Calculate Economic Useful Life

When it comes to choosing a lease package, you really need to look at a solution that is customized to meet the needs of your business.

"There are various lease terms," explains Olen Hunter, PacLease director of sales. "Typically, we will match the lease term to the economic useful life of the equipment."

The economic useful life is determined by calculating the maintenance cost vs. the value of the vehicle (see chart below). First, you graph the maintenance cost. "The maintenance cost curve starts off relatively low in the early stage of the life of the vehicle," says Hunter. "Then it accelerates towards the end of its economic useful life."

Next, graph the vehicle value. "Vehicles initially drop off in value pretty quickly, but then they tend to level out in terms of depreciation value over the economic life," says Hunter. "Where the maintenance cost curve and vehicle value curve intersect, that is the economic useful life of the equipment. If you keep the equipment beyond that time period, you have what is known as a stranded asset. You are spending more money on that piece of equipment than what it is worth in terms of maintenance."

Tracking this information is critical to properly manage your fleet assets. "A lot of times, companies don't understand the true cost of equipment and how it is impacting their balance sheet," says Hunter. "We offer a transportation analysis that helps shed some light on that so they can see the true economic impact of owning a truck compared to leasing it. We know what the value of the truck is going to be and its useful life."

The economic useful life is defined as the intersection between the maintenance cost and the truck value.