When is maintenance on older fleet vehicles no longer a smart investment? Although there is plenty of discussion about the ideal tipping point in the life cycle for fleet assets, the honest answer is: It depends.
The theory behind the fleet life cycle strategy is to replace a vehicle before maintenance costs and downtime outstrip the benefits of keeping the asset. The cost/benefit analysis will vary from fleet to fleet, but creating an effective plan always requires the right process, the right variables, and the right technology.
With an enterprise asset management (EAM) system, fleet managers can gather data on each asset, analyze the data, then determine an ideal vehicle life cycle strategy, based on a clear and unique value proposition. Without detailed data analysis, you risk overspending on maintenance or running your fleet into the ground before you're ready to invest in replacements.
The key to a realistic life cycle strategy is to build it with your own real-world fleet maintenance data.
Benefits of a vehicle life cycle policy
As a fleet manager, you have a large impact on your company’s bottom line. Even if your company isn’t strictly a fleet operation, if your fleet operations are efficient and cost-effective, that goes a long way to improving your profitability.
Adopting a good vehicle life cycle policy is a big part of that. Some of the biggest benefits are:
Predictable fleet expenses
Improved customer goodwill
Better brand image
Increased driver retention
More manageable expenses
Almost any CFO or accounting department would much prefer predictable, regular expenses over unknown costs. With a strong vehicle life cycle policy, you can accurately plan for repair, fuel, operation, replacement expenses, and more.
One of the biggest expenses for any fleet is vehicle maintenance and unexpected breakdowns and repairs can add up pretty quickly. One of the most cost-effective ways to maintain your vehicles is with a robust preventive maintenance strategy backed up by good fleet management software.
The whole idea of preventive maintenance is to use predetermined metrics to predict when your vehicle when needs maintenance. For example, replacing the oil at every set number of miles driven. You can set your fleet management software to notify your technicians when it’s time to replace the oil with plenty of time to get it done before it becomes a more costly issue.
You can also track your maintenance and repair history over time so you can find gaps in your operations and cut down on unnecessary expenses. Having an in-depth record of your vehicle history can help you plan more strategically for your vehicle’s life cycle and save you a lot of money over time.
Generate more goodwill with your customers
As a fleet operator, no matter who your customers are, they expect your drivers to show up on time. Would you have much faith in a plumber if he showed up late in a totally run-down and beat-up vehicle? First impressions are incredibly important but even if it’s not your first time visiting this customer, if you consistently show up late, they’ll quickly find another place to take their business.
The financial costs of a breakdown are more than just the cost of repairs. If your vehicles are old and unreliable, you may feel like you’re saving money by not buying newer vehicles, but you’re losing money on missed deliveries, unsatisfied customers, and loss of reputation. Developing and implementing a strong vehicle life cycle policy keeps your drivers on time and your customers happy.
Improve your brand image
As any fleet operator knows, your vehicles are mobile billboards for your company. While most people don’t expect every vehicle you have to be brand new, customers are much more likely to trust a company whose vehicles look, at the very least, well maintained.
If someone on the road is looking for the service you offer, they’re much more likely to give you a call if it looks like you take yourself and your operations seriously. Keeping your vehicles regularly updated gives you a strong public-facing image and helps you build trust among future customers.
Keep your driver’s more engaged
No one likes using old, broken-down equipment to do their job and the same goes for your drivers. If your team is forced to drive around in old, beaten down, uncomfortable clunkers, they’re not likely to stick around for long. For your drivers and operators, their company vehicle is their number one tool and giving them reliable, up-to-date equipment can help them feel valued and appreciated.
With a strong vehicle life cycle program in place, even if they don’t always have the newest vehicle in the fleet, they can feel confident that you’re willing to invest enough in them to make sure they have reliable equipment. As the service industry continues to struggle with finding and retaining good talent, having an updated fleet might give you the upper hand in keeping your team around.
Reduce vehicle accidents
Every year vehicles are being released with more and more safety features. Since 2014, the U.S. Department of Transportation has required all new vehicles to have a backup camera installed. Many manufacturers are partnering with tech companies to improve hands-off capabilities to help keep driver’s attention on the road.
If you’re regularly updating your fleet you can take advantage of these newer features to not only keep your drivers safe but also cut down on unexpected costs from accidents. Many insurance companies will also give you a discount if your vehicle has updated safety features.
Creating a fleet vehicle replacement program
When it comes to timing vehicle replacements, you should create an approach that meets your current and future needs. Your approach also must be based on the variables that have the most influence on your business outcomes.
In general, there are three basic vehicle replacement strategies that you can consider.
1. Vehicle age and/or mileage
In this approach to vehicle replacement, organizations set a predetermined age or mileage endpoint for vehicles, such as six years or 250,000 miles. This is a common method used in many public and private fleet operations.
Pros: It’s the simplest measure to implement, and it removes subjectivity from the life cycle decision.
Cons: Looking at years or miles on the road may not result in the most economical course of action because it does not consider other important data points. For example, some fleet vehicles are historically more reliable and can be kept in service longer without reaching the life cycle tipping point.
2. Life cycle cost analysis
In this approach, organizations analyze individual assets’ total ownership and operating costs. This life cycle approach can be used to set up guidelines based on vehicle type and to evaluate whether or not individual vehicles should remain in service.
Typical parameters used in life cycle cost analysis are vehicle purchase cost, maintenance expenses (including reactive and preventive maintenance), amount of miles traveled or hours used per year, downtime costs, fuel expenses, annual depreciation, obsolescence costs, and salvage value.
However, also keep in mind that the more specialized a vehicle is, the more likely you will need to keep it in service for a longer period of time. Replacement costs, in this case, are as much about the sticker price as the time to acquire and onboard the new asset.
Pros: This approach is comprehensive and flexible.
Cons: This analysis requires a number of quantifying parameters, such as downtime and obsolescence, that can vary widely. You probably won’t arrive at a one-size-fits-all rule for determining replacement triggers.
3. Cost threshold analysis
In this approach, organizations replace vehicles when the cost to repair them exceeds an established threshold amount. Determining the point at which repair costs exceed vehicle value includes examining historical trends in repair costs over time. Common thinking is that any vehicle with maintenance costs that are 30% or more of the vehicle’s residual value should be assessed for replacement.
Pros: With good data analysis, you gain the opportunity to optimize both vehicle life and maintenance costs.
Cons: Even if you closely monitor maintenance and repair expenses, there are certainly situations in which expenses may unexpectedly exceed a vehicle’s worth.
Variables to track
Whichever approach your organization takes to arrive at your fleet life cycle strategy, you’ll need robust vehicle data and the ability to analyze it. With the right software platform, fleet managers can evaluate their data in increasingly granular ways to gain actionable insight that leads to better decisions. As a result, you can optimize both the cost of operating a fleet and the long-term value the fleet delivers to the operation.
Some essential metrics to consider include the following:
Mileage – How many miles have your vehicles logged? According to the Federal Highway Administration, the average Class 8 truck travels more than 60,000 miles per year. And if your fleet includes off-the-lot passenger cars, Consumer Reports indicates the average vehicle will last a total of about 150,000 miles.
Cost per mile – How much do you invest in your vehicles for every mile they are driven? Data included in the calculation of vehicle operating costs per mile includes fuel and maintenance costs, along with ownership costs such as insurance, registration, taxes and fees, depreciation, financing, and tax credits. Review cost per mile data often because the inputs — especially fuel costs — can vary from month to month.
Vehicle history – What is the complete history and status of each of your fleet vehicles? A crucial step in maximizing the life of any vehicle is understanding its history. This should include details about mileage, fuel consumption, repair history, inspection history, compliance issues, and more.
Budgets – Tracking vehicle expenses can inform future budget allocations. However, many fleet managers are tasked with the responsibility of building a solid business case for any new budget request. Here, detailed vehicle tracking data can illustrate the financial impact of a reduced or expanded budget and make a case when more funds are needed.
Capital planning – What is your fleet capital replacement plan? When planning your fleet investment, consider whether your budget is used as a planning tool for the allocation of funding or if it’s used as a means to measure profit and loss in the big picture of asset management. The first category is generally used for municipal fleets, while the second is generally used for commercial fleets.
Vehicle compliance regulations – Running an effective fleet requires full compliance with regulations to ensure that your vehicles are safe and roadworthy. Areas to examine include: Driver Vehicle Inspect Reports, safety and risk mitigation, licensing, registration, permitting, and more. Your life cycle strategy must account for investments related to meeting regulatory measures.
Business goals – What is the purpose of your fleet? Every company has a vision and intent for its fleet. For example, you might run a small manufacturing operation, and you just need a few good vehicles that provide transportation between facilities. Or you might manage an extensive fleet of long-haul trucks that are the essential tools that keep your business running.
Leasing vs. buying vehicles
One of the big questions most fleet managers face is whether to lease or buy their vehicles. The idea of leasing vehicles hasn’t really been around all that long and many fleet owners and operators remain opposed to the concept on the idea that owning something is always better than renting it.
In some cases that’s true, but buying a car for yourself is quite different from buying a car for your business. Often leasing vehicles for your business can be a better deal in the long run. If you plan on updating your vehicles every five years or so, when you purchase them, you have to make a large up-front investment with the hope that you’ll be able to get some value for them in five years.
With the way cars depreciate, the chances of recovering any costs from the sale of your vehicles is very small. Odds are you’re going to end up losing money over the life of the vehicle. Plus, you’ve still got to deal with the maintenance and operating costs while you own it. With a lease, you have a set, fixed cost every month so you know exactly what you’re paying and can better plan for it. And you’re only paying for what you use.
One of the best fringe benefits of leasing is that when the lease is up and you’re ready to upgrade, you don’t have to deal with any of the hassles of trying to sell the old vehicle. You just head to your dealership and swap it out.
How EAM software can help
Regardless of your vehicle life cycle strategy, the right fleet maintenance software system will make the task easier, more efficient, and more effective.
Fleet management systems contain information about each vehicle in your fleet and become your single source of truth. An intelligent software system will leverage your real-world data to test the costs and benefits of each life cycle approach, helping you make the best decision on when to replace your fleet vehicles.
An intelligent vehicle maintenance software system for your fleet allows you to fully customize your approach, calculate your unique variables, and generate reports to share across the enterprise. With this flexibility, you can, for example, capture the cost of the parts and materials in your inventory that align with a particular vehicle that’s a candidate for replacement. This flexibility is critical to truly match outcomes to your vehicle needs, budget, and business goals.
An intelligent system also supports the implementation of best practices in fleet management, such as:
Collect data from the beginning of vehicle acquisition all the way through until its end-of-life, including resale.
Create and sustain a fleet maintenance strategy that aligns with your life cycle parameters.
Adjust your fleet management approach according to business intelligence gained from your data.
Using a modern fleet management platform to create a life cycle plan can be a significant undertaking — especially given the logistical complexities of today’s fleet environment — but the results are worth it. Remember that data is the key to defining the ideal moment to retire each of the vehicles in your fleet.
Schedule a free demo with us today, and we’ll show you how ManagerPlus Lightning can help you create the best life cycle strategy for managing your fleet.
Developing a good vehicle life cycle strategy for your fleet has a range of benefits from reducing costs to improving your customer image. The three main strategies for evaluating when to replace your vehicles are:
Life cycle cost analysis
Cost threshold analysis
The most effective way to gather and track the data you need to make informed decisions about when to upgrade your fleet vehicles is by implementing fleet management software as part of an EAM solution.