By Mike Quimby, Senior Vice President and General Manager, Element Fleet Management
For college basketball fans, this time of year means only one thing – March Madness. The tournament determines the national champions of college basketball, but to get there the teams have to make the Final Four. To make it that far, each team needs to stay in the game. Like the coaches and players, it’s critical that managers actively work to keep their company’s fleet in the game.
Check out our strategies for ensuring your fleet goes the distance:
Fleet life cycles
Fleet managers need to establish proper life cycles for the trucks in their fleet.
An important question fleet managers need to ask is “When should we replace our vehicles?” While in the past it’s been standard to replace vehicles on a set schedule, this approach doesn’t guarantee optimal financial and environmental performance for all vehicles. Some trucks may be replaced too soon, resulting in increased capital expenses, or too late, resulting in higher than necessary maintenance and repair costs, as well as higher emissions.
We suggest developing life cycles for vehicles based on the type of vehicle and anticipated mileage. Remember, not all life cycles are the same. A medium-duty truck is operated differently than a heavy and has a different life cycle.
There are a few ways to determine the life cycle. One common method is to baseline the initial cost. Then on a yearly basis, someone should put residual value on the vehicle and also look at the anticipated maintenance costs. When these costs exceed the monthly commitment for obtaining a new vehicle, you need to consider this as the adopted life cycle for that application. You’ll want to replace the asset while it still has value and you haven’t invested a lot of money on maintenance and repairs. Plus, with mandates for better fuel economy, you don’t want your fleet’s life cycles getting too far out.
While fleet life cycles and aging are closely related, there are significant differences.
It’s doubtful any company or fleet manager would want to replace its entire fleet every year, making the age of assets an important focus. A truck becomes a contender for replacement when it reaches the target age or mileage.
We also suggest monitoring maintenance and repair costs on each vehicle. Once a life cycle is established, it can be molded into fleet aging so you replace a percentage of your fleet at the appropriate time. And remember – when monitoring maintenance costs, look at the years in service, not the full calendar year. Looking at data from March 2015-March 2016 shows the costs for a vehicle over the course of the year. While this seems simple and straightforward, it’s a common mistake made by fleet managers.
A fleet management company can assist with these tasks. Utilize a FMC’s expertise for your company’s cost modeling for life cycling and aging.
Time and time again, we’ve witnessed clients get scared by a downturn in the economy. When this happens, people make rash decisions about not purchasing new trucks. And while the concern about spending is natural, this type of behavior hurts the life cycle series you worked hard to put in place.
Despite external economic factors, we can’t stress enough the importance of getting out of a vehicle before investing too much money in its upkeep. For example, say you decided to keep a truck longer than you had originally anticipated. Now the check engine light is on and you can’t afford to get the issue repaired. Having a life cycle and fleet aging plan in place means predictable spends and this makes sense regardless of the economy. Structuring the acquisition around these life cycles can help. Many fleets have adopted closed-ended leases to force the discipline needed to acquire this behavior.
How do you ensure your fleet remains at the top of its game? Leave a comment or send us a tweet, @ElementFleet.
Each month Fleet Management Weekly features insight from Mike Quimby, Senior Vice President and General Manager at Element Fleet Management.