Fleets are faced with myriad choices for powering their vehicles, interest rates are rising, the used truck inventory is growing rapidly, and the inverted yield curve is creating problems from a financing standpoint. I think we can agree that, at least for the trucking industry, these are interesting times.

Fleet managers have to consider these and other factors in their 2024 and 2025 fleet planning — planning that needs to begin now. Fleets are facing tough decisions: should they stick with their current asset replacement program, or should they extend trade cycles based upon current market conditions? The upcoming EPA emissions standards — while under fire — are adding complexity to an already complicated problem. The new emissions standards will increase the cost of new diesel tractors. How much depends on if you agree the numbers from the Environmental Protection Agency (EPA) are correct; but in any case, it will be a significant increase.

In addition, parts of the country are facing mandates to sell a certain percent of zero-emission vehicles in the next several years, eventually getting to a point where 100% of the commercial vehicles on the road are zero emission. Those zero-emission trucks come with an even higher price tag.

It can be difficult for a fleet manager to know whether to stay the course or alter their traditional asset replacement cycle. If the fleet is trying to reduce its emissions footprint, its replacement strategy is likely to include a move to alternative fueled vehicles. Those fleet managers need to explore all the options available to them. Battery electric vehicles are not the only option, even though they are getting the most attention. Other options include CNG, renewable diesel, LNG, biodiesel, etc.

Fleets without sustainability initiatives may choose to extend asset life cycles because the cost of new equipment is escalating and interest rates are going through the roof. However, they need to be aware that they will likely see increases in maintenance and repair costs from older assets. That needs to be factored into the decision to extend asset life cycles.

Another thing for fleets to consider is the future cost of equipment. The cost of equipment today is likely to be $15,000 to $20,000 less than the cost of equipment tomorrow.  So even if a fleet’s fixed financing costs go up and there is no reduction in total cost of ownership (TCO) of a vehicle if purchased today, the fleet will be avoiding the increased cost of an asset purchased two or three years from now.

Cost avoidance is a real consideration for many fleets when determining whether to trade an asset or keep it. It all comes down to TCO and the ability to predict the cost of equipment several years into the future as well as accurately calculate maintenance and repair costs and residual value.

With the new technology vehicles entering the market, there is no historic data to rely on to make educated guesses about maintenance costs and residual value. This is especially true for battery electric vehicles. Truck makers will need to step in and offer some guidance on residual values so that fleets will be able to get these new technology trucks financed without having to take on of all the residual risk.

In normal circumstances, defining the ideal asset replacement cycle is a complex formula which factors in many variables. In these interesting times, the complexity is magnified. Finance companies have a responsibility to help fleets understand the additional factors that are in play so these complex and interesting times become an opportunity to grow and develop a sustainable future.