Reassessing the Total Cost of Truck Ownership by Marius Barnard, Managing Director – Babcock’s Transport Business
In transport economics, there is no denying that local transport operators now understand the concept of Total Cost of Ownership (TCO) – a comprehensive, strategic metric that evaluates every expense across a truck’s entire lifecycle.
While the ‘pie chart’ still encompasses all the critical factors – fuel consumption, maintenance, insurance, uptime, parts availability and driver productivity, among others – it is, in my view, residual value that now has the greatest impact on TCO in today’s transport landscape.
For businesses that rely on a fleet of vehicles – whether large or small – TCO can have a significant impact on the bottom line. By thoroughly evaluating TCO, fleet owners and their management teams can make more informed decisions about which vehicles to purchase.
Beyond the sticker price
In commercial vehicles, TCO goes beyond the purchase price of a truck, measuring the full cost of operating it throughout its working life. For fleet operators, understanding these parameters is essential to making the right investment decision.
The initial vehicle price is an obvious consideration, but it should not be the principal one. Financing costs, interest rates and taxes also contribute to the overall cost.
In commercial trucking, fuel is the single largest variable operating expense. Fuel costs can equate to up to 60% of a commercial vehicle transporter’s total operating costs. Small improvements in fuel economy can compound rapidly across high mileage, directly reducing cost-per-kilometre (CPK) and influencing overall fleet profitability.
Maintenance and repairs – including scheduled servicing, spare parts, tyres, lubricants, labour and unexpected repairs – also affect operating costs. Reliability and service intervals can therefore make a significant difference over the truck’s lifetime.
Driver wages are not directly related to the truck itself, but vehicle productivity can influence CPK. Features that improve driver comfort, safety and efficiency, such as those found on DAF trucks, can also support better productivity and driver retention.
Every hour a truck is unavailable can mean lost revenue. A supplier’s strong branch network and the availability of parts where and when they are needed are therefore critical TCO considerations.
Insurance premiums, road taxes, tolls, permits and other compliance-related costs should also be included when calculating TCO.
Residual value to the fore
While all the factors mentioned above play a critical role in influencing TCO, I believe what happens at the end of a truck’s first economic life can have the greatest influence – whether through trade-in, buyback, resale value realisation or giving the truck a new lease on life.
In an increasingly challenging economy, the truck market has become more competitive, with new manufacturers entering the fray and offering trucks at attractive purchase prices.
European manufacturers such as DAF Trucks have traditionally held their own when it comes to residual value, and there are still good reasons for that reputation. To date, DAF trucks have maintained a strong reputation for holding their value.
To provide some context, a European-brand truck after three years of operation can be worth up to 50% of what the customer originally paid for it. Retaining 50% of the original purchase price after three years is a strong benchmark for residual value in the trucking industry.
At the end of the financing term, a good European brand also gives the customer the flexibility to say, “I don’t have to buy a new truck.” Brands such as DAF have repeatedly demonstrated that they can give customers a second, or even a third and fourth, economic life – with peace of mind.
A second life can mean reusing the truck as is or refurbishing it, thereby extending its functional lifespan. A third and fourth economic life means that the truck’s components can continue to be reused. To give an idea of the potential, many years after the discontinuation of the model, we can still sell the cab of the old-generation DAF XF 105 for up to 30% of the truck’s initial sticker price.
That represents a potential buyback value of 30% after 15 years – meaning the customer can still recover a significant portion of the initial investment. Ultimately, this contributes to a more cost-effective and sustainable fleet management strategy.
The bigger picture
Ultimately, TCO is about looking beyond the price on the invoice and understanding the value a truck delivers throughout its entire working life. Fuel efficiency, reliability, maintenance, uptime and driver productivity all play an important role, but residual value can be the factor that brings the entire equation together.
For fleet operators, the best investment is not necessarily the truck with the lowest purchase price, but the one that delivers the lowest CPK and retains the greatest value over time. A truck that continues to work efficiently, remains supported by a strong parts and service network and retains value beyond its first economic life can deliver significantly greater returns.
As transport operators continue to face rising operating costs and economic pressure, taking a long-term view of TCO has never been more important. Choosing the right truck is therefore not simply about what it costs to buy today, but about what it is worth – and what it can continue to deliver – throughout its lifecycle.
