The Economics of Drive-yourself Car Hire
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A Proposition Which Differs Materially from That of Car Hire: Some Figures for Costs, with Suggestions for Hire Rates WHEN we come to cousider the drive-yourself type of car-hire business, as opposed to a straight hire-car service,, we have a very different kettle of fish, both in respect of the kettle and the fish. Immediately prior to the war, drive-yourself hire had developed rapidly and was showing promise of a considerable increase in popularity. Prospects for this class, of business, .after the war,, are particularly good, for there are Eiiimany people who; perforce, have had' to resort to it .daring the war because of difficirlties they have had in keeping their owncars .on the . road. So irtany motorists laid up their machines in the early days of the' war, and later found thatthey could not do without them, but were in a diffitult position .as regards putting them, on-the road again. A , large number -has, therefore' used drive-yourself bire-Cars and have found them
most convenient.' ,
From, the point of-viewof the-ordinary motorist, the idea'. of 'hiring' a car and driving it himself has particulatadvantagea if viewed from the aspect of icoliomi5s.' . • haVe!lie.efi IoOleing t see scliedrileS of .prevailing .rates ' for drive-yourself' hire, 'and have calculated that a. man who wanted* -a car for, say,. eight 'week-ends during the summer, in the Course of each of which he would cover from 100 to 120 miles, 20 odd days covering about SO Miles each day, and a fortnight 'for his holidays, covering about 800 miles, could do so at a total. expenditure, including petrol. oil, and occasional garaging, of approximately £90.
Assume that he had his own car and licensed it for a year, the cost would work out approximately as follows:— Tax, £12 10s. (for a 10 h.p. car).; insurance., 212; garage, rent, £15; petrol, 27; oil, 41-; miscellaneous repairs, adjustments etc., 28.; tyres, 28; depreciatiori,•260; total, £123 10s. This leaves an ample margin in favour of the hire-car arid that margin could: quite conveniently be used by having a few extra days, or having a couple of week-ends in addi
tion to the schedule outlined. • .
Coupled with this economic advantage, thei is the fact that he would not be botherd with the ownership of a car and would not, -therefore, be concerned with the need for keeping it in running condition.
,Of Interest to the Business Man The foregoing schedule and advantages would also pply in ,a good many cases to the use of a car for business pun., poses. It certainly would if the machine were required only every now and then, as is so often the case with a business man. .
There is, therefore, on these grounds, ample justification for the belief, as expressed by the Editor in a" recent editorial, that there is ample scope for' development of this branch of car hire.
The type of vehicle most often used for this class of work is the more or less popular' variety, ranging. in horse-power. from 8 to 12. Ier pre-war days the 10 .h.p. machine was most used in this service. I can therefore, most usefully. take a 10 h.p. car as an example, indicating the method by which costs and rates should be assessed.
The charges are not,. as in the ease of ordinary private car-hire, based directlyupon'the mileage covered. Instead, that very useful formula of timeand mileage which I have so often recommended is the haiie. The charge is the summation of time, plus mileege, but is not necessarily debited in the account as such
The method of arriving at costs is.; thereforsocery similar to tlut'i already used inconnecti‘nr'aekh:oidTh*y., .lar hire the Prineipal difference being'that no pitiisiolf need be made for petrol and oil, because the hirer pays for these items out of his own pocket; he also pays for occasional garaging
when he has need of such facility while the cat is in his possession.. Starting as before, with-the fixed' charges, and assessing these on a weekly basis, we have, first of all, the tax, which, at £12 10s. per annum, is equivalent to 5s. per week..
It is reasonable to assume that insurance premiums will be at a comparatively low rate. First, because the operator —the man who lets the cars ont on hire—is in a position to obtain,what-are called fleet rates for his insurance; secondly. whilst the car is insured on a fully comprehensive basis. provision, is usually Made for an " excess" of upwards of . I am assuming that the preniium. will be £6 5s, per annum, which is equivalent to 2s. 8d, per week. ' According te Mr, ,Boshier-jonei, to whom I have already . referred iu this series of articles, the average weekly mileage of the cars he lets 'mit: on hire under these conditions is
• 1,000, -which' woirld seem to indicate that there is little need for provision for garage rent, as a car that does 1,000
• nrifei per weekcannot spend much tic on the proprietor's emise• _a' Arriving at the Tinte Charge
However, he has to have sorpe sod of premises for housing it, and it is reasonable, I think; to take 2s. per week for that item. Interest on first cost I shall take at 4s. 6d. per week and overheads at £2. The foregoing are all the -fixed charges and the total is £2_14s. per week.
• To that I ,consider 10 per cent. shoold be added to provide for a float of cars to fill blanks brought about by vehicles undergoing repair and to meet fluctuations in demand. This would make another Ss., and I propose to assume that the total of fixed charges on that basis is £3 per week.
To this I add 20 per cent, as a.profit ratio, giving me £8 12s., and, for a seven-day week, the figure is approximately 10s. 8d. per day. That is the time charge. For the running costs we have, first of all, Maintenance (d), which, in this business, will comprise washing, polish. 'ing and greasing. No provision need be made for repainting, as the cars will not be in the operator's hands sufficiently long for that to be necessary before he disposes if • them; that is, assuming they are averaging 1,000 mileS per week. The amount of time spent on washing, polishing, and greasing will, to a, certain extent, be governed by the type of hire.
. If short-period hires—for. one or two days—predominate, then the vehicle may have to be washed three, and even four, times in a week_ If seven-day hire be more usual, then, obviously, there will not be the opportunity to wash arid polish. At the same time, I think it fair and rea_onable to assess the cost of this at 12s. per week' per car:, that may, perhaps, be a little on the safe side, but,-in any event, the item is not a big on amounting, as, it doeS, to little short of' 0.15d. per mile, and I think it would he safe
to leave it at that. •
For maintenance (e), it can be taken that within a year there will be the need for a rebore, brake refacing, possibly a couple of sets of plugs., and sundry other repairs and replacements. These might cost froni £30 to £40, and, if I take an average of 235 per annum, then i get a' figure of approximately 14s, per week, or 0.17d, per mile...
For tyres I shall take 0,40d as being, perhaps, a, little better than is obtainable with those in use to-day and not so good as we hope to achieve after the war if, and when, pre-war quality tyres are restored to us. ,
I come, finally, to depreciation, The -amount to he debited under this heading depends to a large extent on the ability of the operator to obtain a good price for his vehicle after a year's service, when it has covered, say, 50,000 miles. I may, therefore, be quite a long wey. out in this item. I am going to base my calculation on what I think the car is really worth after it has done 50,000 miles in a year and, having in mind the type of car which is used, and, coupling that with my own experience I should say that it is not likely to be worth very much. I am going to assume, therefore, a drop of 2200 in the course of a year, and that is roughly1d. per mile.
As fuel and oil are supplied by the man who hires the car, these four items comprise all the running costs. They are: Maintenance (d), 0.15d.; maintenance (e), 0.17d.; tyres, 0.40d.; depreciation, 1.00d. The total is I.72d.
If I add 25 per cent, to the running costs, I get 21d, as being the mileage charge, and I now have a basis for my charges of 10s. 6d. per day, plus 21d. per mile.
• Taking•30 m.p.g. as a Basis
I note that Drivehyre Cars, Ltd., to which I have already referred, bases its charges on what is called a unit. That is, obviously, a war-time expedient, becatise it is the unit to which reference is made on petrol coupons, and, so far, it has stood for one gallon. It is assumed that a gallon of petrol will suffice for 30 miles of running. Here, again,
I think the estimate is somewhat optimistic. I have been running 10 h.p, cars of various types for a good many years on all sorts of work, and r do not remember ever to have been able to obtain 30 miles per gallon regularly. However that may he, 30 miles as a unit for hire does not seem to he unreasonable, and that, at nd. per mile, is just short of 6s. For a day's hire, and provision for 30 miles of running, the charge should therefore be 10s. 6d,, plus 6s., and I do not expect that any operator who runs a business of this sort will fall out with use if I suggest 18s. per day as a basis for hire of a 10 h.p. car, on the assumption that it runs 30 miles and no more.
There is one other factor to be taken into consideration before finalizing oar scale of charges, and that is provision for a flat rate, additional to the rate just assessed, to give c • the hirer who takes the car for a long period some advantage over the man who takes it for short periods.
A reasonable amount on that account is 12s., which makes the rate for one day 21 10s., fel two days 22 85., three days 23 Os, and so on. That covers 30 miles per day of running. and if the hirer wishes to cover more than 30 miles be should be charged 6s for each additional 30 miles or part thereof.
It may now be advisable to deal with the differences _between an 8 h.p. and 10 h.p. car, and between a 12 h p. vehicle and one of 10 h.p It will be discovered that the differences "are slight and that so far as the operator is concerned, it would be convenient for him to offer them all at the same fiat rate. This, however, would not be likely to appeal to the customer, who, in all probability, would demur at being asked the same rate for an 8 h.p. car es was being asked for one of 12 h.p., and it may, therefore, be worth while to see just what concession we'can give to the hirer of the smaller car and how much more we can reasonably charge the hirer of a 12 h.p. machine.
Taking the smaller machine first. The fixed charges are
Tax, 4s.; insurance, say, 2s, 3d.; garage, as before, 9s.; interest, 3s. 6d.; overheads we will take at LI 15s. That gives us a total of 22 es. 9d. Adding 10 per cent. for a float, as before, brings the figure to 22 11g. 6c1. On to that sum 20 per cent, profit is added, say 10s, 601., giving us 23 2.3. per week as the total, which is 9s. per day for the
standing charge. • .
For the running costs we will reduce the washing, polishing and greasing-maintenance (d)-to 0.12d., maintenance (e) will probably be no more; tyres should come down to 0.30d,-and depreciation considerably less, say 0.70d. That gives us a total of 1.24d. Adding 25 per, cent, to' that gives1.65d., or, say, lid, per mile, which is 4s, 4id., or, .say 4s, 6d., for the time charge for 30 miles.
It will, therefore, be reasonable to assess the daily hire of an 8 lap. car on the basis of 9s. per day, plus 4s. 6d, for 30 miles, which is las 6c1. Add 7s. 6d. for the flat additional rate, and we get 21s. as a fair rate of hire per day, plus, say, 15s, for each additional day. For one day, therefore, the charge would be 21s.; for two it would be 36s., for three 22 1 ls., and so on.
Now for the 12 h.p. car. The fixed charges will be:
Tax, 6s.; insurance say, 3s.; garage rent, 2s.; interest Is.; overheads, say 22 Sc.; giving a total of 2,3 is. Adding
10 per cent, to that to provide for a float brings it lip to 23 7s., and 20 per cent, is a further 13s., making the charge
24 per week, or 11.s. 6d. per day, for a seven day week. _
Running Costs of Different Types
So _far as the running costs are concerned, there will not he a great deal of difference between the 10 h.p. and 12 h.p.
cars. I think we may take it as being: Maintenance (d),
0.15d.; a slight increase in maintenance (e), 0.18d.; tyres, perhaps 0.52d ; depreciation (the same as for a 10 h.p. car),
Id We thus get 1.856. as the actual cost. Adding 25 per
cent, to that gives us, approximately, na. per mile, which is es.3d. for 30 miles. It will be fair to take Li for a day's hire and to add 10s. to that for the flat charge. We have our figure for the first day's hire, which will thus he 21 10s., with an addition of £1 for each additional day.
• Actually, the respective charges that the operator will make for his 8 h.p. and 12 h.p. cars will depend upon the number of vehicles of these types which he has in his fleet. He may, for example, want to discourage people to hire 12 h.p. cars, in which case he will put the figure up to 35s., plus, perhaps, 12s. 6d, If he wants to encourage the use of 8 h.p, machines, he will keep that figure down to 21 for the first day, plus 12s 6d. for each additional day. There is a sufficient profit margin in these figures to allow for a little juggling in that way, and, as everyone knows, the price paid for a thing is not always assessed on the basis of cost,plus profit. It is governed by other considerations such as convenience and preference.
I feel that I have written sufficient to•indicate what costs are and, what is more important, the method which should be used to assess and to apply them, in order to. calculate a fair charge designed to bring in a reasonable profit. In the next .article I propose to deal, 'briefly, with some of the
legal aspects of car hire.