Total cost of ownership explained
Total cost of ownership (TCO) is a financial estimate that determines both the direct and indirect cost of a vehicle; a collection of all expenses that go into operating a fleet asset.
TCO checklist
Use the following checklist to calculate your fleet’s TCO. It includes suggested data inputs to collect and additional considerations to factor into your calculations.
ONE-TIME
Initial Investment Costs
Vehicle acquisition:
- Purchase price
- Don’t forget to calculate any additional vehicle package/trim costs, incentives and licensing
Secondary considerations:
- + Upfit
* costs - + Accessories costs
TIP: Factory ordering vs. Dealer stock can save on vehicle acquisition costs
ANNUALIZED
Operating Cost
(annual cost x years in service)
Fuel or energy:
- Miles or cost per gallon (gas)
- Miles or cost per KW hour (EV)
Maintenance/downtime:
- Annual maintenance & repairs
- Downtime hours/cost
Recurring costs:
- Telematics/security software
- Vehicle finance interest
- Insurance
- Disposal fees
TIP: Annual fuel cost = (Annual Miles ÷ MPG) × Avg. Fuel Price
Residual Value
Residual value:
The estimated % of value left in a vehicle, at a given time, based on the depreciation rate and current market conditions.
Various online resources are available to look up vehicle residuals; see sources below.
TIP: Total costs x estimated residual percentage = residual value
TCO
Congratulations!
You now have a data-centered way to manage, evaluate and optimize your fleet; including:
- Budgeting
- Forecasting
- Vehicle selection
- Supplier negotiations
- Maintenance optimizations
- Performance tracking
- Fuel management
- Vehicle replacement planning
Tips from a GM Fleet TCO expert
We asked Rachel Schreider, a GM Fleet Area Sales Manager, for insights and advice about TCO and why it’s important for your business. Here’s what she had to offer:
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What TCO data inputs are mission-critical, and which are surprisingly beneficial if I can get the data?
"Fuel economy and residual rates are mission-critical to know, next to acquisition costs. Maintenance costs and telemetry data can be a real eye-opener for TCO when tracked. The intangibles add up and can be turned into predictable costs if regularly monitored and analyzed."
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What are some “lessons learned” based on your years of experience guiding companies through the TCO process?
1. “Don’t get complacent; reevaluate your options every year. It’s easy to continue what’s been done year after year, but the OEM industry is constantly changing.
2. “There’s no need to overpay with all the data available to fleet managers and business owners in today’s marketplace. Compare the company data to what’s being presented and use trusted third-party sites.”
3. “Some small businesses have the mentality that once a vehicle is paid for, it’s free. That’s not necessarily accurate. We follow that up with the costs of “free,” and how fuel and maintenance costs rise after 3–5 years and the negative impact on their bottom line.”
4. “If a company is running efficiently and cycling vehicles regularly, they look for the “sweet spot” where vehicles’ residual value is at its peak, and maintenance and fuel costs are still manageable to turn over their fleet and maximize TCO.” -
What is a real-world example where TCO calculations provided value for a company?
"We presented to a construction company in the Chicagoland area some years ago. They were using a competitor’s pickup truck with a specialty performance package that adds a significant amount of cost to the upfront acquisition price. We did a TCO that compared our standard package on a Chevy Silverado 2500, which held a higher residual value, and were able to show a savings of over $1 million in the first three years."
"It’s important to look at what packages and options come standard on the vehicle to make sure you’re comparing similar makes and models to get the most accurate TCO."
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Do I need telematics software to calculate TCO? What are the pros and cons of using telematics?
“Telematics is an indispensable tool for fleet managers to help them manage a modern fleet. These systems deliver all types of data that give you insights into your fleet’s performance, including its direct and indirect costs, making telematics a critical component in your TCO calculations.”
Pros:
- Can help Reduce operating costs
- Driver accountability
- May reduce insurance premiums
- Greater control over the fleet
- Extended asset lifecycles
Cons:
- If not used correctly, telematics could create an administrative burden to those monitoring the data
- Businesses may overpay for telematics if they’re not aware of all the options and how embedded hardware can integrate with different providers
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What is residual value and how is it calculated?
"Residual value is the vehicle’s value at the end of a lease or some other predefined ownership period. The formula is: MSRP x Residual Percentage = Residual Value. Lending banks and market values determine residual percentages. To find residual values, we recommend using third-party websites like those listed at the bottom of the page to ensure your calculations are based on the most current vehicle data."
"If you’re looking to calculate and manage vehicles’ residual data yourself, use any of the online resources listed on this page or partner with a trusted industry representative from an OEM, local dealership or fleet management company."
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How do I get started calculating TCO and how long does it take? Do I need to pay for a TCO calculator, or can I do it on my own?
"If you want to generate your own TCO, a TCO in its most basic form shouldn’t take long. You’ll first need to do a small amount of research to find comparable vehicle models, MSRP, fuel economy (MPG) and residual values."
"The simple formula for TCO is: (Net acquisition cost + Fuel costs + Maintenance costs + Fees and taxes) – Residual value = TCO."
"The sites linked in the Resources section also have tools you can use to determine TCO."
Maintenance costs and telemetry data can be a real eye-opener for TCO when tracked. The intangibles add up and can be turned into predictable costs if regularly monitored and analyzed.
Rachel Schreider
GM Fleet Area Sales Manager
It’s important to look at what options come standard on the vehicle to make sure you’re comparing similar makes and models to get the most accurate TCO.
Rachel Schreider
GM Fleet Area Sales Manager
Frequently asked questions
DATA INPUTS
How to get started calculating your fleet’s TCO
Choose the inputs to include from the checklist for your calculations. The following list of resources can help you estimate some of the values.
TCO data input resources
Here are additional third-party resources to help you collect the data you need to calculate TCO. These sites generally require the VIN or the vehicle’s year, make, model and mileage to provide accurate, up-to-date market values.
Energy costs
Information Administration
Safety ratings
Safety Administration
Questions? Get in touch.
Contact a GM Fleet representative to help guide you through the TCO process, from collecting critical data to doing actual calculations.
