NORTHBROOK, Ill. -

Leasing levels dropped significantly during the recession, and though rates have ramped back up as of late, so has the number of long-term auto loans.

This trend has many dealers worried about lengthening sales cycles, and it turns out, the trend might prove to be detrimental to consumers — a recent study from Donlen shows after 36 months, vehicle ownership costs rise significantly.

And the same is true for fleet managers who may be keeping vehicles around a bit longer this year due to supply issues exasperated by the plethora of recalls announced this year and the promise of lower rental payments.

Donlen's “Lifecycle Cost Management: 36-Month Versus 60-Month Sedan Lifecycle Cost Analysis” study shows that having a vehicle longer can correspond with some pretty significant costs.

In fact, judging by the results, Donlen is warning fleets that holding a vehicle longer to take advantage of declining rental payments and full depreciation might not be as cost-effective as it once was.

"This analysis compares real data based on our Donlen portfolio and the findings identify how costs are impacted the longer you hold on to a vehicle. Our consulting team has published this analysis to help fleets understand the implications of extending their vehicle lifecycles,” said Amy Blaine, vice president of consulting, analytics and sustainability.

“Holding a vehicle longer to take advantage of declining lease payments and full depreciation may be viewed as a cost effective strategy, but the findings show that between the maintenance costs and missing the opportunity of higher resale values, along with lower fuel spend, the shorter cycle is actually more cost effective,” she added.

The analysis took a look at lifecycle costs associated with extending the cycle times for a typical sedan.

Taking a look at the overall annual cash flow comparison of the two timeframes provided, using rental, fuel, maintenance and resale data, and looking at a 15-year period, fleet managers choosing a 36-month cycle for the intermediate sedan results saved $5,504 or $460 per vehicle every year.

Let’s take a look at the numbers on a larger scale. For a fleet of 100 vehicles, this equates to annual savings of more than $550,000. Ramp that up to 500 fleet vehicles, and you could be saving up to $2.7 million every year.

Fuel cost is contributing to these savings, as well, due to the rapid developments in alternative fuel vehicles.

According to the study, due to advancements in fuel efficiency as well as CAFE Standards and regulations, cycling fleet vehicles more frequently will result in increased MPG throughout the fleet.

Donlen offered the following example to illustrate this point: Assuming an increase of one mile-per-gallon within the fleet and a fuel cost of $3.61 per gallon, a fleet of 500 vehicles driving 25,000 miles a year could expect to save up to $69,000 per year.

“Cycling not only puts units on the road, but it can also significantly reduce fuel spend,” the report stated.

Looking beyond fuel, maintenance also plays a significant role in fleet costs.

And, of course, older vehicles are often equated with higher costs and more frequent repairs. The report encourages fleet managers to not keep vehicles beyond four years or the 100,000-mile mark, as these milestones are seen as “the tipping point at which non-preventative maintenance and failures began to increase.”

On top of the obvious higher maintenance costs of an older fleet, Donlen contends “soft” savings will be noticed, as well, in the long-term, such as decreased vehicle and employee downtime and improved driver safety.

The only statistic analyzed by Donlen that showed sedans with a 60-month term proving to be cheaper was rental cost — but the paper explained any benefit here is offset by higher fuel and maintenance expense, as well as lower resale value.

That said, the study showed that lower interest payments from depreciation will push total rental payments down until the vehicle is fully depreciated.

This means that over the course of 15 years, a vehicle with a 60-month lifecycle will spend approximately $18,800 less in rental expense compared to a vehicle on a 36-month cycle.

That said, resale proceeds take a huge hit when fleet managers keep vehicles around a bit too long.

For an average sedan, a 60-month lifecycle results in the vehicle being sent to auction with approximately 125,000 miles versus 75,000 miles with the shorter lifecycle.

And, of course, lower mileage vehicles reap much higher rewards in the lanes.

“Keeping a vehicle on the road longer may seem like a more cost effective option. However, it is important to consider the total cost of ownership when comparing cycling parameters, as this can help illustrate that components of operating costs such as fuel, maintenance, and lost resale proceeds will quickly offset lower lease payments,” the white paper stated. “Ultimately, this will result in a more proactive fleet approach, keep your assets operation and your employees safe, and significantly lower your total fleet costs.”

Consultants for the study used the following assumptions in their analysis:

  • CAP Cost: $20,025
  • Annual Mileage: 25,000
  • Lease: 2.16 percent depreciation
  • Resale sources include Donlen’s National Auction Index and Guidebook averages
  • Average fuel cost per gallon: $3.61