MOTORS IN AMERICA

Manawatu Standard, Volume XLVI, Issue 26, 30 December 1925, Page 14

MOTORS IN AMERICA

GREATEST OF THE INDUSTRIES. CARS SOLD ON CREDIT. SAN FRANCISCO, Nov. 30. The automobile industry now ranks first among all industries in the United States. There are £500,000,000 of capital invested in it. The pay-roll amounts to £120,000,000, and three million persons are associated with the industry, directly or indirectly. It discovered and applied quantity production, and doubled the wage standard of the country. It was the chief agent in developing tho high standard of living the people are enjoying to-day. In the post-war prosperity of the United States, which has amazed the world, the automobile plays a large part. It has even been said that it has absorbed all the savings of the country. Against this is the contention that the savings, banks, although decreasing in number from 2100 to 1600 in ten years, have had their deposits increased from £950,000,000 to £1,680,000, and the average per depositor has grown from £B9 to £l2l. Life insurance policies outstanding increased during the same decade from 7,800,000 to 17,200,000, and the amount of insurance from £4,000,000,000 to £13,000,000,000, the average policy rising in the period from £lO9 to £l4B. ' Nevertheless, there are features in regard to automobile financing that have been causing a good deal of anxiety. Those in close touch with the aggregate of the industry’s operations expect that the sales for the present calendar year will mount up to the colossal total of 600,000,000. About 75 per cent, of this volume will be sold on credit and financed by automobile dealers, financo companies, banks and trust companies. The major part of those commitments will have an average maturity of six months, and a small proportion will average nine months or more. About three-fourths of the 16,000,000 passenger cars operating in tho United States to-day were orginally sold on the time-payment plan, with a deposit of 25 per cent.

COMMON POLICY ADOPTED. It is estimated that at least 80 per cent, of all the motor-cars now in servico have been fully paid off. For the pupose of financing automobile sales, nearly a thousand companies are operating. Over-extension of credit and unwise contracts by some of those concerned caused considerable uneasiness last year among the bankers of the country, and resulted in several meetings in Chicago, New York, Pittsburgh and Baltimore among representatives of important banks and financing companies. The outcome of these meetings was the organisations of the National Association of Financo Companies, which has passed resolutions that the minimum deposit for motor-cars should not be less than 30 per cent, of the time selling price, and the maximum maturity not more than 10 months. In the case of second-hand cars, the limits have been set at 40 per cent, and 12 months. Three hundred bankers in 23 States have approved these resolutions. On the Pacific Coast, where the roads are tho best in the world, the proportion of motor-car owners is higher than elsewhere in the United States, and tho “drive” for more business has led dealers to violate tho accepted rules regarding tho minimum of deposit and period of maturity. A reaction is now setting in, owing to tho risks taken having necessitated heavy finance charges covering re-possessions, which probably reached 10 per cent, of the transactions handled. On the flat interest basis, these charges for financing ran from 20 to 30 per cent, per annum, in addition to which insurance charges are added, and the consumer has been groaning under the burden; that is to say, the good risks, who respect their contracts, have had to pay exorbitant rates of interest, exacted because of the bad risks, who default.

ABILITY TO PAY OVER-ESTIM-ATED, These defaulters are seldom dishonest. Many of them merely over-estim-ate their ability to pay, or lose their job and their income. Deposit payments of 20 to 25 per cent, barely cover financing and insui-ing charges, leaving buyers very little equity in their cars. Most persons whose cars are repossessed are changed from friendly customers to bitter “knockers.” They damage tho good-will of manufacturers and traders. The bigger automobile manufacturers are now uniting on a sound, conservative policy of sales financing. Based on post-war experience, records show that it is an assured fact that automobile “paper,” secured on standard makes of motor-cars, sold on sound terms, endorsed by dealers and guaranteed by strong financing companies, constitute prime security for bank loans, and that the national average loss on such paper is not more than a quarter of ono per cent. If this be the case—and it is certified by the head of one of the largest corporations in the country—then, probably no other industry can show a better record. By reason of the cheap money market and more liberal disposition by tho insurance companies, great progress has been made during 1925 in reducing financing and insurance charges to purchasers of motorcars.

CREDIT AS BASIS OF TRADE. The automobile industry is vigorously using, and just as vigorously defending the sj’stem of credit against unwarranted attack. The whole business structure of the United _ States ijnd its present standards of living are based on credit and pricipally on consumer credit. It may be taken as a general rule that, in most articles of luxury, a deposit as low as a dollar will be accepted on an article valued up to 20 dollars, with the proportion in tho same ratio as the amount of tho purchase increases. This is a subject of amazed comment by Australians and New Zealanders, on landing in the United States; they have always had to pay cash at home for such things us jewellery. Ali who are associated with manufacture and selling agree that the wheels of commerce cannot bo kept going on a broad scale without massed consumption us well as massed production. Credit must therefore be available to consumers, as well as to producers nnd distributors of tho products of industry and agriculture. Massed competition is necessary to support massod production, or to supplement it, and—quoting a figure of speech used recently in Now York by tho president of a large industrial corporation—massed credit is the Atlas which holds up all of them.