PUBLIC WORKS SERVICES DEPARTMENT

MEMORANDUM

Date:

January 5, 2015

To:

Redwood City Police Department

From:

Russell Narahara, Fleet & Facilities Superintendent

SUBJECT:

Police Patrol Vehicle - Fleet Replacement Cycle Analysis

Summary
The Public Works Services Departments Equipment Services Division is responsible for
the acquisition, maintenance, and replacement of the Citys Fleet. This document will
provide details about the replacement schedule for the Police Departments fleet of police
patrol vehicles. A four-year Replacement Cycle is currently utilized for police patrol
vehicles.
Background
The goal of the Equipment Services Division is to ensure that all City vehicles are used to
their maximum potential. In order to attain the objective of realizing the best return for City
funds invested in the fleet, a Replacement Cycle is calculated for each City vehicle class.
I. Replacement Cycle
The Replacement Cycle for each City vehicle class is based on the following (5) criteria:
1- Age and Mileage
Where the vehicle is expected to meet or exceed the Replacement Cycle criteria by
prior to the anticipated replacement date; and/or where the vehicle is determined to be
beyond its useful life. Due to conversion costs, police patrol vehicles are not repaired if
the fair market value is less than $2,000.
2- Operating, Maintenance, and Repair Costs
Where the vehicle will require extensive repairs to enable operation by the end of the
fiscal year; and/or where the vehicle has a history of excessive operational costs, but
has not reached either the mileage or time component of the standard Replacement
Cycle. The goal is to replace vehicles that reduce productivity of staff due to equipment
failure and reduce downtime (when a vehicle is not available for service). Historically,
police patrol vehicles require extensive repairs in the fourth year of service.
3- Residual Value
When the parts and labor for maintenance and repair become 30% of the residual value
of any one vehicle, the Replacement Cycle of that vehicle should begin. By the time the
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replacement actually takes place, the maintenance and repair costs will equal 50-100%
of the residual value. At 100%, the maintenance and repair costs are exactly what the
vehicle is worth. A ratio of over 100% should be avoided to the fullest extent possible.
These costs can be either a one-time or an accumulation of all repair costs for the life of
the vehicle. Historically, police patrol vehicles near the end of their useful life tend to
have increased maintenance costs. The data depicted in Figure A is data based on
Redwood Citys current fleet of patrol vehicles. This data illustrates how police patrol
vehicles with higher mileage also have increased repair costs.

Figure A (Source: Asset Works software)

4- Depreciation
Most vehicles, including police patrol vehicles, lose 30% of their value in the first year
and over 40% every year thereafter. That means a $20,000 vehicle is worth
approximately $14,000 in the first year, $10,000 after two years, $6,000 after three
years, and less than $2,000 after four years. Therefore, placing a new $3,000 engine in
a four-year old vehicle valued at $2,000 should be avoided as the cost is 150% of the
residual value.
5- Condition
If the estimated body and/or mechanical repairs for a vehicle exceeds 50% of the
vehicles average market value or if the vehicle has been involved in an accident and is
considered a total loss (non-repairable), the vehicle is beyond economical repair and
will be replaced.
Based on these (5) criteria, the Equipment Services Division creates a Replacement Cycle
for each vehicle. Police patrol vehicles operate in severe operating conditions and their
reliability is critical for Officers in the field for serving the general public. Operation of police
patrol vehicles beyond their optimum lifecycle can result in increased maintenance and
downtime due to the failure of critical components such as engines, transmissions, axles,
and other vital parts. Historical data shows that after four years in the field, repair and
maintenance costs for police patrol vehicles begin to exceed both the book value as well as
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the market value of the vehicle; therefore, the City has followed the long-standing practice
of a four year replacement cycle for its police patrol vehicles. A four year replacement
cycle for police patrol vehicles significantly reduces unpredictable vehicle breakdowns and
ensures the safety, availability, functionality, and reliability of police patrol vehicles. The
four year replacement cycle also ensures that repair and maintenance costs do not exceed
the value of the vehicle.
II. Inventory
On average, it takes 3 months to prepare a police patrol vehicle for service. After
purchase, the police patrol vehicle will need all of the necessary emergency equipment
(integrated emergency lights, spot lights, take down lights, visor lights, siren & speakers,
light controls spotlight, integrated front and rear passenger compartment partition, hoseable rear passenger compartment, integrated shotgun mount, trunk organizer, push
bumper, reflective graphics kits, and on-board computer) installed before the vehicle can be
introduced into the field.
An inventory of police patrol vehicles is important in case multiple vehicles are damaged
simultaneously or if a manufacturer recall affects existing police patrol vehicles. Because
of the lead time required to prepare a new police car, the Equipment Services Division
always maintains an inventory of new police patrol vehicles based on the number of police
patrol vehicles that are between 3 and 4 years old. Vehicles between 3 and 4 years old
typically have increased maintenance requirements; therefore, the same number of
vehicles is normally kept in the inventory. Although depreciation affects those vehicles
stored in inventory, the need to have new, fully outfitted police patrol vehicles ready to go
for use in the field is the underlying reason for maintaining the inventory.
The preparation of police patrol vehicles is scheduled after all City vehicles and outside
agency vehicles have been serviced. When no other vehicles are scheduled for service,
mechanics in the Equipment Services Division prepare the new inventory of police patrol
vehicles. Based on this work process, the productivity of the Equipment Services staff is
maximized. The Equipment Services Division has been able to service the Citys fleet and
bring in new revenue from outside agencies while maintaining current staffing levels.
III. Replacement Vehicle Funding
The Equipment Services Division maintains a Fleet Replacement Fund that operates on a
break-even basis, using the revenue generated by the fund to finance its operations. On a
monthly basis, each City department pays rent through the use of an internal service
charge-back system. The fixed monthly rent covers the cost of maintenance, fuel, and
replacement of each vehicle. By amortizing the capital and maintenance costs over a
vehicles useful life, the system allows a smoothing effect on departmental budgets instead
of random spikes due to unplanned expenditures.
The Fleet Replacement Fund makes year-to-year fleet replacement funding less volatile
and more predictable. This, in turn, reduces the likelihood that critical vehicle replacement
purchases will be deferred to avoid paying the full cost of an asset in a single year. In
addition, the upswing in spending needs as a result of replacing more vehicles than usual
in a particular year is eliminated by the existence of the Fleet Replacement Fund.

Since users pay only for the resources they consume, there is no cross-subsidization of
fleet costs. Fleet users behave much more cost effectively by right-sizing the number of
vehicles utilized since the more vehicles in operation the higher their monthly cost. In
contrast, under a cash financing approach where vehicles are purchased in a single year,
users often see little benefit in disposing of underutilized or aging vehicles that have high
maintenance costs. Users view the purchase price of these vehicles, paid in full at
acquisition, as a sunk cost.
By eliminating most, if not all of the year-to-year volatility associated with funding fleet
replacement expenditures, the Fleet Replacement Fund increases the likelihood that
sufficient funding will be available to replace all fleet vehicles before their maintenance
costs equate to more than their residual value. Annual funding requirements are
predictable, making them less susceptible to competition from other spending requests.