The Price of Maximum Availability
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The cost of operating 1and 1-litre staff cars is detailed here based on replacement at either oneor two-yearly intervals 1 N this series last week some of the problems likely to arise when operating a fleet of staff cars were discussed. Where an ancillary fleet of commercial vehicles is already operated it might seem a simple matter to arrange for the control and maintenance of additional staff cars economically under the same roof. As explained last week, there are several . reasons why such an arrangement might not prove succc,sful.
One of the principal reasons is that,. in contrast to a fleet of commercial vehicles, staff cars are often located singly, possibly at the home of the representative in the area in which he operates. In that case servicing and maintenance based on a central depot would prove impracticable and uneconomic.
These underlying factors relative to staff car operation, together with other aspects discussed last week, must be appreciated in their right perspective before a useful decision can be determined on the basis of a comparison of alternative costings. Such distinction can derive from differing policies as to period of replacement—i.e., at one; or two-year intervals— or, alternatively, the respective merits of ownership—compared with contract hire. It is with these reservations in mind that the following estimated costs of operating 1and li--litre staff cars are given.
First, holvever, for those readers not familiar with the general principles of commercial vehicle costing employed in this series and The Commercial Motor Tables of Operating Costs, the following brief description is given. Because the two fundamental elements in vehicle operation consist of time and mileage, it is convenient to correspondingly segregate operational expenditure into standing costs and running costs. When applied to commercial vehicle operation, each of these two groups can be divided into five items. Thus, standing costs consist of licences, wages, rent and rates, insurance and interest, whilst running costs are made up of fuel, lubricants, tyres, maintenance and depreciation.
WHILST the same principles apply, some slight rearrangement of the individual items is necessary for the purpose of costing staff car operation. Because staff cars are normally replaced at predetermined intervals of time (as distinct from mileage in the case of commercial vehicles) it is convenient to treat depreciation as a standing cost. Also, because this analysis of staff car operation is not concerned with chauffeurdriven cars, the item of " wages " would obviously not apply.
Although the car population of this country is now approaching six million, it is doubtful whether the cost of operating more than a small fraction of this substantial total is attempted or known. Whilst this attitude is understandable when a car is provided purely for pleasure, it does unfortunately engender a commonly held under-estimation of the real cost of motoring. Consequently, when confronted with an estimate of the total cost, there is an equally understandable, but misguided, tendency to reject such a total as excessive. In fact, such a rejection is invariably based—fallaciously—on a begrudging acceptance of immediate costs and an under-estimation, or complete ignoring, of deferred costs, particularly depreciaticn.
Dealing first with the 1-litre staff car, it will be assumed that the average initial cost, ready for the road, is £650. The annual licence duty would be at the new rate of £15. Rent and rates in respect of garaging the vehicle are admittedly a problematical item of expenditure, both regarding whether any such expense is in fact incurred, and, if 'so, the amount. In this instance it will be arbitrarily assessed at 125 per annum.
The cost of providing comprehensive insurance cover for 02 this type of car will vary substantially according to the area in which it is operated and the recent accident record of the user concerned. Assuming, in this instance, that the car is based in a medium-risk area, and a 50 per cent, excess charge is levied to cover commercial travelling, an appropriate annual premium would be 149 10s. per annum.
ONE of the main factors determining whether or not a company -finds it convenient to own or hire its staff cars is not only the .availability of capital, but the more profitable use to which that capital might otherwise be put. Because of the effects of the credit .squeeze, interest rates have tended to increase and the average Bank Rate over the past 12 months was 'approximately six per cent. At this rate, interest charges for one year on the initial outlay of £65.0 would be £39.
A further effect of the credit squeeze has been a substantial „ variation in Used car values.' Correspondingly, assessment of a fair rate of depreciation has become more difficult. In this estimate of operating a 1-litre staff car it will first he assumed that the car is replaced annually. Whilst the benefits derived ft out this policy should include minimum maintenance costs and maximum availability, there will inevitably be high depreciation costs on resale after one year. For a car of this size a loss in value over the first year of 20 per cent. will be reckoned. i.e., £130. The total for these five items of standing costs is therefore £258 10s.
Fuel is the major item of running cost, but, unfortunately for estimating purposes, there can be a comparatively wide range of prices at which petrol can be purchased, according to grade, area and conditions of purchase. it will be assumed that in this instance petrol is purchased at 4s. 10-t-d. per gallon and that this I-litre car averages 36 m.p.g. The resulting fuel cost per mile would thus be 1.63d.
Although only a comparatively minor item of running costs, lubricants have recently been increased in price and the cost will now be reckoned at 0.09d. per mile.
Throughout these comparisons of operating costs it will be assumed that the cars average 20,000 miles per year, or approximately 400 miles per week, and because of the welcome improvement in mileages now being obtained from the modern tyre, a new set of tyres should not normally be required during the first year. But some allowance will be made to cover accidental damage and this will be assessed at the cost of one tyre, or the equivalent of 0.07d. per mile.
As already mentioned, it is likely that the majority of staff cars will he dispersed singly, and, as a result, it Will be convenient for the local agent of the make concerned to undertake whatever servicing and maintenance is required. Most manufacturers provide comprehensive maintenance schemes at fixed prices and the following, taken at random, are a fair sample:— servicing at 1,000-mile intervals costs 14s. 9d. for a 1-litre car and, correspondingly, £.1 15s. 10d. at 3,000 miles, £3 13s. 10d. at 6,000 miles. and £4 16s. 9d. at 12,000 miles.
Applying these servicing charges to the present example, when averaging 20,000 miles per year, after the first free service provided for a new car, 13 1,000-mile servicings would be required, three at each 3,000 miles, two at each 6,000 miles and one at 12000 miles, at a total cost of £27 3s. 8d.
Additional to this amount would be the Cost of any material and lubricants supplied. As, however, the cost of lubricants has already been estimated as a separate item, only the cost (('ontinued on page 95) of materials requires to be estimated. This could obviously vary substantially and will be assessed here at £7 10s., plus a further £1 for a new set of plugs.
THE procedure adopted regarding the washing of a staff car can also vary widely, and with it the corresponding cost, and this will be assessed here at £13 per annum. Even if the representative concerned washed his own car at home at week-ends, this relatively modest estimate would still only Provide for washing the vehicle mid-week whilst engaged on a sales tour.
This gives a total scheduled cost for washing, servicing and maintenance over the L2 months of £48 I3s. 8d. But even when operating a new car over that period it would be unrealistic to make no allowance for unscheduled expenditure in respect of maintenance and repairs. This will be nominally assessed at £1 per 1,000 miles. or £20 per year in this instance, giving an overall total of £68 13s. 8d. for the year. With 20,000 miles being run during that period the maintenance cost per mile (i.e., inclusive of washing and servicing) would therefore be approximately 0.82d.
The total for the four items of running costs is therefore 2.6Id. per mile, or £217 10s. per year. Added to the standing costs this gives a total operating cost per year of £476 for this 1-litre car when averaging 20,000 miles per year.
An assessment will now be made of the cost of operating this car over a similar mileage during the second year of its life, assuming that the alternative policy of biennial replacement has been adopted. Of the standing costs, licences, rent and rates, and insurance will remain the same. Assuming that adjustments relative to capital outlay and transfers from the appropriate sinking fund, or its equivalent, are made annually, the contributions from the first year's depreciation costs will have reduced the initial capital outlay to £520 bY the. commencement of the second year. Based on this figure interest charges for the second year will be reduced to £31 4s.
After the relatively high reduction in value over the first year, depreciation will level out considerably and will here be assessed at half the amount which applied in the first year (i.e., £65 as compared with £130). The total for the live items of standing costs in the second year is thus £185 14s.
To offset this substantial reduction as compared with the first year, however, some increase in running costs must be expected. Because regular maintenance has been undertaken during the first year, it will be allowed that the items of fuel and lubricants remain the same at I.63d. and 0.09d. per mile.
By the end of the second year the car will have run 40,000 miles and a new set of tyres must now be allowed for, with a corresponding increase in the tyre cost to 0.30d. per mile.
The same procedure will be adopted when calculating maintenance costs as in the first year, although there will inevitably be some adjustment in individual items. The advantage of the initial free service will no longer he available, whilst the number of the more extensive servicings required will be increased. The net result will be that the overall cost of servicings during the second year will be £33 Is. 6d., as compared.with £27 3s. 8d. in the first year. A similar allowance will be made for a new set of plugs, materials and washing as in the first year. Additionally for the second year, however. £12 10s. will be allowed for decarbonization and £12 for relining the brakes. This gives a total for comprehensive maintenance during the second year's running of £79 is. 6d.
As before, some allowance must also be made for unscheduled expenditure and it will be anticipated that this will be greater during the second 20.000 miles. Estimating this to be the equivalent of £1 10s. per 1,000 miles, the total for the year would then be 130. This gives an overall cost for maintenance in the second year of £109 ls. 6d., or 1.30d. per mile.
The total for the four items of running costs during the second year are therefore 3.32d. per mile, or £276 13s. 4d. a year. Added to the standing costs, this gives a total operating cost for the second year of £462 7s. 4d.
A similar assessment will now be made of the cost of operating a 11-litre staff car under the same conditions. The annual cost of licensing will remain the same at £15, and a nominal adjustment of rent and rates in respect of garaging the car relative to the respective dimensions of the two cars will be made, namely an increase to £27 10s. per annum. For the
same reason, the cost of vehicle insurance will be increased to £69 2s. per annum.
The initial outlay on this 1:1-litre car is assumed to be £875 and with interest again charged at a rate of 6 per cent. the cost of this will now be £52 10s. a year. The rate of depreciation on this larger car will be reckoned at 22+ per cent. over the first year, the equivalent of £196 17s. 6d. This gives a total for the five items of standing costs of £368 19s. 6d.
Assuming fuel is purchased at the same price as before, and an average of 30 m.p.g. is now maintained, the fuel cost per mile for this 11-litre car would then be 1.95d. The cost of lubricants will also be slightly higher at 0.13d. and tyres 0.08d. per mile.
Calculations of maintenance costs will follow the same procedure as before, although the individual cost of servicings will be higher because of the size of car. Scheduled expenditure on this basis in respect of maintenance would be £55 9s. 8d. As before, an addition for unseheduhd expenditure will also be made, increased by CO per cent, on accoun't of the increased size, giving an overall maintenance cost for the first year of £77 9s. 8d., or 0.93d. per mile.
TOTAL running costs per mile for the 11-litre car during the first year are therefore 3.09d.. or,£257 10s. for the year. . This gives a total operating cost for the first 20,000 miles of £618 9s. 6d.
Making similar adjustments as before to allow for the operation of this car during the second year, the interest charged over, the year would now be £40 13s. 9d., whilst depreciation is reduced to £98 8s. 9d. This gives a total standing cost for the second year of £250 14s. 6d.
Because a new set of tyres will be required in the second year, this item of running cost is now.inereased to 0.35d. and maintenance, similarly, to 1.46d, per mile. The total running costs for the 11-litre car during the second year are therefore 3.89d. per mile, or £324 3s. 4d. a year, giving a total operating cost per year of £574 17s. 10d.
So far it has been assumed that, whether staff cars are replaced annually or biennially, they will in both cases be purchased outright by the company concerned. Some comments will now be made as to a comparison between the cost of owning or -hiring staff cars.
The availability of car hire facilities has increased substantially during recent years and a wide range of rates for occasional hire is available. This type of hire, however, would not normally be appropriate to staff car operation and, in practice, rates for contract hire over longer periods, such as a year or more, are determined mainly by individual negotiation and mutual experience. As a 'result, a direct comparison cannot readily be made, although the following listing of costs which still have to be met after a vehicle has been supplied on contract hire (at least in many instances) should be of some assistance.
As applied to the 1-litre car, the cost of petrol for 20,000 miles (i.e., a year's running) would be £135 16s. 8d., whilst the corresponding cost of lubricants would be £7 10s. The two items of rent and rates (£25) and washing (£13) would presumably still have to be met by the user of the vehicle, despite all servicing being carried out by the contract hire specialist. This gives a total of £181 6s. 8d. for the year.
The total cost of operating this 1-litre staff car for 20,000 miles during the first year when owned by the user has been calculated as £476. The deduction of these user-borne costs when hiring leaves a balance of £294 13s. 4d. to provide a notional yardstick by which to compare yearly contract hire rates. The corresponding figure for the second year would be £281 Os. 8d.
The fuel cost for the 11-litre car over 20,000 miles would be £162 10s., whilst lubricants add £10 16s. 8d. a year. With the addition of the cost of rent and rates, and washing as before, the total cast to be met by a user of a hired car during the first year would be £213 16s. 8d. Deducted from the previously calculated overall cost per year of £618 9s. 6d. when operating one's own car, there remains a balance of £404 12s. 10d. to provide a comparison with contract hire rates. The corresponding figure for the second year's running
would he £361 is. 2d. S.B.