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Fuel prices are not the only critical cost-factor

12th July 1974, Page 32
12th July 1974
Page 32
Page 34
Page 32, 12th July 1974 — Fuel prices are not the only critical cost-factor
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Which of the following most accurately describes the problem?

by Johnny Johnson

ALTHOUGH the dramatic rise in the cost of fuel has stolen the costing limelight during the past few months, there are factors which will have just as great an effect on rates. One of these is the interest that will have to be paid on money borrowed for vehicle replacement.

During the inquiries made in connection with the new edition of Commercial Motor Tables of Operating Costs, which are just about to be published, it was established that the price of new vehicles had risen 16 per cent on average. This, together with an increase in interest rates of about three per cent, has caused a substantial rise in the weekly amount which must be included in the standing cost of a vehicle.

Naturally, the extent of this increase to the individual operator will depend on the type of vehicle he is operating. However, applying the 16 per cent increase in vehicle prices to those used in the tables last year and increasing the interest rate from the nine per cent used in 1973 to 12 per cent this year it is possible to give the following examples.

At the lower end of the vehicle range, it was estimated that a 5-tongross rigid diesel engine vehicle would cost the operator £3.80 a week in interest rate in May 1973. This year a similar vehicle would involve the operator in a weekly cost of £7.06, a percentage increase of 85.

The increase on a 32-ton-gross artic with a van trailer could be even higher. Last year, the interest factor shown in the tables for this class of vehicle amounted to £19.20 but applying the appropriate increases this year shows that this could become £36.39, an increase of 89 per cent.

Perhaps for many operators this might seem a problem to be met in the future as vehicles become due for renewal. However, inflation is running at such a rate that already other increases in vehicle prices have been announced since the 1974 tables were compiled — for example, on June 26 Vauxhall announced a further 8.4 per cent price increase.

It would be prudent, therefore, to include in any cost analysis sufficient appropriation to cover costs which will have to be met in the near future.


This applies equally to the depreciation factor. Although an increase of 16 per cent in vehicle prices — and therefore to the depreciation figure — has been noted in this year's cost tables, the vehicle prices used are based on those supplied by a number of manufacturers at May 1, 1974.

In a more stable economy, it might well have been sufficient to base costs on the price already paid for a vehicle on the principle that rates are calculated so as to recover current costs. Now, more than ever, there is a more solid basis for the argument that cost factors should reflect the cost to the operator when he has to replace his vehicle. Difficult as it might be to forecast the future price of equipment and despite the effect on the competitive nature of the rate which ensues, it is advisable to have greater regard to the allocation which must be made for future renewal, especially in the present economic climate.

Of more immediate concern to the operator, however, has been the swingeing increase in the cost of fuel. Though fuel prices rose comparatively slowly during the remainder of 1973, the first few months of this year saw this increase in leaps and bounds till, with the application of VAT to fuel prices in April, resulted in an addition of about 20p a gallon at the pumps and a price ranging from 51 to 55p a gallon.

During the three-day week period, the oil companies spread consterna tion among operators by withdrawi discount rates for fuel and exac bated the cash flow position insisting on a direct-debit system : payment. Since then, however, discount has been more or less established and it has beco apparent that operators are pay an average of 47.5p for petrol e 46.5p for derv.

Even at these prices, the aven increase in fuel prices has been the rate of about 50 per cent the effect on running costs has b in the region of 20 per cent. Not has been gloom and fortunate ind is the operator who is in a posit to negotiate, perhaps because he a large fleet.


Although average increases insurance premiums were announ during the past 12 months, m operators with a good claims rec and able to negotiate will have t able to resist increases of this nat Moreover, the announcement June that Commercial Union been able to reduce premiums five per ,cent held some encour ment for operators poised to re premiums in the near future.

Wages showed more stat during the year than in the though there is little doubt that factor will be increased shortly, the Government has shown rest. in the face of a strong environn alist lobby in not seeking to inci road fund licence fees.

The amount required for rent rates has been affected by tht vision of local authority boundaries which came into effect in England. on April 1. Perhaps some operators who have transferred from their premises from the not so tender mercies of one council might have encountered a more benevolent attitude in another. In the main, it is most likely that operators will have had to find more money for rates, however.


Depending on his negotiating strength, an operator could have maintained a favourable price for tyres though most of the manufacturers raised their prices by up to 7Y2 per cent during the year.

As in previous years, the maintenance figures used in the tables have been based on the average of what operators have told us they incur for this service. In general, the average increase has been in the region of 10 per cent though it is understood that many garages are on the point of raising the hourly labour charges to £4; latterly it has been in the region of £3,25 to £3,75 depending on the area of the country in which the garage is situated.

Finally, though it would be gratifying to be able to quote an average percentage increase in costs for each of the vehicles included in the Cost Tables range, this is not feasible. What it costs to run a vehicle as reflected in the total operating cost per mile depends on so many factors which cannot be allowed for — such as annual mileage — that to attempt to give an average increase would perhaps be misleading.


In any case, it is as well to reiterate that the figures used in the tables are average figures and it is vital that an operator substitutes his own actual costs and recalculates to give a more directly applicable result. Nevertheless, the tables do provide an indication of cost trends; and by making a comparison between the average figures given and the performance of his own vehicles, an operator is provided with a criterion by which to measure his efficiency.


Organisations: Commercial Union

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