Medium Duty: Weighing Life-Cycle Replacement Costs

How do you know the best time to replace your vehicles?


With today’s ever-rising prices, for many fleet managers—particularly those in charge of government vehicles—squeezing every last mile from each vehicle is not only a priority, it is a necessity.

Yet, running vehicles on the road longer than usual can have its drawbacks—more work for technicians, more risk of costly accidents, increased downtime and lost revenues. And above all, you have to make sure that you’re using the correct numbers and formulas to figure the best time to replace vehicles, or you might end costing your fleet dearly.

It’s not an easy task, and with all the variables in play these days, it seems far easier to screw it up than do it right.

Having worked for 20 years on replacement costs for a large fleet, Bob Johnson, director of fleet relations for the NTEA, has seen it all, including countless life-cycle replacement cost formulas. While they can be helpful at times, he says none of them have been proven one way or the other and can often end up doing more harm than good.

“Probably every fleet out there has their own formula figured out, (but) the problem is while it’s a very good tool for comparing—especially in a non-government fleet—it will almost always show it’s cheaper to repair a vehicle to replace it,” Johnson says. “But the vehicle may be in such bad condition; there is nothing left to attach the replacement parts to, and if you’re not extremely careful in the way you do your life cycle cost analysis, that will get you false numbers.”

Johnson says in many cases, keeping things simple is the best approach.

“We had all sorts of studies and numbers we did, and we came up with some that said, depending on the class of the vehicles, you add ‘x’ years or ‘y’ miles,” he says. “And that seemed to work about as good as anything; the only trick is how you establish your years and miles.”

The main thing to remember is every fleet is different, and what numbers work for one could lead to financial disaster for another.

“The applications are different, environmental conditions are different—vehicles in the salt belt don’t have nearly as long a life as vehicles in a dry desert,” Johnson says.

MONEY HOLE

Using the wrong theories or numbers can be very costly, Johnson says. A wrong formula applied to multiple vehicles can be devastating to a budget, particularly when taxpayers are the ones footing the bill.

“Historically, a lot of government fleets have a theory that when the maintenance costs equal the initial cost of the vehicle, it’s time to replace it,” he says. “Of course, the problem with that is if you have a vehicle that needs a lot of work, you do a bunch of work on it and get it in first-class shape and that tips it over the budget edge, so now you say, ‘I’ve spent “x” dollars on the vehicle, it’s time to get rid of it and I just got done overhauling it.’ And I’ve seen that happen, because the guy who’s making the replacement decision and the guy doing the maintenance aren’t always in the same location.

“If it’s a capital purchase, you have to get the corporate money people involved,” Johnson says. “You have the cost of capital, the impact of taxes. From a taxing point, it’s always better to expense something than to capitalize something. Capital purchase-wise, maintenance dollars and capital dollars used to come out of two different budgets, so that doesn’t always get looked at, as far as should I or should I not replace something.”

While numbers and formulas are important, Johnson says a fleet manager’s old-fashioned common sense should always trump the bean counters.

Not that it always ends up that way, though.

“I can buy a $50,000 chassis and put $200,000 of equipment on the back of the truck, so at that point the equipment’s still in good shape; it makes sense to maintain the truck,” Johnson says. “Am I going to throw away a $200,000 investment for the sake of a $50,000 investment? I’d better not.

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