Vehicle lifecycle management is key to profitably operating a small business fleet. Many small business owners and managers have an idea of when vehicles have to be replaced based on age and mileage. There are other critical factors involved, however, in optimizing vehicle lifecycle management. Hanging out in the comfort zone of minimizing capital costs is often the most expensive strategy over a vehicle’s lifecycle.
Doing the math is crucial to successful lifecycle management. To account for all of a vehicle’s total operating costs, lifecycle management must include more than just the initial price of the vehicle. According to an article in Government Fleet, it must also consider cost elements such as acquisition, licensing, insurance, fuel, maintenance, repair, salvage, debt expense, administration, accidents, inventory, and downtime.
Please keep reading for three trusted approaches to calculating optimal replacement strategies, as informed by Union Leasing and Government Fleet.
Strategy 1: Optimize Salvage Value While Minimizing Downtime and Maintenance
Replacement policy: 4 years or less; 60,000 miles or less
- Optimizing productivity-related costs. If downtime is expensive—resulting in lost sales or lost customers—this is your best approach.
- Professional, modern image. If a shiny new truck is an important part of your business image and company vehicles are used as an employee retention tool, take an approach that maximizes a vehicle’s residual value.
Strategy 2: Optimizing Salvage While Minimizing Capital and Maintenance Costs
Replacement policy: 4 – 8 years; 60,000 – 100,000 miles
- Downtime matters, but production schedules can be adjusted or you have spare vehicles.
- Professional image is important, but a brand new vehicle isn’t necessary.
- Optimizing every variable cost.
Strategy 3: Minimize Capital Costs
Replacement policy: 8 years or more; 100,000 miles or more
- Downtime is tolerated because spares are available or work production schedules can easily handle disruptions.
- Drivability is more important than image.
- Usually focused on optimizing one cost component, like repairs.
So How Do I Pick the Best Approach?
According to Government Fleet, finding the right “when to replace, when to retire” lifecycle strategy requires two equations:
- Identify and quantify all of the costs of operating a vehicle from cradle to grave.
- Assess and quantify downtime costs.
After you’ve identified your organizational priorities and done the math, here are some final factors to consider, as informed by Union Leasing:
- If you have a strong focus on safety, strategy 1 or 2 are best. Remember, replacing equipment is typically safer than repairing it.
- If you run a very small business, strategy 3 might make the most sense. You may not be aware, however, that operating five new vehicles or 15 vehicles total—or even looking to purchase at least five new vehicles—often qualifies a business for fleet status. You may have access to incentives and discounts with many major auto manufacturers. Refer to our blog on qualifying for fleet status to explore if you make the cut.
- To be successful with strategy 2, Union Leasing points out that you will need the capacity to ensure you’re optimizing every variable cost. If your small business has one manager handling all costs associated with vehicle acquisition, operation, and sales, then strategy 2 will likely prove the most cost-effective.
To optimize your vehicle lifecycle management, identify your fleet’s priorities, do the math, and then pick the best replacement strategy for business success.