A vehicle replacement policy for motor carriers in an unsteady economy

Yoshinori Suzuki and Gregory R. Pautsch

Transportation Research Part A: Policy and Practice, 2005, vol. 39, issue 5, 463-480

Abstract: Recently, the motor carrier industry has experienced: (1) the sharp decline of vehicle (tractor) re-sale values, and (2) the substantial increase of vehicle insurance premiums. This study examines how motor carriers should adjust their vehicle replacement policies when dramatic changes of vehicle re-sale values and insurance premiums are observed. The study first develops a model of vehicle replacement optimization, and then solves the model by using the actual data obtained from a motor carrier. Intensive sensitivity analyses are performed to examine how the optimal solution is affected by the changes of vehicle re-sale values and insurance premiums, so that carriers can obtain normative policy implications. The results imply that: (1) carriers should use longer replacement cycles (extend the duration of vehicle use) when re-sale values decline, and (2) carriers' vehicle replacement policies should not be affected by the fluctuations of insurance premiums unless the fluctuations are substantial.

Date: 2005
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