By Del Wolfe, Lehmer's Buick GMC, Concord
One of the single largest costs to run your business can by your fleet of vehicles. It can also be your biggest asset after your people. The question most business owners have is "how long should I keep my vehicle in service? One school of thought is "until it dies" and the other is "when will I get my maximum return?" We call the second one scheduled replacement. Let's look at the factors that can help determine when is the right time.
The single biggest cost factor is actually depreciation. First, consider the following four characteristics of the replacement decision: Depreciation is the single-most important and significant factor for achieving the lowest possible cost. Simply put, depreciation costs decline faster than other costs increase. What is depreciation? It is the vehicle acquisition cost minus its resale value plus any cost associated with resale. For example:
$20,000 vehicle acquisition cost
-$8,000 resale value
+$300 sales fee
=$12,300 depreciation.
Three significant factors affect depreciation: 1) acquisition cost, 2) replacement timing, and 3) mileage.
Your second highest cost factor and determining factor on vehicle replacement is maintenance. Maintenance directly affects reliability, which can conceal significant "hidden" or "soft" costs: downtime, lost time, lost business, lost sales, diminished productivity, plus "hard" costs such as repair and car rental expenses. Vehicle condition affects resale value, which in turn affects depreciation. Monitoring the condition of vehicles through written condition reports, vehicle inspections, and increased driver responsibility will help improve the vehicle condition and resale value results. When using any type of condition report consider requiring two signatures on the condition report, both the driver and the supervisor. Review condition reports at least twice a year. Use the odometer reading to update your records and monitor the vehicle for replacement.
A third factor has to do with the "soft return on investment." Consider non-financial, non-qualitative factors like company image, employee morale, employee retention, and safety as part of a replacement decision. These factors often produce a "soft return on investment," but can have a dramatic impact on your overall operations. In today's tight labor market, employee retention, morale and attracting new employees with newer, more comfortable vehicles is not uncommon. Some companies even spec trucks with more luxury features like cruise control and upgraded radios in an attempt to lure drivers in a market that is under-populated with qualified truck drivers.
Is there a better time to sell a work vehicle. The answer is yes. Usually the first six months of a new model year are the best and within that time frame, September 15th to October 15th seems to bring the best return value on used vehicles. The "drive it until it dies" method of replacement is probably going to cost you the most although it might not seem that way. Consider all of the factors above and most important give us a call and let us help determine the best replacement timing for your company.
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Del Wolfe can be reached at Lehmer's Buick GMC, Fleet & Commercial Sales. Tel: Main (925) 688-4401. Cell (510)220-0859. dwolfe@lehmers.com.