The Refuse Fleet Maintenance Challenge: Managing Trucks As Capital Assets

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In your typical collection operation, after labor, your trucks are the most expensive operational cost in terms of maintenance and repairs. And their purchase requires a large portion of your capital dollars, money you’re investing in an asset that you hope will generate enough revenue to cover both the payment for the truck and the ongoing operating expenses and leave a little something to take home. The decisions you make from the moment the truck is put into service determine how much it will cost you in maintenance and repairs, what its value will be at the end of its life, and how many years it will last.

When Is Just Right, Right?

Like the tale of “Goldilocks and the Three Bears,” sometimes it’s hit or miss trying to find the combination that’s “just right” for truck maintenance. Too little investment in preventive maintenance, and the truck will not last as long as it was designed to. Too much investment in keeping the trucks in top shape, and you might be throwing money away. Too much truck for the job, and you’ve got a vehicle with lots of bells and whistles that might exceed the needs of the job it has to do and become a maintenance nightmare. Too little truck, and you’ve got a dog that can’t do the job and frequently ends up broken in the shop because it wasn’t strong enough to handle the work you asked it to perform.

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Unfortunately, there is no easy answer to the capital-asset-vs.-maintenance-cost equation. There are just too many variables. When you think that you’ve got it “just right” on the internal side of the equation–for example, the right level of staffing in the garage to fix the trucks or getting the drivers to inspect their vehicles as they should–along comes an external regulation governing air quality, alternative fuels, or safety. The equation is again thrown out of balance.

We’ve looked at two parts of the equation, mostly dealing with the internal side. But what role do some of the external factors that maximize the value of an asset play in refuse truck maintenance? While it’s relatively easy to pony up the cash and buy a trash truck whenever you need one, is it the right approach? How does truck maintenance affect how we finance these vehicles through lease payments or other cash-flow maximizing approaches? Should you consider rebuilding these trucks in order to extend their life expectancy, or does it make sense to replace them before the maintenance cost curve turns upward and the trucks become more expensive to maintain each year? In the end, refuse truck maintenance could affect every aspect of the bottom line and determine if you’ll be in business in five years or not.

To Rebuild or Not

Rebuilding a trash truck involves more than just replacing a couple of cylinders and a worn-out floor. In a systematic rebuild program, the two parts of the truck–the body and the chassis–are disassembled. Various components and subsystems are rebuilt and upgraded, while wiring, hoses, and other wear items are completely replaced. The goal is to essentially end up with a new truck with increased reliability at a portion of the cost of a new truck.

The City of Glendale, AZ, has operated a systematic rebuild program over the past several years that was designed to extend the life expectancy of the trucks. “Originally we were looking at ways to cut the capital costs of trucks,” explains Robert Donovan, solid waste superintendent. “We try to manage a truck by total maintenance cost, using a five-year life for the sideloaders and a seven-year life for the frontloaders. We felt by looking at the truck portion, we might be able to save ourselves money by doing some substantial rebuilds on the truck and just rebodying, so when we got done we had a relatively new truck.”

The city used a rule of thumb that the rebuild program had to save at least $30,000 over the price of a new truck in order to justify the time and expense of rebuilding. “The oldest truck in our fleet that was our very first rebuild is on its sixth year after rebuild,” says Donovan. “That program was working very well. We haven’t had any substantial increase in repair costs on the eight vehicles in the fleet that had this type of extensive rebuild.” He says the program also allowed them to reallocate assets based on current business needs. For example, if the city had a frontloader that it no longer needed, through the rebuild program it could convert the frontloader into a rolloff truck.

The city has since discontinued its rebuild program. “The reason is not that we felt the program wasn’t successful, but engine technology and emissions have forced us into this decision,” states Donovan. “Our standard engine was an L10 Cummins, for example; they don’t make that engine anymore. When you try to put one of the new technology Cummins of the equivalent horsepower into the chassis and truck that was designed for an L10, you’re literally faced with changing the entire wiring harness in the truck. It is just a tremendous effort. You can easily run up to $25,000 to $30,000 just to do it. And you don’t know how the thing is going to perform, simply because with all the electronics involved, you are now expecting a mechanic to work on a non-spec truck. So we opted at this point to start buying new trucks again. We will go back to the rebuild program once this whole emissions issue is settled and truck manufacturers have a fair sense of what they’re going to do in terms of power plants and the electronics that drive them.”

Donovan and his staff look at the whole cost of operating a particular truck over its life cycle. “The capital cost of a piece of equipment is one thing,” he states. “But the operating costs can far exceed the capital costs over a five-year term. It may cost you $35,000 a year to operate. You have a truck that you paid $145,000 for, and in five years you spend $160,000 to $170,000 keeping it on the road.” Donovan recalls one truck in which the maintenance costs per year exceeded their standard. “By year two, we had spent $92,000 keeping this truck on the road, and at that point we auctioned the darned thing. That is a decision to cut our losses, because it wasn’t getting any better and we saved $20,000 a year just by getting rid of it.”

Burrtec Waste Industries in Fontana, CA, has established a comprehensive maintenance and rebuild program that pushes the life expectancy of a truck to 15 years, three times the typical life expectancy. According to Mike Ottonello, corporate operations director, it starts with a very rigorous maintenance program. “All of our fleet comes into our maintenance bay once every 14 days. At this point each truck gets inspected; we fully lube the truck and check the air filter. Two weeks later we do the same thing, and then at six weeks we bring the truck back into our lube shop and we do the same thing, plus we drain all of our oil and we do our filters. Every six months we change our transmission oil and filters and our differential grease.”

The company has developed a rebuild program that constantly renews the trucks, using combinations of new and salvaged parts. Parts such as packer blades, hopper guides, and other body components are rebuilt approximately every three years in the company’s shops. “If the cab is in good shape, we just keep repairing the truck,” says Ottonello. “If the frame breaks, then it is time to just scrap it out. We do not sell our trucks; we bring them in and dismantle them. We keep the differentials, transmissions, radiators, and engines, and the rest of it we just cut up for scrap.”

Ottonello believes that the key to longevity for the trucks is the preventive maintenance program. “Without preventive maintenance, I don’t think you have a leg to stand on.” He estimates that the maintenance program costs him $1,500 per month, but it allows the company to minimize its capital outlays in new equipment. Combining that with properly specifying the truck and making sure the drivers are taking care of the trucks ensures the maximum truck life. “I really don’t see any reason why it can’t last that long. We have some trucks in our fleet that are more than 15 years old.”

Changing technology and increased complexity might make it more difficult to minimize maintenance costs. “The trucks you buy today have got all the modern bells and whistles,” states Ottonello. “I guess I’m just from the old school. My opinion is the more bells and whistles you put on your truck, the higher the maintenance cost. I like to keep things simple. For every dollar you save, that is profit.”

Buying High, Selling Low

Municipalities tend to emphasis reducing maintenance costs through more aggressive vehicle replacement. These same operations tend to be short-staffed on the preventive maintenance side of the equation as well, forcing the organization into a never-ending game of catch-up. It’s sometimes cheaper to buy a new piece of equipment, do minimum maintenance over the vehicle’s life, run it into the ground, and then dump it and buy a new truck. In theory, this approach can work. More often than not, the combination of lack of fleet maintenance staff, too much repair work, and not enough money to replace the number of vehicles that should be replaced forces collection operations to run prematurely worn-out equipment beyond the planned replacement cycle, thus increasing the overall costs.

Equipment leasing is one way that the capital cost for new trucks can be amortized. While leasing has its advantages in the private sector by taking a capital outlay and turning it into an annual expense that impacts taxes, leasing also allows municipalities to spread out the equipment acquisition cost over a period of time. Municipalities cannot finance vehicles, so closed-end leasing is a viable option.

Wasteco Equipment Leasing in Maitland, FL, provides equipment financing for the refuse industry. According to Carl Rubin, president, maintenance of equipment affects the value of the asset. “Traditional lenders look at the age of equipment. When we do a lease, if the vehicle doesn’t work or they blow an engine, they are still obligated for the payments. So it’s to their benefit to maintain the vehicle. Some of the lenders are taking a residual position on a truck, and they want to make sure everything is done to keep its value.”

A truck that has been maintained properly over its life will have a higher value at the time it is sold off. While keeping a truck for a long period of time allows the truck to be fully amortized, you might actually be shorting yourself on resale value. According to Richard Kemner, president of RDK Truck Sales in Tampa, FL, a well-maintained municipal truck can fetch $55,000-$60,000 compared to ones that have received only minimum care and sell for $16,000-$17,000. Kemner cites one city as an example: “They run a little military plant as part of their maintenance program. It is by the book, and everything is done on time. They do a fantastic job at recordkeeping.”

Kemner’s company specializes in both new and used truck sales. When examining a group of trucks for possible purchase and resale, Kemner looks at whether the trucks are properly specified in order to do the job and what the maintenance history is on the vehicles. “When you go out and buy a used truck, probably the single most thing you look for is a truck that is matched out properly and that has a fairly decent maintenance program on it,” he states. “A lot of municipalities think that they have got to hold the vehicles between 10 and 15 years. If they will take a look at what I am willing to pay for vehicles five or six years old, they’re far better off to be rid of that vehicle rather than continuing their maintenance.” He adds that the older the vehicle gets, the more maintenance required on it, so if you turn it around sooner, you’ll receive a higher value for the truck.

Kemner believes that the difference in maintenance costs between a five-year-old vehicle and a seven-year-old vehicle is much greater than the difference in value a five-year-old truck has versus a seven-year-old machine. “If you buy it today for $100,000 and sell it in six years for $50,000, you’ve got $50,000 of your original investment back,” he offers. During the first five years of the truck’s life, the operating and maintenance costs tend to be significantly lower but begin to increase exponentially the older the truck gets. The same machine in two more years might sell for $15,000, losing $35,000 in value, plus the expenditure for higher maintenance costs. “If it is going to cost me $1,000 per month, if I could keep that same average forever, isn’t that smarter?” asks Kemner.

Concluding Observations

It seems to make sense to keep a truck for as long as possible in order to maximize the investment in the vehicle, especially given the increasing price tag for today’s modern, complex machines. But this approach has to be balanced against the cost to maintain an ever-aging truck that can nickel-and-dime you to death, and you might not be able to capture technological advances that could improve productivity, fuel efficiency, or safety. It’s always wise to spend capital money to reduce operating expenses, but a programmed vehicle replacement program with corresponding five-year lease payments can be as expensive or more so than an ongoing maintenance program. The cost of trucks will continue to escalate as a result of increasing regulations and production costs, but so will salaries and costs for maintenance and repairs.

Managing municipal solid waste is more than landfilling: publicity, education, engineering, long-term planning, and landfill gas waste-to-energy are specialties needed in today’s complex environment. We’ve created a handy infographic featuring 6 tips to improve landfill management and achieve excellence in operations. 6 Tips for Excellence in Landfill Operations. Download it now!  

In managing the challenge of refuse fleet maintenance, here are the axioms that seem to make the most sense:

  • If you’re ensuring that your drivers are turning in the trucks for small repairs before they become bigger and you have adequate staff in the garage to run a preventive maintenance program that includes life-extension programs to fix things before they break, it makes sense to keep the collection trucks for as long as possible, subject to technological advances. The result is more money spent on operating expenses and less on capital outlay.
  • If your drivers are not being held accountable for inspecting their trucks and turning them in, and your fleet is understaffed and constantly scrambling to band-aid trucks to get them back out on the street in a reactive mode, it is better to spend capital dollars on a regular basis and replace trucks regularly in order to minimize major maintenance needs during the first five years and then obtain higher values on the resale market to offset the next purchase of trucks. This results in more money spent on capital outlay and less on operating expenses.

In the end, proper maintenance adds value to the fleet, reduces operating costs, and ensures timely and reliable delivery of service to the customer. It is much cheaper to regularly change the oil than to replace a failed engine. The end result of properly balancing the maintenance equation will be stable rates and satisfied customers. The challenge will always be in balancing the variables to achieve the optimum results.  Msw Bug Web

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