You Get What You Pay For Other Things Being Equal,
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an Expensive Vehicle Should Not Only Outlast a .Cheaper Model But Return Lower Operating Costs: However, Many Factors Affect the Question of Choice WHICH is better: to buy only vehicles of what might be termed the best class, paying a good price and making them last, or buying vehicles on pric6only, replacing them more frequently? Does an expensive highgrade vehicle necessarily come to the end of its life at a later date than the so-called low-priced machine? The answer to that question is definitely: "No." A cheap machine in the hands of a good driver will easily outlast the other if the high-class machine is operated by a bad driver.
The orthodox answer to the main question is: "It always pays to buy the best in everything; the more costly machine should outlast the other by more than enough to justify the extra cost." The question needs to be dealt with more specifically than that, if only that the method of use of the vehicle may make all the difference. In attempting to arrive at a solution it is necessary not only to take into account the amount of the initial outlay, but subsequent expenditure during the period of use of the vehicle.
Maximum Satisfaction
Let us begin by laying down the requirements of a haulier who is selecting a vehicle for his business. We are asking what he would expect from a commercial vehicle if he were to get the maximum satisfaction from it. He would want it to last a long while; in other words, he would want it to run a large number of miles before it reached the state of being ready for the scrap heap. Next, he would want to have the minimum of trouble with it. He would want his maintenance cost to be low and have the minimum of tithe lost far repairs. Coupled with all these, he would want to pay the minimum price for it.
If we consider only the effect of a high price on the actual running cost of the vehicle, there is only one item of operating cost which is affected; interest on capital outlay. If some of my readers are to be believed, that is equivalent to saying that no item of operating cost is affected, as they do not accept interest on first cost as an item of operating cost. Incidentally, the fact that it is affected in the way I have just described is an unanswerable argument in favour of its acceptance.
a28 But, some readers will say, what about depreciation? Surely that important item will be affected? The effect on depreciation is indirect. It is nothing like so great, in importance, as the difference in first cost. Indeed, it may so happen that the higher the first cost the less the amount of depreciation; that is measuring the amount of depreciation on the basis of miles run.
Let us. assume that there are two vehicles, one of which is priced at £1,000 and the other at £1,800. The item of interest may conveniently be dealt with now. At 4 per cent. per annum it is, on the first vehicle, £40 per annum and on the other, £72. The difference is £32 per annum. 'which is 12s. 10d. per week, to the nearest penny.
High Initial Cost The next item, having in mind the effect of high initial cost on the total operating outlay of the machine, is depreciation. First of all, I think it may be taken for granted that, other things being equal, it is likely to be less in the case of at high-priced vehicle than in that of the other.
If the operator is among those who prefer to measure depreciation in time rather than in mileage and has been persuaded that he should reckon depreciation at the rate of, say, five years, his depreciation provision will be £200 per annum in the case of the first vehicle and £360 per annum in the case of, the other.
Now that might be reasonable if the principle of assessing depreciation on the basis of time is accepted without reservation, as is often the case when 'preparing annual returns. I insist that the method is wrong. An operator desires that a vehicle should run the maximum mileage before it becomes due for disposal. He is therefore committed to accepting the mileage basis for depreciation.
The common mistake of imagining that depreciation, considered as an item of operating cost, is in direct proportion to the initial outlay on the vehicle arises from the error of attempting to measure depreciation in terms of time. That is definitely wrong. A vehicle is bought for work, and its depreciation, considered from that aspect, can logically be measured only on the basis' of wear and tear. It shouldbe debited and recorded accordingly.
If, for any accountancy purpose, it is necessary or desirable to enter-depreciation on the basis of time, that can still be done, provided that knowledge .of the annual mileage is available. In that way sight is not lost of the essential fact that the vehicle is being "used up" in mileage.
Let me put it another way. It has been agreed that what is wanted from a vehicle is the maximum number of miles in relation to price paid. A low-priced vehicle should be depreciated over 120,400 to 160,000 miles, say 150,000. Not all vehicles run that mileage, hut, on the other hand, there are many which pass that mileage and more.
Suppose the vehicle is covering 50,000 miles a year. It will at that rate be depreciated over three years. That is for a low-priced machine. If the vehicle does not come into that category, but if the haulier believes that a dearer vehicle will give him better service, it may justifiably be depreciated over five years or even more. That belief is based on the assumption that the operator gets value for money and a mileage life in proportion to the price paid.
Take again the two vehicles we have in mind. one of which'. cost £1,000 and the other £1,800. The accountant will probably wish to enter depreciation over a.period of years. Let us assume that he takes five years as the basis. That would mean, in the case of the low-priced vehicle, a figure for depreciation of £200 and £360 per annum for the other, as has already been noted.
270,000 Miles Life
To assess depreciation in this way is definitely to discredit the better article. Surely that of itself is sufficient indication that something is wrong with the method. I ha-ve mentioned 150,000 miles as a fair measure of the life of the low-priced machine. For the more expensive machine, the life might well be from 240,000 to 300,000 miles, an average of 270.000.
In the case of the first machine, the depreciation figure is £1,000 divided by 150,000, which is 1.60d. per mile, and in the other case the same. Now I am going to introduce an unusual aspect of the matter, the psychological one. 1 am going to suggest that there is a special factor introduced by the reaction of the owner or driver in the event of buying a machine with the firm intention of making it last. There is a strong argument for putting each vehicle in the hands of one driver, giving him the incentive to take care of it. Give him the right to be proud of his vehicle and half the battle is won.
On the other hand, the buyer or driver of a low-priced machine may purchase it with the idea at the back of his mind that he is going to knock the life out of it and replace it pretty soon. His attitude towards the machine is biased by that fact and he makes no determined attempt to ensure that the vehicle will last any longer than he feels that it should. If he buys a high-priced machine, paying rather more for it than he originally intended, he has the feeling that he has a machine which has cost him a lot so that it is worth while for him to take care of it and make sure that he gets his money's worth.
Maintenance Expenditure The next requirement of the haulier who is selecting a new vehicle is low cost of maintenance. I propose to take into consideration all the other items of running cost except, of course, depreciation, with which I have just dealt. I do so because, in my experience, almost every item of running cost is likely to grow more rapidly in the case of a lowpriced machine than with the more expensive one. It is obviously impossible to suggest figures which are likely to be accurate, but we can at least indicate the differences which are to be discovered as time goes on.
Here are some figures relating to an inexpensive vehicle. should state here and now that they are only approximate and are quite likely to be challenged in respect of particular machines. Petrol consumption Will, in the beginning, be about 5 per Cent more than average, falling to normal ba the time 6,000 miles have been run and remaining at that for a further 30,000 miles, after which it may begin to rise again. 8y this time parts of the chassis will he wearing, especially such things as steering joints, shackle pins, and so on. The cylinder bores will be wearing and, altogether, the effect will be to increase the mechanical resistance to running. thus increasing the rate of consumption of fuel. The more expensive machine may be expected to follow the same lines but not quite so swiftly, so that whereas the average expenditure on fuel in the case of the expensive machine may be 4.5d. per mile that of the other will be 4.8d. or thereabouts
Oil consumption in any vehicle parallels, in cost, that of petrol, but the amount is so small, except in the critical periods just before the cylinders are rebored, that it may be ignored. Ignored that 'is; in so far as eost, but not so as regards the treatment of the engine itself: excessive oil consumption is usually regarded as a sign that reboring is due.
Better Tyre Wear
Tyres come next in this series of comparisons. Here. other things being equal, there should be an advantage in taking the expensive machine. To begin with, the tyre equipment is likely to be better and give longer mileage per set, whereas in the less expensive vehicle the tyre equipment is likely to be less lavish, that being one point in which there is a chance to save a little and so reduce the price of the machine as a whole. A diminution in the expectation of life of the tyres is likely and that will be accelerated as the vehicle grows older and its moving parts are more worn. An increase in expenditure on tyres may reasonably be anticipated, Now for maintenance itself. In reference to this 1 must make clear what 1 understand by the meaning of the term. There are two sets 'of items which are covered. There is first what I might call routine work, such Work as washing and cleaning the vehicle and keeping it in running order. and second, repairs arid overhauls, The routine maintenance, including washing and cleaning, is not likely to be much different no matter what the cost of the machine. The repairs and overhauls part of the maintenance should he less frequently required in the case of the more expensive machine and that means, also, that the vehicle should spend a smaller proportion of its life in the workshops and more time on the road. Here again I would not like to specify any savings, because conditions make such a difference. Some economy, however, is fairly likely to accrue from the use of a more expensive machine.
Big Operators' Preference
It is difficult to be specific in any estimate of cost which make, but obviously, given equivalent conditions, the better-class machine should not need overhauling as often and its cost of maintenance may be expected to be less than that of the other.
Theoretically, the higher-priced vehicle is the better, but the difference in its favour can be and often is discounted entirely as the result of differences in conditions of operation. A point to note is that the majority of the bigger operators, especially those who are concerned with the tougher kinds of haulage work, prefer the lower-priced machines. They do not actually run their machines to death, but they make provision for maintenance on a kale which cannot be approached or even considered by smaller operators.
The main question still -remains an open one. The larea concerns are able to reduce their costs by taking this line. but, being committed to that policy. may not have been able to take the opportunity of trying the more expensive machines: their experience cannot altogether be taken as
a complete guide S. T. K.