Alma record. (Alma, Mich.) 1878-1928, 1922-06-29
AUTO BUSINESS
ON F|RMER BASIS
BABSON GIVES ANALYSIS OF
AUTOMOBILE BUSINESS FOR
THE RECORD.

In discussing the general situation
for the week Roger w. Babson the
statistician today made the following
analysis of the Automobile Industry
MANY persons have been surprised
at the recent rebound in the automo-
bile industry and in the price Of auto
mobile securities. Those, however
who have been carefully watching
the situation are not surprised. The
price cut in automobiles developed
new buying; the extension of the
good roads movement increased the
point of saturation; and the reduction
in the cost Of tires and general sup
plies encouraged more people to use
cars. The man who has never haC
any car now drives one; and the man
who was content with one car now
has two or three. No, the saturatior
point has not yet beeen reached
Moreover, as our system of good
roads is extended, this saturation
point is pushed further and further
away. The saturation. point for
automobiles in this country will not
be reached until our system of high
ways has been completed and per
fected.
THE great factor, however, which
is today making business for the
automobile companies is the silent
and insistant purchasing Of parts
by the present users Of cars. People
have no idea Of the tremendous bust
mes. existing today in automobile
parts. II is generally estimated
that about ten billion dollars is in
vested in automobiles and their ac-
cessories. 1t is further estimated
that man spends about so a year
on repairs and that large proper
ton Of this for new parts. This
means that from three hundred tC
four hundred million dollars of auto.
mobile business per year exists in the
manufacture and sale of new parts
for cars already sold Not only is
this large amount Of money, but
there is as much net profit in this
business as in double or treble tn,
same amount Of automobile business
If you have any doubt of this take
the parts" catalog for any car anc
add up what il would cost to buy al
of the parts Of the car separately
Not only are the companies getting
high prices for these parts, but there
Is practically no expense connected
with the selling Of these parts. When
buying complete car ! may buy
from any one Of a hundred companies
but when buying a part to one OF
my present cars ! must buy of the
company which manufactures the
car. Sale of these parts is bringing
into the older companies a tremen-
dous income.
Investors will therefore see that
the automobile business has gradual
ed from the experimental stage and
has become a great settled industry
at least so far as the older company
is concerned The good will asset
of every business should increase as
years 90 on, provided it manufactures
honestly useful product. The older
automobile companies, however, pos
sess the additional asset; of being
able to sell parts for existing cars.
Many of these companies coulC
pay their dividends, certainly THEN
preferred dividends, from the profit:
from sale Of parts. If Ford did mo-
manufacture another car, he could dc
a tremendous business for years tC
come in manufacturing parts for tn,
cars already sold. If the saturatior
point is ever reached in the automo
bile business. the profits from the re
placements Of machines and the sal,
of parts will still be tremendous.
"Of course, new automobile com
panies do not possess this asset
Hence, conservative men purchas,
only the stocks of the older and NOR,
stable concerns. Wise investors alsc
look carefully to the capitalization
Before buying an automobile stock
divide the capitalization by the an
nual output both in cars and in dol
lars. Certain popular makes o
cars are over capitalized, and certain
companies with small outputs hav,
very conservative capitalization
Therefore, one should consider boil
the output and the capitalization
Neither factor by itself is sufficient
in judging an automobile stock.
81 want to emphasize particularly
concluded Mr. Babson, "the fact tina
the automobile industry is today |
permanent industry and that thu
securities of the standard automobile