A GUIDE TO USED VEHICLE PURCHASE 4—Aspects of Operating Costs
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. Buckley, Assoc. Inst. T.
HOW much will it cost to run? A reasonable question to ask regarding any commercial vehicle—new or used. Yet a moment's reflection by anyone conversant with transport operation will reveal that there can be no " average " operating costs for a used vehicle if only because there is no agreed " average " condition of usage. Not only are there justifiable and understandable differences of opinion as to mechanical standards but there are also inherent differences of standard as between groups of vehicles. Thus the relative condition of a vehicle might he acceptable—if the price was right—as a tipper but be totally unacceptable in the case of a retail delivery van. Alternatively the availability or nonavailability of one's own maintenance facilities could be another major factor determining whether or not a particular used vehicle could be expected to be a worth-while proposition.
A factor which may not at first appear relevant to a would-be operator is the type of traffic he is hoping to carry, at least in the early stages. However restrietIve his financial resources may be thec are particular types of traffic which demand the utmost regularity and reliability as to the times at which loads are delivered. Obvious examples are fish and vegetables being taken to market, although of recent years more trades and industries are demanding delivery to a specified time. There is also the aspect of competitiveness within a particular trade, with the result that the presentability of a vehicle assumes greater importance.
Nevertheless there is a range of traffics which do not necessarily demand such exacting transport services and for which a reliable, though used, vehicle would Le acceptable. It is important, however, that the intending purchaser of such a vehicle has clearly in mind the type of work he proposes to do and can therefore choose a vehicle appropriate to the job on hand.
Many Variable Factors As stated earlier there can be no "
average" cost applicable to the running of A used vehicle, if only because there are far too many variable factors. But the following details of operating costs are given as an example of the manner in which individual operators could consider purchase of used vehicles in relation to their own circumstances.
The vehicle chosen for this axample is a 3I-seater coach fitted with petrol engine. The total amount payable as licence duty and fees is reckoned at £24 6s, per annum or the equivalent of
n40 9s. 9d. a week. The cost of wages to the employer on the basis of a 42-hour week and inclusive of insurance-contributions and holidays with pay is £12 Os. 1Id. Rent and rates in respect of garaging the vehicle amount to £t 6s. a week whilst the annual premium for vehicle insurance is £90 per annum or £1 16s. per week.
The initial outlay on this coach is assumed to be £3,450 and, allowing for a nominal rate of five per cent, interest charges amount to 13 9s. Assuming a weekly mileage of 600 the total for the five items of standing costs is 7-63d. per mile or £19 Is. 8d. a week.
The main item of running cost is fuel which is reckoned at 4-90d, per mile on the basis of a cost per gallon of 4s, ld. and a rate of consumption of 10 m.P-gLubricants are reckoned at 0-24d. per mile and tyres at 1.04d. per mile, assuming a mileage life per set of 40,000.
Maintenance is assessed at 2-93d. per mile and depreciation 3-52d. per mile assuming a vehicle life of 200,000 miles.
The total for the five items of running costs is therefore 12.63d. per mile or £31 Hs. 10d. a week. Correspondingly the total operating costs amount to 20-26d. per mile or £50 13s. per week.
Objectives
At this point there may Well be a divergence in the objectives applying when used vehicles arc purchased. Indicative of one set of circumstances are the many well-established operators, whose growth and present scale of operation have been featured in The Commercial Motor from time to time, who have been proud to reveal that they started off in business with one used vehicle. Signifi
cantly, their current fleet replacement policy is based exclusively on new vehicles.
This does not necessarily mean that they have gained experience on a trial and error basis—an invariably expensive process—but rather that circumstances have changed. Almost invariably in the first instance it was a case of operating on a shoestring and the money for a used vehicle was all that could be raised. Any additional maintenance which might be involved was probably done in the owner-driver's spare time at no expense other than that of the materials used. By this and other such stringent economies the owner-driver contrived both to keep solvent in his early days in a competitive industry and provide for basic depreciation with such additional amounts as eventually enabled him to make the transition from used to new vehicles.
Despite this relatively common occurrence there are nevertheless many cases where the purchaser of a used vehicle has no foreseeable need in mind for ultimately changing from used to new vehicles, so that arrangements for the provision of additional amounts over and above the normal rate of depreciation will not apply. In that event the basic consideration to be borne in mind relative to the overall cost of operation is the saving by way of interest on the initial outlay as compared with the likely addition to maintenance costs.
Circumstances Vary
The circumstances involved in the running of a used vehicle over a comparatively low mileage can also vary. An employer, for example, may have some of his establishment in s?arsely populated areas making it necessary for him to provide transport for his workers. In such an event, whilst the usage of a private coach will be regular, the actual mileage run might be quite small—say 20 or so a day. Such conditions of work would hardly justify the purchase of a new vehicle, particularly as the factor of obsolescence would not apply as there would be no competitive element whilst a free service was being provided.
Although the yearly mileage may be similar, another coach operator might use
: vehicle intensively over a short period, and here again a used would prove a worth-while tion.
11 therefore be seen that because t operator of a vehicle considers c has come to dispose of it, this ot necessarily indicate that any lent purchaser will inevitably be
an unfortunate "buy ". The tances and conditions of the ser-rich has to be provided by the
may differ so substantially a first and second user as to make !anomie proposition in both cases. rtheless the would-be operator ,sh to formulate some yardstick,
arbitrary, as to what extent he likely to gain on the swings what s on the roundabouts by the purf a used vehicle as compared with responding model as new.
because the cost of operating a and the use to which it is subseput are so closely related, let us ■ nsider some of the reasons why :hicks are purchased and to what
I Outlay
:rstandably, when financial es are limited the initial purchase .aturally looms large in the opernind. But whilst there are always ons, it is reasonable to assume here the purchase of commercial s is concerned, a reasonably long of operation is intended. That 0, it is pertinent to bear in mind ation of initial outlay to subseoperating costs. Thus, as a ran ample, a 2-ton van, when fitted 1-engine, would cost around £1,030 iew. But even if it only averaged les a week the cost to the operator se course of the year's running be £1250. Moreover with the type of vehicle, averaging perhaps that mileage or more, the preance of the operating cost as red with the initial cost would ri greater.
e same comparison is made relathe lower initial price of a used
then obviously the ratio will be still. Therefore as a proportion total expenditure involved in the initial outlay and subsequent operating cost combined, any mechanical condition or change of condition in the used vehicle which affects the cost of operating must be proportionately greater than when a new vehicle is employed.
The fact that a substantial and longestablished used vehicle market exists must be accepted as proof that there is a need for used vehicles and that they can be put to economic use. It is essential, however, that the correct type of conditions apply and that the operator is fully aware of both the advantages and disadvantages of operating used vehicles. As a generalisation, their chief use will be in relatively short-term projects, in special circumstances particularly where spasmodic use is expected or on a type of work where conditions of delivery are not too stringent.
Continuity
Another aspect of commercial vehicle purchase is continuity. Although a private motorist may cherish the pious hope that he will be able to continue in his present position as a car owner, in the great majority of cases the commercial vehicle user has his livelihood directly or indirectly, dependent upon such continuity of vehicle operation. He must, therefore, take positive steps to provide for the contingency of vehicle replacement. Unlike the private motorist the commercial user cannot prudently " forget" about depreciation.
We will now assume that a similar vehicle is purchased in used condition at two-thirds the cost. It is at this point that any number of opinions might reasonably be held as to the corresponding condition of such a vehicle. Ruling out the two extremes of the largely illusory "snip' or the possibility of a bad buy, it will be assumed here in fairness to the experience of both the seller and the buyer that the overall condition of this vehicle is relative to its price, namely with two-thirds of its life remaining fit for service.
One Major Variation
Considering the effect of buying this used vehicle on the five items of standing costs, and discounting possible fractional adjustments to the amount of insurance premiums paid, the only major variation will be in the item of interest, which will be correspondingly reduced by one third to /2 6s. Od,, so giving a total weekly standing cost of £17 18s. 8d. Alternatively the standing cost per mile will become 7.17d., a saving of 0-46d. per mile as compared with the new vehicle.
The effect on running costs or operating this used vehicle is largely a matter of opinion but the item of depreciation is an exception. As previously explained, purchasers of used commercial vehicles fall largely into two groups. First there is the purchaser who looks upon the venture as a temporary measure until such time as he can replace the used vehicle with a new vehicle, and secondly the operator for whom a succession of used vehicles, if necessary, is adequate for the type of work on which he is engaged. The existence of a well-established used market makes such a policy a practical proposition.
In the first case, as the used vehicle is assumed to have already run a third of its estimated mileage life, then it follows that if the operator is intending replacing it with a corresponding new vehicle he will have to write off the cost of the vehicle over only two-thirds of the mileage previously agreed (200,000). This is necessary if funds are to be available to buy a new vehicle at £3,450, optimistically assuming that there are no price increases in the meantime. To achieve this the depreciation cost per mile will have to he increased to 5.28d., so giving a running cost per mile of 14.39d, and a total operating cost of 2I.56d. per mile compared with 20-26d. for the new vehicle.
Adopting a similar procedure if a used vehicle were purchased at one third of the original cost, interest charges will be reduced to the equivalent of £1 Is. Od. per week and the standing cost per mile to 6.71ii a saving of 0.92d. per mile as compared with the new vehicle,
Increased Depreciation
Depreciation would obviously be substantially increased if it were intended to replace with a new vehicle in a relatively short time The depreciation cost per mite would then be 10-55d„ the running costs 19-77d. and the total operating costs 26-48d. per mile.
If it were intended to continue with used vehicles these variations in the cost of depreciation would not apply. In that case the saving in standing costs of 0.46d. per mile when a used vehicle is purchased at two-thirds the cost when new or a saving of 0.92d. per mile at one-third the cost when new would have to be considered relative to the maintenance cost of 3.05d. per mile and possibly the fuel cost of 4.90d. per mile which apply to a new vehicle.
The extent to which these two items of running costs vary according to the age and condition of a used vehicle would determine whether or not the saving in standing costs was sufficient to result in the purchase of a used vehicle proving an economic proposition.