Practical knowledge post! Let's dig into the past and present of truck TCO

When it comes to TCO, experienced truck drivers nowadays aren't unfamiliar with it. But do you know where TCO comes from and what kind of development it has gone through? Today, let's dive in and take a good look.

● Originated in Europe in the 1990s

The term TCO stands for the "Total Cost of Ownership" of trucks, covering all costs from purchase, use, maintenance, to disposal. It's 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 entered 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 competition in the industry was becoming increasingly fierce. To develop better, some companies began seeking transformation in hopes of gaining good market shares and profitability.

By the mid-1990s, Europe’s logistics industry had developed rapidly. Most of the main players in European logistics were large fleets, which were the key clients for major truck manufacturers. Therefore, a common thought among these companies was how to better provide users with services to help them achieve maximum economic value.

In this historical context, TCO was applied. The introduction of this solution required manufacturers to move away from simply selling vehicles and instead to consider multiple aspects such as purchase cost, fuel cost, maintenance and repairs, insurance fees, driver skills, vehicle depreciation, and the residual value of used vehicles. It gained market recognition and has developed ever since.

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

China's auto industry started relatively late, and thanks to the rapid growth of the national economy, truck companies were in a stage of huge market expansion for a long time. The market situation back then was basically like, 'You could sell trucks with your eyes closed.' So the whole industry was operating in a pretty rough-and-ready, natural development mode.

In the first decade of this era, the rise of e-commerce logistics greatly sped up the express and freight industry. Fleets started popping up like mushrooms after the rain. With the rapid growth of the logistics sector, the demand for efficient logistics became more urgent, and competition kept heating up.

In 2012, Mercedes-Benz introduced the term TCO to China and, considering the state of the Chinese logistics industry, launched the "TCO Operation Smart Solution" specifically designed for China's logistics sector.  

At that time, Mercedes-Benz, based on real statistical analysis of the domestic logistics industry, found that out of the various expenses in 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 costs at 12%, tire wear at 4%, insurance at 2%, repair costs at 1%, and maintenance at 1%.  

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

The TCO Operation Smart Solution launched by Mercedes in China systemically combines all the costs incurred during a truck’s use—yearly, monthly, and even daily—into an overall operational cost, allowing users to clearly see the costs coming from all aspects and understand where they can save money, thus improving profitability.  

"Although TCO gained a fair amount of attention when it was first introduced, nationwide its practical application wasn’t very significant."  

According to experienced industry insiders, at that time domestic transportation and logistics were on a strong upward trend, and the industry overall was developing in a rough-and-ready way. Market players didn’t attach much importance to TCO, and while some advanced large organizations did have the need, they weren’t quite clear on the specific role of this ‘imported concept’ and remained cautious.

● The Beloved TCO Among Major Domestic and International Car Companies

"Although TCO wasn’t widely used nationwide back then, everyone in the industry agreed it was a great concept and quickly rolled out their own products."

It is reported that following Mercedes, European companies Scania, Volvo, and MAN have also launched their own full lifecycle solutions for the Chinese market. While the names differ, their goals are pretty much the same.

MAN:

In September 2014, MAN held a media launch for the MAN TCO in Beijing. In the Chinese market, MAN called TCO the 'Profit Booster,' which helps users save costs every day through careful calculations and maximize their earnings.

According to the promotion at the time, MAN's energy-efficient products and comprehensive services from Germany ensured that, even with sufficient cargo volumes and relatively low freight rates, the vehicle costs could be recovered in 2-3 years.

Volvo:

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

Volvo Trucks tailors different service methods, content, and software systems based on the needs of different types of customers, covering areas like operational decisions, improving transport efficiency, and reducing fuel consumption, helping users strengthen their core competitiveness.

Scania:  

Scania's proposed solution is TOE, which stands for Total, Operation, and Economy. These three core words represent the purpose and approach of the TOE concept. The goal is clear: to improve business economics. The method is to conduct a comprehensive analysis and calculation of product and service costs and expected revenue from a full life-cycle perspective.  

Of course, TOE requires careful accounting not just of productivity cost components, but more importantly, the revenue that can be achieved at a certain cost level. The difference between revenue and cost is the profit the user can get.  

In fact, besides the attention from foreign truck companies, domestic mainstream manufacturers are also increasingly paying more attention to TCO.

China National Heavy Duty Truck Group:

In 2016, China National Heavy Duty Truck Group launched a full-life-cycle service for large logistics companies they partnered with. Basically, the logistics companies pay China National Heavy Duty Truck a set fee per kilometer, and China National Heavy Duty Truck takes care of all the maintenance and repairs for the vehicles.

It's like these logistics companies are putting insurance on their trucks, freeing them up to focus on running their business without wasting time and energy on vehicle maintenance. It's really a win-win for both the logistics companies and the truck manufacturer.

FAW Jiefang:

In June 2017, FAW Jiefang shifted its customer service from just after-sales support to a 'full lifecycle care' approach.

The company designed all-inclusive and semi-inclusive service packages for key customers and key products, signing service agreements with customers to put the maintenance and service plans into action.

Shaanxi Auto:

Back then, Shaanxi Auto launched the service slogan 'You use the vehicle, we maintain it,' and provided trustee services for key clients. 'Now we spend 70% of our effort on service. In other words, 70% of our marketing activities are service-oriented, while sales only account for 30%, using service to drive sales,' Wang Yongfeng, the deputy general manager of Shaanxi Heavy Duty Vehicle Sales Company responsible for Shaanxi Auto's services, said in a media interview. 'From the trend, the proportion of service will only continue to grow.'

Apart from the three domestic companies mentioned above, other major vehicle manufacturers have also gradually integrated TCO-related concepts into their product promotion and service. Domestic manufacturers continue to deepen and refine their approach to TCO, which has been ongoing to this day. This is also a big reason why most truck industry professionals are so familiar with TCO nowadays.

● Industry 'Involution' Intensifies: TCO Steps Up

After years of development, domestic logistics companies have continuously improved transport efficiency, and vehicle management has started to shift towards a more refined approach. On top of that, seeing that fleets that adopted TCO early on really benefited in vehicle management and operations, the call for TCO has been growing louder in recent years.

At the same time, between 2017 and 2021, truck sales kept climbing year after year due to multiple policies such as upgraded emissions standards, overload and over-limit controls, and changes in highway toll systems. After July 1, 2021, market overextension combined with the pandemic caused domestic commercial vehicle sales to drop sharply. As the growth market turned into a stock market, industry 'involution' intensified.

As trucks are tools of production, the ones that can create better value for users gain market favor. With the continuous development of the transportation industry, to meet ever-increasing user demands, truck brands not only keep upgrading vehicle configurations but also urgently need to offer integrated solution services.

However, to make TCO work well, automakers need to gather, compile, and analyze a large amount of data about the vehicle conditions and the actual operational status of users, so they can provide the best solutions. During this period, the main industry players had made some progress in applying connected vehicle technology, which could already support large-scale data collection and analysis.  

As logistics continues to evolve, the concept of TCO is also continuously advancing.  

We noticed that by 2022, TCO upgrades had become a key part of the marketing focus for some major automakers. This includes Mercedes-Benz’s concept of TCO 2.0, as well as the TVO (Total Value of Ownership) concept promoted by some domestic companies. But no matter what it's called, the main approach focuses on managing four major aspects: vehicle purchase cost, operating cost, maintenance cost, and management cost, providing optimal solutions to help users achieve the maximum operational value from their vehicles.

"I originally had three domestically made tractors priced around 300,000 to 400,000 yuan, but at the beginning of this year, I sold two of them and switched to a Mercedes. The main reason for this choice was the vehicle's performance in full lifecycle cost." On February 6th, Mr. Wang from Henan purchased a newly launched domestic Mercedes.  

He explained that nowadays, whether it's a fleet or independent drivers, people calculate the economics before buying a vehicle. Besides the purchase cost, factors like vehicle uptime, reliability, fuel efficiency, and resale value are also important. The idea of TCO (Total Cost of Ownership) has gradually started to sink in.

● Editor's Note

Maintaining and using a car is an economic activity. If you want to do it well, you have to be clear about the numbers. TCO fundamentally emphasizes accounting, and that means calculating every detail across the car's entire lifecycle, so everyone can understand the costs and manage the car properly.