Evening star., 1942-06-07
Big Cuts Faced
By InstaI|nlent
Finance Firms
1912 Profits Slump;
SnoII-Lo1n Concerns
To Fore Better
{ cihl Dispatch to The Star.

lllldllCe COIIlpdDV edTIllIlBS ana OlVl-
dends will decline for the next II
months and will not recover as long
as the war lasts, according to a sur
vey released by Standard e. Poor S
today.
Although france company earn
ings still will be substantial in the
second quarter of 1942, they are like
ly to decline more than so per cent
for the full year. Assuming contin-
uation Of the war through 1913,
moreover, finance company receiv-
ables will be down to an estimated
10 per cent of the 1941 year-end
total by the middle of 1943. Under
such conditions, it is unlikely that
the companies could earn anything
on their common shares.
Bank loans will be paid off as re-
ceivables mature, but the servicing
of funded debt and preferred stock
will become increasingly difficult as
gross declines.
Substantial earnings cannot be
achieved again until the war is over
and production of automobiles and
other durable consumers goods can
be resumed on large scale.
Auto Receivables Shrink.
Restrictions on sales of new auto
mobiles were imposed early in jan
uary. 1912, and production of pas
senger cars has since been complete
ly stopped. Hence, a steady shrink
age in retail automobile receivables
is under way.
Even the used-car business, which
had been expected earlieEto hold up
rather well, has been adversely af-
fected by the tire shortage and gas
rationing. Outstanding retail car
receivables at March 81, 1912, had
already dropped % per cent since
the close of 1941 and were off 10 per
cent from year-earlier levels.
Another important loss of income
will result from the sharp reduction
in the amount of insurance placed
by finance companies. The large
commissions obtained from this
source will decline in direct proper
ton to the reduction in automobile
sales financing.
Rejecting a feverish rush to beat
the anticipated halt in production,
sales and financing of consumer
durable goods other than automo-
biles rose sharply in the first three
months of this year. War priori-
ties have since stopped the manu-
facture of these goods Home mod
ernization loans are being affected
by similar influences.
Factoring Gains Temporary.
The factoring business has bene-
fited from the high rate Of activity
in textile and associated industries
and will continue to do well during
1942. The outlook for 1943 is less
favorable, however, since the cloth
ing business may be hard hit by
rationing and other Government
restrictions.
New outlets for finance company
funds will produce some income, but
are expected to fill only a small part
of the gap left by the reduction IN
installment receivables on consumer
goods.
The extent to which finance COM
panies can reduce their expenses Is
difficult to estimate. The manage
ments themselves are faced with the
problem of guessing how long the
war will last, so they will not be in
the position of having eliminated
practically all of their plant capac-
ity (personnel and Office just before
the turn. Since the finance COM
panies probably will lose customers
and contacts more or less steadlly
during the period of the war, the
reconstruction job Of the companies
will become increasingly difficult the
longer the war lasts.
While the postwar demand LOT
automobiles and other hard goods
will be Influenced by number OF
conflicting factors, it is reasonable
to expect that finance companies
will obtain a satisfactory volume OF
business. Because of lower profit
margins, however, earnings are not
likely to be as large as before the
war.
SmaH-Loan Prospects Better.
The Standard & Poor's Corp. in
its current survey has also studied
the prospects of the personal loan
companies, which, because OF the
different nature of their business,
cannot be compared with the in
stallment finance companies.
In this survey. it is pointed out
that after reaching peak in August,
l941, the volume of installment paper
held by the personal loan companies
has since declined slowly, except for
seasonal gains in December, 1S4l,
and March, 1912 The seasonal
gains, however, were smaller than
in preceding years. The March gain
reflected borrowing to meet IN
creased income tax requirements.
Although the volume of loans
normally varies directly with the
rate of employment and national
income, longer term economic un-
certainties and Government at
tempts to discourage consumer DOT
rowing suggest somewhat smaller
volume.
In addition to limiting the pro-
duction of consumers durable goods
Ito conserve materials for war use)
the Government has taken steps
to restrict consumer borrowing and
thus avoid imitation and ease post
war readjustments. AS a result,
the maximum period of repayment
of personal loans which was for
merly 20 months was reduced to l8
months on September /, 1941, to Is
months on March %, 1912, and to
II months on May 6, 1912. Re-
strictions to date have been only
moderate and have had only a
small effect on loan volume. Nor
(See INSTALI.MENTS, Page CID