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Three lifecycle management strategies for your fleet

UnionLeasingfleetcycle.pngLifecycle management is about accounting for a vehicle’s total operating costs. More than just the initial price of the vehicle, lifecycle management includes the costs for fuel, insurance, licensing, routine maintenance and parts replacement—not to mention any costs associated with administration and downtime (the loss of productivity) during repairs.

Why bother with the math? Because it gives you a more accurate idea of when to replace a vehicle in your fleet—saving you money in the long run.

Granted, not all fleets will have the same priorities in managing all the cost variables. For example, one company might be comfortable absorbing the cost of downtime, whereas another company will see it as a direct loss in revenue.

Lifecycle management makes room for managing cost variables differently. There are three widely accepted strategies for vehicle replacement.

Strategy 1: Maximize residual value. Minimize downtime and maintenance.

Your fleet’s priorities:

  • Optimizing productivity-related costs
  • Professional, modern image
  • Employee retention

For these organizations, time is money; downtime means potential for lost sales, lost customers and/or frustrated sales personnel. Given the high cost of downtime, it is most economical for companies like this to specify vehicles that meet their needs, while also considering what might be valuable to the next owner. These organizations should replace vehicles when they reach 4 years or 60,000 miles—whichever comes first.

Strategy 2: Maximize the rate of return on every expense.

Your fleet’s priorities:

  • Optimizing every variable cost
  • Professional image, but new is not necessary
  • Flexibility—downtime matters, but schedules are adjustable

Companies with this mindset are looking for balance. They want full service value, but they aren’t going to invest significant cost or downtime when problems occur. For organizations that are willing to consider the value of all costs, they can afford to replace vehicles every 4 to 8 years, or between 60,000 and 100,000 miles. The range here is large because each vehicle operates differently.

Strategy 3: Minimize capital costs.

Your fleet’s priorities:

  • Usually focus on optimizing one particular cost (e.g. repairs)
  • Avoiding major expenditures; downtime is tolerable
  • Drivability; image is not particularly important

Vehicles in fleets like these are often driven into the ground, because time is more abundant than money. For companies like this, repairs are seen as more economical than replacements. In reality, this strategy is usually (but not always) the most expensive over the vehicle’s lifecycle, because it downplays other important costs. This option sees vehicle replacement after 8 years or well over 100,000 miles.

Which one is best?

Every fleet will have an optimal lifecycle strategy; the right one depends on your situation. We suggest taking the time to figure out every cost (including a defined value for downtime), as well as your organizational priorities.

Here are some other factors to consider:

  • If you have a strong focus on safety, strategy 1 or 2 will prove ideal
    • Replacing equipment is nearly always safer than repairing it
  • Strategy 3 leaves your fleet more vulnerable to ill-timed failures, sometimes resulting in accidents and litigation
  • If you’re in a small organization without the ability to leverage the market with volume purchases for new equipment, strategy 3 might make the most sense
  • To be successful with strategy 2, you will need the energy and attention to make sure you’re optimizing every variable cost. If you can do it, it will likely bring the lowest organizational costs
    • For organizations with highly variable vehicle use, it might be best to focus on only a couple of variable costs, rather than all of them

While choosing the right lifecycle approach is all about applying your math skills, there are some grey areas. If you’re leasing, make sure to leverage your relationship with your fleet leasing partner. They will be able to help you figure out what’s best for your company and implement a solution crafted specifically to meet your business needs.

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