Determining the Optimal Vehicle Replacement Cycle

Developing an effective approach when it comes to a strategic replacement cycle is a challenge that every fleet manager faces, regardless of the kinds of vehicles or equipment they may manage. The ability to gather and analyze data about your fleet and understand exactly how your fleet is performing has made the run-a-vehicle-into-the-ground approach not only woefully out of date, but it also has revealed just how expensive it is when compared to a well-designed replacement cycle.

The goal for every fleet should be to replace a vehicle before maintenance costs and downtime begin to rise, and at a time in the vehicle’s life when resale values remain meaningful. Determining how to reach that goal can vary from fleet to fleet, but by implementing an optimal replacement cycle for each vehicle or segment of vehicles in a fleet, a fleet manager can realize tremendous benefits and advantages, ranging from minimizing downtime and lowering operating costs, to keeping up with the fast-changing safety and technology features in more recent models, ensuring the safety and comfort of the fleet’s drivers in the process.

So, what considerations and best practices should you adopt in order to get the most from your replacement cycle strategy and experience the benefits of lower operating costs and optimal total cost of ownership?

What Does Your Company Need?
Any good evaluation begins with knowing the needs of your business and assessing the fleet you have. Are there gaps that need to be filled? Alternatively, are there vehicles that are not being fully utilized or are sitting idle? Knowing the specific operational needs of each business unit and reviewing your existing specs to make sure the fleet aligns with the business requirements of the organization help to create a foundation from which to begin your analysis. If you have done an analysis in the past, but it has been a while since you have reviewed it, take the time to update it. Consider whether vehicles that are being underutilized need to be replaced at all. Take a hard look at your specs to see if they can be simplified or pared down. Knowing where you stand before you begin to develop or alter a plan will help to ensure the eventual result is sound and will have a positive impact.

Evaluate and Analyze the Data
Now more than ever, fleet managers have access to volumes of data as well as the tools to parse that data so it provides insight and understanding. Fleet managers can look at maintenance expenses, including both recent and year-over-year comparisons, evaluate fuel expenditures and assess downtime across different vehicle segments. The transparency provided by the ability to evaluate data in an increasingly granular yet valuable way empowers fleet managers to make better decisions. The red flags that appear as the result of a thorough evaluation of your fleet’s data should be folded into the larger effort of building a sound replacement strategy and guide you even as you take other factors into consideration.

Additional Factors to Bring Into the Mix
There are a variety of different approaches to replacement cycling; deciding which one to use is dependent on the kind of fleet (i.e., its use and application) and the vehicles in use. But there are some standard factors that should always be a part of the overall equation.

The Usual Suspects
Any good analysis will consider some basic factors, including model year, total miles, overall condition, cost per mile and repair costs over a fixed period of time. Considering any of these in isolation is not the best approach, and having a single, fixed trigger (e.g., replace all of a certain kind of vehicle when they exceed a certain mileage) is not always effective either. Consider this: You could have two vehicles, both the same model year, but one may need to run more often to power specific, specialized additional equipment that it carries. This would increase the wear and tear on all of its components, especially when compared to the non-upfitted vehicle. Evaluating both on model year alone would not provide a full or accurate analysis.

Specialization
As a general rule, the more specialized a vehicle is – especially with regard to an upfit or other specially installed equipment – the more likely it will remain in service for a longer period of time. The specialization likely required a larger upfront investment and that comes into play when determining total cost of ownership. And, of course, a replacement is likely to require that same kind of investment.

Remarketing Cycles and Retail Demand for Used Vehicles
While it can vary based on the kind of vehicle and the current demand, the spring – tax season – through the fall remains the best time to sell used vehicles. Unless you have a vehicle that is in high demand on the used market, it is always a good idea to take the seasonality of the remarketing market into consideration. If you do have a segment of vehicles that is in high demand, consider the benefits of adjusting your cycling to maximize the resale value and take advantage of a hot market.

Branding and the Company Image
It never helps an organization to have vehicles in poor condition on the road. Vehicles with rust, substandard paint or body damage can reflect on the company as a whole and do damage to the brand and public standing of the organization. While not a driving factor, it is something to take into account.

Taking the time to develop a sound replacement strategy can save a fleet money and improve the bottom line. There is not one correct way or a single formula; success depends on a variety of factors that can change depending on the kind of fleet being evaluated and the needs of the business. But by investing a little time and thought, you can have a positive impact and a fleet that is cost-effective and on the road.

About the Author: Partha Ghosh is the director of North American vehicle supply chain and remarketing operations for ARI (www.arifleet.com), a privately held fleet management company headquartered in Mount Laurel, N.J.

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Vehicle Replacement Considerations: A Checklist
• Evaluate vehicles by category or segment.
• Know the needs of your business and align vehicle specifications accordingly.
• Use the data your fleet returns to your advantage.
• There are standard factors to consider, such as model year and total mileage, but no single factor should drive the decision.
• Specialization and vehicles with a unique upfit may require additional consideration.
• Take the ebb and flow of the remarketing marketplace into account.
• The condition of a vehicle can affect your organization’s brand and image; be sure to keep that in mind.