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Planning for Profit

1st September 1961
Page 76
Page 81
Page 76, 1st September 1961 — Planning for Profit
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Which of the following most accurately describes the problem?

No "Pause" for Hauliers

If the Chancellor's Aim of Greater Productivity is to be Realized, Road Transport Operators Will Soon Require More Capital AN inevitable consequence of the response by trade and industry to the Government's drive for higher efficiency and greater output is a bigger demand for road transport. More products—whether for delivery at home or abroad—will. in turn, necessitate the need for more transport. Little if any margin exists amongst experienced operators to increase loadings of individual vehicles, as these are already near or up to the limit of maximum legal gross weights. As several recent licence applications reveal, often the only solution for the operator is to expand his fleet.

But such additional vehicles inevitably necessitate the operator obtaining more capital just at a time when money has been made dearer as a result of the Chancellor's " Little Budget." As he anncunced on July 25, the Bank Rate was then raised from 5 per cent. to 7 per cent., followed by a general increase in hire-purchase rates as from August 14. Whilst there has been no change in the statutory regulations governing hire-purchase transactions. the maximum hirepurchase 'rates as recommended by the Finance Houses Association are considerably above those which previously applied. Although the legal minimum proportion of the total price of a vehicle which an operator would have to put down as a deposit when entering into a hire-purchase transaction is still 70 per cent.. the F.H.A has recommended to its members that the minimum deposit on new vehicles and those up to three years old should be one-quarter. Above that age it is recommended that the deposit should be one-third.

The maximum interest charges which the F.H.A. recommend to be raised on the remaining balance are 10 per cent. on new vehicles. 11 per cent. on used vehicles up to three years old. and 13 per cent. over that age.

It should be emphasized, however, that these interest charges are the recommended maxima. In practice there is considerable competition between the finance houses for hire-purchase business, and many operators will no doubt be able to negotiate individual hire-purchase transactions in which lower rates apply. As an example. an actual rate of 8k per cent. is at present being charged on loans on new vehicles and 101 per cent. on used vehicles up to three years old. Therefore, despite the undoubted hardship which operators wishing to expand their business will experience as a result of the "Little Budget," both the need for. and employment of, credit finance facilities by road transport industry must still continue.

THE institution and expansion of many finance houses has been a feature of post-war development, both in this country and abroad. Following a period when, in some quarters at least, hire-purchase was looked upon as a somewhat dubious means of finance, a fundamental change in outlook took place when the leading banks acquired substantial interest in credit and hire-purchase finance houses. Their greater experience and status in the financial world thus gave additional stability to this new and rapidly expanding section of finance.

Although hire-purchase is most commonly associated with private cars and household goods, it is significant that this method of finance was first employed by the transport industry over a century ago. During the era of railway expansion and prosperity, the then privately owned collieries found it convenient to buy their privately owned railway wagons by this means. It is, therefore. a logical development that, with the growth of the road transport industry, a similar means of finance has proved of benefit to hauliers when rightly used.

There are also several factors resulting from changes in modern conditions and practices which indirectly have a bearing on the use of credit finance, although they may not be readily apparent at first sight.

B14 Transport operation can be conveniently divided as between engineering and traffic, and companies of sufficient size may have departments so named.

Dealing first with engineering, the advent and expansion of mass-production techniques to the motor industry, and subsequently the commercial vehicle field, allied with a shortage of skilled labour, has compelled many operators to reappraise completely their policies of vehicle replacement and maintenance. Moreover, the extent to which such reappraisals are being made increases as the range of vehicles provided by the quantity-produced manufacturers expands.

Whilst obviously there is, and will continue to be, a need for the wide range of vehicles at present offered by the commercial vehicle manufacturers in this country, 'in those types of operation where the quantity-produced vehicle is suitable. the haulier can now seriously consider replacing vehicles in the lower-price range more frequently. This undoubtedly would increase the cost of depreciation, but in some circumstances he may well consider this is at least offset by a combination of lower maintenance costs and greater availability of vehicles for service. This. of course, would be in contrast to the traditional method of setting up a fully equipped service department to ensure that the vehicle is operated satisfactorily for the maximum possible mileage. It would then be presupposed that the skilled labour, which is a vital key in the successful operation of such a method, would be available.

UNDER modern conditions, this may be by no means the L, case and it is probably less likely to be so in the future. Ironically, it is often the very success of the quantity-producing industries that is the cause of a shortage of labour for maintenance. Unless there is an unexpected change in the labour situation generally, it would seem that this trend will continue to develop to the disadvantage of the road transport operator.

Therefore, whether by choice or necessity, it could be that more operators in the future will find it convenient to replace vehicles more frequently. Apart from the effects of such a policy on operating costs. and whether or not increases in one item will be offset by savings in another, more frequent purchase of vehicles would normally result in a more frequent need for finance facilities.

The same conclusion may be reached by operators as a result of changes in traffic requirements stemming from the increased tempo in trade and industry generally. Again following on the increasing application of mass-production methods to an everwidening range of products, more exacting demands have been made on transport services. For the majority of traffics the customer no longer allows a margin of time for either collection or delivery. It must now be effected on the specified day and often at a specified hour. To meet the needs of this higher standard of service, the efficient operator will naturally do his utmost to ensure that unscheduled stops on the road by his vehicles are reduced to a minimum. This can only be achieved by either the operation of a modern fleet or the provision of an efficient maintenance system.

But in the latter event, no matter how efficient such a system might be in achieving the near-elimination of unscheduled stops on the road, it presupposes regular periods when the vehicle is off the road and not available for work whilst receiving such maintenance. Under some circumstances traffic conditions could be such that operators might ultimately come 'to the conclusion that even the most efficient maintenance system, necessary to keep a vehicle on the road for several years. did not provide the standard of vehicle availability which modern conditions demand. In consequence, the alternative policy of

frequent replacement of vehicles might again be adopted, with the likelihood of a more frequent employment of credit finance facilities.

In addition to having to meet customers' demands for strict control of collection and delivery, many transport operators in recent years have had occasion to carry entirely new types of products or, alternatively, continue to carry existing traffics but in new form. To meet such requirements the operator has had to acquire not only additional vehicles, but often special types with expensive bodies. For example, such vehicles might include liquid tankers or those designed to carry powders, granulated materials or semi-solids in bulk form. Often, when such an opportunity presents itself to the haulier. he has comparatively little time in which to come to a decision, whether or not to enter into what, for him, would be a new field of transport. In such circumstances. unless credit finance facilities were available to the haulier, the opportunity of expansion in that particular field might be lost.

Ancillary users are faced with a different set of circumstances when determining whether or not either to acquire or expand a fleet of vehicles. In three successive articles in this series. dated June 9, 16 and 23. pertinent factors relative to the contract hire of vehicles were examined. But even if in any particular

set of circumstances a trader or industrialist insists that he must own and operate his own vehicles, there still remains the problem of vehicle provision and replacement. Although in many cases the ancillary user will have more ready access to financial resources than some small hauliers, it would not necessarily follow that the transport department was in the same fortunate position. Because the return on capital outlay in connection with the provision of transport services is often at a lower average than in trade and industry generally, it may well be that the ancillary user could make better use of such available capital in expanding the parent business. Despite the recent increase in hire-purchase charges, some ancillary users might find this method of vehicle purchase convenient.

It is, therefore, apparent that there are many sound reasons why a variety of transport operators might have occasion to make use of the services provided by these finance houses for the acquisition and expansion of their fleets. It is unfortunate, therefore, that because of the misguided use of hire-purchase facilities by a few operators_ the method as a whole has been viewed with suspicion in some quarters. But the abuse of a system provides no justifiable grounds for discounting the advantages if it is rightly used, as in most cases it undoubtedly is. S.B.

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