The Company Car Ain’t What It Used to Be

The perennial status symbol is becoming a costlier burden for companies and employees alike as gasoline prices and taxes continue to rise. Should you give yours up?

Until recently, driving a company car was considered the ultimate perk − a measure of an employee’s importance to the firm in the form of a late-model vehicle with free gasoline.

But in recent years, drivers of leased vehicles have gradually found themselves paying more and more for this privilege. Company cars are subject to increasingly heavy taxes, with the value for tax purposes more than doubling since 2008 from an average of NIS 1,500 a month to NIS 3,200. That change has accompanied the increase in the price of a family-sized car, which has climbed from an average of about NIS 111,000 to NIS 127,000 today. Prices are due to rise further with the change in the green tax of vehicles.

For employers, there is the additional burden of paying for gasoline. Since 2009 the price of gas has risen 47%, which means the average fuel cost has jumped from NIS 30,577 annually to NIS 40.699, according to an estimate by the importer Champion Motors.

Under the circumstance, businesses should be cutting back on leasing. But they haven’t. The number of corporate leased vehicles has remained steady at about 300,000 in the last few years. The portion of imported cars that are bought by leasing companies has shrunk but that’s only because the market itself has grown.

“Employees are still using company cars. Fewer than 2% return them and buy their own instead,” says Yigal Raskin, a member of the board of the Israel Transportation Managers organization. “There are even cases of employees returning their company car and then asking to get it back because a company car brings peace of mind.”

The market for corporate fleets has seen no dramatic change either. In 2008 and 2009, several fleet operators, among them Bezeq, tried to buy cars directly from importers, but the idea never caught on. Predictions that fleet operators would move to smaller cars with lower usage values never materialized.

Rising gasoline prices did, however, prompt companies to limit fuel consumption, but the strictest limit on record − 25,000 kilometers a year − is far higher than the 17,000 kilometer average for owners of private cars.On the contrary, the kilometers run up by drivers of company cars − who have no incentive to prefer public transportation − caused Amir Ziv-Av, the chief scientist of the Transportation Ministry to compare them to the free power Israel Electric Corporation workers get. Company cars run up an average of 32,000 kilometers a year, or an additional five billion kilometers in aggregate, taxing the road network and risking lives. “Leasing is like free electricity, except that leasing also kills,” Ziv-Av said.

A tax shelter on wheels

An executive in the leasing industry offers a plausible explanation for the continued popularity of company cars. “When the price of gas is rising, the usage value of the car becomes lower. The increase in usage value was set at a time when gas prices were a lot lower. “A leased car is a tax shelter on gasoline.” But Boaz Sofer, a former duty director of the Tax Authority responsible for the reforms in the usage value assessment, says there has been a decline in auto leasing. “At a time when the number of cars in Israel is growing, the number of those leased has been stagnant,” he says. “The increase in the usage value has turned the tide and the change has just begun. We raised the usage value to a level where people think twice if they want to take a company car. Only those who do a lot of travelling or actually use the company car for their work choose to take a company car.”

In an effort to discourage excessive use of company cars and reduce the power of the leasing companies, the Finance Ministry’s budget division has proposed to change the usage value by splitting it into two parts: one for the actual cost of running the vehicle, which will be lower than it is today, and a second payment for the value of free gasoline provided by the employer. The goal is to increase state tax revenues, but the proposal has encountered opposition from, among others, the Tax Authority, which contends that it would be too difficult to collect taxes based on kilometerage.

With the impending reform of the green tax and usage value, is it worthwhile to continue using a company car?

“The answer depends on how much additional salary an employer is willing to pay for those who give up their company car,” says Sofer. “Not every organization has a standardized policy on this. A lot depends on how much the employers wants the employee to have a car. The incentive to raise the salary of a technician or sales person is low because the company has an interest in him having a car.”

Incentives to dump the car

However, he says there are instances where employees have been giving as much as NIS 2,500 a month to employees who give up their company car. Heshev Information Systems estimates that a monthly wage increase of NIS 3,700 is adequate compensation for giving up a family car while NIS 2,700 is the equivalent amount for giving up a mini.

“The decision whether to give up a company car or not depends on the transportation alternatives employees have,” says Sofer. “Can they travel by train? Does the employee’s spouse have a car?”

For those who go the company car route, it is worthwhile examining which make and model best suits your needs. You should not automatically pick the most popular model or the one that the leasing company is pushing, but one that answers your daily needs. If you don’t have a family to drive around, there’s no reason not to take a smaller car, like a Toyota Yaris or a smaller family car like the Kia Rio sedan. They are perfectly good for intercity driving and their usage value is smaller. A Yaris’ usage value is NIS 2,480 a month versus NIS 3,149 for the family-sized Ford Focus.

Ofer Vaknin