Planning for Profit
Page 71
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Frequent Replacement Pays in Hire-car Work
• Purchase of Light Medium-capacity Cars Cuts Fuel and Depreciation Costs': Better Price on Resale THE operation of a car-hire fleet of 16 vehicles, providing a 24-hout service at an important transport terminal, is the subject of a recent request for advice. As with haulage, selection of the right vehicle for the job is of vital importance to the hire-car operator. Unlike the haulier, however, he has not always the same freedom of choice. Passengers' preference for petrol-engined vehicles, for example, may not permit the adoption of, or conversion to, the more economical oil-engined vehicle.
In this instance, because of the class of passenger carried and the urgency of most journeys, the manager had standardized his fleet on a medium-sized 16 h.p. car, coupled to a policy of renewal after 18 months' service.
The alternative would have been to have purchased more expensive vehicles and carried depreciation over a longer period. This, the manager explained, had been rejected, not because of cost but on the score of availability. For the first 18 months, despite high mileages, it was adjudged that there would be no difference in the availability for service on account of maintenance requirements, as between the medium and higher-class cars. But in later years it was expected that the increasing maintenance required by the higher-priced car would compare unfavourably with the cost of the second, or possibly third, new medium-priced car limited to 18 months' service.
Speed and Comfort
Further economy could not be achieved by reducing the size of car below 16 h.p., because of both the speed and capacity the passengers expected to be provided.
The cars were purchased new for £800 and sold for £475 after 18 months' operation at 850 miles per week. Thirty chauffeurs were employed at a wage of £7 110s. per week, whilst maintenance—both servicing and overhauls--w2re subject to special arrangements. It was not possible to establish a maintenance and repair depot adjacent to the terminal, so washing and servicing were contracted out locally, repairs and overhauls being carried out by prior arrangement with the car agent. To save dead mileage, journeys to the agent were coupled with outward fare-paying trips whenever possible.
Assessing the weekly standing charges of each car, licensing would cost 5s., the vehicles being taxed as private cars. Wages account for 333s. per week. It was stated that, of the fleet of 16 cars, one was always under maintenance, the 30 chauffeurs manning the remaining 15 revenue-earning cars. The figure for wages also includes additions to allow for insurance and holidays with pay.
As a variation to normal operating-cost procedure, rent and rates and establishment costs are lumped together at 250s. per week per vehicle. This is because the facilities normally charged under these headings are provided by the terminal proprietors at a fixed rental.
Insurance costs 26s. 8d. per week and interest 11 s. 3d., making a total standing charge of 625s. 11d., or 8.84d. per mile on the basis of 850 miles per week. Making an adjustment for one vehicle being always under maintenance, the standing charge per mile per operative vehicle then becomes 9.43d.
Turning now to running costs, high-grade petrol (with additive) is purchased at 5s. Id. per gallon and, at 27 m.p.g., the cost is 2.26d. per mile. Lubricants are estimated at 0.22d. per mile. Because of the rapid service that is both
expected and provided, tyre costs are above average at 0.72d. per mile. Remoulds are not fitted. The contract charge for washing and servicing is 13 per week per vehicle, or 0.85d. per mile. As the vehicles are disposed of after-18 months, major overhauls are not undertaken and repair costs are, therefore, estimated at 0.44d. per mile.
Deducting the resale price of 1475, together with £25 for a set of tyres, from the purchase price of £800, a balance of £300 remains to be depreciated over the 18 months' life of the car, during which 63,750 miles will have been clocked, giving a cost per mile of 1.13d. for depreciation.
Total running costs, therefore, amount to 5.62d. per mile, which, added to the cost of standing charges at 9.43d. per mile, on a basis of 850 miles per week, results in a total operating cost of 1505d. per mile. Because the hire fleet under review is a subsidiary of a large organization, a contribution of In per cent. on operating costs is made towards managerial expenses. In this instance, this amounted to 1.88d. per mile to be added to the operating costs, giving a total of 16.93d. per mile.
Finally, to obtain a basis for charging, a profit margin remains to be added, which should take account of the spasmodic nature of hire work from transport terminals. Unlike normal procedure, an addition for establishment charges is not made at this stage, as it has already been included in the item of standing charges normally limited to rent and rates.
As practically the whole of the journeys made by this car-hire group are direct out-and-home trips, charging is on a mileage basis, the customers requiring only to be taken to their homes or other transport terminals as quickly as possible. If there were to be a demand for journeys involving waiting time, such as shopping, sporting or theatre trips, charging by the mile might no longer provide sufficient revenue to cover costs. It would then be necessary to charge for both time and mileage.
Time and Mileage
Standing charges were previously assessed at 625s. 11d. per week, or 14s. 3d per hour, which includes the special terminal establishment charges of £5 per week per vehicle. To this has to be added 121 per cent, managerial expenses, making the total cost of standing charges 16s. per hour. • Similarly, 12i per cent. added to the basic running costs of 5.62d. per mile gives a final figure of 64d. per mile, to the nearest halfpenny.
In making comparison with other operating costs relative to hire cars, the charge levied by the terminal proprietory in lieu of establishment costs at the rate of £5 per week per vehicle for the whole fleet is equivalent to 1.41d. per mile. In normal circumstances it would be a high charge, but conditions in this instance are exceptional. In addition to the provision of office accommodation and secretarial assistance for the manager, an inquiry and booking office is provided in the main assembly hall of the terminal, of mutual benefit to both prospective passenger and hirer alike. The insurance charges reflect the recent substantial increases in premiums.
Finally, in the choice of vehicle, two economies have been effected in running costs. Because of the relatively light weight of the car compared with the traditional 16 h.p. hire car, the fuel consumption is low, whilst the potential re-sale value is high. S.B.