TCO – What it is and how it can help you to use this business concept

Date: 03.08.2020
Author: Monica Dona

Cars are an extremely important asset for any business. Many of the businesses are based on the use of vehicles and invest money in their purchase and maintenance. However, the costs should be as low as possible and, therefore, economic experts have introduced the concept of TCO or Total Cost of Ownership. TCO can be seen as a full monthly installment, paid for a car, an installment that includes all expenses, not just those for its purchase.

In the article below you will find out what TCO means, what is the connection between operational leasing and TCO deduction, but also some answers to different questions that you ask about this concept.

Table of Contents:

1. What does TCO mean?

TCO is a sum of money that a business owner has to pay monthly for used vehicles. Besides the money needed to purchase the vehicles we need to consider maintenance costs, fuel payment, driver’s salary and more.tco-min

An analysis of the TCO can yield surprising results, which can be used to reduce costs in this regard. For example, the price of fuel is around 20% of the TCO, and a large amount of money can be saved if a reduction is made in this regard. Tires, repairs and maintenance can also account for about 10% of the total monthly rate, so many savings can be made in this regard as well.

Among the elements that contribute to the value of TCO are insurance, taxes and State duties, but especially the depreciation of the value of the car over time, being known that such equipment loses almost half its value after the first year of use, especially in the case of legal entities. The conclusion is that TCO is more important than the purchase price of the car. The purchase must be made not according to the price of the car, but the total cost of the property. For example, a car that runs on electricity costs more, but you will spend less time due to cheaper fuel, lower taxes and insurance, and easier maintenance.

2. The connection between operational leasing and TCO cuts

One solution available to anyone to put this concept into practice is to contract operational leasing. This process is provided to those who want to collaborate with specialized companies, who know exactly what TCO means and how it can be optimized. A true businessman only needs to know that when he uses a car contracted through  operational leasing  , pays only a cost of use for a pre-determined period of time and does not have to worry about certain costs that may arise by surprise, in case of malfunctions, increases in taxes and duties, etc.

On the Romanian market, operational leasing has entered timidly only in recent years, but the value of this concept is proven by the fact that large international companies operating in the country, almost always use this modern solution to save and reduce costs. Turning to a company specialized in operational leasing will certainly lead to cost reductions, because specialists know what the total cost of each vehicle is and what the methods to reduce TCO are.

In conclusion, given that almost all large companies own or need a fleet of vehicles, they can confidently use this modern, economical solution, widely used in Western Europe, namely operational leasing. In this way the costs will be reduced over time, even if at the beginning an investment will be needed to implement the concept.

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3. Frequently asked questions and answers about TCO

What is TCO?

TCO is a cost that includes all expenses resulting from using a car in a business.

How can TCO be lowered?

A handy solution is to resort to operational leasing to build a fleet of vehicles.

What costs are included in the TCO?

In the TCO, along with the acquisition costs, there are expenses related to fuel, repairs, taxes and insurance, as well as the depreciation over time of the value of the vehicle.

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