What is Total Cost of Ownership (TCO)?
We Kiwis, especially business buyers, are often focused on the upfront purchase price of a vehicle. Through various TV commercials, press adverts, billboards, etc., that all promote a single price or discount, we’ve been conditioned to this sort of thinking over many years.
However, we’re now seeing a significant trend towards reviewing a vehicle’s Total Cost of Ownership (TCO) as an important part of the purchase decision. Although this is new to us, it has been a very common practice overseas for many years and is normally talked about in cents per km.
With a TCO approach to vehicle selection, some major New Zealand fleets have changed their traditional buying habits, simply because the best overall vehicle for them also has a very low cost over the total ownership term. Some examples of these fleets are Coca-Cola, Progressive Enterprises, Crown Lift Trucks, The Department of Conservation and IHC, to name a few.
How do you determine total cost of ownership?
To consider TCO you need to look at all items that contribute to cost over the term of your vehicle’s operation.
- Transaction price. You need to know it at this stage, but don’t be too focused on the discount level and don’t make your mind up until you have worked through the total cost of ownership exercise.
- Engine size and efficiency. Smaller more powerful and fuel efficient engines are as cost effective as some hybrids with engine start-stop, turbo charged direct injection petrol and diesel. We call this intelligent downsizing.
- Fuel consumption. Look how many litres the vehicle consumes per hundred kilometres; even a small reduction can make a large difference over the total mileage of the vehicle.
- Service Intervals and average Service Costs. Longer service intervals mean a significant reduction in total service cost over the term and more time on the road.
- Tyre life and replacement cost. Sometimes a cheaper replacement tyre only lasts a fraction of the manufacturer’s original specification tyre, meaning more frequent replacements at a higher long-term cost. Watch out for false economy!
- Residual value at the end of term. Remember that more discount upfront traditionally means a lower value vehicle at the end of the term.
Often the upfront costs present a compelling argument, however after the total cost of ownership is calculated, a very different picture can emerge where the model thought least competitive can end up being the most efficient to own over its lifetime.
Your next purchase decision should be based on – first and foremost – the best vehicle for the application, and your decision on cost must be assessed on Total Cost of Ownership not just the upfront transaction price.
We have taken all the above factors into consideration with our extensive Volkswagen and ŠKODA vehicle range, and our team are here to help you with any questions you may have regarding a vehicle’s Total Cost of Ownership. When comparing with our competitors, you may be surprised.
Feel free to browse our current range, or make an enquiry to find out more.