DOES the company car have a place in your SME business? There’s a growing trend suggesting it should have. Editor Ralph Morton files this special report on the increasing appeal of company cars.

SHOULD you provide any of your staff – directors included – with a company car? Good question. Why? What’s the need?

According to some research I came across from B2 Group, only 40% of those SMEs they surveyed provided company cars (SME Voice business to business tracking study).

Low maintenance costs, fuel economy and minimising company car tax through low CO2 emissions were the driving factors behind the company car choices those SMEs made.

This study of SMEs took place back in October 2010.

But I wonder if sentiment has changed since then, especially now Britain has emerged from the recession which was still hanging over those respondents at the time to make a company car more favoured?

Leasing companies and fleet buyers have led the car market in 2011 while retail sales have wilted, many businesses having extended their older cars to the point where the balance between running costs over new business car expenditure has now tipped in favour towards the latter.

Having battened down the hatches, squeezed costs to keep cash flow going during the recession, many of UK’s small and medium sized enterprises have embarked on a replacement programme as part of a strategy to increase or simply maintain sales, albeit in a still difficult market. Partners such as Fleet Alliance – whose commentary you can read below – have consistently seen an upward trend in the number of cars they’ve put on contract hire agreements since January 2011.

There’s more evidence, though, that the company car is a key part of the business landscape.

According to the latest quarterly Company Car Trends research from the leasing company GE Capital Fleet Services, the importance of the company car is rising, both among drivers and those business car managers looking after company fleets.

Gary Killeen, commercial director of GE Fleet explains: “What the research indicates is that since the technical end of the recession towards the end of 2009, the company car has become quite markedly more important to UK employers and their employees.

“There are a number of reasons for this, we believe. Key amongst them is a recognition that the company car remains the best business transport solution available at a time when costs are being closely scrutinised and achieving real world results is essential.

“Also, in an uncertain economic environment, employees have come to value the company car ever more as a part of their remuneration package.

“It is a timely reminder of the key contribution that the company car makes to business life in the UK.”

Of course, running a car – or a small fleet of company cars – does bring some admin headaches, but there are some benefits too. For example, if you use contract hire the monthly lease costs can be put against the p&l account – 100% for those cars with CO2 emissions of 160g/km and below – or with a 15% restriction for those with CO2 emissions above 160g/km CO2.

If your company purchases its business cars, then cars with CO2 emissions of 110g/km CO2 and below are eligible for 100% first year allowances – which can help boost cash flow.

And a company car is seen as a valuable business retention tool that employees really do value.

Having said that, for staff there’s the disadvantage of company car tax, but that can be ameliorated by choosing low CO2 emission cars for business. Greener business cars cost less in tax and less for the company to run in terms of fuel costs and reduced National Insurance contributions.

The all-new Hyundai i40 Tourer can cost as little as £42 per month for a 20% tax payer, yet it’s a spacious Ford Mondeo-sized estate car.

For directors new cars such as the Audi A6 2.0 TDI also represent not only outstanding cars to drive, but very good value in terms of company car tax: from £180 a month for a 40% tax payer – a fraction of the cost they would have to pay to run an equivalent car privately.

Company cars aren’t for all small firms and SMEs. But they appear to be making a bigger impact on the market – as the financial and tax implications are more clearly understood of choosing a low CO2 car – providing a stable rock in a time of uncertain economic currents.

Expert commentary from Fleet Alliance on company cars

Martin Brown, managing director of fleet solutions provider, Fleet Alliance, has this to say about the appeal of company cars.

A large proportion of the Fleet Alliance client base comes from the SME sector, and it is fair to say that in 2011 business has been very good – which would appear to mirror the findings of this report. Indeed, we have enjoyed healthy organic growth in this sector over a sustained period.

Provision of company cars has become more and more complex in recent years, as businesses need to consider more than simply funding – risk has become increasingly important. This has led to the development of well packaged fleet management and funding options for the SME market.

At Fleet Alliance we have a proposition which would historically only have been open to large corporates – we have refined this for an SME audience, and made it simple by use of e-fleet; our online fleet management system.

The ease of a company car over private ownership should not be underestimated – particularly in times of low growth and tightening of belts.

Martin Brown
managing director of fleet solutions provider, Fleet Alliance

More on company cars here

Read the GE Fleet report on Company Car Trends.