Fleet Depreciation: How a FAVR Program Could Help

Did you know that vehicles are one of the large purchases businesses make that don’t appreciate over time? Depreciation eclipses every other component of total cost of ownership (TCO), which is a potential reason why many finance teams turn to Fixed and Variable Rate (FAVR) reimbursement programs to keep capital where it belongs—on the balance sheet.

The Relentless Impact of Depreciation

Depreciation is not an abstract accounting entry; it is a scheduled extraction of cash. The IRS treats it so seriously that $0.30 of the 2024 standard mileage rate of $0.67 was allotted solely to depreciation, nearly half the reimbursable figure. On an annual basis, the average driver quietly absorbs $4,551 in depreciation costs, while routine maintenance totals only $792, proving that the “invisible” expense outmuscles oil changes and brake jobs by almost six to one. Whether a company purchases or leases, the exposure is real: leases merely spread payments over time, yet the lessee is still responsible for residual value surprises at turn-in when used car prices soften.

The Domino Effect on Operating Budgets

Because depreciation accelerates as odometer readings climb, fleet managers can feel pressured to replace high-mileage units early to preserve resale value. Capital that could finance product launches or headcount instead might chase ever-newer fleet vehicles. 

Insurance premiums rise in tandem because carriers peg comprehensive and collision rates to replacement cost; the newer the asset, the pricier the coverage. Add in a 22.3 percent increase in the average price of a new car year over year and every dollar a company sinks into metal is now at greater risk than before.

Reimbursement Programs as a Strong Solution

A FAVR reimbursement program turns the traditional ownership model on its head by transferring the title—and therefore the depreciation—to employees. Companies that have implemented full FAVR frameworks report savings of up to 30 percent of program costs. 

In hard dollars, the swing is dramatic: one scenario shows that $16,254 could be retained per driver each year after the switch to a FAVR program. Even a partial transition could potentially have benefits. Organizations that downsized their fleets while reimbursing mainstream drivers through an effective reimbursement solution recouped about $2,000 per driver annually. Hybrid models, where specialty or branded vehicles stay in-house but sales reps drive personal cars under FAVR or cents-per-mile rules, can also be a strategy that lets companies preserve mission-critical assets while offloading some depreciation risk.

Putting Theory into Practice

The first defensive measure is to preserve residual value through preventive maintenance and driver safety training. Fewer breakdowns and accidents aren’t just critical for your employees, but also mean less accelerated wear and higher resale numbers. The second is to pilot employee-owned options, including electric vehicles that benefit from federal incentives or more accurate payments, further muting depreciation. Finally, finance should treat unused vehicles as trapped cash. Companies adopting FAVR have reported a return on investment with reduced costs.

Conclusion and Next Steps

Depreciation may be inevitable, but who pays for it is a strategic choice. By migrating from fleet ownership to a well-structured reimbursement program, enterprises can convert a silent expense into immediate free cash flow and redeploy that money toward growth. Connect with a Cardata expert to design a reimbursement model that releases your budget from the gravity of depreciation and puts your capital back to work.

Disclaimer: Nothing in this blog post is legal, accounting, or insurance advice. Consult your lawyer, accountant, or insurance agent, and do not rely on the information contained herein for any business or personal financial or legal decision-making. While we strive to be as reliable as possible, we are neither lawyers nor accountants nor agents. For several citations of IRS publications on which we base our blog content ideas, please always consult this article: https://www.cardata.co/blog/irs-rules-for-mileage-reimbursements. For Cardata’s terms of service, go here: https://www.cardata.co/terms.