Even though demand for cars in Europe has tumbled, BMW, Volkswagen, and Daimler’s Mercedes-Benz are all likely to post record sales for 2012. Deutsche Telekom is partly to thank for that. Germany’s largest phone company, which owns 38,000 vehicles in its home country, according to company reports, is taking advantage of tax breaks that have propped up the local auto market and turned company cars into a widespread employee perk. More than 85 percent of the high-end cars sold in Germany are registered to companies, including most of the Porsches in the tony sports car’s home market. “Without the company car system, I’d certainly be driving something smaller,” says Timo Kob, managing director of Berlin-based IT consultant HiSolutions, who has a 2010 BMW 5 Series GT from work.
In the U.S., fewer than 20 percent of cars were purchased by employers, including government agencies, in 2011, according to CNW Marketing Research. Cars bought by companies for employee use accounted for 32 percent of German auto sales last year, says the country’s motor vehicle office, KBA, up from 27 percent in 2010. Corporate purchases helped keep sales in Europe’s largest auto market relatively steady, slipping 2.9 percent in 2012 even as demand in Europe as a whole plunged to the lowest level in almost two decades. “Company cars are the most stable sector of the German market,” says Christoph Stuermer, an analyst with IHS Automotive in Frankfurt. “Private buyers face high uncertainty, while business clients were still investing their profits from previous years.”
Deutsche Telekom has more than one car for every two German employees. Corporate buying is spurred by tax rules that make cars an attractive benefit for employees. There’s more to the policy than keeping workers happy. Businesses typically replace vehicles every two to four years: German automakers command 86 percent of car sales to local companies; that lucrative home market provides economies of scale to underpin their expansion abroad.
Employees aren’t restricted to using corporate cars for business trips, and while the vehicles increase their tax burden because they’re treated as income, they’re still a good deal. Workers pay tax on 1 percent of the car’s list price each month. For a BMW 520i, the base version of the 5 Series midsize sedan, at least €402 ($534) is considered taxable income to the employee monthly. At Germany’s highest income tax rate of 45 percent, an employee would pay €181 a month in taxes before deductions for business use of the vehicle. Leasing the same car directly from BMW would cost a worker €426 a month. “Compared to the taxes paid on company cars in neighboring countries, the German tax office is asking for peanuts,” says Nick Margetts, a director at market researcher JATO Dynamics in Limburg.
In 2002 the U.K. changed its tax rules for company cars to favor more efficient vehicles. If a car is available for private use, the country taxes the employee 15 percent to 35 percent of the list price annually, depending on the amount of its carbon dioxide emissions. The change led the number of company cars there to decline by 25 percent in four years. Italy also recently increased the company-car-related tax burden for employers and workers.
In Germany the savings for employees rise for fully loaded models. An Audi A6 sport model with a 245-horsepower diesel engine and four-wheel drive, list price €56,650, costs an employee €255 a month in taxes. That’s €465 less than the lease rate Audi offers. “Many corporate customers choose fully equipped vehicles with higher transaction prices,” says Michael Renz, head of sales and marketing for VW’s Audi brand in Germany. “It’s an attractive business for us.”
Corporate customers accounted for 71 percent of registrations for Porsches in 2011, boosting Volkswagen, which owns the brand. “You get the chance to drive a car that you could otherwise never afford,” says Michael Müller-Gönert, an official with German transport club VCD. Corporate customers may also shore up demand for the electric vehicles German automakers are starting to introduce. Deutsche Telekom, for instance, is giving employees financial incentives to choose cars with lower fuel consumption to reduce the emissions of its car fleet as part of a corporate sustainability effort.
With consumers reluctant to buy their own vehicles and tougher competition depressing car prices across much of Europe, keeping German companies interested in the car market and spending on upmarket models is critical for BMW, VW, and Daimler. “Sinking private sales are a cause for concern,” says Axel Koblitz, managing director of the German auto service and dealer association ZDK. “Any change that would suffocate company demand would be very damaging.”