The vehicles in a typical vocational fleet are more than just cars, vans and trucks; they are important tools that employees need to support day-to-day business operations. A strategically developed replacement cycle is vital to ensuring these fleet vehicles remain on the road, helping to drive revenue rather than being sidelined due to unforeseen repairs.
Savvy fleets analyze their vehicles and operating parameters on a regular basis in an effort to replace the most critical vehicles in their fleet in a timely manner to help minimize downtime and total cost of ownership (TCO). Below is a brief overview of five variables to consider when conducting a replacement cycle analysis:
- Depreciation – To simplify, depreciation is the price paid for a vehicle, plus any acquisition costs, minus the resale value. And depreciation is often the largest cost of owning a vehicle as most units typically lose about 70 percent of the original value within six years of purchase.
- Maintenance & Repairs – Most vehicles are covered by manufacturers’ warranties during the first several years of their lifecycle which can significantly offset maintenance costs. However, maintenance costs tend to increase as the vehicle ages, possibly negating the potential savings achieved by keeping a unit in service longer.
- Downtime – This is more than just the cost of repairing a vehicle. Downtime also includes the cost of getting the vehicle to the repair facility, rental fees, administrative costs and most importantly, lost productivity.
- Cost of Money & Cash Flow – A fleet’s impact on a business’ cash flow – or the cost of opportunity – is also a key factor. For fleets that finance vehicles, the cost of money is the interest rate paid on the money borrowed. For fleets that purchase vehicles, it is the interest rate that could have been earned by investing money elsewhere.
- Fuel Spend & Insurance Costs – While fuel spend and insurance costs are lesser variables to consider, they should still factor into the overall analysis. New vehicles tend to be significantly more fuel efficient than older models but also cost more to insure since the risk of loss is greater.
A well-crafted replacement analysis will help you evaluate the best time to replace vehicles by highlighting the point at which a vehicle is no longer delivering optimal performance and will soon become a drain on the budget. By cycling-out a vehicle before it becomes a budget liability, you will minimize TCO and help to ensure your fleet remains operationally efficient.
To read more about replacement cycling and capital forecasting, be sure to download our free white paper.