{"id":10702,"date":"2021-04-13T13:41:46","date_gmt":"2021-04-13T11:41:46","guid":{"rendered":"https:\/\/advancedfleetmanagementconsulting.com\/eng\/?p=10702"},"modified":"2021-04-13T13:41:46","modified_gmt":"2021-04-13T11:41:46","slug":"replace","status":"publish","type":"post","link":"https:\/\/advancedfleetmanagementconsulting.com\/eng\/2021\/04\/13\/replace\/","title":{"rendered":"How do you know when to replace a vehicle?"},"content":{"rendered":"<p class=\"content-page-card__content-teaser\" style=\"text-align: justify;\"><span style=\"color: #0000ff;\">Calculating the cost per mile for the total vehicle lifecycle can help determine optimal vehicle replacement intervals.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"color: #0000ff;\">At some point during the life of a truck, the cost to keep it exceeds the cost of a new one. While there are other good reasons to replace a truck, the primary evaluation considerations should be economics.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"color: #0000ff;\">There are four economic aspects to consider when evaluating the vehicle lifecycle. Before we cover those items, we must first understand some underlying assumptions about the equipment.<\/span><\/p>\n<h3 style=\"text-align: justify;\"><span style=\"color: #0000ff;\">The underlying assumptions<\/span><\/h3>\n<p style=\"text-align: justify;\"><span style=\"color: #0000ff;\">Before we can adequately analyze the economics and the cost components, it is important to understand the following underlying assumptions:<\/span><\/p>\n<h4 style=\"text-align: justify;\"><span style=\"color: #0000ff;\">Measure value<\/span><\/h4>\n<p style=\"text-align: justify;\"><span style=\"color: #0000ff;\">What value does your equipment provide? The lifecycle cost to replace a unit is always divided by value the unit offers. The most common measures of value include mileage, hours of operation, trips, or ton-miles.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"color: #0000ff;\">Some examples include commercial carriers who sell tons of a class of freight for a certain number of miles. Taxi cabs sell by the trip, plus the mileage and waiting time. Other businesses are paid for by the trip, for just being there (known as standby power). These are all different methods for measuring the value provided.<\/span><\/p>\n<h4 style=\"text-align: justify;\"><span style=\"color: #0000ff;\">Projected life<\/span><\/h4>\n<p style=\"text-align: justify;\"><span style=\"color: #0000ff;\">Projected life looks at the average lifespan of the entire fleet\u2019s vehicles or sets a target lifespan for the vehicles. For example, replacing trucks when they reach 700,000 miles.<\/span><\/p>\n<h4 style=\"text-align: justify;\"><span style=\"color: #0000ff;\">Suitability<\/span><\/h4>\n<p style=\"text-align: justify;\"><span style=\"color: #0000ff;\">Suitability, which can also be referred to as comparability, includes capacity, agility, time-saving features, robustness, safety, and availability.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"color: #0000ff;\">In this article, assume the suitability of the two units is the same, and just compare the old unit to a potential replacement.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"color: #0000ff;\">In today\u2019s rapidly changing technology environment, new units might have features that make them much more suitable for your operation\u2019s use. For example, if you are scheduled to replace some dry van trailers and you are traditionally cube limited, a 53\u2019 trailer is more suitable then a 40\u2019 trailer. A direct comparison of the two trailers would have to take the higher capacity into account.<\/span><\/p>\n<h4 style=\"text-align: justify;\"><span style=\"color: #0000ff;\">Sensitivity<\/span><\/h4>\n<p style=\"text-align: justify;\"><span style=\"color: #0000ff;\">Replacement models show sensitivity to one or more inputs. Sensitive inputs include interest rates, diesel prices, utilization, and projected life.<\/span><\/p>\n<ul style=\"text-align: justify;\">\n<li><span style=\"color: #0000ff;\">Usage (mileage or hours) &#8211; Higher estimates for usage will skew the results toward lower operating cost units. Low utilization estimates will skew away from high fixed-cost units.<\/span><\/li>\n<li><span style=\"color: #0000ff;\">Interest rates &#8211; High rates will favor lower initial investment. In turn, this can lead to higher operating and maintenance costs.<\/span><\/li>\n<li><span style=\"color: #0000ff;\">Fuel costs \u2013 High fuel costs favor high-efficiency and lighter-weight units. Lower fuel costs encourage buying more horsepower.<\/span><\/li>\n<\/ul>\n<p style=\"text-align: justify;\"><span style=\"color: #0000ff;\">For example, the price of diesel has been stable around $3.25 per gallon in the U.S. But, if we look at the last ten years diesel costs have varied as high as $4.12 per gallon and as low as $1.99 per gallon. Another example: The interest rates over the previous few years have ranged from 3.5 percent to 5.5 percent and are trending lower as this is written. These variations make modeling accuracy difficult.<\/span><\/p>\n<h3 style=\"text-align: justify;\"><span style=\"color: #0000ff;\">The economics: Four cost areas\u00a0<\/span><\/h3>\n<p style=\"text-align: justify;\"><span style=\"color: #0000ff;\">After evaluating the operational fitness of the unit based on the assumptions above, there are four cost areas to consider when completing equipment replacement analysis.\u00a0<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"color: #0000ff;\"><strong>Ownership costs<\/strong>. Ownership is the initial cost of vehicle operation. These costs start to accumulate after you acquire the unit, before the truck is even driven. These costs are payable even if the unit earns no revenue. When calculating ownership costs, fleets should consider the following:<\/span><\/p>\n<ul style=\"text-align: justify;\">\n<li><span style=\"color: #0000ff;\">Purchase costs, depreciation, and costs of money<\/span><\/li>\n<li><span style=\"color: #0000ff;\">Lease\/rental payments (fixed portion)<\/span><\/li>\n<li><span style=\"color: #0000ff;\">Insurance costs, self-insurance reserves (opportunity costs)<\/span><\/li>\n<li><span style=\"color: #0000ff;\">Permits, license costs, statutory costs (costs mandated by law)<\/span><\/li>\n<li><span style=\"color: #0000ff;\">Make-ready costs, new\/used vehicle preparation<\/span><\/li>\n<li><span style=\"color: #0000ff;\">Actual cost of time and resources shopping for vehicles<\/span><\/li>\n<li><span style=\"color: #0000ff;\">Re-build\/re-manufacture costs<\/span><\/li>\n<li><span style=\"color: #0000ff;\">Labor to strip parts off retiring units<\/span><\/li>\n<\/ul>\n<p style=\"text-align: justify;\"><span style=\"color: #0000ff;\">The highest ownership cost for vehicles is depreciation. Depreciation is a tax law concept to recover the investment as it deteriorates. The calculation is regulated by law and does not reflect actual values. Real depreciation is higher right after purchase and drops to minimal levels over the years.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"color: #0000ff;\">Here\u2019s a simplified example to calculate ownership cost. We want to buy a vehicle that costs $75,000 (all-in) to purchase.\u00a0 After eight years, we\u2019ll estimate the salvage value at $18,000. The $57,000 difference equals the overall amount paid for the vehicle itself.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"color: #0000ff;\">Add $4,000 in annual costs such as insurance, licensing, etc. over the eight years the vehicle is in the fleet, and that equals an additional $32,000. The total cost of the vehicle itself along with the additional annual costs totals $89,000.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"color: #0000ff;\">The vehicle travels an average of 75,000 miles per year. Over the course of eight years, this totals 600,000 miles.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"color: #0000ff;\">To calculate the cost-per-mile of ownership, divide $89,000 by the 600,000 miles, which totals $0.148 per mile for ownership costs.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"color: #0000ff;\"><strong>Operating costs.<\/strong> Operating costs vary by the use of the vehicle. Reduction in mileage through better routing, reduced idle time, proper tire inflation, and preventive maintenance that corrects bearing\/drivetrain\/clutch issues, will all favorably impact operating costs. The unique aspect of operating expenses is that they respond immediately to improvements in your operation. Consider these operating costs within your fleet:<\/span><\/p>\n<ul style=\"text-align: justify;\">\n<li><span style=\"color: #0000ff;\">Fuel prices<\/span><\/li>\n<li><span style=\"color: #0000ff;\">Fuel taxes (above those paid at the pump)<\/span><\/li>\n<li><span style=\"color: #0000ff;\">Mileage charges on rental and\/or leased units<\/span><\/li>\n<li><span style=\"color: #0000ff;\">Tire consumption (not repairs)<\/span><\/li>\n<li><span style=\"color: #0000ff;\">Adding vehicle fluids such as engine oil, coolant, hydraulic oil, etc.<\/span><\/li>\n<li><span style=\"color: #0000ff;\">Other miscellaneous operating costs<\/span><\/li>\n<\/ul>\n<p style=\"text-align: justify;\"><span style=\"color: #0000ff;\">Here is another example of how to calculate operating costs per mile. Our proposed purchase is a diesel-powered unit that gets 10 miles per gallon. Fuel cost with tax totals $3.75 per gallon. This calculates to $0.375 per mile. Then, consider tire costs. If we estimate a tire has 37,500 miles of road life, and a straight van truck has 10 total tires at a cost of $275 each, the tire cost would total $2,750. That total cost, divided by 75,000 miles, totals $0.04 per mile. Adding the fuel and tire costs totals $0.41 per mile. See <strong>Fig. 1<\/strong> for another comparison.<\/span><\/p>\n<p><span style=\"color: #0000ff;\"><img class=\" lazyloaded aligncenter\" src=\"https:\/\/img.fleetmaintenance.com\/files\/base\/ebm\/fm\/image\/2020\/01\/Fig.1___Operating_costs_fuel_usage_chart.5e348a48e2d4c.png?auto=format&amp;fit=max&amp;w=1440\" alt=\"Fig. 1: Dollar savings per year comparison\" data-src=\"https:\/\/img.fleetmaintenance.com\/files\/base\/ebm\/fm\/image\/2020\/01\/Fig.1___Operating_costs_fuel_usage_chart.5e348a48e2d4c.png?auto=format&amp;fit=max&amp;w=1440\" data-image-id=\"5e348a4982e09237008b46d1\" \/><\/span><\/p>\n<p style=\"text-align: center;\"><span style=\"color: #0000ff;\" data-embed-type=\"image\" data-embed-id=\"5e348a4982e09237008b46d1\">Fig. 1: Dollar savings per year comparison<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"color: #0000ff;\"><strong>Maintenance costs<\/strong>. As part of operating cost calculations, maintenance costs should be considered. Maintenance costs include all scheduled and unscheduled services and repairs, such as:<\/span><\/p>\n<ul style=\"text-align: justify;\">\n<li><span style=\"color: #0000ff;\">The actual cost of inside labor (includes fringes, lost time, and overhead)<\/span><\/li>\n<li><span style=\"color: #0000ff;\">The actual price of inside parts (consists of a fee to carry, spoilage, etc.)<\/span><\/li>\n<li><span style=\"color: #0000ff;\">Outside labor (vendors)<\/span><\/li>\n<li><span style=\"color: #0000ff;\">Outside parts (suppliers)<\/span><\/li>\n<li><span style=\"color: #0000ff;\">Changing oil and coolant<\/span><\/li>\n<li><span style=\"color: #0000ff;\">Road calls (accidents, fuel, mechanical breakdowns, tire issues, etc.)<\/span><\/li>\n<li><span style=\"color: #0000ff;\">Hidden costs of failures<\/span><\/li>\n<\/ul>\n<p style=\"text-align: justify;\"><span style=\"color: #0000ff;\">Maintenance costs generally start high, but most are covered by warranty. This is the shakedown period when latent defects may surface. After a year or so the costs stabilize to a lower level. As the unit ages, the maintenance costs start to increase as larger components reach their end of life. We may try to replace the unit before the inflection point when the costs escalate rapidly.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"color: #0000ff;\">Maintenance costs for a unit of this type might average $0.10 per mile over the eight years. If you have repair data from your own operation, you can better estimate expenses from actual data. Note that in the U.S., parts costs have gone up faster than overall inflation. Labor rates have been stable, but indications are that they are also going to increase (due to localized skills shortages and full employment). These considerations may also increase maintenance costs each year.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"color: #0000ff;\"><strong>Downtime costs.<\/strong> Downtime costs are highly dependent on the consequences of a breakdown or of not having a unit when you need it. Even if we are comparing the same basic truck body in two services, this might require very different downtime rates.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"color: #0000ff;\">For example, compare downtime costs consequences (or cost) for the same basic chassis that may be upfitted for numerous applications such as an ambulance, a light duty delivery van, an armored vehicle carrying jewelry to a convention, or an airport passenger van.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"color: #0000ff;\">You also want to assess how much risk of vehicle downtime you can tolerate. The more risk tolerance, the lower the downtime cost and the longer a fleet might be willing to keep the vehicle. Below are some considerations when calculating downtime costs:<\/span><\/p>\n<ul style=\"text-align: justify;\">\n<li><span style=\"color: #0000ff;\">Idle operating times (including driver\u2019s salary)<\/span><\/li>\n<li><span style=\"color: #0000ff;\">Replacement unit rental costs<\/span><\/li>\n<li><span style=\"color: #0000ff;\">Load replacement cost for damaged or destroyed freight (time-sensitive loads like vegetables)<\/span><\/li>\n<li><span style=\"color: #0000ff;\">Late penalties<\/span><\/li>\n<li><span style=\"color: #0000ff;\">Increase in cargo insurance premium, in case of an accident<\/span><\/li>\n<li><span style=\"color: #0000ff;\">Loss of early\/on-time incentives<\/span><\/li>\n<li><span style=\"color: #0000ff;\">Intangible costs of customer dissatisfaction, hidden fees, other charges<\/span><\/li>\n<li><span style=\"color: #0000ff;\">Revenue loss<\/span><\/li>\n<li><span style=\"color: #0000ff;\">Cost of tied-up capital<\/span><\/li>\n<\/ul>\n<p style=\"text-align: justify;\"><span style=\"color: #0000ff;\">These costs can be used to calculate downtime cost per hour, cost per trip, and cost per field repair incident.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"color: #0000ff;\">Low downtime estimates are $100\/hour; high downtime estimates might be $1,000\/hour. Note that road calls can easily exceed $1,000. More significant problems include damage and delays to the freight, perishable loads, or contractual liquidated damages.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"color: #0000ff;\">Downtime is only chargeable for the hours that the unit is in demand. Many organizations that operate during one shift can reduce downtime by using second or third shifts for preventive maintenance (PM) and small to moderate-sized repairs. Where this is possible, many of the costs associated with scheduled &#8211; and some of the costs of breakdown downtime &#8211; are eliminated.\u00a0<\/span><\/p>\n<h3 style=\"text-align: justify;\"><span style=\"color: #0000ff;\">Putting it all together<\/span><\/h3>\n<p style=\"text-align: justify;\"><span style=\"color: #0000ff;\">Before everyone starts disagreeing, realize that changing the assumptions changes the result. Consider using the calculations here to set up in a spreadsheet and check the sensitivity for changes in all the variables. See <strong>Fig. 2<\/strong> for an example.\u00a0<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"color: #0000ff;\">You\u2019ll find some numbers move the needle quite a bit and others not so much. Focus your analysis on setting up the parameters, and you\u2019ll have a handy tool.<\/span><\/p>\n<p><span style=\"color: #0000ff;\"><img class=\" lazyloaded aligncenter\" src=\"https:\/\/img.fleetmaintenance.com\/files\/base\/ebm\/fm\/image\/2020\/01\/Chart.5e335768760f2.5e348841d3d53.png?auto=format&amp;fit=max&amp;w=1440\" alt=\"Fig. 2: Comparison of total cost per mile for vehicles in different stages of their lifecycles.\" data-src=\"https:\/\/img.fleetmaintenance.com\/files\/base\/ebm\/fm\/image\/2020\/01\/Chart.5e335768760f2.5e348841d3d53.png?auto=format&amp;fit=max&amp;w=1440\" data-image-id=\"5e3488421ce35131008b4676\" \/><\/span><\/p>\n<p style=\"text-align: center;\"><span style=\"color: #0000ff;\" data-embed-type=\"image\" data-embed-id=\"5e3488421ce35131008b4676\">Fig. 2: Comparison of total cost per mile for vehicles in different stages of their lifecycles.<\/span><\/p>\n<p>&nbsp;<\/p>\n<p>By <span class=\"page-attribution__content-name\"><a href=\"https:\/\/www.fleetmaintenance.com\/home\/contact\/10121844\/joel-levitt\">Joel Levitt<\/a><\/span><\/p>\n<p><span class=\"posted-by\">Source: <a href=\"https:\/\/www.fleetmaintenance.com\" target=\"_blank\" rel=\"noopener noreferrer\">https:\/\/www.fleetmaintenance.com<\/a><\/span><\/p>\n<div class=\"g-cols wpb_row type_default valign_top vc_inner vc_custom_1585038969469\">\n<div class=\"vc_col-sm-12 wpb_column vc_column_container\">\n<div class=\"vc_column-inner\">\n<div class=\"wpb_wrapper\">\n<div class=\"w-post-elm post_content\">\n<div class=\"g-cols wpb_row type_default valign_top vc_inner vc_custom_1585038969469\">\n<div class=\"vc_col-sm-12 wpb_column vc_column_container\">\n<div class=\"vc_column-inner\">\n<div class=\"wpb_wrapper\">\n<div class=\"w-post-elm post_content\">\n<div class=\"g-cols wpb_row type_default valign_top vc_inner vc_custom_1585038969469\">\n<div class=\"vc_col-sm-12 wpb_column vc_column_container\">\n<div class=\"vc_column-inner\">\n<div class=\"wpb_wrapper\">\n<div class=\"w-post-elm post_content\">\n<h3 style=\"text-align: center;\"><a href=\"https:\/\/advancedfleetmanagementconsulting.com\/eng\/consultancy\/\" target=\"_blank\" rel=\"noopener noreferrer\"><strong>CUT COTS OF THE FLEET WITH OUR AUDIT PROGRAM<\/strong><\/a><\/h3>\n<p><a href=\"https:\/\/advancedfleetmanagementconsulting.com\/eng\/consultancy\/\"><img loading=\"lazy\" class=\"aligncenter wp-image-5377\" src=\"https:\/\/advancedfleetmanagementconsulting.com\/eng\/wp-content\/uploads\/sites\/3\/2020\/04\/nueva-ley-auditoria.jpg\" sizes=\"(max-width: 858px) 100vw, 858px\" srcset=\"https:\/\/advancedfleetmanagementconsulting.com\/eng\/wp-content\/uploads\/sites\/3\/2020\/04\/nueva-ley-auditoria.jpg 2000w, https:\/\/advancedfleetmanagementconsulting.com\/eng\/wp-content\/uploads\/sites\/3\/2020\/04\/nueva-ley-auditoria-300x200.jpg 300w, https:\/\/advancedfleetmanagementconsulting.com\/eng\/wp-content\/uploads\/sites\/3\/2020\/04\/nueva-ley-auditoria-1024x682.jpg 1024w\" alt=\"\" width=\"858\" height=\"572\" \/><\/a><\/p>\n<p style=\"text-align: justify;\">The audit is a key tool to know the overall status and provide the analysis, the assessment, the advice, the suggestions and the actions to take in order to cut costs and increase the efficiency and efficacy of the fleet. We propose the following fleet management audit.<\/p>\n<h3 style=\"text-align: center;\"><a href=\"https:\/\/advancedfleetmanagementconsulting.com\/eng\/consultancy\/\" target=\"_blank\" rel=\"noopener noreferrer\"><strong>FLEET MANAGEMENT AUDIT<\/strong><\/a><\/h3>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n","protected":false},"excerpt":{"rendered":"<p>Calculating the cost per mile for the total vehicle lifecycle can help determine optimal vehicle replacement intervals. At some point during the life of a truck, the cost to keep it exceeds the cost of a new one. While there are other good reasons to replace a truck, the primary evaluation considerations should be economics&#8230;.<\/p>\n","protected":false},"author":3,"featured_media":10703,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[18],"tags":[119],"_links":{"self":[{"href":"https:\/\/advancedfleetmanagementconsulting.com\/eng\/wp-json\/wp\/v2\/posts\/10702"}],"collection":[{"href":"https:\/\/advancedfleetmanagementconsulting.com\/eng\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/advancedfleetmanagementconsulting.com\/eng\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/advancedfleetmanagementconsulting.com\/eng\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/advancedfleetmanagementconsulting.com\/eng\/wp-json\/wp\/v2\/comments?post=10702"}],"version-history":[{"count":1,"href":"https:\/\/advancedfleetmanagementconsulting.com\/eng\/wp-json\/wp\/v2\/posts\/10702\/revisions"}],"predecessor-version":[{"id":10704,"href":"https:\/\/advancedfleetmanagementconsulting.com\/eng\/wp-json\/wp\/v2\/posts\/10702\/revisions\/10704"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/advancedfleetmanagementconsulting.com\/eng\/wp-json\/wp\/v2\/media\/10703"}],"wp:attachment":[{"href":"https:\/\/advancedfleetmanagementconsulting.com\/eng\/wp-json\/wp\/v2\/media?parent=10702"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/advancedfleetmanagementconsulting.com\/eng\/wp-json\/wp\/v2\/categories?post=10702"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/advancedfleetmanagementconsulting.com\/eng\/wp-json\/wp\/v2\/tags?post=10702"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}