Montana labor news., 1936-10-08
WHAT 0 PAY
FINANCE FIRMS
ON YOUR AUTO


Installment buying is on the in
crease. And the process OF borrow
ing money at l per cent interest and
relending it at II per cent or more
to consumers who purchase auto
mobiles or other commodities on in
stallment terms has brought record
profits to the leading finance COM
panies. In the face of the advertis-
ed ballyhoo of IS per cent plans
and '$25 a month plans" these pro-
fits have been based on clearly us
urious returns on capital.
In first half of 1886, Commercial
Investment Trust Corp. &C. /. To,
largest of the so-called 'indepen-
dent financing companies, increas-
ed its volume of installment finan-
cling lib per cent, and its net pro-
fits 34.5 per cent over like period of
1885. As compared with first half of
1929, c. |. Us volume of financing
was up 1876 per cent and its net pro-
fits were up al per cent. CONNER
cial Credit Co., second largest lin
dependent had gains of 50.7 per
cent in volume Of financing and 5l.8
per cent in net profits owe first half
of 1885 and gains of SO per cent in
volume and 81 per cent in profits
over first half of 1929.
Each of these companies has operat-
ed this year under a variation of the
"6 per cent plan, which was adver-
tised as involving a sharp reduction
in rates to the consumer as COM
pared with 1885. Nevertheless, c. I.
It's net income in the first half, af-
ter all deductions, represented an an
nual rate of return of 17.44 per cent
on its average outstanding capital
as against 1922 per cent earned in
the first half of 1885. Similarly,
Commercial Credits first half net in
come was at the annual rate of 49,
80 per cent on its average capital
against 1856 per cent in the first
half of 1885.
General Motors Acceptance Corp.
the originator of the "6 per cent
plan" last fall, earned at the annual
rate of 1923 per cent on its invested
capital during the first five months
of this year as against 1875 per cen
for the full year 1885. Even thou
Oh "A per cent of its outstanding
funds was money borrowed from
banks at an average interest rate O
l per cent the gross return on G. M
A. C.'s total outstanding funds dur
ing the first five months of the yea
was at an annual rate of 1903 pc,
cent.
The usual alibi advanced for thesf
rates of return is that the credit risk
involved in installment purchase
necessitate high rates for financing
This contention is, of course, contra
dicted by the unusually low rate 0
interest at which finance eompanie
can borrow from banks. The credi
risks are, in fact, negligible. On tn
average, the installment purchase
of an automobile makes a down pay
m INT of AZ per cent Of the cash price
thus protecting the finance compan,
against the entire first years depre
citation in the market value of tn
car. Although each monthly pay
ment increases this protection, tn
finance company retains full lien o.
the car until the final payment j
made. During the depression, tn
maximum credit losses of the finan
&c companies were three-tenths of
per cent of funds advanced, this oc
curing in 1881. In 1885 credit losse
were about one-twentieth Of / pc
cent.
The principal installment finan
cling organizations are directly link
ed with the three manufacturer
which monopolize more than 90 pc
cent of the automobile industry
General Motors Acceptance is a who
lly-owned subsidiary of General Nc
tors Corp, which controls more tina
40 per cent Of the automobile MAJ
ket. c. l. T. bought Universal Gre
dit, official Ford financing agency, i
1888 when Henry Ford was presse
for cash Immediately after the banI
ing crash. Commercial Credit
linked with and partly owned b
Chrysler Corp. These three finar
cling companies had a combined vo
ume of financing Of 81, no, 000, 900
the first half of the year and carr
!, ed net profits On their capital of $21
% 5000.