Whether you are selecting new vehicles for your fleet or renewing them, it’s essential to consider a few factors in the selection process.
Fleet managers often face unique challenges and opportunities. This includes choosing suitable vehicles for your fleet that hold long-term value.
According to Dovetail, a transport and warehouse software solution, “Acquiring a fleet of vehicles is arguably one of the major investment decisions that a business takes. If you own a fleet of vehicles, you need to invest time and effort in managing it. Effective fleet management holds the key to getting the most out of your fleet. Businesses that fail to adopt best fleet management practices often have to go through the difficulties of watching their fleet dwindle one vehicle at a time.”
Here are some of the most important factors to remember when selecting vehicles for your fleet.
1. The vehicles’ intended purpose
Before you can consider choosing vehicles, you should consider the vehicles' intended purpose. When determining which vehicles would be best to buy, rent or lease, consider their size, style, purpose, and loading capacity. The South African market is becoming price-sensitive with increasing fuel and vehicle prices. Hence, businesses and vehicle owners are now more open to choosing smaller vehicle brands if they can save costs and still have reliable vehicles. Think about it this way: it doesn’t make sense to buy bigger vehicles if they will be used for office-based employees.
2. Consider buying vs. leasing
Are you buying outright or leasing your vehicles? If you buy outright, you want a vehicle you can sell later and still achieve a good resale value. It’s more expensive to buy vehicles upfront, but it can increase the overall worth of your fleet.
If you lease, this is not as important, as the risk of resale is born by the lessor. A substantial resale value benefits the lessee or driver in a reduced rental. Leasing is a great option; your working capital can help you invest in maintenance, parts, and the overall upkeep and administration of your vehicles. Strong brands have more significant after-service footprints and a higher chance of finding parts available if the vehicle breaks down or needs repairing. Well-maintained vehicles also retain value in the long run.
The benefits of leasing vehicles:
- No capital outlay in cash is required to purchase vehicles or pay off deposits when financing with a bank.
- The Input VAT is claimable monthly.
- The fleet discounts on the purchase price reduce monthly rental.
- Fleet managers can easily forecast the budget as the monthly rental includes all costs.
- No risk on the resale value in an ever-turbulent used car market.
- Fleet managers have the flexibility to reassess your leasing contract if utilisation requirements change.
- Fleet managers can use the leasing provider’s BEE Scorecard to claim annually on preferential procurement spending.
3. Calculate the Total Cost of Ownership
Avis Fleet shows the best business intelligence for customers on our Total Cost of Ownership (TCO) model, namely, which vehicle model will lease the best for the upcoming months and the number of kilometres required. A TCO model aims to find the “sweet spot,” thus the optimal point in time to replace the vehicle. Over time, a vehicle depreciates in value, and as kilometres increase, the vehicle will eventually go out of the standard service plan and warranty. It’s important to understand the vehicle application first and benchmark different vehicle models against each other. The TCO model gives the customer the monthly rental cost that includes the financial portion, the maintenance, and tyre replacement costs and adds the indicative fuel cost per month based on the vehicle model consumption for the monthly kilometres chosen. TCO is beneficial because even a R200 difference per month in the TCO from one vehicle model to the next can save a big fleet of vehicles over a three or four-year lease period. It is therefore critical not to choose a vehicle on the purchase price only but to include the maintenance, tyre cost, and anticipated fuel cost to run the vehicle at a minimum. Other costs to be added are insurance costs, annual license renewal costs, car washes, vehicle tracking, monthly subscription costs, fuel card, and e-tag fees.
Total cost of a vehicle over its lifetime is impacted by many factors. The following are several of the biggest influencers of total cost.
- Fuel consumption
- Asset depreciation (resale value)
- Driver behavior—how a vehicle is driven & utilised will have an impact on the maintenance and overall condition of a vehicle at the end of its use.
Generally maintenance increases as the vehicle usage increases so most of the maintenance spend is towards the end of the vehicle’s contract. Application, environment, and driver behaviour have a large impact on maintenance and choosing the wrong vehicle for the wrong environment or application can add to the TCO.
Asset depreciation is usually at its peak at the beginning of an asset’s life. The quickest value depreciation of a new vehicle happens the day it drives off the showroom floor. Thereafter, it generally follows a steady rate of deprecation and this rate varies between makes and models. There are a number of exceptions to this rule, for example, where new vehicle supply cannot meet a very high demand and it often allows a vehicle to be sold at a higher price than its original list price.
The balance between optimising the rate of depreciation and maintenance rate is where the opportunity to maximise savings occurs. Selling a vehicle too early to save on maintenance costs means you will have to pay for a higher monthly depreciation.
Keeping the turnover cycle too low also exposes your business to new vehicle price inflation over the longer term. Running a vehicle at 60 months as opposed to 36 months is far more economical in the longer term than changing every 36 months however holding onto a vehicle too long with high utilisation mileage means you run the risk of excessive maintenance costs.
So what we call the sweetspot is the balance between the 2 areas of risk. This sweetspot differs between models and applications. Avis Fleet has accumulated enormous data over the years and uses this data to calculate optimum contracts.
Always make sure you:
- Acquire the right vehicles that are fit for purpose.
- Perform regular preventative maintenance checks.
- Invest in the right technology and data to keep your fleet up to date.
- Effectively manage your Total Cost of Ownership (TCO).
- Do proper research before acquiring vehicles for your fleet.
There are loads of factors to consider when selecting the right vehicles for your fleet, but we recommend choosing the best vehicles for your requirements by keeping the above factors in mind.
If you want to learn more about selecting the right vehicles that hold value, download our eBook for more information: