Lifecycle Management Pivotal in Reducing Total Cost of Ownership of Heavy-Duty Fleets
When fleets address the total cost of ownership they have a tendency to analyze historical maintenance expense data by category, repairs, fuel, labor costs, parts, tires, etc. and they focus on reducing cost by category, i.e. reduce labor hours, purchase fuel at a lower price, etc. Each is important, however there is a more comprehensive approach that will achieve a greater impact on reducing total cost—managing the truck’s lifecycle!
Maintenance
There are multiple sources of empirical data outlining maintenance and repair costs at 100,000 MPY. Data indicates that over an 8-year/800,000 mile period the M&R cost allocation during years 1 through 4 is only 3.7¢ per mile, while years 5 through 8 cost is12.98¢ per mile. In the first four years (or half of its life) fleets spend only 22% of the total life maintenance. This is equivalent to a maintenance cost increase of $9,280 in years 5-8; or the same amount in M&R savings by running the truck for a shorter lifecycle.
Fuel Economy
As equipment ages, it becomes less fuel efficient. A 2-4% MPG degradation occurs at approximately the 3-4 year range in the vehicle’s lifecycle. Since 2011, Clean Diesel truck engines equipped with SCR have proven year-over-year gains in MPG, which correspond with the CO2 government mandates of a 2-3% fuel economy improvement per year. Advancements in engine technology and design, lower rolling resistance tires, automated transmission, proper setting of ECM and driver training have all contributed.
Managing your fleet’s lifecycle based on fuel economy will afford a big pay day. If you purchased a 2012 model year tractor achieving 6.4 “driving MPG”, four years later it will attain only 6.2 MPG, while a 2016 model will achieve 6.9 MPG. Using the last 12 month average cost of diesel of $3.64 per gallon, the 2016 truck will reduce cost by $6,000 year.
Depreciation
An additional component of the lifecycle cost equation is depreciation. Most companies use seven years to zero. The original equipment cost is significant. Over the past four years, new truck costs have increased by about $10,000. Acquiring a new tractor at the end of year four would add a depreciation cost of $1,400 per year. However, this cost is offset by the maintenance and fuel savings of $15,280. The quick return on investment in the first year is what makes this new investment desirable. Instead of paying year five maintenance at 7.6¢ per mile, you will pay year one maintenance at 1.3¢ per mile – a savings of $6,300. Add to this the year one fuel savings of $6,000, and you have a total of $12,300. Now deduct the $1,400 in depreciation and there will be a windfall of $10,900 of savings in the first year. A 22% return on investment!
There are significant soft cost savings as well, including better driver retention, less downtime, improved CSA safety and equipment scores, reduced maintenance personnel and a likely reduction in total fleet size.
