Reserves for Future Costs
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Solving the Problems of the Carrier
It is Important for Operators to Allow for Long-term Expenses, Although a True Working Figure Cannot be Found Until the Vehicle is Worn Out
IENDED my previous article by pointing out that the underlying principle of" ' The Commercial Motor ' Tables of Operating Costs" is still today what it was in the beginning: the figures are to be regarded as budgetary. They indicate what, in the long run, the operator may expect to have to spend on tyres, maintenance and repairs.
Take, for example, a 7-8-tonner, oil-engined, of course, running 400 miles per week. The total maintenance cost, according to the Tables, is 2.15d., a fraction less than 2+d. per mile. Some people may think that that is too high. Actually, however, a haulier friend of mine tells me that he reckons on 21d. and finds, year in and year out, that he is not far off in that estimate. Some of that figure of 2.15d. per mile is what I call maintenance (d) and some of it maintenance (e).
In the explanation which serves as an introduction to each issue of the Tables, the meaning of these two terms is fully explained. Maintenance (d) is to cover routine maintenance operations, which are carried out periodically and spaced by a time basis and not on a mileage basis. They provide for expenditure on washing and polishing, greasing and the daily check up, and for a contribution to the cost of revarnishing. The amount, in connection with this 7-8-tonner, is 0.55d. per mile (18s. 4d. per week) which is not excessive, especially if the vehicle is washed and polished twice per week.
Fine Limits
The total can be reduced, as I have always admitted, if the conditions of operation are such that each driver does his own washing, polishing and greasing, but even there, of course, his time should, strictly speaking, be debited to that work and not to his wages as driver. (I quite realize that this provision for time off to wash and polish and the adjustment of the wage packet is most unlikely to be carried out: it is too complicated.) Very rarely do operators go to such fine limits in their recording of costs, and, to iave unnecessary details in costing, it is better to deal with the matter' in the way indicated in the Tables.
The balance of 1.60d. per mile is to cover expenditure on maintenance and repairs, engine overhauls and rebores, chassis overhauls, repairs to brakes, clutches, transmission, universal joints, cracked frames, repairs to bodywork (a much bigger item than is sometimes appreciated) and all the things which need repair, attention and replacement during the life of a vehicle.
The recommendation I make, and have been making for many years, is that the wise haulier will regard that I.60d. per mile as an actual expenditure and will build it up, crediting it to a replacement fund and drawing from it as repairs and overhauls have to be paid for. In that way he will always be able to meet his repair bills without straining his finances and, as is equally important, will not, during the first year or so of the life of his vehicle, have an exaggerated idea of the profits he is making.
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If the figures in the tables are too high, so much the better. The effect will be to leave the operator, at the end of three years or so, with something in hand. If he continues to use the same type and make of vehicle, he will be justified in modifying his data.
If my estimates are low, at least they are not likely to be much out, and repair bills will not be more than he can stand. He can modify the figures accordingly, so that in the future he will have adequate reserves to meet eventualities.
Tyre Life As with maintenance, so also with tyres. Today, a set of six, 9.00 by 20 tyres costs in round figures £204. On-the basis of 25,000 miles per set, this is I.93d. per mile. There again, the experience of users is sometimes more than is quoted in the Tables and sometimes less. Only a few days ago, for example, I was given the figure of 2+d. per mile for tyres on this type and size of vehicle. The reason for such a high cost must be found in operating conditions.
Although I did not feel that I could accept that figure, I do know that this particular operator does keep accurate records of his overall expenditure on tyres and that the 21d. is based on such records.
There are one or two points which I must emphasize. I should make it quite clear that for maintenance, in particular, this provision'of a fund and recognition of the need for budgeting should begin with the new vehicle. That is important. The point is that in so doing the operator knows right from the beginning what the real cost of operation is likely to be.
The trouble about maintenance and repair costs, considering them from this angle, is that they are likely to increase year by year. An operator does not expect to have to pay much for maintenance during the first year's life of a vehicle. Indeed, he is likely to be More than a little disgruntled if there is anything to pay at all, although that is being a little unreasonable. A vehicle that is covering a fairly big annual mileage must involve its owner in expenditure on not only what 1 call routine maintenance (washing and polishing, greasing and oiling) but also on some repairs and replacements.
Maintenance Total
To illustrate my meaning, it is convenient to take again a 7-8-tonner. With such a vehicle, running 20,000 miles per annum, I have mentioned the figure of 2.15d. per mile as the total of maintenance. That figure is taken direct from the new issue of the Tables. Of that total, 0.55d. per mile was estimated as the cost of this routine maintenance, plus provision for periodical varnishing and so on. That leaves 1.60d. to cover expenditure on repairs, overhauls and renewals.
That is an average of approximately £135 per annum. It is possible that, with good luck and conditions of operation that are not too strenuous, as well as with a careful and
considerate driver, expenditure on maintenance might be no more than £25-30.
Even in the second year, the operator might well have to spend more than £60470, so that for the first two years of the vehicle's life he would have to find only £85-£100 for maintenance. At the most that is only 0.6d. per mile, a good deal less than the amount of 1.60d. which I know to be an average covering all sorts of conditions of operation and use.
I have found experienced operators to be habit to be misled into thinking that the cost of maintenance is around id. per mile, instead of 1.60d., and have based their charges accordingly. That is something which must be avoided at all costs, as it brings about rate-cutting.
It is quite likely that, in the third year of its life, the vehicle would have to be brought in for an engine overhaul plus other expenditure on maintenance approximating to the £60 or £70 experienced during the second year. That is to say, the owner would possibly expend much more in the third year than in the first and second year together.
It might well be that, in the fourth year, provided that the work done in the previous year was efficiently carried out, the maintenance cost will again diminish. However, it is certain that in the fifth year, by which time the vehicle will have covered 100,000 miles, a thorough chassis overhaul as well as engine overhaul, body repairs and body renewal will involve high expenditure.
Avoiding Error
If, instead of taking no notice of his actual and direct expenditure in the early years, the operator had made provision for a maintenance fund by budgeting for the expenditure on the basis of 2.15d. per mile, he would avoid not only the error of underestimating his costs, rates and charges, but Would also have in this fund the cash available to pay for repairs and overhauls.
This brings me to another point. I have already stated that the operator should, from time to time, check his budgeted figure for maintenance costs by reference to his actual expenditure. The question which must arise from that recommendation is over what period should he average his own expenditure so that he may be able to use his figures as a check against those in the budgeted data. In other words, how soon can he with safety modify those budgeted figures to accord with his actual expenditure?
The answer, I am afraid, is in respect of a vehicle which is ready for the scrap heap. Not until he has disposed of the vehicle can he know what its maintenance cost per mile is for the whole life.
In this connection readers will no doubt recall what I stated in the previous article about the comparative figures for maintenance for different periods of operation. A man who gets rid of his vehicles at the end of four years is likely to show lower costs of maintenance per mile than a man who keeps them in service for five years before disposing of them.
As regards tyres, the' position is not quite the same and the period need not be as long. As a matter of fact, the routine is the same, but the period is automatically less because it refers to parts which have much shorter life than a vehicle. It takes a long while to get a vehicle to the scrap-heap stage: for tyres the period is much shorter. An operator may quite safely arrive at some data when the first set of tyres has to be replaced.
Fair Average
For the figures in the Tables I have taken, as has been stated, 25,000 miles, and that is an average. On the other hand, I was inquiring into this question of tyre mileages and was presented with a sheet of figures according to which the general expectation of life for a tyre was in the region of 45,000 miles per set. One tyre had run 85,000 miles before it was scrapped!
1 must again stress the need for accurate figures to be collected before an operator can be allowed to modify his budgeted figures. He must keep accurate records of mileage.
Moreover, and this is particularly important, if his arrangements for maintenance of his vehicles are poor. his cost per mile for tyres will inevitably increase as the vehicle grows older. It will do so bef.‘use of the effect on tyre wear brought about by worn king-pins, bushes, etc.
Whilst on the subject of tyre costing, there is another point I would like to raise It concerns the method of recording costs. Whenever a new vehicle is put into commission, the cost of a new set of tyres should at once be debited against it in the column of actual tyre costs. Unless this is done, the operator's figures for these are likely to be inaccurate to the extent of, in 18 months or so, about 50 per cent.
The reasons for this step are fairly clear. When a vehicle is first costed, inorder to provide a basis for the calculation of depreciation, the cost of a set of tyres is deducted. That is done because tyres depreciate much more quickly than does the vehicle. Having deducted the cost of tyres in that way, it is necessary to take it in again so as to balance the accounts, and the appropriate place for the entry is under the heading "Tyres."
Incidentally, the direct cost of maintenance is not always of first importance. It is often a great economy to spend a little more to save a lot; many people fail to appreciate that.