While everyone wishes there was a secret, magic equation to solve the “repair or replace” conundrum, it really comes down to common sense and metrics.
“There is a sweet spot to maximizing resale value, and fleet managers must first consider the type of use on a given truck. Is it running in and out of a pit/mine all day, off-road, for 90% of its life? Or is it parked 80% of the time, working on electrical lines/telephone lines, operating a bucket? Life expectancy for the first example is much shorter than the second,” said Rob Slavin, senior valuation analyst at Ritchie Bros., an RB Global Company.
Details in the Remarketing Data
At the end of the day, it’s important for fleet managers to take the time and conduct the necessary analysis.
“Allowing an entire fleet to age at the same rate can create a lot of risk for a business, both in costs and risks of added downtime. Inflation and the strong employment market have greatly impacted aging fleets in recent years. Fleet managers know this and continue to feel this first-hand,” said Jeff Krogen, vice president of Fleet Strategy at Enterprise Fleet Management. “It’s not uncommon to see higher mileage vehicles in the shop 12-15 times in a single year, which creates immense disruption in a business.”
Krogen shared an example of businesses holding vehicles so long the life-to-date maintenance is over $30,000 on a ¾ ton cargo van or work truck.
“This reiterates the importance of fleet managers reviewing both downtime and total expense. With the increased cost and limited supply in recent years, we have all been forced to run longer cycles but getting back on track as soon as possible will save a lot of cost down the road,” Krogen shared. “Remember the last day of a high mileage vehicle's life, the day it has a catastrophic failure, can easily cost $10,000 after you consider the loss of remarketing value, downtime, and a more expensive stock buy with more equipment than needed.”
Having the enhanced technology to determine what vehicles retail for and how quickly (days’ supply) helps a fleet remarketer dial in the necessary wholesale pricing.
“While analyzing vehicle data, a key factor to keep top of mind is vehicle reconditioning. Data can quickly assist and show whether investing in a repair before resale makes financial sense,” Krogen noted.
Avoid Resale Assumptions
And as you don’t want your entire fleet to age simultaneously, you also cannot assume your vehicles all lose value at the same rate.
“Heavy spec or high horsepower trucks that are uncommon tend to hold their resale longer than a typical over-the-road (OTR) tractor. Thousands of OTR trucks are sold each quarter. When you start looking for hard-to-find, heavy axle/tri-axle equipment, the wait on the new truck side is much longer, and the price is considerably higher. If you’re not using it daily, buying something used at 60% of the new truck price may be worth it – no matter the age,” Slavin added.
According to Bill Bishop, SVP of sales and marketing for FLD, Inc., “This is the kind of environment that illustrates the need to be vigilant with each asset.”
Today’s environment is less stable than three to five years ago when vehicles were more plentiful.
“But, if you’ve got an opportunity to maximize value with vehicles that are not critical, we’d advise to move them now because the environment – as we’ve seen – can change quickly, so the answer to your question might be different a year from now or three years ago,” Bishop added.
Use Common Sense
Remember, the next buyer for a higher mileage/older vehicle is probably not expecting a work truck without a few scuffs, so while ensuring its safety is key, a few dings, scratches, and small dents may not be worth repairing before selling. Also, due to limited technician availability, it may take too much time to repair and not be worth the expense and trouble.
“A fleet manager I recently worked with was over-repairing their vehicles before the remarketing process – assuming cosmetic bodywork would garner higher resale prices. The bodywork was subpar, meaning the buying dealer would have to redo the work that was already done and needed a discount for it,” Krogen added.
This is a great example of why it can be more beneficial to sell a work truck with a small dent and let the buyer repair it in their shop to their level of satisfaction versus absorbing the costs prior to selling.
Josh Giles, principal automotive analyst at Black Book, put it simply: “When it comes to maintaining a commercial fleet, it all comes down to cents and sense. It’s all about understanding and managing a fleet’s total cost of ownership.”