Fleet Maintenance - 45

```MANAGEMENT
The economics:
Four cost areas

After evaluating the operational fitness of the
unit based on the assumptions above, there are
four cost areas to consider when completing
equipment replacement analysis.
Ownership costs
Ownership is the initial cost of
vehicle operation. These costs
start to accumulate after you
acquire the unit, before the
truck is even driven.
These costs are payable
even if the unit earns
no revenue. When
calculating ownership costs, fleets should
consider the following:
ÜÜPurchase costs, depreciation, and costs of
money
ÜÜLease/rental payments (fixed portion)
ÜÜInsurance costs, self-insurance reserves
(opportunity costs)
ÜÜPermits, license costs, statutory costs (costs
mandated by law)
preparation
ÜÜActual cost of time and resources shopping
for vehicles
ÜÜRe-build/re-manufacture costs
ÜÜLabor to strip parts off retiring units
The highest ownership cost for vehicles is
depreciation. Depreciation is a tax law concept
to recover the investment as it deteriorates.
The calculation is regulated by law and does
not reflect actual values. Real depreciation is
higher right after purchase and drops to minimal levels over the years.
Here's a simplified example to calculate
ownership cost. We want to buy a vehicle
that costs \$75,000 (all-in) to purchase. After
eight years, we'll estimate the salvage value
at \$18,000. The \$57,000 difference equals the
overall amount paid for the vehicle itself.
Add \$4,000 in annual costs such as insurance, licensing, etc. over the eight years the
vehicle is in the fleet, and that equals an additional \$32,000. The total cost of the vehicle
itself along with the additional annual costs
totals \$89,000.
The vehicle travels an average of 75,000
miles per year. Over the course of eight years,
this totals 600,000 miles.
To calculate the cost-per-mile of ownership,
divide \$89,000 by the 600,000 miles, which
totals \$0.148 per mile for ownership costs.
Operating costs
Operating costs vary by
the use of the vehicle.
Reduction in mileage
through better routing,
reduced idle time, proper tire inflation, and
preventive maintenance
that corrects bearing/drivetrain/clutch issues,
will all favorably impact operating costs. The
unique aspect of operating expenses is that
they respond immediately to improvements

in your operation. Consider these operating
ÜÜFuel prices
ÜÜFuel taxes (above those paid at the pump)
ÜÜMileage charges on rental and/or
leased units
ÜÜTire consumption (not repairs)
ÜÜAdding vehicle fluids such as engine oil,
coolant, hydraulic oil, etc.
ÜÜOther miscellaneous operating costs
Here is another example of how to calculate operating costs per mile. Our proposed
purchase is a diesel-powered unit that gets
10 miles per gallon. Fuel cost with tax totals
\$3.75 per gallon. This calculates to \$0.375
per mile. Then, consider tire costs. If we
estimate a tire has 37,500 miles of road life,
and a straight van truck has 10 total tires at
a cost of \$275 each, the tire cost would total
\$2,750. That total cost, divided by 75,000
miles, totals \$0.04 per mile. Adding the fuel
and tire costs totals \$0.41 per mile. See chart
below for another comparison.
Dollar savings per year on 100,000 miles
in a 4.5 MPG versus a 5.5/MPG unit
Cost per gallon

Savings per year

\$1.00/gallon

\$4,040

\$2.00/gallon

\$8,080

\$3.00/gallon

\$12,121

\$4.00/gallon

\$16, 161

\$5.00/gallon

\$20,202

Maintenance costs
As part of operating cost
calculations, maintenance
costs should be considered. Maintenance costs
include all scheduled and
unscheduled services and
repairs, such as:
ÜÜThe actual cost of inside labor (includes
ÜÜThe actual price of inside parts (consists of
a fee to carry, spoilage, etc.)
ÜÜOutside labor (vendors)
ÜÜOutside parts (suppliers)
ÜÜChanging oil and coolant
breakdowns, tire issues, etc.)
ÜÜHidden costs of failures
Maintenance costs generally start high,
but most are covered by warranty. This is the
shakedown period when latent defects may
surface. After a year or so the costs stabilize to
a lower level. As the unit ages, the maintenance
costs start to increase as larger components
reach their end of life. We may try to replace
the unit before the inflection point when the
costs escalate rapidly.
Maintenance costs for a unit of this type
might average \$0.10 per mile over the eight
years. If you have repair data from your own
operation, you can better estimate expenses
from actual data. Note that in the U.S., parts
costs have gone up faster than overall inflation. Labor rates have been stable, but indications are that they are also going to increase

(due to localized skills shortages and full
employment). These considerations may also
increase maintenance costs each year.
Downtime costs
Downtime costs are highly
dependent on the consequences of a breakdown
or of not having a unit
when you need it. Even
if we are comparing
the same basic truck
body in two services,
this might require very
different downtime rates.
For example, compare downtime costs
consequences (or cost) for the same basic
chassis that may be upfitted for numerous
applications such as an ambulance, a light
duty delivery van, an armored vehicle carrying jewelry to a convention, or an airport
passenger van.
You also want to assess how much risk of
vehicle downtime you can tolerate. The more
risk tolerance, the lower the downtime cost
and the longer a fleet might be willing to keep
the vehicle. Below are some considerations
when calculating downtime costs:
ÜÜIdle operating times (including driver's
salary)
ÜÜReplacement unit rental costs
ÜÜLoad replacement cost for damaged or
vegetables)
ÜÜLate penalties
ÜÜIncrease in cargo insurance premium, in
case of an accident
ÜÜLoss of early/on-time incentives
ÜÜIntangible costs of customer dissatisfaction,
hidden fees, other charges
ÜÜRevenue loss
ÜÜCost of tied-up capital
These costs can be used to calculate downtime cost per hour, cost per trip, and cost per
field repair incident.
Low downtime estimates are \$100/hour;
high downtime estimates might be \$1,000/
hour. Note that road calls can easily exceed
\$1,000. More significant problems include
damage and delays to the freight, perishable
Downtime is only chargeable for the hours
that the unit is in demand. Many organizations that operate during one shift can reduce
downtime by using second or third shifts for
preventive maintenance (PM) and small to
moderate-sized repairs. Where this is possible,
many of the costs associated with scheduled -
and some of the costs of breakdown downtime
- are eliminated.

Putting it all together

Before everyone starts disagreeing, realize
that changing the assumptions changes the
result.
You'll find some numbers move the needle
quite a bit and others not so much. Focus your
analysis on setting up the parameters, and
you'll have a handy tool.

February 2020 | VehicleServicePros.com

45

```
http://www.VehicleServicePros.com

Fleet Maintenance

Vehicles: What's Next in Federal Vehicle Emissions Standards?
In the Bay: Technician Tool Support
Shop Operations: State of the Industry
Taking the Extra Step to Prevent Wheel-offs
Planning Ahead for Vehicle Cybersecurity Threats
Management: How Do You Know When to Replace a Vehicle?
Economic Outlook: Won't Get Fooled Again
Letter from the Editor: Real-world Views on Parts, Service, and Operations
Tools & Equipment
Classifieds
Guest Editorial: Moisture in Trailer Brakes is Not Just a Nuisance
Hand & Specialty Tools Supplement
Specialty Hand Tools: The Problem Solvers
Get a Hold on Hand Tool Safety
Electric Vehicle Tool Set
Tool Review
Products
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