Frequent Replacement or Maximum Mileage?
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THE problem of deciding the most opportune time at which to replace vehicles is difficult. Consideration of the factors involved emphasizes, too, the close inter-relationship between the several items which go to make up commercialvehicle operating costs, in particular, in this instance, depreciation and maintenance.
For the basis of calculating depreciation for the purpose of The Commercial Motor' Tables of Operating Costs," a mileage life of 120,000 is assumed for the lower-priced type of vehicle and 240,000 to 300,000 for the higher-priced. As with all the figures in the Tables, these estimates are made on averages derived from figures submitted by many operators. They represent, on balance, the stage at which experience has shown it to be both convenient and economic for the changeover to a new vehicle to be made.
If, however, an attempt is made to substantiate these or any other estimates of economic mileage life, I suggest it would always remain impossible to prove them to be correct in the narrow sense. This is because, for practical transport operating purposes, some margin as an insurance against frequent breakdowns would normally have been deducted from the real estimate of mileage life. Immediately, therefore, one has two variables, namely. an original estimate of mileage life—which, even with the best intention and technical knowledge, cannot be more than an estimate—and a margin of reserve dependent on individual circumstances,
Mechanical Reliability The two obvious and immediate factors which giv.e cause to an operator to consider replacing a vehicle are mechanical reliability and fitness, coupled with its current cost of maintenance—assuming, of course, that replacement has not already been determined to a pre-arranged schedule. Except possibly for the very small operator, such as a farmer, there are several other factors involved, although at first sight they may appear secondary to that of roadworthiness. Yet they may, in total, have a greater effect in determining replacement policy.
This is not, I suggest, because roadworthiness is considered to be of any less importance, but because the modern British commercial vehicle, given the minimum of reasonable maintenance, readily provides it. The operator, therefore, can give more emphasis to other aspects that stem from changing operating conditions.
So much depends, for example, on the type of trade in which the operator is engaged, whether he be a professional haulier, ancillary user or passenger operator. To cite one c28 aspect only, where competition was extremely keen, the condition and appearance of rivals' vehicles might have as great, if. not greater, influence on replacement policy.
Because of their inherent destructive qualities, some traffics must obviously necessitate more frequent replacement of either body or complete vehicle. Similarly, although not so immediately obvious, the exceptional urgency of traffic may make it advisable for the operator to provide `a greater margin against liability of breakdowns. -This he may decide to do either by more comprehensive preventive maintenance, or by more frequent replacement of vehicles.
To some extent this would be analogous to the distinction between third-party-only and comprehensive insurance. Under certain conditions, any additional expense incurred in both cases would be looked upon by the operator as a good psycho logical "buy." In both cases, too, the greater freedom provided from the ineovenience of dislocation of day-to-day activities would permit more time and energy to be applied in other directions and possibly with greater financial benefit.
Based on Guesswork Because an estimate of a vehicle's mileage life cannot reasonably be expected to be more than an average figure, a reader has raised a query as to the necessity of making any forecast. It must be admitted that no such estimate is made by the owners of some vehicles, which they proceed to run to virtual destruction, but in so doing they have 110 knowledge of their real operating costs. If they are engaged in transport for lire or reward, their charges must be based on either guesswork or on a comparison with competitors' rates..
As with many aspects of commercial-vehicle costing, arbitrary estimates have, to some extent, to be accepted before any fair scheme of costing and subsequent charging can be devised. For general use no degree of finality is ever likely to be reached in estimates of this kind, but they have to be made, arbitrary though they may be to some extent It may be that an operator in one set of circumstances could, by experience over a number of years, go a good way towards achieving complete accuracy. Bus companies operating year in, year out, over virtually identical routes would be a good example. In that event, however, the results obtained would be of limited application. Relative to the mechanical fitness of a vehicle and its effect on replacement policy, the growing use of the exchange-unit system of maintenance adds to the variations of policy which may be adopted. Unit exchange is available for such a wide range of components that it may soon be possible to keep a vehicle in name and number—if not in original specificittionindefinitely by a succession of exchanges, Were it not for thc incidence of obsolescence and appearance.
This of course, would be in contrast to the original meaning of the words " repair " and " overhaul," which are still carried out by some operators who have the necessary maintenance facilities. Whilst details of the system may vary from operator to operator, light, medium and heavy docks are performed, the final one being virtually a complete rebuild.
Where the operator is fortunate enough to have experienced maintenance staff, the standard of workmanship is often high, Brewers, possibly because of their long tradition, often favour this approach to maintenance and 'vehicle replacement.
The conditions in other trades and industries, however, have their influence in the adoption of different systems. This is particularly the case in retail distribution, where change in financial and marketing policies has demanded. lower stocks at. terminals, as well as in transit. This in turn, to the transport operator, has meant more frequent deliveries, almost to the point of a conveyor belt. But if distribution costs per manufactured unit are not to soar because of the additional vehicles that this policy would seem to necessitate, greater use from each existing-vehicle must be obtained.
Lower-priced Vehicles
Such conditions must obviously influence maintenance policy, co-related with the choice of vehicle for the job. Maximum availability necessitates minimum hours not on service because of maintenance. In Many cases the only answer to the problem is that of frequent replacement of vehicles, which normally implies the choice of the lower priced types.
Under other conditions maximum availability could be achieved by 'working maintenance staff on night shift. This, however, would normally pre-suppose the existence of a large central depot, which may not be the case .where vehicles are engaged on distributive work. Many are often the sole vehicles of local retailers, or make up the widely scattered fleet of several hundred run by one of the larger combines.
To many operators of the older school of thought a two-year period of replacement would seem a remarkably short—and expensive—life for a commercial vehicle, involving only 30,000 to 40,000 miles. During that time, however, no expense is entailed on either unit or tyre replacement, one retread sufficing where conditions caused by an exceptional amount of stop-andstart work necessitate this additional expense.
' In order to test these alternative policies in relation to their effect on operating costs, I propose to use as an example a popular 300-eu.-ft. delivery van, whilst the, two of a total of 10 operating costs to be examined are depreciation and main tenance.
Residual Value For-this purpose it is assumed the cost of the van, ready for the road, would be £1,150 and the initial set of tyres would cost £100. When the vehicle was being operated over a period of 120,000 miles, the residual value would be arbitrarily assessed at 1/10th of the initial cost. This, together with the cost of the tyres, gives a total of £250 to be deducted from the initial price of the vehicle, leaving a balance of £900 as the amount to be depreciated, or 1.80d. per mile.
When, however, the vehicle was being replaced every two years, it is assumed that the mileage would then amount to 40,000. The initial price of the van and tyres remains the same but obviously an adjustment must be made to the estimated residual value, as it will be only two years old at disposal. In this instance, therefore, its value has been assessed at £550, or a little under 50 per cent. of the initial price. Coupled with the price of £100 for the initial set of tyres, this gives a total of £650, which when deducted from the first cost of the vehicle leaves a balance of £500.
Although this amount is little more
than half, the previous corresponding figure, because the mileage involved is now only 40,000 compared with 120,000 previously, the cost per mile for -depreciation •wilt now rise to 3.00d. per mile. On a weekly mileage of 400—corresponding to an annual average of 20,000—the weekly cost of depreciation would therefore be £3 in the first instance and £5 in the second.
Turning now to maintenance, it was emphasized in this series on January 31 that the provision of a sinking fund would assist the operator to make provision for deferred items of expenditure. This is relevant to maintenance, which is so closely linked with depreciation in determining vehicle-replacement policy. Readers familiar with "' The Commercial Motor' Tables of Operating Costs" will be aware that depreciation is shown as a fixed cost per mile with the object of providing, along with the other items of cost, a firm basis on which to build a stable rates schedule.
It will be readily apparent, however, that in day-to-day operation, the cost of maintenance per mile in the first year of a vehicle's life would reasonably be expected to be very much less than in, say, the fifth year of its life. Nevertheless, in the Tables, because of the necessity of stability, one fixed figure is acceOed and in the early periods of operation it is assumed that some proportion of the agreed amount is transferred into the sinking fund to provide for future repairs or renewals.
Ir. the two examples we are considering now, therefore, if an original maintenance cost of 1.50d. per mile is accepted, this would in fact be the cost overall where 120,000 mites was to be operated before the vehicle was replaced. Where, however, it is known that the vehicle is to be disposed of after 40,000 miles, there would obviously be no need to provide for any expenditure except servicing and minor maintenance.
Increasing Reliability • Individual operating conditions must result in varying demands on the standard of maintenance, but, bearing -in mind the short period itivolved and the increasing reliability of modern vehicles; it may well be that the original maintenance cost of 1.50d. per mile might then be reduced to a half of that amount.
If that were so, over a 400-mile week, the cost of maintenance would be £2 10s. in the first instance and it 5s. in -the second. The difference in amount between the tvio items would Therefore reduce by more than half the extra weekly cost of £2 in respect of depreciation as previously calculated. . • As stated earlier, a decision as to the policy to be adopted can be correctly made only if due consideration is given to every factor. In this particular comparison, for example, it is important to note that it is relevant only to certain types of traffic. If only because of the large capital resources required it would not be applicable to heavy haulage or trunk work. Finally, it may well be that with the increasing demand on operators that is being made by trade and industry for warehousing facilities, their provision maybe more beneficial to the haulier than a fully equipped maintenance and repair depot. If funds are not available for both, by frequent replacement the operator can, in effect, pass' the expense of capital outlay in that direction back to the manufacturers. Thereafter he can concentrate both capital and administration resources in traffic devel opm en t.S.B.