NEW CARS

Evening Star, Issue 26041, 4 March 1947, Page 6

NEW CARS

WHY PRICES ARE HIGH SPIRALLING OVERHEAD CHARGES One of the reasons why the overseas prices of new motor vehicles are spiralling upwards is little realised by motorists and would-be buyers of new automobiles. The effects of increased costs ot labour and material are readily understood, blit there is another very important factor, says the ‘ Dunlop Bulletin,’ and that is overhead charges, which go. on whether work proceeds or production ceases. In normal times, with freedom from the waves of disastrous strikes that have affected the production of automobiles during 1946, it is possible to estimate accurately the material and labour costs once the design of a new model is finalised and the first vehicle produced. However, under the worldwide conditions ruling to-day, reliable costing is practically impossible, due to the fact that output is unstable. Owing to labour troubles or shortages of essential products, many of which are due to strikes, a big motor manufacturing plant, employing many thousands of hands and with • a capacity of many thousands of cars a month, may produce to schedule for a few weeks, when production, for some reason or other, ceases or has to slacken off. When that happens, every day for as long as output is affected, overhead ■charges march on and have to be met in full..

Illustrating what is happening overseas in this connection, assume that the material and labour costs of a new car amount to £200; to this figure have to be" added the overhead charges. These include the salaries of the management; the wages of the clerical staff, foremen and all other non-pro-ductive, labour; rent, rates, insurance, lighting, maintenance and the thousand and one expenses that have to be met whether or not cars are rolling off the assembly line. - These overhead charges are high in proportion to material and labour costs, and because of this, and for the reason that they do not shrink in direct ratio to output,, the maintaining of volume production ,is vital to successful business and progress. Obviously, if output is restricted the overhead charges have to be recovered by spreading the total over the reduced number of vehicles produced. The wholesale and retail prices of each unit must then be stepped up to avoid financial loss. The case is cited where the overhead of one of England’s leading car manufacturers not so long ago amounted to £40,000 a month. During one period of four weeks, through labour troubles, his output was only 12 complete cars. The overhead alone for each, of these ears was approximately £3,333 and yet all he received was less than £3OO for each vehicle. What was lost here had to be recovered on subsequent production. It is such happenings—and they are widespread in the U.S.A., Canada, and Britain—-that are materially adding to the cost of production and increasing retail prices of new automobiles not only in the country of origin but in overseas markets.

Needless to say, the automobile industries of the countries named are not the only industrial enterprises that, because of holdups and bbttle-necks, are having to average their overhead charges on reduced output, leading to higher wholesale and retail prices. The only thing that will remedy the situation is sustained efficient production, thereby enabling wages and prices to be balanced.