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COST VARIATIONS
IAM continuing the discussion of the variation in individual items of operating cost, about which this is the third of a short series of articles. An interesting conversation following some questions asked at a meeting which I addressed in Devises has a direct bearing on the subject.
Readers will recall that, in the previous article, I dealt with the item of depreciation and possible variations of its incidence in respect of vehicles of a particular load capacity. I pointed out that one of the factors which had to be taken into consideration was that of actual life in miles. In the above-mentioned conversation it transpired that of three hauliers present, all of whom were users of 3-tonners in the lower-priced category, two considered that 70,000-80,000 miles was a fair expectation of life. They wrote these vehicles off over that mileage and disposed of them accordingly. The experienceof the third man was precisely the contrary.
He said that he was operating similar vehicles on long-distance haulage, covering 50,000 miles per annum, and that he was able to run them for four years, which is equivalent to a life of 200,000 miles. This, indeed, is all that can normally be expected of machines of the highest class. Where experience shows such wide divergencies as are exemplified in these figures, it has to be acknowledged that average data must invariably be treated with discretion.
It is true that those hauliers who wrote off and disposed of their vehicles over a short mileage were able to show a saving in maintenance, as against the operator who kept the same vehicle in. service for 200,000 mites.
I have already dealt with four of the five running costs—leaving the fifth, "maintenance," to be die
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cussed when all the others have had their turn—and haw, referred to tax and wages, showing that there is opportunity for variation even in that most fixed of all fixed -charges, the tax.
I come now to garage rent. This item is variouslyset out in The Commercial Motor Tables of Operating Costs as being from 2s. 6d. per week,in the case of a small parcekar, to 14s. per week for a maximum-load eight-wheeled articulated vehicle. It needs little thought to come to the conclusion that there must inevitably be wide differences, as between one operator and another, as to the extent of his expenditure on garage rent.
I would like, however, immediately to dispose of the. fallacy, which exists in the minds of certain ownerdrivers, that they are at no expense in. respect of this item. I refer to those who are fortunate enough to have attached to their own dwelling a shed or outhouse in which they house the vehicle. In the first -plade, -it is certain that the local authority has not overlooked the existence of this " garage " and some, at least, of the rates which the operator pays, either directly or indirectly, can be debited to this portion of his premises. and therefore represent an expense chargeable against the vehicle it houses.
There is also this further point:.ii he himself did not make use of the outbuilding, then,, as it is good enough.
for his vehicle, it is good enough for some other, and he . could let it at a satisfactory rent to some other vehicle owner. He must, therefore, in all fairness, debit his vehicle with the amount which he laiows. he could . obtain in rent, . before he can be said to have provided in full for his vehicle operating costs. I have before me at this moment a letter from' an Operator of a 6-ton six-wheeled articulated vehicle, who actually pays 3s. per week in garage rent. At the other end of the scale there are those operating from industrial centres who pay four or five times that amount. The figures in the Tables are a fair average. It is up to the operator concerned to correct them according to his own experience.
As regards insurance, I must first reiterate that the figures in the Tables relate to -the insurance of vehicles operated by ancillary users. Rates to haulage contractors are normally about double those amounts. This information is clearly set out in the introduction to the Tables, but it is obvious from the number of inquiries and criticisms that I have received on the point that many overlook it.
Even within the ranks of hauliers, however, wide differences are to be found as between the premiums paid by one and those paid by others for the same apparent service. I recall that, in the course of a rfeeting I addressed at Reading, a haulier iiresent went so far as to state that the premiums which I quoted for a 3-tonner, as being applicable only to ancillary users, were, in actual fact, higher than he himself
was paying. He said that his rate was £7 per annum. That is an extraordinarily favourable figure.
Again, I have on my desk at this moment a letter from a haulier who states that he pays only 218 per annum in respect of a 6-tonner, whereas he is aware that the normal premium in his area is from 240 to 250. His favourable position—and I commend this point to the notice of those who are unaware that there is a factor which can in this way influence the amount of their insurance premiums—is due to his exceptionally good claims record, the result, he advises me, of employing first-class drivers.
Apart from all else, there is the fairly well-known fact that insurance premiums vary according to the location of the haulier's business, being high in London, Glasgow and certain parts of Lancashire and Yorkshire, and low in rural areas. Even rural hauliers, however, tell me that they are finding the insurance companies inclined, in these days, to insist on higher premiums than those which should rule, on the plea that contractors in rural areas habitually visit townships where the insurance rating is more expensive.
The actual amount of the item" interest on first cost" is so small, compared with the others, that I sometimes hesitate to spend time and space in dealing with it. On the other hand, it is so often the subject of inquiries, both oral and written, that I am compelled to give it more attention than, in my opinion, is really deserved.
I think I have previously remarked that the ideas of operators as to even the amount of interest which should
be debited against the vehicle differ within wide limits. There are those who, on the one hand, take the view that there should be no debit at a under this heading and there are others who consider that less than 12 per cent, per annum on capital outlay is insufficient.
I have, as the outcome of some such observations as these, recently been giving the subject a little extra consideration. I have come to the conclusion that the most satisfactory way is to charge per annum the full amount of interest, at the rate of one per cent. in .excess of current bank rate. No allowance is made, as has hitherto been suggested, for any rebate on the interest, due to the provision of a sinking fund for depreciation.
It is logicaf to do so, because in that way the operator debits, as is fair, the interest on the first purchase, but regards replacement vehicles as having been paid for out of working expenses. Thatcourse overcomes the difficulty sometimes -raised that, strictly speaking, interest ought to be cumulative, gradually increasing in amount as new vehicles replace old ones.
Small as it is, it is nevertheless a fact that even if an agreed basis be taken for the calculation of interest on first cost, the actoal amount may vary even for the same 'size of vehicle, because prices of vehicles differ. Here, again, the reader should calculate the amount for himself on the basis of 3 per cent, of the initial cost of the vehicle, complete with all equipment, but deducting the price of a set of tyres, that amount to be set down immediately, as I advised in the first article of this series, under the heading "Tyres."
It is evident that operators who wish to make the best use of The Commercial Motor Tables cannot obtain maximum benefit from the information therein, unless the introduction be studied and the rules applied to suit
the individual case. S.T.R.