Hold or Replace? Consider Maintenance Expense
If you're thinking of holding onto fleet vehicles longer to save money, consider added maintenance expense as well as mileage and condition factors to make a more informed decision.
Cars are living longer as quality continues to improve. With total new vehicle sales in 2009 projected to be the lowest in some 27 years, this is a good thing for the millions of people who are holding onto their old cars to save money in a down economy.
But is extending the life of your fleet vehicles the prudent thing to do?
Understanding that depreciation is the greatest in the first two years of a vehicle's life, a simple hypothesis would be that the longer you hold onto a vehicle, the lower your depreciation expense. While this is true in a general sense, there are factors to consider in those extra months or years of service that are not readily apparent, such as added maintenance expense and added depreciation due to extra mileage and a possible change in vehicle condition.
There are also soft costs to consider, such as how an older unit affects the public perception of your company or employee morale. We'll stick to a numbers analysis here.
Average Cost of Maintenance
The first chart shows the average cost of maintenance for light-duty vehicles in mileage bands from 0 to 80,000 miles. Notice the spike in costs in the 70,000-80,000 range. This is when vehicles will incur costs for a second set of tires and more costly service items such as brake calipers and rotors, and maybe an alignment.
Though this is a general analysis across all models, it shows the rationale of either selling the vehicle before these major wear item expenses occur, or running the vehicle long enough to amortize the costs.
"The last thing you want to do is put on four new tires and change the brakes, calipers and struts at 70,000 miles and sell it at 71,000," says Jack Leary, president of Motorlease, a fleet leasing and management company. "If you're going to 70,000 miles, take it to 90,000 miles."
However, Leary also cautions that after 65,000 miles the incidences of major failure increase-and at this point most cars are out of warranty.
Maintenance expense expressed in cents per mile varies depending on vehicle type and usage, Leary says. For most fleets, an acceptable range is 3-6 cents per mile. (Notice the average cost in the 70,000-80,000 range is 8 cents per mile.) Benchmark your range and know when your maintenance costs creep out of that range, says Leary.
"The key is not to dump money into a vehicle for maintenance that won't get you back much in resale value," Leary says.