How Does Depreciation Fit Into Fleet Management?

February 25, 2020 Published by

One of the biggest challenges to a fleet manager in today’s competitive business world is the depreciation that occurs for every vehicle in the fleet, with each passing year. Depreciation can be considered the decline in value for your vehicles over a given period of time, usually in one-year increments. Every vehicle in your team will be losing value at a specific rate for as long as you own it, and the rate of that devaluation will be dependent on a number of factors such as the vehicle type, its age, its mileage, and the cost of acquisition.

Knowing that this is a fact, fleet managers are obliged to manage that rate of devaluation, so as to reduce it to its lowest possible impact, at the time of purchase, while it’s being operated, and at the time when the vehicle is sold. Even before an automobile becomes part of your team, there are some things that a manager can do to minimize the depreciation that will occur.

The key to lessening the impact of devaluation is to minimize the capital cost and maximize resale value on any automobile. The underlying goal is to carry out vehicle replacement at the optimal time for the company, and that would be at a point when the lifetime cost of the automobile averages its lowest point. Any manager who can achieve this will have minimized the impact of devaluation on that team, and can then be confident of having gotten the most out of each car or truck.

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How Does Vehicle Depreciation Affect a Fleet?

Depreciation will have a definite impact on any organization which has a fleet of vehicles, and it will act to boost the expense of an already expensive cycle of replacement for all those companies, no matter how big or small they may be. Even a company with 10 or 15 automobiles will be hit with depreciation somewhere between 25% and 50%.

Decreasing value of vehicles is not even the only thing that managers of those automobiles have to be concerned about. Recalls of vehicles are becoming far more frequent than they were in the past, and some auto manufacturers are discontinuing specific makes and models, which automatically pushes management into higher-cost options.

Of course, the life of vehicles can be prolonged by having conscientious preventive maintenance and regular servicing, but even this won’t do much to prevent normal devaluation from taking place. There are really no automobiles being manufactured which are exempt from the impact that depreciation may have on automobiles in general, and on those which are part of a fleet program specifically. This means the best you can do is be aware of the impact of devaluation, and allow for it in your budgeting and your accounting so that you don’t get walloped when it becomes a fact.

How Does Depreciation Fit Into Fleet Management - Depreciation

How can I Track and Control This Depreciation?

While it is very difficult to exert any kind of control over the major impact that depreciation will have on your fleet, there are a few things that you can do to slow it down. For one thing, you can purchase your vehicles at a cost that is the most beneficial to your business, then make sure to safeguard your assets by regularly implementing preventive maintenance, so that they have the longest life cycle possible.

You should also avoid any kind of selloff of your automobiles if you happen to encounter a slump in used car sales because that’s probably the worst time for you to let go of your vehicles. However, you need to be aware that there is a seriously escalating rise in devaluation, and in the cost of new vehicles, so even the best-managed fleet is likely to experience significant losses due to depreciation.

There are actually three ways that you can have an impact on devaluation, and attempt to exert some kind of control over it. It may still seem like a runaway express train sometimes, but if you use the right strategies, you can slow down the effects of depreciation such that it doesn’t destroy your company budget.

The first strategy is to buy in volume if that’s possible, because the more automobiles that you purchase at one time, the better price you’re going to get from any dealer, and that can seriously lower your acquisition costs. When you’re considering any kind of equipment that might assist drivers in the performance of their normal duties, make sure that any accessories you add will increase the resale value of the automobile. Avoid purchasing accessories and enhancements which might be somewhat useful for the automobile operator, but which add no value to its resale price.

Lastly, keep in mind that timing is a very important component when you’re considering selling off any of your automobiles, and it’s critical in terms of when you’re making your purchases as well. When you’re buying, it should be as early as possible in a given model year, and you should never sell when there’s a slow market for used automobiles because you will undoubtedly take losses at that time. One other factor to remember is not to make emergency purchases of vehicles unless it is absolutely necessary, because that will be outside your volume discount, and you’ll lose the value of having purchased a number of automobiles altogether.

How Does Depreciation Fit Into Fleet Management - Tracking Depreciation

Implementing Fleet Management

One of the three most useful strategies that any manager can adopt is to ensure that all automobiles in the fleet receive proper preventive maintenance so that prolonged usefulness and service can be obtained for each one. To make sure that maintenance is carried out on a regular basis, one thing you can do is to install a reliable GPS fleet tracking system which records all information about automobile operation.

It will even prompt you when maintenance should be scheduled for a given vehicle, so you won’t have to remember when service is needed. Contact us at GPS Technologies to find out about some of the sophisticated vehicle tracking systems we have which can help you keep your team in tip-top shape, and fight the steady progress of automobile devaluation.

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This post was written by Malcolm Rosenfeld

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