Don't Forget Your Wages
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IN my previous article I dealt with a complaint that the rates recommended in The Commercial Motor "Tables of Operating Costs" are too high, and that if a haulier quoted them he was bound to be out of the running for contracts because other operators, ignoring those recommendations, quoted less, and got the jobs. I put forward the opinion that competitors who did that would be working at a loss.
To prove my point I persuaded the complaining haulier to go through his figures for costs of operation comparing them one by one with those in the Tables. In the ensuing argument I had got as far as to be able to compare four of the running costs.
I should perhaps begin by stating that the contract which was the basis of this series of articles involved an oil-engined articulated 12-tonner and the actual weekly mileage was 840. The agreed figures were: fuel, 3.25d. per mile; lubricants. 0.25d.; tyres, 2.40d.; maintenance, 1.056d. (I propose to take the last figure as 1.06d. as I do not go beyond two places of decimals in dealing with operating costs: the data used in the calculations are not in themselves sufficiently accurate to justify a third figure.)
Corresponding figures in the Tables arc: fuel, 4.09d.; lubricants, 0.25d. (same); tyres, 1.93d.: maintenance (maintenance (d) plus maintenance (0), 1.93d. Differences arc explained as follows. In regard to fuel, my friend says that he gets 15 m.p.g. as against It m.p.g. in the Tables. Because of increases in the price of tyres since the Tables were compiled, there is a discrepancy. Maintenance—here I feel sure that the haulier has not made a complete record of all his expenditure. I think that if the records had been really complete his maintenance figures would compare reasonably enough with those in the Tables.
Depreciation on Mileage Readers of these articles will know that our next and the final item of running cost still to be considered is depreciation. I have to deal with this on the basis of mileage and in my previous article put the case for mileage as against time and, after a long argument, persuaded my friend to allow me to treat it as such.
"Now we can assess your depreciation in a proper manner," I said. "We start with the fact, already disclosed, that you paid £2,700. Was that the all-in figure?
"What do yOu mean by that?" he asked.
"Did it cover painting and lettering and any little extras? " I see what you mean." he replied. "The answer is ' yes '." "Very well then. Now, to calculate depreciation in the proper manner we must first get down to the price of the vehicle without tyres. You have already told me that the price of a set of tyres today is £300. We begin by deducting B24 that amount from the original cost price for the vehicle, £2,700, leaving £2,400."
" Why do you do that? 1 always make out my accounts on the basis of the original cost,"
"Because the rate of depreciation of the tyres is much more than that of the vehicle, 30,000 miles as against 300,000; also because, in any costing system, provision is made separately for the cost of tyres, and if we did not deduct the cost of tyres as I am recommending we should be charging for the tyres twice over, at least so far as the first set is concerned, and our cost data would be inaccurate to that extent."
"Well. I see your point, but it is nevertheless a new one to me.
Residual Value " The price of the vehicle without tyres is £2,400. Now we have to consider what is known as the residual value,' the amount you get by the sale of the old vehicle when you buy a new one. You would no doubt refer to it as its part-exchange value; the motor dealer whom you expect to make you this allowance would refer to it as the 'tradein' value, and you would be surprised how far apart are your values and his.
"However, it is usual to allow 10 per cent. of the original price if the machine is petrol-driven and 121 per cent. if it is an oiler. That is calculated on the price of a new vehicle, less tyres, at the time you enter into the transaction. In yoUr case it will be 124 per cent. of £2,400, which is £300. Deducting that from £2,400 leaves £2,100. That is the net value on which depreciation should be calculated."
"I think I understand all that," was his comment, "but
am wondering why we must go to all that trouble. Would it not be near enough to take the £2,400 and leave out the question of this residual value?
"It is just a matter of doing the calculation the right way and getting at your real expenditure. By the time you come to the stage of selling the old vehicle it has covered a given mileage and your net expenditure, spread over that number of miles, is your real expenditure on the vehicle itself.
"Before we reach the last stage of this consideration of depreciation we must agree on that number of miles. Up to now we have used several figures, without considering the matter to any serious extent. I am not going to take any notice of your 10 years' life, as it obviously could not apply in the case of a lorry running over 40,000 miles a year. Another figure has been mentioned, m000 miles. 1 am of opinion that that is too big an allowance, and suggest 240,000 miles as a fair and reasonable figure. If we agree on that, the depreciation per mile is £2,100 divided by 240,000, which is 2.10d. per mile."
"According to that, your Tables are a good bit out. They HOW IT WORKS Astriking characteristic of Solex carburettors has always been their smooth drive away, due to carefully balanced mixture graduations. In Number 2 of our series we explained the initial drive away, and now we come to acceleration up to cruising speeds.
As the throttle (V) is progressively opened past (bP), engine suction is communicated to the spraying orifices (oo) and air velocity through the venturi (K), generally called the choke tube, begins to rise. The level of petrol in the spraying well (A) has already dropped slightly, due to the back pull through the pilot jet (g) by (bp). Now, rising depression at (oo) ensures that the well (v) is swiftly emptied, first of the petrol outside (et) and then of that
inside (et), all this petrol on its way out through (oo) being emulsified by air passing through holes (ch) in the emulsion tube (et) to a progressively increasing degree as engine speed rises. These holes must not be too large or too numerous otherwise they will delay the moment at which the mixture begins to leave (oo), by admitting too much air through the correction jet (a).
Finally, further acceleration will draw petrol in increasing quantity through the main jet (G), and air likewise through (a), the small holes (ch) and the open end of the emulsion tube (et) providing the preliminary atomisation of petrol. Cruising speed is thus reached and Number 4 of our series will describe what happens then. 3.08d. per mile. How do you account for that large arence? "
Your vehicle cost much less than the average. Furtherre, I do not allow so much life to a vehicle as we have le in this case; 200,000 miles is my information as the rage life, which would have increased the figure for reciation in this case to 2.40d., still not as much as in Tables, the rest being due, as I have said, to the fact t your vehicle was low in first cost.
Now we have considered all the items of running cost, I the total is 9.06d., as near to 9d. per mile as makes no Iter."
Now there's a thing I do not understand at all. You've le it once before in this little chat and you do it quite m in your articles. You take an approximate figure ead of that calculated. You did it in connection with intenance, when you said that 1.06d. was near enough, geas the calculated figure was 1.056d. Now you take total of running cost, which has been laboriously :ulated to be 9.06d., as being 9d. exactly. Why do you it and how do you justify the cut?
To me it seems that 0.06d. per mile, which is the amount jettison from the running-cost total, might make a lot difference, especially in a case like mine relating to a icle which is running 40,000 miles and more in a year. ely the loss of 40,000 times 0.06d. per mile, which is sally £10, is serious enough."
Non-existent Accuracy
I do agree, most emphatically, but it is folly to try, in ir ultimate figure, to work to a degree of accuracy which ton-existent in many of the individual items which have le to arrive at that ultimate figure.
Take the figures which I have used to get at this total 0.06d., which I have ruled should be taken as 9d. exactly. 5 first of them, relating to fuel, assumes, on your informa1, that the consumption of oil fuel is at the rate of m.p.g. Now, quite frankly, and I am not being rude, I iply don't believe that figure. I am sure you have made a take somewhere.
Now suppose I am right, and the consumption is actually the rate of 12 m.p.g., costing 4.06d. instead of the 3.25d. ich we are using in this calculation. The difference is ld. per mile. In 40,000 miles that would be £135, which vally serious, ' Or again, take tyres. We agreed on a life of 30,000 es and so got the figure 2.40d. per mile, assuming the ial cost of a set to be £300. Now suppose, as we may do, that the average mileage per set is not 30,000 but y 24,000. The cost per mile for tyres would, in that e, be 3.00d., which is 0.60d. more than the 2.40d. we working on. The difference would be £100 a year.
Real Losses
What is the use of quibbling about a little matter of 6d. per mile, amounting to £10 a year, when there are h large and possibly real losses as £135 or £100, or both ether, likely to occur."
' I had not looked at it that way. I suppose you're ht. Let us take the 9d. per mile for running costs as rect. But look now, the total of running costs in the bles is 11.21d. To use your own methods, that is equivat to a difference of 2id. per mile or £375 per annum." If your figures are correct in every detail, then you are ht to query the Tables, and as you are so sure about it, will continue our investigation using 9d. per mile as ming cost," I replied. "We must now deal with the nding charges although there is usually little to argue ant there."
There is plenty, as a matter of fact," he said, rather my surprise, "bat I have just thought of something about :I consumption. It does not apply to my case, because I t running fully loaded all the time, out and home, but ave often wondered whether your figures for consumption, quoted in your Tables, take into account the fact that, th an oiler at any rate, the consumption is less when ming light than when loaded." "That feature is taken care of automatically in the Tables which, as you know, are based on actual data as collected from all sorts of vehicles working under all conditions. They are average figures, some of them relating, as in your case, to use which entails full loads both ways, some to vehicles which are loaded one way only and all the varieties between those two extremes."
"1 see. Those machines which run fully loaded would be likely to use more fuel than that provided for in the Tables, whereas those which do a fairly high percentage of tight running would have consumption figures showing more m.p.g. than the average figures you use?"
"Exactly, and that is why I doubt your figure of 15 m.p.g.; I should have expected 10 m.p.g. rather than 15. Now shall we get back to your criticism of the standing charges?"
" Yes, if you please. I cannot reconcile your wages figures."
Rises in Wages
"There have been two rises in wages since the Tables were published, one of 3s. per week and another of lOs " "1 appreciate that. My trouble is that I don't quite see how the amount you quote comes to more than the statutory amount. According to my data, the weekly wage of a driver of a 12-tonner working in a grade I area should be 136s. per week. According to your Tables, the amount is I47s. How do you make that out?"
"Once again I must tell you that you should read the introduction. You will find the explanation there. It is simply that in that 147s. there is included not only the net wage but provision for the National Insurance premium, also holidays with pay. I reckon 5s. 'for insurance and 6s. for holidays with pay, making lls. in all. Shall we take it that the standing charges as given in the Tables are good enough for you, plus the two wage increases amounting to 13s. plus Is. 6d. for the extra cost of the holidays with pay?"
"I agree to that."
"The Tables figure is £14 9s. 6d. Add 13s. 6d. to that and we get £15 3s. per week. We can now reckon up your vehicle-operating cost. First the running costs. The cost per mile has been agreed at 9d., and the weekly mileage at 840. Multiply the two together and we get £31 !Os. per week. Add £15 3s., the standing charge per week, and we get the total, £46 I3s."
Part of Profit "I don't need to make provision for wages; I shall he driving the vehicle myself."
"Oh no," I replied, "you're not going to spring that on me at the last moment. You know very well I never agree to that attitude. Do you mean to say that you, as driver, look upon your wages as part of your legitimate profit?"
"Yes," came his reply. "Of course I do. It's money in my pocket, isn't it?"
"On that basis, and especially considering the contract we are discussing, the result may well be that your total profit may be no more, and possibly less, than a driver's wages. Are you agreeable to that?"
"Why not?"
"The only point is that if you are satisfied with the wages of a lorry driver, why bother to go into business on your own? Why not merely be a driver? In that way you avoid all risk of loss. You have no worries and responsibilities, no trouble about contracts. The chances of being many weeks without work and, at the end, finding yourself with a vehicle which is no longer fit for use and no money to buy another.
" Most of all, you will be erecting an absolute barrier in the way of ever being able to expand your business and building up to four or five vehicles, all earning reason able profits. S.T.R.