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 a fleet vehicle replacement policy, most organizations 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.
While replacement standards may vary depending on an operation’s needs, in most cases fixed replacement intervals are in place.
Indeed, in many fleets, these intervals have been prevalent for so long that they often go unquestioned.
Is this really the best approach?
There’s many reasons to consider a more flexible replacement cycle focused on the best performing and less costly makes and models for your operations. This type of enhanced vehicle replacement outlook could involve:
mixing different strategies for different functions
shortening or lengthening cycles as needed
or even making use of short-term programs
Here are some of the top things to consider, when it comes to pinpointing the best fleet vehicle replacement policy:
What are your real world needs?
Working out the most effective replacement cycle 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 to assess whether a change in replacement cycles could lead to long-term savings
Can you take advantage of the market?
A well thought-out replacement of your fleet vehicles will minimize costs; frequently, you may find there are financial incentives that are very attractive and actually make sound economic sense. For example, manufacturers sometimes offer aggressive incentives for specific models or subsidize leases that have a lower monthly cost. If you are in a position to take advantage of these savings, it might work well for your operation.
Is it worth lengthening cycles in times of uncertainty?
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. See FleetFinancials graph which shows the trend of vehicle age against depreciation.
Are any 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 provide a degree of flexibility without entering into a longer-term commitment.
Would reallocation work?
If some of your vehicles have less mileage than others, a strategy may be to swap around equipment. This technique can help:
Balance utilization 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 effectively evaluate ways to optimize 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.