Establishing replacement cycles for company vehicles and equipment is both an art and science. It involves experience, prediction, forecasts, and analysis of available data. When financial resources can be limited and the focus is more on prioritizing vehicles that are candidates for replacement.
For lease vehicles the life cycle decisions have already been made. The lease term is set at the expected economic life of the vehicle. When considering leases it becomes a partnership between finance, the firm, and the leasing company.
Before replacing a unit, a few questions have to be asked.
Is the vehicle being fully utilized?
Does it have the proper specifications for the job and operators?
A unit that is not fully utilized may not be a candidate for replacement. The following approaches that may be used in determining when to replace a vehicle:
Perform an economic lifecycle analysis to determine an optimum replacement period that results in the lowest total overall cost over the vehicle’s life.
Replace at an established age and mileage criteria.
Replace when the cost to repair exceeds the cost of ownership.
Waiting to replace a vehicle until expenses become too high and are greater than the vehicles value then it is too late. This is a situation where the company is reactive and not proactive about vehicle replacement. All companies should strive to maintain control over the life cycle of their vehicles.
The approach that we use is a data driven and informed decision on whether to repair, rebuild, sell, scrap, or cannibalize a vehicle. This is based on the costs of potential future repairs, the residual, and/or market value of the vehicle.