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CFS Annual Report - 2014

Reimbursement for Business Use of Personal Vehicles
Model Year 2014

 Study prepared for
The Treasury Board of Canada Secretariat

 by Corporate Fleet Services

  November 2013

 1       Executive Summary

Corporate Fleet Services (CFS) has been mandated by the Treasury Board of Canada Secretariat to perform the annual evaluation of per-kilometre reimbursement rates for government employees required to use their personal vehicles while performing government business. This study assesses all vehicle operating expenses and provides recommendations for reimbursement rates for each Canadian Province and Territory.

The present study is based on 2014 model year vehicles and accounts for all of the following:

This report summarizes all assumptions, methodology, values and findings. It presents up-to-date recommended rates of reimbursement for consideration by the Treasury Board of Canada Secretariat.

1.1     Methodology and Evaluation

The recommendations are given for the year of 2014 for:

These rates are given on a straight per-kilometre basis, for each Province and Territory. This is intended to accurately account for differences in vehicle operating costs across Canada.

The recommendations are based on total costs of operating privately owned or leased vehicles. In order to reflect realistic conditions, the study assumes an annual driving distance of 20,000 kilometres and ownership terms of both four and five years. Fixed costs include ownership expenses consisting of depreciation, financing or leasing interest and taxes, as well as vehicle insurance and registration. Variable costs cover fuel, preventative maintenance, repairs, tires and miscellaneous items. All cost variations between the Provinces and Territories are accounted for, as well as the special driving conditions in the three Territories.

Average nationwide costs of operating personally owned or leased vehicles were determined to be $0.52 per kilometre versus $0.53 as reported in the previous year's study. The decrease is mainly due to an update of insurance premiums costs. We are of the opinion that the insurance costs reported previously were not representative of prevalent premiums at the present time in most provinces and especially in Quebec and Alberta.

The following table indicates Canadian average expenses by cost component in dollars per kilometre:

Cost components

Cost (dollars/km)

Depreciation

$0.170

Interest

$0.007

Sales tax

$0.036

Registration

$0.008

Insurance

$0.087

Fuel

$0.122

Preventative maintenance

$0.052

Repairs

$0.018

Tires

$0.013

Miscellaneous

$0.007

Total

$0.520

The largest component of vehicle operating expenses is depreciation, which accounts for 33% of total costs, followed by fuel expenses at 24% and insurance premium expenses at 17%.

2       Preamble

Corporate Fleet Services (CFS) was mandated by the Treasury Board of Canada Secretariat to calculate reimbursement rates for business use of personal vehicles by government employees according to the parameters listed in a Statement of Work issued through a competitive RFP process.

CFS is therefore pleased to present this study with its findings and recommendations, based on extensive research performed on behalf of the Treasury Board of Canada Secretariat.

2.1     Note on Methodology

After performing a comprehensive analysis of the methodology and findings from previous years' reports, the present study focused on a reassessment of the calculation methodology in order to more accurately reflect costs in the current Canadian automotive marketplace. The present study highlights where the methodology employed differs from previous studies as well as it provides the rationale for these choices.

2.2     Policy Recommendations

It is our opinion that public employees continue to be reimbursed for government business use of personal vehicles on a cents per kilometre basis, reflective of the practice that has been used over the course of the past decade. This is deemed to be consistent with current public and private sector practices as well as it accounts for a fair and simple reimbursement method in line with accepted reimbursement policies across Canada.

However, since there are substantial differences among the ten Canadian Provinces and three Territories, these rates were calculated separately for each Province and Territory in order to account for differences in vehicle operating costs.

3       Methodology And Cost Component Determination

3.1     Assumptions

The present study's objective was to determine reimbursement rates for business use of personal vehicles by government employees, as accurately as possible, in order to reflect current Canadian automotive market conditions. In order to accomplish this, an extensive analysis was performed on all components of the total cost of operating a vehicle.

The methodology employed follows all the elements listed in the Statement of Work. The purpose was to calculate the different rates of reimbursement, in cents per kilometre, separately for all ten Canadian Provinces and three Territories. In light of this we performed research and data analysis to calculate costs for the following components, which represent the total costs of running a personal vehicle:

1.  Fixed expenses

2.  Variable expenses

All calculations assumed four and five year retention periods as well as considered all vehicles to run an average of 20,000 kilometres per year.

In addition, in order to assess realistic prevalent insurance premiums by Province and Territory, the study had to define a certain demographic range to reflect the average government employee. To this end the following characteristics were used:

The following table gives an overall picture of the cost proportion of the components involved in total expenses of operating a vehicle:

Expense Cost Proportion
Depreciation 33%
Fuel 24%
Insurance 17%
Interest 1%
Preventative maintenance 10%
Registration 2%
Repairs 3%
Sales tax 7%
Tires 2%
Miscellaneous 1%

­3.2     Vehicle Selection

We extended the current study to include two additional vehicle classes as well as considerably increased the number of vehicle models (nameplates) studied. This accounts for a much greater percentage of the Canadian vehicle market. This was deemed necessary since previous work was based on only ten vehicle models within three vehicle classes (compact, mid-size and crossover) and focused exclusively on American manufacturers (General Motors, Chrysler and Ford). It is our opinion that this methodology is not reflective of the current market reality in Canada. As an example, the most sold compact vehicle in Canada is a Honda Civic, followed by the Hyundai Elantra, Toyota Corolla and the Mazda 3. In fact, in the top 10 most sold compact vehicles in Canada in the first half of the year 2013, only two vehicles are from American brands (the Chevrolet Cruze and the Ford Focus).

In the light of this fact, our study proceeded as follows:

We have extended the vehicle classes to cover two extra categories (Minivans and SUVs) as these classes are also part of the prevalent Canadian automotive landscape. Therefore, the present study analyzes the following categories:

  • Compact sedans
  • Mid-size sedans
  • Minivans
  • Crossovers
  • SUVs

­For each of these categories, ten vehicle models from the most relevant manufacturers (according to sales in Canada) were studied, covering approximately 85% of the Canadian market. Note: the Minivan category only contains nine vehicles as we only identified nine vehicles presently available in this category. However, no luxury or executive vehicles have been considered in our study, as it is our opinion they do not reflect the vehicle choice of the average government employee.

­In order to accurately account for costs of all the nameplates studied, each vehicle was assigned a percentage weight directly proportional to total sales in the first half of the year 2013. Subsequently, all costs, both fixed and variable, were averaged per Province or Territory according to the weight assigned to each vehicle.

­Following is a table listing the vehicles studied, as well as the class they belong to and the weight assigned to each according to recent Canadian sales:

Make

Model

Class

Weight

2014 Model Year Pricing

Honda

Civic

Compact

6.6%

$20,940

Hyundai

Elantra

Compact

6.6%

$21,149

Toyota

Corolla

Compact

4.9%

$21,720

Mazda

3

Compact

4.4%

$22,590

Chevrolet

Cruze

Compact

3.7%

$21,145

Volkswagen

Jetta

Compact

3.4%

$22,885

Ford

Focus

Compact

3.1%

$21,599

Nissan

Sentra

Compact

1.8%

$20,415

Kia

Forte

Compact

1.4%

$21,480

Toyota

Matrix

Compact

1.4%

$22,510

Ford

Escape

Crossover

4.9%

$30,799

Honda

CR-V

Crossover

3.8%

$29,985

Toyota

RAV4

Crossover

3.7%

$27,680

Dodge

Journey

Crossover

3.3%

$34,390

Hyundai

Santa Fe Sport

Crossover

2.9%

$32,159

Chevrolet

Equinox

Crossover

2.2%

$30,095

Ford

Edge

Crossover

2.1%

$38,214

Mazda

CX-5

Crossover

2.0%

$29,790

Nissan

Rogue

Crossover

1.8%

$28,528

Kia

Sorento

Crossover

1.7%

$30,360

Ford

Fusion

Mid-Size

2.6%

$24,049

Honda

Accord

Mid-Size

2.0%

$26,985

Toyota

Camry

Mid-Size

2.0%

$25,320

Hyundai

Sonata

Mid-Size

1.9%

$25,649

Chrysler

200

Mid-Size

1.6%

$22,385

Nissan

Altima

Mid-Size

1.2%

$25,273

Kia

Optima

Mid-Size

1.1%

$26,080

Dodge

Avenger

Mid-Size

1.1%

$21,690

Chevrolet

Malibu

Mid-Size

0.9%

$26,595

Volkswagen

Passat

Mid-Size

0.8%

$26,770

Dodge

Grand Caravan

Minivan

5.6%

$29,690

Toyota

Sienna

Minivan

1.4%

$30,810

Honda

Odyssey

Minivan

1.2%

$31,630

Chrysler

Town & Country

Minivan

1.1%

$43,190

Kia

Rondo

Minivan

0.6%

$26,860

Mazda

5

Minivan

0.4%

$25,090

Chevrolet

Orlando

Minivan

0.3%

$25,960

Nissan

Quest

Minivan

0.1%

$31,748

Kia

Sedona

Minivan

0.1%

$30,260

Jeep

Wrangler

SUV

2.4%

$27,490

Jeep

Grand Cherokee

SUV

1.3%

$41,690

Ford

Explorer

SUV

1.2%

$34,599

Nissan

Pathfinder

SUV

0.8%

$33,558

Honda

Pilot

SUV

0.6%

$39,685

GMC

Acadia

SUV

0.5%

$41,095

Chevrolet

Avalanche

SUV

0.4%

$49,495

Chevrolet

Traverse

SUV

0.4%

$37,895

Buick

Enclave

SUV

0.4%

$46,395

Ford

Flex

SUV

0.3%

$40,699

­Following are two tables showing the weight of each class as well as that of each brand name, for all vehicles studied, relative to their respective Canadian sales:

Distribution of vehicles studied by class

Vehicle Class Distribution
Compact 37%
Crossover 29%
Mid-size 15%
Minivan 11%
SUV 8%

Distribution of vehicles studied by brand name

Brand Name Distribution
Buick 0.4%
Chevrolet 8.0%
Chrysler 2.7%
Dodge 10.0%
Ford 14.1%
GMC 0.5%
Honda 14.3%
Hyundai 11.3%
Jeep 3.7%
KIA 4.9%
Mazda 6.9%
Nissan 5.7%
Toyota 13.5%
Volkswagen 4.2%

For the three Territories, a different sample of vehicles was studied to account for their particularities, as described in Section 6: Operating Costs for the Territories.

All costs have been calculated separately for:

  • each Province or Territory
  • each vehicle studied
  • each cost component (fixed and variable expenses)

3.3     Data Sources

The present study used information available in the public domain, data from previous studies that we have performed, as well as new research and consultations with specialized professionals and agencies. For each element studied we confirmed the accuracy of the data by consulting additional data sources and cross-referencing the findings. For certain components we went to the extent of consulting up to six additional data sources to better support our conclusions. All data sources were assessed for reliability and were thoroughly documented.

3.4     Use of Weighted Averages

In order to accurately reflect current market conditions, the present study follows a weighted average approach instead of a simple average, by employing weighted arithmetic means where relevant. This was deemed necessary because not all elements calculated contribute the same amount to the total. For example, according to the most recent information published by Statistics Canada there were a total of 7,327,772 vehicles registered in Ontario, whereas in the Yukon there were only 28,546 vehicles registered, and thus the two regions contribute significantly different amounts to the overall Canadian average. This method was employed throughout the study to better reflect the reality of the Canadian market.

In the same manner, certain vehicle models sell significantly more units on the Canadian market than others and therefore they contribute more to the overall weighted average. For example, the Honda Civic sells considerably more units in Canada than a Chevrolet Cruze, almost double that amount, and therefore the operating costs for the Honda Civic should reflect proportionately in the total calculated weighted average for each component of the cost. See Section 3.2 - Vehicle selection for details.

3.5     Differences in Methodology as Compared to Previous Studies

The present study followed the methodology proposed in the Statement of Work. However, the methodology employed departs slightly from the methodology used by previous consultants in several aspects:

As mentioned previously, we have increased the number of vehicle classes as well as substantially expanded the number of vehicles selected, to account for the current reality of the automotive market. In light of this 54 different vehicle models were analyzed instead of the 10 used in previous studies. This has resulted in coverage of 85% of all vehicles sold in the Canadian market.

Our analysis was extended to account for two additional methods of vehicle acquisition, versus only one that was considered by the previous study. In previous studies, only vehicle financing was taken into account (approximately 60% of the market), therefore we have added cash purchases and leasing to cover the remaining 40%.

The present study used weighted averages in order to reflect the real market today instead of simple averages which, in our opinion, can significantly bias the results and directly affect the interpretation of total values.

Regarding vehicle insurance premiums, it is our opinion that the methodology used previously to calculate prevalent insurance premiums is out of date as it was based on calculations performed before the year of 1999 and adjusted yearly by the CPI (Consumer Price Index) values without referencing them to present-day realistic values. The difference was more pronounced for the Provinces of Quebec and Alberta. Therefore it is our opinion that the best method to reflect current reality was to perform a new study on insurance premiums across Canada.

For the three Territories, we have adjusted the vehicle classes to better represent driving conditions in the North. Trucks and SUVs are significantly more common than compact, mid-size or minivans is the Territories due to extreme weather conditions. At the same time, vehicles used in the Territories are equipped with winter-specific driving equipment while operating costs run higher.

4       Fixed Expenses Analysis

4.1     Ownership Costs

4.1.1     Current model-year vehicle prices

4.1.1.1       Vehicle pricing

For each vehicle under study, we have extracted 2014 model year MSRP (Manufacturer Suggested Retail Price) values. The main tool employed was AutoQuote, the industry leading software that provides up-to-date detailed pricing for all new vehicles available on the Canadian market. At the time of the current study, out of 54 vehicles pricing was not yet available for eight models. For these, 2013 model year values were used. In our experience, these values vary only slightly from year to year and are reflective of 2014 values.

MSRP pricing is established by the manufacturer for the whole model year and is valid across Canada. Variations of the MSRP prices throughout the year are infrequent. Values extracted from AutoQuote were also cross-checked against the information published by vehicle manufacturers.

4.1.1.2       Prevalent manufacturer rebates

Vehicle manufacturers usually offer retail rebates for new vehicles in order to promote sales and distinguish themselves from their competition. We have thus performed substantial research to determine prevalent retail rebates for all vehicles studied, for the last 12 months. A period of one year was used as retail rebates vary from month to month as well as from region to region. Prevalent retail rebates display variation by:

All the data obtained was integrated into a 2,106 data-points matrix and subsequently reflected in the purchase price of each vehicle, by Province. Direct price negotiation between vehicle retailers and buying individuals could not be accounted for in this study.

Rebates range from $0 to $10,500, depending primarily on each manufacturer's marketing strategy.

4.1.1.3       Federal and provincial levies

Provincial and federal levies apply to the purchase of new vehicles, and are intended in principle to offset environmental costs such as disposal and recycling of air conditioning fluids or tires. For the vehicles under study the following levies apply:

According to the Excise Tax Act federal and provincial sales taxes apply to these levies as they are considered to form part of the cost of a new vehicle. All applicable fees and levies have been factored in the analysis.

4.1.2     Financing

We extended our analysis beyond the concept of a simple financing contract (a loan). We have thus performed research on the Canadian market to establish which methods of vehicle acquisition are the most prevalent, as well as what market share is held by each. We have therefore come to the conclusion that in Canada the new vehicle market is distributed among the following three forms of acquisition:

Therefore, in order to accurately reflect the reality of the market, we have analysed all three forms of acquisition and subsequently calculated a weighted average for each vehicle under study according to their proportion of the market.

The net cost of vehicle ownership was calculated according to the method of acquisition (cash, financing or leasing). All three vehicle acquisition methods were addressed with their specific particularities, proportionately with their prevalence in the Canadian automotive landscape, as follows:

Cash purchase: real cost of ownership is the full price paid for the vehicle (including freight and pre-delivery inspection (PDI), all fees and levies as well as sales taxes), less the projected resale value (expected return) after the period of retention (four and five years).

Financed vehicles: vehicles that are financed through any financial institution (through a vehicle loan) cost more than a cash purchase since interest is added to the actual price of the vehicle. Prevailing interest rates were used for all calculations as published by the different vehicle manufacturers throughout the year. Interest was based on the assumption that upon acquisition of a new vehicle, the old vehicle is traded-in or otherwise sold and the amount applied up-front to reduce interest costs.

Leased vehicles: personally leased vehicles are usually subject to closed-end lease agreements. Under these circumstances, the term ‘ownership' does not properly define the acquisition, since the vehicle is owned by the lessor until the end of the lease term. Actual cost of ‘ownership' must then be calculated according to the actual monthly payments incurred by drivers for the period of the term plus applicable sales taxes.

4.1.3     Four and five years retention periods

We calculated ownership costs for both four and five year retention periods, terms that were found to be reflective of average retention periods for the Canadian automotive landscape. All calculations we performed by vehicle and per Province taking into account both retention periods, and the results were averaged to yield one value per vehicle and per Province.

4.1.4     Vehicles driven 20,000 kilometres annually

All vehicles under study were considered to be driven 20,000 km per year. This is deemed to be a reasonable benchmark to base all reimbursement calculations on, since the average Canadian vehicle is driven between 16,000 and 24,000 km per year. All calculations were made using this benchmark all across Canada.

4.1.5     Financing interest rates

We have performed an extensive research to determine the prevalent interest rates provided by vehicle manufacturers. Vehicle manufacturers offer what is known as subvented rates to promote sales of new vehicles. These rates are sometimes substantially lower than regular financial institutions' loans. Since these reduced rates are prevalent on the market, we deemed it more reflective of reality to integrate these rates into our calculations rather than assume one Canada-wide rate.

Interest rates vary considerably by:

All these variations were integrated into a 2,808 data-points matrix and subsequently reflected in the ownership costs of each vehicle, by Province.

It is important to note that certain manufacturers do not offer subvented leasing (e.g. Chrysler) and that some may choose to not offer either financing or leasing for certain contract terms (e.g. Ford do not offer five years leasing rates but they do offer them for four years terms). In these instances, average market (financial institutions or third party leasing company) rates were used.

The prevalent financing and interest rates data originated with the vehicle manufacturers and all the information was thoroughly documented.

Interest rates vary from 0% to 7.9% for manufacturers' subvented rates, while the third-party financing rates were approximated to 8%.

4.1.6     Sales taxes

Federal and provincial sales taxes (GST, PST, HST) apply to the full cost of a new vehicle according to the taxation method of each Province or Territory. Sales taxes also apply to:

Whether a vehicle is cash-purchased, financed or leased, taxes apply differently. For both cash purchases and financing contracts, the full price of a new vehicle is subject to sales tax, whereas for leased vehicles sales tax is only applied to monthly lease payments (including tax on interest).

Sales taxes have been factored into all calculations as to accurately reflect the direct costs to the end user of a vehicle. Following is a table listing the combined GST/PST/HST applicable for each Province and Territory at the time the present study was performed:

Sales taxes in Canada

Province

Combined sales taxes

Alberta

5%

British Columbia

12%

Manitoba

13%

New Brunswick

13%

Newfoundland and Labrador

13%

Nova Scotia

15%

Northwest Territories

5%

Nunavut

5%

Ontario

13%

Prince Edward Island

14%

Quebec

14.975%

Saskatchewan

10%

Yukon

5%

4.1.6.1       Taxes on fuel

Fuel prices listed at the pump have all taxes included, as is the standard throughout Canada. Fuel is usually taxed federally, provincially as well as regionally. Approximately a third of the price paid at the pump is made up of the following:

All fuel prices given in the present study have all taxes included.

4.1.6.2       Taxes on insurance premiums

GST/PST/HST does not apply to insurance premiums. Solely the Province of Quebec taxes vehicle insurance premiums at a rate of 5%. Insurance premiums given in the present study for Quebec have all taxes included.

4.1.6.3       Recent and upcoming tax rate changes

We have consulted directly with all relevant public sources in order to determine if there are any impending tax rate changes across Canada in the near future. At the time of the present study, no changes in sales taxes are foreseen for any Canadian Province or Territory for the next twelve months.

However, for each subsequent update of the present study, research will be performed again for all Canadian Provinces and Territories to determine if taxes amounts have changed or if any changes are foreseen for the future.

4.1.7     Resale values (vehicle remarketing)

In order to accurately assess total costs of vehicle ownership an analysis was performed, for each vehicle under study, to project resale values for retention periods of four and five years, based on historic patterns. Resale values were based on actual resale market data for the same or similar model. The researched was based on:

The values were extracted from the Canadian Black Book, an industry standard for establishing values for used cars and adjusted for reality by consulting with specialized vehicle resellers, as well as other relevant tools. Final values were projected for:

In projecting resale values we operated under the assumption that half of all owners advertise and sell their old vehicle themselves to other individuals (referencing retail values) and the other half choose to either trade-in their vehicle or sell it through a reseller network (referencing wholesale values). The final figures were an average of the two projected values.

Resale values were integrated into the depreciation analysis differently depending on the type of acquisition:

For cash purchases resale values were subtracted from the initial total cost of a new car.

For financing contacts, we used the assumption that vehicle owners either trade in their old vehicle or otherwise sell it and put the amount down to offset part of the payment for the new vehicle and therefore reduce the total cost of interest.

On vehicle leases however, the actual resale value of the vehicle is irrelevant. Lessors typically base their depreciation calculations on projected residual values that are established directly by manufacturers. We have performed a complete research to determine these residual values for all vehicles under study, by compiling a 1,404 data-points matrix to accurately calculate total leasing costs. Residual values show variations by:

  • Vehicle model
  • Province or Territory
  • Retention periods (four and five years)
  • Model trim.

4.1.8     Total cost of ownership calculations

For each Province and Territory, total costs of ownership were calculated for:

A weighted average was then performed for all vehicles under study to yield a final cost-of-ownership figure per Province and Territory. All figures were converted and expressed in dollars per kilometre.

The following three tables give a detailed break-down of vehicle ownership costs in Canada in dollars per kilometre, by vehicle class as well as four and five year retention periods, split by depreciation costs, financing costs and sales taxes, as well as a weighted average according to vehicle sales figures:

Depreciation

Compact

Mid-Size

Minivan

Crossover

SUV

Weighted average

4 -yr ownership

$0.148

$0.175

$0.160

$0.201

$0.210

$0.176

5 -yr ownership

$0.138

$0.157

$0.153

$0.189

$0.197

$0.164
           

$0.170

 ---

Interest

Compact

Mid-Size

Minivan

Crossover

SUV

Weighted average

4 -yr ownership

$0.002

$0.005

$0.008

$0.006

$0.013

$0.006

5 -yr ownership

$0.004

$0.007

$0.011

$0.009

$0.016

$0.008
           

$0.007

 ---

Sales Tax

Compact

Mid-Size

Minivan

Crossover

SUV

Weighted average

4 -yr ownership

$0.030

$0.035

$0.037

$0.044

$0.051

$0.039

5 -yr ownership

$0.025

$0.029

$0.031

$0.036

$0.041

$0.033
           

$0.036

4.2     Vehicle Registration and Licensing Costs

Vehicle registration, licensing and plating is regulated at the provincial level. Each Canadian Province and Territory has its own regulatory body governing the rules and costs of vehicle licensing. Registration costs are typically charged annually in the form of a registration renewal. In some Provinces there are certain one-time upfront costs that are charged only at the time of the initial vehicle registration.

We have performed a complete study of these costs by contacting all provincial and Territorial authorities. Registration costs do not have additional taxes applied to them as payment is made directly to the governmental agencies. However, certain upfront costs may have sales tax applied to them (e.g. service charges), depending on the Province where a vehicle is licensed. The terms registration and licensing are used interchangeably in this study.

Registration costs vary by:

All these costs have been integrated in the calculations for each Province and Territory. Annual registration costs vary between $42 and $286 and contribute an average of $0.008 per kilometre (weighted average for all of Canada).

The following table lists annual registration costs for all the Provinces and three Territories:

Province/Territory

Registration costs

Registration costs in $/km

Alberta

$84

$0.004

British Columbia

$61

$0.003

Manitoba

$161

$0.008

New Brunswick

$115

$0.006

Newfoundland and Labrador

$140

$0.007

Nova Scotia

$108

$0.005

Ontario

$90

$0.005

Prince Edward Island

$100

$0.005

Quebec

$286

$0.014

Saskatchewan

$68

$0.003

Northwest Territories

$75

$0.004

Nunavut

$68

$0.003

Yukon

$42

$0.002

4.2.1     Note on the Province of Quebec

It must be noted that in Quebec, provincially regulated bodily injury insurance must be purchased through the annual vehicle registration process. This is the reason why registration costs in Quebec are generally higher than the other Provinces or Territories.

4.3     Vehicle Insurance Costs

4.3.1     Regulation of vehicle insurance

Insurance rates vary greatly across Canada, primarily due to different provincial laws determining vehicle accident fault, subrogation or no-fault policies. Vehicle insurance is offered by private insurers in Alberta, Ontario, Quebec as well as the four Atlantic Provinces and the three Territories. Quebec however has a hybrid system where bodily injury insurance is provided by the Province through its vehicle registration process, while third-party liability is provided by private insurers.

On the other hand, the Provinces of British Columbia, Manitoba and Saskatchewan have mandatory public vehicle insurance. Insurance in these three Provinces is offered exclusively by the provincial governmental bodies that also regulate vehicle registration.

4.3.2     Variability of insurance premiums

Insurance premium rates vary considerably not only from Province to Province, but also according to a substantial number of other parameters related to the insured driver's personal characteristics as well as to the vehicle being insured. Where insurance is offered privately, insurance premiums also vary considerably from one insurer to another.

4.3.3     Analysis of prevalent insurance premiums

Previous studies determined insurance premiums based primarily on the inflationary experience of auto policy premiums applied to policy rates used in past years. After careful examination of the methodology employed previously to calculate prevalent provincial insurance premiums, it is our opinion that this methodology is out of date as it was based on calculations performed more than 14 years ago and adjusted annually by the CPI (Consumer Price Index) values as published by Statistics Canada. We have found that, following this methodology, this would result in significantly over-inflated figures, especially in the case of Provinces such as Quebec or Alberta. It is our opinion that the figures calculated this way are no longer reflective of reality. In the light of this fact we proceeded with a thorough research into current prevalent insurance premium rates for the average government employee to bring these figures in line with current market conditions.

Insurance premium costs were assessed based on the average government employee as described in Section 3.1. We requested a number of quotes based on this established demographic directly from private insurers, provincial insurers as well as insurance brokers. In order to reflect real up-to-date insurance premiums, for each Province with private insurance, more than five different data sources were used. For Provinces with public insurance the data available from the governing body was used.

Following is a table listing average insurance premiums for the ten Provinces and three Territories as well as a comparison with the insurance premiums published in the previous study, for direct comparison:

Province/Territory

Current insurance
premiums

Insurance costs
in $/km

2013 report
insurance premiums

Alberta

$1,400

$0.070

$2,750

British Columbia

$1,225

$0.061

$1,950

Manitoba

$1,100

$0.055

$1,475

New Brunswick

$1,350

$0.068

$1,775

Newfoundland and Labrador

$1,750

$0.088

$2,200

Nova Scotia

$1,250

$0.063

$1,700

Ontario

$2,700

$0.135

$2,900

Prince Edward Island

$1,175

$0.059

$1,825

Quebec

$950

$0.048

$2,775

Saskatchewan

$1,200

$0.060

$1,300

Northwest Territories

$1,650

$0.083

$1,700

Nunavut

$1,650

$0.083

$1,700

Yukon

$1,850

$0.093

$2,500

The values obtained through the present study are reflective of current reality. Insurance rates vary between $950 and $2,700 with a Canadian weighted average of $0.087 per kilometre.

5       Variable Expenses Analysis

5.1         Fuel Expenses

Fuel expenses are directly related to fuel prices in a particular location and a specific moment in time, as well as the fuel consumption parameters of the vehicles under study.

5.1.1     Fuel prices

According to Natural Resources Canada approximately 95% of light duty vehicles on Canadian roads run on gasoline. A number of these vehicles are also equipped to be able to run on E85 (ethanol 85%), but for the purpose of the present study all vehicles were considered to run on regular gasoline, as E85 is not readily available at retail outlets.

Prices of gasoline, in Canada, include all applicable taxes. Prices vary significantly across Canada, mainly due to the difference in the types and amounts of taxes being charged on fuel in different Provinces. We have therefore researched the average prices of regular gasoline charged at the pump. The fuel price data was primarily obtained from Natural Resources Canada, based on weekly published fuel prices for 60 locations across Canada. This data was verified against an additional database made available by MJ Ervin and Associates that similarly tracks fuel prices all across Canada.

Consistent with the methodology of the present study, when determining average gasoline prices per Province or Territory, we have used a weighted average according to population in order to better conform to reality. In this manner, metropolitan population centers account for a greater portion of the total than smaller municipalities.

Fuel price data was extracted for a period of three months (August 27th to November 26th 2013) in order to better reflect current prices. Subsequent fuel update reports will focus on three months periods following the period covered in the present study. Gasoline prices in Canada vary between $1.104 and $1.373, with an average of $1.273.

The following is a table with average regular gasoline prices for all Canadian Provinces and Territories, in dollars per litre, as well as gasoline prices from previous update reports, for comparison:

Province/Territory

Current fuel cost ($/litre)

Current fuel cost in $/km

1 Oct 2013 update ($/litre)

1 Jul 2013 update ($/litre)

1 Apr 2013 update ($/litre)

1 Jan 2013 (annual) update ($/litre)

Alberta

$1.104

$0.105

$1.194

$1.138

$1.018

$1.145

British Columbia

$1.320

$0.125

$1.379

$1.309

$1.206

$1.287

Manitoba

$1.182

$0.112

$1.329

$1.245

$1.095

$1.228

New Brunswick

$1.263

$0.120

$1.289

$1.269

$1.248

$1.307

Newfoundland and Labrador

$1.314

$0.124

$1.361

$1.343

$1.336

$1.389

Nova Scotia

$1.299

$0.123

$1.339

$1.311

$1.308

$1.351

Ontario

$1.269

$0.120

$1.298

$1.267

$1.247

$1.286

Prince Edward Island

$1.309

$0.124

$1.326

$1.279

$1.216

$1.280

Quebec

$1.359

$0.129

$1.363

$1.341

$1.311

$1.371

Saskatchewan

$1.179

$0.112

$1.280

$1.214

$1.107

$1.271

Northwest Territories

$1.347

$0.179

$1.402

$1.402

$1.402

$1.401

Nunavut

$1.350

$0.180

$1.402

$1.402

$1.402

$1.401

Yukon

$1.373

$0.183

$1.441

$1.303

$1.291

$1.354

5.1.2     Fuel consumption

For every vehicle under study, fuel consumption figures were extracted from EnerGuide (published by Natural Resources Canada) and checked against consumption figures published in AutoQuote. These figures are determined by vehicle manufacturers, based on standardized tests, and are published for both city driving and highway driving.

However, in our experience, the published fuel consumption figures are consistently lower than what we have observed, mainly due to the fact that manufacturers test their vehicles under controlled driving conditions. Therefore, our study proceeded to adjust these figures for reality and all these were increased by 15% to reflect realistic consumption figures, considering mixed driving conditions as well as average driver behaviour.

At the same time, in Provinces where the majority of the population lives in large urban centres (e.g. Ontario) vehicles are driven more under city-driving conditions rather than highway-driving conditions. In light of this fact, the percentage of city versus highway driving has been adjusted to a 60/40 city/highway split. On the other hand, for the Territories, a reversed 30/70 city/highway split was factored in, due to the predominantly rural character of the Territories and long distances to be covered.

The following table gives average fuel consumption figures by class of vehicle, in litres of gasoline per hundred kilometres:

Fuel consumption
(l/100 km)

Compact

Mid-Size

Minivan

Crossover

SUV

Truck

Weighted average

Provinces

7.8

8.8

11.6

10.2

12.8

-

9.5

Territories

-

-

-

10.2

12.8

14.2

12.4

5.1.3     Calculation of fuel expenses

Based on an average of 20,000 kilometres per year and following the methodology described above, the study calculated average costs, per Province or Territory, for all vehicles under study. These numbers were weight-averaged according to population to yield individual fuel costs figures for each Province or Territory.

Fuel contributes on average $0.122 per kilometre to total operating costs, ranging from $0.105 in Alberta to $0.183 in the Yukon Territory. At the present time there is no indication that fuel prices will change considerably for the next three months. However, any changes will be reported in the next Fuel Update report.

5.2     Vehicle Maintenance Expenses

In order to keep a vehicle in proper running condition and respect all driving safety requirements, a vehicle must be adequately maintained. Vehicle maintenance involves the following:

5.2.1     Preventative maintenance

Preventative maintenance includes, but is not limited to, the following:

Costs of preventative maintenance were estimated based on previous studies performed for other clients as well as through consultation with specialized garages and qualified mechanics in order to establish frequency and costs for parts and labour. Sales taxes apply to all preventative maintenance costs.

5.2.2     Projected costs of repairs not covered by manufacturer warranty

Since the current study is considering retention periods of four and five years, a certain cost for projected repairs must be taken into account. Repairs due to accidents are covered by insurance and are reflected in insurance premiums costs. Most manufacturers offer warranties of up to 3 years or 60,000 kilometres (with the exception of Kia, Hyundai and Volkswagen, which offer longer warranties). Beyond this period or mileage any mechanical system that breaks down will incur a direct cost to the owner.

In order to estimate these potential costs, we have consulted with specialized garages in order to estimate the frequency as well as the cost of such repairs. Estimated costs include both parts and labour. Sales taxes subsequently apply to all repair costs.

5.2.3     Tires

The various vehicles under study have different tire requirements, mostly due to different rim sizes. All new vehicles come with a set of standard all-seasons tires. However, if only one set of tires is used, they wear out and need to be replaced, on average after 60,000 kilometres. This implies that at least one new set of tires must be purchased for both four and five year retention periods.

For the purpose of this study, average all-seasons quality tires were considered. Costs of tires vary between $600 and $1,200 for a set of four, mainly depending on the type and tire size.

5.2.3.1       Adjustments for Quebec and British Columbia

The Province of Quebec mandates the use of winter tires for all light duty vehicles, for the period between December 15th and March 15th. In order to reflect this requirement a 50% increase in cost of tires was factored into the calculations. This accounts for purchasing an additional set of winter tires while offsetting the need to purchase another set of all-season tires for the four-year retention period studied but not necessarily for the five-year period.

In British Columbia, certain roads, especially in mountainous areas mandate the use of winter tires, usually between October 1st and April 30th. A 25% increase in costs of winter tires was factored in the calculations to account for this requirement, in order to reflect the fact that winter tires are only used by a certain portion of vehicles registered in this Province.

5.2.4     Miscellaneous maintenance expenses

There are other common expenses related to maintaining a vehicle that do not fall under the previous three categories but which are necessary for safety as well as aesthetic reasons. The present study continued along the same lines as the previous study and allocated a $10 per month allowance for miscellaneous costs such as windshield washer fluid, occasional car wash and polish, light bulbs etc.

5.2.5     Total costs related to vehicle maintenance

Total maintenance costs were calculated for every Province and Territory. Costs are higher for Quebec and British Columbia mainly due to winter tire regulations. Costs for the three Territories are also higher primarily due to the extra equipment needed to support driving conditions in the North, as detailed in Section 6. Costs are lower for the Province of Alberta mainly due to the fact that there is no provincial sales tax applicable.

The following three tables give a full break-down of vehicle maintenance costs in dollars per kilometre, by vehicle class as well as four and five year retention periods, split by preventative maintenance, repairs, tires and miscellaneous, as well as weighted averages according to sales:

Preventative
Maintenance

Compact

Mid-Size

Minivan

Crossover

SUV

Weighted average

4 -yr ownership

$0.046

$0.047

$0.048

$0.048

$0.050

$0.048

5 -yr ownership

$0.054

$0.056

$0.059

$0.056

$0.062

$0.056
           

$0.052

 ---

Repairs

Compact

Mid-Size

Minivan

Crossover

SUV

Weighted average

4 -yr ownership

$0.009

$0.009

$0.009

$0.010

$0.010

$0.010

5 -yr ownership

$0.024

$0.024

$0.025

$0.025

$0.025

$0.025
           

$0.018

 ---

Tires

Compact

Mid-Size

Minivan

Crossover

SUV

Weighted average

4 -yr ownership

$0.011

$0.014

$0.014

$0.015

$0.016

$0.014

5 -yr ownership

$0.010

$0.012

$0.012

$0.013

$0.013

$0.012
           

$0.013

 ---

Miscellaneous

Compact

Mid-Size

Minivan

Crossover

SUV

Weighted average

4 -yr ownership

$0.007

$0.007

$0.007

$0.007

$0.007

$0.007

5 -yr ownership

$0.007

$0.007

$0.007

$0.007

$0.007

$0.007
           

$0.007

6       Operational Costs in The Territories

In order to more accurately reflect actual costs of operating vehicles in the three Canadian Territories, the analysis required a different approach than for the ten Provinces. The Territories are mostly rural and driving conditions are harsher. This means that prevalently larger vehicles are used and the costs for maintenance, tires, fuel and specialized equipment are higher.

This section describes the methodology used for the Territories as well as highlights where it differs from the methodology used for the ten Provinces.

6.1     Vehicle Selection for the Territories

The nature of the climate and road conditions in the three Territories is considerably different than for the ten Provinces. Due to this fact, as well as the harsh winter driving conditions that drivers face in the North, the automotive landscape has a different make-up, and as a result trucks and SUVs are significantly favoured over compact, mid-size sedans or minivans. Following this rationale, the present study selected three vehicle classes that were deemed representative for the Territories:

The study kept the vehicles studied in the Crossover and SUV categories, added the five most sold pick-up trucks in the Truck category and eliminated the Compact, Mid-size and Minivan classes.

Following is a table listing the vehicles studied for the Territories, as well as the class they belong to and the weight assigned to each according to recent Canadian sales:

Make

Model

Class

Weight

2014 Model Year Pricing

Ford

Escape

Crossover

6.9%

$30,799

Honda

CR-V

Crossover

5.4%

$29,985

Toyota

RAV4

Crossover

5.3%

$27,680

Dodge

Journey

Crossover

4.7%

$34,390

Hyundai

Santa Fe Sport

Crossover

4.1%

$32,159

Chevrolet

Equinox

Crossover

3.1%

$30,095

Ford

Edge

Crossover

2.9%

$38,214

Mazda

CX-5

Crossover

2.8%

$29,790

Nissan

Rogue

Crossover

2.6%

$28,528

Kia

Sorento

Crossover

2.4%

$30,360

Jeep

Wrangler

SUV

3.4%

$27,490

Jeep

Grand Cherokee

SUV

1.9%

$41,690

Ford

Explorer

SUV

1.7%

$34,599

Nissan

Pathfinder

SUV

1.1%

$33,558

Honda

Pilot

SUV

0.9%

$39,685

GMC

Acadia

SUV

0.7%

$41,095

Chevrolet

Avalanche

SUV

0.6%

$49,495

Chevrolet

Traverse

SUV

0.5%

$37,895

Buick

Enclave

SUV

0.5%

$46,395

Ford

Flex

SUV

0.5%

$40,699

Ford

F-Series

Truck

19.5%

$40,514

Dodge

Ram

Truck

13.5%

$42,190

GMC

Sierra

Truck

7.4%

$42,295

Chevrolet

Silverado

Truck

6.1%

$40,710

Toyota

Tacoma

Truck

1.7%

$30,950

It should be noted that by changing the vehicle classes and models studied for the Territories, overall ownership costs are higher than for the Provinces as well as vehicle maintenance costs.

6.2     Other Operating Cost Adjustments for the Territories

The methodology to calculate fixed and variable expenses for the Territories remained the same as for the Provinces. However, by virtue of using different vehicle classes, total costs are higher than for the Provinces.

The Territories usually display more elevated costs for fuel due to the higher costs of transportation and servicing. At the same time, by adding pick-up trucks and eliminating the more fuel-efficient compact and mid-size classes, overall fuel consumption is also higher than for the ten Provinces.

In terms of vehicle maintenance, adjustments were also made to reflect the extra equipment necessary for safe driving in the North, as well as use of special off-road or winter tires. The extra equipment that most acutely influences total maintenance costs for the Territories includes, but is not limited to, winter preparation packages, specialized tires, off-road survival kits and specialized signalling and communication devices, use of special engine oils and other freeze resistant liquids. For this reason, preventative maintenance and repair costs were increased by 25% and tire costs by 50% for the Territories.

7       Operating Cost Summary and Recommendations

We recommend continuing the practice of reimbursing government-requested personal vehicle use on the basis of both fixed and variable expenses, referred to as the Travel rate. At the same time we recommend that reimbursement of employee-requested personal vehicle use be based only on variable expenses, referred to as the Commuting rate. This is consistent with current practice. All values have been rounded up to the nearest 0.5 cents.

The following table provides calculated evaluations for both Travel and Commuting rates, as well as rates determined in previous studies, for comparison.

2014 Reimbursement Schedule (in dollars per kilometre)

Province/Territory

Travel Rate

1 Oct 2013 Update Travel

Annual (Jan 2013) Update Travel Rate

Commuting Rate

1 Oct 2013 Update Commuting Rate

Annual (Jan 2013) Update Commuting Rate

Alberta

$0.445

$0.515

$0.510

$0.185

$0.150

$0.145

British Columbia

$0.485

$0.510

$0.505

$0.215

$0.170

$0.165

Manitoba

$0.480

$0.475

$0.465

$0.200

$0.155

$0.150

New Brunswick

$0.505

$0.495

$0.500

$0.210

$0.165

$0.165

Newfoundland and Labrador

$0.530

$0.530

$0.530

$0.215

$0.175

$0.175

Nova Scotia

$0.510

$0.510

$0.510

$0.215

$0.175

$0.175

Ontario

$0.570

$0.550

$0.550

$0.210

$0.165

$0.165

Prince Edward Island

$0.500

$0.505

$0.505

$0.215

$0.165

$0.160

Quebec

$0.515

$0.570

$0.570

$0.225

$0.175

$0.175

Saskatchewan

$0.465

$0.455

$0.455

$0.200

$0.155

$0.150

Northwest Territories

$0.625

$0.585

$0.585

$0.285

$0.270

$0.270

Nunavut

$0.625

$0.585

$0.585

$0.285

$0.270

$0.270

Yukon

$0.635

$0.635

$0.620

$0.290

$0.280

$0.265

With the exception of the Provinces of Alberta and Quebec and the Northwest Territories and Nunavut, variations as compared to the Travel rates calculated in the previous-year annual report (published in January 2013) are within a 2-cent range. The rates for Alberta and Quebec have been reduced by 6.5 and 5.5 cents respectively, due mainly to insurance premiums that were assessed to be substantially lower than those listed in the previous year's report. The rates for the Northwest Territories and Nunavut have increased by 4 cents, principally due to higher estimated vehicle maintenance costs.

On the other hand, Commuting rates have seen increases of up to 5.5 cents per kilometre throughout Canada (with an average increase of 4 cents per kilometre) as compared to the rates published in the previous-year annual report (January 2013), due primarily to higher estimated maintenance costs as well as adjustments in fuel prices.