Pay Now or Pay Later

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Fleets need to carefully assess maintenance needs to determine if pre-paid plans make sense. Photo General Motors

Does paying for maintenance ahead of time make sense for today’s modern fleets?

While not universally available, prepaid maintenance plans are offered by some manufacturers and dealers for selected or sometimes all vehicles, depending on the brand. At first glance, the idea of saving money in the long run by paying for maintenance needs upfront sounds like it may be a good investment, but not everyone agrees.

According to an article published by J.D. Power, “paying for maintenance in advance means that the car owner’s costs won’t go up in years to come.” While that may sound like a solid reason to invest in a prepaid plan, that same article points out that dealership service departments are typically more expensive than an independent garage, or in the case of a fleet, the in-house garage.

J.D. Power further explains that “modern cars don’t require much maintenance.” In other words, since today’s vehicles, “require little more than oil changes and tire rotations,” does it really make sense to invest in a prepaid maintenance plan?

Furthermore, fleet managers need to understand how much a prepaid maintenance plan costs vs. how much they’re likely to spend on maintenance during the time the vehicle is part of their fleet. “When assessing the wisdom of purchasing [a prepaid maintenance plan] it is important to compare the cost of the contract against the manufacturer’s service requirements and what those services would cost elsewhere,” the J.D. Power article concludes.

Invest wisely

Dave Broadwater, Manager, Fleet Management Services at Holman says that prepaid maintenance plans, if and where they’re offered and available for fleets, are not a wise investment.

“Generally speaking,” Broadwater explains, “prepaid maintenance plans are not advantageous for the vast majority of fleet operators. While prepaid maintenance plans might sound appealing from a budgeting standpoint, in virtually all prepaid scenarios, you are paying for maintenance services that you may or may not incur. Additionally, in a prepaid scenario, fleet operators have no ability to control individual costs and often lose visibility to valuable maintenance/performance data.”

Instead of a prepaid maintenance plan, Broadwater recommends a more thorough and transparent strategy. “The best advice I can offer fleet operators is to develop a comprehensive preventive maintenance (PM) strategy and closely adhere to recommended PM schedules,” he says. “Successfully minimizing PM variability (consistently adhering to PM schedules) is among the most effective ways to improve reliability, maximize productivity, and control operating costs.”

An effective PM schedule, he adds, will also help cut costs down the road. “Regularly completing minor PMs—oil changes, brake services, etc.—dramatically reduces the occurrence of costly, more significant component failures,” Broadwater explains. “When a fleet has high PM variability (inconsistent service, extended mileage intervals, skipped services, etc.), it typically results in significantly higher maintenance costs and increased downtime.”

Extended warranties

Another way to hedge the cost of future expenses is by investing in an extended warranty. Depending on the length of the extended warranty coverage, this could mean adding several thousand dollars to the cost of a vehicle.

According to an article published by Fleetio, extended warranties make sense for fleets in a number of circumstances. For example, if you expect to run your vehicles beyond the point where the new car warranty expires, then an extended warranty might make sense. Also if your vehicles are equipped with new and unproven technologies, then Fleetio recommends the additional coverage an extended warranty can offer.

Holman’s Broadwater offers further insight into the extended warranty question: “While extended warranty programs are available to most fleet operators, we typically do not recommend them to our customers,” he says. “Similar to prepaid maintenance plans, you’re usually paying for services that may or may not be performed. In the vast majority of scenarios, it is far more economical and cost-effective to pay for repairs as needed rather than paying for the ‘insurance’ of an extended warranty.”

If you do decide to invest in an extended warranty, Broadwater recommends reading the fine print. “It is also important to mention that extended warranties often have certain limitations in terms of types of repair, location of service, etc.,” he explains.

So while extended warranty coverage for vehicles with new and unproven technologies may make sense, when it comes to conventional fleet vehicles, Broadwater says fleet managers should focus on the basics instead.

“Adhering to recommended PM schedules will help to mitigate the risk of unforeseen, catastrophic failures, further reducing the potential benefits of extended warranties,” Broadwater adds. “Also, by optimizing the lifecycle of your vehicles, most units will be removed from service before an extended warranty plan would typically begin.”