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Discussion Starter #1
I'm wondering if there is a difference between a company car and a company allowance for a car.

Scenario...

Two employees are given a $500 month budget to get a car. Company will make the payment.

One leases a car for $500 month for 24 months and the other buys a car for $500 a month over 48 months. Employee one will have had two cars over the 4 years but have nothing to show for it at the end. Employee two buys a car but at the end of the term there will be some residual value.

At the end of four years, does the company have the right to the equity in the car bought by employee 2?

Would it make a difference if this was an allowance vs calling it a company car or is it the same thing?

Does it matter if the employee is responsible for insurance or not? Repairs?

Just looking for some opinions.

Thanks,

David




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I'm wondering if there is a difference between a company car and a company allowance for a car.

Scenario...

Two employees are given a $500 month budget to get a car. Company will make the payment.

One leases a car for $500 month for 24 months and the other buys a car for $500 a month over 48 months. Employee one will have had two cars over the 4 years but have nothing to show for it at the end. Employee two buys a car but at the end of the term there will be some residual value.

At the end of four years, does the company have the right to the equity in the car bought by employee 2?

Would it make a difference if this was an allowance vs calling it a company car or is it the same thing?

Does it matter if the employee is responsible for insurance or not? Repairs?

Just looking for some opinions.

Thanks,

David




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Lets see.....
Employee one can buy the second car he leased at FMV, so its not totally accurate that he has nothing to show for it, and its possible employee 2 could be upside down on the loan which is even worse than nothing to show for it.

Question 2.... I do not believe the company has any rights to the equity in any car, unless it is a designated company car.... Car allowance is different. The money they give you for car allowance is yours to subsidize you for the responsibility of the car.

Question 3. See above. A company car would be like if they told you to go down to the parking garage and pick one of the 30 chevy malibus or whatever and thats what you drive on company time and what not. That is THEIR car that you are using. You have very little tax recourse in this scenario vs. an allowance where you can buy/lease. Keep in mind employee 2 above can buy a car for say 400 a month but then lose his job 6 months later. Now he stuck with a 400 payment for a car he might not otherwise have bought. That can happen to employee 1 also, but the lease term is shorter term and probably less money lost if he had to return the lease car.

Question 4. With a car allowance usually the employee pays for maintenance and insurance out of the allowance or perhaps gets a maintenance plan from the dealer he bought or leased from. This might be negotiable but I believe the allowance is all inclusive of the car costs. Except gas where you probably expense miles.

I dont have a company car or anything but I think this is essentially correct. Others will add to this I am sure.
 

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Here's where the allowance bites you back. I have a company allowance, that means the car is mine and I keep any equity in it. The downside...I just got laid off and now have a car that I have to keep making payments on that I would never have bought without the allowance. I had to buy a new car as part of the agreement with the company, and so I have negative equity in it.

An allowance is just a subsidy and as such the person receiving it is responsible for the car, maintenance and insurance.

Good thing I got a decent severance package.
 

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I dont know how this stuff works, except my friend gets 750$ month car allowance. He bought a civic and pockets the rest. At least thats the story he told me at one point
 

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Discussion Starter #5
Lets see.....
Employee one can buy the second car he leased at FMV, so its not totally accurate that he has nothing to show for it, and its possible employee 2 could be upside down on the loan which is even worse than nothing to show for it.

Question 2.... I do not believe the company has any rights to the equity in any car, unless it is a designated company car.... Car allowance is different. The money they give you for car allowance is yours to subsidize you for the responsibility of the car.

Question 3. See above. A company car would be like if they told you to go down to the parking garage and pick one of the 30 chevy malibus or whatever and thats what you drive on company time and what not. That is THEIR car that you are using. You have very little tax recourse in this scenario vs. an allowance where you can buy/lease. Keep in mind employee 2 above can buy a car for say 400 a month but then lose his job 6 months later. Now he stuck with a 400 payment for a car he might not otherwise have bought. That can happen to employee 1 also, but the lease term is shorter term and probably less money lost if he had to return the lease car.

Question 4. With a car allowance usually the employee pays for maintenance and insurance out of the allowance or perhaps gets a maintenance plan from the dealer he bought or leased from. This might be negotiable but I believe the allowance is all inclusive of the car costs. Except gas where you probably expense miles.

I dont have a company car or anything but I think this is essentially correct. Others will add to this I am sure.
Some very good points. But I'd imagine there are numerous ways these deals can play out. I completely agree with Q3 but I've discussed with two accountants that say it is the company's "investment" even with the allowance and therefore they (the company) should get the benefit. They also said that if there was any residual it should be rolled into the next car. Once again I don't agree but that is the opinion I've heard from two CPA's.


Here's where the allowance bites you back. I have a company allowance, that means the car is mine and I keep any equity in it. The downside...I just got laid off and now have a car that I have to keep making payments on that I would never have bought without the allowance. I had to buy a new car as part of the agreement with the company, and so I have negative equity in it.

An allowance is just a subsidy and as such the person receiving it is responsible for the car, maintenance and insurance.

Good thing I got a decent severance package.
That sucks. Sorry to hear you were put in that spot.

I'm wondering what type of arrangement you had with the employer. You said you "had to buy a new car as part of the agreement". Was it a verbal or a written agreement. I'm sure the lawyers would have a field day with this one.

Is it correct to assume that the idea behind a company car is to give the employee a benefit net of taxes? And if this is the case, does that mean that at the end of a term, any residual value becomes a taxable issue to the employee? Or is this the issue that makes it the company's (money owed) vs the employees to keep?


I dont know how this stuff works, except my friend gets 750$ month car allowance. He bought a civic and pockets the rest. At least thats the story he told me at one point
I wouldn't have an issue with this if the purpose was to give the employee an extra benefit and this is what worked best for him.

Thanks for all your feed back, I'd love to hear more,

DL




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I've never had a company car, but I have recv'd an allowance, as well as mileage reimbursement.

Company Car - company covers everything - repairs, maintenance, towing, etc.

Allowance - employee gets cash, uses it the way he wants.

It's much easier for the company to do the allowance thing. They don't have to have a person that manages fleets/repairs/etc. For the allowance thing, it's just a line item on payroll and done. All the maintenance, etc falls on the employee and makes life a lot easier to manage for the company.

I'm sure there are liability/legal ramifications too.

I'd love to have a company car. My neighbor does. Has a new Explorer. Two kids - can lug his kids and dog around and doesn't have to worry about maintenance, etc. Plus, he 'gets' a new car every 2 years. Sure, he doesn't have the flexibility to buy what he wants, but who cares? No hassle and it's paid for. Think about it - if you pay cash, that's $35K FREE, or if you finance, that's a $500/month car payment you don't have. If you figure cost of car, maintenance, gas, etc - it's a good $10-12K per year you save.

I'd like a 458 Italia company car please.
 

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Agreement was verbal, such is life..I'll I've got to do is find a new job in the next few months. The good news is my daily is a 2012 STI, but I had a 2002 WRX that worked fine and I enjoyed that as my daily driver as well.

Regardless the way an allowance works is it counts the same as a bonus for tax purposes. So you pay taxes on it as you go. In addition to what SwingLo mentioned, another benefit to the company is they can say they have competitive compensation packages with little risk to themselves.
 
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