Learning Zone

How to devise a vehicle replacement strategy

By Ellen Sowerby
22 January 2021

Be flexible to reduce fleet costs

We’re guessing that your business operates a fixed-interval replacement cycle for its fleet, but is this really the best option for you?

When it comes to vehicle replacement policies, most fleets use fixed cycles driven by a variety of factors, but it’s often the case within many fleets that these intervals have been prevalent for so long, they often go unquestioned. Here we look at how to determine what is right for your business… 

Vehicle replacement criteria 

There is a strong argument to consider a more flexible replacement cycle, focusing on the best performing but least costly makes and models for your operations. Such criteria could include:

  • Mixing different strategies for different functions
  • Shortening or lengthening cycles as needed
  • Making use of short-term program

We’ve put together a list of key issues to consider when determining the best replacement strategy for your business…

Do your homework

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. Our advice is to interrogate your data – considering each need separately and to assess whether a change in replacement cycle could lead to longer-term savings.

Where’s the incentive?

It’s always worth keeping an eye out for special offers from manufacturers. Quite often car companies offer short-term financial incentives, for example deposit contributions, servicing deals or subsidised leases for specific models. If you’re in a position to take advantage of these savings, it could work well for you.

Managing uncertainty

We know that when there’s economic uncertainty, your business needs to react – and one way of doing this is to extend your current replacement cycle. This gives you time to breathe, assess the situation and come up with a new plan.

However, there are downsides which we think you need to consider too. 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.

The short option

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 six or 12-month intervals. These programs can provide a degree of flexibility without entering into a longer-term commitment.

Would re-allocation work?

One strategy which we’ve seen work for some businesses is to re-allocate vehicles. If some of your vehicles have less mileage than others, a strategy may be to swap around equipment. Doing this 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

Stay informed

Whatever path you take, we recommend you crunch the numbers to better understand how your fleet is being used, and identify opportunities.

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

Fleet management software can help you here. You can use it to create reports and compare the cost of extending lifecycles vs. 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 you.

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