Build a flatter, more predictable budget by determining the optimal fleet age and spend projections that align with your company’s overall objectives
If you follow traditional fleet management practices, you may be choosing which vehicles are ready for replacement based on their months in service or accumulated mileage. This method can cause many fleets to experience up to a 12 percent fluctuation in annual maintenance expenses, and you could face replacing half or more of your vehicles in a single year. Neither outcome is ideal for annual budgeting.
A more innovative way to plan replacement cycling is to look at your fleet holistically with the goal of making acquisition and maintenance costs flatter and more predictable.
Start by determining the ideal age/mileage you want your fleet to maintain in order to support your company’s overall objectives. Conduct this step for each of your specific vehicle types and uses—a one-size-fits-all approach will not be effective. Next you need to determine how many years it will take to cycle through the existing vehicles in order to reach your ideal fleet age. Using simple math, you will calculate how many vehicles to replace on a consistent basis each year to reach this goal. If stipulating the timeframe for completing the full cycle is your priority, you can base the quantity of consistent replacements per year on that instead.
Finally, the key to this approach is finding a balance between the ideal consistent replacement plan and how much the company has to spend. The fleet and finance teams should work together to evaluate both your capital and operating budgets to determine how much your company can afford to invest in new vehicles consistently each year. A simple analysis that depicts the effects age and mileage have on fleet maintenance and reliability should be argument enough to approve any budget adjustments.
With this new plan in place, capital expenses may go up at first, but maintenance expenses will go down, and as the fleet age goes down, reliability will go up. Eventually fleet expenses will reach a nearly flat pattern.
Take control of your fleet financials in the face of changing economic conditions. ARI’s experts provide the insight, tools, and support to improve how you select financing options, control operating costs, and support your organizational objectives. Contact us today.