It can be a bit tricky knowing the exact right time to retire one or more of your trucks. Some fleets set a trade cycle and stick to it no matter what. Others don’t follow a set cycle but rather trade when a new technology they are interested in gets released.
The key to determining the proper trade cycle is to remember that they are not determined by any one factor, but rather a number of them.
Here are some items to consider:
- Cost of a new asset
- Technology improvements
- Interest rates
- Cost of maintenance
- Fuel costs
- Resale value
The key, however, is to consider these factors in concert with each other. For example, the new asset may cost more but may have technology improvements that help offset the initial purchase price (especially if that technology makes the truck more fuel efficient). That could make it advantageous to purchase a new truck earlier than you planned.
The cost to finance a new asset is also important. Low interest rates may make it more attractive to trade an old asset for something new, more so if it looks like the cost of borrowing will go up in the near future.
If you start seeing your truck in the shop between PM services it may be time to trade it in. Trucks that are breaking down between maintenance services are costing you money and likely aggravating your drivers. It may be worth your while to shorten the trade cycle to get rid of an asset (or a group of similar assets) that always seems to be in the shop for repairs.
Then of course there is the resale value of the truck you are trading. The used truck market ebbs and flows. Sometimes there are too many of the same type of trucks available so used truck values decline. In that case, hanging on to the truck a bit longer may make more sense. Other times, the truck you are trading may be in high demand and you can expect top dollar for it.
Trade cycles are not a set-it-and-forget-it type thing, nor should trucks be traded just because some new whiz-bang technology comes out — remember that new technology could turn out to be a bust and you’ll be stuck with it for several years.
You want to establish a plan for retiring assets and purchasing new ones but you need to review it regularly and perhaps tweak it as market conditions and asset performance change.
While there is no set formula for determining the optimal time to trade in a truck, the goal is to get the best total-cost-of-ownership. In order to do that, you have to include a variety of factors in your calculation to determine what works best for your operation.