A look into the past and present of truck TCO

Speaking of TCO, it is not unfamiliar to the veteran drivers in the trucking industry. But do you know where TCO comes from and what kind of development process it has gone through? Today, let's take a good look into it.

● Originated in Europe in the 1990s

The term TCO stands for "Total Cost of Ownership" of trucks, covering all costs from purchase, use, and maintenance to disposal. It is an important indicator for measuring the investment efficiency of commercial vehicles, and this concept first appeared in Europe.

According to relevant records, starting from the 1980s, Europe’s economic development began to enter a period of slow growth, and the sales of medium and heavy trucks are directly related to economic development, so they were greatly affected.

At that time, there were about a dozen medium and heavy truck companies in Europe, and industry competition was becoming increasingly intense. To develop better, some companies began seeking transformation in order to gain better market and profitability.

By the mid-1990s, Europe’s logistics industry had developed rapidly. The main participants in European logistics were large fleets, which were also the lifeline for major truck manufacturers. Therefore, how to better provide users with services to help them achieve the greatest economic value became a common goal for all.

In this historical context, the application of TCO emerged. The proposed solution required manufacturers to move beyond the simple model of selling vehicles, shifting to consider multiple factors such as purchase cost, fuel cost, maintenance, insurance, driver skills, vehicle depreciation, and the residual value of used vehicles. This approach gained market recognition and developed continuously from there.

● Mercedes-Benz Trucks was the first to introduce TCO to China

China's automobile industry started relatively late. Benefiting from the rapid development of the national economy, truck companies remained in a stage of large-scale market growth for a long period. The market situation at that time was such that "you could sell trucks with your eyes closed," meaning the entire industry was in a crude, naturally developing mode.

Entering the first decade of this era, the emergence of e-commerce logistics greatly accelerated the development of the express and fast freight industry. Fleet operators began to appear like mushrooms after rain. Along with the rapid development of the logistics industry, the demand for efficient logistics became increasingly urgent, and competition grew fiercer.

In 2012, Mercedes-Benz introduced the term TCO (Total Cost of Ownership) to China and, in combination with the current situation of China's logistics industry, launched the "TCO Operations Intelligence" solution specifically designed for China's logistics and transportation industry.  

At that time, based on real statistical analyses of the domestic logistics industry, Mercedes-Benz concluded that among the various expenses of a truck’s TCO over five years, fuel costs accounted for the highest proportion at 35%, followed by road tolls at 31%, then driver wages and other management costs at 14%, vehicle purchase cost at 12%, tire wear at 4%, insurance at 2%, repair costs at 1%, and maintenance fees at 1%.  

The introduction of this concept and cost calculation caused a stir in the domestic market.  

Mercedes-Benz's TCO Operations Intelligence in China can systematically aggregate the total operating costs arising each year, month, and even day during a truck’s use, allowing users to intuitively understand the operating costs from all aspects, thereby knowing where money can be saved and improving profitability.  

"Although TCO initially received considerable attention, from the perspective of the nationwide overall market, its performance in practical applications was not obvious."  

According to senior industry insiders, at that time, the domestic transportation and logistics sector was on a strong upward trend, and the industry as a whole was in a rough development stage. Market participants did not attach that much importance to TCO. Additionally, although some advanced large organizations had a demand for it, their understanding of the specific role of this 'imported concept' was not clear, and they maintained a wait-and-see attitude.

● Beloved TCO of Leading Domestic and Foreign Automakers

"Although the application level of TCO nationwide was not high at the time, the industry acknowledged that it was a good thing and launched their own products one after another."

It is reported that after Mercedes-Benz, three European companies—Scania, Volvo, and MAN—have also launched their own full lifecycle solutions for the Chinese market. Although the names differ, the goals they pursue are roughly the same.

MAN:

In September 2014, MAN held a media launch for MAN TCO in Beijing. In the Chinese market, MAN referred to TCO as 'Profit Treasure', which, through meticulous cost management, helps users save costs daily and achieve maximum returns.

According to the promotion at the time, MAN's energy-efficient and high-performance products from Germany, along with comprehensive services, ensured that even with sufficient cargo volume and low freight rates, the vehicle costs could be recouped within 2-3 years.

Volvo:

At that time, Volvo Trucks launched a comprehensive transport solution called TPOL, which is a full lifecycle performance measurement tool and fleet management service. This solution has helped logistics companies succeed countless times in Europe, and Volvo Trucks has improved it according to the situation of the Chinese market and customer needs.

Volvo Trucks formulates different service methods, content, and software systems based on the needs of different types of customers, covering aspects such as operational decision-making, improving transportation efficiency, and reducing fuel consumption, to help users consolidate their core competitiveness.

Scania:

The solution proposed by Scania is TOE, which stands for Total, Operating, and Economic. These three core words represent the purpose and method of the TOE concept. The purpose is clear: to improve the economic efficiency of operations. The approach involves a comprehensive analysis and calculation of product and service costs and expected revenues from a full lifecycle perspective.

Of course, what TOE requires careful calculation of is not only the composition of productivity costs, but more importantly, the revenue that productivity can generate under a certain cost level. The difference between revenue and cost is the profit that users can achieve.

In fact, in addition to being valued by foreign truck companies, the attention to TCO by domestic mainstream OEMs is also increasing.

China National Heavy Duty Truck Group:

In 2016, China National Heavy Duty Truck Group launched a full lifecycle service for large logistics companies it cooperated with. This means that the cooperating logistics companies pay China National Heavy Duty Truck Group a certain amount per kilometer, and all vehicle maintenance and repairs are handled by China National Heavy Duty Truck Group.

This is equivalent to these logistics companies insuring their trucks, allowing them to focus on professional business operations without having to waste energy on vehicle maintenance and repairs. It is a win-win situation for both logistics companies and truck manufacturers.

FAW Jiefang:

In June 2017, FAW Jiefang will also shift its customer service from purely after-sales service to 'full lifecycle care.'

The company designs full-package and half-package service products for key customers and key products, signs service agreements with customers, and implements service maintenance plans.

Shaanxi Auto:

At that time, Shaanxi Auto promoted the service slogan 'You use the vehicle, we maintain it,' and implemented managed services for key customers. 'Currently, 70% of our effort is focused on service. In other words, 70% of the marketing process involves service, while sales account for only 30%, using service to drive sales,' said Wang Yongfeng, Deputy General Manager of Shaanxi Heavy Duty Truck Sales Company, who was responsible for Shaanxi Auto's service work, in a media interview. 'From the development trend, the proportion of service will continue to increase.'

In addition to the three domestic companies mentioned above, other major manufacturers have also begun to gradually incorporate TCO (Total Cost of Ownership) concepts into their product promotion and services. Domestic manufacturers are continuously deepening and refining their understanding of TCO, which has continued to this day. This is also a major reason why most truck industry practitioners are very familiar with TCO.

● Industry 'Involution' Intensifies: TCO Advancement and Upgrade

After years of development, the transportation efficiency of domestic logistics companies has continuously improved, and vehicle management has begun to transition toward refinement. Coupled with the fact that fleet operators who previously applied TCO have truly benefited in vehicle management and operations, the demand for TCO has grown increasingly louder in recent years.

At the same time, between 2017 and 2021, due to multiple policies such as upgraded emissions standards, overloading restrictions, and changes in highway toll methods, truck sales increased continuously for several years. After July 1, 2021, market overextension coupled with the impact of the pandemic led to a sharp decline in domestic commercial vehicle sales. As the incremental market shifts to a stock market, the industry 'involution' has intensified.

As a production tool, trucks that can better create value for users are the ones favored by the market. With the ongoing development of the transportation industry, in order to meet the continuously rising user demands, major truck brands are not only continuously upgrading vehicle configurations but also urgently advancing integrated solution services.

However, doing TCO well requires manufacturers to compile, tally, and analyze a huge amount of data regarding vehicle conditions and users' actual operational status, in order to provide the optimal solution. During this period, the application of telematics technology by major enterprises has developed to a certain extent and is already capable of supporting large-scale data compilation and analysis.

With continuous upgrades in logistics development, the TCO concept is also constantly advancing.

We have observed that in 2022, TCO upgrades became the central theme of promotion for some major manufacturers. This includes Mercedes' TCO 2.0 concept as well as the TVO (Total Value of Ownership) promoted by some domestic companies. Regardless of the terminology, the main focus is on managing vehicle purchase costs, operating costs, maintenance costs, and management costs to provide the optimal solution and help users achieve maximum vehicle operational value.

"I originally had three domestic tractors priced around 300,000 to 400,000 yuan, but I sold two of them earlier this year and replaced them with a Mercedes. The main reason for this choice was the vehicle's performance in terms of whole-life economic efficiency." On February 6, Master Wang from Henan purchased a newly released domestic Mercedes.  

According to him, nowadays, whether for fleets or independent drivers, people calculate an economic account before buying a vehicle. Besides the vehicle's purchase cost, factors such as operational uptime, reliability, fuel consumption, and second-hand resale value are also important considerations. The concept of TCO (Total Cost of Ownership) has gradually begun to take root.

● Editor's Note

Car ownership and use are economic activities. To do them well, one must calculate the expenses clearly. TCO fundamentally emphasizes accounting, and it is about calculating costs for every stage of the vehicle's entire lifecycle, allowing everyone to understand the finances and manage their vehicles properly.