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Vehicle Lifecycle Cost and Optimum Replacement Timing
As a vehicle ages, the cost to maintain it increases over time. While the capital costs (or depreciation) associated with purchasing the vehicle decrease, the operating costs (maintenance, fuel expense, downtime, lost productivity) increase with age and mileage. Understanding these vehicle lifecycle costs is paramount to establishing the proper rotation cycle for each class of vehicle within a fleet.
As the cost to purchase new vehicles has soared, government fleets have responded by lengthening the service life of their fleet vehicles. By understanding when it makes financial sense to cycle a vehicle, government fleets can lower their Total Cost of Ownership (TCO) and save thousands of dollars per vehicle versus the traditional “buy and hold” model followed today. To find the “Sweet Spot” for a vehicle, the data suggests that a vehicle should be replaced when the operating costs begin to exceed the capital costs. Where those two points intersect on the graph is known as Optimum Replacement Timing.
Vehicle Lifecycle Cost and Optimum Replacement Timing
Full-size Pickup Truck (driven 25,000 miles per year under normal conditions)
Definitions:
Vehicle Capital Costs: Vehicle depreciation costs in comparison to similar age/mileage vehicles in secondary market (Auction).
Vehicle Operating Costs: Costs include: routine maintenance, repairs, towing
Total Vehicle Costs: Vehicle Capital Costs, Vehicle Operating Costs, Fuel, Insurance
Conclusions
Based upon industry data, the analysis indicates that a Full-size Pickup Truck should be replaced at a term of 46 to 61
months or 96,000 to 127,000 miles to achieve the lowest Total Cost of Ownership.
This new approach will: