Two data-driven solutions for managing fleet vehicle replacement cycles

One key to profitably operating a small business fleet is successful vehicle lifecycle management, as fleets must be reliable and ready to tackle growing business demands. So rather than basing vehicle replacements on guesswork, explore how to analyze vehicle data and develop a trusted fleet vehicle replacement strategy.

The main benefits of a fleet vehicle replacement strategy include saving on repair and maintenance costs, improving company image to both customers and employees, reducing risk, and improving overall safety. To account for all of a vehicle’s total operating costs, lifecycle management should include more than just the initial price of the vehicle. According to an article on Fleet Maintenance, there are four important cost areas to consider, including ownership, operation, maintenance, and downtime. Let us focus on the first three categories:

Ownership costs when managing your business vehicles:

• Acquisition and depreciation
• Auto insurance
• Permits, licenses, and other costs mandated by law

Operating costs for fleet management:

• Fuel
• Fleet cards, telematics, and analytics software

Maintenance costs for managing your vehicles:

• Repair services and labor
• Replacement tires, parts, and fluids
• Roadside assistance

With these critical factors laid out, we can now create a reliable vehicle lifecycle plan. Please keep reading for two data-driven approaches to calculating an optimal fleet vehicle replacement strategy for your business, as informed by Fleet Financials and Government Fleet.

Strategy #1: Establish a threshold for vehicle age or mileage

Replace a vehicle once it reaches a certain age or mileage. Some common thresholds for vehicle age and mileage include:

• Low: every four years or less; every 60,000 miles or less
• Medium: every four to eight years; every 60,000 – 100,000 miles
• High: every eight years or more; every 100,000 miles or more

Pros:

• A low threshold minimizes downtime and keeps your fleet on the road by avoiding interruptions due to repairs. In addition, it boosts company image by ensuring that your fleet integrates modern and environmentally-conscious vehicle models.
• A medium threshold is the economic sweet-spot, ensuring that you receive the full-value from your vehicles before their repairs become too costly.
• A high threshold minimizes the need for up-front funding by spreading payments for vehicle maintenance over longer periods of time.

Cons:

• Holding all vehicles of the same class accountable to one age/mile threshold overlooks variations in vehicle make, condition, or reliability. As such, some vehicles may be replaced too soon and others too late.
• A high threshold requires a large fleet, as some vehicles must serve as spares for the aging vehicles that regularly go in for service. Over time, this threshold is the most costly.

Strategy #2: Establish a threshold for maintenance and repair costs

Replace a vehicle once the cost of its maintenance and repair exceeds its residual value or a pre-established threshold.

Pros:

• Ensures that major, costly repairs on your vehicles are largely avoided.
• Encourages your business to take advantage of original equipment manufacturer (OEM) warranties or use in-house mechanics for vehicle repairs.
• Incentivizes your employees to habituate themselves to proper vehicle upkeep and take good care of fleet assets.

Cons:

• This strategy relies on the assumption that past maintenance costs can predict future maintenance costs. In reality, these costs can vary.
• If faulty or old vehicles are not replaced in time, then the amount of money spent on their maintenance can quickly exceed their residual worth or value to the fleet.

Next steps, and how WEX can help you

To use these strategies, you should identify your organizational priorities by creating a budget and analyzing your fleet’s data. Make sure to weigh the pros and cons of each approach, and then use one strategy as a guideline for managing your fleet’s lifecycle.

If you operate five new vehicles or a least 15 total vehicles, your business could qualify for “fleet status.” With it, your business can gain access to incentives and discounts with major auto manufacturers such as GM, Ford, and many others. Refer to our blog to check if your business qualifies for fleet status. Afterward, explore all the ways WEX helps companies run their fleet, from an array of highly-acclaimed fleet cards to innovative technology and powerful analytics.

In addition, consider using vehicle replacements as opportunities to incorporate electric vehicles (EVs) into your fleet. EVs have grown in popularity, serving fleets with efficiency and reducing their carbon footprint. If you choose to phase some EVs into your fleet, make sure to explore the WEX Fleet EV solutions. It allows businesses to use their WEX Fleet Card account to pay for EV charges — perfect for any business that already has or plans to add EVs to their fleet. It offers seamless charging at over 66,000 stations nationwide, integrated reporting for managing fuel and EV charges, increased security during transactions, and end-to-end solutions for eMobility.

WEX is a leading, global fintech solutions provider, simplifying payments and back-end business processes in the fleet management, benefits management, and corporate payments areas. To learn more, please visit our About WEX page.

Editorial note: This article was originally published on May 14, 2019, and has been updated for this publication.

Sources:
Market Business News
Fleet Maintenance
Fleet Financials
Government Fleet