Calculate Your Optimum Fleet Lifecycle – And Stick to It

by Scott Mishoe

Scott Mishoe is Vice President of Financial Services with AmeriQuest Transportation Services. He has more than 30 years’ experience in the transportation finance industry, with previous positions with Amerit Fleet Solutions, Fleet Advantage, PHH FirstFleet, LeasePlan and Ryder.

AmeriQuest’s Scott Mishoe provides advice to fleet lessors and their clients on the best ways to optimize fleets that age at an even rate and run at an optimal operating cost.

In the not-too-distant past, it was common practice for grocery chains to use available capital to build new stores or remodel old ones, with the thinking that the best use of the money was where the expenditure directly touched the customer, rather than less visible expenditures like trucks to haul the groceries to the stores.

Often, that set of priorities for the company’s capital meant four or five years between purchases of trucks, a strategy that ended up costing the companies dearly as a disproportionate number of aging trucks were breaking down, with too few mechanics to keep them running and store deliveries suffering.

Fortunately, fleet executives today are more enlightened and are establishing lifecycle cost management disciplines that ensure that fleets age at an even rate and run at an optimal operating cost. “Even fleet aging” is a practice employed by most large trucking companies and one that more private fleets are quickly discovering.

Through data mining and the analysis of a myriad of cost centers that include fuel, driver pay and availability, tires, maintenance, breakdowns, and more, fleets can identify the optimal fleet lifecycle — be it four, five or six years. Duty cycle/applications, overall miles driven, resale value to a secondary market, even sensitivity to possible customer ill will due to delays and product damage can determine fleet value.

Once the optimal replacement cycle is established, the goal should be to buy the same amount of new equipment each year. For instance, if five years is the best cycle, then fleets should aim to replace 20% of the oldest trucks with new vehicles each year. For a fleet of 500, that would mean a 100-truck purchase annually.

The benefits of this approach are numerous. Let’s talk about the impact of the current diesel mechanic shortage and how even fleet aging can minimize the effects of the shortage and have a positive impact on performance and profitability.

When new vehicles are regularly cycled into the fleet, there is more focus on predictable, preventive maintenance versus expensive repairs and breakdowns. The goal should be to keep highly skilled mechanics available for the real value-added “heavy lifting,” so to speak. As new technology is introduced into fleets in a controlled manner, technicians can more easily learn the necessary evolving skills for its ongoing maintenance and repair.

Likewise, when fleets age evenly, the labor needed for maintenance is minimized, and dreaded downtime is kept to an absolute minimum. The needed parts inventory can be reduced, further helping to keep maintenance costs lower, more predictable and more evenly distributed.

Newer trucks also bring with them one very big plus to fleets and the technicians they employ: warranty coverage. Consider a truck that is covered under a five-year, 500,000-mile warranty. Routine repairs and maintenance are usually handled at the dealer’s shop, either at no-charge or minimum charge. That means that fewer technicians are needed to handle those repairs, so they can focus on keeping older vehicles in top condition.

Stay tuned for Part II of my blog yet to come on even fleet aging, where we’ll talk about other benefits fleets can reap, such as predictable resale expectations, more effective budgeting, tax benefits and the all-important improved fuel economy.

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