Determining the Optimal Vehicle Replacement Cycle

Determining the Optimal Vehicle Replacement Cycle
Posted by PS Energy Group on

Fleet managers carry a dual responsibility: staying focused on daily operations while also planning for future fleet and company needs. Critical responsibilities include:

While each of these is crucial to running an efficient operation, determining the optimal vehicle replacement cycles doesn’t always receive the attention it deserves. Too often, it’s handled with a reactive “wait and see” approach, which can quickly drive up maintenance costs, increase fuel expenses, cause costly downtime, and put drivers at risk.

The Importance of a Vehicle Replacement Strategy

Waiting until vehicles are run into the ground is not an effective vehicle replacement strategy. What is effective is replacing vehicles while they still hold strong resale value — before maintenance costs and downtime start creeping upward.

Since vehicle replacement depends on fleet size, usage, and business goals, there’s not a one-size-fits-all replacement strategy. But there are best practices and considerations all fleets can follow to reap multiple benefits, including:

  • Minimized downtime
  • Lower operating expenses
  • Higher safety and driver confidence by providing drivers with newer vehicles equipped with the latest safety features and technology

Let’s take a look at the fleet vehicle replacement criteria to include in your replacement strategy.

5 Fleet Vehicle Replacement Criteria That Show When to Replace Your Fleet Vehicles

 

1. Number and Type of Vehicles Needed

The foundation for any vehicle replacement strategy is evaluating vehicles and conducting a fleet analysis to determine the optimal number and type of vehicles required to meet your operational needs. Knowing what you have and what you need ensures your fleet is right-sized, cost-efficient, and aligned with your business objectives.

Questions to tackle in your analysis include:

  • What is the optimal number of vehicles needed to support the fleet?
  • Are there vehicles that aren’t fully used, have excessive downtime, or are sitting idle?
  • Do your vehicles match the types, classes, and sizes required for operational and business needs?
  • Are there vehicles that are no longer cost-effective to operate or not fulfilling their purpose?
  • Can a vehicle be replaced with a lighter, more fuel-efficient vehicle?

2. Fleet Vehicle Segmentation

Not all vehicles should be replaced on the same replacement cycle. Consider different replacement thresholds for each vehicle type, such as:

  • Light-duty trucks
  • Heavy-duty trucks
  • Sedans
  • Specialty vehicles

To calculate when it’s the best time to replace your fleet vehicles, determine your total cost of ownership (TCO) and cost per mile (CPM). You calculate this by adding acquisition, operational, and depreciation costs and dividing the sum by the vehicle’s mileage.

While fluctuations in the number are to be expected, if you note an upward trend in your TCO and CPM, then you’ll know that a replacement is on the horizon. Tracking this information right when you acquire your vehicle is vital to making the right decisions, which brings us to the following criteria.

3. Fleet Data and Analytics

With greater access to data, fleet managers have more opportunities for smarter and more informed decision-making. Regarding replacement cycles, data helps you make measurable decisions — ensuring your strategy is proactive and cost-effective, with vehicles replaced at the right time, not just when they break down.

Beyond knowing your TCO to determine when costs start exceeding the value of a vehicle, data can also help you:

  • Set replacement cycles based on evidence by knowing lifecycle patterns with historical data that spot trends
  • Project future replacement needs and spread expenses evenly over time using cost and usage data
  • Proactively replace problem vehicles by analyzing repair and inspection data
  • Know how much each vehicle is being used with telematics and mileage data

4. Vehicle-Specific Information

While vehicle replacement cycles vary by fleet, there are fundamental replacement cycle factors that apply to all fleets:

  • Vehicle model
  • Vehicle year
  • Total miles
  • Overall vehicle condition
  • Cost per mile
  • Repair costs over a set period

It’s critical to evaluate all these factors for each vehicle. For example:

Two vehicles may be the same model year and type, in similar condition, and with nearly identical mileage. However, one is equipped with specialized equipment and is used to power the equipment, which increases wear and tear and fuel consumption.

If you determine a replacement cycle without considering cost per mile and repair costs, and then apply the same cycle to both vehicles, you’ll end up with inaccurate results. Only by considering every factor for each vehicle individually can you establish accurate replacement cycles that meet your fleet’s needs.

Expert Tip

Vehicles equipped with specialized equipment require a larger upfront investment, which often means they’ll stay in service longer than standard vehicles.

Replacement costs are typically equal to or greater than the original purchase price, and downtime for a specialized vehicle can disrupt operations more severely than downtime for a standard fleet vehicle. Because of these factors, it’s essential to carefully evaluate TCO when planning replacement cycles.

5. Resale Timing

Resale timing is a key factor in a vehicle replacement strategy for both standard and specialized vehicles. And resale values are often strongest between spring and fall but can vary based on vehicle type and demand.

For example, work trucks and vans typically bring higher returns in spring and summer. By aligning your replacement cycles with seasonal demand, you’ll be rewarded with maximized resale value that you can then use to reinvest in your fleet operations.

Knowing When to Replace Your Fleet Vehicles

Taking the time to develop a sound vehicle replacement strategy using best practices and considerations applicable to your fleet is time well spent, ensuring a more cost-effective, productive, and safer fleet.

Your fleet is a reflection of your company. Vehicles that are well maintained not only operate more reliably, but they also project a stronger, more professional company image, which reinforces your brand and, even better, attracts new customers.

Interested in exploring additional KPIs you should be tracking to further optimize your fleet and bottom line? Read our comprehensive guide — Fleet Management KPIs You Should Be Tracking — to learn more.