The real cost per mile of paid-per-use company driving
An analysis of the true cost per mile when employers pay per use. Does €0.19 cover insurance, depreciation and fuel?
English · Original discussion in Spanish · Published
The real cost per kilometre of pay-per-use driving: a bonus or a financial hole?
Managing the expenses of using private vehicles for work purposes is an area where the theory of mileage compensation clashes brutally with accounting reality. With uncertainty over how much companies actually pay for this, the conversation has focused on breaking down whether the payment, whether €0.19 or €0.25 per kilometre, really covers the operating cost of keeping a car on the road.
Calculating the real cost per kilometre
The official payment rate rarely reflects the full costs associated with a vehicle. Some detailed analyses break down the cost per kilometre, including not only fuel but also insurance, servicing, taxes and, crucially, the depreciation of the asset. For example, a breakdown for a diesel car doing 22,000 km a year reveals annual fuel, insurance and maintenance costs that must be weighed against the rate paid.
Differences between rates and profitability
There are significant disparities in the compensation offered by companies. While some schemes hover around €0.19 or €0.25, others report higher figures or mixed structures, such as a fixed payment plus a per-kilometre charge. The emerging consensus is that, unless very high mileage thresholds are exceeded or specific vehicles are used, these payments rarely cover the full cost of ownership and use.
The hidden factor: vehicle depreciation
The figure that seems hardest to pin down in these calculations is capital depreciation. Some experts point out that the purchase price of the vehicle, divided by its estimated useful life, is a cost almost nobody factors into the per-kilometre rate. This factor, together with the financial cost of capital, turns the idea of a "bonus" into a potential loss of wealth, especially if usage is mixed or if the car is kept in top condition for business use.
The discussion stalls on precisely quantifying depreciation and valuing the risk associated with the car being constantly available. It is argued that only by exceeding certain annual mileage thresholds, and using more efficient vehicle models, could a break-even point be approached, but the road to that profitability remains an exercise in exhaustive calculation rather than a simple tally of expenses.
Related forum debates
Managing the expenses of using private vehicles for work purposes is an area where the theory of mileage compensation clashes brutally with accounting reality. With uncertainty over how much companies actually pay for this, the conversation has focused on breaking down whether the payment, whether €0.19 or €0.25 per kilometre, really covers the operating cost of keeping a car on the road.
Calculating the real cost per kilometre
The official payment rate rarely reflects the full costs associated with a vehicle. Some detailed analyses break down the cost per kilometre, including not only fuel but also insurance, servicing, taxes and, crucially, the depreciation of the asset. For example, a breakdown for a diesel car doing 22,000 km a year reveals annual fuel, insurance and maintenance costs that must be weighed against the rate paid.
Differences between rates and profitability
There are significant disparities in the compensation offered by companies. While some schemes hover around €0.19 or €0.25, others report higher figures or mixed structures, such as a fixed payment plus a per-kilometre charge. The emerging consensus is that, unless very high mileage thresholds are exceeded or specific vehicles are used, these payments rarely cover the full cost of ownership and use.
The hidden factor: vehicle depreciation
The figure that seems hardest to pin down in these calculations is capital depreciation. Some experts point out that the purchase price of the vehicle, divided by its estimated useful life, is a cost almost nobody factors into the per-kilometre rate. This factor, together with the financial cost of capital, turns the idea of a "bonus" into a potential loss of wealth, especially if usage is mixed or if the car is kept in top condition for business use.
The discussion stalls on precisely quantifying depreciation and valuing the risk associated with the car being constantly available. It is argued that only by exceeding certain annual mileage thresholds, and using more efficient vehicle models, could a break-even point be approached, but the road to that profitability remains an exercise in exhaustive calculation rather than a simple tally of expenses.
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Summary of a discussion on Burbuja.info - Foro de economía, actualidad y política., translated from Spanish and reviewed before publication. Read the full discussion (21 replies).
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