CARS BY INSTALMENTS

New Zealand Times, Volume LIII, Issue 12503, 20 July 1926, Page 6

CARS BY INSTALMENTS

LARGE BUSINESS DONE RETAIL HOUSES COMPLAINING MONEY DIVERTED FROM SHOPS (Special to “Times.”) AUCKLAND, July 18. Tlie pictures used to he blamed for everything, but the motor-car is now being made to serve a turn, as a scapegoat. Auckland retail houses are having a slack winter, and they blame the hire purchase system of acquiring motor-cars for the locking up of much ready cash which might otherwise have come their way. Perhaps there is something in their contention, for from inquiries made it is learned that more than, half the motor-cars bought in New Zealand are acquired on the instalment or hire purchase system. At the present rate of automobile absorption this means that approximately 10,000 new cars, valued at over £2,000,000, are annually disposed of for varying deposits. Five years ago many Auckland motor dealers regarded tho hire purchase system as a very dangerous method of sales promotion. American custom was viewed with misgivings, and a preponderance of cash business was considered essential. To-day there are so many makes of cars in each price class that competition lias ushered in the instalment system, and more or less answered its critics. No dealer can afford to refuse a reasonable deposit, and the Traders Finance Corporation offers facilities to the garage owner who could not otherwise afford to risk supplying dozens of cars on partial payment. The proportion of tne instalment to cash sales varies according to the class of car. CHEAP CARS POPULAR Cheap light cars are sold most readily on the hire purchase terms. For cars priced below £3OO the instalment sales usually exceed the cash deals. Cars valued at £SOO or more attract buyers who prefer to pay cash. Some Auckland motor agents representing high class cars effect quite 85 per cent, of cash sales. On the other hand there are dealers in popular priced cars whose instalment sales are 85 per cent, of the total.

An Auckland garage proprietor who sold many scores of a particular American light four cylinder car last year did 75 per cent, of his business on hire purchase agreements, and utilised the Traders Finance facilities to the extent of £15,000. This dealer has now taken over an agency of a car in a higher price class, and finds that only 20 per cent, of his customers require time payment accommodation. While the system of hire purchase of cars is now universally accepted, there is some difference of opinion regarding the minimum acceptable deposit and length of the credit period. The majority of dealers will not accept a deposit of less than one-third, or agree to an extension of the balance over iuoto than 12 months. Sales on this basis are most numerous. There are exceptions on both sides. A deposit of 50 per cent, may be requested, and the purchaser may prefer to pay the balance in six months. A few dealers allow terms which the great majority consider to be conducive to default. A deposit of 25 per cent, is often accepted from an approved client, and from IS months to two years allowed for completion. These conditions are not approved by the Traders Finance organisation, which allows sales on hire purchase with interest at 8 per cent, on the balance. The interest rate is, however, not affected by the fact that the balance is reduced by each month* ly payment, and the actual percentage on the unpaid balance is naturally extremely high for the final payments. Interest at a nominal 8 per cent, on the amount outstanding at the time of purchase aggregates approximately 15 per cent, if collected in twelve monthly payments. Some dealers who arrange their own financing are able to offer more liberal terms and to calculate interest on the unpaid balance only, thus reducing the cash value of the interest with each monthly instalment. The ability of a few dealers to sell on this basis has resulted in some criticism of the accepted system of an irreducible interest. MORE OFFICE EXPENSES Replying to a suggestion that terms were high, an Auckland representative of a popular six-cylinder car stated that hire purchase agreements necessitated considerable office expense, although actual defaulters were few. It was common for a motorist to require several notices that liis payment was duo. A motor-car on instalments could not be compared with a secured mortgage. USED CARS Tho hire purchase system is even more extensively applied to used cars. There arc hundreds of second-hand cars offering in Auckland garages for deposits ns low as £2O. Tho used car problem has troubled many dealers, sinco it is almost impossible for the agent of any popular car to refuse to make allowance for tho customer’s used vehicle. Ono garage proprietor stated that approximately two-thirds of his customers were already carowners. When a purchaser was determined to take a new car immediately, it was necessary to accept an exchange in part payment. “Customers often set an absurd valu© on their old car when it comes to trading it in,” lie said. “Motordealers liavo suffered heavy losses through indiscreet exchanges of this nature, and 1 often wonder if it would not bo batter to cut sales and firmly refuse to deaL on this policy. The sale on terms of second-hand cars is almost the exclusive business of some Auckland garages. One dealer who specialises in this class of trading is taking in usea cars and reselling them at tho rate of four or five a week. Terms are usually one-tliird cash, and the balance moy be extended for over two years. If the car is a recent model the application of the hire purchase system to second-hand vehicles is naturally largely dependent on the condition of the car. Light American cars priced between £IOO and £2OO iorm tho hulk of second-hand instalment business in Auckland. If they are not more than two years old they can he hoqght for as low as one-quar-ter deposit and twelve monthly payments. A discreet dealer does not risk selling a well-worn car on protracted payments. Its economical life may end after one or two instalments ami tho customer may then default to save further expense. Although the vendor can then retake possession of the car without obligation to refund tho money paid in, the vehicle mny prove practically useless for further galo.