Problems of Replacement
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Though Accurate Costing Should Ensure that Adequate Funds are Available to Purchase New Vehicles', the Decision as to When to Renew Still Has to be Made.
LACK of any provision for ultimate replacement of a vehicle is, unfortunately, all too common among small transport operators. Whether it is through ignorance of costing or compulsion of falling revenues, the result is the same. Only two solutions are possible— cessation of the service or acquisition of new additional capital. Whilst this situation may well prove disastrous for the operator concerned, the damage done is often more widespread. During the interim period the operator concerned may well have been under the illusion that his operating costs were actually lower than they were, because of the omission of any allowance for depreciation.
His charges to customers may similarly have been too low, to the detriment of other operators in the area as well as to himself. Whether by accident or design, he may have initiated an uneconomic rate-cutting war.
An understanding and appreciation of costing can avoid such an unfortunate situation. It should be noted, however, that alternative methods may be employed in the actual calculation of depreciation. As explained in this series on February 17, this item of operating cost can be reckoned either on a time or mileage basis. Alternatively, in some circumstances it is more appropriate to allow for both time and mileage in the actual calculation. , In practice, particularly where commercial vehicles in continual use are concerned, there is little difference in the results obtained in calculating depreciation either on a time or mileage basis under normal circumstances. When making calculations for compiling tables of average costs, as distinct from specific instances, it has been found most appropriate, on balance, to calculate this item on a mileage basis, with the proviso that an addition to the basic cost is made when the mileage is exceptionally low.
BEFORE depreciation can be calculated, however, whatever the method employed, it is necessary to determine a replacement policy. To the newcomer at least this may seem to be merely a matter of continuing with the vehicles in service until they are worn out, when renewal is undertaken. In the early days of commercial road transport this was what, in fact, took place and it was the publication of the first Commercial 14otor Tables of Operating Costs in 1911 that caused the few operators then existing to question whether, in fact, this was the best method.
At first sight it would seem that the greatest value could be extracted from a vehicle by its full employment over the longest possible period. But even in those early days it was seen that this was not necessarily the case, and subsequent developments. particularly since the last war, have provided good grounds for adopting alternative policies relative to vehicle replacement.
Although it is convenient to divide the total cost of operating a vehicle into the-10 items of licences, wages, rent and rates.
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insurance, interest, fuel, lubricants, tyres, maintenance ani depreciation, each and all are interdependent. Particularly doe it apply to the two items of maintenance and depreciation, am their individual and relative costs should be borne in mini when considering a replacement policy. Here are thre examples of differing sizes of vehicles operating app-ropriat weekly mileages. As shown in The Commercial Motor Tables D Operating Costs, for a 5-ton oiler the maintenance cost per mil is 2.13d. A reasonable average weekly mileage for this size o vehicle would be around 400, and at this figure the maintenanc cost each week would be £3 Its. Similarly, the depreeiatioi cost per mile is I.53d. and the cost each week £2 1 I s.—a tota of £6 2s. for the two items.
THE corresponding figures for a 10-ton six-wheeler, agai with oil engine, are shown in the tables as maintenanc cost per mile, 2.63d. and depreciation cost per mile, 2.02d. Thi time it is assumed that the average weekly mileage is 801 appropriate to this size of vehicle. The maintenance cost eac week is then ES 15s. 4d., whilst the depreciation cost each wee becomes £6 14s. 8c1.—a total of £15 10s. for the two items.
A maximum-load eight-wheeler is shown as having maintenance cost per mile of 3.01d. and, assuming a slight' higher weekly mileage of 1,000, the corresponding cost eac week is £12 10s. 10d. The depreciation cost per mile is 2.56( with a cost each week of £10 13s. 4d.—a total of £23 4s. 2d.
Except in specific instances it will be difficult to quantify th effect of differing replacement policies on these two items c costs, but detailing them in this manner does emphasize th relative amounts as well as forming the basis for estimating, least, the effect of proportional changes. It is significant t note that, in all these three examples, a replacement polic which resulted in an increase of 50 per cent, in the cost c depreciation would he more than justified if a correspondin decrease of 50 per cent. were thereby obtained in maintenam costs.
Within large transport organizations there is often a cle division between the authority and responsibility of ti engineering and traffic departments into which the whole divided. In many instances the engineering department will t responsible for the initial selection and specification of vehicle and, later, for its efficient maintenance when on servic The economic employment of the vehicles to the maximum the duty of the traffic department. These two functions a inherent in all transport operation, even though the designations given to the two departments may differ. Alternatively, the organization may be so small as not to warrant any such division by name but, nevertheless, these two aspects of transport operation have still to be carried out, albeit in the same office or even by the same personnel. When reviewing the factors which have to-be considered when determining, or reassessing, a replacement policy it is helpful to consider the needs of these two departments.
Whilst the traffic carried in any particular instance would normally determine the size of vehicle and type of body, the engineering department would usually have the final say as to the type and make of chassis, and possibly any special or additional equipment. Being charged with the responsibility of maintaining the vehicle on the road as economically as possible, the engineer concerned may consider some additional expense fully justified on this score. In that event agreement between all parties would have to be reached as to the likely life•of the vehicle: otherwise the additional outlay may not have been recovered before this took place. Particularly would this apply to any additional equipment, such as automatic chassis lubrication, which would substantially reduce or eliminate the need for simple but persistent servicing tasks. Although ' not requiring skilled labour to perform, the total man-hours accumulated over a period of, say, 12 months on the simplest forms of servicing can be substantial. Though excellent in principle, the addition of such equipment could prove a liability if the period of its employment were insufficient to justify the nara outlay.
IN recent years there has been a complete reassessment by many operators of the need, manner and cost of maintenance of commercial vehicles, with ultimate repercussions on replacement policy. The tremendous growth in the application of quantity-produced methods to the manufacture of both vehicles and equipment has been a major factor in this reassessment in post-war years. The range of such vehicles has increased, particularly in the larger carrying capacities. Simultaneously, the abolition of purchase tax on commercial vehicle thassis has enhanced the attractiveness, relatively, of the quality produced vehicle. Both these changes could justify replacement policies which would have been uneconomic only 3, few years ago.
With the increasing availability of exchange units at attractive prices which can be fitted to a wide range of vehicles, the whole concept of the maintenance of commercial vehicles s undergoing substantial revision. Pormerly, skilled engineers and fitters were rightly considered key men in large transport Drganizations, particularly when perishable traffics were carried. and it was vital that vehicles should be kept mobile and lourneys completed on time.
Despite the availability of replacement units, some operators night nevertheless consider it advisable to have skilled men Nithin their own organization in order to retain complete ::ontrol, rather than be dependent upon the services of an agent 3r distributor. Alternatively, despite the excellence of any inch service, the respective location of operator and agent may 3e so distant as to nullify substantially whatever service is )rovided.
In such circumstances, before building up one's own mainenance department the labour situation as a whole in the listriet should be carefully considered. In many areas there is andouhtedly keen competition for most types of skilled or :cmi-skilled worker by manufacturing industries. Despite .ecent recessions, it has to be admitted that in the majority of :ases these industries are in a position to offer most attractive ates of pay, although the jobs offered may be routine and argely without responsibility. Even where an operator is 'ortunate enough to have reliable skilled staff available, thought hould be given to the likelihood of replacement before ubstantial outlay is made on garage buildings and equipment. Where it is possible to retain an adequate labour force it is loubtful whether much of the expensive garage equipment Llready owned by transport operators is utilized for more than t small proportion of its life. It would be an even greater oss if such equipment were to stand completely idle, due to oss of skilled fitting staff for which replacement could not mmediately be found.
In the past the transport departments of many well-known concerns, as well as professional operators, have taken a justifiable pride in the manner in which their vehicles have been maintained, due in a large degree to the high standard of their maintenance department. Whilst the increasing adoption of pension schemes for all grades of employees may tend to slow down the increase in the turnover of labour which has arisen during post-war years, it is doubtful whether this single factor alone could guarantee to the employer anything like the same security of labour to which he was accustomed before the war. If that contention is correct, then it can be expected that the number of transport undertakings, whether ancillary or professional, which find it economic to employ their own maintenance department will tend to decrease, Even if the relative costs were similar, it may well prove that where an attempt was made to run one's own maintenance department the time and worry involved diverted far too much of the executive's attention away from his main -preoccupation of delivering his company's or customers' goods.
Having decided not to set up one's own maintenance department to the extent of undertaking both servicing and major repairs, two alternatives would be available, both of which would reflect back on the replacement policy ultimately adopted. Maximum use can be made of the manufacturers' provision of exchange units, so limiting the fitting staff required.
Where the local agent or distributor was located sufficiently near to eliminate the possibility of excessive dead mileage, it could well prove convenient and economic, overall, to contract the whole of the repairs out to such an agent: I purposely say economically overall because, although there might be a slight financial advantage on paper, in undertaking one's own repairs, the risk involved in the capital outlay inevitable in installing a fully equipped repair depot might not be justified because of unstable labour conditions. This is a matter, incidentally, which appears to he receiving increasing attention to judge from readers' inquiries. Under the appropriate circumstances it can give excellent results, even, for example, in such exacting conditions as those .experienced in cattle haulage, when reliability is of the utmost importance. Alternatively, some of the largest organizations in the country, with ample financial reserves, find it convenient on occasion to contract out their maintenance so as to permit them to concentrate on what they consider to be more important aspects of their work.
TWO further alternative policies in .dealing with the related items of maintenance and depreciation, and ultimately vehicle replacement, remain. As a virtual extension of the policy of employing exchange units to the maximum, complete vehicles can be exchanged more frequently than is common practice. Normally this would apply particularly to the quantity produced type of vehicle, although examples of this policy are practised with more expensive vehicles.
To the old school of operators, such a policy would be considered to be totally uneconomic because of the excessive depreciation costs inevitably involved. Such costs are not denied and operators who adopt this policy emphasize that there are compensating advantages, at least to some extent, in lower tyre and maintenance costs. Not so easy to quantify, but nevertheless of real value, is the extra availability of a vehicle to earn revenue when such a policy is adopted. Also, the attractiveness of the vehicle remains unimpaired during its short life, whilst similarly the appropriateness of the body to rapidly changing traffic requirements can be adjusted more readily with each exchange of vehicle.
There is a corresponding extension in the policy of contracting for servicing and repairs to be undertaken by the local agent or distributor. This would he to contract for the outright hire of the vehicle, thereby allowing the operator to devote his time and energy exclusively to whatever service of collection and delivery he has to perform. Particularly where only a small number of vehicles was involved, it could well be that a comparison of costs would show that hiring was more economic despite the contractor's profit margin. This, in the main, could occur because of the contractor's greater opportunity to spread overhead costs over a larger fleet, and to provide and maintain vehicles at a more competitive figure because of his greater opportunity and experience to concentrate, on that one aspect
of transport operation. S.B.