Monthly Archives: February 2011
5 Reasons Why Extending Vehicle Life Cycles Can Be a Bad Idea
Every business owner faces the daily challenge of controlling operational costs, and more than one decision maker has chosen to cut costs by extending the lifetime of each vehicle in the fleet by a year and/or an extra 25,000 miles. But does this choice really save the business money? The not-so-surprising answer is maybe, and maybe not.
While the immediate impact of delaying the capital purchase is easy to see on the cost side of the balance sheet, there are several potential downsides that can quickly offset any savings that might come from extending the vehicle cycle:
1. Increased Maintenance Costs:This is the one everyone probably thinks about first, and with good reason. It’s not surprising to most folks that maintenance costs increase as vehicles age. Initially this increase is somewhat offset by the diminishing depreciation costs of an older vehicle, but there is a critical point in time when the risk of an unexpected maintenance event, which can lead to thousands of dollars in repair and employee productivity costs begin to overwhelm any possible gain.
2. Decreased Fleet Sales Incentives: How frustrated would you be if you learned that the savings you had anticipated from extending your current fleet were sucked up by your local truck dealership? Fleet sales discount levels are often driven by volume, and if you push out your buying cycle you may find yourself receiving anywhere from $500 to $1,000 less in volume purchase discounts from your fleet dealer.
3. Lower Resale Value: Every additional month and mile you put on a vehicle will decrease the resale value, and in some cases the decrease can be dramatic. When looking at the potential cost savings of delaying the next purchase, be sure and factor in the lower resale value of the vehicle you have kept for an additional year.
4. Employee Morale: Do your employees like driving a new vehicle? They may even see it as part of their compensation, so if you plan on making them stay in that old vehicle longer, be sure you are not piling on another reason for your employees to start reading the help wanted ads.
5. Corporate Image: How do you want your company to be viewed in the marketplace? Premium service companies drive newer, better maintained vehicles than budget companies. You may find yourself having to stave off more requests for discounts if your vehiclesmake you look like a business that is cheap (rather than good).
This blog could have easily been titled “10 Reasons Why Extending Vehicle Life Cycles Can Be a Bad Idea”, as there are a long list of factors that need to be considered before making a decision. Still, it is certainly true that as vehicle quality improves the overall industry trend is toward longer vehicle replacement cycles.
Just be sure to do your homework before making the decision to keep those aging vehicles around another year.