Don't Lose Interest
If you've noticed an error in this article please click here to report it so we can fix it.
An Important Item of Operating Cost About Which Opinions Differ : Regular Service Entails High Expense on Maintenance
/AM endeavouring in these articles to show why there should be differences in cost, and I have so far dealt with four of the five running costs, leaving only maintenance-'an item of 'special significance which can therefore he held over until all the other headings have been discussed.
Wages differ from the averages in The Commercial Motor Tables of Operating Costs." In the Tables, the basic Grade 1 area wage is included, applying to the standard 40-hour week, Leaving the operator to make his own corrections if he operates either in London or in a Grade II area.
I pointed cut that the figures in the Tables include provision for employee insurances and holidays with pay. Many operators overlook the need for this provision. It might take as rnuch as 15s. per week.
I come now to garage rent and rates. This item is variously set out in the Tables as being from 5s. 6d. per week in the case of a light van to 13s. for an eight-wheeler. It needs little thought to come to the conclusion that there must inevitably be wide differences between one operator and another as to the extent of expenditure on garage rent.
I would like, however, immediately to dispose of the fallacy, which exists in the minds of far too many ownerdrivers, that they are at no expense in respect of this item. I refer in particular Co those who are fortunate enough to have, attached to their own dwelling, a shed or outhouse in which the vehicle is housed_ In the first place, it is certain that the local authority has not overlooked the existence of this garage. and some at least of the rates which the operator pays can be debited to this portion of his premises, and therefore represents an expense chargeable against the vehicle.
There is also this further point: if he himself did not make. use of the outbuilding, he could let it at a satisfactory rent to some other vehicle owner. He must therefore debit the vehicle with the amount he knows he could obtain in rent before he can be said to have provided in full for his operating costs.
Amount for Garage Rent
have before me at this moment a letter from an operator of a 6-tonner who actually pays 5s. per week in garage rent. He is in a country area. At the other end of the scale of such charges there are those operating from industrial centres who pay as much as three or four times that amount. The figures in the Tables are a fair average. It is up to the operator concerned to correct them according to his own experience.
As regards the next item, insurance, I must reiterate that the figures in the Tables are fair averages for the insurance of vehicles operated under C licences Operating in industrial areas. Rates to hauliers are at least double, sometimes nearly three times, the amounts set out in the Tables. This information is clearly stated in the introduction to the Tables, but it is obvious from the number of inquiries and criticisms that I have received on the point that many overlook it.
Even within the ranks of hauliers. however, wide differences are found between the premiums paid by one and those paid by others for apparently the same cover. One of my correspondents tells me that the premiums which I quote for a 6-tonner are higher than he pays for a vehicle a that capacity operating in an industrial area under an A licence.
Again, I recently received a letter from a haulier who states that he pays only f30 per annum in respect of a 6-tonner whereas he is aware that the normal premium in his area is around £50. His favourable position is because he has an exceptionally good claims record, the result, he tells me, of employing first-class drivers.
Apart from all else, there is the fairly well-known fact that insurance premiums vary according to the location of the haulier's business, being high in London, Glasgow and certain parts of Lancashire and Yorkshire, and low in rural areas. Even rural hauliers, however, tell me that they are finding the insurance companies are inclined these days to insist upon higher premiums than those which should rule, on the plea that contractors in rural areas habitually visit townships where the insurance rating is more expensive.
The actual amount of. the item "interest on first cost" is so small compared with the others that I sometimeS hesitate to spend time and space dealing with it. On the other hand, it is so often the subject of inquiries, both oral and written. that I am compelled to give it attention.
I think i have previously remarked that the ideas of operators as to even the amount of interest which should be debited against a vehicle differ within wide limits. There are those who, on the one hand, take the view that there should be no debit at all under this heading and there are others who consider that less than 10 per cent, per annum on capital outlay is insufficient_ I have, as the outcome of some such observations :as these, recently been giving the subject a little extra consideration. I have, come to the conclusion that the most satisfactory way is to charge, per annum, the full rate of interest, at the rate of t per cent. above the bank rate. No allowance is made, as has hitherto been suggested, for any rebate on the interest, because of the provision of a sinking fund for depreciation.
It is logical to do this, because in that way the operator debits, as is. fair, the interest on the first purchase, but regards replacement vehicles as having been paid for out of working expenses. That course overcomes the difficulty sometimes raised that strictly speaking interest ought to be cumulative, gradually increasing as new vehicles replace old ones.
Small as this item of interest on first cost may be, it is nevertheless a fact that even if an agreed basis is taken for the calculation of interest on first cost, the actual amount may vary, even for the same size of vehicle, because prices
of vehicles differ. Here, again, the user of the Tables should calculate the amount for himself on the basis of 5i per cent. (bank rate 4j per cent.) on the initial cost of the vehicle complete and ready for the road.
At least, that is the theory. This is an example of an ounce of practice being worth a pound of theory. The bank rate today is 41 per cent. Last February it was 31 per cent. It may be altered again at any time without notice. Is a haulier going to recalculate the amount of interest on the various vehicles of his fleet every time the bank rate alters? Of course nt. And this is where I revert to the opinion, already expressed, that the amount, in any case, is small. Those who have studied the introduction to the Tables will be aware that the allowance is 3 per cent. It has been at that figure for many years and is likely to remain at that for many more years.
One of my correspondents protests that the figures in the Tables teed to give operators exaggeraied ideas of what Al?
modern commercial vehicles cost to operate. His viewpoint, it should be noted, is precisely opposite to the reason for this series of articles. The former criticism was that the figures were too low, lower than those which might be expected in practice.
Further examination of this operator's figures served actually to confirm what has already been written, namely, that differences between operators' figures and mine could always be traced to special circumstances. I discovered that this man operated a fleet of seven vehicles; his business seemed to be particularly well managed. In that alone there is likely to be evidence of reduced operating costs; certainly he is likely to find that his costs are below average. I lauliers who find their costs to be higher than average should be particularly interested in this, and take heed accordingly.
Dispute Over Rates
This operator had been in business for some time. Two or three years after he commenced he realized, as the outcome of a dispute with a customer over rates, that be was lacking in one of the primary essentials to the successful prosecution of a haulier's business. He did not know, with any degree of accuracy, the cost of running his vehicles. He at once began to provide means for keeping close track of his costs.
The outcome was efficient provision for recording expenditure on maintenance, together with appreciation of the fact that the cost of maintenance should be provided for ahead of time. He kept a close watch on fuel consumption and made adequate provision for depreciation. One result was the discovery of means whereby those expenses could be reduced without there being any loss of efficiency.
I now come to maintenance, left to the last because it is the most difficult to assess with any degree of accuracy. Maintenance relates to all those expenses directly involved in the running of a commercial. vehicle which cannot he debited under any other heading. There are many factors which have a bearing on the expense of maintenance—the kinds of work upon which the vehicles are engaged and the degree of efficiency in condition required. There is also the method of .doing the work
Form of Insurance
In some classes of use, the most essential need is regularity of service. Mainteriance under these conditions becomes a preventive measure and involves extra cost. Operators are prepared to pay that extra cost, regarding the money as a form of insurance against irregularity. This is the kind of circumstance which hauliers operating under contract-A licences are likely to have to face.
On the other hand, there are classes of work in which it is possible with a medium-sized fleet to arrange for maintenance to be quite efficiently carried out by a good mechanic and a semi-skilled assistant. This procedure, supplemented by a policy of replacing vehicles before they reach the stage at which the cost of maintenance begins suddenly to rise, helps to cut costs to the lowest possible limit.
Moreover, coupled with the foregoing, there is the -fact that it is possible to arrange for drivers to see to the greasing, lubrication and sundry routine maintenance work, whilst washing and polishing arc, with the exception of the cab, radiator and bonnet, perfunctory. The bodywork is simple and painting inexpensive, so that, in the case I have in mind, the mechanic includes in his duties occasional repaints and repairs to bodywork.
It is thus extraordinarily difficult to give a figure for maintenance, which, although it is an average, will satisfy all users.—S.T.R.