Medium Duty: Weighing Life-Cycle Replacement Costs

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.

“So you need to look at the relative cost of the vehicle versus any outfitting that’s done to it when you make a decision.”

TOUGH SELL

Not surprisingly, sometimes the biggest obstacle in getting needed replacement vehicles in government fleets is—the government. One fleet manager for a large county with 17 years on the job (who asked not to be identified) says many fleet officials who work for municipalities are at a disadvantage because the ones holding the purse strings have little or no understanding of the most cost-effective way to buy and replace vehicles.

To make matters worse, sometimes real-life maintenance and cost concerns take a back seat to political considerations.

“Before we can ask for something to be replaced, it has to reach a target age and target mileage,” he says. “Then to make it extremely complex, you can’t replace it until you spent as much money on it repairing it as you paid for it, which totally puts the operating budgets out of our control, because we can’t move equipment in and out of the fleet in a timely manner at an optimum time.

“The end result gets lost because it’s downstream, and the money they think they’re saving, to them looks like money in the hand. It’s hard to tell a guy he didn’t save any money when he didn’t buy a $14,000 vehicle, (but) they don’t know that I’m going to save them $10,000 by convincing him to spend $14,000 today, and then let me keep that to its optimum point and trade out another one. I tell them if you do that enough times, they can save $21,000 instead of $14,000, and they just glaze over.”

PLAYING POLITICS

Of course, when times get tight—like these days—he says he can count on local politicians to meddle and make things worse.

“We’ll work diligently for months, putting together a budget that met the requirements they had but had some equipment replacement in it, but they get lost because of issues that have no relationship to the vehicle or the total impact on the fleet,” he says. “If our cash reserves are running short during budget times, it is so easy for someone to reach out and (remove) a $300,000 line item, because they think they’re doing it for the greater good. If I work up a little spreadsheet and show some history and historical reference, they think, ‘This is really nice, but he’s just trying to prove his point; how do we know this is good?’ What gets lost is we have to deliver services to the taxpayers.”

SQUEEZING MILES

Gale Fry, vehicle maintenance supervisor with the City of Muscatine, IA, is all-too familiar with the many challenges of figuring the best time to replace municipal vehicles.

She has 36 medium duty vehicles among the dozens in her care, and thanks to years of practice, has become quite efficient at squeezing out every possible mile from them. The city has a standard formula for determining the optimum time to replace a vehicle, she says, but when budgets are slim, that all goes out the window.

“We just adapt,” Fry says. “We don’t have a choice in what we’re paying.”

For Fry, adapting means maintaining the heck out of her vehicles to make sure they can run as long as possible until replacement funds are available. Sometimes that can be a long time coming, so she has had to stay ahead of the maintenance curve.

“Most of the time when we buy a vehicle, we buy it new and we have it for the life of the vehicle or longer—a pick-up truck might be five or 10 years (but) we might have it for 15-20 years before we get rid of it,” Fry says. “If you don’t have money to buy new, you just get by until you can.”

The oldest vehicle in the fleet is 27 years old and still going strong, thanks to years of careful maintenance. Fry says investing in the replacement of large parts, like dump truck boxes, is a good way to use limited funds to extend the life of a decently working vehicle without spending too much. She says the key is to maintain them as long as possible without compromising safety.

“We try,” Fry says. “They use ‘em, so we have to keep them running and keep them safe.”

MAINTAIN MAINTENANCE

When facing tough economic times, NTEA’s Johnson says fleet officials can end up being their own worst enemy.

“One of the things I see that just always drives me crazy is whenever budgets get tight, the first thing (fleets) do is cut back on maintenance, and deferred maintenance is one of the absolute worst things you could ever do, because it’s going to cost you triple,” he says. “You’re going to have to catch up on that maintenance eventually or replace the vehicle, and if you replace it early, that’s going to cost you money. In the interim, you’ve got lost productivity because of the condition of the vehicle. So as the vehicle becomes less and less reliable and capable because of deferred maintenance, its productivity goes down.”

Staying on top of preventative maintenance schedules and not fudging the timing one way or the other is absolutely critical, Johnson says.

“There are a lot of theories on preventative maintenance, and people will schedule them on all sorts of criteria—hours or days, miles driven,” he says. “You can use those as benchmarks, but you don’t want to follow them blindly because if you do that you start to get your maintenance out of cycle. So you’ve got regular PM on your vehicle, if it’s over 10,000 pounds you’ve got DOT inspections and in most states you have safety inspections and emissions inspections in some areas.

“If you get these different things out of cycle, you end up touching the vehicle five or six times instead of once or twice,” Johnson says. “It’s going to cost you an hour of labor every time you touch a vehicle—no matter what you do to it—so if you touch that vehicle five times a year instead of twice a year, you’re going to spend at least three extra hours of labor on that vehicle.”

If every time you bring a truck in for maintenance, it is costing you money, Johnson says, why do it more than absolutely necessary? On the other side of the coin, he says fleets have to keep up with needed maintenance—things like extended oil change intervals seem like a good idea, but do not extend the PM cycle of the vehicle and can end up costing you in the end.

“If you’re not bringing the vehicle into the shop, you’re not looking at it and catching these other little things that are going bad,” Johnson says. “So you may be able to extend your oil cycle, but that doesn’t mean you shouldn’t be bringing it in to lube the chassis and inspect the undercarriage or check the tires—that’s when you catch those things.

“If I have a vehicle up on the lift to look at and it’s got a leaf broken or a spring, I fix it,” he says. “If I don’t bring it in, it’s out on the road and the next thing you know it’s broken down out on the road, and now I’ve got to send the hook out and drag it in with a wrecker. So, instead of replacing one leaf in the stack, I’ve got to replace the entire stack, I’ve got the down-time, the cost of the wrecker and everything else.

“That’s something people tend to overlook.”

PROCEED WITH CAUTION

At the end of the day, while fleet officials can look to their peers for some answers, it is important to remember that figuring life-cycle replacement is very specific to a fleet and its needs. As much as it might help, (particularly with penny-pinching politicians that government fleet managers have to deal with) there is no magical formula.

Johnson says the best thing you can do is make sure you have all your facts and figures straight during budget discussion times and try to be flexible.

“Just about every fleet has their own theories on how things should be done and I don’t think any two are exactly the same,” Johnson says. “I don’t think there is an answer.”

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