Extended Trade Cycles: Examining the Value of a Savvy Parts and Service Provider
October 2011, TruckingInfo.com - Feature
Nobody likes surprises. Nevertheless, in the depths of the recent recession, fleets believing they could save a few dollars by holding onto equipment for another year or so got their share of surprises.
As fleets extend trade cycles, they run into spec’ing and maintenance issues where a good parts and service provider can be invaluable. (Photo: Jim Park)
The extra maintenance and repair costs incurred by keeping a truck in service a year or two longer were foreseeable, but many of those fleets came to realize maintenance costs are just a small part of the trade-cycle cost equation.
It's more than parts and labor: it's depreciation, it's breakdowns, it's customer satisfaction, it's bottom-line performance. In recent years, it's been about survival.
Fleets deciding to extend trade cycles didn't do so lightly, because the decision affects all aspects of the business - not just the maintenance department. Many ended up robbing Peter to pay Paul. But they are still here and that's the important thing. Still, the ripple effect from decisions made two years ago will be felt for a couple of years to come.
Yet, there are direct and undeniable costs to keeping trucks in service longer.
Three factors determine a vehicle's life-cycle cost: acquisition cost, operating cost, and the value of the asset at disposal. Should any of those three change, the ultimate cost of the truck changes. While there's some wisdom in keeping trucks around longer to reduce capital expenditures, you risk increasing the operating cost. The trade-in value will drop, too, or you'll pay a mileage and time penalty on the roll-out.
The difference, says Carl Tapp, vice president of maintenance at P.A.M. Transport of Tontitown, Ark., lies in whether or not the fleet planned and prepared for the longer in-service period.
"If you decide mid-stream that you want to run it six years or 750,000 miles, it's going to be an expensive proposition if the warranty stops at 500,000 miles," he warns. "If you spec it for six years, and buy the necessary warranty, you'll be better off."
Tango Transport of Shreveport, La. had a similar experience. Vice President of Maintenance Ken Eggan says they usually run tractors four years or 500,000 miles - a pretty typical trade cycle for over-the-road fleets. With the recession-driven slowdown and the pending price increases of the EPA 2010 engines, Tango decided to hang onto their rolling stock a little longer to get over the hump.
"We had some equity in the trucks, so we decided to keep them a while longer," Eggan says. "We soon discovered maintenance costs were up dramatically."
A savvy parts distributor or service provider can work with their customers to help them extend their trade cycles in a cost-effective way.
Both Tapp and Eggan noticed many of the same types of failures were occurring around the same mileage, even though they run different equipment.
"It's the hang-on stuff," Tapp says. "The major components are all still fine, but the EGR valves, the turbos, AC compressors, alternators, starters and the like are dropping all over the place. But we knew they would."
Eggan had several turbos fail at or just before 525,000 miles, so he opted to pull the others as they neared that mark. Since he adopted that approach, he hasn't had an unexpected turbo failure. Eliminating the element of surprise was the key to keeping costs down.
"It's bad enough having to replace the turbo, but to have a truck down, a customer on the phone and a driver grumbling about down time just isn't worth the risk," he notes.
Eggan says Tango isn't using any kind of predictive maintenance program, but since he got proactive with his turbochargers, he's convinced there's some value to predicting failures and replacing certain components before they become a problem. Tracking Service Life
The art and science of predictive maintenance - and someday soon, prognostic failure prediction - can take the peaks out of maintenance spending.
"The guy who has a good history with vehicle costs is in a better position to make an informed decision here," says Joe Stianche, a former vice president of fleet maintenance and now an independent maintenance consultant. "There's nothing about keeping a truck longer that's a pleasant experience for the maintenance side of the house. As they age, you're going to see them more often. There's no magic dust that will make a 5-year-old truck run cheaper than a 3-year-old truck."
As close to magic dust as anyone is going to get is a good maintenance software program for tracking costs.
P.A.M. has been tracking maintenance events and costs for more than 15 years, and is in a very good position to predict the cost of a longer service life - to a point.
Tapp says he can tell you every part he has changed on every one of his trucks up to 500,000 miles, but beyond that, he's guessing.
"I have no idea how much it might cost to keep a truck 750,000 miles, because we've never been there. We've always been four years/500,000 miles - until the economy tanked, and the EPA added $10,000 to the cost of a truck," he says.
Tapp is a big believer in warranty, and buys it where it's cost-effective, like for starters, alternators, and AC compressors. How does he know it's cost-effective? Cost tracking.
"Warranty is based on B50 life. I buy 500,000-mile A/C compressor and starter/alternator warranties because I know those parts aren't going to make it. One replacement pays for the cost of the warranty," says Tapp. "But I don't buy towing warranty. I calculated the cost of the towing warranty versus actual tow bills on a group of trucks, and my actual expenses were $6 less than the warranty would have cost over 200,000 miles."
Tapp used to do an A/C PM at 100,000 miles and change out the AC compressor because he knew it was going to fail shortly anyway. For about half the price of a new compressor, he buys a 500,000-mile warranty on a compressor, which gets him three free compressors over the life of the truck.
These are small examples of how cost analysis can help fleets determine the risks in extending life cycle.
Stianche has worked with fleets of all stripes and all trade cycles, from real short to darned near forever. To him, the story is maintenance costs versus depreciation. It's that old curve, he says: "The longer you keep it, the higher the maintenance cost is going to be and the lower the depreciation."
Somewhere in between is a number the whole fleet can live with, not just the maintenance department and not just accounting.
In Tango's case, Eggan found his maintenance costs went up by 3 cents a mile since deciding to keep the power units around a little longer, but it's not a deal breaker.
"Part of our cost structure is based on trade-in value, and we've always had good trades because we look after the trucks," he says. "We could see less on our trades because they're older, and that's on top of the extra maintenance cost, but we should still get a good trade-in dollar for the equipment … at least as good as the market will bear."Post-Warranty
Depending on the fleet, some have the technicians and the facilities to stay ahead of the maintenance cost curve. Others won't. Once the truck's off warranty, they'll be looking for help from the aftermarket. Whether shop time or parts, fleets looking to extend trade cycles will need consumables such as batteries, starters, alternators, AC compressors and the like. Trouble is, some of even those parts are becoming more captive, Stianche says.
"The truck you buy today has more captive parts than the truck you bought four years ago," he points out. "For example, if you knock the hood off a new truck the day after you buy it, does one OE's hood, grille and bumper cost significantly more than the other guy's? And if you knew the answer to that, would you still have bought that truck?"
That's not really a maintenance question, but in the past, we've looked at parts prices as more or less neutral. They may n