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 at all times and to 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.
What does Total Cost of Ownership mean in the vehicle fleet?
In fleet management, total cost of ownership, or TCO, refers to the total operating costs associated with owning and using 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 determine 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 into account all relevant cost factors, it provides a holistic view of the actual costs of a vehicle, throughout its entire service life. Fleet managers can use TCO calculations to make informed decisions regarding vehicle selection, procurement strategies, maintenance schedules and financing options.
In addition, the analysis creates transparency and enables meaningful reporting. Stakeholders, such as management or the finance department, receive accurate information about the financial performance of the fleet.
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 the fleet is made up of several factors that should be considered in their entirety. 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. This includes fuel or energy costs, maintenance and repairs, insurance, taxes, tire changes, replacement parts, car washes, traffic tickets, and other expenses related to vehicle use.
Administrative expenses
These include the costs of managing the fleet, such as the salaries and working hours of employees tasked with fleet management, the costs of software solutions and service providers, and other administrative expenses.
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.
E-vehicles with low TCO
With the switch to e-mobility in many fleets, TCO analysis is also taking on new relevance. When purchasing e-vehicles, a detailed calculation of the total cost of ownership should be performed. Even though the purchase costs of e-vehicles are usually higher than for internal combustion engines, e-cars can be cheaper overall due to lower operating costs. In addition, the production of electric cars is expected to increase in the next few years and the price of batteries, which are still very expensive, is expected to fall. Two important factors that will have a positive impact on acquisition 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. Although special features such as damage caused by incorrect charging or animal bites to the electronics must be covered, the growing data set on the damage record for e-vehicles has shown that there is hardly any difference between electric cars and internal combustion engines. According to the comparison portal Check24, car insurance for an electric car can even be up to 42 percent cheaper.
Nevertheless, there are other cost factors to consider in the calculation. This includes electricity costs and potential expenses for installation and maintenance of charging stations to enable charging on company premises for employees.
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. In the already very complex field of tasks, this is a big time eater and often ends up in a chaos of notes on the table. Large fleets in particular quickly reach their limits when calculating the total cost of ownership with Excel. The more vehicles in the fleet, the more confusing and error-prone it becomes.
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. This not only minimizes the time and effort required, but also ensures the necessary transparency in the fleet You can find out what other advantages a digital solution offers in everyday fleet life in our article“5 advantages of fleet management software”.
Fleet+ fleet software
Our powerful fleet management software Fleet+ facilitates TCO analysis in the fleet and helps to manage it digitally, cost-efficiently and transparently.
