver a policy that is relevant, sustainable and affordable.

Author

Director, Rewards Data Intelligence, Work & Rewards

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