Central Cost Center: Optimal Replacement Timing
When a fleet acquires vehicles, it knows the exact amount and duration of the monthly payments. By contrast, when those vehicles develop mechanical problems as they age, the exact type and timing of the costs are unpredictable even though the general upward trend in cost can be foreseen.
Consequently, when a branch or decentralized fleet office is financially responsible for the monthly lease payment on its vehicles, it has a short-term incentive to reduce costs by holding onto the vehicles until no lease payments are required. However, this can result in the vehicles aging beyond the point where it is financially prudent to keep them. The practice of creating a “Central Cost Center” can eliminate this incentive, resulting in vehicle replacement decisions more beneficial to the company over the long term.
Our white paper will explain:
- The Financial Goal: Optimal Replacement Timing – how depreciation and maintenance costs determine the optimal replacement timing: the point in the vehicle’s life when retiring it yields the lowest lifetime cost per mile
- How a Central Cost Center Works – the goal of a central cost center: restructuring how branch fleet offices pay for vehicles
- Setting the Payment Amount – factors for designing the appropriate program and payment amount: based on the forecasted effective depreciation, an assumption for interest, plus the cost of registration
- Determining Whether a Central Cost Center Makes Sense for You – a logical option for decentralized fleets for a number of reasons
To help you learn more or for more information about Central Cost Centers, download Central Cost Center: Optimal Replacement Timing resource today.