Total Cost of Ownership - TCO
We calculate that the operating costs of a new vehicle costing R200,000 travelling 30,000 Kms pa, using industry norms, is R102,894 pa (R8,574pm) - (depreciation, interest, maintenance, fuel, insurance & licensing)
The above calculation assumes a residual (resale) value of 40% after 48 months and maintenance costs of 30cpk and fuel consumption of 10 litres / 100kms.
This is an important number when budgeting total fleet costs but how do we compare 2 similarly priced vehicles, or for that matter evaluate the cost benefit of a 3rd similar vehicle with a much lower purchase price.
Assuming that you have completed the vehicle evaluation process, where you will have shortlisted a number of vehicles, the next step is to do the TCO evaluation and comparison.
The following values are purely theoretical to demonstrate this TCO comparison method.
Interpreting this table:
- Although vehicle C has a lower purchase price, the TCO Premium for 48months is R41,686 the reasoning being
- The resale value is lower for this vehicle
- The higher maintenance and fuel cost
- As an example - These values could be attributed to the vehicle being older technology
- Vehicle B has the best resale value, least cost of maintenance and best fuel consumption
- Vehicle A has a lesser resale value, higher cost of maintenance and higher fuel consumption
This TCO comparison suggests that model B is the best value for money.
It is important to note that this is a theoretical study to indicate the methods of calculating and interpreting TCO – cpk values. It is not advising that vehicles with a lesser purchase price are not a good buy.
Although Model A appears to be the best choice based on TCO, the ultimate choice will be based on the many factors of vehicle selection, such as “fit for purpose”. TCO is but one important criterion.
Have a question?
Contact Nigel Webb - Latitude Fleet Services - nigelw@latitudefleet.co.za