The vehicle fleet is one of the largest cost centers in the company. For large vehicle fleets in particular, it is therefore all the more important to keep an eye on all costs and identify potential savings. The calculation of the total cost of ownership in the fleet plays a central role here. In this article, we explain what exactly is behind the TCO in the fleet, what it is made up of and how it helps to manage the fleet economically.
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What does Total Cost of Ownership mean in the vehicle fleet?
In fleet management, the total cost of ownership, or TCO for short, refers to the total operating costs associated with the ownership and use of vehicles. The TCO takes into account not only the acquisition costs, but also all expenses over the entire life cycle of a vehicle. A TCO analysis thus provides an important basis for investment decisions in the fleet and whether the maintenance of certain vehicles is still worthwhile.
Studies by Dataforce show that TCO monitoring is becoming increasingly relevant in the fleet. While only around 26% of fleet managers will regularly calculate the TCO of their vehicles in 2021, this figure will rise to 60% by 2022. However, this also means that around 40 percent of fleets do not take a detailed look at costs.
Why is the calculation of the total cost of ownership important in the fleet?
By precisely calculating all direct and indirect cost factors, hidden expenses and cost drivers in the fleet can be discovered and targeted measures can be taken to optimize costs. TCO analysis is therefore an important tool for evaluating the economic viability of vehicles in the fleet. By comparing different models in terms of their overall costs, it is possible to find out which vehicles are more cost-efficient in the long term. Uneconomical models that cause high costs in the fleet can be identified and replaced with less expensive vehicles.
By taking all relevant cost factors into account, it provides a holistic view of the actual costs of a vehicle over its entire service life. Fleet managers can use TCO calculations to make informed decisions regarding vehicle selection, procurement strategies, maintenance plans and financing options.
In addition, the analysis creates transparency and enables meaningful reporting. Stakeholders, such as management or the finance department, receive precise information about the financial performance of the fleet and can thus specifically review the impact on the company.
It is advisable to perform a TCO analysis at least once a year and to derive appropriate cost optimization measures from it. Compiling all the individual items may seem tedious at first, but in the long run it is necessary to manage the fleet economically.
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What does the TCO in the fleet consist of?
The total cost of ownership in a vehicle fleet is made up of several factors that should be considered as a whole. Especially when making investment or purchase decisions, all hidden costs should be identified in advance in order to make informed decisions. Indirect costs in particular, which do not appear obvious at first glance, are often forgotten in the overall calculation. Consider here administrative and overhead costs, which include, for example, office rent, hardware and software, telephone and electricity bills.
Acquisition costs
Vehicle acquisition expenses typically include the vehicle price, the cost of optional equipment and accessories, and any taxes and fees for registration and provision. When choosing additional equipment, not only the costs should be kept in mind, but also the resale value of the car. After all, countless extras do not automatically increase the value retention of the vehicle.
Financing costs
When vehicles are financed through financing options such as loans or leases, interest or lease fees are incurred. These costs are also included in the TCO analysis.
Current operating costs
This includes the ongoing costs of operating the vehicles. These must not be neglected when calculating the total cost of ownership in the fleet, as these expenses form a significant part of the total cost of ownership. These include fuel or energy costs, maintenance and repairs, insurance, taxes, tire changes, spare parts, car washes, parking tickets and other expenses related to vehicle use. Here it can be helpful to look for alternatives that drive up fleet costs less. Many companies already use modern solutions such as corporate car sharing or company bicycles as alternatives to the classic company car. These can significantly reduce the necessary operating costs.
Administrative expenses
Administrative costs include, for example, the costs of managing the fleet, such as the salaries and working hours of the employees responsible for fleet management , the costs of software solutions and service providers and other administrative expenses. The use of fleet management software can lead to more efficient processes and thus significantly reduce administrative costs. In this way, companies can effectively reduce their TCO.
Value loss
Depreciation refers to the decrease in the value of the vehicle over time. Vehicles lose value due to aging, wear and tear, and market factors. The loss of value must also be taken into account in the TCO calculation, as it represents a significant cost factor. Regular maintenance and care of vehicles can extend their useful life and thus reduce depreciation. This can have a positive impact on the overall costs of the fleet.
E-vehicles with low TCO
With the switch to e-mobility in many fleets, the TCO analysis is also taking on a new relevance. When purchasing electric vehicles , a detailed calculation of the total cost of ownership should be carried out. Even if the purchase costs for e-vehicles are generally higher than for combustion vehicles, e-vehicles can be cheaper overall due to the lower operating costs.
Since the engines of electrically powered vehicles contain fewer parts that are susceptible to wear, maintenance and servicing are less expensive than for conventional combustion engine models. Electric cars also require the same insurance as vehicles powered by gasoline or diesel. Special features such as damage caused by incorrect charging or animal bites to the electronics should be covered.
According to the comparison portal Check24 the car insurance for an electric car can be up to 42 percent cheaper.
However, there are other cost factors that need to be taken into account in the calculation. These include electricity costs and possible costs for the installation and maintenance of charging points to enable employees to charge on company premises.
Simplify the TCO calculation with the help of software
In order for all costs to be included in the analysis, all receipts and invoices must be collected, assigned to the vehicles and evaluated. This takes a lot of time in an already very complex field of work and often ends in a paper chaos on the table. Large fleets in particular quickly reach their limits when calculating the total cost of ownership with Excel. This is because the more vehicles there are in the fleet, the more confusing the process becomes. This can lead to errors that have a negative impact on the entire company.
Fleet software makes it easier to break down and analyze total cost of ownership. Thanks to reporting and evaluations at the push of a button, the cost drivers in the fleet can be quickly identified and corresponding savings potential derived from them. The software not only minimizes the time and effort required, but also ensures the necessary transparency in the fleet. This allows fleet managers to manage the fleet efficiently and cost-effectively. You can find out what other advantages a digital solution offers in everyday fleet management in our article “5 advantages of fleet management software”.
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Conclusion
- The TCO analysis offers a holistic view of all vehicle costs incurred and helps to uncover hidden expenses.
- With the help of software solutions, TCO data can be automatically recorded and analyzed, which speeds up decision-making and enables cost-efficient fleet strategies.
- A well-founded TCO calculation supports long-term budget planning and minimizes financial risks in fleet management.
FAQ - Total Cost of Ownership
The total cost of ownership (TCO) in a vehicle fleet comprises all costs incurred over the entire service life of a vehicle. In addition to the acquisition costs, this also includes expenses for fuel, maintenance, repairs, insurance, taxes and depreciation.
The TCO is important because it provides a complete overview of all the costs of a vehicle and thus enables well-founded decisions to be made. By analysing the TCO, companies can select cost-efficient vehicles, identify potential savings and optimize the profitability of their fleet in the long term.
The TCO is calculated by adding up all the costs incurred by a vehicle over its entire useful life. This includes fixed costs such as leasing rates or depreciation as well as variable costs such as fuel, maintenance, repairs and insurance. A detailed analysis helps to include all relevant items and identify hidden costs.
Further articles on the subject of TCO and fleet management
Fleet management tasks: The 10 most important fleet activities
Fleet analysis: Analyzing the fleet step by step
Car Policy: Significance and advantages of a company car policy in the vehicle fleet
Fuel cards for companies: Efficient management of fuel costs in the fleet
Sustainable Fleet: Measures for more Environmental and Climate Protection in the Fleet
