Escalating costs can force companies to rethink their fleet budgets as they struggle to do more with less. An increasing number of companies look to cut costs by extending vehicle replacement cycles so cash flow can be diverted to other expenditures. For example, service fleets, which have higher cap costs due to upfitting, tend to keep vehicles in service longer than other fleets to control capital expenditures. More sales fleets are willing to embrace this practice as well, extending lifecycles of sedans by thousand miles and additional months in service.
The long-term trend in vehicle cycling for commercial fleets has been a gradual increase in the service lives of vehicles. Over the years, auto OEMs have dramatically improved vehicle quality and lengthened powertrain warranties, allowing companies to more confidently extend service life of less risky fleet assets, such as light-duty trucks. Industry data reveal that light-duty truck fleets (including those operating cargo vans) have steadily pushed out their months-in-service parameters; with sedan fleets extending asset use at a similar, but slower, average rate. Many fleets are now moving to a 75,000-mile replacement parameter (or higher) as fleet operations are pressured by senior management to rein in capital expenditures.
Extended Cycling is not ‘Green-Friendly’
When extending vehicle cycles, the most significant (and uncertain) expense is the impact on the maintenance budget. However, there is one certainty, maintenance expense will go up. The unknown is by how much maintenance costs will rise. Another argument against extended replacement cycling, albeit less vocalized, is the impact on corporate sustainability initiatives.
The reality is the overwhelming majority of fleet vehicles in operation today are powered by either gasoline or diesel engines. If you want to green your fleet by reducing emissions, you need to decrease fuel consumption. Replacing a vehicle in a traditional cycle of 55,000-65,000 miles for a sedan sales fleet brings the lifecycle cost to its maximum efficiency. There is better fuel economy (especially in light of newly mandated CAFE standards with vehicle engineering designed to maximize fuel efficiency), tire pressure monitoring systems, and navigation, all of which help to increase fuel efficiency. In addition, there are a multitude of other reasons why a traditional replacement strategy is beneficial to corporate sustainability goals. For instance, the steady progress in improving fuel efficiency also reduces grams-per-mile CO2 emissions.
When vehicle replacement cycles fall within traditional parameters, commercial fleets will replace older, higher-emissions vehicles with new, more fuel-efficient models. This promises to become even more the case in the future as compliance with the upcoming, more stringent CAFE standards will force OEMs to wring ever-more fuel efficiency from new models.
The positive impact on fuel efficiency created by traditional vehicle replacement cycles is two-fold:
- New model-year vehicles are continuously achieving better fuel economy and lower emissions than predecessor models.
- As an existing vehicle ages, the fuel economy deteriorates due to the increased inefficiency of the aging engine. In contrast, new model-year vehicles get better fuel efficiency, and are built with lighter-weight materials and smaller displacement engines designed to run more efficiently.
When a fleet manager extends replacement cycles, he or she gives up not only cost savings associated with a more fuel-efficient vehicle, but also emission reductions from the new vehicles versus the units retained in service. Although many organizations focus on reduced emission levels, an extended vehicle replacement cycle doesn’t allow them to take advantage of new onboard technology to achieve additional fuel efficiency and greater carbon reduction. As a vehicle ages, the performance of the vehicle deteriorates, affecting fuel economy. Declining performance, such as with spark plugs, injectors, fuel systems, and other engine components, will reduce an older vehicle’s fuel economy. In some cases, fuel efficiency declines will be significant, especially if the vehicle gets infrequent or no regularly scheduled preventive maintenance. Industry data suggests aging vehicles can lose up to 1 percent or more in fuel economy per year.
Looking to the Long Term
For some companies, meeting sustainability goals is not as important as making the next quarter’s financial goals. When corporate near-term performance is paramount, it becomes difficult to gain full support of user departments to maintain sustainability initiatives. Often, replacement cycling is only seen through a financial prism and viewed as a dollars-and-cents lifecycle cost decision. There are a number of reasons why extended cycling doesn’t work, ranging from increased maintenance costs, driver downtime and morale, and resale value degradation, but rarely does sustainability enter into the discussion and its impact is often overlooked.
Senior management may be committed to green fleet initiatives, but extending vehicle replacement cycling, solely as a financial decision, can prove to be counter-productive to achieving corporate sustainability goals.
Let me know what you think.
Originally posted on Automotive Fleet
Mike Antich has covered fleet management and remarketing for more than 20 years and was inducted in the Fleet Hall of Fame in 2010.View Bio