The treatment of capital costs of vehicles in evaluating road schemes

Abstract

There are two ways in which new road schemes may influence capital expenditure on vehicles. Firstly, by improving utilisation of existing vehicles, the size of fleet needed to perform a given volume of work may be reduced. This will clearly reduce the amount of capital tied up in motor vehicles at any point in time, and to the extent that vehicle life is determined by age rather than mileage run, will also yield savings in terms of investment in new vehicles. Secondly, by generating additional road traffic, road schemes may lead to an increase in the stock of vehicles in use.

This paper argues that the current treatment of vehicle depreciation and interest charges in U.K. cost data fails to allow correctly for either of these items. Errors of logic occur in the way in which the capital stock of vehicles is valued, and in the fact that certain overheads are ignored even when fleet size changes. Moreover, the empirical evidence supporting the current partitioning of depreciation into overhead and running cost components, and the assumption of constant hours in service after an increase in journey speed seems of doubtful validity.

An alternative method of calculating vehicle capital costs, based on the concept of annual capital charge, and making explicit the assumptions with respect to vehicle utilisation, is advocated, and the sensitivity of results to the view taken of the latter is demonstrated by means of specimen calculations.