Holding your horses?

In the time I’ve been in the commercial vehicle sales business, I’ve seen two schools of thought regarding the termination of fleet vehicles.

One school says that the most cost efficient method is a carefully strategized life-cycle for each vehicle. In this view all maintenance and repairs are prepaid and/or accounted for up front.Each vehicle is cycled out prior to warranty expiration. Low mileage vehicles have longer cycles and high mileage are moved out sooner. In either case there are no further costs after the initial acquisition, which can be cash,finance or commercially leased. At the termination of each vehicle a company plan accommodates disposal in several ways. They can be sold to employees who appreciate a known history and a balance of factory or factory extended warranty. They can be sold to the general public locally, advertised on a national website like trucktrader.com or sent to auction. In each case there is a cash out value that can be applied to the acquisition value of the replacement vehicle. Operator liabilities are minimized,operating costs become increasingly predictable acquisition cost declines.

In the second school are those who”drive em till they die”. Their view is that vehicles are costly and you need to wring the maximum use out of each one before they’re terminated. Most of the time there is little value,if any, left and it’s not unusual to have added repair costs to the initial acquisition value as well. Add in the increasing maintenance costs of older vehicles and you get a likely picture of cost over time. In most cases operators acknowledge a higher overall operating cost over fleets with fresher vehicles at work, but feel that they’re still ahead by lengthening their fleet cycle.In some cases vehicles are parked with sold signs and they can sell, however there is usually not much money flowing back to the business to offset the replacement vehicle cost.

A case can be made for either plan and given enough cash flow either can work. So why bother reviewing you plan? The only reason that may get your undivided attention is the cost of your plan in today’s market. This market is best characterized by class two work vehicles that can run $30,000 to $50,000 per unit. If you go back and look and your own records, these are vehicles that cost about 50 percent less just ten years ago. From that you can easily infer replacement costs going forward as almost twice the cost of current vehicles. Furthermore replacement parts costs are greater and some repairs today would have paid for half a vehicle not too many years ago.

Which plan is better? Everyone has their own business to manage and with it a view of how best to keep their fleet on the road. The only sure bet is look at your fleet life-cycle very closely to insure a managed cost going into each vehicle and to plan the whole life of each vehicle based on it’s particular use. That way no matter what happens, you’ll have the assurance of knowing that you minimized your cost per mile and protected your business from unanticipated fleet costs.

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