The Smallholder's Dilemma
Page 54
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RECENTLY I visited a smallholder in the country, an ex-Serviceman, who ran a 3-ton lorry on a B licence doing a small amount of general haulage for farmers in his district. He charged a rate of 10d. a mile which, although a friend told him was too low, led to complaints from customers that it was too high.
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"What I want to know," he told me, "is what it really costs to run this lorry. If I know that I shall have a proper idea of what my rock-bottom prices must be."
"You are all right up to a point," I said. "You really should know what your vehicle costs, but I never quite like to hear a haulier harp too much upon 'rock-bottom prices.' There's not much of a living made that 'way. Have you seen 'The Commercial Motor' Tables of Operating Costs? "
"Yes, and I really wanted to see you to discuss some of Ike figures. I cannot make your figures agree with my own ideas. I don't mean to suggest, of course, that the Tables are wrong."
"There is nothing in that," I answered, "it is quite possible for your figures to be different from those in the Tables in a good many respects. yet for both to be right, and there is no way of getting at the truth other than to go into the actual figures and compare them. Have you been keeping particulars of your own costs?"
"No, I haven't, but, then, I have had the lorry only a couple of months. What I mean is that I can't see how my lorry can ever cost me as much as the Tables show for a 3-tormer. There's petrol for a start. I get 16-17 m.p.g., but according to the Tables I only do 15 miles."
" Your figures may be right or they may not. It is never safe to base your costs on the results obtained from 'an occasional journey. The only satisfactory method of finding out your consumption is to keep continuous records of mileage and petrol used for prolonged periods. Indeed, you should keep such figures all the time you are using the• vehicle. For the moment, however, I will take it for granted that you are right and that you do actually get 17 m.p.g.
"You will never make any progress as a haulage contractor unless you keep complete record'S, not only of your petrol consumption and mileage but of everything you spend and everything you earn. You must do that to know how you stand in the matter of expenses and earnings.
"Now that purpose of giving you an idea of your costs is what 'The Commercial• Motor' Tables of Operating Costs is intended to serve. We have dealt with petrol, what is the next point?"
"1 would like to know how you arrive at the figure of 0.52d. per mile for tyres."
Advice To a B-lice He Was Making Really Worki
Calculating Tyre Costs "1 will tell you how to calculate it for yourself. As a matter of fact, that figure's a bit low now because tyre prices have risen since the Tables were drawn up. What -is the size of the tyres on your lorry?"
"They are 32 by 6 and I gave £8 7s. for a new cover and tube only the other day."
" In that ease," I said, "they are what are called truck tyres, which are only 8-ply whilst the others are 10-ply. You paid, you say, £8 7s. for a cover and tube. If you bought the others you would have had to pay £11 2s. 6d. for a cover and tube. A set would probably cost you £50 within a shilling or two. If I take it that they will cover 20,000 miles before they wear out, that means that the cost per mile will be £50 times 240, to reduce it to pence, and then dividing by 20,000, the number of miles. That gives 0.6d. as the cost."
"Why do you take 20,000 miles for a set?"
A36 "Because in the experience of many hauliers with whom I have come into contact that is an average."
"My friends have told me that they have got 24,000 from a 32-in. by 6-in. tyre on a similar vehicle."
"That may be. The same criticism applies here as to your figure for petrol consumption. It is not safe to assess the cost of ,Jour tyres on one or two odd examples. You might get ,24,000 miles from one cover but you are just as likely to get 16,000 miles from another. The average is still 20,000 and I think we ought to stick to 0.6d. as the cost per mile for your tyres."
"I notice," he went on, "what you say in the introduction about maintenance (d) and maintenance (e), but it seems to me that as I do all the greasing and washing and cleaning of the vehicle myself I should be able to save a little on maintenance."
" Quite right, you can. Indeed, one of the reasons for introducing that division of maintenance into the Tables was to indicate to the owner-driver and the small operator whose drivers did that work in their own time, how much be can leave out in assessing his costs and comparing them with the figures in the Tables. In your case you can forget about maintenance (d)."
• "But now about the figure you have down for maintenance (e). I see it is quotedat 0.95d. Now I reckon that if I cover 300 miles per week, which is what I am doing now, you are suggesting that my maintenance will cost me about 24s. per week. That seems to me to be rather a lot."
"It may seem so, but actually it is only £60 a year, and if you take into consideration the cost of an engine overhaul, and later than that the cost of a complete overhaul of the vehicle, including body repairs, and so on, it does not seem excessive.
"But I will make a concession in your case. Instead of 0.95d. for maintenance, we will estimate it at 0.9d. That is practically £50 a year. Next ? "
nsee Who Thought a Profit But Was ng At a Loss A Sinking Fund
"Depreciation," he said. "I suggest the figures in the tables are calculated on the price of a new vehicle. I reckon to avoid a good deal of that inasmuch as I have bought a second-hand machine, and not a new one."
"In that you are definitely wrong," I told him. "Looked at in the proper way, buying a second-hand machine really has the effect of increasing the figure for depreciation— not of diminishing it, as you, in common with numbers of other people, appear to imagine. You should always think of depreciation as a contribution to a sinking fund. to be set apart for the purchase of a new vehicle, when that becomes necessary. " Now, you paid for your second-hand vehicle about half the cost of a new one. If I take it that you just got value for money, then it must depreciate at the same rate per mile as a new one. If you have a bargain, and by that I mean that you paid less than half the cost of a new vehicle, although it had done only half of its allotted -span in mileage, then you might be regarded as being a little better off; the depreciation would be rather less than the average. If you have not a bargain, that is, if you have paid more for the vehicle than You ought to have done, then it will wear out rather more rap;dly and cost you a little more per mile for depreciation.
"By the time youf vehicle is done, if you set aside an amount for depreciation, as I recommend you to do, as a sinking fund for a new vehicle, you will have about half the amount necessary to buy a new lorry. You will therefore, have two courses open to you; either you buy another second-hand one, or you buy a new vehicle on the instalment system.