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Depreciation a Big Factor in C
Page 86
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:h Operation
Showing That the Major Difference in Operating Costs, As Between Big and Little Mileages, is Mainly Depreciation
iT is easy to go astray in assessing the operating costs of coaches—much more so, as a general rule, than
when considering goods vehicles. Depreciation is the principal trouble and is a factor which causes that wide differentiation between these two classes. Most goods vehicles wear out more quickly than they become obsolete. The contrary is true of coaches which, as to a large number of them at any rate, become out of date before they are worn out, and often long before.
Apart from the effect of small annual mileages-prevalent in so many classes of coach use—there is the fact that improvements in body design and construction, in the comfort of the seating and in the interior equipment, occur much more frequently than improvements in a chassis and, as it is necessary to keep pace with such progress, if only to retain custom, operators have to replace their vehicles much more quickly than would otherwise be the case.
It is true, that, in the case of large operators having big fleets of vehicles, it is possible to transfer vehicles from one class of service to another (from tours and excursions to urban services for example) and in the case of smaller operators, who have not such facilities, to pass their used vehicles on to other coach owners whose customers are not so fastidious. Now a first-class, luxuriously equipped coach chassis (obviously the kind which must be considered in this connection) to carry 30 passengers, must cost about £1,800. Depreciation on that amount can be a serious item indeed, especially if the annual mileage be low. If this depreciation be measured on a mileage basis, the life of the vehicle may, for that purpose, be assessed at from 200,000 miles to 240,000 miles.
If the tyres be taken to cost £100, that leaves £1,700 to be spread over the mileage named, which means that the depreciation may be anything from 1.7d. to 2.04d. per mile. That is not too bad.
Suppose, however, that the coach is only operated in such service as tours, excursions and contract work. The mileage will very likely not exceed 24,000 pei annum, which means that if the vehicle is to be kept until the above mileage is run off, it must be operated from eight to 10 years. It will, of course, last as long as that, if reasonable attention be paid to maintenance, but cannot be expected to be operated in first-class luxury-coach service all that time. Provision must be made, therefore, for obsolescence.
A good rule, whereby the amount debited to deprecia. tion can be modified in such degree as to take obsolescence into account, is to assume that 48,000 miles per annum is the minimum mileage on which depreciation on a mileage basis can be calculated. For every 2,000 miles per annum less than 48,000, the depreciation figure, as calculated on a mileage basis, must be increased by five per cent.
If, therefore, we are to take 24,000 miles as a figure representing the mileage to be covered by a coach, we must add 60 per cent, to the amounts cited above as representing depreciation per mile. That means that in the case of a coach so employed the depreciation per mile will lie somewhere between 2.72d. and 3.26d. Threepence farthing per mile may seem a good deal, but it is something which the coach owner must accept if his annual mileage approximates to 24,000. Moreover, if he does not cover 24,000 miles per annum, the depreciation account is even greater than that figure.
Now coach operators can be divided conveniently into three classes, in respect of the mileage covered per annum. In the first class, come those operators of longdistance services such, as London to Edinburgh, London to Glasgow, London to the north generally, and so on. Their vehicles can be expected to cover 80,000 miles to 90,000 miles per annum and often more. Next, comes the class which is concerned • mainly with express services, usually within a 404enile or 50-mile radius. The average mileage of coaches on this work is from 45,000 to 50,000. In the third class, come those to whom I have already referred, namely, those whose operations are mainly of a seasonal nature (i.e., tours, excursions and contracts) and in that work the coach mileage is from 20,000 miles to 30,000 miles per annum.
For convenience, it is reasonable to assume that good average figures for annual mileage, in respect of each of these three classes, are as follow :—for the first class, 84,000 miles per annum; for the second, 48,000 miles per annum; for the third, 24,000 miles per annum.
Now, on the matter of depreciation, it should be realized that there is no essential difference between a vehicle covering 84,000 miles per annum and one covering 48,000 miles per annum. Both have reached or passed the limit at which it is reasonable to assess depreciation on a mileage basis.
The first will probably be due for renewal or replacement in about three years, the second in about five years. The depreciation debt will, therefore, lie somewhere between 1.70d. and 2.04d., as described above, and may conveniently be taken to be 1.85d.
Vehicles in the third class, covering 24,000 miles, must stand a depreciation charge lying between 2.72d. and 3.26d., so a fair figure is 3.00d. per mile.
Other kerne, in the running costs of these coaches do not differ greatly, as between one class of service and another.
Maintenance cost, per mile, will be a little more, in respect of the vehicle which covers a small annual mileage, because of items not depending on mileage.
A statement indicating what the running costs are likely to be, the figures therein being based on average experience, appears in Table I.
The standing charges are not greatly affected except as regards wages. Long-distance operators are put to some extra expense as regards garage expenditure because of need for provision of such facilities at both terminals. At the other extreme, those who confine their operations to touring, excursions and so on, can often get favourable terms as regards these items. In Table II, are given standing charges and the totals are reduced to a cost per mile.
Now let us consider wages. The long-distance operator must employ three drivers at least and his expenditure on wages alone is likely to be £540 per annum. In addition, provision for subsistence allowances will total about £60 per annum, so that he has to find £600 per year, which is 1.72d. per mile.
Operators in the second class will need two drivers per vehicle—say, £360 per annum, which is equivalent to 1.80d. per mile, and those in the third class, covering the smallest mileage, will probably he able to get away with £160 per annum, which is 1.6d. per mile.
In Table III, are summarized the total operating costs and an approximate figure for cost per mile run is indicated. S.T.R.