Totting Up the TCO
Is total cost of ownership about value for money or clever marketing?
I’ve heard an awful lot recently about the total cost of ownership, or TCO as the financial types like to call it. Talk to any equipment manufacturer or dealer and they will tell you that the days of straight forward price-taggery are long dead and gone.
While this is all well and good, from a journalistic perspective, it’s becoming increasingly difficult to get a simple answer to a simple question. I often ask – out of a general sense of curiosity if nothing else – how much machines cost. The responses I get, however, rarely contain any actual figures.
“We are all about reducing the total cost of ownership,” I am frequently told. Naturally, I applaud this sentiment, but as a fairly uncomplicated man, I like to begin with the initial cost of ownership and work my way up.
Even when I persist with my line of questioning, I tend not to receive a concrete answer. I appreciate that the particulars of any deal will depend on the positions of the respective negotiators, but I am only asking for a ballpark figure.
Instead, I am usually offered a mumbled, non-committal approximation.
Of course, I can understand my interlocutors’ general reluctance to give definite answers to the likes of me. After all, any salesperson worth his or her salt knows that I’m not about to shell out hundreds of thousands of dirhams on a new excavator. Even so, I do have a genuine reason for asking.
Perhaps I’m just being cantankerous. Maybe I’d do better to explore the benefits of TCO, of which there are many.
For example, engine manufacturer Volvo Penta recently distributed an interesting article about the work that it has is conducting to reduce TCO. The company’s formula – specifically for engines – is as follows: Engine price plus integration cost plus cost of operation and service minus resale value equals TCO.
In line with this formula, Volvo Penta is working to improve fuel efficiency, reduce ventilation costs, simplify integration, and raise engine resale values. In this instance, TCO has driven genuine innovation.
When combined with other improvements made to vehicles by manufacturers, the end user will see significant benefits. Another example of effective TCO strategy is MAN’s ProfiDrive training programme, which highlights the financial savings – not to mention the safety gains – that can result from having well-trained personnel behind the wheel.
TCO is not just a clever marketing ploy to make prices seem more reasonable. When set out in a logical and tangible manner, it makes perfect sense. It is no longer enough for products to be competitively priced at the outset because commercial customers are becoming increasingly discerning.
More than ever, they are demanding robust, reliable and effective equipment with high standards of after-sales support. This is driving manufacturers and dealers to think in more detail about what they are doing to reduce costs across the lifetime of a machine. TCO is causing the industry to think harder; it is driving innovation.
As such, the next time somebody speaks in vagaries when I ask them about the cost of a machine, I will endeavour to be more patient. I will avoid becoming annoyed and remind myself of the positive impact that the ‘total cost of ownership’ trend is having on the PMV market. Even so, it would be nice to hear some numbers – if only occasionally.