Scaling Slowly: Fleet Management and Partial Transitions to VRPs

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As businesses across North America face growing operational price tags and sustainability challenges, fleet management strategies need to quickly adapt. From small fleets to large corporations, the discussions happening around reimbursement programs, vehicle leasing, and company-owned fleets are shifting. HR and Finance leaders are brainstorming and rethinking traditional fleet models to find and secure cost savings while simultaneously embracing new technologies like electric vehicles (EVs).

This blog explores some key trends shaping the industry and future of fleet management, with a focus on reimbursement models, sustainability, and operational efficiency.

Which is more cost-effective: reimbursement or leasing?

One of the big decisions for any business with a fleet is whether to offer a vehicle reimbursement program or provide company cars, and whether or not the company cars should be through leasing agreements. Both approaches come with pros and cons.

Reimbursement programs: Companies that choose reimbursement programs often get to enjoy the flexibility and lower upfront costs. Reimbursement models like the FAVR reimbursement program combine a flat allowance for fixed costs with a per-mile reimbursement for business use, making it a pretty cost-effective and IRS-compliant option. This type of structured program offers more control over vehicle expenses for both the company and its employees.
Leasing: Leasing company cars can provide some consistency in terms of fleet size, branding, and maintenance costs, but it comes with a very hefty price tag and higher depreciation risks. For contrast, reimbursement programs shift vehicle ownership and responsibility to employees, reducing costs for the business.

For companies prioritizing cost savings, vehicle reimbursement programs (VRPs) are typically the most efficient option, especially for smaller fleets or teams using personal vehicles for business purposes.

The IRS and Vehicle Reimbursement Programs (VRPs)

Tax compliance is an important factor in anything to do with fleet decision-making. The IRS provides pretty clear rules and guidelines on mileage reimbursement rates and taxation, helping businesses to come up with policies that are both fair and IRS compliant. For instance, FAVR and per-mile programs allow companies to offer non-taxable reimbursements to their mobile employees, as long as they stay within IRS parameters.

Staying up-to-date on IRS regulations, like the annual mileage rate (which is reset every year) is necessary so that your vehicle reimbursement programs align with government rules and avoid unnecessary and perfectly avoidable tax waste. This is especially true for companies operating across state borders where tax laws may vary.

Sustainability: Moving toward renewable solutions

Sustainability is no longer a silly buzzword, it’s actually a requirement for businesses committed to reducing their environmental footprint. Fleet vehicles, particularly older gas-powered ones, contribute significantly to carbon emissions. The push (which includes some government incentives) for greener alternatives is encouraging companies to invest in electric vehicles (EVs) and hybrid vehicles as part of their fleet strategy.

EVs not only offer long-term cost savings through reduced fuel and maintenance costs, but they also position businesses as sustainability leaders — so it’s good for the brand. These benefits are appealing to companies in eco-conscious markets like Chicago, Washington, and America overall, where reducing emissions is a trendy thing to do. By switching to renewable energy sources, companies can meet their sustainability goals while simultaneously keeping their fleet programs competitive.

Incentives and partnerships

Business and government incentives and government partnerships can be really useful in reducing fleet expenses. For example, local governments and the gov often offer tax incentives for businesses that adopt electric vehicles or use green practices. Companies really looking for cost savings should explore these opportunities to optimize their financial outcomes.

Smart and/or strategic partnerships with manufacturers like Ford can also lead to cost-effective acquiring/procurement of new vehicles. Collaborating with suppliers or leasing companies to score some favorable contract terms can help fleet managers address the current supply chain challenges. By taking advantage of these partnerships, businesses can lower vehicle expenses and improve employee retention by offering employees access to reliable, fuel-efficient cars that they might actually enjoy driving.

Partial fleet transition

Lots of businesses, especially those managing small fleets, may not be ready for a full transition to a VRP. The good news is that a partial transition is possible and can be a smart, cost-effective alternative to a full-blown transition.

A partial transition allows companies to keep some company-owned vehicles while transitioning the rest of their fleet to a reimbursement model, like FAVR reimbursement or other per-mile programs. By doing so, businesses can enjoy the perks of both options.

For example, keeping specific vehicle types,like those used for specialized tasks, under a company’s fleet then reimbursing employees for the use of personal vehicles for business purposes can really reduce maintenance costs, depreciation, and fuel expenses.

A hybrid fleet setup also helps alleviate supply chain challenges when acquiring new vehicles and offers cost savings on insurance and maintenance. Businesses can collect real-time data from both owned and reimbursed vehicles to track performance, fuel efficiency, and emissions. This data can be used to gauge the success and viability of the VRP model, informing next steps for the business’ vehicle program. If the VRP model allows for the business to meet or surpass its business goals, then a full adoption could be the next intuitive step.

The future of fleet management

Whether you’re managing a small fleet or overseeing hundreds of vehicles, the future of fleet management hinges on making informed and data-driven, sustainable, and cost-effective decisions. By exploring reimbursement models, embracing electric vehicle incentives, and staying compliant with IRS regulations, companies can create for themselves vehicle programs that support growth, reduce environmental impact, and maximize cost savings.