Running costs of a new car

[Tallow]

Hi guys,

I'm trying to price up the cost of setting up a branch office for our company out in the USA and one of the things I am struggling to get to grips with is vehicle operating costs.
Ideally, I'd like to arrange to lease a car (via the company), but I'm not sure how much to budget for things like insurance and any other regulatory requirements. Could any of you suggest how much I should plan to budget per year for overall car running costs for the lease of a new car (this is on the basis that a damn dirty foreigner like me will be the driver).

Thanks in advance.

[bridgdav]

Insurance will depend on what State you are in..
I am currently paying $1500 for 6 months in North Carolina. having 25 yrs experience in UK / EU without any claims.
They class me as a Novice driver here, starting again without any no claims etc... and as a 17 yr old.


Lease deals through the company will be high Approx $600 mnth - limited miles.
The private deas on offer via internet or TV are hopeless as you are a newby without any credit history etc.. Even if the company underwrites the lease - they will not finance you on it. Only the company - making it a businewss lease, then double the price.

It is a real minefield.. I have been here 10 months and have only just got a car sorted. Ny company has been providing me with a Rental at $1,000 / months since I got here..!

Good luck.

[Tallow]

Yowza! Thanks for the advice. I must admit that as soon as I started the process of determining costs, the first thing I headed for was car costs to see if I could get something with an inappropriately big engine.

Sounds like it's a pretty pricey situation though... perhaps I need to rethink (and to work out how much all the other stuff is likely to cost, given it will probably be way more).

Hope you're enjoying NC. I've always found it a really nice place on the few occaisions I've been there. I've spent quite a bit of time in Greenville, SC and love it there.

[Matt Harper]

I suspect that you will find that vehicle operating cost will be insignificant in the grand scheme of things, regarding the set-up of a US subsidiary.
Why lease, rather than buy a vehicle? Leasing really complicates things - and may not even be an option for a new (creditless) entity.
If your start-up has the substance to support a managerial visa petition (L1-A, I would assume) vehicle cost will be a minor item on a big list of expenditure.

[Tallow]

Matt Harper said:

I suspect that you will find that vehicle operating cost will be insignificant in the grand scheme of things, regarding the set-up of a US subsidiary.
Why lease, rather than buy a vehicle? Leasing really complicates things - and may not even be an option for a new (creditless) entity.
If your start-up has the substance to support a managerial visa petition (L1-A, I would assume) vehicle cost will be a minor item on a big list of expenditure.

Hi Matt,

Yeah I agree it pales into insignificance compared to anything else. To be honest, I just started out with that as the "fun" part of the process though. I've no doubt it's a challenging road ahead. We've set aside a reasonable budget to get things started. It sounds like the visa thing could be a bit of a pain, but you're right in that I'll be going in a management capacity (I'm a director of the UK company) and we'll be employing US citizens so hopefully that will help.

I note from other posts you have extensive experience on this sort of thing. Do you have any suggestions of good starting points for this? Ideally we'd like to be up and running out there in 6 months or so, but I don't really know if this is feasible. I've spent quite a lot of time in the USA over the years, but generally never for more than 2 or 3 weeks at a time. It's pretty daunting (albeit exciting) and I really am starting to wonder what I've let myself in for!

Edited by Tallow on Monday 28th November 10:22

[jeff m2]

I assume you have no problem with the actual servicing cost etc.
Dealer hourly is around $110/hr but warranties are very good here.

A lease is calculated on the pre calculated depreciation for the lease term plus interest.(plus about $400 misc)
I would estimate about $425 for a 30K car over 36 months.
There is usually a per mile excess if you exceed the mileage quota (of maybe 36K)
Leases are usually extendable.
Advantage of a lease over purchase is that for a business it is fully deductable.
Non of that deducting the interest portion and depreciating the pricipal.

Insurance, varies tragically State to State.
NJ is bad, but if you tag the car with domestic plates and not commercial than the savings are huge. Appears to be legal as everybody does it.
Example; same vehicle about 6 years ago was just over 4K. I sold it to myself and re tagged it, the insurance dropped to 1K instantly.
I would not however, not declare business use on that insurance. It is typically 30% more expensive but better to be properly covered.
Most business owners I know have at least one car on their books, most have a domestically insured car too.
That way there is no question whether your business car is for personel use and remains fully deductable for insurance, fuel sevicing and repair.
Arse covering 101.
No need for mileage logging (assuming you own the business) as the car is for business use only

I think I may have to delete this after you've read it, I'd hate for this to be presented to me at an audit.

ETA did'nt see the big engine bit, that $425 could reach 6 or 7.

Edited by jeff m2 on Sunday 27th November 21:13

[Tallow]

Thanks for the detailed information Jeff - much appreciated. Feel free to delete too!

(In fact, I might remove the bit about budget for setting up, prob best not to post things like that on an internet forum either)

Sounds like it might be hard to justify buying something mad as a company vehicle then... Looks like I do have a good excuse to buy myself a weekend car this way though.

[Matt Harper]

Tallow said:

Do you have any suggestions of good starting points for this? Ideally we'd like to be up and running out there in 6 months or so, but I don't really know if this is feasible. I've spent quite a lot of time in the USA over the years, but generally never for more than 2 or 3 weeks at a time. It's pretty daunting (albeit exciting) and I really am starting to wonder what I've let myself in for!

Edited by Tallow on Monday 28th November 10:22

The thing to consider right now is the business plan - which in turn leads to the visa. So everything hinges on this. An L1 start-up requires a very, very thorough plan that has to be both ambitious enough to satisfy USCIS in terms of performance and the company's ability to employ local labor - and also coldly realistic - important, because they are going to hold you to this. At visa renewal time, they will pull out your plan and compare it to your actual performance - and you have to meet or surpass your plan objectives to get a renewal.

The plan ideally shows 5 year projections. It also shows your existing US client-base (names them) if you have one, or clearly demonstrates how you are going to acquire US accounts. It needs to provide chapter and verse on the UK entity, in terms of company history, previous 5 years P&L and future projections - 5 years hence. It needs to demonstrate that UK entity will continue to thrive without you being there - so needs resume of all of the UK directors.

Your resume needs to show a track record of management achievement in the petitioner business and the industry you are in. The more scientific/technical/leading edge your industry is, the better, though this in itself is not a deal-breaker. You must have been employed by the petitioner for at least 12 months in the previous 3 years. Academic qualifications help, but are not demanded.

Being realistic means it's OK to make some initial losses, in fact USCIS expect it and tend to be quite suspicious of plans that suggest immediate positive numbers, however, the parent (UK) company must stand up to serious scrutiny, as well as the subsidiary. Your plan must demonstrate that UK entity has the financial power to 'carry' US entity until the training wheels come off. This is a massively important aspect that stymies lots of L1 applications.

As for the L1-A beneficiary (you) - this must be shown to be an executive/managerial role. If there is any hint of your responsibilities including packing/shipping/shop-floor work/door-knocking/account management etc., your petition will be knocked back. You will be managing your people, directing the business, planning and initiating process. You will also be doing that now in UK entity and have a management heirarchy, showing you near the top.

The company has to quickly start hiring USC's and have a real place of business (i.e. not a work-from-home business), so you need to commit to a commercial business purchase or lease, prior to the petition's service - it is reasonable to sign a lease, conditional on the granting of the visa.

Commercial and personal credit is going to be an issue at the outset. Your company is going to have to provide hefty deposits just to get the power and the phones switched on - because nobody is going to be offering you a break in these tough times here. As an aside, I admire your bravery in doing this - now is very difficult for any business in the US. Also consider that where you locate the company may have some bearing on USCIS enthusiasm to grant you the visa to do it. Areas of high unemployment and commercial decay may get more sympathetic scrutiny.

Wherever you end up and in whatever industry you are in, be prepared for very probing analysis of your petition. USCIS wheels grind slowly and you may receive several Requests for Evidence, requiring you to substantiate claims made in the petition. Even with Premium Processing ($1000 extra)this will take several months - but they will start work on it a lot quicker than without.

You need a competent and experienced attorney to do this. I'd be happy to make a recommendation if you haven't got to this step yet.

Good luck and remember - the business plan is the keystone of the entire process.
Matt

[jeff m2]

Tallow said:

Sounds like it might be hard to justify buying something mad as a company vehicle then...

No not at all, you can have whatever you like, the only restriction would be budget from your CFO. The comfort/speed level of travelling from A to B for business is not restricted.

I assume you are aware a company vehicle isn't really only used for business.
I personally have a Nissan Pathfinder, a year round vehicle, but my friend just chopped in his SLK, believe it or not that was a pool car. Other had a Turbo Porsche 'til his son creamed it at Millville.
An added note. Employees don't have a problem with bosses having a nice car here. In fact, I think they would prefer to work for somebody with a decent car. At least they know the company is profitable and therefore their employment is more secure.
That is of course not actually true , but there does not appear to be jeolousy with regard to car choice. Admiration is the more common emotion.

There is of course one common sense restriction, a 15 year old supercar that is within budget on cost, but is a massive repair liability. (25K clutch job etc.)
That would not float with the money guy.

Hope this puts you back on track pun intended.

Camaro SS maybe

[Matt Harper]

Tallow said:

Sounds like it might be hard to justify buying something mad as a company vehicle then...

Concur with Jeff - I had a convertible Corvette.

[Tallow]

Thanks for the advice guys, it really is appreciated.

Hopefully the visa aspect won't be too much of an issue - I've been with the company since it started and it would be relatively easy to demonstrate that it was critical for a senior staff member to be out there for setup, particularly one with relevant technical skills that relate to what we do in addition to commercial experience. I'd imagine that I would probably be there for maybe two years, until we have created a sustainable structure of its own (although the best laid plans and all that). The point about premium processing is well noted though - I'll make sure we plan for that.

We've got a pretty robust overall (i.e. global) business plan, but I must admit the individual plan for the USA is more of an outline in terms of our anticipated revenues, staffing requirements and so on. I suppose we will probably have to elaborate on this somewhat, but hopefully most of that could be replicated from the overall BP anyway. It's not something we're intending to do by halves if you see what I mean: I.e. we don't intend to just have a "virtual office" or something like that. This is intended to be a real presence on the basis that a lot our revenue already comes from the USA.

One other thing I'm musing on is location. I want to choose somewhere with good transport links, relatively low costs and good weather. My thinking is either Atlanta or Dallas. Anyone else have any good suggestions?

Car wise, I think you're right on the car front Jeff - buying one is probably a much more sensible option. Sadly it does dramatically decrease the likelihood of it being any good judging by the inherent crapness of all of my colleague's existing cars!

I appreciate your comment about it being brave Matt... nothing ventured nothing gained in my opinion. We're make high tech products for the manufacturing industry so we are actually in a fairly strong position at the moment (in comparison to a lot of industries at least). Hopefully that will put us in a strong position but I guess in terms of overall costs, the risk is relatively low up until the point we have to start employing US staff... Then things sound more complicated!

[Matt Harper]

You sound like you are thinking this through properly, which is refreshing, because you need to have a defined strategy in order to be successful. Your petition business plan certainly does need to be much more comprehensive than an outline - a reputable US immigration attorney will advise you on precise requirements, though I suspect that USCIS never threw-out a petition because it was too detailed.

Do you anticipate manufacturing anything in the US? This can make a significant difference to the way you might wish to appoach the concept.

As for location, there is a logically strong argument to be close to your customers - though some states are potentially more troublesome from a labor relations perspective, than others. MA, MI and NJ spring immediately to mind, in terms of heavily unionised workforce. Dallas TX gets hotter than the very gates of hell in summer, but oil and semiconductor industries are highly developed and progressive. Atlanta is one of my favorite US cities, but finding motivated staff may prove as difficult for you as it did for me, here in FL. If you are importing product by sea from UK, close proximity to the eastern seaboard might be prerequisite - though staying in the sunbelt narrows your options considerably (and is why we chose Florida when I did what you are contemplating).

Finally, I would suggest you start researching employer obligations and rights before you get much further into this. I made some serious miscalculations, based on pure ignorance when I established a business over here that required lots of employees off the bat. Look closely at payroll taxes, workmans comp., healthcare, social security/medicare and unemployment payment provision. Business liability insurance is another scary subject to keep you awake at night too!

Don't be too disheartened though - if you do this right, plan properly and do your research, the North American market is so big that you have to be very unlucky or stupid to fail - and the work hard/play hard ethic is very much alive and well here.

Very best of luck to you!

[Famous Graham]

What he said about premium processing.

Not that I'm bitter.

[Tallow]

Thanks again for all of the positive and genuinely helpful responses.

Things are chugging along with progress here, so I'll let you know once something more substantial happens. I'll definitely plump for the premium processing though - and it will be interesting to see if whoever we appoint as an immigration attorney mentions it!

[GavinPearson]

Tallow - while most of what Matt says I normally agree with 100% I think you need to consider who your customer base is and where they are located.

It's a bit like a new American oil services company coming to Europe and saying they want to live in warm weather, but if the customer base is in the North Sea then having the sales office in the French Riviera isn't going to be very practical - but Aberdeen might be.

Once you start manufacturing your own equipment you then need to look at the levels of incentives, talent pool etc available that are capable of doing the work. If you wanted to make industrial automation equipment it might be best to do it in an area where numerous people are employed in that line of work. And don't forget it's the overall cost of doing business that makes the difference - develop a costs model that works in all the possible areas you could set up before deciding on any particular area.

[Tallow]

GavinPearson said:

Tallow - while most of what Matt says I normally agree with 100% I think you need to consider who your customer base is and where they are located.

It's a bit like a new American oil services company coming to Europe and saying they want to live in warm weather, but if the customer base is in the North Sea then having the sales office in the French Riviera isn't going to be very practical - but Aberdeen might be.

Once you start manufacturing your own equipment you then need to look at the levels of incentives, talent pool etc available that are capable of doing the work. If you wanted to make industrial automation equipment it might be best to do it in an area where numerous people are employed in that line of work. And don't forget it's the overall cost of doing business that makes the difference - develop a costs model that works in all the possible areas you could set up before deciding on any particular area.

Hi Gavin,

I agree with what you're saying entirely - and in fact I've had this conversation with quite a few people to get a good idea of the best location. However, our customer base is aerospace and automotive OEMs and their tier one suppliers. This means that the relevant industry clusters we target are pretty diversely spread. For example, one could argue that Seattle would be a good idea as that's where Boeing is. Similarly, Dallas/Fort Worth could be a good option as that's where Lockheed Martin's HQ is (and in fact one we're still considering as they're our biggest US customer). Then again, one could argue that Detroit would be a good idea as the big three are there. The list goes on, as I'm sure you're aware.
Additionally, we currently have distributors in four locations in the USA (PA, MI, SC and CA). Our intention is for our operations to support their sales activities and foster direct relationships with our customer base to ensure that we make the most of all opportunities out there. Given that diversity, my take was that the most beneficial thing we could do would be to be located near a major airport hub to allow domestic and transatlantic travel to be conducted as easily as possible. On top of that, another consideration was time zone - the East Coast is much easier from the perspective of communicating with the UK.
The reason I discounted the north east (NY, Detroit, etc) was two fold: Firstly, the weather might make travel challenging and secondly, it would be somewhat more expensive. I do admit I like the south a great deal, which probably influences me somewhat, but I've tried to be fairly objective. Chicago arguably would also have some benefit in as much as the UK Consulate has a large presence there, so we would get a lot of UK support, but to me that's not a compelling enough reason to choose that location.
In terms of our long term plans, we don't intend to do any manufacturing in the USA (ours is a low volume, high value type of industry which means there would be no benefit to having more than one production facility) but we would intend to have local service and support capabilities. However, this is likely to be a small scale operation, and would continue to be supported by the UK for some time. Our expecatation is that we would only be employing 1-2 extra staff over the first year to 18 months. This is, esentially, just a branch office for now.

I'd genuinely be interested to hear people's suggestions on locations though - I've asked a lot of people's opinions and have received a multitude of suggestions based upon ease of doing business, perceptions of area, weather, employment conditions and a whole host of other reasons. There doesn't appear to be an obvious answer as to the perfect location from what I can tell.

[jeff m2]

Airline hubs.
Look at places that have a good domestic carriers home base.
(and direct UK flights)

[GavinPearson]

Tallow - In over 12 years of being in the Detroit area I would say it has been very rare to have had any issues travelling in the snow - they are set up to operate 365 days a year and they do. There is a Delta hub here and flights to the UK go on a daily basis. There is a container port and all sorts of transport facilities set up primarily to service the automotive and defence industries. If you are in the automation business then there is a lot to be said for being here - here is the local trade group:-
http://www.automationalley.com/
I'm just suggesting you don't dismiss a potential good deal and compound the problems by needing to travel, therefore eroding your profitability.

[Tallow]

It's a fair point - I guess I've had my fingers burnt in Chicago and New York a good few times over the years when trying to fly somewhere which is why I am a touch cautious. I'd agree that Detroit is definitely a good place to go if focussing purely on the automotive sector, and the fact it's a Delta hub (and there are direct flights to Heathrow) is a good thing (as is that really cool train inside the airport terminal!) That said, and don't take this the wrong way, I'm not really a big fan of the greater Detroit area. There are some nice surrounding places (like Ann Arbor for example), but I quite like the idea of being somewhere that has some downtown life - something that Detroit definitely doesn't have from what I've seen. I'll admit that I'm no expert on the area generally though, so I'm quite happy to be corrected on that.
I know that in itself is not a good business reason to make a choice, but let's not forget that I'm leaving literally everything (and everyone) in my life behind to do this. That's no small undertaking, so from my perspective it has to also be somewhere I really want to live for the venture to succeed too. Thanks for the link to Automation Alley, incidentally - trade groups like that are definitely a really good thing, and certainly worthwhile in my experience.

I'd thought along the lines of Atlanta because that too is a Delta hub. There's not as much industry there though (although the HQ of Gulfstream is in Savannah). As Jeff also pointed out, local transport links are important... I suppose I'm resigned to the fact that I'll have to spend a lot of time on the road wherever we choose, given that we have customers in literally all corners of the country already. Similarly, with DFW being a big AA hub, there could be some mileage in being in that area, but ATL does have the benefit of being on Eastern Time, so one hour closer to the UK which will help coordinate activities with things happening back here in the UK.

[unrepentant]

You require a higher credit score for a lease than you do for a purchase. As a new resident you will not have any sort of credit score and will struggle to finance anything, let alone lease. America runs on credit scores and getting credit without one is tough. I owned a house with no mortgage and 3 cars with no lien as well as other not insignificant assets and the cell phone company and my cable supplier still wanted a deposit! Even after living here for 20 months I'm still a credit "ghost". I just bought a new car and thought I would take the opportunity to take out a small loan to establish credit. Despite working indirectly for the manufacturer and only wanting to finance 20% of the value we still had to pull strings to get me approved using manufacturer rates because I have no credit history in the US.

It also doesn't help to use your company. Most banks are not interested in lending to companies, even established profitable ones, without a PG. Your best bet is to pay cash for your first car. As has been said, insurance varies depending on location. I found it slightly higher than the UK and again it depends on your credit. No credit = higher insurance. Gas is currently $3.30 a gallon (US). Premium is 20c more. A good radar detector is about $500 and it is money well spent.