Supplements Provider Case Study: Company Cars or FAVR?

Imagine you’re leading the fleet management strategy for a multinational supplements company specializing in health and nutritional products—with thousands of stores across the US and Canada. You face a critical decision: should you continue with a traditional fleet model or transition to a hybrid reimbursement program that combines FAVR (a tax-free, IRS-compliant car allowance) with a Cents per Mile (CPM) model?

This case study explores the key considerations, challenges, and potential benefits of each approach. Let’s break down the scenario and ask: What would you do in this situation?

Background: The High Stakes of Fleet Management

Fleets are among the costliest assets a company manages. A traditional fleet model means you pay a fixed cost per vehicle, regardless of usage. This model creates challenges like:

Fixed costs for low-utilization vehicles: even if an employee barely drives, the company still bears the full expense of the company car.

Personal use chargebacks: when employees use fleet vehicles for personal errands, they incur a taxable benefit known as a personal use chargeback, further increasing costs.

Outsourced management limitations: many companies try to outsource day-to-day fleet administration through. However, providers often only manage routine tasks without offering strategic oversight or planning for the fleet’s future.

The Hybrid Reimbursement Approach: FAVR+CPM

Instead of going with fleet, you can reimburse employees who use personal vehicles for work, with a vehicle reimbursement program. There are three main vehicle reimbursement programs: FAVR, Tax-Free Car Allowance (TFCA), and CPM.

But you don’t have to choose just one program; you can run multiple in your organization. A hybrid model leverages the strengths of two or more reimbursement programs to align costs with actual vehicle use. Consider, as the aforementioned supplements provider, that you decided to offer FAVR and CPM instead of fleet vehicles.

FAVR

• Tax benefits: designed to be tax-free when compliance measures are met, FAVR offers a significant financial advantage over traditional stipends, which are taxable.
• Ideal for high-mileage drivers: employees such as auditors who drive extensively (taking inventories across numerous stores) would benefit from FAVR, as it aligns costs with high usage.

CPM (Cents per Mile)

• Cost efficiency for low-mileage drivers: employees with lower annual mileage (under 5,000 miles) can be reimbursed on a per-mile basis, ensuring that you’re not overpaying for vehicles that aren’t used as frequently.
• Flexibility in reimbursement: a hybrid arrangement allows you to customize the reimbursement program based on an employee’s actual mileage, which isn’t possible with a fixed-cost fleet model.

Key Considerations

Diverse driving needs

The supplements company has diverse driving profiles, with some people doing more, others less, than 5,000 miles per year of driving. Some employees drive extensively—such as auditors traversing many store locations—while others barely drive. A hybrid FAVR+CPM program allows you to offer different reimbursement strategies based on driving habits, ensuring that high-mileage drivers receive the benefits they deserve without overcompensating low-mileage users.

Outsourced fleet admin

An outsourced fleet administration provider might handle day-to-day fleet tasks but often falls short on strategic planning. Having fleet admin handled tells you nothing about whether your fleet is a good or bad thing for your organization’s future stability and health.

Meanwhile, a modern hybrid program is a strategic solution.

Hiring and retention

For new hires—especially fresh graduates—it’s challenging to ask them to use personal vehicles for work. A compelling vehicle reimbursement program can enhance your recruitment strategy. Providing a company car, however, could also work.

How do I leave fleet?

If you’re getting out of fleet, there are creative transition strategies, as you move to vehicle reimbursements. For example, you could sell off fleet vehicles at auction, potentially secure favorable deals, and use the proceeds to provide employees with incentives like a down payment on their personal car.

The Strategic Dilemma: What Would You Do?

When facing the decision between maintaining a traditional fleet and shifting to a hybrid FAVR+CPM program, consider these questions:

• Is your current fixed-cost fleet model causing unnecessary expenses for low-mileage (low-utilization) vehicles? Would aligning reimbursement with actual usage help reduce overall costs?
• Do you have the internal resources to manage a hybrid program’s administrative requirements, or can you partner with a provider who offers both day-to-day support and strategic insights?
• Would a tax-free FAVR benefit for high-mileage drivers and a CPM option for low-mileage drivers improve job satisfaction and attractiveness of your employment offers?
• Can a hybrid model provide the data-driven insights and flexibility needed to plan for the future, ensuring that your fleet adapts to changing business needs?

Conclusion

In this hypothetical scenario, a traditional fleet model offers simplicity but comes with significant fixed costs and limited flexibility—especially when dealing with employees whose driving needs vary widely. In contrast, a hybrid FAVR+CPM program aligns reimbursement with actual usage, potentially saving money and offering strategic advantages through data analytics and tailored employee incentives.

The decision ultimately hinges on your company’s ability to manage the transition and leverage technology for continuous optimization. What would you do if you were in charge? Would you stick with a fixed fleet model, or embrace a hybrid approach that promises both cost savings and strategic flexibility?

This case study invites you to consider these questions carefully as you navigate the complex world of fleet management in today’s dynamic business environment.