The most common reason companies use to justify a “buy and hold” vehicle replacement strategy is that maintenance costs do not justify the expense of a new vehicle. While there’s no doubt that engines and transmissions are designed to last longer than ever, a number of other factors also should be considered. A comprehensive cost analysis often reveals the hidden expenses in a traditional “buy and hold” strategy.

Holding costs are determined by calculating costs over the life of a vehicle for depreciation and taxes, downtime and administration, maintenance, insurance and fuel. Most companies make the mistake of placing a priority on depreciation when it only accounts for 18.4 percent of the cost of running the vehicle. In fact, 52 percent of the cost relates to fuel, yet few firms manage fuel expenses beyond ensuring they fall within company guidelines.

Two factors are involved in managing fuel expense. First, the price at the pump has increased nearly 12 percent each year from 2005 to 2012. In addition, buying fuel for an older vehicle can be like throwing money out the window. For example, based on a pump price of $3.85 per gallon, an older vehicle that is only 2 miles per gallon less fuel efficient than it used to be will require more than $1,350 per year in additional fuel to travel the same 25,000 miles as its late model counterpart. New vehicles also get significantly better mileage than a six- to eight-year-old vehicle got when it was purchased, adding to the additional fuel expense. The higher the price at the pump, the more money is lost.

Additionally, maintenance expenses can mount quickly as vehicles start to age. This is especially true in the fourth and fifth year of ownership (and beyond), when the frequency of small expenses begins to accumulate and the manufacturer’s warranty expires. Once the cycle begins, a single repair can cost as much as $600 to $900, and maintenance expenses never end. An older vehicle not only becomes a constant drain on expenses, but it also contributes to a loss of productivity due to increased downtime.

Each business is unique, and no universal approach to developing a replacement cycle for a fleet of vehicles exists. To ensure vehicles are replaced at appropriate intervals for optimum performance and resale value, a comprehensive cost and replacement analysis will demonstrate conclusively how older vehicles can cost a business a lot more than they’re worth.


Dave Shoop is assistant vice president of Enterprise Fleet Management. For more information, call (314) 512-2795, email david.g.shoop@efleets.com or visit www.efleets.com.