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Factors to Consider Before Investing in Company Cars
Does your company require employees to travel for work? Perhaps they deliver products and services or commute for meetings and corporate events. Whatever the case is, your team needs a reliable means of transportation to perform their jobs. While some opt to reimburse employees for mileage accumulated from driving personal vehicles, others prefer to invest in company cars or fleets.
If you’re trying to decide which option would be best for your business, having a clear understanding of owning company vehicles’ overall costs is essential. Continue reading to learn more.
The Truth About Car Ownership
Determining if a company car is worth investing in will require you to assess the costs. This goes beyond the sticker price, down payment (if not paying in full), sales tax, and motor vehicle costs you’ll be responsible for at the dealership. That’s because there are many other factors to consider.
You’ll need to get an estimate of things such as gas, maintenance, insurance, registration fees, and the car's depreciation before deciding if you’re going to buy or finance a vehicle for your business. In 2019 the average cost of owning a car was $9,282; however, those costs have significantly increased since then. It's not just the cost of a car that went up to its insurance premiums, gas, and loan rates.
The average monthly car payment in 2018 was approximately $550 for a new car. Your monthly payments are calculated based on the car's cost and the loan’s length, plus interest. Your monthly payment is approximately 30% of the total amount. Ensure you can pay the required amount before accepting the loan agreement. If the car you choose to buy is expensive, then your car payments will be costly.
There are, fortunately, several ways you can save money on company car payments. You can offer a higher down payment or agree to a shorter loan term. For businesses looking to purchase a fleet of cars, you may have the opportunity to negotiate for better terms since you have multiple vehicles.
Repairs and Maintenance
While you may purchase a brand new company car, there will come a time when maintenance and repairs are needed. How frequently will depend on the type of car you are buying and how often the vehicles are used.
From the cost and availability of car parts ranging from brake pads and a digital gauge cluster to the type and severity of maintenance or repairs ranging from oil changes to engine work, the cost of keeping a company car safe and operational adds up. Though detailed research is required, repairs and maintenance can run new car owners approximately $2000 per year, depending on the car being purchased. Maintenance fees will ultimately cost a car owner about 30% of the total cost of the vehicle.
Inquiring about warranties and service contracts before purchasing a company vehicle is ideal for saving money. You should also find a mechanic that’s willing to give you a deal on services provided you send all your company cars to them for maintenance and repairs. Lastly, keeping up with maintenance schedules as recommended in the owner manual is ideal for reducing high repair costs.
Every state in the US requires every vehicle on the road t be adequately insured. The average cost of a car per year is $1,555, approximately $130 per month. Your age, credit score, and the state you live in will determine the amount you will pay for insurance. If you want more coverage, you will have to pay more money. Insurance fees make up approximately 20% of the total cost of a car.
Comparison shopping, multi-vehicle, and fleet insurance are ultimately the most effective way for business owners to save money on company car insurance. You can also look into dash cams to how lower the cost of auto coverage.
Registration Fees and Taxes
When a vehicle is registered at the DMV, there is an annual registration charge attached. This cost of vehicle registration varies from state to state. However, this cost is less than $100 per year.
The average price for gas in 2019 was $2.60 per gallon. To get a better idea of how much you’ll pay to fuel the company cars, use information such as the car’s MPG rating, the average cost of gas in your state, and the number of miles the vehicles will be driven by employees daily. Ideally, gas will add up to approximately 15% of the cost of the car.
Keeping the costs of gas down for your company car requires proper care and maintenance of the vehicle and efficient driving skills from your staff. You can also request that employees get the most affordable gas in the area and invest in gas cards that often provide cardholders discounts.
As you can see, owning company vehicles comes with a plethora of expenses. Work with a financial expert to get accurate estimates of the annual costs and compare it to your company budget to determine whether you can afford to invest. Once this research is complete, you can make an informed decision on how to proceed to advance your business.
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DISCLAIMER: We hope whatever you find on this site is helpful, but be cautioned that it may not apply to your own situation, or be totally current at any given time. Idea Cafe Inc. and all of its current and past experts, sponsors, advertisers, agents, contractors and advisors disclaim all warranties with regard to anything found anywhere on this family of websites, quoted from, or sent from Idea Cafe. and its related sites, publications and companies. We also take no responsibility for comments published by others on these pages.
TRADEMARKS: The following are Registered Trademarks or Servicemarks of DevStart, Inc.: Idea Cafe®, Online Coffee Break®, The Small Business Gathering Place®, Take out Info®, Biz Bar & Grill®, Complaint-O-Meter®, A Fun Approach to Serious Business, CyberSchmooz, and BizCafe.