Reduce overall fleet running costs with a flexible vehicle replacement policy

With most replacement strategies set at fixed intervals, we ask if this is really the best approach

When it comes to vehicle replacement policies, most fleets use fixed cycles driven by a variety of factors such as operating and maintenance costs, lease contract or financing terms, or tax advantages related to new equipment.

But whilst replacement standards may vary depending on an operation’s needs, in most cases fixed replacement intervals are in place. It’s often the case within many fleets that these intervals have been prevalent for so long, they often go unquestioned.

But is this really the best approach?

Vehicle replacement criteria 

There’s many reasons why you should consider a more flexible vehicle replacement cycle, focusing on the best performing but least costly makes and models for your operations.

Such fleet vehicle replacement criteria could include:

 mixing different strategies for different functions
 shortening or lengthening cycles as needed
 making use of short-term programs

Here are some of the top things to consider, when it comes to pinpointing the best vehicle replacement policy for your fleet:

How do you determine the best strategy?

Working out the most effective replacement cycles for your vehicles isn’t always easy. It could be that mileages vary greatly across different parts of your operation. The key is to interrogate your data, considering each need separately  and to assess whether a change in replacement cycle could lead to longer-term savings.

Making the most of vehicle manufacturer incentives

Frequently, you may find that there are short-term financial incentives proving very attractive that actually make sound economic sense. For example, manufacturers sometimes offer aggressive incentives for specific models or subsidise leases through a lower monthly cost. If you’re in a position to take advantage of these savings, it could work well for your operation.

Managing replacement cycles during economic uncertainty

“One in three vans on UK roads is now at least 10 years old, as businesses continue to put off investment in their commercial vehicles fleets, says finance provider LDF.” – Commercial Fleet

Economic uncertainty often causes fleets to extend vehicle lifecycles by opting for longer lease terms or delaying purchases. While extending lifecycles puts off the need to make a decision until you have a better idea as to what is happening to your business and the economy, this kind of thinking can create problems. For instance, older equipment might lead to higher maintenance costs and repair bills, including items that are no longer covered by a manufacturer’s warranty.

“A functioning fleet is vital to business continuity and each day of downtime costs the company money, with RAC research suggesting downtime can cost companies up to £500 a day.”  – Utility Week

Are suitable short or medium-term solutions available?

If you identify a requirement for a vehicle that will need to last only a year or two, many leasing companies offer short- and medium-term contracts for new vehicles, some of which are renewable at 6- or 12-month intervals. These programs can provide a degree of flexibility without entering into a longer-term commitment.

Would reallocation work?

“The latest FN50 research found that average end-of-contract mileage charges are at a four-year low of £439, with 21% of returned vehicles incurring charges” – Fleet News

If some of your vehicles have less mileage than others, a strategy may be to swap around equipment. This technique can help:

Balance utilisation across your fleet
Avoid leased vehicles being turned in with higher mileage than their contract allows
Reduce the costs that come with operating older equipment

How can you make an informed decision?

Whatever path you take for vehicle replacement, you need to crunch the numbers to better understand how your fleet is being used, and identify opportunities.

Take steps to gather useful fleet information and conduct a thorough assessment of vehicle replacement cycles to identify which equipment is more/less efficient and costly to operate.

(Fleet management software can help you consider all of these factors. You can use it to create reports to compare the cost of extending lifecycles to replacing equipment. This data can also help to create different scenarios so you can evaluate ways to optimise the use of your current fleet.)

Having looked at all of the factors in detail, it could be that a standard replacement cycle is the best option for your operation.

However, it is worth every effort to understand if other choices may also work well for your fleet – to help you make the most informed decision possible.