Run Cost Analysis Part I: How to Determine if it’s Time to Upgrade

Cost AnalysisWith the typical cost of a new Class 8 truck at about $130,000, making the decision to trade in existing vehicles for new ones requires precise calculations and research. With the importance of fuel economy today, the decision might be clearer than you think.

How long should you operate your trucks? How do you decide when it’s time to buy new? The answer can be found by doing a Run Cost Analysis to determine the per-mile cost of any piece of equipment you operate or intend to buy. With a thorough analysis of your current costs, you can discover whether holding onto that dependable three-year-old Class 8 tractor and avoiding the higher acquisition costs that come with purchasing a new unit is really the most cost-effective decision after all.

Every Run Cost Analysis begins with fact finding. The first data to be gathered are for fixed costs associated with owning a vehicle. These involve the cost of ownership, monthly depreciation, or in the case of truck leasing, your monthly payment or lease costs and their associated tax benefits.

With that information in hand, you start to identify the variable costs. These consist of items such as maintenance and repair costs, breakdowns, and  fuel costs. Both fixed and variable costs are then added together and divided by the number of miles the vehicle runs per year. The figure you come up with is what it costs to operate that piece of equipment over each mile that it currently runs.

In a backwards-looking analysis – assuming you purchased today the same make and model vehicle at the same interest rates and fuel prices – you can calculate the difference between what it cost to operate the truck when it was new and what it costs now.

Determining the fixed costs of a new tractor is fairly simple, much more challenging is coming up with the variable costs associated with a new vehicle. Although you can’t know for sure the maintenance and repair costs of the new tractor or the cost of diesel in the future, you can base your analysis on the experiences of other fleets running the new model truck, or utilize your own historical data.

In today’s transportation environment fuel economy plays the biggest role when determining whether it makes financial sense to purchase a new asset. If a new vehicle promises 8 MPG vs. the 6 MPG you are currently getting with your existing unit, that 2 MPG difference is extremely significant. Say you run the unit 120,000 miles a year and diesel costs $4 a gallon. That 2 MPG increase in the new asset equates to a savings of 5,000 gallons of diesel per year, equating to $20,000. Even considering the higher fixed cost of moving to new, it can positively benefit your bottom line.

A fleet management services company can assist fleet owners and managers, helping them to evaluate vehicle specs, acquisition costs, maintenance and repair costs, and historical / future fuel economy. In the meantime, stay tuned for Part II of my blog where I’ll continue the conversation of other factors to study, including variables like maintenance and repair, aerodynamics, the number of miles travelled annually, and state-by-state EPA regulations.

About the Author: Patrick Gaskins is Vice President of Financial Services with AmeriQuest Transportation Services.