The cliché in fleet management is that trucks are kept in service until the wheels "fall off." In many cases, this isn’t too far from the truth. Typically, the more expensive the asset, the longer it will be kept in service, especially units upfitted with expensive auxiliary equipment. For example, service and utility fleets often have the highest capitalized costs, primarily due to upfitting, and tend to be those who keep their vehicles in service the longest.
In addition, economic pressures to realize short-term cost savings is another reason why replacements are deferred and cycling parameters are extended. For example, longer truck replacement cycles are more common for companies that self-fund vehicles, since deferring vehicle replacement is an easy way to stretch dollars in a constrained capital budget. In depressed business segments, such as construction, a number of companies are looking to cut costs by extending replacement cycles so cash flow can be diverted to other expenditures. However, as study after study shows, extended truck replacement cycles for short-term capital expenditure savings often have the unintended consequence of resulting in greater long-term expenses and degradation in worker productivity.
Calculating Lost Productivity from Downtime
Industry data indicates truck fleets in many vocational segments have, on average, steadily extended the months in service for their light- and medium-duty assets. Admittedly, dramatic improvements in truck quality has allowed this to occur, but, ultimately, components will fail or wear out. Without a scheduled truck cycling policy, catastrophic component failures are more prone to happen, which are invariably unbudgeted costs. In addition, the unpredictability of component failure results in increased downtime manifested in lost driver productivity, which Murphy’s Law ensures will occur at the worst possible time. Budgeting for maintenance not under warranty is unpredictable, especially if a company does not rigorously follow scheduled preventive maintenance intervals. An increase in downtime results in lost business from missed jobs or missed opportunities to make a sales call. A rule of thumb is that, on average, fleet downtime costs a minimum $100 per hour, typically much more. Downtime directly correlates with the severity of the maintenance issue, specifically, the number of hours the truck asset and driver are out of production. Critical component failures, which tend to occur more often with older assets, result in higher downtime costs per incident due to complexity of the repair and longer turnaround time. Maintenance costs also increase because the additional months in service often necessitates an extra set of replacement tires and additional PMs. Opinions vary as to the degree of financial impact of extended cycling, but there is one certainty, which no one disputes: maintenance expenses will go up. If they didn’t, the OEMs would not limit new-vehicle warranties by years and miles. The unknown is how much maintenance costs will rise as replacements are deferred. The magnitude of these additional maintenance costs to service aging assets is directly influenced by a company’s preventive maintenance program during the service life of the truck.
Another operating cost impacted by longer service lives is fuel consumption. As a truck ages, the performance of the vehicle deteriorates, degrading fuel economy. Industry research suggests older trucks can lower fuel economy by one percent or more per year. Similarly, a longer service life will impact resale value. Remarketing efforts are more difficult for higher-mileage, tired trucks, which typically result in lower resale prices.
One soft cost of extending a fleet’s lifecycle is the potential negative perception by customers of the company image and its impact on driver morale. As the frequency of repairs increases and the truck is worn, many employees, by human nature, do not care for the vehicle the same as they would a newer model.
Factors Favoring a Regular Replacement Cycle
Driver productivity, maximized resale values, and lower operating costs are strong reasons against extended cycling. Long-in-the-tooth trucks typically need repairs that require longer turnaround times and are more expensive to return to service.
If budget constraints prompt replacement deferral, older trucks can be substituted with long-term rentals, at least until the next year’s budget allows replacement. This short-term tactic can be insurance against possible downtime and potential major maintenance expenses that may occur at the end of a truck’s lifecycle.
Since depreciation is a fleet’s largest expense, many fleet managers believe extending the replacement cycle by a short period of time can lower a fleet’s fixed costs. This is true, but if the extension is for a longer-term, such as more than six months, uncertainty in resale values, unscheduled maintenance, and resulting downtime can more than offset any depreciation savings.
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Originally posted on Automotive Fleet
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