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Vehicle life cycle management can be tricky, but it’s a key part of operating a small business fleet profitably. Finding the right replacement strategy will help you better balance capital costs with return on investment. In this article, we’re looking at the ways you can optimise your vehicle life cycle by considering the depreciation, resale and economic service life of your fleet.
The life cycle cost of a vehicle – sometimes called the total cost of ownership (TCO) – refers to all involved vehicle costs: acquisition, operation, maintenance, downtime and disposal (or resale).
Understanding your vehicle life cycle will help with long-term planning – including determining the best time to sell your vehicles for the highest returns. The higher the resale value, the lower the total cost of ownership, which means a better bottom line.
Finding the optimum economic life of your vehicles
A good approach to determining the life cycle of your vehicles is to focus on their optimum economic life. It’s about finding a balance between retaining and operating older vehicles versus increased maintenance, increased fuel costs and decreased utilisation.
Getting this balance right often means upgrading vehicles more regularly, and while this may seem like an expensive exercise, a shorter vehicle life cycle can lead to fewer equipment failures, reduced maintenance costs, and less lost-through depreciation.
Depreciation is the reduction of an asset’s value over time and can be due to wear and tear or general market value.
A car with a typical rate of depreciation will be worth around 42% of its initial value after three years, with some vehicles approaching zero value at the ten-year mark
Related reading: vehicle depreciation guide
The chart below shows how the maintenance and repair costs of an average vehicle interact with depreciation over time.
Figure 1: An example of the economic life cycle of a typical vehicle. Maintenance and repair costs increase as the vehicle ages and depreciates
There are many tactics for slowing the depreciation of your fleet. Some quick wins include:
Choosing fuel efficient vehicles
Fuel efficient vehicles tend to depreciate more slowly, as cars that are cheaper to run tend to be more popular among a larger pool of buyers. The Australian Government’s Green Vehicle Guide is a handy tool for researching the fuel consumption and costs of popular vehicles, while Toyota’s range of Hybrid vehicles provide a myriad of fuel-efficient green alternatives for small and large fleets alike.
Better maintained cars depreciate slower, especially if maintenance records are available as proof. Toyota Capped Price Servicing – provided during your vehicle’s first three to five years – is a great option that guarantees Toyota’s high standards for testing, quality, and performance. Our technicians are all certified Toyota experts and use only Toyota Genuine Parts.
The right accessories can go a long way to maximising your fleet’s resale value. Bull bars, nudge bars and tray liners are important additions to protect the exterior of a trade vehicle, while soft accessories like seat covers and floor mats will help preserve the interior.
Your local dealer can help find and fit the right accessories for your fleet.
Toyota fleets boast some of the best resale values in Australia. The HiLux and HiAce continue to lead popularity in their category for new vehicles sold
Your local dealer can guide you through the resale process, which is made easy thanks to Toyota’s Certified Pre-Owned service.
Knowing when to sell your vehicles can be the tricky, but here are three ways to get a much better idea:
1. Conduct a thorough economic life cycle analysis
This method uses a vehicle’s TCO to estimate the best time to replace a vehicle. This means it requires multiple data points to be plotted and forecasted – from acquisition, to operation, maintenance, downtime, and disposal. While this method offers comprehensive predictions, it can be quite complicated. Talk to your local dealer to see how they can help.
2. Replace your vehicles at a pre-determined age or mileage
This popular method is simple and secure. For example, if you replace your vehicles every four years or 100,000 km, you will always have a modern and reliable vehicle driving your business. Be cautious though, as some cars need replacing sooner than others and vice versa. Your dealer can work with you to set and stay on top of these milestones.
3. Replace your vehicles when costs exceed their limit
This is a great option for smaller fleets who want to take a more personalised approach to their fleet management without going into a full TCO analysis. The key with this approach is to make sure that repair costs never exceed the worth of the vehicle. A general rule of thumb is that any vehicle with a maintenance cost that exceeds 30% of the vehicle’s residual value should be assessed for replacement
The vehicle life cycle and replacement strategy that’s right for your business will depend on many factors – from your fleet safety policies and tech requirements, to the amount of time you’re able to dedicate to the process.
Your local dealer can help you figure out what’s best for your business, and help design a solution specific to your needs.
Disclaimer
(1) https://www.omnicalculator.com/finance/car-depreciation
(2) https://www.researchgate.net/publication/346680827_Determination_of_the_Economic
(3) https://www.caradvice.com.au/883420/used-car-prices-australia-2020/
(4) https://www.whichcar.com.au/car-advice/resale-heroes-which-cars-have-the-best-retained-value
(5) https://caredge.com/blog/electric-hybrid-retained-value
(6) https://www.fleetfinancials.com/155875/how-to-calculate-optimal-replacement-cycles
This information provided is of a general nature and for information only. Nothing in this article constitutes or should be considered to constitute legal, taxation or financial advice. Before making a decision about any of the products and services featured on this article, you should consult with your own independent legal, taxation and financial advisors, who can advise you about your personal circumstances.
Our business mobility guide helps you better understand vehicle ownership across every stage of your business.