Extended Service Lives Demand Preservation Strategies

As long as I have been in the fleet industry, the rule of thumb has been to replace fleet vehicles before the trend line for operating costs starts to exceed those of fixed costs. But what happens when you can’t source replacement vehicles as we have experiencing for the past several years due to widespread supply chain constraints and restrictive ordering volumes based on OEM allocation requirements?

Buyer demand – both retail and fleet – continue to exceed production capacity for many high-demand models resulting in restrictive ordering allocations. Also, reduced inventory on dealer lots, while improved, continues to limit out-of-stock purchasing options.

All of these factors have forced many fleets to extend vehicle service lives beyond the time a vehicle is normally scheduled to be replaced.

 With the typical fleet vehicle averaging 20,000-24,000 miles per year, a missed replacement cycle means a vehicle that normally would have been replaced at 70,000 miles now might not be replaced until it reaches 90,000 or more miles. And as we know, from numerous operating cost studies, and real-world experience,  these higher-mileage vehicles tend to have a greater frequency of maintenance issues typically involving longer downtime due to more extensive repairs.

For instance, nearly all fleet-related expenses, both fixed and operating, are influenced by when a vehicle is replaced. Also, extending vehicle service lives increase the percentage of the fleet operating outside of its warranty period.

A longer service life adds to the total lifecycle cost of a vehicle because its extended service life puts it in a position where key wear items must be replaced, such as tires and brakes.

This has forced many fleets to adopt what’s being generically called a “fleet preservation” strategy designed to mitigate the negative impact of operating higher-mileage vehicles that remain in service beyond their normal replacement period.

These fleet preservation strategies focus on:

• Strict preventive maintenance compliance.
• Route optimization to avoid unnecessary miles.
• Idling restrictions to minimize unnecessary engine hours,
• And an increased focus on driver abuse, which tends to accelerate a vehicle’s wear-and-tear.

The foundation of a fleet preservation strategy is to enforce driver compliance with preventive maintenance schedules. A strict PM program increases a vehicle’s fuel economy, decreases the incident of unscheduled repair, and extends vehicle longevity.

Monitor Driver Behavior

The primary focus of all fleet preservation strategies is to ensure vehicles do not operate outside their normal parameters. The best way to do this is to keep a laser focus on monitoring driver behavior. Ask yourself: Why can one driver  make a set of tires last for 50,000 miles versus a driver who replaces tires every 20,000-30,000 miles on the same make and model of vehicle? When this occurs, it is typically a sign of aggressive driving. The same is true with other wear items, such as brakes. Faster than normal brake wear is usually indicative of aggressive driving.

Avoid Overloading Vehicles

     One way to preserve vehicle service lives is by not operating them outside their normal parameters, in particular, overloading. Truck overloading is very common fleet issue that consumes additional fuel, poses a safety risk, and causes unnecessary wear and tear on the chassis and tires. In fact, fleet surveys consistently show overloading is the number one cause of unscheduled maintenance for trucks.

Reduce Mileage & Engine Hours

The over-riding intent of a fleet preservation strategy is to reduce odometer miles and engine hours without impacting the fleet application. If your drivers follow a set route during the course of the workday, then you should focus on route optimization. This requires strict adherence to routing plans and route optimization to minimize unnecessary mileage.

In terms of the overall fleet, you should optimize utilization to smooth out mileage variations. Managers should closely monitor vehicle mileage records and swap out high-mileage units with lower-mileage units.

 Another fleet preservation strategy is to minimize unnecessary idling. Besides wasting fuel, excess idling also causes unnecessary emissions, noise pollution, and needless engine wear-and-tear. However, utilize an anti-idling strategy only in situations where there is no possibility of collision since turning off the engine may disable safety features such as airbags.

Acquisition Strategies

The most important component of a fleet preservation strategy is to develop an acquisition strategy to increase the likelihood of sourcing replacement vehicles. First, you need to be prepared to order early when model-year order banks open.

You need to simplify your vehicle specifications: This will increase the number of available models across a wider range of OEMs. Be more flexible with orders in the next order cycle. Requiring a specific color, option, or trim may cause delays or add time to the order-to-delivery process. Also, streamlining specifications (where appropriate) will also help to move vehicles more quickly through upfit and delivery.

In today’s sourcing environment, a fleet manager needs to be agile: Be prepared to make quick acquisition decisions when buying a vehicle out of dealer stock. The market will most likely have limited inventory so when a vehicle is located, approvals should be pre‐obtained to make immediate decisions.

Investigate pre-owned units: If total miles driven could become too excessive with another year of service, investigate the purchase of pre-owned commercial vehicle with fewer miles.

Employee Pride in Their Vehicles

As the frequency of repairs increases due to longer service lives, many employees perceive the vehicle as a nuisance and do not take pride in the vehicle’s internal and external condition in the same way. The result is a degraded corporate image and a diminished resale value.

The probability of body damage to a vehicle increases the longer it is kept in service. The number one source of body damage occurs when a vehicle is parked.

Therefore, another key component of a fleet preservation strategy designed to protect the corporate image is to train your drivers to park in a manner that will avoid damage.

 When operating a vehicle beyond its normal service life, it is important to minimizes the scratches and dents that invariably happen over time. Parking lots are notorious for producing bumper scratches and door dings. Employees should be sensitive as to where they park their vehicles to avoid unnecessary damage. A fleet vehicle with minimal blemishes will present a more positive corporate image and a higher resale value.

If a company markets itself as a high-quality repair business and a service van shows up with body damage and rust, the customer may equate vehicle image to an implied lower quality of repair.

In addition to increased operating costs, a fleet preservation strategy is designed to protect your corporate image

The condition of a vehicle is often the first impression a customer may get of your company, which can be negatively influenced if the vehicle has body damage, rust, or peeling decals.

In implementing a fleet preservation strategy to protect your corporate image, an important consideration is to increase the frequency of washing and cleaning.

 Regular washing does more than make the fleet vehicle look nice, it also bolsters corporate image. Drivers take better care of well-maintained vehicles.

If employees aren’t feeling good about the equipment they’re using, or if the vehicle is unreliable, that will start to have a negative effect on productivity and morale, which causes drivers to let their guard down in caring for their vehicles. A poorly maintained vehicle has the potential to create an attitude by drivers of “if they don’t care, why should I.”

So the first step to a fleet preservation strategy is to monitor  driver behavior and identify those employees who are operating their vehicles outside of normal parameters. This is not only a cost avoidance issue, but also a safety issue that needs to be addressed.

Typically, assets with higher capitalized costs will be kept in service for longer lifecycles, especially if those units are upfitted with expensive auxiliary equipment. In a difficult economy, senior management will demand expense reductions and limit capital expenditures, especially when expensive replacements are required.

Prior to today’s supply constraints, deferred cycling was driven by economic pressures to realize short-term cost savings. For example, longer replacement cycles are more common for companies that self-fund assets, since deferring vehicle replacement is an easy way to stretch dollars in a constrained capital budget. Also, in struggling business segments, companies sometimes extend replacement cycles so cash flow can be diverted to other expenditures.

Unscheduled Maintenance Costs

If your fleet is currently operating under a cycling policy originally established because it created optimum cost-efficiency, to change that policy, by default, means you are switching to a less optimal replacement strategy. Extending vehicle service lives has a cumulative impact on fleet operating expenses and total lifecycle costs due to higher miles, more engine hours, and an across-the-board increase in maintenance costs.

Budgeting for maintenance cost not under warranty is unpredictable. Approximately, 35% of an asset’s total lifecycle cost occurs in the last 15% of life – you want to decrease this period, not extend it. When not adhering to a scheduled cycling policy, catastrophic component failures are more prone to happen as unbudgeted costs. In addition, the unpredictability of component failures results in increased downtime  manifested in lost driver productivity.

Downtime, specifically the number of hours an asset and driver are out of service, directly correlates with the severity of the maintenance issue. Critical component failures, which tend to occur more often with older assets, result in higher downtime costs per incident invariably due to complexity of the repair and longer turnaround time.

Maintenance costs also increase because the additional months in service necessitates additional PMs and sometimes an extra set of replacement tires. One fact no one disputes is that maintenance expenses will go up.

The stakes are even higher for vocational fleets that require reliable vehicles to complete revenue-generating jobs. When downtime occurs due to unplanned engine or equipment repairs, it  jeopardizes a company’s ability to effectively serve its customers and generate revenue. Long-in-the-tooth vehicles typically need repairs requiring longer turnaround times, longer driver downtime, and they cost more to return to service. Direct costs include lost revenue, penalties/fees on missed contractual deadlines, towing charges, temporary rentals, overtime, and indirect costs due to lower employee morale, all of which need to be factored into a risk analysis when deliberating to extend service lives.

One truism is the older the vehicle, the more the problems. On-the-road breakdowns occur with greater frequency with older vehicles. One soft cost to extending fleet lifecycles is its impact on driver morale.

The real cost to extended service lives isn’t so much the repair, but rather the downtime, especially when there is no replacement or backup unit available. In some cases, older trucks can be substituted with long-term rentals until the next budget cycle allows replacement. Sometimes are being forced to spend more money repairing an older mission-critical vehicle than it is worth; essentially substituting operating funds for capital expenditure funds.

Counterproductive Goal

As budgets for replacement vocational vehicles are cut, any capital savings achieved is generally shifted to the expense column of the operating budget. This is due to the increased total cost of ownership for an aging fleet. As vehicles age, maintenance costs can increase significantly. In the case of upfit vehicles, these costs include the maintenance of ancillary equipment as well.

Extended replacement cycles for short-term capital expenditure savings often have the unintended consequence of resulting in greater long-term expenses, such as decreased worker productivity, reduced resale values, increased downtime for both the driver and vehicle, an increased probability of safety-related issues, potential impact on OEM volume incentives, a negative impact on company image by driving worn-out assets, and higher operating costs due to the degradation of fuel economy.