Costing Staff Car Operation
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Assessment of Probable Expenditure on the Provision of Personal Transport is Discussed Here Relative to 1and 134-litre Cars RESPONSIBILITY for the provision of personal transport for representatives and executives is an added responsibility for many industrial transport managers. Some of the problems which can thereby arise were discussed in this series last week. It was stressed that because transport managers did not normally have control over personnel authorized to use staff cars to the extent that applied to drivers of the commercial fleet, this could be a significant factor in determining the efficiency with which the staff-car fleet was operated.
Particular attention has also to be given to providing the maximum availability which such personnel expect from their cars, whilst still containing both maintenance and depreciation costs within reasonable limits. This problem is made more difficult when a large staff-car fleet is disposed singularly throughout the country, as is often the case.
Although there are several methods of providing personal transport for staff, overall expenditure will be dependent on the total operating cost, plus any overhead and profit margin where this is appropriate. The total operating cost is, in turn, made up of 10 items, namely, licences, wages, rent and rates, insurance, interest, depreciation, fuel, lubricants, tyres and maintenance.
Because, in contrast to the operation of commercial vehicles, there can be a division of responsibility for some of these items. it is worth while to enumerate the 10 items in this manner to ensure that no item is omitted in the final reckoning and, moreover, that responsibility for each of them is agreed and understood.
In circumstances where staff cars belong to the company concerned, the whole of these 10 items trill have to be met by the company, although it might be more convenient for the actual payment for items such as petrol and, possibly, oil to be made by the personnel concerned, who would then be reimbursed, possibly at monthly intervals.
As an alternative to outright ownership, some organizations prefer to divest themselves of this responsibility, but assist those members of their staff for whom a car is essential in the execution of their duties by making an advance of capital, often at favourable terms. Subsequently, the company reimburses their staff for the use of this car for business purposes. The manner and extent to which this is done can vary. In some instances, the whole of the operating cost, consisting of both standing and running costs expressed as a cost per mile, may be met by the company.
AS AN alternative to this arrangement, the immediate running costs only, i.e., expenditure on petrol, oil and, possibly, servicing, may be directly reimbursed on a mileage basis. The remaining expenses are then paid for at an agreed flat rate. This latter rate may, or may not, account for the whole of the remaining costs, according to whether it is the contention of the company concerned that, as some of the yearly mileage will be purely for personal pleasure, the personnel concerned should meet at least some proportion of the standing costs.
Irrespective of this latter variation in the proportion of costs, eventually paid respectively by the company and its staff, it is contended by companies who operate such schemes that the fact of driver-ownership is more likely to engender economic motoring than where staff are completely isolated from the real cost. At the same time, it obviates difficulties which could well arise if staff were required to provide their own transport, but who found it inconvenient to provide capital for such purchase.
As stated earlier, where outright ownership is accepted by the company all 10 items of operating costs will then be their responsibility. Except in a limited number of instances however, the item of wages would not apply unless chauffeur. driven cars were provided for top executives. In the vas majority of cases, however, staff cars would be self-driven, anc it is on this basis that the following costings are calculated.
Estimation of the likely cost of running cars for either private or business purposes is invariably more difficult than the corresponding exercise in relation to commercial vehicles. Thit is for a number of reasons. One of these is that it is ofter little more than a matter of opinion as to where one draws the line between essential and non-essential expenditure. Ir addition, there arc wider market fluctuations in the value of used cars than applies in the commercial field. As a result, the assessment of an acceptable average value of a used car car prove difficult, particularly if the results so obtained determine staff-car policy for possibly a year or more. as is often the case The effects of the changes announced with the introductior of the "Little Budget" last month have complicated further the situation. Not only has the direct effect of these changes or car operating costs to be noted but, assuming that any estimate concerns the running of a car for at least a year or more, some assessment has to be attempted as to whether these are likely tc be of shortor long-term duration.
MOREOVER, in the event, it could prove that the indirect effect of the changes just announced could be the reverse of those at first expected. Following on the increase in the bank rate announced by the Chancellor from 5 to 7 per cent., the Finance Houses Association announced early this month that the hire-purchase interest charges are to be increased by 1 pee cent., and down payments on new cars were to be raised from a fifth to a quarter. Maximum hire-purchase charges recommended by the Association are now 10 per cent. on new vehicles, 11 per cent. on used vehicles up to three years old and 13 per cent. over that period. In addition, the deposit on used vehicles over three years old is to be raised from a quarter to a third.
Whilst it is problematical what the long-term effects of these changes will be, it is possible that some prospective buyers, who had originally intended buying new cars on hire-purchase for private purposes only, may now be compelled to accept a used vehicle so as to keep the total outgoings within their means_ Whether or not this proportion balances out the fall in demand for used cars due to purchasers already intending buying used vehicles being no longer able to afford to do so, remains to be seen. But in the category of used vehicles with which the staff-ear fleet operator will be concerned, namely, around one year old, there may well be no substantial change in value.
now give details of the likely operating cost of two types of car commonly used for business purposes, namely, saloons of 1or, alternatively, If-litre capacity.
Dealing first with the smaller car, an analysis of a representative selection gives an average price, new, of around £655. Allowing for the increase to 15 in the annual licence duty for cars, which was announced in the April Budget, the equivalent expenditure per week on this item of standing cost will be fis. As mentioned earlier, there will be no item of wages to assess, as the car will be self driven. Rent and rates in respect of garaging it. however, will be nominally assessed at 7s. 4d. per week.
Insurance cost is one of the items which can vary considerably according to individual circumstances. Allowing for a 50 per cent, excess charge to cover commercial travelling, (Continued on page 95)
nd also for the effect of overall increases announced earlier in he year. the annual premium for this particular type of car as hown in the selected scale of rates is £49 10s. On a basis of 50-week year, this is equivalent to 19s. 9d. a week.
Interest charges on the initial outlay were formally assessed t 3 per cent, in this series, but will now be reckoned at per cent. Based on the initial outlay of £655, this would lye an equivalent weekly charge of 13s. 2d.
Closely allied to the two factors of maximum availability and aintenance, discussed last week, is the cost of depreciation. Because of the fluctuation caused by changes in supply and emand, as well as the rate of purchase tax and hire-purchase harges, it is unlikely that any chosen rate of depreciation ould be correct throughout a period of. say. 12 months. evertheless, some attempt has to be made to arrive at an verage figure. In order to achieve something approaching the aximum availability which representatives and executives xpect from their staff cars, it will be assumed that in this nstance they are replaced annually.
A corresponding analysis of used-car values after one year reveals that, for this particular size of car, a drop of approxiriately 171 per cent, in the initial cost was experienced. This, however, was based on a summary of used values published earlier this month. It is appreciated that if the analysis had been based on summaries published in previous months a different rate of depreciation would be applicable.
Accordingly, at 171 per cent., an amount of £115 has to be written off as the depreciation over the first year. Incidentally, it will be noted that depreciation is here being taken as a standing cost rather than a running cost based on mileage. This is because it has already been agreed that cars will be replaced annually, i.e., on a time basis, irrespective of the mileage involved, although this may be known within broad limits.
THE weekly cost of depreciation, based on the rate of 173 per cent., is therefore £2 6s. This results in a total standing cost per week of £4 12s. 3d. Where other rates of depreciation apply this figure would, of course, require adjustment. At a figure of 15 per cent., the amount to be written off would be reduced to £98 5s. a year, or the equivalent of £1 19s. 3d. a week, with a corresponding total standing cost per week of £4 5s. 6d. Conversely, when the rate of depreciation was 20 per cent. the standing cost per week would be £4 18s. 8d. Fuel is another item of cost relative to staff-car operation which can vary widely in differing circumstances. Assuming that the staff-car fleet is an added responsibility for the transport manager of commercial vehicles, it is more than likely that fuel for this latter section of the fleet will be purchased at wholesale prices and stored in bulk. If the commercial fleet contained petrol-engined vehicles, presumably motor spirit of standard grade will be used. It will probably be dependent upon sufficient numbers of cars being based at any one point whether or not bulk storage of a higher grade of motor spirit was justified,
Superimposed on variations in price relative to the grade of motor spirit used.and whether or not it was purchased in bulk or, alternatively; retail, there would be the effect of zoning on prices. Inclusive of the additional 3d. a gallon fuel tax (now making 2s. 9d. in all), announced in the "Little Budget." the bulk wholesale price per gallon for standard motor spirit in minimum 200-gallon loads, ranges from 4s. Id. in the inner zone to 4s. 21d. in Northern Scotland, whilst the corresponding range for premier grade spirit is 4s. 51d. to 4s. 7d.
Alternatively, if petrol was purchased in small lots at retail prices, as may well be the case with staff cars, there would be in addition of 4d. a gallon in the case of the standard grade and between 42.d. and 5d. when premier spirit was purchased.
For the purpose of this estimate of operating costs, an average figure of 4s. 71d. a gallon is assumed. Incidentally, as with any other item of operating cost, no allowance is made for fleet or other discounts which must, by their very nature, 'be peculiar in. each operator. When the average rate of consumption was 36 m.p.g.. the fuel cost per mile would then be I.54d. (at the same rate of consumption but at 4s. Id. a gallon. i.e., the lowest basic price, the fuel cost would be I.36d. per mile, whilst at Is. 111d. a gallon it would be increased to 1.65d, per mile). Lubricants are calculated to add 0.08d. a mile. As the
vehicles are assumed to be exchanged annually, it should not be necessary to make provision for the ultimate replacement of the original set of tyres. But, although no such provision is made for general wear and tear, it would be prudent to make some allowance for possible accidental damage. Arbitrarily assuming that this is based on the cost of one tyre, rather than the set, the tyre cost per mile is reckoned to be 0.15d.
Likewise with maintenance, whilst no major repairs should be necessary, the cost of servicings as specified by the manufacturer would normally have to be met, or the equivalent cost if undertaken by the operator's own service depot. This cost is reckoned at 0.81d. a mile, giving a total for the four items of running cost (i.e., excluding depreciation, which is now grouped with standing costs) of 2.58d. a mile.
The total operating cost per mile will vary according to the average weekly (or yearly) mileage. This is because whilst the total standing cost is a fixed charge and therefore a proportion of the expenditure contained in the total, operating cost per mile is reduced as the average mileage is increased. As a result, in this particular instance, total operating costs per mile for this 1-litre saloon car when averaging 100 miles per week is 13.65d. At 200 miles a week it is reduced to 8.12d., and successively to 6.27d. at 300 and 5.35d. at 400 miles a week.
Dealing similarly with the larger lt-litre car, the initial cost is reckoned to be £800. The weekly cost of licensing remains the same at 6s.. but the cost of rent and rates is slightly increased, proportional to size, to 7s. lid, a week.. Similarly. the insurance premium payable on this class of car when used for business purposes would be £57 15s. per annum, the equivalent of £1 7s. 7d. a week. Proportional to the higher initial outlay, interest charges are now the equivalent of 16s. a week.
A corresponding analysis of used-car values relative to this type of car, also taken from figures issued earlier this month. results in an average depreciation of 20 per cent. over the first year, i.e., £160. The equivalent weekly cost would be £3 4s., so giving a total standing cost per week of £6 Is. 6d.
Making similar variations in the allowance for depreciation. as was made in the previous example, if the rate of depreciation was decreased to 171 per cent.. the amount to be written off would then be £140, or £2 16s. a week. Alternatively, if the rate were increased to 221 per cent. the amount to be written off would be £180 a year, or £3 I2s. a week.
The rate of consumption for this larger car would be reckoned at 30 m.p.g. which, based on the same price of 4s. 71d. a gallon. gives a fuel cost per mile of 1.85d. (Alternative costings would be I.63d. at 45. Id. a gallon or I.98d. at 4s. 1 I id. a gallon.) Lubricants, are reckoned to cost 0.12d., tyres 0.17d. and maintenance 0.90d. a mile. calculated on a similar basis as before. This gives a total running cost .per mile of 3.04d. and a' total operating cost per mile of 17.62d. at 100 miles a week. This is reduced to 10.33d. at 200. 7.90d. at 300. and 6.69d. at 400 miles a week. S.13.