SYSTEM FAVOURED

Sun (Auckland), Volume IV, Issue 1074, 11 September 1930, Page 11

SYSTEM FAVOURED

DR. E. P. NEALE DISCUSSES HIRE-PURCHASE SCOPE FOR SPENDING “The introduction of the hire-pur-chase system has been for the good of the community as it has permitted a. wider choice in purchases and increased satisfaction from incomes,” said Dr. 13. P. Neale, secretary of the Auckland Chamber of Commerce, yesterday. Dr. Neale was addressing the Auckland Creditmen’s Club on the hirepurchase system. Mr. W. J. Holdsworth presided. There was a great deal to be said both for and against the system. Dr. Neale added, and, in the final analysis, one’s judgment could be influenced only by the personal aspect of the question. The system was a form of credit that ' had attracted a great deal of public attention as it was a spectacular extension of the ordinary credit system. When a firm commenced to employ the instalment plan there was an obvious necessity for more capital, but that difficulty had been, in many cases, overcome by the establishment of financial companies which took over the purchasers’ promissory notes. Most of those notes were of too long a currency to appeal to the corrrtnercial banks, particularly when the secur tv was. as a rule, only the future earning capacity of the purchaser. The financial companies had not been organised to operate between wholesaler or retailer. or manufacturer and retailer. Most of the motor-cars, for instance, which were imported into New Zealand, wero paid for by sight draft. There was nothing, therefore, in the statement that hire-purchase had adversely affected the Dominion’s trade balance. Sellers covered themselves by retaining the right of repossessing themselves of goods in the event of defaulting purchasers. That being so only durable goods were sold under the system so that they would have value after being in use. The first instalment paid by the purchaser should be sufficient to cover the initial depreciation. Again taking a motor-car as his example. Dr. Neale said it depreci-

ated in value by a third as soon as it ceased to be a new machine. The first instalment, when it was sold on hirepurchase, should therefore be a third of the total value. A large initial instalment was also a guarantee of the financial stability of the customer and weeded out the impecunious. To the dealer the hire-purchase system offered two great advantages: there was always an article to be repossessed the buyer defaulted and there was a fixed day of settlement which enabled him to plan more accurately his own commitments. INCREASE IN PRICE It was possible that the buyer would have to pay more for the article purchased under hire-purchase; there was the cost of the services of a finance company, or. where the dealer financed his own system, there was the cost of credit investigation. collecting. increased book-keeping and insurance. That increase, however, should be somewhat offset by the increased turnover of the dealer, which would result in a lower price per unit. Some dealers had deluded buyers over the amount they, were paying, particularly in regard to interest on the purchase price, but that was not - the fault of the system. It was an unscrupulous practice and might become so notorious that the Government would have to take a hand. It was rarely that the buyer obtained the goods without paying 1G per cent, on the cash price, but he did not realise it. The introduction of hire-purchase had encouraged the purchase of articles resulting in more satisfaction over a long period. The result was good and might lead to a higher standard of living. There was little danger of extravagance on the part of the buyers if the system were properly handled and the instalments made as large as the buyer’s credit would permit. Sellers on loose credit had complained that the hire-purchase system resulted in delay in the payment of their accounts, but the remedy lay in a closer watch being kept by the retailer on credit risks. There were desirable and undesirable features about the system. Some of the drawbacks wero not inherent in the system, but were due to the way it had been conducted by both buyers and sellers. Those disadvantages would disappear. There were evils, undoubtedly, but they wero outweighed by the benefits.