Clearwater County Highway Department Fleet Management
The Clearwater County Highway Department manages over a million dollars’ worth of equipment and just like any successful business would, we try to manage these assets in the most efficient manner possible to be cost effective and still provide reliable service to the public we serve. We operate much like a private business in that we have to balance our service provided with revenue to cover the cost of providing the service. A well run fleet management system helps us manage our operating cost and balances with revenue to reliably provide the service our public expects.
We depreciate out our equipment similar to how a business would, except instead of using depreciation as a tax write-off it is charged against a State Aid maintenance allotment that comes to the County out of gas taxes. By following stable equipment replacement schedules we can keep budgets consistent year-to-year. When we lapse on our equipment purchasing for a year or two we end up taking a big hit on recovering our equipment costs from our gas tax revenue. When we let too many pieces of equipment fall off the replacement schedule and keep them too long past the depreciation period, then local property tax revenue is needed to catch up with our lost capital rather than using the captured dollars from our gas tax revenue to pay for the equipment.
The next part of our fleet management is picking the most cost effective time to replace a piece of equipment. As part of our fleet management we keep good equipment cost records at the Highway Department. We use those records to help guide us for the most efficient replacement schedule on our equipment. We try to target the best life cycle cost for our equipment replacements to give us the lowest total cost for owning each piece of equipment. As equipment ages (sometimes regardless of amount of use) due to wear and tear, parts availability and other factors, it’s operational and maintenance costs go up. That cost stays fairly stable for some time, but eventually begins to rise fairly quickly. It is best to trade in the equipment before the cost of repairs rise and we still have a good resale value on the equipment. The goal of our fleet management is to make good judgments about the best targeted replacement point, but that target replacement point can occur at different times in a unit’s life. Many times there are two points in a unit’s life where it makes sense to sell or trade in. The first point is when you will get the best resale value of that equipment versus the price of new equipment. The second point normally occurs close to the full depreciation time for that equipment. When you consider the resale value of a tractor, for example, the first replacement target is in the range of 3-5 years and a pickup truck is around 3 years because we get such a good discount using the State Contract to purchase new.
The second replacement target on a tractor is 8-12 years after we have fully depreciated it out and for pickups the second target for us is 10-12 years. The first trade point when the equipment is newest is the best trade point most of the time because the equipment is under warranty the whole time and we do not assume the risk of a major equipment failure.
Although it would be cheaper many times to trade in our equipment while it still is under warranty, we recognize the public perception if we always drive new pickups. Because of this we usually pick the later of the two replacement times in the equipment life and we accept the risk of a failure that is not covered because the warranty ran out. Effective fleet management is really all about saving money in the long term and I believe we do have an effective fleet management program in place here at the County Highway Department.
Dan Sauvé, P.E.
County Engineer