Total Cost of Ownership

Fleet Total cost of ownership (TCO) considers all direct and indirect running costs when selecting a vehicle. This ensures you get suitable vehicles for your fleet and do not incur any unforeseen additional costs.

A complete TCO approach will include direct costs such as funding, maintenance, depreciation, fuel, taxation and insurance. In addition, TCO facilitates making effective comparisons between different vehicles leading to effective vehicle selections and reducing risk across the fleet.

Vehicle policy based on TCO should be how your drivers select their vehicles and loaded onto digital quote platforms.

Total Cost of Ownership

Fleet TCO Elements

Depreciation

Refers to the reduction in value lost over time as the asset gets older. Factors such as the type of vehicle, resale market conditions and the level of use of the vehicle will impact depreciation.

Funding or Finance Cost

Vehicle purchases take place through either cash or via a loan or lease. Cash will have an opportunity cost such as bank interest and loans/leases will have a funding or borrowing cost.

Vehicle Maintenance

Vehicles will need maintenance throughout the usage period. Maintenance will vary according to vehicle usage and the associated manufacturer service schedules.

Maintenance costs should cover all routine maintenance and forecast costs for tyres, glass and a degree of unplanned maintenance.

Fuel or Mileage

Fuel costs will vary significantly according to vehicle type, fuel type and operating cycle. Therefore, fuel is an important part of TCO calculations and should accurately reflect real world use rather than the manufacturer claimed fuel efficiency.

This is particularly important when considering hybrid or plug-in hybrid electric vehicles, as consumption will vary significantly according to the operational cycle.

If you pay drivers using the HMRC advisory fuel rates, this should be used in your calculations as this will reflect the actual costs to your organisation.

Taxation

Vehicles incur a number of different taxes. Therefore, include all taxes directly attributable to the vehicle within the TCO calculation. Of course, these will vary according to funding type and vehicle type.

Vehicle tax is significant when reviewing electric vehicles as there are many incentives both from a corporate and personal tax perspective to consider.

Insurance

Vehicle insurance should be included as part of a TCO calculation as long as it is incremental. For example, some companies have group policies rather than policies that change when individual vehicles are added or removed from the fleet.

Administration

Include costs associated with the administration of vehicles through a fleet manager, administrator and other systems related costs.

At EVP Solutions, we can help you formulate an effective policy based on fleet total cost of ownership criteria.

If you would like some assistance with your vehicle selections then please contact us.

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