A vehicle’s life cycle begins when a vehicle is manufactured and ends when it’s no longer operable. In between those two points in time, there may be multiple owners, and hundreds of thousands of miles driven. In the fleet world, life cycling refers to how long you keep a vehicle before replacing it with a new one.
Why is Establishing a Vehicle Life Cycle Important?
Establishing a vehicle life cycle is important for a number of reasons.
Firstly, by establishing a vehicle life cycle, you’re more accurately able to budget expenses for years in advance. A defined life cycle limits the variables in your fleet operation and allows for more accurate calculations.
Additionally, establishing a life cycle will assist in maintaining a good corporate image. Fair or not, we tend to make judgements based on first appearances. Letting your vehicles become old and worn-looking could negatively impact how customers view you.
Finally, if safety is something that’s important to you, then establishing a vehicle life cycle should be as well. Manufacturers are innovating at a torrid pace, and it seems every model year there are some new safety advancements being made. Establishing a vehicle life cycle will ensure that your drivers are consistently placed in vehicles with the latest safety technologies, keeping both them, and others safe.
Depreciation vs Useful Life
It’s important to distinguish between depreciation and useful life, especially for those operating equity leases. During the course of an equity lease, you’re depreciating the vehicle down by a set percentage every month. After a specified number of months, the vehicle is 100% depreciated. However, this does not necessarily mean that the vehicle has no useful life left and you need to immediately replace it. A vehicle’s life can stretch far beyond the point in which the book value is 100% depreciated depending on how it’s utilized. Most fleet management companies will assist you in evaluating this potentially tricky area.