Purchasing managers should be aware of how the model year concept influences Total Cost of Ownership (TCO) when replacing company vehicles, Ashleigh Young, Chief Executive of the TransAuto Group, tells SmartProcurement.
The model year concept is concerned with the timing of a vehicle’s acquisition.
“This is the time of year when the model year concept has the most impact on a vehicle’s TCO and if not understood and managed properly, it can unnecessarily increase fleet costs,” says Young.
When used vehicles are sold, their resale value is largely determined by the year of their purchase, and not by the number of months that they vehicle has been owned. For example, if a company purchased a vehicle in January of 2006 and disposed of the vehicle after 42 months, it would be considered a three-year old vehicle with the commensurate resale value. However, if the same vehicle is purchased in November 2005 then upon resale 42 months later it would be listed as a four-year old vehicle with a subsequent drop in resale value, even though both vehicles have travelled similar distances.
Purchasing managers must consider the additional year’s depreciation cost incurred unnecessarily due to the timing of acquisition of new vehicles in the fleet.
“This problem usually arises due to poor planning and fleet management practices. It is pointless negotiating excellent purchasing discounts only to throw away the benefits with a poorly timed purchase,” says Young.
Organisations often make decisions that impact on the purchasing managers without them being informed well in advance. Consequently, they are forced to purchase vehicles at short notice, which is often the case with the recruitment of new staff members, whose vehicle requirements are only communicated after they have started working.”
If a fleet or purchasing manager has to find a suitable vehicle for the new staff member at short notice, then not only does the model-year concept come into play, but due to it being an ad-hoc purchase, the best discounts are not realised.
The model year concept is just one of the fleet lifecycle concepts affecting a vehicle’s TCO and purchasing managers should familiarise themselves with these concepts to ensure their company’s fleet costs are kept to a minimum.
For more information on fleet management solutions contact Ashleigh Young on ashleigh@transauto.co.za
