Evening star., 1932-02-21
AUTO TRADEFACES
CREDIT PROBLEM
Leaders Ponder LiberaIizinq
of InstaIIment Systems to
Spur Tardy Buyers.
BY EDWARD W. MORRISON.

DETROIT, February 20-In the in
ner circles Of the automobile industry.
where the approach Of the Spring buy
ing season is being eagerly awaited.
question is being raised that may affect
the entire future Of automobile manu-
facture and sales.
The question is this:
Shall the industry in the midst of
national economic ills, which show only
partial signs of diminishing. revise its
installment methods and offer more
liberal credit terms to automobile
buyers?
Pictured in the minds of leaders in
the industry is the vast unreleased back
log OF orders, accumulated in the last
two years and represented now by cars
that are in need of replacement. The
problem is how best to assist natural
economic processes in unleashing these
orders.
Better Cars Offered.
In the past 10 years manufacturers
Of automobiles have made strides in
every department except in sales
methods and credit arrangements. The
amount that a dollar will buy in auto
motive value was never so large as it Is
today. Better cars are being built on
every hand; better means for service
and repair have been created. Yet
manufacturers have devised no means
of making it easier to buy a car. nor
have they found any way of offering
more liberal credit Inducements
The life OF a new car is conserva-
lively estimated at five years. The
man who buys that car is expected to
pay for it within one year. or at the
most, 18 months. He must pay one
third down, the remainder in monthly
payments
This same man, analytical persons
in the automobile industry point out.
may buy furniture or an electric re-
frtgerator on far easier terms. The ini-
tial payment will not be such q large
percentage Of the purchase price and
the subsequent installment will be
spread over longer period of time The
question then IS asked. how can the
automobile be offered on a similar at
tractive credit basis?
Depreciation Is Problem.
But when manufacturers get down to
close figuring about installment sales,
they encounter some very stubborn
facts. One of them is the irrefutable
truth that, although the physical life
Of car may be five years or longer,
depreciation in monetary value IS swift
and inescapable
The down payment on a new car has
been fixed by manufacturers and
finance companies at SO per cent, either
In cash or its equivalent in used car
value, for the simple reason that it has
been determined that new car, once
1t has left a dealers hands and been
driven so little as around one city block,
has lost between 80 and IS per cent OF
its original sales value. In the face of
this, manufac cturers ask, how can down
payments be reduced? And no one has
found the answer.
Coming to the question Of giving more
time on installment payments, the men
who are trying to solve this problem
meet this fact: While it may be true
that the life Of car Is roughly fixed
at five years. that life is represented
partly in mileage, and mileage cannot
be translated in terms of years. For in
stance, Mr.. A and Mr.. B buy cars. Mr..
A drives his car 10000 miles the first
year. Mr.. B, who is salesman, con-
$4,000 miles the first year.
Cannot Have Same Value.
Although these cars were bought 1T
the same time, they cannot be expected
to have the same value at the end Of
. year. Suppose. automobile men say.
these two cars had been financed on .
2-year and not a 1-year installment
plan. Suppose further, they say, that
it became necessary tor the finance
company to seize these two cars At
the end OF IL months. Is 1t not con-
ceivable that the mileage might have SO
reduced the value Of Mr.. BIS car that 1t
would be insufficient to satisfy the bal
afce due?
There is no means Of knowing at the
time Of a sale, automobile men say,
whether . car will have 10000 miles or
$4,000 miles on its Speedometer at the
end Of a year. The average mileage
per year on q passenger car in normal
use has been estimated at $4,000 miles.
But the abnormal use becomes as i'm
portant as the normal in figuring pos
sibilities under an tnstallment plan.
May Overreach System.
Another question automobile men ask
Is whether too great an amount Of in
stallment buying Is desirable, when the
Nation has not yet recovered from the
effects Of its last orgy Of buying and
creating debts. Would 1t not be better,
they inquire, for automotive sales to
increase without artificial stimuli such
a. might be applied in easier sales
terms? There are many who answer
yes.
In hardly any discussion that affects
the automobile industry can the Ford
factor be omitted. That is why De-
troit executives put their ears ever so
closely to the ground when they hear
the recurrent whisper that Ford may
offer . new finance plan in connection
With his new four and eight.
fore. They ,Here repeated constantly