COSTS AND CHARGES F R HIRE CARS
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Summarizing Figures Which Have Been Given Adding Others Relating to Cars of -Larger Siz
tsly fol the Cost of a 1 2 h.p. Hire Car and tails of Important Factors that Affect Costs ICONCLUDED my article last week with some figures for the average cost of operation of a 12 h.p. hire car. I gave the derivation of some of the figures, at the same time emphasizing the fact that they were averages. I also pointed out that, as to certain of the items, the expense would be greater in London and not so great in some of the smaller provincial towns.
The figures given related to the bare operating costs of the car and it is important that the reader should appreciate that the_ bare cost of the car is not the total expenditure • that the operator is called upon to face. lIaulier readers of these articles will appreciate that I am now about to refer to establishment costs, or " overheads."
An easy way to define establishment costs is to state that they comprise the expenditure which an operator has to meet, which is not provided for in any of the 10 items of
operating cost with which I have already dealt. They include such items as office rent, wages of clerical staff, managerial expenses, telephones, postages, stationery, advertising, auditors' fees, legal expenses and a host of minor expenses too numerous to itemize.
The difficulty with establishment charges, as will b., disclosed in the course of this article, is that they vary so widely. Whilst it is possible to suggest average figures, which indeed I shall do, there is always, the risk that, in any particular instance, the average figure may be rather wide of the mark and thus give rise to criticisms by the individual reader.
I have, in point of fact, found that a good average figure relating to an establishment operating comparatively small fleets of hire cars. is X3 per week and that is the figure which 1 have used in Table XX of "The Commercial Motor" Tables of Operating Costs, in arriving at fair and proper charges.
A point to note is that if it be per week in the provinces generally, it is likely to be more in London and large towns, but less in small towns and rural areas.
Fixed Charges and Running Costs Relating to a 12 h.p. Hire Car
I have summarized the figures already given, and include this item establishment charges or overheads in Table I. In this are set out the figures for a 1'2 h.p. hire car, and I have arranged the Table so that it gives details and totals under three heads, these being A, London and Glasgow areas; C, towns of under 50,000 population; and 13, places not allowed for in A and C. The classification is roughly the same as that which is followed by insurance companies in assessing premiums for cars and for commercial vehicles of all kinds. • The' reader who has not already studied " The Commercial Motor " Tables of Operating Costs or read many of these articles should begin by examining the arrangement of the figures. • .
He will note that they are divided into fixed charges and running costs. The first are as a preliminary assessed on a weekly basis, and, for convenience, it is assumed that the week is a standard one of 48 hours.
:'As the figures were dealt with in detail in the previous article, there is no point in drawing particular attention to them now, only in so far as the 'importance of the mileage per week in its relation to its total cost,per mile. .
It may be taken for granted that the hire-car operator is particularly interested in the cost per mile, for his charges are usually on a mileage-basis,To arrive at the total cost per mile; it is necessary first of all to reduce the fixed charges from a weekly basis to a -mileage basis. Assuming as I.did in the previous article, a weekly.mileage of 400, all that is necessary to effect the change is to divide the total weekly cost by 400 and this is done in the upper part crf Table I. giving a cost per mile, for fixed charges only, of 6.43d. in an A district, 5.02d in a 13 district and 3.84d. in a.0 district.
. The running costs per mile are given in the lower half of the.,Table., The only comment necessary, beyond, what is Stated in the previous article,relates -to slight alterations, which I have made in the figures relating to cars operated in
A24 districts C, which arc places of a poptilation of under 50,000, and largely rural areas. Operators in such places usually find that their expenditure on maintenance is below the average, principally due to the fact that labour charges are lower.
In addition, as country folk are not so fussy about the up-to-dateness of the hire cars which they use, it is usually possible for the operator in such places to run his vehicle for longer than would be practicable in the large towns, Where the men with the smartest and most up-to-date car is niost likely to obtain the patronage of those who habitually use hire cars.
These conditions justify some ieductions in the amounts debited against the items maintenance and depreciation, and it will be noted that suitable modifications have been made in those figures in the third column-that is, the one relating to districts C.
The running costs per mile for this 12 h.p. car are seen to he 3.68d. in districts A and 13 and 3.33d. in districts C.
In order to arrive at the total cost per mile, the fixed charge per mile must be added to the running cost per mile, thus giving us for districts A, 10.11d.; for districts 13, 8 70d.; and for districts C, 7:17d.
In Tables II and III I give correspond
ing figures for 16 h.p. and 40 h.p. cars. I am going to assume that no explanation of the figures in Tables II and III is necessary, as the build-uP is precisely the same as in Table].
When it comes to assessment of charges, the operator is as a rule more or less left to his own devices. I have previously suggested that, to order to discover what the charge should be, 25 per cent, should be.added to the total operating cost per mile. That would mean that for a 12 h.p. car in districts A the operator would need to get Is, Id. per mile run; in districts B he would charge Is. and in districts C, 10d.
Actually, the margin for profit in-those rates is more than 25 per cent., and, in fact, as it is very often the case that the charges for hire cars operated more cr less as taxicabs are fixed, it is probable that in all districts the rates would be Is, (I am not overlooking that the taxi rate in London is 9d. per mile.) Now, the reader observing this will be inclined to jump to the conclusion that if he wants to set up a hire-car business he had better do-it in some place coming under the heading of districts C, for i.e will be allowed to charge Is. per mile at the cost of slightly more than 7d. per. mile, and that he would be foolish to go into districts A and run for Is. per mile
when his actual cost is in excess of 10(1. for that district.
He would be wrong to jump to that conclusion. The probabilities are that whereas in districts A under normal peace-time conditions 'hen petrol is available, he would considerably exceed 400 miles per 'week, he might not'. unless he was particularly favourably placed, cover more than 300 miles per week with a car in districts C.
This is important, as may quickly be seen if we reVise the figures for the standing charge per mile on the assumption that the weekly mileage differs from the figure of 400 which has been taken in arriving at the figures for total mileage.
Assume for the sake of argument and in the first place, that the operator in an A district covers 600 miles per week, instead of 400 miles. His fixed charges will not thereby be increased, and if we divide the total of £4 13s. 2d. by 600 instead of 400 we get 9.3d., and adding that to 3.66d. for the running cost per mile we get actually less than 8d. as the total cost per mile, whereas if the operator in a C district can only cover 300 miles per week, then his total of fixed charges per mile increases to 5.12d. and his total cost per mile is very nearly 81d., so that actually at Is. per mile he makes less profit per mile than his fellow in an A district.
Nor is that all. The man in an A district is making profit of 4d. per mile on 600 miles per week, which is 210 per week, whereas a man La a C district is practically spend. ing 80. per mile and thus only earning 31-(1. per mile on 300 miles per week. His total weekly profit is thus only £.4 7s. 6d. per week-a vast difference.
It will be seen, therefore, that the real test of probability of a hire-car business is the number of miles per week that can be run at a profit rather than at a profit per mile that can be earned.
Taking again the figures for an A-district vehicle and assuming, as is quite likely, that the vehiLle cover 800 miles per week, then the total cost per mile, assessed as described above, is actually less than 7d., so that if, for the sake Of argument, that 7d. is taken to be the cost of operation of a London taxi and it covers 800 miles in a week, then the profit per week is twice 800 pence and that is L6 13s. 4d.
Why Overheads Differ Widely with an Owner-driven Hire Car
I mentioned earlier in the article in relation to overheads that the amount differed widely as between one operator and another and promised to give some examples of this. I think the best one that I can cite is that of the ownerdriver of a hire car.
His figures for cost relating to a 16 h.p. car would probably be something like the following:-For fixed charges, he would first of all have the 5s. 2d. per week for tax. I shall assaime that he allows himself 43 per week as a driver, that he pays' 16s.. 9d. for insurance, that his garage rent works out at only about 3s., because. he may garage the car in a shed in his own backyard, or, possibly, shire the garage or building of some sort with a friend, his interest on capital outlay still remains at 9s. 6d., but his overheads are practically negligible; I0s. per week
would cover them. His total of fixed charges is thus AS 4s, Sd., as against £8 19s. Sd., as set out in Tablet! for a car of that size in a B district.
He will probably, moreover, be able to economize, to some extent, in his running costs. He will wash and polish his own car, thus saving about two-thirds of maintenance (d) and will, moreover, do a good deal of the running repairs as. well, reducing ,maintenance (e) in some considerable proportion. These owner-drivers, too, have the habit of taking such care of their cars that they last much longer than those which are driven by paid drivers, and his account for depreciation will be reduced accordingly. The details are as follows, and these figures should be Compared with those given in the ,middle column of. the • lower half of Table II:-Petrol, 1.12d.: oil, 0.06dr; tyres, 0.54d.; maintenance (d), 0.16d.; maintenance -(e), 0.80d.; depreciation, 1.00d.total 3:18d.
If he covers 400 miles per week, then his fixed charges per mile amount to 3.13d. and his total cost per mile to 0.31d., as compared with 9.39d., a considerable difference, Most of that difference, as should be clear, is due to the diminution in establishment costs from £2 per week to 10s. per week.
Fleet owners have opportunities for cutting costs, not so much as. regards overheads, although it is quite possible with economical working and careful watch on outgoings to reduce the amount set out in the Tables by as much as 33i per cent, The fleet owner's economies come largely, so far as fixed charges are concerned, from preferential terms on insurance, from the fact that his cars arc all garaged together in one building, which reduces the amount of rent paid per car and, in that way, it is possible for him to reduce the total of his overheads by £2 or so in the case of a B district, so that instead of paying £8 19s. Sd. per week his total is only £7.
He can also effect economies in tabour for washing and
polishing, by engaging a washer who is a good man and can get around all the cars 'fairly quickly, thus effecting economies in maintenance (d). He also, with a little care, can extend the life of his vehicles or, at least, •by selectivity amongst his customers, make use of some of them for longer than _would normally be expected, thus bringing about a reduction in the account for depreciation.
In these_ ways he can save Id. in running cost per mile and bring the total cost to 7.7d., instead of 9.39d. set down in the Table. • • Corresponding economies can be effected in relation to all'three of the types of car I have dealt with in this article and in all three districts,, and my purpose in indicating the possibility of such modifications in Costs is to emphasize that the figures that I have quoted are averages, so that there is no need for anyone to take them as being like the laws of the Medes and Persians and are to be regarded as unalterable.