Company Vehicle vs Vehicle Allowance

[JLawrence]

Hi everyone,

I'm new to the forum but have been following (and trying to practice mustachianism) for some time now.  I have a question about my options for work vehicle.

So I started a new job (rural Canadian oilfield - environmental) that requires lots of driving (hwy and off road driving), and I need to be able to haul equipment and tools to and from the field. Estimated yearly kilometers for work of 30 - 40k. My employer offers two options :
1) Use of a company truck and fuel card with no maintenence or insurance costs but can only use it for company work ( I would need a personal vehicle to get around rural saskatchewan). 
2)  Use a personal truck and recieve a $1300/mo allowance plus the use of a fuel card, but I am responsible for maintence and insurance / registration etc. - I can use all associated expenses as tax deductions.

I opted to buy a one year old used half ton truck.  The monthly payments are less than my allowance and financed over 3 years.  My plan was to drive the truck into the ground, using the allowance for maintence and increased investments after the truck is paid off. 

Now I just recieved a significant cash windfall (income tax return, sale of a small side business and a huge overtime cheque) of $40 000 - $50 000.  I'm currently renting a house, investing heavily in indexed mutual funds and the only debt I have is the truck loan (being paid for by my company).  I plan to earmark some cash for a house down payment / wedding fund, but I'm wondereing
1) Should I pay off the truck loan, and immediately start investing the allowance.
2) Pay off the loan, sell the truck and start using a company truck.
3) Immediately invest the cash and continue paying for the truck with company allowance. (and buy a good, smart used vehicle for personal use).

Any thoughts on the subject would be much appreciated!

[WerKater]

Receiving this windfall does not change the relative advantages of the two options offered by the employer. So, I would not switch to a company truck. Unless you have come to believe for other reasons that your calculation (total monthly cost of truck is smaller than allowance plus cost of a private car you would need) will not hold in the future. So, option (2) is out.

What is the interest rate on the loan? If it less than the expected returns on your investments, I probably would keep the loan. Be aware that it means you are doing leveraged investment which is riskier (but probably better in the long run). If the interest rate is higher, pay off the loan.

[Jeremy E.]

I would sell the truck and buy an older truck(a 15 year old truck can do everything you need to for 1/4 the price of that 1 year old truck), and also buy a used hatchback, and invest the rest in index funds, then invest the allowance in index funds as well. Only drive the truck when you need too, otherwise drive the hatchback. Good Luck!

[MDM]

My employer offers two options :

Appears very similar to the options my dad had as a sales manager covering a wide geographic area.  He also took the private purchase route and kept track of income and outgo in a separate account.  Even with the stipulation (due to it being a sales position) that any car be no more than ~3 years old (so he had to trade-in and buy a new one that often) he made money on the deal for many years.

As others have said, the windfall doesn't change the financials of company vs. personal.  Same for "pay off loan vs. invest."

[waffle]

I would sell the truck and buy an older truck(a 15 year old truck can do everything you need to for 1/4 the price of that 1 year old truck), and also buy a used hatchback, and invest the rest in index funds, then invest the allowance in index funds as well. Only drive the truck when you need too, otherwise drive the hatchback. Good Luck!

Putting that many miles on the truck each year (or rather km) I would not go for an older truck. In my opinion this is one of the times that a newer (doesn't have to be brand new) truck makes the most sense. Yes a 15 year old truck can do the same things as a new truck chances are that well over 3/4 of its reliable life is used up and when your truck is a huge part of your job it has to be reliable. the OP was wise to get a one year old truck where the biggest hit on depreciation was already gone. I'd keep the truck for another 3-5 years.

[MsPeacock]

Also, since he mentions being "rural" - I would assume that a breakdown would be a major inconvenience with no service station w/in easy reach.

What is the interest rate on your loan?

[Jeremy E.]

I would sell the truck and buy an older truck(a 15 year old truck can do everything you need to for 1/4 the price of that 1 year old truck), and also buy a used hatchback, and invest the rest in index funds, then invest the allowance in index funds as well. Only drive the truck when you need too, otherwise drive the hatchback. Good Luck!

Putting that many miles on the truck each year (or rather km) I would not go for an older truck. In my opinion this is one of the times that a newer (doesn't have to be brand new) truck makes the most sense. Yes a 15 year old truck can do the same things as a new truck chances are that well over 3/4 of its reliable life is used up and when your truck is a huge part of your job it has to be reliable. the OP was wise to get a one year old truck where the biggest hit on depreciation was already gone. I'd keep the truck for another 3-5 years.

I bought my 4WD '97 Nissan pickup in 2010 with 85,000 miles on it, now it has 175,000 miles on it and all I have done is general maintenance. Contrary to the consumerist sucka belief, not all cars older than 2 years old are unreliable, regardless of what the new car salesman wants you to think.

[Jeremy E.]

http://www.mrmoneymustache.com/2015/04/28/what-does-your-work-truck-say-about-you/

[waffle]

http://www.mrmoneymustache.com/2015/04/28/what-does-your-work-truck-say-about-you/

Pretty sure that the point of the article was to match the vehicle to the needs and not for the image. Also pretty sure that MMM has made no recommendations on what vehicle is appropriate for work in rural oil fields. If he has I'd be pretty disappointed in that since to my knowledge he has never worked in a oil field let alone in whatever profession the OP is in.

I would sell the truck and buy an older truck(a 15 year old truck can do everything you need to for 1/4 the price of that 1 year old truck), and also buy a used hatchback, and invest the rest in index funds, then invest the allowance in index funds as well. Only drive the truck when you need too, otherwise drive the hatchback. Good Luck!

Putting that many miles on the truck each year (or rather km) I would not go for an older truck. In my opinion this is one of the times that a newer (doesn't have to be brand new) truck makes the most sense. Yes a 15 year old truck can do the same things as a new truck chances are that well over 3/4 of its reliable life is used up and when your truck is a huge part of your job it has to be reliable. the OP was wise to get a one year old truck where the biggest hit on depreciation was already gone. I'd keep the truck for another 3-5 years.

I bought my 4WD '97 Nissan pickup in 2010 with 85,000 miles on it, now it has 175,000 miles on it and all I have done is general maintenance. Contrary to the consumerist sucka belief, not all cars older than 2 years old are unreliable, regardless of what the new car salesman wants you to think.

I never said that if a car is more than 2 years old it is unreliable. I said that a 15 year old truck likely has used up at least 3/4 of its reliable miles. If you hunt around enough you can certainly make the rare find of an older low miles truck. I recently finished a two month long vehicle search and was rewarded with a 2001 dodge half ton with only 39k original miles.

This would be the more appropriate blog post to quote. MMM talks about the concept of Automotive Inventory. The chart at the bottom doesn't show past 15k miles a year, but the math would follow that there does reach a point where if you drive enough miles that a new(very slightly used) vehicle does make the most sense.
http://www.mrmoneymustache.com/2011/11/28/new-cars-and-auto-financing-stupid-or-sensible/

[JLawrence]

Thanks for the comments everyone!

One stipulation of the agreement is the personal vehicle must look "professional", and by "rural" I often times will drive hours with out meeting other vehicles in areas with little to no cell service.  The reliability is a huge concern, seeing as how this is my livelihood.  For those reasons, the 15 year old truck is likely not an option. (Maybe I could luck out and buy two 15 year old truck that still look great, with one in reserve in case the other breaks down ;)

As far as the interest rate, I'm currently paying 5.75% through a local credit union.

I guess my main interest was making sure my rationale for driving a personal truck over the company truck was justified.  I've always driven solid old cars, and swore I would never buy a new (ish) vehicle.  And here I am in exactly that scenario, because I thought I might be able to profit from the arrangement in the long term.

I don't want to be shooting myself in  the foot over the long term, and I figured this windfall could allow me to get out of the personal truck and into a company truck without taking much of a loss, depending on the thoughts of the mustachian community.

[Prairie Stash]

$1300 is generous, it should work out in your favour.  In 5 years time (60 months) you'll have received $78,000, subtract 5 years of maintenance, plates and truck cost and I'm assuming you'll be up money. You could pay off your loan and then use the monthly cheque for investing.

After 200,000 km you might need a new truck, most oil field trucks idle a lot. Low km but worn out engines due to the massive operating hours. A friend had a truck that needed a new engine after 100,000 km, she did wireline in SK and AB. Hopefully that's not your case, every situation is different.

I would check on the tax deductions, that's double dipping if you get reimbursed. Generally when someone gives you money for an expense you can't claim it as a tax deduction (unless you're claiming the $1300 as income too).

[WerKater]

As far as the interest rate, I'm currently paying 5.75% through a local credit union.

Since a general agreement is that index finds will make you 7% over the long term it would make mathematical sense (on average) to keep the loan. If you are risk averse it could still make sense to pay it off. Same if the loan balance is much lower than your total net worth so that it does not make a significant difference either way. In that case, I would probably pay it off just to be rid of it.

I don't want to be shooting myself in  the foot over the long term, and I figured this windfall could allow me to get out of the personal truck and into a company truck without taking much of a loss, depending on the thoughts of the mustachian community.

I you actually want to move to a more reasonable private vehicle, and are prepared to lose some money compared to the situation now, that's cool. It seems to me that the more Mustachian solution would be to suck it up and keep the truck ;)