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Total cost of ownership

    To consumers a vehicle is much more than an economic decision.  Vehicles often represent more than the costs, as they are indicative of lifestyle choices and status.

    For most fleet managers managing total cost of ownership (TCO) and whole of life costs (WOL) is a major key performance indicator in effective fleet management.  While staff will want vehicles that they are comfortable driving (and some will demand choice), in most cases TCO is the key criteria for vehicle purchases.

    For electric vehicles TCO really comes into sharp focus because so much of the purchase decision is currently based on trading off a higher purchase price with lower running costs. The Charge Together fleets program is focused on building an industry accepted Total Cost of Ownership (TCO) tool that enables an understanding of these and other factors.

    Estimation of TCO

    Determining the TCO for a particular vehicle involves understanding the cash flow impact of ownership of a vehicle over a defined timeframe. There are several inputs into a TCO calculation as outlined in the following table.

    InputDescriptionKnown or forecasted
    Purchase priceThe ultimate cash price after all dealer rebates and dealer delivery chargesKnown
    Duties and taxesStamp duty, Luxury car tax, registration charges, CTP insuranceKnown
    Subsidies Any government subsidies providedKnown
    Running costsMaintenance costs, Third Party insurance, fuel Forecasted
    Pre-sale make-good costsCosts of vehicle improvements prior to resaleForecasted
    Residual valueThe depreciated price for which a vehicle is sold at the end of ownership periodForecasted
    Finance costsAny operating or finance leaseKnown
    Holding periodThe time between the purchase and sale of a vehicleKnown
    Accident management feeCost of roadside assistance and management of repairs processKnown

    For vehicle fleets that utilise a fleet management organisation such as SG Fleet , Orix, LeasePlan or Custom Fleet, the TCO calculation may be simplified, in that they may bundle a number of these costs into a monthly operating lease cost. This may include insurance, maintenance, and finance. In an operating lease this may include a depreciation estimation.  In this case, an additional fee will be included as a fleet management fee or a fleet administration fee.

    In many cases, staff will pay Fringe Benefits Tax (FBT) for the component of the vehicle operated for personal use. This is not generally included in the total cost of ownership of a business, however, is a consideration based on the impact of an employees perception of their remuneration and benefits.

    There are a number of related articles that cover these in more detail: