What Are the Best Practices to Reduce the Total Cost of Ownership for a Car?

Owning and operating a vehicle entails much more than the initial purchase. Total Cost of Ownership (TCO) incorporates fuel, maintenance, insurance, depreciation, taxes, and financing. Businesses and individuals seeking to control these expenses must implement deliberate and informed strategies. Below, we explore evidence-based best practices that directly impact the TCO and ensure long-term financial efficiency.

Preventive Maintenance and Lifecycle Planning

Ongoing maintenance directly influences TCO by minimizing breakdowns, extending vehicle life, and sustaining resale value. Instituting preventive measures such as routine oil changes, tire rotations, and brake inspections mitigates the likelihood of costly repairs. Companies that consistently track vehicle health and enforce regular maintenance schedules avoid unplanned downtime and costly emergency repairs.

Leveraging connected vehicle data and telematics also supports efficient maintenance planning. Predictive analytics can alert drivers and managers to potential mechanical issues before they escalate, enabling timely, cost-effective service.

Intelligent Reimbursement Programs Over Traditional Fleets

Replacing company-owned vehicles with structured Vehicle Reimbursement Programs (VRPs) like FAVR or Cents per Mile (CPM) introduces tax-efficient and usage-based models. A CPM model reimburses at the IRS standard rate—70 cents per mile in 2025—making it simple to implement but often inefficient for lower-mileage drivers.

In contrast, FAVR programs tailor payments to actual fixed and variable costs based on geography and mileage. These models not only ensure IRS compliance but also provide up to 30% cost savings compared to flat-rate allowances. For example, a FAVR-compliant program can lead to an annual savings of over $16,000 per driver compared to traditional allowances.

Technology-Driven Mileage and Expense Tracking

Modern reimbursement and mileage logging solutions enhance cost control by reducing administrative burden and human error. Automated mileage tracking apps can save drivers over 40 hours per year by eliminating manual entries. In large organizations, this translates to thousands of collective hours saved and accurate reimbursement processing.

Cloud-based systems such as Cardata Cloud and Cardata Mobile further streamline vehicle program management, facilitating real-time data updates, route tracking, and compliance monitoring. These tools also aid financial auditing and enhance transparency for both employers and employees.

Optimizing Insurance Coverage and Liability Allocation

Another key aspect of managing TCO is securing appropriate insurance coverage without overpaying. Commercial vehicle insurance can cost twice as much as personal policies, especially when covering vehicles used for business purposes. When employees use personal vehicles under a reimbursement program, companies can avoid direct liability for most incidents, with personal insurance covering initial claims.

However, it is essential that drivers carry sufficient business-use insurance to protect both parties. Cardata, for example, provides insurance consultation and verification to ensure minimum coverage standards and reduce the risk of denied claims.

Accounting for Depreciation and Market Trends

Vehicle depreciation remains one of the most significant contributors to TCO. New cars lose roughly 30% of their value as soon as they leave the lot. Businesses that purchase vehicles outright shoulder this loss. In contrast, structured reimbursement programs like FAVR shift depreciation risk to the vehicle owner while compensating them fairly for it.

During periods of high inflation and supply shortages—such as the 22.3% year-over-year increase in new car prices observed from 2021 to 2022—ownership costs spike even further. Adapting reimbursement strategies to reflect market dynamics helps organizations stay financially resilient.

Leveraging Government Incentives and Tax Compliance

Maintaining IRS compliance is fundamental to minimizing tax liabilities within vehicle programs. Under IRS rules, accountable plans that reimburse within established limits avoid income and payroll tax burdens for both employers and employees. For 2025, the standard mileage rate is set at $0.70 per mile.

Companies may also benefit from government incentives when adopting EVs. Federal rebates of up to $7,500 are available in the U.S., with additional regional incentives—up to $8,000 in Quebec, for instance—offsetting vehicle costs and reducing long-term TCO.

Emphasizing Safety and Risk Management

While often overlooked in financial calculations, workplace safety has a direct impact on TCO. Motor vehicle accidents remain the leading cause of work-related deaths and injuries, costing employers up to $70,000 per incident. Preventative strategies—such as driver training, defensive driving courses, and the use of dashcams—can cut safety incidents by over 50%.

Reducing accidents lowers insurance premiums, mitigates litigation risk, and protects company reputation. Implementing structured safety programs also promotes driver accountability and regulatory compliance, all of which contribute to lower overall operating costs.

Implementing Pilot Programs and Continuous Optimization

No strategy yields optimal results unless tested and refined. Businesses are advised to pilot reimbursement programs with select teams to gauge cost savings, gather feedback, and ensure IRS compliance before wider adoption.

Ongoing analysis, supported by tools like SAP Concur or integrated analytics platforms, helps monitor reimbursement accuracy, assess usage trends, and recalibrate policies to match evolving conditions. Regular evaluations enable long-term cost optimization and consistent program performance.

Strategic Vehicle Procurement and Transition to EVs

Selecting the right type of vehicle at the outset has profound implications for TCO. Transitioning from company-owned fleets to employee-operated vehicles reimbursed through structured programs such as Fixed and Variable Rate (FAVR) systems can lead to substantial cost reductions. Businesses shifting from fleet models to FAVR have reported up to 30% in savings due to reduced capital expenditure and maintenance liabilities.

Moreover, investing in electric vehicles (EVs) represents another procurement strategy with enduring financial benefits. EVs typically incur annual maintenance costs of under $400, significantly lower than the $1,600 seen with gasoline vehicles. Additionally, electricity is more stable and often cheaper than gasoline, further lowering operational expenses.

Conclusion

Managing the Total Cost of Ownership for a vehicle requires a comprehensive approach that integrates strategic procurement, preventive maintenance, efficient reimbursement, robust insurance policies, tax compliance, and safety enforcement. Businesses that adopt employee-centric reimbursement programs like FAVR, implement digital tracking tools, and leverage government incentives not only reduce costs but also enhance transparency, compliance, and operational agility. Through informed decisions and structured implementation, organizations can transform vehicle ownership from a burden into a controlled, optimized asset.

Disclaimer:

The content provided in this blog is for informational purposes only and is not intended as legal, financial, or tax advice. While every effort has been made to ensure the accuracy and reliability of the information at the time of writing, Cardata and the author assume no responsibility for any errors or omissions. Readers should consult with a qualified professional to determine how any information discussed may apply to their specific circumstances.