TCO Is Dead

This article is an expanded version of an online story of the same name during the NAFA conference in April. 

Jon Stafford is an affable guy. He’s articulate, poised, casual, funny. To begin his afternoon presentation at NAFA’s annual conference in Columbus, Ohio, he began by calling out Jim Petrillo in the front row, the 2021 AFLA Fleet Manager of the Year. Petrillo’s long hair flowed over a dark floral long-sleeve and a pink jacket.

“I was trying to be subtle,” Petrillo laughed.

“By sitting in the front row?” Stafford jabbed. Laughter all around, and the session was underway.

Stafford began with the standard Google definition of total cost of ownership (TCO). “Fine,” he said, “that’s great. Unfortunately, it doesn’t begin to account for the past year or two,” referring All The Things - the pandemic, the supply shortage, the worker shortage, increasing fuel costs (increasing everything costs, really). Longer lead times. Longer repair times. He noted he’d rewritten the presentation quite a bit since he was originally slated to present it at last year’s NAFA conference in Pittsburgh.

He cited the new vehicle shortage and jacked-up costs as the No. 1 issue facing fleet managers today. “The average cost of a new vehicle is more than $5,000 what it was just twelve months ago,” he said. Fleet managers need to get their budgets and approvals together and get in line if the goal is to flip the fleet for the 2023 model year (or beyond). Then he slowed down, noting that this should be pretty rote by now; nobody in the room should be surprised it, so what were they here for?

“Data,” he said. “Data offers a better way to determine total cost of ownership, if we even want to call it that.”

In other words, how is your fleet used? Is it an urban or municipal fleet, or a sprawling work truck fleet kicking up dust all over the endless prairies of the Midwest? These fleets have different needs and expectations and comparing a 2020 Silverado to a 2020 F-150, for example, simply does not give you enough information to make an informed decision.

But data is the future. Data, and the telematic backbone upon which it stands. Stafford made the point that for all the external factors a fleet manager can’t control, there are plenty of internal factors she or he can control, including a large part of what makes a fleet functional - the drivers within, their habits, and their overall safety.

“And we can control some of that,” he said, “we can control seat belt use, top speed, and more. We can monitor for safe driving habits and help incentivize better and safer drivers.”

“Too much data is not an excuse,” he said, admonishing those who throw their hands up in the air when faced with overwhelming digital spreadsheets that communicate real-world circumstances of people and the often dangerous machines they operate.

“We need to take ownership as an industry when we can control safety. We have a moral and ethical responsibility to do so.”

For another perspective, I spoke with John Wuich, vice president of strategic consulting at Wheels | Donlen. Wuich leads an analytics team and has his digital fingers deep in the fleet’s sea of data every day for about 300,000 vehicles.

“What I know I know from data,” Wuich says, “and TCO is a way of analyzing cars as an asset and of assigning value. In simplest terms, we can budget and project spend with it.”

Wuich agrees with Stafford, to a point; as the scale of your fleet increases, so too do the complexities of a simple equation such as TCO. “Cost-per-mile (CPM) is TCO,” he notes, “and TCO alone isn’t enough – it may reveal the lower operating costs, but you can’t use it alone.”

Wuich notes that a metric like TCO becomes more valuable over time because the day-to-day snapshot of Vehicle A versus Vehicle B (or 5,000 Vehicle As against 5,000 Vehicle Bs) is too static and insular a data point to reveal too much. 

“Right,” he says, “COVID caused mileage to plummet, but you still pay operating costs and for the depreciation of the vehicle. Cost-per-mile really skyrocketed for many fleets, and of course TCO will exist in some form for budgeting purposes. We look at depreciation, fuel costs, maintenance costs, accident costs; TCO is just one component of a much larger picture.”

Wuich adds that he liked CPM as a metric prior to the pandemic, but as work-from-home became the norm and business miles plummeted, CPM became a trickier metric than it used to be. He also says that electrification fundamentally changes the TCO equation.

“The depreciation bucket gets bigger as vehicles cost more and there’s a question mark on the resale side of it. Maintenance and cost-per-charge becomes smaller. Accident safety costs are a larger factor as well.”

Looking ahead, Wuich hopes to see mobility emerge as a primary driver of fleet conversation. It was hot before the pandemic, and he knows all the COVID-driven global factors will continue to nab headlines in the short term.

“What drives mobility today?” he asks. “Where does it stand? How do sustainability and electrification factor into it for fleets of all sizes?”

Like Stafford said, Guich agrees that it’s not enough to dwell on old data (or outmoded trains of thought), and no one is persuaded by a hammer. Instead, it’s effective communicators like Stafford and Wuich who can help drive real change for the fleet industry.

To close his presentation, Stafford repeated his initial mantra.

“Total cost of ownership is not good enough. We have too much data at our fingertips. Is cost-per-mile the answer? I don’t know. I think it’s better, but I still don’t know what the answer is for our fleet, or for yours. I think it depends upon use and utilization. You need to find a utilization metric that works for your fleet.”

Stafford then gave a brief history of modern technology. Microsoft was the wealthiest corporation in 1997. Google debuted in 1998. Jeff Bezos grew Amazon to more than just books around 1999. YouTube debuted soon after, followed by Facebook and social media.

“More data was created last year than all of human history before it,” he concluded.

“Data overload is coming and it must be managed. How do we collect data to inform our decisions? How do we determine the real cost of ownership of our fleets? Those who parse the data are those who will grow and prosper from it. I’d like to challenge all of you to take a better look at your data and find a different or better way to use it. Because TCO is dead.”

The audience applauded, and Stafford laughed and issued one more challenge. Or was it a decree?

“Now get the hell out of here!”