Do you have a long-term fleet strategy? Learn how different approaches to vehicle life cycle and replacement management can help reduce your fleet costs.
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 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.
What is 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(1). So while it may seem counterintuitive to shorten your vehicle’s life cycle, it’s actually a strategic way to reduce your fleet expenses.
Related reading: vehicle depreciation guide
The chart below shows how the maintenance and repair costs of an average vehicle interact with depreciation over time.
An example of the economic cycle of a typical vehicle: