Could a Total Cost of Ownership Analysis Help Your Fleet? | Utilimarc Fleet FYIs

Gretchen Reese (00:06):

Hey, there. Welcome to Fleet FYIs, the weekly podcast by Utilimarc that reveals how you can make the most of your data for smarter fleet management. My name is Gretchen, and every week you'll hear from me and some of the industry's finest in candid conversations that will shed some light on not only two decades worth of data insights, but some of the industry's hottest talking points and key metric analysis with the aim to better understand your fleet from every angle.

Gretchen Reese (00:33):

But before we begin, if this is the first time you've heard our show, thanks for stopping by. I'm so glad you decided to come along for the ride with us. But I've got a quick favor to ask you. Once you finish today's episode, if you could take a few minutes to leave us a review on your favorite podcasting platform, we would really appreciate it. Give us a rating, five stars, I hope (laughs), or tell us what you liked, or leave us a comment or a question about what you've heard in today's episode. But if we haven't yet covered a topic that you're interested in hearing more about, let us know. We would be happy to go over it in detail in a later episode. If that sounds good to you, let's get back to the show.

Gretchen Reese (01:17):

Hello, everyone, and welcome back to another episode of the Fleet FYIs podcast. Today, we're in for a bit of an analytical turn. And, you can probably tell from the title that the topic up for discussion today is total cost of ownership analysis. I know. Big shocker there. This may see a bit like a heavy topic to cover in, roughly, 10 minutes, but let's have a crack at it, anyways.

Gretchen Reese (01:41):

So, as with any business organization, cost reduction and efficiency are, or should be at least, key objectives in year-to-year strategy. Fleet managers are actively aiming to keep costs at a minimum, especially with how quickly they can add up when you're dealing with high-value assets like the occults itself. And in order to know where costs can be cut, it's essential to fully understand each vehicles total cost of ownership, which can otherwise be known as TCO.

Gretchen Reese (02:07):

Now, TCO is the sum of all costs associated with acquiring a vehicle, keeping it operating throughout its entire lifecycle. This number itself can be expressed as an overall TCO or broken down into cost per mile, making it simple for managers to compare vehicles' cost efficiency, or even something like what our Utilimarc team does, cost per totally... or, total cost per usage day. Of course, this makes total cost of ownership analyses very subjective to a vehicle's projected lifespan, as well as fluctuating factors like fuel costs and taxes.

Gretchen Reese (02:39):

So, like I said, this could be a lot for 10ish minutes, 'cause we all know I never keep it to under 10, but I thought it would make for an interesting episode nonetheless, especially for all my analytics fans out there. Let's dig in.

Gretchen Reese (03:03):

So, I wanted to start off this episode today by breaking down what total cost of ownership is at a very minute level. You might be tempted to take the quicker route and estimate your fleet's total cost of ownership using another fleet's metrics. I mean, that's a very simple way that some people will do that. Now, even if the fleet is similar in size and function, the numbers you get will potentially be misleading. And by potentially, I mean it's highly likely.

Gretchen Reese (03:30):

So, in addition to total cost of ownership being the sum of so many different components, like I already said. So, you have your, um, your purchase price, or your rental pod price, and then you also have all of the expenses for said vehicle or asset throughout its entire lifecycle. Each of these components can be subjective to each fleet depending on the vehicle's functions, and the quality of service that they receive and the region in which they operate. So, there's a lot that goes into this analysis here.

Gretchen Reese (03:58):

Now, along with some of the main considerations that I'll touch on in just a second, fleets should also probably factor in recurring operating costs like tolls, parking, and permits into their total cost of ownership, but that's not always done. But, anyways, I digress. Let's start with the first point on my list.

Gretchen Reese (04:16):

So, the first point is acquisition because that is the most obvious cost (laughs) contributing to total cost of ownership. It's the initial acquisition price, or the price paid for the vehicle itself. Or rental price for the vehicle itself. Now, this can range drastically depending on the type of vehicle needed, accessibility of the vehicles, and the amount that's needed as well as the circumstances in the industry. Like, for example, we all know that vehicle costs over these last, I would say, 18ish months, 20 months, have been massively on the up compared to previous years. But, the thing is, is to keep this cost as low as possible, fleets can actually order vehicles in bulk directly from the manufacturer instead of from retailers who mark up the prices. But we already knew that, right?

Gretchen Reese (05:02):

but if we flip the switch to something like, say, the vehicle is leased or rented, interest charges need to be taken into account with acquisition costs. In addition to the purchase price, any cost for upfitting vehicles should also be considered in your total cost of ownership analysis. This should include any after-market add-ons that your vehicles will need, from ergonomic seating, telematics hardware. I mean, the list could go on.

Gretchen Reese (05:26):

That actually leads me into my second point here, and that is servicing and maintenance. Talking about add-ons or adding in different parts to your vehicle. Vehicle maintenance is an inevitable cost that must be factored into TCO. Bottom line. It needs to be in that analysis, no matter what vehicle you're trying to analyze, or however many vehicles are in your fleet's total analyses there.

Gretchen Reese (05:50):

Routine servicing is essential for avoiding unnecessary repairs, or accidents on the road that could potentially result in even higher costs and even more downtime, and in addition to following a preventative maintenance schedule, historical vehicle data can actually show how many additional repairs that certain models may actually be prone to, and prone to needing over time.

Gretchen Reese (06:13):

For example, if you're holding onto an older truck within your fleet, you know, one that is a total champ and (laughs) it's maybe, say, hitting that 6-8 years old milestone. An older truck that is known to require more frequent maintenance may ultimately be the more expensive option to keep within your fleet. And that's really important for fleet managers to keep in mind. Knowing a vehicle's typical service schedule, and also lifecycle too, also helps fleet managers to factor in vehicle downtime to their total cost of ownership analyses and accurately gauge productivity.

Gretchen Reese (06:48):

That leads me to my next point here, which is fuel. Because, you know, you can't go anywhere without a little bit of fuel in your tank, or a charge in your battery. Fuel is a critical expense for fleets with internal combustion engine vehicles to consider, because it often amounts to over 60% of operating costs for heady-duty fleets. Fuel prices, as we know, can fluctuate dramatically and can also range widely in different states and regions, you know, talking about the, um, I think it was almost $5 a gallon fuel price when I was last in California a couple weeks ago for the Fleet Forward conference, and it's sitting at right around $3ish in Minnesota. Yikes (laughs). That creates another consideration for fleets operating across multiple states. You'll notice that, um, that difference there, especially, and straight away.

Gretchen Reese (07:36):

Heavier duty vehicles, on the other hand, will inevitably rack up a higher fuel spend than lighter duty vehicles. I mean, that much is obvious. Especially those that (laughs) require premium gasoline or diesel-based petrol. And, I may sound like a bit of a broken record here, but it's only because I mean it, is that if you implement a software solution like telematics, it is so incredibly useful for knowing exactly how much fuel is being used on average, and it can actually give you a more accurate estimate for your TCO. Just something to think about.

Gretchen Reese (08:09):

Pivoting back once again, we're going back to costs here. We all know that vehicles depreciate in value over time. You know the saying, "Once you buy a new car, the second that the first tire leaves the lot, your vehicle depreciates about 20% almost overnight"? It's true. I mean, right? As the vehicle accumulates wear and tear over years of operation, vehicles are ultimately worth less. That's just a fact of, well, vehicle ownership, really. And this depreciation over time makes up about 30% of total cost of ownership for fleets.

Gretchen Reese (08:43):

This doesn't necessarily mean vehicles are worth $0 at the end of their predicted lifespan, though. That's one important thing to point out. Well maintained vehicles can actually be valued at about 20% of their purchase price after five years of use, and 10% of their purchase price after about 10 years, which is still a pretty good chunk of change. This is an important thing to note when you're weighing a vehicle's cost to your business against its potential resale value.

Gretchen Reese (09:09):

Now, along the same lines, not necessarily in purchase price or depreciation, but more so (laughs) along the lines of money, is insurance, and that is last but not least on my list. At least for today. There's a lot more that goes into total cost of eh- of ownership analyses, but you can always send us an email afterwards to see what all we work into ours. Another cost that needs to be factored into your total cost of ownership is insurance. And, currently, that's on the rise, like most things (laughs).

Gretchen Reese (09:36):

Insurance for cars is the most expensive, ranging up to about 1,000 bucks a year, with insurance for trucks costing sometimes upwards of 1,500 per year. Which, you know, isn't always fun. Purchasing fleet insurance for fleets of over 10 vehicles, which most fleets are, typically results in a better deal in seamless renewal process for fleet managers saving time and money, but, still, it's something that needs to be factored in every single year that your vehicle is in operation.

Gretchen Reese (10:14):

Now, the question of the 10 minutes I promised to stay under but never do, is TCO of EVs any different? I'm sure you're all dying to know the answer to that. Well, while electric vehicles typically have higher acquisition costs, I mean, this we all know by now. When you're looking at an overall total cost of ownership, they're actually often the cheaper option. Surprisingly.

Gretchen Reese (10:37):

In fact, driving an EV for 200,000 miles can result in a savings of over $8,000 compared with driving an internal combustion engine vehicle. Now, this is due to the slashing of two major costs: fuel and maintenance. Instead, fleet managers will factor in the price of electricity, which is far cheaper than both diesel and petrol-based gasoline, and charging infrastructure upon acquisition which can actually add up to about hundreds of thousands of dollars depending on how much infrastructure you need. You know, fleet yards of charging points, or are you gonna rely on public infrastructure. That's where the price fluctuation can be.

Gretchen Reese (11:14):

But, of course, just like fuel, prices of electricity can vary between regions, so this will need to be updated over time. It's not all gonna be a one-size-fits-all or a one-rate-fits-all type of deal. Charging infrastructure can last long after one vehicle lifespan, though. So, that's one thing to keep in mind. So, this investment doesn't need to be remade with every new vehicle purchase, which is a sigh of relief for many electric vehicle owners, especially because, as we just said, they're not cheap.

Gretchen Reese (11:42):

Now, the total cost of ownership of electric vehicles is also pretty different because fleets that electrify can actually take advantage of government incentives, such as the Qualified Plug-In Electric Vehicle Tax Credit, which can grant fleets up to $7500 in credit for each EV acquired. This can actually result in amassing savings, as I'm sure you're aware, which can partially offset the higher acquisition cost for EVs.

Gretchen Reese (12:06):

But, the true question here, is it worth the switch? Perhaps. You know, we're still working with the data on our- over on our side, so I'm sure we'll let you know soon because we've got a lot of, uh, new analyses and a lot of cool stuff coming your way very soon. So, make sure you keep an eye on the Fleet FYIs podcast, and on utilimarc.com, which is U-T-I-L-I-M-A-R-C.com for new updates coming your way very soon.

Gretchen Reese (12:32):

I'd love to hear your thoughts, though. Are you accustomed to running total cost of analyses for the vehicles and/or assets in your fleet? Or do you break them down into total cost per mile, or cost per usage day? Let me know. Send me an email, tag on LinkedIn, or use the hashtag #UtilimarcFleetFYIs. I, as always, am looking forward to hearing what you have to say.

Gretchen Reese (13:03):

But, until next week, that's all for me. I hope if you celebrate the holiday that you have a wonderful Thanksgiving weekend. I know I'll be straight at the pumpkin pie, and I won't be moving for the foreseeable future. So, coming to you probably straight from the bottom of a pie tin, I'll see you next week. Ciao.

Gretchen Reese (13:24):

Hey, there. I think this is the time I cue the virtual high-five, because you've just finished listening to another episode of the Fleet FYIs podcast. If you're already wanting more content, head over to utilimarc.com, which is Utilimarc with a C, U-T-I-L-I-M-A-R-C.com, for the show notes and extra insights coming straight from our analysts to you. That's all for me this week. So, until next time, I'll catch ya later.