Company cars, which have been a long-established and common mode of corporate mobility in Europe, are on the verge of becoming an environmental concern. The increasing number of company cars on the roads is leading to congestion even while the environmental impacts associated with emissions from these cars are being evaluated. The total light vehicle fleet cars in Europe hit 49.4 million units in 2017, of which company cars accounted for 89.2%. The latter is expected to hit 48.5 (89.5%) million units in 2021.
Company cars continue to be in demand as a benefit in kind or employees perk. About 65 to 70% of employers have stated difficulties in hiring or retaining skilled employees if they do not offer a company car. This despite the many downsides associated with one. For instance, about 50% of employees find that traffic congestion impairs easy access to their workplace, does not offer them flexibility in terms of vehicle choice or customization options, and typically has fairly lengthy contractual obligations of about 36 months.
Cash in Lieu – A Prospective Solution
In terms of mileage, an average company car clocks around 30,000 km annually while private cars register less than 15,000 km. Thus, decreasing the number of company cars on the road will have a direct benefit in terms of reducing emissions and congestion. Governments in countries with high company car density—such as Norway, Belgium and the UK, which have company car densities of 36%, 33% and 17%, respectively—are seeking ways to reduce company car fleets. However, employees are unlikely to forgo a company car despite its shortcomings, unless an effective mobility policy is in place.
As they attempt to address this concern, cash in lieu of a company car is one of the solutions that countries are assessing. Here, employees are given the option of exchanging their company car for cash. However, it is still unclear if the tax on cash will be lower than that on a company car, with variations likely based on government policies in individual countries. An additional complication is that there are no guidelines on how the cash compensation can be used which could potentially prove counterproductive.
Belgium will be the first country to implement this option under the name “mobility budget” approved by the cabinet in March 2018. The mobility budget is a structured solution where employees can opt for cash instead of the company car and this cash equivalent can only be used for mobility needs. In other words, the money would need to be spent on a mobility solution that could range from an environmental friendly company car to public transport or mixed modal-transport depending on the user’s choice. It also compensates the equivalent amount of a fuel card, if any. In addition, any part of the budget that remains unspent within a year is reimbursed tax free at the end of the year, while subject to social security contribution.
For an employee it is a one-way solution (mandate), in which opting for the mobility budget precludes reverting to the company car option. At the other end, an employer should have offered company cars for at least three years to be able to provide the mobility budget alternative to their employees. Startups might be exempted from this scheme.
If the concept of a mobility budget succeeds, the number of company cars in Belgium could decrease by a significant 10%. According to a study conducted by VAB, the mobility advocacy group, a successful outcome has the potential of reducing commuter traffic by 15%.
Designing an Effective Mobility Policy
The mobility budget represents a promising way forward. Fully realizing its objectives, however, will require fixing its shortcomings at the outset. Consider one of these issues. Employees could conceivably use the cash given to them in lieu of a company car to buy a new or used car as the terms of the plan only motivate employees to hand in their company car, but do not prohibit them from using another car for the work commute. In other words, it has the potential of exacerbating the very problems that it sets out to solve, namely, traffic congestion and emissions.
The government, therefore, needs to more clearly define the ways in which the mobility budget can be used. It is inevitable to get rid of company cars altogether in a short span of time as over a period of time it has become a lifeline for employers to retain talent and for employees it is a sophisticated and flexible commute option. But it can be structured in a way to reduce miles driven. To succeed, the plan must target end users with incentives that look beyond the idea of one car per user.
The incorporation of these guidelines would help the mobility budget become a truly effective mobility solution:
- Direct and restrict the usage of cash in lieu to alternative mobility solutions such as car sharing, ride hailing, public transport, or multi-modal transport, while maximizing vehicle utilization and reducing the number of miles driven.
- Develop a mobility smart card that can be used across multiple transport modes and can only be used for mobility purposes.
- Tax exemption for the cash alternative might not be feasible. But a way of linking employee carbon footprint to cash benefits would be a good start, but needs time to be put into place and investment support from government.
- Extend the cash option to employees who are not entitled to a company car as this option will motivate them not to use personal cars to commute to work.
- The government can share a portion of cash disbursement (made to employees) with employers to ensure that companies do not discourage cash options for their employees.
- Finally if a government wants people to let go of personal cars, the only way for it is for the government to invest in public transport to support that shift e.g. London congestion charge revenues invested in public transport, Netherlands NS Business Card.
This plan has the potential of being implemented in other European countries like the UK, Netherlands and France where company car penetration rates are high. For example, many pilot projects like the ones in Yatch (a Dutch company) and Erasmus Hospital in Rotterdam have supported mobility budgets.
Mobility Budget – A Gateway for New Mobility Solutions
The success of the mobility budget could open doors for new mobility solutions such as the mobility cards offered by LeasePlan, that help users get around the city using a variety of mobility options like buses, trams and metros. The Belgian Prime Minister has also pledged €4 million for new mobility pilot programmes.
Leasing companies should also adapt to new business models. For example, Arval Consulting, a consulting wing of Arval, helps people select a mobility option based on their requirements. Arval also has a separate online platform——Arval Mobility Link—that helps users leverage different forms of mobility albeit with less administrative burden. In addition, Be-Mobile offers a smart mobility-as-a-service solution—“FLOWme”—that enables users to optimize their multi-modal transport combinations.
Private leasing will be another mobility alternative which is expected to experience high demand with the implementation of a mobility budget. This is because employees are used to the advantages of individual mobility, privacy and flexibility of anytime travel that a private lease contract provides. However, similar problems will crop up with a private lease as it only replaces a company car with a car on lease.
Hence, the incentives need to be both transparent and attractive enough to facilitate migration to more environmentally-friendly and cost-effective means of commuting. A failure to do so will just end up in replacing one problem with another.
Conclusion
As the frequency of policies and plans focused on reducing fleet emissions and mitigating traffic congestion increases, it is time for governments to reinforce such efforts with strong mobility policies. The cash in lieu option might be an effective policy but its true success will lie in its ability to effectively reduce the density of company cars while simultaneously encouraging end users to opt for hared mobility solutions. With the likelihood of other countries implementing mobility policies, lease companies need to realign their strategy and transition from being primarily leasing providers to becoming mobility service providers.
