Optimum Vehicle Turn Cycles

The optimum time to replace a vehicle is when its total costs, averaged over the vehicle’s total mileage are at a minimum on a total cost per mile basis. This includes such costs as depreciation, operating expenses, maintenance, and downtime. You can expect that some cost components will rise during the life of a vehicle, whereas others will decline. There has been some research on fleets of mid-size cars that suggest there are 2 different turn cycles that yield close to similar costs on a per mile basis. The optimum turn cycles might be surprising. Data seems to indicate that for domestically manufactured medium sized cars, the lowest cost per mile was for vehicles turned in the 110,000 to 120,000 mile range. The next lowest cost turn cycle was in the 60,000 to 70,000 mile range. The highest cost turn cycle was in the 80,000 to 90,000 mile range. The reasons seem tied to the cost of incremental depreciation verses incremental maintenance costs. A 3 year old domestic car will still retain substantial trade-in value in the 60K to 70K mileage range, and should wholesale for approximately 45% of its’ original cost. The same car, but 1 year older, in the 80K to 90K range will wholesale for approximately 35% of its’ original cost. The incremental cost of depreciation from year 3 to year 4, is not that different from annual depreciation costs in the prior years. However, maintenance costs now start to rise once the vehicle passes 70K miles. All tires will need to be replaced, and other repairs like brake jobs, will start to creep into the annual operating costs. That’s why it’s cheaper on a cost per mile basis to turn the car in the 60K to 70K range rather than waiting for 80K to 90K miles. However, once you pass 90K miles, now incremental depreciation costs start to fall substantially. The per mile depreciation costs of adding another 30K to 40K miles on the vehicle are almost cut in half. And while it is true that maintenance and downtime costs start to rise, they don’t rise enough to offset the fall in depreciation cost. Once you pass 120K miles, issues like vehicle reliability, safety and major repair bills start to creep into the equation for domestic cars. This analysis does not include foreign cars, or SUV’s or pickup’s. For example, cost data on a fleet of flexible fuel vehicles suggests that pickups have a slightly different cost curve. Orders may be placed for cars, vans and SUV’s once they reach 60,000 miles, but some may wait for 70,000 on pickups before placing a new order. Of course every situation is unique. But be forewarned, if for whatever reason you decide to delay turning your vehicles for another year because you think you are saving money - just the opposite may be happening and your costs are actually going up. Copyright © Flex for the Future

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Flex for the Future provides flexible fuel vehicle leasing of hybrids, biodiesel, and e85 fuel cars and trucks to agricultural businesses.