Vehicle obsolescence considerations are evolving

New truck technologies are advancing at a rapid pace and are drastically impacting how well-informed fleet operators acquire, operate and manage their equipment. These advances - taken in conjunction with rising fuel and maintenance costs - are causing the market to recognize the difference between "functional obsolescence" and "economic obsolescence."

That is an observation made by John Flynn, CEO of Fleet Advantage - a provider of truck fleet business analytics and equipment financing (www.fleetadvantage.net), in a recent edition of the Monitor Daily, a magazine for equipment leasing and financing professionals (www.monitordaily.com).

By traditional definition, items become functionally obsolete when they no longer function in the manner for which they were originally intended, he wrote. That is the manner in which many companies have historically managed their fleet's lifecycles.

"Today's technologically advanced trucks will easily operate in excess of a million miles, but just because you can, doesn't mean you should," said Flynn.

Flynn maintained that replacing the traditional functional obsolescence lifecycle management model with a more efficient economic obsolescence approach "is by far the quickest and most economical route" to achieving cost reductions and corporate sustainability goals.

Leading fleet operators are now embracing the concept of economic obsolescence, which considers external factors, in determining each vehicle's most economical lifecycle, he said. "Although a truck may not be functionally obsolete, it may be economically obsolete due to changes in technology, safety features, emissions, maintenance and fuel costs."

MAIN COST COMPONENTS

Other than driver salary, the three most significant cost components to operating a Class 8 tractor are fuel, maintenance and repair (M&R) and depreciation and interest (D&I), Flynn said. For a new tractor, the annual cost breakout is: 76 percent fuel, 2 percent M&R and 22 percent D&I. For a five-year-old tractor, the annual cost breakout is: 72 percent fuel, 12 percent M&R and 16 percent D&I.

"The clear cost driver for any age tractor is its fuel expense," he pointed out. "Moreover, fuel costs usually amount to six to eight times the truck's capital cost outlay over a typical lifecycle."

"With the cost of fuel outweighing the other expenses, and OEMs building tractors with better mpg year over year, the tipping point to a lower cost of ownership means accelerating the replacement cycle to capitalize on year-over-year efficiencies."

MORE AVAILABLE DATA

Many fleets utilize third-party onboard computers to record and disseminate information related to tractor performance, utilization (including mpg information) and driver habits, said Flynn. This influx of available data is changing the way forward-thinking companies make decisions regarding their fleets and drivers to achieve the lowest cost of ownership and their sustainability goals.

"New technology, combined with Big Data (the exponential growth, availability and use of information, both structured and unstructured), offers information that was previously unavailable," he said. "This data, when properly interpreted and applied, will dictate the lifecycle of the asset and can be predicated on metrics, such as return on capital employed, instead of the arbitrary methods now used to determine how long to operate a truck."

"By understanding and managing costs over the truck's lifecycle, companies are able to determine the optimum point when it is most cost effective to replace an asset, thereby maximizing efficiency, minimizing overall costs and avoiding economic obsolescence."

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