Time to Say Good-Bye?

Created: 14.January 2021

Costly and difficult to manage, trucks are the most important investment good a company transport will have as assets. As such, they are being written off over time as their value diminishes. At some point, the value of the vehicle may be listed as just RM 1, being a reminder that the asset is still with the company and that there is some value there. One of the questions fleet managers concern themselves with is the replacement of trucks with new ones and the question is when should that take place.

When buying a new truck, a service agreement may be in place too, along with warranties covering up to five years. During that time, trucks would normally not break down a lot, however, it is the first few years an asset usually loses most of the book value. Trade-ins when the vehicle is young may not be the best option, or is it? Considering that the book value may not be the actual price a truck could fetch, there might be merit to selling the vehicle within a few years. A buyer may value the fact that a truck still has some warranty left.

The milage might be another way of assessing if a truck should be replaced. Low milage is good, right? It may not be a good indicator either. Anyone that has ever been to North Port or West Port will be able to attest that the road conditions are not exactly smooth. Rough roads increase wear and tear and short distance may also add stress to a vehicle. Age, high milage and the road conditions that the vehicles are on are factors that can influence the value of the vehicle to the business.

I have seen fleet managers that spent entire days just rescuing their trucks, arranging spare parts and tow trucks to keep things moving. While an old truck may no longer need to be depreciated and the truck is therefore highly profitable as an asset, the extra work that needs to go into it may eat into that advantage. In my view, a fleet manager should manage the fleet, not be a fire fighter that runs about trying to put out delivery fires that could end in customers being disgruntled. There comes a point where the joy of having a fully paid truck is no longer as the hassle of keeping it going is just too much to handle.

New technology is also a great motivator. With every new truck being launched we see some nice innovations and advances in vehicle technology. Better axles, smoother ride and lower fuel consumption. Here, the question is if these new gadgets are worth ditching the current fleet for the sake of being an early adopter. Adding in the newest and latest tools may also be a costly undertaking, whereby some of these items sold separately may become standard items later on.

Taking it to the extreme, I have heard of drivers that insist on a certain brand of truck that they would want to drive. It is said that the drivers are the most important asset (non-investment good mind you) and therefore, this might be a consideration if you want to hire the best drivers that there are. Would you sell your trucks and order new ones if that would be required by the drivers you plan to hire?

Obviously, it is not an easy task to plan ahead for the replacement of your new trucks. Naturally, it also depends on your business, cash flow and a number of other factors that I will have not thought of. Maybe you could let me know how you arrive at the point where you say Bye Bye! to your trucks. It would interest me how you go about things.