Fuel vs vehicle depreciation
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Fuel vs. vehicle depreciation; which one costs businesses more?
Building your fleet is a long-term financial responsibility, so it’s crucial to stay conscious of the costs behind the choices you’re making. We don’t just mean the up-front fees, we also mean everything that reduces the value of your fleet as your drive around.
The economic burden often thought about when thinking about long-term costs is fuel. However, the depreciation of your vans, cars and trucks after wear and tear shouldn’t be overlooked.
Between fuel and your vehicles’ depreciation, we wondered which is the greatest expense?
What is vehicle depreciation?
Vehicle depreciation means, at its simplest, ‘the amount you spend on a vehicle, offset against the value when you sell it on or trade it in’. Everyone knows that a car suffers strain, damage and reduced efficiency as time goes by, which ultimately lowers the resale value.
Depreciation begins as soon as the vehicle is taken off the forecourt. The drop can be dramatic – the AA estimates that a new car loses 60% of its value within three years, based on an annual mileage of 10,000.
Every vehicle has different qualities (like design, materials and operational durability) that make it more or less susceptible to depreciation. This is slowed partially through care and maintenance.
However, there’s no way to stop the price from depreciating altogether; the resale price will continuously drop, in increments, all the time. To get a better idea of how much by, you can check the car depreciation calculator from the Money Advice Service. It could also be a good idea to look at the 10 fastest depreciating cars in 2018 from WhatCar.
Setting depreciation against the price of fuel
Vehicle depreciation is something of a grey area – until you sell the vehicle on, you can only really estimate the rate at which your car is losing value. By contrast, fuel prices are easier to track, economise and use to your best advantage.
To illustrate what we mean, let’s consider a 1.5 TDCi 95 Ford Focus, which we’ve put through the car depreciation calculator above:
- Estimated annual fuel costs (10,000 miles): £1,019.42
- The value of a new model: £20,135
- Worth of vehicle after a depreciation level of 60%: £8,054 (40%)
- Car resale loss: £12,081
- Estimate fuel prices (assuming it would stay the same fixed price) for the same three-year period: £3,058.26
Overall, you’d be losing over £9022.74 more through depreciation over fuel costs
When we multiply this over dozens of new fleet vehicles – assuming they’re being sold on after three or more years – the net cost can climb into tens of thousands more than accompanying fuel prices. It’s easy to see, then, how a car depreciation calculator can come in handy.
Fuel charges balance closer to the depreciation losses when we keep the same vehicles for five, six, seven or more years – but that doesn’t allow for costly repair and maintenance work to keep the vehicles operational.
In any case, it’s clear that fuel isn’t necessarily the biggest burden for fleet managers, especially those that have an Allstar card to keep expenses under control. Explore our services to see how we can help you tighten your grip on fleet management and reduce running costs to a minimum.