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A Newcomer Begins to See Daylight!

3rd October 1947, Page 52
3rd October 1947
Page 52
Page 55
Page 52, 3rd October 1947 — A Newcomer Begins to See Daylight!
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Which of the following most accurately describes the problem?

TABLE I, which accompanies this article, has already been described. It is being reproduced this week to save the reader the trouble of referring to the previous issue, in which it first appeared. Its purpose was to persuade a haulier with whom I was in conversation that his maintenance costs were not as he imagined—nothing. He thought that, as he proposed to do all the maintenance himself, the cost would be nil.

The figures for cost are those which might be expected if all the maintenance work were carried out by a local garage. It will be observed that the total per thousand miles is £5 5s. I ld., which is equal to 1.271d. per mile. For convenience and to avoid the 'use of decimals, this was agreed at lid.

Deluding Himself

The inquirer persisted that, he would do,. nearly all these maintenance Operationa himself, but on a showdown " he agreed that he Would have to Meet the expense of refacing brake shoes, fitting new Clutch facings or plates, varnishing bodywork, overhauling the engine, overhauling the chassis and body, and' sundries. It was demonstrated to him that those six items together totalled 0.852d, per mile, which was agreed as id.

I should also explain that before coming to the discussion of this schedule of maintenance items, I had advised the operator that the average cost of maintenance of his 2-tonner, running 400 miles per week, would approximate to ld per mile, according to ," The Commercial Motor " Tables of Operating ,Costs. That was the point I had reached at the conclusion of the previous article.

" Now," he complained, "you have,gof me into a 'complete state of confusion. Fir.-4 of all you say that maintenance will cost me lcl. per mile, then you show me that it should be lid., and now you have got 'down to a figure of id. per mile, it doesn't make sense."

'But it is sense, and very good sense at that," I replied.

" I promised you that I would explain these differences, and now I will do so.

Reliable Average. Figure

First of all, you should appreciate that the id. per mile, the average figure quoted in the Tables, is not really far out. • If it be assumed that half the 2-tonners on the road are maintained by outside garages at lid. per mile and the other half maintained by owner-drivers, in the way which you propose, at id. per mile, the average is about ld. per mile, which is midway between the id. in the Tables and according to this table that we have drawn up.

"The difference is accounted for by the fact that there is a third method of dealing with maintenance, which produces a cost per mile about midway between id. and Id. There is no need for us to discuss that method, because it doesn't concern you. • It occurs only in the case of fleet owners who operate their own repair and maintenance establishments. If you take those various sets of conditions into account, you will agree that the average figure quoted in the Tables is not far wrong."

"Very well, then," he said, "I'll accept the figure of id. per mile. How, much does that mean I am supposed to spend weekly on maintenance?"

"You said your weekly mileage was 400?"

"Yes, that's what I expect it will average."

"Then you should reckon on practically 30s. per week for maintenance." "Well, I still can't understand it, because I've never considered spending that amount, or anything like it."

"That's because you have not been in the business long enough. Your vehicle is practically new. There will come a time when it will need an engine overhaul. There will come a time later when it will need a thorough overhaul— chassis and bodywork and repainting—and between those times will be occasions for these other jobs, which you have admitted you prefer not to tackle yourself, for which, therefore, you will have to pay.

"What I am suggesting to you now is that you should make some provision for that contingency. If you don't, the odds are that you won't have the money when you need it, and then one of two things will occur. Either you wilt put off having the work done, and serious trouble wilt develop, or you wilt have to borrow the money and pay through the nose for it.

"Bear this in mind, too. If you take on this job of hauling bagged coal, as you intend, or, indeed, if you engage in any regular work, and you 'fall down' because your vehicle has broken down as the result of poor maintenance, you will lose the ibb. You may then find great difficulty in getting another."

"What, then', do you suggest?"

"Simply that you put aside the amount we have shown to be necessary ultimately, to enable the vehicle to be kept on the road. I have shown you that it is approximately 30s. per 400 miles, and I suggest that you put away in a fund, earmarked for maintenance, 7s. 6d. every time the vehicle notches 100 miles.

"Is there any other item of running cost with which we have not yet dealt?" "Petrol, oil, tyres and maintenance," he murmured. Then aloud, "No, that's the lot."

" Are you sure?"

"Well, I can't think of any other," he answered. "How are you going to get a new lorry when this is worn out?" "Well, I suppose I shall buy another."

"Yes, but where are you going to get the money from?"

"Oh, 1 see what you mean," he said. "That's what they call depreciation, isn't it? But I didn't think that was a running cost."

"It's better for you to regard it as a running cost," I said. "and to think of it as the rate at which your vehicle is wearing out. Perhaps I had better show how to calculate that.

"I understand that you gave £560 for it when new, and that a set of tyres cost £40. The net value of the vehicle, without tyres, is thus £520.'

"Why do we take away the price of the tyres?' "Because we have already made provision for cost of tyres and we don't want to bring it in again. We have calculated the depreciation of your tyres.

Residual Value "Next you want to make a guess at what you will get for the vehicle when you sell it. I don't suppose you have any idea what that amount will he and I recommend you to guess at £50. If you take .£50 from £520, you get £470, and that is the figure you must use for calculating your depreciation.

"The work you are going to use the vehicle for is pretty rough, and I should imagine that by the end of four years of use on that job you will want a new lorry. You are running 400 miles a week, or, approximately, 20,000 miles. a year. so that in four years the vehicle will cover 80,000 miles. You should reduce £470 to pence and divide the result by 80,000. , I worked that out for him and was able to persuade him that the answer was lid.

"Will you, please," I asked, "add up these running costs and see what you have got?'

• "Let me see," he said, "there's lid, for petrol, 1-20d. for oil, id. for tyres, id. for maintenance, and IN. for depre-• ciation." He arrived at the correct conclusion that the sum was 40., plus 1-20d., and he didn't know what to do with that 1-20d "I'll tell you what we'll do," I said. "In order to make matters easy for you, we'll lump that 1-20d. in with maintenance and we'll call the total 4icl. per mile." This we duly agreed.

"Then that's the figure I can use in calculating how much to charge per mile?"

"Good gracious, no! We are only half-way there yet," I said. "There are 10.operating costs you have got to bear in mind and these are only five of them."

"Well," he said, "what are the other five items?" "I'm not going to tell you," I replied. "Think them out for yourself."

"Oh, I suppose there is the tax, for a start."

"Yes, that's one'

Two Items Short !

"Tax and insurance go together, don't they? That's two. And I pay about 5s. a week for the shed in which, 1 keep the vehicle, but that's only three. I don't know of any others."

"What about driver's wages?"

"I'm going to drive the machine 'mysW."

"I appreciate that," I replied, "but you must pay yourself wages and enter those wages as an item of operating cost, because until you have done that you are not able to tell whether you are making a profit ar not."

"It will.be enough for me if I reckon as profit all that I get in excess of the sums we have been discussing as operating costs-including, of course, tax, insurance and rent."

"You're quite wrong. I put it to you; you would have no difficulty in getting a job as driver, would you?" "No, none at all.", "Very well, then, why not take a job as a driver. If the wages of a driver is all, the profit you want, why buy a lorry and take the risk of not being able to find work for it, of having it on your hands, of falling sick and having to pay garage rent and all the other incidental expenses while the lorry is standing idle and earning nothing? There is no sense in doing that if you are to earn no more than if you were a driver.

"You are risking your capital. You are risking your work. You should, therefore, insist upon a suitable reward.

"Here is an idea you must get firmly fixed in your mind, and you must never let it escape. The most essential thing for any man in any business is for him to have exact knowledge of what his costs are, where those costs finish, and where net profit begins. You are not making a profit in the true sense of the word if you are not debiting a fair amount for driver's wages.'

"1 begin to see that you are right," he agreed, "but that's only the fourth item 'of standing 'charges. You said there are five, and I see," turning'to-4 Cdpy of " The Commercial Motor" Tables of Operating ,Cos'is, which he had in his hand, " that the other one that,1"4-OirAlooked is ' interest.' What is that?"

"Interest" Made Easy "It is the interest on the money invested in your vehicle. It is what that money would earn if you bought shares with it. The item resembles in one respect that of driver's wage's, inasmuch as you can put the interest in your own pocket. It is not an item of expense. It is a book transaction. It is an acknowledgment of the fact that the money used to purchase your vehicle would have brought you in that amount. The important point is that until your vehicle has earned you that sum of money, it has not itself begun to show a profit. You could have made that money without investing in a lorry, so that the vehicle must bring it back to you.

"Now," I said, "let' us jot down the amounts of these standing charges.

"First of all there is the tax, at 12s. per week. How much is your annual insurance premium'?"

"Thirty-five pounds."

"That is 14s. a week," 1 said. "Then there is rent, which you have already told ma is 5s. Interest we will calculate next. Take the initial amount of £560 at 3 per cent." I calculated that for him and showed him it was 6s. 9d. per week.

'"Now for wages. First of all, do you know what your standard wage would be as a driver?"

"Yes," he said, "it would be £4 10s. 6d. for a 44-hour weak."

"Right," I said, "but I don't suppose you will confine yourself to 44 hours. Suppose we take an average of four hours a week overtime. At time-and-a-quarter. . ." "That will be 10s. 4d.," he said, thus showing that he had . a fairly accurate idea cf what wages he would have got as a driver.

"Good," I said; "that is £5 Os, 10d. per week just for wages alone."

" But that is the lot, isn't it?" he queried.

Those Small Sums

"Not quite," I said. "There are sundry small items to add. First there is Health pod Unemployment Insurance. If you were employing a driver, you would have to pay 2s, 10d. a week for that. In 'addition, you would have to insure him under the Workmen's Compensation Act and the amount would probably be another ls. 6d. per week. Then you would have to make provision for paying another man while the regular driver was having his holidays with pay. That would average' about a week. The total amount to be debited against wages, therefore, is £5 7s. 2d: Now, will you add that up for me?"

He did so and arrived at a total of £7 4s. lid.

"Now, the next thing you want-to ivatch," I said," is this. The greater the weekly mileage, the less the cost per mile. The fewer [he weekly miles . .-."

Here he interrupted. "But I thought you told me that the cost per mile was 4icl.? ".

" No," I replied, "that is only part of the cost. That is your running cost You Will have to add standing charges to it in order to obtain your total operating costs."

" What," he exclaimed, add £7 4s. 11d. to 4id.? "

"No, that's what I am tryinito tell you. That £7 4s. 11d. is spread over the whole week If you were to run only one mile in the week, the cost of that mile would be £7 4s. 11d., plus 4id., but if you do 400 miles in the week, as you say you do, you want to divide that £7 4s. 11d. by 400."

I worked that suit out for him and showed him that the answer was 41d. S.T.R.

• (To be concluded.)

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