5 Substantial Depreciation Factors Fleet Owners Can’t Ignore

Managing a fleet is expensive. To run one effectively is to balance the many complex costs in this field to maximize profit margins and long-term gains. Fleet depreciation is one of the most significant but hardest to balance of these expenses. Despite how it may seem initially, it isn’t entirely inevitable.

All vehicles will lose value as they age, but fleet owners can minimize these losses by addressing the many controllable factors affecting depreciation. Here are five of the most substantial of these aspects.

1. Original Prices

A truck’s upfront cost is one of the biggest influences on fleet depreciation. Vehicles typically lose 20% of their value in their first year and up to 60% within the first five. That’s a remarkable drop, so it’s important to consider the price and how much of that value will vanish before buying anything.

How to Account for It

While fleet owners can’t change how much a new truck costs, they can optimize spending in a few different ways. One of the simplest yet most effective is to avoid buying brand-new machinery. Waiting until a model is two years old won’t mean a huge sacrifice in performance but rids the fleet of the largest depreciation period.

Alternate ownership models are also worth consideration. Renting can offset this big drop by keeping the weight of depreciation on the lender. Rent-to-own models offer similar benefits but offer lower rates because they’re longer-term agreements. Fleet operators won’t carry depreciation costs until the end of the contract but can still control other factors like maintenance and usage.

2. Mileage

How many miles a truck has is another key consideration. More miles mean more maintenance and fuel spending — significant costs of fleet management in their own right. They also directly impact depreciation, as a higher mileage will often warrant a lower sales price since buyers typically want less-used assets.

How to Account for It

The key to balancing depreciation and mileage is to drive fewer miles. Decreasing mileage doesn’t mean performing less work. Instead, fleet managers should think creatively about how to accomplish the same amount of work with less driving.

Route optimization is the most obvious solution. AI-powered routing software has reduced some fleets’ routes by 8 miles or more per driver by finding paths humans may miss, and accounting for real-time changes like traffic jams. Combining delivery routes, picking up items on the way back from deliveries and right-sizing vehicles to minimize unused truck space will also help reduce excess mileage.

3. State of Repair

Maintenance is critical to fleet lifecycle management and another big depreciation factor. Age plays a significant role in a machine’s declining value, but care can offset age for better or worse. A well-kept older vehicle may retain more value than a newer one in disrepair.

How to Account for It

This fleet depreciation factor is relatively easy to address, yet many businesses still rely on sub-optimal solutions. Schedule-based maintenance is the norm, but it often results in unnecessary costs — many regular repairs don’t add any value — and fails to stop all breakdowns. Condition-based and predictive maintenance are better alternatives.

Condition-based maintenance repairs trucks as necessary by responding to real-time data on their operating condition. Predictive approaches are similar but use AI to analyze this data and predict the optimal repair time, offering more effective breakdown prevention. Both methods have higher upfront costs than conventional solutions but keep vehicles in better condition for longer.

4. Features and Optional Add-Ons

A truck’s features and options also impact its depreciation. A wide array of cutting-edge features may make it seem like a better investment, but most of these add-ons will depreciate quickly. That’s partly because they mean a higher upfront cost and partly because secondary buyers often don’t care as much about them.

How to Account for It

The easiest way to account for feature-driven depreciation is to avoid higher costs for convenient add-ons. However, not all extra features will decline in value. If something becomes standard in the future, secondary buyers will expect it. In these cases, not having a specific add-on could depreciate a vehicle faster than paying extra for it upfront.

The key here is recognizing which features hold the most long-term value. If something is convenient but doesn’t affect the vehicle’s usability, safety or productivity, it’s not likely worth paying more for. It may be a sound long-term investment if it makes a substantial difference in any of those categories.

5. The Larger Vehicle Market

Fleet managers must also consider the commercial vehicle market as a whole. Supply and demand heavily affect fleet depreciation and while businesses can’t necessarily control these factors, they can respond to them. Current and future market conditions determine the optimal time to buy and sell, as well as what kinds of equipment to look for.

How to Account for It

Periods of strong supply chain growth will likely drive commercial vehicle demand higher. These times are great moments to sell but poor ones to buy, as they typically mean higher sales prices. Similarly, fleets should plan to purchase trucks but avoid selling them amid a market downturn if possible to maximize returns.

Future market changes should also impact the kinds of machines a fleet buys. Electric vehicles (EVs) have struggled to take hold in current commercial markets, so their value seems questionable. However, the U.S. plans for EVs to account for 50% of new vehicle sales by 2030. Consequently, the industry will shift toward electrification, so EVs may hold more long-term value that leads to slower depreciation.

Fleet Depreciation Deserves Attention

Depreciation may seem uncontrollable compared to other fleet management costs, but that’s not the case. Accounting for these expenses is more complex because it involves many outside factors, but fleet managers can control more than it initially seems.

Paying attention to these five factors will help managers make the most of their fleet’s depreciation. They’ll then get the most long-term value from their assets, leading to stronger future growth.

Emily Newton is the Editor-in-Chief of Revolutionized Magazine, an online publication that explores innovations in science and technology.