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The TY and A' Bureau t's a CM service. Its
Page 123
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expert staff will gladly answer your queries. Letters should be addressed to: 'Q' and 'A Bureau, Commercial Motor, Dorset House. Stamford Street. London SE!.
n Could you suggest a formula by which
I can work out the relative annual capital cost of a bus or coach, given the purchase price and the anticipated life? Also, in the absence of detailed workshop records, and reasoning that the older a vehicle becomes the more it will cost both in time and material to keep it roadworthy, could you suggest a practical method of dividing workshop costs among a small fleet of vehicles of varying ages and makes?
ATo arrive at an annual capital cost. or
rather depreciation, on a bus or coach, you should take the original cost of the vehicle, less the value of the tyres, deduct from it the expected resale value—or scrap value—at the end of its useful life and divide this by the number of years you expect to be able economically to operate. the vehicle. This will give you a pure depreciation figure but if you should wish to relate this to a capital outgoing or charge you could add to the figure a margin for interest. This is the interest you would have obtained on the capital spent on the vehicle had you invested it elsewhere (in a building society for example) or the interest charges you would have to repay if the original capital was borrowed from a finance house or from a bank.
We cannot really suggest any other practical method of dividing workshop costs among a small fleet of vehicles than the obvious one which depends on keeping accurate records. Based on such records you could calculate an accurate cost of materials used on each vehicle and the number of man-hours spent working on each vehicle. The labour cost per hour could be established by taking the total garage staff wages. National Insurance contributions and so on: the garage overheads of rent, rates, water rates, heat, light, expendable materials such as cleaning rags and soap, minor spares (nuts, bolts, washers, wire), and the depreciation of tools and equipment and calculating a total cost for all this.
This can then be divided among the basic man-hours available—say three men at 40 hours each per week equals 120 man-hours available. The figure obtained may then be taken as a fairly accurate cost of your workshop labour time including overheads. There Will then be no need to look for other methods of proportioning costs between different types and ages of vehicle.
QWe have a 1964 registered Seddon
30: Four tractive unit, in quite nice order, which has just been plated for 30 tons gtw operation. It has the Gardner 150 hp 6LX engine, to which new pistons, valves, big-end bearings, etc, were fitted last year, and the vehicle has not been greatly used since then.
From comparison with particulars of similar vehicles offered in your classified advertisement columns we would value it at £750 to £1000. At the moment the vehicle has been loaned to another firm to help them over temporary difficulties. The arrangement is that they will pay an appropriate weekly rate for the use of the vehicle. As they might wish to extend the arrangement on a long-term basis we are concerned that the rate initially fixed should be fair. They will be responsible for tax and insurance outgoings, and replacement of tyres when worn out or damaged. We have thought in terms of a weekly rental of, say, 1/100th the value of the vehicle; the hirer making good minor defects as from commencement and major defects as from, say, three months from commencement.
What are your comments on the following points?
1. The value ascribed to the vehicle.
2. The proposed basis for hire—the best way to secure the interests of both parties in respect of, for instance, damage resulting from abuse or, alternatively, damage arising from inherent latent defects, ag fatigue failure of engine valves.
3. The basis of computation of the weekly rental. Does this seem too high or too low, and how should it be adjusted to allow for greater or lesser periods of hire?
Are there any further points that you consider should be embodied into any agreement covering a hiring situation such as this, and noting that we are not providing the driver?
As the possibility exists that the present hirer may wish to purchase the vehicle from us on a hire-purchase basis, which we might be willing to finance, could you suggest model terms for such an agreement with guidelines for computing hire/payments rates on the basis of current Bank rate, etc? ARather than agree your figure of a
weekly rental of 1/100th of the value of the vehicle we suggest that you first decide what you wish to recover from your customer. It appears that he will be completely responsible for all running costs, including maintenance and drivers' wages, plus damage other than that arising from inherent latent defect. We assume also that your customer will garage the vehicle. This leaves very little in the way of costs to be met by yourselves, the main items being depreciation and securing a return on the capital invested in the vehicle, The vehicle is a 1964 model so the depreciation figure will be very low, or indeed it may by now have been written off in your books.
However, it is obvious that you will wish to recover something from the transaction so the best method of calculation we can suggest is in effect to recapitalize the vehicle at the estimated value, say. £1000, estimating the further life of the vehicle at, say, two years, and estimating the resale value at the end of this further period of, say. £100.
This leaves a balance of £900 depreciation spread over two years to be recovered plus interest on this amount equal to what it could be expected to return if placed in a building society—say 5 per cent per annum which equals £92.25. totalling £992.25. This gives a weekly figure of £9.54—which in the event is not far removed from your figure of 1/100th of £750/C1000.
To secure the legal interests of both parties the best course is to have a solicitor prepare an agreement or, if you do not wish to go to these lengths, set out very carefully in detail a letter the terms discussed and agreed, and get your client to acknowledge that he accepts the terms.
It would also be wise to make sure that your client knows that he needs an operator's licence to cover the vehicle and that he will be responsible in law for maintaining it in a fit and serviceable condition, and for ensuring that the driver does not exceed his permitted hours of work, overload the vehicle, and does keep appropriate records of his working, driving and rest periods. These responsibilities autorrsatically fall upon your client as he is the legal "user" of the vehicle.
So far as the hire purchase agreement is concerned, there appears to be no simpler way than agreeing a price for the sale of the vehicle, adding a margin of interest either to the whole sum, or to the outstanding balance if a deposit is paid—and we would recommend that you obtain a deposit of some 20/25 per cent or more, on the basis of about seven to nine per cent per annum, depending on how favourably you wish to treat your client. As an example, if we take the agreed price as £1000 and a 25 per cent deposit is paid this leaves a balance of £750 to be repaid over two years at 9 per cent flat rate which in effect equals £750 plus 18 per cent— £885 divided by 104 weeks—f8.51 per week.
You must, of course, write into any such hire purchase agreement clauses which enable you to reclaim the vehicle if a certain proportion of the payments are not made or to recover by legal action the balance owed if your client should default. Again this is a matter best looked at by a solicitor for the small amount it would cost