An analysis of the feasibility of a small loan company expanding their program of sales contract purchases (a case study of budget finance plan)

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Content AN ANALYSIS OF THE FEASIBILITY OF A SMALL LOAN
COM PANY EXPANDING THEIR PRO G RA M OF
SALES CONTRACT PURCHASES
(A CASE STUDY OF BUDGET FINANCE PLAN)
A T h e s is
P re s e n te d t o
th e F a c u lty o f th e S ch o o l o f Commerce
The U n iv e r s ity o f S o u th e rn C a l i f o r n i a
In P a r t i a l F u l f i ll m e n t
o f th e R e q u ire m e n ts f o r th e D egree
M a ste r o f B u sin e ss A d m in is tr a tio n
by
D onald L au ren ce R eynolds
June 1958
UMI Number: EP43502
All rights reserved
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UMI EP43502
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T h is t h e s i s , w r i t t e n by
DONALD LAURENCE REYNOLDS
u n d e r th e g u id an c e o f th e F a c u lty C om m ittee, —. >
and a p p ro v e d by a l l i t s m em bers, h a s b e e n ( j U ^ I
p r e s e n te d t o and a c c e p te d by th e F a c u lty o f I
th e S ch o o l of Commerce i n p a r t i a l f u l f i l l
m en t o f th e re q u ire m e n ts f o r th e d e g re e o f
MASTER OF BUSINESS ADMINISTRATION
D ate
JUNE 1958
A pproved
i
TABLE OP CONTENTS
CHAPTER PAGE
I . THE PROBLEM A N D ORGANIZATION OP THE STUDY. . . . 1
The problem® »•••••••••.•••••• 2
S ta te m e n t of th e problem • • • • • • • • • • 2
L im ita tio n s o f th e s t u d y ....................... . . . . 3
O rg a n iz a tio n o f th e s tu d y . • • • • • • • • • • 3
D e f i n i t i o n o f te rm s u s e d • • • • ................................... 5
S a le s c o n tr a c t • • • • • • .................................. . 5
P e rs o n a l f in a n c e company • • • • • • • • • • 5
Consum er c r e d i t . • • • •• • • • • • • • • • 5
I I . HISTORICAL REVIEW 7 j
S a le s f i n a n c e 8 |
Econom ic f a c t o r s •• •• • •• •• ••• •• 11 |
i
i
N a tio n a l p ro d u c t and in co m e. • • • • • • • • 12 i
H i s t o r i c a l a n a l y s i s o f B udget F in a n c e P la n . . 12 |
Econom ic f u n c t i o n . • • • • • • • • . . . . . 12
C o rp o ra te s t r u c t u r e ...............................................1 4
C a p i t a l s t r u c t u r e . • • • • • • • .................... . 1 8
H e a lth o f e a r n in g s g ro w th . . . . . . . . . . 1 8
S a le s c o n t r a c t s . • • • • .................... • • • • • 2 4
I I I . CONSUMER CREDIT.................................................... 28
C r e d it e x p a n s io n ......................................• • • • • 3 3
E f f e c t s o f th e money m a r k e t. . . . . . . . . 3 6
D i v e r s i f i c a t i o n . • • • • • • • • • • • • • • 3 8
i v
CHAPTER PAGE
H edging • • • • • • • ............................ . . • • . 40
C o m p e titio n • ........................................... 41
I n d u s tr y c o m p e titio n . . ............................ 44
IV . FINANCIAL CONSIDERATION ...................................................... 47
F in a n c in g t h i s o p e r a t io n . • • • • • • • • • 47
P o t e n t i a l p r o f i t s fron. t h i s o p e r a tio n • • • • 52
D e te rm in a tio n o f c o s t s . • • • • • • • • • • 53
M a th e m a tic a l a p p ro a c h • • • • • • • • • • . 56
P r o f i t d e te r m in a tio n . • • • • • • • • • • • 59
H y p o th e tic a l e x a m p le ............................................... 61
V . OTHER ADVANTAGES A ND DISADVANTAGES. ..........................63
P o t e n t i a l lo a n b u s in e s s • • • • • • • • • • 63
B ranch v e r s u s c e n t r a l i z e d o p e r a tio n ( s a l e s
contracts) « » • • • • • • • • • • • • • • 64
The p la n . • • • • • • • • • • • • • • • . . 65
R easons f o r e n t e r i n g t h i s f i e l d • • • • • • 68
S a le s c o n tr a c t f i n a n c in g . • • • • • • • • • 69
D e a le r r e l a t i o n s . . • • • • . • • .................... 71
D e s ir a b le c o n d it i o n s . • • • • • • • • • » • 72
Terms and r e q u ir e m e n ts . • • • • • • • • • • 72
N o n -re c o u rs e . ••••••••• •• ••• • 73
V I. SU M M A R Y A ND CONCLUSIONS...........................................................75
Summary. • • • • • • • .................................• • • • 75
C o n c lu s io n s . ............................ 77
L im ita tio n s and a d d i t i o n a l r e s e a r c h . • • • • 79
CHAPTER
BIBLIOGRAPHY
APPENDIX A.
APPENDIX B.
APPENDIX C.
I
1
I
I
V
PAGE
82
The F i r s t N a tio n a l Bank o f C h icag o S n a il
Loan C om pany R a tio s •with C o rre sp o n d in g
F ig u r e s f o r B udget F in a n c e P la n • . • • 85
Twenty Y ear S t a t i s t i c a l H is to r y o f th e
B udget F in a n c e P la n • • • • • • • • • • 91
The Q u e s tio n n a ir e —B udget F in a n c e
P l a n . ................................................................................... 94
LIST OF TABLES
TABLE PAGE
I . Consum er C r e d it by M ajo r P a r t s • • • • • • • • 29
I I * I n s ta lm e n t C r e d it by H o ld e r. • • • • • • • • • 30
I I I * H o ld e rs o f Consum er I n s ta lm e n t C re d it* • • • • 32
LIST OF FIGURES
FIGURE PAGE
1 .
P re s e n t O rg a n iz a tio n C h a rt • • • • • • • • • •
2. F u tu re O rg a n iz a tio n C h a r t............................................
3 . S c h e d u le o f C a p i t a l i z a t i o n • • . • • • • • • •
4 • T o ta l B u s in e s s V olum e. • • • • • • • • • • • •
5. R e c e iv a b le s O u ts ta n d in g and G ro ss In c cm e . . . 21
6 . Met Income a f t e r T axes • • • • • • • • • • • •
7. B udget F in a n c e P l a n ’s S a le s C o n tra c t Volume
and R e c e iv a b le s O u ts ta n d in g . • • • • • • • •
8. B udget F in a n c e P la n ’ s S a le s C o n tr a c t, Volume
a s a P e rc e n ta g e o f T o ta l V olum e. , • • • • •
9. T o ta l F ix e d Paym ents a s P er C ent o f T o ta l
D is p o s a b le Incom es (N on-Faim ) • • • • • • •
10. I n s ta lm e n t D ebt and L iq u id A s s e ts ..............................
1 1 . R e la tio n o f A d v e r tis in g t o I n s ta lm e n t C r e d it
O u ts ta n d in g . ••• •• ••• •• ••• •• •
I
!
i
i
!
CHAPTER I
THE PROBIEM A ND ORGANIZATION OP THE STUDY
Many s i g n i f i c a n t econom ic f a c t o r s d o m in ated th e
y e a r 1957• S o c i a l , econom ic, and p o l i t i c a l g ro u p s c o u p le d
w ith b u s i n e s s , la r g e and s m a ll, t o l a b e l t h i s p e r io d w ith
e v e r y th in g from th e b e g in n in g o f a n o th e r g r e a t d e p r e s s io n
t o a s l i g h t a d ju s tm e n t. I n e a r l y 1958, i t was somewhat
e a s i e r t o r e c o g n iz e th e im p o rt o f th e s i t u a t i o n . Over
f i v e m i l l i o n w ere unem ployed; many o f th e l a r g e r in d u s
t r i e s , su ch a s th e s t e e l , o i l , a u to m o b ile , r a i l r o a d , and
a ir f r a m e i n d u s t r i e s w ere h a v in g t h e i r p ro b le m s . The
g o v e rn m e n ta l b o d ie s w ere f i n d i n g th e m s e lv e s h ig h ly p ro n e
I
! t o c r i t i c i s m and e v e r i n c r e a s i n g p r e s s u r e . The m o n e ta ry
i
jb o d ie s , su c h a s th e F e d e r a l R e se rv e B oard w ere h a v in g
\
! !
t h e i r pro b lem s o f c o m b a tin g b o th a n i n f l a t i o n and a r e c e s - i
i
| s i o n . M anagem ent and o rg a n iz e d la b o r w ere q u i te c o n c e rn e d
.w i t h d e v e lo p in g p ro b le m s o f unem ploym ent, lo w e r s t e e l and
j a u to o u tp u t, low c a r l o a d i n g s , and h eav y l o s s e s ,
j The consum er f in a n c e i n d u s t r y was f i n d i n g t h a t
r
! seme f a c t o r s w ere a f f e c t i n g t h e i r in d u s t r y a l s o . Many
!
! s i t u a t i o n s d e v e lo p e d i n 1957, su ch a s , h ig h e r d e l i n -
! q u e n c ie s and r e p o s s e s s io n s , h ig h c o s t s o f m oney, p r o f i t
s q u e e z e s , an d a h ig h d e g re e o f p essim ism on th e p a r t o f \
th e co n su m er. The consum er was e a r n in g l e s s , s a v in g m o re,
2
consum ing l e s s , a n d , i n g e n e r a l, was w a itin g f o r th e p r e
d i c t e d u p tu r n i n b u s in e s s w h ich was p r e d ic te d f o r m id 1958
t o e a r l y 1959.
R e c e n tly , B udget F in a n c e P la n a d o p te d a n a g g r e s s iv e
p la n o f s a l e s c o n t r a c t f in a n c e e x p an sio n * R easons f o r
t h i s p la n w ere to f u r t h e r d i v e r s i f y t h e i r o p e r a tio n , m ax i
m ize p r o f i t s , have a b e t t e r hedge a g a in s t i n f l a t i o n , and
com plim ent a lo w e r volum e o f d i r e c t lo a n s .
A c e n t r a l i z e d s a l e s c o n t r a c t p u rc h a se program was
i n i t i a t e d i n S o u th e rn C a l i f o r n i a . T h is s tu d y w i l l , b a s i
c a l l y , c o n c e n tr a te on t h i s a r e a . The p la n i s f l e x i b l e i n
t h a t a w ide v a r i e t y o f consum er p r o d u c ts , su c h a s f u r
n i t u r e , a p p lia n c e s , fo o d , a p p a r e l , f e n c e s , p a t i o s , b o a ts
! and m o to rs w i l l b e f in a n c e d . The consum er w i l l b e a b le
I
i
i
! t o buy th e s e goods f o r a n a d d i t i o n a l t e n t o tw e lv e p e r
j
i c e n t a d d -o n , and w i l l be a b le t o re p a y i n s i x t o tw e n ty -
| f o u r m o n th ly i n s t a l l m e n t s .
i
I . THE PROBLEM
i
i
1 S ta te m e n t o f th e p ro b le m . I t was th e p u rp o se o f
j t h i s s tu d y t o d e te rm in e th e f e a s i b i l i t y o f e x p a n d in g a
! program o f s a l e s c o n t r a c t p u r c h a s e s . I n c o n d u c tin g t h i s
: s tu d y i t w as n e c e s s a r y (1 ) t o a n a ly z e th e h i s t o r y o f t h i s
' ty p e o f f in a n c in g and h i s t o r y o f B udget F in a n c e ; (2 ) t o
; d e te rm in e th e a d v i s a b i l i t y o f i n i t i a t i n g a program a t t h i s
:_or any o th e r tim e ; (5 ) t o s p e c i f i c a l l y exam ine c e r t a i n a s -
3
pecfcs an d c h a r a c t e r i s t i c s o f t h i s p ro g ram ; (4 ) t o a tte m p t
t o d e te rm in e c o s t s a n d p o t e n t i a l p r o f i t s ; (5 ) t o d e te rm in e
w h e th e r th e stu d y w i l l u n c o v e r any f a c t o r s w hich w i l l
th ro w some new l i g h t on t h i s ty p e o f consum er f i n a n c e .
L im ita tio n s o f th e s tu d y . V olum inous in f o r m a tio n
h a s a c c u m u la te d on th e f in a n c in g o f a u to m o b ile s , h o w ev er,
v e ry l i t t l e in f o r m a tio n h a s b e e n g a th e r e d on th e f in a n c in g
o f f u r n i t u r e an d a p p lia n c e s . Many o f th e l a r g e r consum er
f in a n c e com panies a re i n th e p r o c e s s o f c o n d u c tin g s u rv e y s
on t h e c o s t s and p r o f i t s o f t h i s ty p e o f f i n a n c in g . T h is
s tu d y o m its th e f i n a n c in g o f a u to m o b ile s , t r u c k s , and
heav y m a c h in e ry . The g r e a t e r p o r t io n o f in f o r m a tio n was
| o b ta in e d from d i r e c t c o n ta c t w ith to p e x e c u tiv e s i n th e
i n d u s t r y . The f o llo w in g o r g a n iz a tio n o f th e stu d y m ig h t
j e n li g h t e n one on th e s p e c i f i c scope and l i m i t a t i o n s o f j
^ t h i s a n a l y s i s . '
! ;
!
! I I . OROrM IZATI O N OP THE STUDY I
1 !
; I n th e re m a in in g c h a p te r s o f t h i s r e p o r t , th e
| a fo re m e n tio n e d l,p ro b lem stl a re d e v e lo p e d and d is c u s s e d ,
j The v a r io u s a d v a n ta g e s and d is a d v a n ta g e s o f th e m ain p o in ts
i ■ J
j a re w e ig h e d , a n d a n a tte m p t i s made t o s ta n d b e h in d and j
i
I prove th e b a s ic pro b lem s s t a t e d i n C h a p te r I .
i
I
| C h a p te r I I d e a ls w ith th e i n c e p ti o n and d ev elo p m en t
! o f s a l e s f i n a n c i n g . Econom ic f a c t o r s a f f e c t i n g th e c o n -
sum er f in a n c e in d u s t r y a re re v ie w e d . An h i s t o r i c a l a n a ly
s i s o f B udget F in a n c e P la n i s c o n d u c te d a s t h i s r e p o r t i s
a s tu d y o f t h i s com pany.
C h a p te r I I I d is c u s s e s and e v a lu a te s th e consum er
c r e d i t m a r k e t. The in s ta lm e n t c r e d i t m a rk e t i s b ro k e n
down i n t o th e ty p e s o f f i n a n c i a l i n s t i t u t i o n s p e rfo rm in g
t h i s s e r v ic e and th e d i f f e r e n t c h a n n e ls th ro u g h w hich t h i s
money f lo w s . The e f f e c t s th e money m a rk e t have on th e
p e r s o n a l f in a n c e i n d u s t r y a re d is c u s s e d . The second h a l f
j o f th e c h a p te r d e lv e s i n t o c o m p e titio n , d i v e r s i f i c a t i o n ,
! i
j " h e d g in g ,1 1 and th e u se o f a d v e r t i s i n g . I
I . .
j C h a p te r IV c o n ta in s th e f i n a n c i a l c o n s id e r a tio n s
j w h ich have to be made b e fo re d e te rm in in g th e f e a s i b i l i t y
j o f a s a l e s c o n t r a c t f i n a n c in g p ro g ram . The ways a c o n -
i sum er f in a n c e company f in a n c e s t h i s o p e r a tio n a re d i s -
I |
| c u s s e d . D e te rm in a tio n o f c o s t s and p o t e n t i a l p r o f i t s a r e j
i a n a ly z e d , and a h y p o t h e t i c a l exam ple i s t h e o r i z e d .
C h a p te r V expounds on th e v a rio u s o th e r a d v a n ta g e s
i
and d is a d v a n ta g e s o f t h i s p ro g ram , p a y in g s p e c i a l i n t e r e s t j
i i
' t o i n t a n g i b l e s . The v a r io u s re a s o n s f o r e n t e r i n g t h i s |
j f i e l d a re show n. C e r ta in te r m s , r e q u ir e m e n ts , and d e s i r - |
t I
a b le c o n d itio n s a re s e t u p . B ran ch v e rs u s c e n t r a l i z e d j
i
o p e r a tio n I s d i s t i n g u i s h e d an d w e i^ ie d . j
i
C h a p te r VI c o n ta in s a r e s ta te m e n t o f th e problem '
j !
i and a summary o f th e h i g h l i g h t s o f th e r e p o r t . C e r ta in I
5
c o n c lu s io n s a re a r r i v e d a t an d s u g g e s tio n s f o r f u r t h e r
stu d y a re m ad e.
I I I . DEFINITIONS OF TEEMS USED
S a le s c o n t r a c t . A s a l e s c o n t r a c t i s an in s ta lm e n t
n o te w h ic h i s p u rc h a se d d i r e c t l y from a d e a l e r . The p a p e r
i s e i t h e r d is c o u n te d o r p u rc h a se d by a d d in g on a c e r t a i n
f in a n c e c h a r g e . T h is c h a rg e i s u s u a l ly c a l l e d th e tim e -
p r ie e d i f f e r e n t i a l .
P e r s o n a l f in a n c e com pany. Edw ard E . E dw ards d e
f i n e s a p e r s o n a l f in a n c e company a s a n i n d i v i d u a l , f ir m ,
i
o r c o r p o r a tio n t h a t h a s b e en l ic e n s e d t o engage i n th e
i 1
! b u s in e s s o f m ak in g s m a ll lo a n s t o i n d i v i d u a l s . Many
i
i s t a t e s have t h e i r own s m a ll lo a n law s w h ich g o v e rn th e s e
l
I c o m p a n ie s.
i
| Consum er c r e d i t . Consum er c r e d i t in c lu d e s a l l
! c r e d i t u s e d f o r th e f in a n c in g o f goods and s e r v i c e s .
| I n s ta lm e n t c r e d i t i s t h a t p a r t o f consum er c r e d i t w here
! th e r e i s m ore t h a n two i n s t a l m e n t s . The B oard o f C o v er-
t
j n o rs o f th e F e d e r a l R e se rv e System d e f in e s in s ta lm e n t
i c r e d i t th u s ly *
■^Herbert V. Prochnow , A m erican F i n a n c i a l I n s t i t u
t i o n s (New Y o rk : P r e n t ic e - H a l l Company, 195 l ) , p .
6
I n s ta lm e n t c r e d i t in c lu d e s a l l consum er c r e d i t
h e ld by f i n a n c i a l i n s t i t u t i o n s and r e t a i l d e a l e r s
w h ich i s s c h e d u le d t o be r e p a id i n two o r m ere i n
s t a lm e n t s . R e v o lv in g c r e d i t , b u d g e t, and coupon
a c c o u n ts a re t r e a t e d a s in s ta lm e n t c r e d i t r a t h e r
th a n a s c h a rg e a c c o u n ts b e c a u se th e y in v o lv e s c h e
d u le d rep ay m en t on a p e r io d ic b a s i s . In s ta lm e n t
c r e d i t o u ts ta n d in g i n c l u d e s , i n m o st c a s e s , th e
f in a n c e c h a rg e s on su c h c r e d i t and th e c o s t o f any
in s u r a n c e in c lu d e d i n th e c o n t r a c t
R e a l e s t a t e and farm m o rtg a g e s a re n o t in c lu d e d i n
in s ta lm e n t c r e d i t .
2
B oard o f G o v ern o rs o f th e F e d e r a l R eserv e S ystem ,
w R e v ls io n o f Consum er C r e d it S t a t i s t i c s , ” F e d e r a l R eserv e
B u l l e t i n . A p r il 1953, p . 6 .
CHAPTER I I
HISTORICAL REVIEW
The A m erican economy i s b e in g a f f e c t e d m ore and
m ore by th e f i n a n c i a l i n s t i t u t i o n s . The gro w th o f th e
U n ite d S t a t e s h a s b e en p h enom enal. The s a l e s f in a n c e
com panies have h ad a trem en d o u s g ro w th o v e r th e y e a r s w ith
m arked c a p i t a l fo r m a tio n s i n th e p o s t W orld War I I p e rio d
due t o heavy p r o d u c tio n and c o n su m p tio n o f a u to m o b ile s .
W ith a g r e a t e r e m p h asis on heme o w n e rsh ip th e s a v in g s and
lo a n a s s o c i a t i o n s and m u tu a l s a v in g s b an k s have fo rg e d
I
a h e a d w ith f a c i l i t y and c e l e r i t y . G-reat e m p h asis by many
I f i r m s , u n io n s , and i n d u s t r i e s on th e n eed o f p e n s io n
!
: p l a n s , f r i n g e b e n e f i t s , and c r e d i t e x te n s io n h a s p ro -
i 1
! duced th e c r e d i t u n io n s w ith a l a c r i t y . j
i i
! The m o st s i g n i f i c a n t s t r i d e s ta k e n by any i n d u s t r y j
; I
' i n th e l a s t d e c a d e s have b een th o s e o f th e 1 1 s m a ll lo a n j
i n d u s t r y . ” T h ere a re many v a g a r i e s on th e p a r t o f th e |
A m erican p u b lic a s t o th e r o l e and s i g n i f ic a n c e o f th e
i
s m a ll lo a n com pany. An a n a l y s i s o f B udget F in a n c e P la n j
i
| may c l e a r u p many d o u b ts , q u e s t i o n s , and m is u n d e rs ta n d -
I in g s a s t o th e jo b th e s m a ll lo a n company p la y s i n o u r
l
i
eco n a n y •
M ost s t a t e s , i n th e U n ite d S t a t e s , have a d o p te d
i
! s m a ll lo a n la w s . Many o f th e s e s t a t e s have p a tte r n e d
8
t h e i r law s a f t e r a m odel U niform S m all Loan Law w h ich was
d r a f t e d by th e B u s s e ll Sage F o u n d a tio n i n 1916* I n 1908,
th e R u s s e ll Sage F o u n d a tio n , a p h i la n t h r o p i c r e s e a r c h
a g en c y , c r e a te d th e D iv is io n o f R em edial L oans* The b a s ic
p r i n c i p l e s o f th e U niform Sknall Loan Law in v o lv e d
1* L ic e n s in g , r e g u l a t i n g , and s u p e r v is in g by
th e s t a t e o f th e b u s in e s s o f m aking consum er i n
s ta lm e n t lo a n s ;
2* E s t a b l i s h i n g maximum lo a n s ;
3 . E s t a b l i s h i n g a s in g le r a t e ; and
4* P r o t e c t in g th e b o rro w e r a g a i n s t u n f a i r
p r a c t ic e s .^
S a le s f in a n c e * I t w ould be h a rd t o earm ark th e
h i s t o r y o f s a l e s c o n tr a c t fin a n c e w ith o u t in c lu d in g th e
h i s t o r y o f a u to m o b ile s a l e s c o n tr a c t fin a n c in g * The
s a l e s fin a n c e com panies d o m in ate th e f i e l d o f consum er
in s ta lm e n t s a l e s f i n a n c e . In A ugust o f 1 9 5 7 , s a l e s
f in a n c e com panies h ad o u ts ta n d in g s o f § 9 ,5 6 5 ,0 0 0 ,0 0 0 .
j T o ta l f i n a n c i a l i n s t i t u t i o n s a g g re g a te d i>28,9 6 0 ,0 0 0 ,0 0 0
I 2
I i n r e c e i v a b le s o u ts ta n d in g .
I
In th e o p in io n o f m any, th e u s e o f c r e d i t i n t h i s
t
c o u n try h a s b e en a to n ic i n s p u r r in g th e G ross N a tio n a l
^W. D avid R o b b in s, Consum er I n s ta lm e n t L oans
I (The Ohio S ta te U n i v e r s i ty , 1 9 5 5 ), p . 6 0 .
i
^B oard o f G o v ern o rs o f th e F e d e r a l R e se rv e S ystem ,
F e d e r a l R eserv e B u l l e t i n (W ash in g to n , D .C .: U n ite d S t a te s
' G overnm ent P r i n t i n g O f f ic e , 1 9 5 7 ), p . 1420.
9
P ro d u e t, D is p o s a b le Incom e, and S ta n d a rd o f L iv in g t o
g r e a t h e i g h t s .
Many e c o n o m ists f e e l t h a t th e g r e a t p o s t W orld War
I I c r e d i t e x p a n s io n i s d a n g e ro u s . O th e rs b e lie v e th e
c o n tr a r y . I n any e v e n t, consum er i n s ta lm e n t c r e d i t i s
h e r e , and i n a b i g w ay. The F e d e r a l B e se rv e B u l l e t i n o f
D ecem ber, 1957 i n d i c a t e s th e e x p a n s io n o f consum er c r e d i t .
S a le s f in a n c e com panies w ere d e v e lo p e d th ro u g h a
d i f f e r e n t o b je c tiv e th a n consum er f in a n c e com panies i n
*
t h a t th e y p u rc h a se in s ta lm e n t p a p e r from o th e r s r a t h e r
th a n d i r e c t le n d in g . T h e r e f o r e , th e s e com panies a r e n o t
r e s t r i c t e d by a l l o f th e sm a ll lo a n l e g i s l a t i o n and
g e n e r a lly a r e n o t a s c o n c e rn e d w ith th e u s u ry la w s .
i
j Consum er in s ta lm e n t s a l e s f in a n c e d i f f e r s from
i
! s m a ll lo a n s a s th e y a r e b a se d on t h e s e l l i n g of goods
: r a t h e r th a n on money le n d in g . A t th e t u r n o f th e tw en -
i
I t i e t h c e n tu r y , a u to m o b ile s and o th e r consum er d u r a b le s
| w ere n o t f in a n c e d b u t p u rc h a se d on a c a s h b a s i s . I n th e
| e a r l y n in e te e n h u n d re d s , s m a ll c r e d i t c o r p o r a tio n s b eg an
to s p r in g up f o r two b a s i c r e a s o n s . The f i r s t re a s o n was
| t h a t a lr e a d y e s t a b l i s h e d f i n a n c i a l i n s t i t u t i o n s f a i l e d t o
' 3
| m eet th e new and c h a n g in g n e e d s o f s o c i e t y .
D u rin g th e n in e te e n t w e n ti e s , s a l e s f in a n c in g
i
i
j 5C lyde W. P h e lp s , The B ole o f th e S a le s F in a n c e
C om panies i n th e A m ericanlfconom y " (B a ltim o re : C om m ercial
C r e d it Company, 1 9 5 2 ), p . 5 7 . _____________
10
re a c h e d new p e a k s ; h o w ev er, a f t e r W orld War I I consum er
in s ta lm e n t b u y in g r o s e t o sum m its high, above a n t i c i p a t e d
vo lu m e. T o ta l in s ta lm e n t c r e d i t r o s e from $ 5 .7 b i l l i o n
i n 1945, t o $ 1 7 .3 b i l l i o n i n 1 949. The g r e a t e s t s i n g l e
f a c t o r w h ich in f lu e n c e d t h i s r i s e w as th e l i f t i n g o f
R e g u la tio n W. I n e f f e c t , t h i s s e l e c t i v e in s tr u m e n t (Re
g u l a t i o n W) o f th e F e d e r a l R e s e rv e , l im i te d th e le n g th o f
s m a ll lo a n s o r consum er i n s ta lm e n t b u y in g an d m ade c a s h
4
down p a r e n t s n e c e s s a r y .
The n eed f o r consum er d u r a b le s by th e A m erican con
sum er gave g r e a t im p e tu s t o th e i n i t i a t i o n o f f in a n c in g
program s f o r th e a u to m o b ile , r a d i o , la r g e a p p li a n c e s ,
| and t e l e v i s i o n s e t s .
j
I n th e tw e n ty y e a r s from 1926 t o 1946 th e
i num ber o f dome s t i c e l e c t r i c r e £ r i g e r a t o r s i n
u se r o s e from 1 5 0 ,0 0 0 t o 2 1 ,4 4 0 ,0 0 0 , an d th e
1 p r o p o r tio n o f w ire d hemes h a v in g e l e c t r i c j
r e f r i g e r a t o r s i n c r e a s e d from 1 .1 p e r c e n t t o I
6 9 .1 p e r c e n t .5 j
j I
Consumer goods p a p e r o th e r th a n a u to m o b ile p a p e r i
I i
! h a s in c r e a s e d from § 1 .6 b i l l i o n i n 1939, t o $ 3 .9 b i l l i o n !
^ 6 1
| i n 1949, t o $ 8 .5 b i l l i o n i n 1 9 5 6 . j
, A lth o u g h s a l e s f in a n c e com panies i n i t i a t e d th e p la n j
: o f consum er in s ta llm e n t p u rc h a se f in a n c e th e s n a i l lo a n
4
C h a rle s R . W h ittle s e y , Money and B an k in g (New Y orks
W. W. N o rto n and Company, 1 9 5 2 ), p . 1 1 6 . |
8 f t . i l > . , 0£ . c i t . , p . 6 3 .
^ F e d e ra l R e se rv e B u l l e t i n , j3£. c i t . . p . 1400.
11
com panies have u se d t h i s ty p e o f f in a n c in g a g r e a t d e a l
i n t h e i r o v e r a l l p o r t f o l i o o f b u s in e s s .
Econom ic f a c t o r s . The f a c t t h a t 1 1 A m e ric a n ^ have
m ore” d o es n o t s a t i s f y th e a v e ra g e co n su m er. F i r s t o f a l l ,
he d e s i r e s t o know w hat he h a s "m ore o f . ” Upon more
c a r e f u l c o n s id e r a tio n one d e s i r e s t o know why he h a s m ore
now th a n , s a y , f i f t y y e a r s a g o .
On th e a v e r a g e , th e a f t e r - t a x incom e ( d is p o s a b le
incom e) o f e a c h A m erican , when a d ju s te d f o r p r ic e c h a n g e s,
i s now a b o u t tw o and o n e - h a lf tim e s such incom e a t th e
b e g in n in g o f th e c e n tu r y • ^ ;
j
Mot o n ly h a s th e U n ite d S t a t e s h ad a g ro w th i n
i
; r e a l in co m e, b u t th e u rb a n and su b u rb a n in c r e a s e and p ro -
j p o r tio n o f t o t a l p o p u la tio n h a s grown tre m e n d o u s ly . I n
[ 1900, a b o u t f o r t y p e r c e n t w ere l i v i n g on f a m s . T oday, j
l e s s th a n f i f t e e n p e r c e n t l i v e on f a r m s . !
I i
1 In a r e c e n t s tu d y by th e F e d e r a l R eserv e B oard o f i
i
!
j G o v ern o rs (1957) a d d i t i o n a l r e a s o n s f o r g r e a t e r consum p-
i I
, t i o n w ere a t t r i b u t e d to a m uch h ig h e r p e rc e n ta g e o f e d u - ,
i ;
c a t i o n , h ig h e r p e r c e n t o f m a r r ia g e s and fa m ily f o im a tio n ,
'o w n e rs h ip , and much m ore l e i s u r e tim e . T here i s a ls o a
i
i ■
7
B oard o f G o v ern o rs o f th e F e d e r a l R eserv e S ystem ,
Consum er I n s ta lm e n t C r e d it (W ash in g to n , D .C .£ U n ite d j
; S t a t e s G overnm ent P r i n t i n g O f f ic e , 1 9 5 7 ), p p . 7 -1 4 . j
12
g r e a t e r d e s i r e t o own d u ra b le g o o d s. An Im p o rta n t f a c t o r
i n f lu e n c i n g s i g n i f i c a n t in c r e a s e s i n G ro ss N a tio n a l d e
d u c t, and th e r i s e o f consum er c r e d i t i s th e w i l li n g n e s s
o f th e A m erican p u b lic t o i n c u r d e b t.
Many f a c t o r s have e n c o u ra g e d th e consum er t o in c u r
d e b t. The d e s i r e an d im p o rta n c e o f d u r a b le s h a s en co u rag e d
h ig h e r l e v e l o f co n su m p tio n i n r e l a t i o n t o incom e a s w e ll
a s th e a b i l i t y t o own a h ig h p r ic e d u n i t , su c h a s an
a u to m o b ile , and have sm a ll m o n th ly o b l i g a t i o n s . Many
c la im t h a t A m e ric a n 1s a re o v e r t h e i r h e a d i n d e b t and a re
i
; n o t s a v in g en o u g h , b u t th e f a c t re m a in s t h a t p e rs o n a l
| s a v in g s a s a p r o p o r tio n o f d is p o s a b le p e rs o n a l incom e h a s
rem a in e d re m a rk a b ly s t a b le s in c e 1 9 0 0 .
|
i N a ti o n a l p ro d u c t and incom e. The a b i l i t y o f th e
p e o p le o f th e U n ite d S t a t e s to p ro d u ce g o o d s, e a r n a h ig h I
i
a v e ra g e in co m e, and consume goods and s e r v i c e s , h a s a
! g r e a t e f f e c t on consum er c r e d i t . The m easu re o f th e
I
I n a tio n * s o u tp u t o f goods and s e r v i c e s i n t e r n s o f m a rk e t
v a lu e i s im p o rta n t when e v a l u a t i n g th e l e v e l s o f consum er
c r e d i t .
I . HISTORICAL ANALYSIS OP BUDGET FINANCE PLAN I
i
I
Econom ic f u n c t i o n . F in a n c in g th e consum er h a s h ad i
; w ide a c c e p t a b i l i t y i n r e c e n t y e a r s . L e n d in g goes b ack t o j
i
; b i b l i c a l tim e s f o r i t s b e g in n in g and p r o g r e s s e d t o w here !
13
th e r e i s now o v e r $43 b i l l i o n i n o u ts ta n d in g consum er c r e
d i t •
B udget F in a n c e F la n , now i n i t s t w e n t y - f i r s t y e a r
o f o p e r a t io n s , h a s e s t a b l i s h e d i t s e l f a s one o f th e to p
f ir m s i n th e p e r s o n a l f in a n c e i n d u s t r y . M ost of th e Com
p a n y ’ s grow th h a s come i n th e l a s t t e n y e a r s . A t th e
p r e s e n t tim e , th e Company o p e r a te s s i x t y - e i g h t o f f i c e s i n
e le v e n s t a t e s an d th e T e r r i t o r y o f H a w a ii.
j The i n i t i a l gro w th o f t h i s Company was i n and
! a ro u n d t h e Los A n g e les a r e a , th e n s p r e a d in g t o N o rth e rn i
! i
j C a l i f o r n i a and th e e n t i r e N o rth w e st a r e a . O p e ra tio n s a re
!
I c a r r i e d on i n th e f o llo w in g l o c a t i o n s . 1
I
| Number o f O f f ic e s . 1957
A riz o n a 2
C a li f o r n ia 20
H aw aii 5
Id a h o 2
K entucky 3
M ary lan d 3
Nevada 2
Ohio 15
O regon 6
U tah 2
W ash in g to n 7
W est V i r g i n ia 1
68
j B udget F in a n c e P la n i s v e ry o p t i m i s t i c to w ard f u -
\ t u r e e x p a n s io n and gro w th p o s s i b i l i t i e s . The M iddle W est
i
and E a s t p r e s e n t e x c e l l e n t o p p o r t u n it i e s f o r new o f f i c e s .
The Company em ploys o v e r 500 p e o p le . The volum e
1 o f b u s i n e s s , o r t o t a l lo a n s and p u rc h a s e s m ade, h a s
l
14
f l u c t u a t e d from $16 m i l l i o n t o $ 4 4 .5 m i l l i o n I n th e l a s t
s i x y e a r s . The t o t a l num ber o f a c c o u n ts h a s ra n g e d frcm
4 8 ,0 0 0 t o 1 0 2 ,0 0 0 i n t h i s p e rio d o f tim e .
C o rp o ra te s t r u c t u r e . The Company w as o rg a n iz e d
u n d e r th e law s o f th e S t a te o f C a l i f o r n i a on M arch 2 3 ,
1 9 37, by M r. C h a rle s O ffe r and tw o a s s o c i a t e s . One s m a ll
o f f i e e and a $ 1 2 ,5 0 0 c a p i t a l in v e s tm e n t was th e n u c le u s
I
o f th e new ly o rg a n iz e d com pany. I n S eptem ber o f 1945, |
{
th e c o n t r o l l i n g s to c k I n t e r e s t o f th e Company was t r a n s - j
f e r r e d to a g ro u p h e ad e d by M r. O ffe r and M r. A lb e r t
B e h rs to c k . F o r p u rp o se s o f a n a l y s i s , we w i l l c o n s id e r
th e s t r u c t u r e from t h i s d a t e , a s th e e x p a n s io n p o lic y and
i
| gro w th r e a l l y commenced a t t h i s tim e .
I L e g a lly , th e b ra n c h lo a n o f f i c e s a r e in c o r p o r a te d
I
| a s s e p a r a te s u b s i d i a r i e s ; h o w e v er, t h i s m akes l i t t l e d i f - '
j f e r e n c e when s p e a k in g o f o p e r a tio n s and o r g a n i z a t i o n . ;
i i
I A t th e p r e s e n t tim e , th e r e a re t e n d i r e c t o r s on th e j
| B o a rd . T here a re p r o v is io n s f o r e le v e n . One d i r e c t o r r e -
| s ig n e d a t th e l a s t s t o c k h o l d e r ^ m e e tin g b e c a u se he f e l t
j
j th e m in o r ity g roup was n o t b e in g w e ll r e p r e s e n te d . The
| E x e c u tiv e C om m ittee o r i g i n a t e s o u t o f th e B o ard , and c o n -
i
i
! s i s t s o f th e P r e s id e n t and C hairm an o f th e B o a rd . T here
i s a l s o a new ly o rg a n iz e d M anagem ent Com m ittee w hich c o n -
- s i s t s o f t h e above two men and th e P r e s id e n t fs to p s u b o r- !
i •
I !
! d i n a t e s .
I
I
15
T here a re s i x t y - e i g h t b ra n c h o f f i c e s . T hese o f f i c e s
a re ru n by b ra n c h m an ag ers w hich a r e th e lo w e s t l e v e l o f
m anagem ent. The lo a n o f f i c e s a re u n d e r th e d i r e c t s u p e r
v i s i o n o f s u p e r v i s o r s , and t h i s i s u s u a l ly on a t e r r i t o r i a l
b a s i s . The s u p e r v is o r h e a d s w hat i s term ed a H d e p a r tm e n t.1 1
T here a re se v e n s u p e r v i s i o n a l d e p a r tm e n ts . Im m e d ia tely
above th e s e men i s S . W. Sw ord, V ic e - P r e s id e n t an d D ire c
t o r o f S u p e r v is io n .
I
T here a r e s i x t e e n e x e c u tiv e s on th e Company r o s - I
i
t e r , b u t th e A nnual R e p o rt l i s t s n i n e . T here i s no o r -
i
g a n iz a tio n c h a r t f o r th e Company; i n f a c t , l i n e s o f j
a u t h o r i t y a re r a t h e r c o n fu s in g . F ig u r e s 1 an d 2 a re a t -
j te m p te d i n t e r p r e t a t i o n s o f o p e ra tio n s by m eans o f th e u se
i
| o f a n o r g a n iz a tio n c h a r t , p r e s e n t and f u t u r e .
| T h is Company h a s h a d su ch s tre n u o u s g ro w th i n th e
j i
; p a s t d ecad e t h a t c e r t a i n r e o r g a n i z a t i o n a l c h an g es a p p e a r !
i
; to be p r e v a le n t by t h e i r a b s e n c e . T here sh o u ld be som e- (
I
w hat on an e x p la n a tio n o f th e f u t u r e o r g a n iz a tio n c h a r t ,
j The E x e c u tiv e C om m ittee i s d i r e c t l y r e s p o n s ib le t o th e
! B oard o f D i r e c t o r s . The M anagement C om m ittee s h o u ld be
I m ore o f a p o lic y and p la n n in g com m ittee th a n i t i s a t th e
J p r e s e n t t im e .
! The in s u ra n c e d i v i s i o n sh o u ld be on th e l i n e w ith
, th e o th e r d i v i s i o n s , b u t i f th e Company k e e p s t h e i r u n -
i '
| d e r w r it i n g w ith a n o u ts id e f i r n , a s i t d o es now, i t w ould
STOCKHOLDERS
I BOARD OF MjREdTORT"]
EXECUTIVE COMMITTEE
CHAIRMAN OF THE BOARDl
M ANAGEM ENT COMMITTEE"!-
V ,P . LOANS & SUPERVISION
a s s t . Dir e c t o r s u ie r v t s io n
I SUPERVISORS 1
— X ------------
BRANCH MANAGERS
PRESIDENT1
V .P . SALES CONTRACTS"!
SXjPERVlSOKin
BRANCH MANAGERS I
FIGURE 1
PRESENT ORGANIZATION CHART
-i SECRETARY & C OHTRQT.T.BR|
1 ASST. CONTROLLER I
-I ASST SEC. & STATISTICS
ASST. SEC. & COUNSEL I
-| ADVERTISING MANAGaR~i
H SUPPLY & EQUIP. MGR. I
-i TREASURER. AUDITOR!
H
o >
EXECUTIVE COMMITTEE U
INSURANCE DIVISION U
■ -
STOCKHOLDERS
BOARD OP DIRECTORS
CHAIRMAN O ’ P.THE BOARD
M ANAGEM ENT CCMMITTEE I
FRESIDENT
PUBLIC RELATIONS & ADVERT.
V .P . A l m f S f f g m f r g n I V .P . SALES DIVISIOlFI I V .P . LOAltS & OPE RATIONS I I V .P . FltiANSf
BLDG. & SUPPLY t
PERSONNEL |
i - C TRAINING 1
OPERATIONS ASST. V .P . LOANS
-4 DEVELOiMENT 1 TRAININGl----
TOklJOHY MGRS.' 1 I SUPERVISORS~l-
BRAHGH MANAGERS J -
CONTROLLER
ASST. SE C Y .
HOUSE COUNSEL U
FIGURE 2
FUTURE ORGANIZATION CHART
H
18
be d i f f i c u l t t o i n t e g r a t e i t o n to t h e l i n e .
T r a in in g a p p e a rs i n two p la c e s a s i t c o u ld o r i g i
n a te i n o p e r a tio n s o r i n a s t a f f / a d m i n i s t r a t i v e l e v e l ,
w h ich i s u s u a lly th e c ase *
The p e rs o n n e l d i r e c t o r c a n r e p o r t d i r e c t l y to th e
P r e s id e n t o r c o u ld come u n d e r a n a d m i n i s t r a t iv e o f f i c e r
when th e Company r e a c h e s p r o p o r tio n a te s iz e *
E ach d i v i s i o n and b ra n c h o f th e d i v i s i o n w ould have
t
i
t h e i r own c h a r t w hich c o u ld e a s i l y be w orked out* T here
i
c o u ld be m ore o r l e s s d e p a rtm e n ts d e p e n d in g on th e s i z e o f j
o p e r a t io n s . j
i
C a p it a l s t r u c t u r e * When a tte m p tin g t o a n a ly z e a
company *s g ro w th , c a p i t a l s t r u c t u r e , an d g e n e r a l f i n a n c i a l
t r e n d s , one may b e t t e r f a c i l i t a t e h i s p r e s e n t a t i o n w ith a
| g ra p h ic d i s p l a y . On th e f o llo w in g p ag es we f i n d F ig u re s j
I “ !
i 3 th ro u g h 6 f o r th e s e d a ta *
! F ig u re 3 S c h e d u le o f C a p i t a l i z a t i o n
j F ig u re 4 T o ta l B u s in e s s Volume
i F ig u re 5 R e c e iv a b le s O u ts ta n d in g and G ro ss Income
i F ig u re 6 N et Income ( A f te r T a x e s)
[ l o s t o f th e s e d a ta w i l l be i n t e r p r e t e d i n th e v a rio u s s e c -
1 t i o n s o f th e r e p o r t .
i
i
!
H e a lth o f e a r n in g s g ro w th * The e a r n in g s grow th o f
th e Company h a s b e en a s h e a lth y as th e in c r e a s e o f b u s i - j
I n e s s . The r i s e i n a b s o lu te d o l l a r f i g u r e s p o in ts t o
1 phenom enal g ro w th . The e n t i r e p i c t u r e i s n o t shown h e r e .
(000 omitted)
1946 1947 194S
1949
...
1951 1952
1253_ 1254.
1955 1956
____ 1257
Senior Term Debt
1,000 1,000 1,000 3,000 3,000 4,000
6,120
Subordinated Debt 87 57
29
—
215 750 750 1,270 1,790 2,070 3,500 3,500
C ap ital Stock 550 1,017. 1,100 1,100 1 j 100 1,675 1,675
2,941
2,438 2,629 3,433 3,923
C ap ital Surplus 3 3 3 3 3 22 33 254 819 1,131 1,896 1,895
Retained Earnings 12
43
130 228 256 2p2
m
pop 512 595 750
T otal 652 1,120 1,262 1,331 1,574 3,699
3,862 5,970
8,559 9,384 13,424
16,188
FIGURE 3
B U D G E T FINANCE PL A N —SC H E D U L E O F CAPITALIZATION
45
40
35
30
25
20
15
10
(m illio n
# )
0
C O
05
r -\
D -
0 5
i -1
00
05
r l
05 O H C O C O in C O
i n i n m in in m i n
05 05 05 05 05 05 05 05
H i — i i — 4 i — t H H rH H
FIGURE 4
TOTAL BUSINESS V O L U M E
to
o
RECEIVABLES OUTSTANDING I I
GROSS INCJME {==:
30 30
25
20
15
10
( m illio n
# )
0
25
20
_15
10
0
1946 1947 1948 1949 1950 1951 1952 1 9 5 3 1 9 5 4 1 9 5 5 1 9 5 6
FIGURE 5
RECEIVABLES OUTSTANDING AND GROSS INC (ME g
4636
960
800
960
800
640 640
480 480
520
160
( 0 0 0 ) “
0
320
160
to
sF
03 03
H
C D 03
a >
rH
O
ID
o >
rH
ID
03
0 1
ID
o
r H
C O
ID
03
rH
ID
0 3
rH
lO
ID
0 3
r H
C O
ID
03
i — 1
FIGURE 6
NET INCCUE AFTER TAXES
to
to
23
The o n ly y e a r , i n th e l a s t few y e a r s , w here t h e r e h a s b een
a s u b s t a n t i a l in c r e a s e i n e a r n in g s p e r s h a re was i n 1952
when e a r n in g s p e r s h a re w ent from. 66 e e n ts i n th e p re v io u s
y e a r t o $ 1 .0 4 •
I n th e l a s t few y e a r s th e r e h a s b een a s u b s t a n t i a l
in c r e a s e i n th e num ber o f s h a r e s o u ts ta n d in g , th e re a s o n s
b e in g ( 1 ) th r e e s t r a i g h t y e a r ly f i v e p e r c e n t s to c k d i v i
d e n d s , (2 ) an e x e r c is e o f s to c k o p tio n s , (3 ) c o n v e rs io n o f
j
a g r e a t p o r tio n o f th e s i x t y c e n ts c o n v e r tib le p r e f e r r e d !
I ’ 1
I s to c k , and (4 ) a c q u i s i t i o n o f co m p a n ie s.
. I
Even th o u g h f i r s t q u a r t e r n e t in c a n e r o s e f r a n I
$ 1 4 5 ,3 8 4 i n th e c o rre s p o n d in g f i r s t q u a r t e r o f 1955 t o
: $ 1 5 5 ,9 4 8 i n 1956, p e r s h a re e a r n in g s d ro p p ed from 29 c e n ts
i
I
a s h a re to 22 c e n ts a s h a r e . H ow ever, d u r in g t h i s p e r io d ,
; th e s h a re s o u ts ta n d in g r o s e f r a n 3 5 9 ,2 7 9 t o 4 9 7 ,3 3 5 . As i
! m ost o f th e c o n v e r tib le s to c k i s a lr e a d y c o n v e r te d , an d !
Im ost o f th e s to c k o p tio n s have b e en e x e r c i s e d , i f th e
; i
Company w ould a n i t s to c k d iv id e n d s from th e p i c t u r e f o r j
( J
a w h ile , B udget F in a n c e P la n * s e a r n in g s p e r s h a re w ould show
; good i n c r e a s e s . As th e F ig u r e s i n th e s e c t i o n on c a p i t a l
s t r u c t u r e i n d i c a t e , th e a b i l i t y o f th e Company to e a r n h a s
■ i
a p p e a re d v ery g o o d . The e a r n in g s p e r sh a re show t h a t
: s to c k h o ld e r s a r e n o t b e n e f i t i n g from th e h e a lth y e a r n in g s
; and t h a t th e c a p i t a l i z a t i o n o f th e Company may be a t f a u l t
t J
j r a t h e r th a n th e e a r n i n g s . !
24
The h ig h c o s t o f money i n 1956 and 1957 may im p a ir
p r o f i t m a rg in s t o a g r e a t e x t e n t , a s th e c o s t o f b o rro w in g
i s a b o u t t w e n t y - f iv e p er c e n t o f t o t a l c o s t s .
The fu tu r e lo o k s v ery g o o d , e s p e c i a l l y i f th e money
s i t u a t i o n l o o s e n s . I n c r e a se d e f f i c i e n c i e s i n o p e r a tio n s
and in c r e a s e d e x p a n sio n i n th e volum e o f b u s in e s s and r e
c e iv a b le s o u ts ta n d in g w i l l add t o a b e t t e r p r o f i t p i c t u r e .
S a le s c o n t r a c t s . F or p u rp o ses o f e v a lu a t in g th e
Company*s h i s t o r y o f s a l e s c o n t r a c t p u r c h a s e s , one m ust go
back t o th e y e a r 1 9 4 5 . F ig u r e 7 t r a c e s two im p o rta n t
i s t a t i s t i c a l t r e n d s . The to p l i n e , or volum e o f s a l e s i
i j
j c o n t r a c t s , i n d i c a t e s the u n s t a b le r i s e o f p u r c h a s e s . One j
i r e a s o n f o r t h i s i s t h a t w h o le s a le or w f lo o r e d ” p a p e r, p lu s
!
I b u lk p u r ch a se s frcm o th e r co m p a n ies, are grouped a lo n g
t
i w ith r e t a i l s a l e s c o n t r a c t p u r c h a s e s . The b ottom l i n e , i
I I
: s a l e s c o n t r a c t s r e c e i v a b l e , g iv e s a c le a r e r and t r u e r !
j i
; p ic tu r e o f a l l th e o p e r a t io n . F ig u r e 8 i n d i c a t e s t h a t
' th e r e h a s b e e n no lo n g ran ge p la n f o r e i t h e r l i q u i d a t i o n
\ I
' or b u ild in g up o f s a l e s c o n t r a c t s .
1 In th e 1954 A nnual R e p o r t, m anagem ent s t a t e d th a t
j
I th e w r it in g o f a g r e a te r p e r c e n ta g e o f lo a n s and r e d u c in g
!
: c o n t r a c t p u r c h a se s t o e le v e n p er c e n t gave th e Company
g r e a t e r d i v e r s i f i c a t i o n *
| In S o u th ern C a lif o r n ia , w here B udget F in a n ce P la n i
<
t
h as th e g r e a t e s t c o n c e n t r a tio n o f o f f i c e s , th e t e s t i n g o f
J L ^ c £ OUv | vvv
1 4 ,0 0 0 ,0 0 0
1 3 ,5 0 0 ,0 0 0
i s . o n o . o o o
i d ,
1 3 .0 0 0 .0 0 0
1 2 .5 0 0 .0 0 0 .
1 2 , 0 0 0 , 000“
1 1 ,5 0 0 ,0 0 0
, 5 ,5 0 0 ,0 0 0
5 ,0 0 0 ,0 0 0
4 ,5 0 0 ,0 0 0 “
t > 1 r\r\r\ r\ r\r\
25
, u u u , u u u
3 .5 0 0 .0 0 0
3 .0 0 0 .0 0 0
2 .5 0 0 .0 0 0
2 .0 0 0 .0 0 0
1 .5 0 0 .0 0 0
1, 0 0 0 ,0 0 0
5 0 0 ,0 0 0
C O C O G O 05 o rH 02 C O to to >
ID C O C O to to to to to
05 05 05 05 05 05 05 05 05 05 05 05 05
rH rH rH rH ( — 1 rH rH H rH rH rH H rH
FIGURE 7
BUDGET FINANCE FLAN'S SALES CONTRACT V O LU M E
AND RECEIVABLES OUTSTANDING
H H 1 CO tO O ? 0 3
cn O cn O c j i O 01
^ " 6 ^ '< A ^ ^ ^ ^
1945
1946
1947
1948
1949
1950
1951
1952
1953
1954
1955
1956
FIGURE 8
BUDGET FINANCE PLANVS SALES CONTRACT, V O L U M E AS A
PERCENTAGE OF TOTAL V O L U M E
to
C D
27 I
I
th e v a r io u s p h a s e s o f c o n tr a c t p u rc h a s in g h a s b e e n done*
The g r e a t e s t f a c t o r i n th e o p e r a tio n o f t h i s f u n c t i o n i s
c e n t r a l i z a t i o n v e rs u s d e c e n t r a l i z a t i o n . B udget F in a n c e
P la n h a s gone from one t o th e o th e r an d b ack a g a in , c la im
in g a t t h i s tim e t h a t a c e n t r a l i z e d o p e r a tio n i s th e b e s t
f o r t h e i r n eeds*
CHAPTER I I I
CONSUM ER CREDIT
A company p la n n in g t o e n t e r or expand in th e f i e l d
o f s a l e s c o n t r a c t f in a n c e sh o u ld make i t s e l f aware o f th e
v a r io u s c o m p e titio n s i t w i l l e n c o u n te r . T h is c h a p te r a t
tem p ts to i n d i c a t e th e v a r io u s * r e a so n s f o r e n t e r in g t h i s
f i e l d , what c o m p e tito r s have d o n e , and w hat p a r t o f th e
m ark et th e d i f f e r e n t f i n a n c i a l and n o n - f in a n c ia l i n s t i t u
t io n s h o ld .
J The u ltim a te aim o f t h i s c a s e stu d y i s t o d e t e r -
j m in e , and a p p r a ise w h eth er or n o t th e p a r t ic u la r c a se p r o -
1 blem or en d ea v o r i s f e a s i b l e . When w o r k in g w ith th e d a ta
I
i
| o f one p a r t ic u la r e n t i t y one may becom e e n g u lfe d by
! i
; m in u ta e and s t a t i s t i c s w h ich are p e c u lia r t o th e company j
! o n ly . In t a k in g a s c i e n t i f i c ap p roach t o any p ro b lem , j
I :
; I
j one s h o u ld s t e p back a t f i r s t and ta k e a b ro a d , com pre
h e n s iv e v ie w .
i j
Consumer c r e d i t i s now a h ig h ly a c c e p te d p a r t o£
i A m erican l i f e , and h a s g a in e d im p o rta n t r e c o g n it io n and
; a c c e p ta n c e . A c co rd in g t o T a b le s I and I I , consum er e r e -
i
, d i t h a s r i s e n from | 7 . 2 2 b i l l i o n i n 1 9 3 9 , t o # 1 7 .3 0 b i l
l i o n i n 1 9 4 9 , t o o v er #43 b i l l i o n i n 1957 (4 3 ,2 7 4 m i l l i o n
~ '
I
TABUS I
CONSUMER CREDIT BY MAJOR PARTS
(000,000 e m itte d )
i
I n s ta lm e n t C r e d it
A nt cm o b i1©
End o f Y e a r T o ta l T o ta l P ap er
1939 7 ,2 2 2 4 ,5 0 3 1 ,4 9 7
1941 9 ,1 7 2 6 ,0 8 5 2 ,4 5 8
1945 5 ,6 6 5 2 ,4 6 2 455
1949 1 7 ,3 0 5 1 1 ,5 9 0 4 ,5 5 5
1950 2 1 ,3 9 5 14,703 6 ,0 7 4
1951 2 2 ,6 1 7 1 5 ,2 9 4 5 ,9 7 2
1952 2 7 ,4 0 1 1 9 ,4 0 3 7 ,7 3 3
1953 3 1 ,2 4 3 2 3 ,0 0 5 9 ,8 3 5
1954 3 2 ,2 9 2 2 3 ,5 6 8 9 ,8 0 9
1955 3 8 ,6 7 0 2 8 ,9 5 8 1 3 ,4 2 2
1956 4 2 ,0 9 7 3 1 ,8 2 7 1 4 ,4 5 9
1957
(O c t.)
4 3 ,2 7 4 3 3 ,5 0 4 1 5 ,5 7 9
O th er Con- R e p a ir and Non-
sum er Goods m o d e rn !z a - P e rs o n a l I n s ta lm e n t
P aper t i o n lo a n s lo a n s C r e d it
1 ,6 2 0 298 1 ,0 8 8 2 ,7 1 9
1 ,9 2 9 376 1 ,3 2 2 3 ,0 8 7
816 182 1 ,0 0 9 3 ,2 0 3
7 ,7 0 6 898 2 ,4 3 1 5 ,7 1 5
4 ,7 9 9 1 ,0 1 6 2 ,8 1 4 6 ,6 9 2
4 ,8 8 0 1 ,0 8 5 3 ,3 5 7 7 ,3 2 3
6 ,1 7 4 1 ,3 8 5 4 ,1 1 1 7 ,9 9 8
6 ,7 7 9 1 ,6 1 0 4 ,7 8 1 8 ,2 3 8
6 ,7 5 1 1 ,6 1 6 5 ,3 9 2 8 ,7 2 4
7 ,6 3 4 1 ,6 8 9 6 ,1 6 3 9 ,7 1 2
8 ,5 1 0 1 ,8 9 5 6 ,9 6 3 1 0 ,2 7 0
8 ,2 3 6 1 , 988 7 ,7 0 1 9 ,7 7 0
S o u rc e s B oard o f G o v ern o rs o f th e F e d e ra l R eserv e S ystem . F e d e r a l R e se rv e
B u l l e t i n (W a sh in g to n , D.G *j U n ite d S t a t e s Governm ent P r i n t i n g O f f ic e , 1 9 5 7 ), p# 1400.
ro
€ 0
TABLE I I
INSTALMENT, CREDIT - BY HOLDER
(0 0 0 ,0 0 0 Q u itte d )
FINANCIAL INSTITUTIONS RETAIL OUTLETS
1
■End
j o f
I Y ear
T o ta l
I n s t a l
m en t
C r e d it
T o ta l
Commer
c i a l
Banks
S a le s
F i
nance
C o 1 s
Con
sum er
F i -
C r e d it nance
U nions C of s O ther T o ta l
D e p t.
S to r e s
F u r n i
tu r e
S to r e s
A p p li
an ce
S to re
A uto
m o b ile
datrs. O ther
1939 4 ,5 0 3 3 ,9 6 5 1 ,0 7 9 1 ,1 9 7 123 657 1 ,4 3 8 354 439 183 123 339
1941 6 ,0 8 5 4 ,4 8 0 1 ,7 2 6 1 ,7 9 7 198 759 1 ,6 0 5 320 496 206 188
395
1945 2 ,4 6 2 1 ,7 7 6 745 300 102 629 686 131 240 17 28 270
1949 1 1 ,5 9 0 9 ,2 4 7 4 ,4 3 9 2 ,9 4 4 438 1 ,4 3 6 2 ,3 3 3 596 740 178 236 583
1951 1 5 ,2 9 4 1 2 ,1 2 4 5 ,7 7 1 3 ,6 5 4 635 1 ,5 5 5 509 3 ,1 7 0 924 810 243 290 903
1953 2 3 ,0 0 5 1 8 ,9 6 3 8 ,9 9 8 5 ,9 2 7 1124 2 ,1 3 7 777 4 ,0 4 2 1 ,0 6 4 1 ,0 0 4 377 527 1 ,0 7 0
1955 2 8 ,9 5 8 2 4 ,4 5 0 1 0 ,6 0 1 8 ,4 4 3 1678 2 ,6 5 6 1 ,0 7 2 4 ,5 0 8 1 ,5 1 1 1 ,0 4 4 365 487 1,101
1957
(O c t,
3 3 ,5 0 4
)
2 9 ,2 4 1 1 2 ,7 4 9 9 ,5 8 5 2415 3 ,2 2 9 1 ,2 6 3 4 ,2 6 3 1 ,1 3 4 1 ,0 8 0 365 533 1 ,1 5 1
S ource} B oard o f G o v ern o rs o f th e F e d e ra l R eserv e S y stem , F e d e r a l Re se rv e
B u l l e t i n (W ash in g to n , D .C .s U n ite d S t a t e s Governm ent P r i n t i n g O f f ic e , 1 9 5 7 ), p . 1400*
31
O c to b e r, 1 9 5 7 ).^ Consum er c r e d i t i s made u p o f tw o b ro a d
c a t e g o r i e s ; in s ta lm e n t c r e d i t and n o n in s ta lm e n t c r e d i t .
I t w ould be i n t e r e s t i n g t o n o te t h a t in s ta lm e n t c r e d i t i s
g ro w in g a t a much f a s t e r r a t e th a n i s n o n in s ta lm e n t c r e d i t .
I n 1 9 39, in s ta lm e n t c r e d i t was a t a 1 .6 7 :1 r a t i o t o n o n -
in s ta lm e n t c r e d i t . I n 1949, t h i s r a t i o r o s e t o 2 .0 4 : 1 , and
i n O c to b er 1957, i t c lim b ed t o a r a t i o o f 3 .4 2 : 1 . n o n -
in s ta lm e n t c r e d i t h a s grown a b o u t 3 .0 6 tim e s i t s 1945
f i g u r e . S in c e 1 9 4 5 , th e end o f W orld War I I , n o n i n s t a l
m ent c r e d i t h a s grown a p p ro x im a te ly 3 .0 6 tim e s , w h e re a s,
i n 195 7, we f i n d t h a t in s ta lm e n t c r e d i t h a s s w e lle d t o an
i n c r e d i b l e 1 3 .4 tim e s s in c e 1 9 4 5 .
The F e d e r a l R e se rv e e s tim a te s t h a t n e a r ly 85 p e r
i
! c e n t o f a l l consum er in s ta lm e n t p a p e r i s h e ld by f i n a n c i a l
i n s t i t u t i o n s . T a b le I I I g iv e s a b e t t e r p i c t u r e as t o th e
! breakdow n o f i n s t i t u t i o n s .
; i
| Consum er i n s ta lm e n t c r e d i t i s a f i e l d d o m in a ted by j
, i
' la r g e f i n a n c i a l i n s t i t u t i o n s . T a b le I I h a s I n d ic a te d th e
p r o p o r tio n o f c r e d i t by h o l d e r s . R e t a i l d e a l e r s o r i g in a te
! m o st o f th e i n s ta lm e n t c r e d i t e x te n d e d t o p u rc h a s e r s o f
I goods and s e r v i c e s , su c h as a i r t r a v e l and d e n ta l w o rk .
: Many d e a l e r s , h o w e v er, do n o t c a r r y t h e i r own p a p e r , b u t
i
I ________
^B oard o f G o v ern o rs o f th e F e d e r a l R e se rv e S ystem ,
I F e d e r a l R e se rv e B u l l e t i n (W ash in g to n , D .C .: U n ite d S t a t e s j
j G overnm ent P r i n t i n g O f f ic e , 1 9 5 7 ), p . 1 4 00.
TABLE I I I
HOLDERS OF CONSUM ER INSTAIMENT CREDIT
( S e le c te d D a te s )
1
I
1
1
1 End o f Y ear
T o ta l
O u ts ta n d in g
( t M illio n s )
PERCENTAGE OF TOTAL HELD BY
FINANCIAL INSTITUTIONS .
T o ta l
C a n m e rc ia l
Banks
S a le s
F in a n c e
C o 1 s
Consum er
F in a n c e
Co*s
O th er F i
n a n c i a l I n
s t i t u t i o n s
R e t a i l
O u tle ts
! 1941 6 ,0 8 5 74 28 30 9 7 26
1945 2 ,4 6 2 72 30 12 18 12
28
1948 8 ,9 9 6 79 39 22 9 9 21
1950 1 4 ,7 0 3 80 39 25 9 7 20
1953 2 3 ,0 0 5 82 39 26 9 8 18
1955 2 9 ,0 2 0 84 37 29 9 9 16
N o te : F e d e r a l R eserv e E s tim a te s
S o u rc e : B oard o f G o v ern o rs o f th e F e d e r a l R e se rv e S ystem , ^ R e v is io n o f Consumer
C r e d it S t a t i s t i c s , ” F e d e r a l R eserv e B u l l e t i n . A p r il 1953, p . 35* _
0 1
to
33
s e l l a lm o st a l l o f t h e i r p a p e r; w h e re a s, eonsum er i n s t a l
m ent p u rc h a s e s o f o t h e r goods a r e r e t a i n e d (by a b o u t f i f t y
p e r c e n t) i n p a r t , by th e r e t a i l e r s such a s S e a rs Roebuck
A ccep tan ce C o r p o r a tio n .
The co m m ercial b a n k e r , i n th e U n ite d S t a t e s , h a s
c o m p le te ly changed h i s p h ilo s o p h y to w a rd s consum er i n s t a l
m ent le n d in g t o w here th e b an k s now h o ld a b o u t f o r t y p e r
c e n t o f a l l i n s ta lm e n t c r e d i t . The w e s te rn b ra n c h banks
a re p a r t i c u l a r l y a g g r e s s iv e . The Bank o f A m erica h o ld s
o v er t e n p e r c e n t o f th e above am ount.
)
j S a le s f in a n c e com panies h o ld a b o u t one h a l f o f th e
! t o t a l a u to m o b ile p a p e r o u ts ta n d in g . G e n e ra l M o to rs Ac
c e p ta n c e C o r p o r a tio n , C . I . T . , and C om m ercial C r e d it Com
pany h o ld a b o u t f i f t y p e r c e n t o f a l l s a l e s f in a n c e o u t
s ta n d in g and d o m in ate t h i s in d u s t r y by f a r .
The c r e d i t u n io n s do n o t h o ld a s i g n i f i c a n t p e r -
i
! c e n ta g e o f consum er d u r a b le p a p e r . The p e r s o n a l lo a n
| com pany, h o w e v e r, i s t a k i n g a b ig g e r i n t e r e s t i n t h i s
: ty p e o f f i n a n c i n g .
! C r e d it e x p a n s io n . Many e c o n o m ists f e e l t h a t co n -
. sum er c r e d i t i s e x p a n d in g a t to o f a s t a r a t e . In th e
!
M arch. 1956 i s s u e o f F o rtu n e M a g az in e, G. B urck and S .
.
P a rk e r c la im t h a t consum er d e b t m u st slov/ down and a d ju s t
34
2
t o th e n a t i o n ’ s c a p a c ity f o r i n c u r r i n g d e b t.
A c c o rd in g t o F ig u r e s 9 and 1 0 , tw o im p o rta n t s t a
t i s t i c s i n F o rtu n e 1s su rv e y w ere* (1 ) th e t o t a l f i x e d p ay -
i
m en ts a s a p e r c e n t o f t o t a l (n o n -fa im ) d is p o s a b le in co m e,
and (2 ) th e in s ta lm e n t d e b t and l i q u i d a s s e t s o f d e b to r s
and n o n - d e b to r s .
The am ount o f s h o r t term d e b t w hich p e o p le c a n a s
sume d ep en d s upon th e s i z e o f t h e i r t o t a l f ix e d p a y m e n ts.
F ix e d paym ents to o k h a l f a g a in a s much o f th e n a t i o n ’ s
i d is p o s a b le n o n -fa rm incom e i n 1955 a s i t d id i n 1 9 48. The
p e r c e n t o f t o t a l f i x e d paym ents to d is p o s a b le incom e r o s e j
|
from ab o u t tw e n ty p e r c e n t t o t h i r t y p e r c e n t ; th e g r e a te s t'
| p a r t o f th e in c r e a s e due t o th e r i s e o f th e in s ta lm e n t
i
; d e b t.
When lo o k in g a t th e p o s i t i o n o f th e d e b to r we f i n d
| g r e a t ch an g es from 1948 t o 1955. The l i q u i d a s s e t s o f ■
i
: d e b to r s move downward from $1800 p e r c a p i t a t o l e s s th a n |
j $ 1 6 0 0 , w h ile th e p e r c a p i t a d e b t was r i s i n g from $475 t o
f 1
■ n e a r ly $ 8 0 0 . On th e o th e r h a n d , we f i n d t h a t th e l i q u i d !
j a s s e t s o f n o n - d e b to r s , n o t in c lu d in g s to c k h o ld in g , r o s e
from $3800 p e r c a p i t a i n 1948 to $6500 i n 1 9 55.
i
| One o f th e m ain r e a s o n s f o r th e r i s e i n consum er
: in s ta lm e n t c r e d i t a f t e r W orld War I I w as th e r i s e i n a d - j
i
; ------------------------------------; ------------------------------------------------ I
1 ^ G i l b e r t B urck and S a n fo rd P a r k e r , nThe Coming
■ T urn i n Consum er C r e d i t , ” F o rtu n e , L I I I (M arch, 1 9 5 6 ),
9 8 -1 0 3 , 2 4 0 -2 4 8 .
35
Z0%
H ousing
1948
1955
(End o f Y e a r)
TOTAL FIXED PAYMENTS AS PER GENT O F
TOTAL DISPOSABLE -INCOME* (NON-FARM)
\/7X A verage D ebts
| | A vers.ge L iq u id
! A s s e ts s
I
6,000
I
|
.4,000
j
2,000
I
1955
NON-DEBTORS
1948
NON
1 9 4 8 1 9 5 5 1 9 4 8 1 9 5 5
DEBTORS
FIGURE 10
INSTALMENT DEBT A N D LIQUID ASSETS
S o u rc e : G i l b e r t B urck and S a n fo rd P a r k e r , w The
Cem ing T urn i n Consum er C r e d i t , ” F o r tu n e , L I I I (M arch,
1 9 5 6 ), 9 8 -1 0 3 , 240-248*
36
v e r t i s i n g . A d v e r tis in g h a s made th e consum er b o th m ore
aw are and m ore r e c e p t i v e o f c r e d i t . I t h a s a l s o made th e
a v e ra g e A m erican much more d e s ir o u s o f 1 1 ow ning now, p a y in g
l a t e r . 1 1
E f f e c t s o f th e money m a r k e t. When a n a ly z in g th e
p e r s o n a l f in a n c e i n d u s t r y , one f i n d s t h a t t h i s i s a s e r
v ic e r a t h e r th a n p rim a ry i n d u s t r y . The A m erican p u b lic
r e c e i v e s many b e n e f i t s from th e p e r s o n a l f in a n c e com panies
su c h a s , f i n a n c in g , in s u r a n c e , a d v ic e , and o th e r r e l a t e d
in s ta lm e n t f i n a n c in g s e r v i c e s . A p rim a ry i n d u s tr y c r e a t e s ,
1
I
a c t s a s in te r m e d ia te o r d i s t r i b u t e s c a p i t a l g o o d s, o r j
goods f o r u l ti m a t e c o n su m p tio n . An i n d u s t r i a l f i n s may
h ave i t s pro b lem s o f p r i c e - f i x i n g , p r o d u c t i v i t y , p ro d u c -
i
j t i o n c o n t r o l , an d a l l th e r e l a t e d p r o d u c tio n r a t i o s ,
jw h e re a s , t h i s i n d u s t r y f s r a t e s a r e p r e f ix e d i n m o s t s t a t e s « |
I The f o llo w in g i n t e r e s t r a t e s d a ta a re o f th e u tm o st |
1 im p o rta n c e t o th e sm a ll lo a n com pany. B udget F in a n c e P la n !
i !
. e s tim a te s t h a t o v e r th e y e a r s th e a v e ra g e p e rc e n ta g e o f
j t o t a l b u s in e s s and o p e r a tin g e x p e n se s t h a t th e Company i n -
I
! c u r s , w h ich a r e a t t r i b u t a b l e t o i n t e r e s t c o s t s , o r c o s t o f j
i i
' b o rro w in g m oney, i s 22 p e r c e n t . I t i s p l a i n t o se e h e re
t h a t th e money m a rk e t a f f e c t s t h i s ty p e o f f i n a n c i a l i n
s t i t u t i o n t o a g r e a t d e g r e e . The above f i g u r e i n d i c a t e s
I
j t h a t th e c o s t o f b o rro w in g m oney, o r the i n t e r e s t r a t e j
'w h ic h th e Company h a s t o pay t o b o rro w , i s a l l im p o r ta n t.
37
I n S eptem ber and O cto b er o f 1957, i n t e r e s t r a t e s
w ere a t t h e i r peak* The a v e ra g e r a t e on a l l lo a n s t o b u s i
n e s s was 4*83 p e r c e n t , th e d is c o u n t r a t e was a t 3 .5 0 p e r
c e n t , and th e com m ercial p a p e r , p rim e , f o u r to s i x m onths
3
was a t 4*00 p e r c e n t . T hese a re a v e ra g e f i g u r e s c o m p iled
a c r o s s th e U n ite d S t a t e s .
E xpanded dem ands o f c o r p o r a tio n s f o r b orrow ed f u n d s ,
i n 1 9 56, w ere su p e rim p o sed on dem ands o f co nsum ers and
b u s in e s s g e n e r a lly w hich were a lr e a d y h ig h by any p r i o r
s t a n d a r d s . By th e en d o f 1957, th e f e a r o f b u s in e s s r e -
j
c e s s io n and o th e r econom ic f a c t o r s , p ro d d ed g o v e rn m e n ta l j
I
and p r i v a t e i n s t i t u t i o n s t o s t a r t re d u c in g i n t e r e s t r a t e s , j
iA t t h i s tim e , th e r e d is c o u n t r a t e was d ro p p e d t o 2 .7 5 p e r
j
j c e n t i n m o st d i s t r i c t s . The t h r e e , and n in e t o tw e lv e
|m o n th t r e a s u r i e s and th e th r e e t o f i v e y e a r ta x a b le s a re
j 4
: y i e l d i n g l e s s i n e a r l y 1 9 5 8 . M ost b a n k e rs and b u s i n e s s -
Imen a re c la im in g t h a t th e se co n d h a l f o f 1958 w i l l se e a n I
I u p tu r n i n b u s i n e s s . I f t h i s r i s e d o es com e, i n t e r e s t
i
r a t e s w i l l p ro b a b ly be d ro p p ed t o lo w e r y i e l d s . I n d ic a

t i o n s p o in t lo w e r f o r t h i s y e a r o f 1 9 5 8 . i
|
F in a n c e com panies have b e e n d o in g m ore M t r a d i n g on I
i
th e e q u it y 1 1 i n r e c e n t y e a r s . T ren d s p o in t t o a h ig h e r
i
i
| p r o p o r tio n o f f ir m s u s in g lo n g term d e b t and m ore bank
'
; i
, . ...................................... I
3
F e d e r a l R eserv e B u l l e t i n , 0£ . c i t . . p . 1 3 60.
4I b i d .
b o rro w in g s a s opposed t o la r g e c a p i t a l f o rm a tio n and u se
o f o n e 1 s own money* S in c e th e f in a n c e com panies c a n n o t
add h i $ i i n t e r e s t r a t e s t o p r ic e a s can i n d u s t r i a l con
c e r n s , h ig h e r r a t e s c u t d e e p ly i n t o p r o f i t s * Many com
p a n ie s c u r t a i l e d b o rro w in g s i n 1957 and e n d e a v o re d t o make
h ig h e r grad e lo a n s*
I n o p p o s itio n t o l a s t y e a r ’ s d is p la y o f p e ssim ism ,
M axw ell K in g , P r e s id e n t o f P a c if i c F in a n c e Company c la im e d
t h a t J
I
• * * th e o v e r a l l c o n d itio n s I n o u r economy I
w hich g e n e ra te d th e t i g h t money s i t u a t i o n a r e j
c o n d itio n s w h ich a f f e c t o u r b u s in e s s f a v o r a b l y .
T hese a re c o n d itio n s o f fu ll-e m p lo y m e n t and a s - j
c e n d in g p u r c h a s in g pow er, i n s h o r t , a t o t a l
p r o s p e r i t y . 5
D i v e r s i f i c a t i o n * A new tr e n d i n t h e s m a ll lo a n i n -
i
! d u s tr y h a s b e e n t o d i v e r s i f y o p e r a t io n s . H o u seh o ld F in a n ce
i I
! Company, th e l a r g e s t s m a ll lo a n com pany, h a s alw ay s h a d a i
j c o n tr a r y p h ilo s o p h y . H o u se h o ld ’s m anagem ent f e e l s t h a t a n j
i
, im p o rta n t re a s o n f o r n o t d i v e r s i f y i n g o p e r a tio n s i s th e
, h ig h e f f i c i e n c y o f one s e t o p e r a tio n , b e t t e r i n t e g r a t i o n
o f p e r s o n n e l, a m ore d i r e c t a d v e r t i s i n g and p u b lic r e l a -
l
j t i o n s o u tp u t, and a m ore o v e r a l l c o n s e r v a tiv e o u tlo o k on
■ e x p a n s io n o f a l l p h a se s o f f i n a n c e . H o u se h o ld ’ s grow th
1 h a s b e e n s te a d y and e v e r-u p w a rd s . They f e e l t h a t t h e i r
5
S peech g iv e n b e fo r e th e N a tio n a l A s s o c ia tio n o f
! S e c u r ity D e a le r s , San F r a n c is c o , C a l i f o r n i a , on O cto b er
2 5 , 1 9 5 7 . ___________________________________________________
39
d i v e r s i f i c a t i o n ccm es from m ak in g a e r o s s - s e c t i o n o f lo a n s
t o many d i f f e r e n t ty p e s o f o c c u p a tio n a l g ro u p s , age g ro u p s,
and m o st o f a l l , g e o g ra p h ic a l d i s t r i b u t i o n o f t h e i r b u s i
n e s s . H igh e f f i c i e n c y and good p r o f i t s r e n d e r H ousehold
th e l e a d e r i n th e f i e l d and th e o n ly company w hich i s
a c t i v e l y lo b b y in g i n many s t a t e s to re d u c e th e r a t e o f i n
t e r e s t to th e consum er t o d ro p o u t n o n - e f f i c i e n t , m a r g in a l
s m a ll lo a n c o m p a n ie s. P a c i f i c F in a n c e Company h a s d i v e r -
i
s i f i e d by g o in g from a u to m o b ile i n s ta lm e n t c o n tr a c t f i
n a n c in g i n t o th e s m a ll lo a n f i e l d . T h is company seems to
i be a p io n e e r i n d i v e r s i f y i n g . T h e ir sm a ll lo a n o p e r a tio n
j
j h a s i n t e g r a t e d f u r n i t u r e and a p p lia n c e f i n a n c in g i n t o th e
;
lo a n b ra n c h e s . They have a ls o gone i n t o t r a i l e r o r m o b ile
i heme f i n a n c e , b o a t f in a n c e and a i r t r a v e l f i n a n c e .
S e a b o rd F in a n c e Company i s th e m o st a c t iv e sm a ll j
lo a n company i n consum er d u ra b le in s ta lm e n t f i n a n c i n g . j
!
' They a re c o n ti n u a l l y lo o k in g f o r new w ays to f in a n c e new
!
| p ro d u c ts and s e r v i c e . T h e ir scope o f o p e r a tio n c o v e rs
i
| e v e r y th in g from a u to m o b ile s t o r e d u c in g sy s te m s, d o o r - to -
!
! d o o r p o ts and p an s s a l e s , and a new c o n t r a c t w ith th e Re-
1 i
! m in g to n Rand C o r p o ra tio n to f in a n c e t y p e w r i t e r s . S e a b o ard I
! i
i I
i f e e l s t h a t b e in g i n b o th lo a n s and s a l e s c o n tr a c t s i s v e ry |
I
im p o r ta n t. A ll S e a b o ard m an ag ers a r e t r a i n e d t o h a n d le |
I
b o th f u n c t i o n s . B udget F in a n c e P la n i s a g a in d i v e r s i f y i n g i
I i
i n th e s a l e s c o n t r a c t f i e l d : h o w ev er, i n S o u th e rn C a l i f o r -
<
n i a th e o p e r a tio n w i l l be c e n t r a l i z e d , w ith one c e n t r a l
40
p u rc h a s in g and c r e d i t c l e a r i n g d e p a rtm e n t.
D i v e r s i f i c a t i o n g iv e s a company many a d v a n ta g e s .
C u ttin g i n t o a new s e c t i o n o f b o rro w e rs i s im p o rta n t f o r
e s ta b lis h m e n t o f g o o d w ill. S a le s c o n t r a c t s y i e l d a good
enough p e rc e n ta g e o f p r o f i t w here th e y can m a in ta in them
s e l v e s . R e w ritin g s a l e s c o n t r a c t s i n t o lo a n s , commonly
known a s ” f l i p p i n g , ” i s a n im p o rta n t a d v a n ta g e . A t e r
r i t o r i a l s u p e r v is o r from S e a b o ard h a s a ”f a u c e t t h e o r y .” !
He c la im s s a l e s c o n t r a c t s a r e much e a s i e r t o ” t u r n on and
o f f ” th a n l o a n s . I f th e company h a s a g r e a t d e a l o f money
! on h a n d , s a l e s c o n t r a c t s c a n be p u rc h a se d v e ry f a s t . They j
:
a ls o c a n be r u n o f f f a s t e r .
The p e r f e c t exam ple o f a w e ll d i v e r s i f i e d company
■
i
j i s C om m ercial C r e d it Company, w hich p ro v id e s th e f o llo w in g
j f u n c tio n s ? ( 1 ) w h o le s a le f i n a n c in g , (2 ) i n s ta lm e n t f i
l l n a n c in g , (3 ) co m m ercial f i n a n c in g , (4 ) f a c t o r i n g , (5 ) d i r - j
| e c t l o a n s , ( 6 ) c r e d i t in s u r a n c e , (7 ) h e a l t h in s u r a n c e , j
! (8 ) a u to m o b ile in s u r a n c e , (9 ) m a n u f a c tu r in g . i
! I
i I
j H ed g in g . Upon c o n s i d e r a ti o n o f w h e th e r t o expand j
! - j
j s a l e s c o n tr a c t p u rc h a s e s o r i n i t i a t e a p la n o f t h i s n a - J
| t u r e , one m u st c o n s id e r the f a c t t h a t s a l e s c o n tr a c t s may
! a c t a s a ” h e d g e ” a g a i n s t p r o f i t s q u e e z e s .
In C a l i f o r n i a , a s i n many o th e r s t a t e s , s m a ll lo a n
i
i
i
i I
j C om m ercial C r e d it Company, A nnual Re p o r t ( B a l t i -
| m o re , M aryl a n d , 1 9 5 6 )._ _ ______
41
law s a re f ix e d t o l i m i t maximum c h a rg e a b le r a t e s . I n a
p e rio d such a s t h i s , when c o s t s a re m o u n tin g , o n ly th e
b e s t m anaged and m o st e f f i c i e n t o p e r a tio n c a n a c h ie v e su c
c e s s f u l p r o f i t s o v e r a lo n g p u l l . In C a l i f o r n i a , we may
f i n d a t e n p e r c e n t o r e v e n one p e r c e n t p e r m onth (1 3 .6 4
p e r c e n t) d is c o u n ts i n s a l e s c o n t r a c t s .
As consum er d u r a b le s a re s o ld f o r h ig h e r p r i c e s ,
we f i n d s a l e s c o n t r a c t s no m ore u n d e s ir a b le th a n th e y a re
f o r low p r ic e d c o m m o d itie s. I n f a c t , i f a n y th in g , th e y
w ould be m ore d e s i r a b l e th a n lo a n s a t t h i s p o i n t . The
a d d -o n , o r th e d is c o u n t, i s com puted on th e p r ic e o f th e
j ite m ; t h u s , i t i s a hedge a g a i n s t r i s i n g p r i c e s . I n o th e r
i
i w o rd s, th e t o t a l p r ic e o f th e comm odity i s th e b a s i s f o r
i d e te r m in in g th e d is c o u n t; w h e re a s , i n th e e a se o f a s m a ll
i
1 lo a n , w ith a f i x e d r a t e , h ig h e r o p e r a tin g c o s ts p u t a j
i j
; sq u eeze on p r o f i t s . j
C o m p e titio n . C o m p e titio n , o r e n tr a n c e i n t o a f i e l d |
i . J
I w hich i s d o m in a ted by g ia n t f i n a n c i a l i n s t i t u t i o n s , i s n o t ;
: |
j th e e a s i e s t o f u n d e r ta k in g s . E very p h ase o f i n s ta lm e n t j
c r e d i t i s w a tch e d c lo s e l y by many o f th e v a r y in g ty p e s o f j
t
^ f i n a n c i a l i n s t i t u t i o n s . I n r e l a t i v e l y r e c e n t y e a r s th e !
! com m ercial b an k h a s e n t e r e d t h i s f i e l d t o a g r e a t e x t e n t .
1 ' ■ i
A long w ith th e b a n k , th e s a l e s f in a n c e com pany, c r e d i t \
j u n io n s , and o th e r s h ave com peted v ig o r o u s ly f o r a s h a re
; o f th e consum er I n s ta lm e n t c r e d i t m a rk e t.
42
T hese i n s t i t u t i o n s have a l l a tte m p te d new and v a r
io u s p r o c e d u re s , p o l i c i e s and in n o v a tio n s w hich w ould g iv e
them a g r e a t e r r e t u r n and a g r e a t e r p r o p o r tio n o f th e
7
m a r k e t. The p e r s o n a l f in a n c e company f i n d s a l l o f th e s e
i n s t i t u t i o n s , w ith th e p o s s ib l e e x c e p tio n o f c r e d i t u n io n s ,
a s c o m p e tito rs f o r th e ,p u r c h a s e o f in s ta lm e n t s a l e s c o n
t r a c t s # Two o th e r i n s t i t u t i o n s w hich com pete s tr e n u o u s ly
f o r s a l e s c o n tr a c t b u s in e s s a re ( 1 ) th e i n d u s t r i a l b a n k s ,
su c h a s , M o rris P la n , and (2 ) t h r i f t and lo a n c o m p a n ie s.
i
j C om parison o f th e p e r s o n a l f in a n c e company w ith j
I th e s e v a r io u s a g e n c ie s i s im p o rta n t when a tte m p tin g t o a r - '
i
| r i v e a t a c o m p e titiv e e v a l u a t i o n and a n a l y s i s . S e v e ra l
!-
| f a c t o r s a r e im p o rta n t t o m e n tio n when d o in g a c o m p e titiv e
| a n a l y s i s . The m o st im p o r ta n t f a c t o r t o m o st b o rro w e rs i s
th e am ount o f th e m o n th ly p ay m en t. O th e r f a c t o r s a re th e
| rep ay m en t p la n , th e n a tu r e and tim e in v o lv e d i n th e c re ~
« ' \
1 d i t i n v e s t i g a t i o n , th e le n ie n c y o f th e com pany, th e f i r m ’ s :
i i
i p r e v io u s r e p o s s e s s io n e x p e r ie n c e and d e lin q u e n c y h a n d lin g , I
;
i and th e v a r io u s o th e r s e r v i c e s o f f e r e d . The m ore s o p h is - I
| •
t i c a t e d th e b o rro w e r i s , th e m ore im p o r ta n t the c h a rg e s on j
1 I
; th e c o n tr a c t becom e. The s e r v ic e c h a rg e s a re n o t h a l f a s !
i i
i I
I im p o rta n t t o m o st consum ers a s i s th e am ount o f e a c h i
! !
I m o n th ly o b l i g a t i o n . I
i
1 ■ ■ ■ ! ■ I I I
; ^ H e rb e rt V. Prochnow , A m erican F i n a n c i a l I n s t i t u - ;
: t i o n s (Few Y orks P r e n t i c e - H a l l , I n c . , 1 9 5 1 ), p . 711.
43
The F e d e r a l R e se rv e B u l l e t i n and th e D ep artm en t o f
Commerce f i g u r e s i n d i c a t e why th e r e h a s b e e n such a c la m o r
t o h a n d le consum er d u r a b le s and n o n d u ra b le s and s e r v ic e
p a p e r:
P e rs o n a l C onsum ption E x p e n d itu re s 8
1929 1933 1941 1951 1955 S e p t. 1957
7 9 .0 4 6 .4 8 1 .9 2 0 8 .3 2 5 4 .0 2 8 3 .6
above i n b i l l i o n s o f d o l l a r s )
Consum er d u ra b le goods e x p e n d itu r e s have shown a re m a rk a b le
r i s e . They h a v e gone fro m :
( b i l l i o n s )
9 .2 i n 1929
t o 9 .7 i n 1941
t o 2 7 .1 i n 1951
t o 3 5 .7 i n 1955 9
t o 3 5 .0 i n 1957 (S e p t)
C o m p e titio n w ith co m m ercial b an k s h a s become a v i -
; g o ro u s t h i n g i n r e c e n t y e a r s . On th e w h o le , b a n k e rs do
! n o t s o l i c i t t h i s b u s in e s s a s a g g r e s s iv e ly a s do s m a ll lo a n
l
J c o m p a n ie s. I n m o s t p a r t s o f th e c o u n try b an k s a r e a t a
' d is a d v a n ta g e due t o n o n -b ra n c h o r u n i t b a n k in g . H ow ever,
i n C a l i f o r n i a , th e b ra n c h b a n k in g system r e n d e r s th e b anks
1 j u s t as f a v o r a b le a l o c a t i o n a s th e s m a ll lo a n c o m p a n ie s.
I The s a l e s f in a n c e co m p an ies a re u s u a lly s e t u p on a la r g e
!
! r e g i o n a l b a s i s r a t h e r th a n on a s m a ll b ra n c h b a s i s .
Q
B oard o f G o v ern o rs o f th e F e d e r a l R e se rv e S y stem ,
1 nR e v is io n o f Consum er C r e d it S t a t i s t i c s / 1 F e d e r a l R e se rv e
B u l l e t i n , A p r il 1953, p . 6 .
. c i t *
44
The f a c t t h a t th e s m a ll lo a n company may ta k e a
s l i g h t l y lo w e r ty p e r i s k th a n c o m p e tito r s , r e c e i v e s much
r e c o g n i ti o n from p r o s p e c tiv e d e a le r s * The b a s i c th in g
w hich a l l o f th e s e a g e n c ie s g iv e i s s e r v i c e . The s m a ll
lo a n company s t i l l g iv e s somewhat f a s t e r s e r v ic e and r e
q u i r e s a l i t t l e l e s s o f th e consum er th a n m o st co m p etin g
i n s t i t u t i o n s . A b a s i c d is a d v a n ta g e i s t h a t a s m a ll lo a n
company s h u ts o f f a d e a l e r due t o th e com pany1s la c k o f
| c a p i t a l . D e a le rs a ls o f a v o r sm a ll lo a n com panies o v e r
j banks and s a l e s f in a n c e com panies i n t h a t th e y a r e m ore
I l e n i e n t w ith th e co n su m er. The t h r i f t and lo a n company
! seem s to be i n a good p o s i t i o n , a s th e y can g iv e l o c a l
J b ra n c h s e r v ic e and m ost o f them s p e c i a l i z e i n s a l e s co n -
j
j t r a c t s .
t
i
j I n d u s tr y c o m p e titio n . By f a r th e m o st v ig o ro u s j
| c o m p e titio n comes from th e o th e r consum er f in a n c e com- I
<
p a n ie s . The co m p an ies go t o g r e a t le n g th s t r y i n g to p o in t
I o u t t h e i r s e r v i c e s , le n ie n c y , and p o s s ib le lo w e r e r e d i t
!
i r e q u ir e m e n ts . A p p ro x im a te ly f o u r t e e n p e r c e n t o f a l l i n
s ta lm e n t c r e d i t p a p e r i s h e ld by r e t a i l o u t l e t s . Consum er
1 !
! f in a n c e com panies a r e t r y i n g t o g e t some o f t h e s e o u t l e t s
i
t
j t o s e l l them t h e i r p a p e r . A d v e r tis in g h a s p la y e d th e
g r e a t e s t r o l e i n th e a tte m p t t o i n d i c a t e a d v a n ta g e s and |
i
j s e r v i c e s .
In 1956, th e V alue L in e In v e s tm e n t S u rv ey made a
45
s tu d y o f th e c o r r e l a t e d g ro w th o f a d v e r t i s i n g and i n s t a l -
10
m ent c r e d i t# They made 1950 th e b a se y e a r ; t h e r e f o r e ,
1950 e q u a le d one h u n d red p e r c e n t on th e in d ex # F ig u re 11
shows th e p a r a l l e l movement o f th e s e two ite m s#
I
i
10
The V alue L in e In v e s tm e n t Company (New Y ork:
A rn o ld B ernhard, and Company, I n c . , O c to b e r, 1 9 5 6 ), p . 9 9 .
1950 as 100
I n s ta lm e n t C r e d it O ut.
)
) e s t .
)
d v e r t i s in s
FIGURE 11
O ) H
to O C O
0+3©
r— 1 rH
RELATION OF ADVERTISING TO INSTALMENT CREDIT OUTSTANDING
S o u rc e : S urvey made by V alue L in e In v e s tm e n t S urvey
& Company I n c . , O c to b e r, 1 9 5 6 ), p . 9 9 .
Y ork: A rn o ld B e rn h ard
o >
CHAPTER IV
FINANCIAL CONSIDERATION
I s e x p a n sio n i n t o th e s a le s c o n tr a c t f i e l d f e a s i b l e ?
I f one would c o n s id e r the economic tr e n d s shown i n th e p re
v io u s c h a p te r he w ould c e r t a i n l y conclud e t h a t th e p o s t
World War I I r i s e i n in s ta lm e n t c r e d i t , co u p led w ith th e
consum er’s g r e a t e r aw areness and a cc ep tan c e o f c r e d i t ,
p r e s e n ts th e fo u n d a tio n f o r an e x p a n sio n i n t o t h i s f i e l d .
However, one m ust ta k e a much c l o s e r view o f th e p i c t u r e
and a tte m p t t o d e te rm in e w h eth er e n tra n c e i n t o a f i e l d
dom inated by la r g e e f f i c i e n t and season ed i n s t i t u t i o n s i s
t o be a p r o f i t a b l e u n d e rta k in g .
A case stu d y does n o t answ er e v e ry o n e ’s q u e s tio n .
i
1 I t i s an a tte m p t t o i n d i c a t e one i n d iv i d u a l com pany's d a ta •
, I
j a s compared w ith o th e r s a s a j u s t i f i c a t i o n f o r an expan- j
i i
| s io n o r c o n tr a c t i o n of one segment o f b u s i n e s s . An aw are-
' n e ss o f w hat h a s t o be se a rc h e d f o r , and a knowledge of
i
; t h a t w hich i s of im po rtance may be d e r iv e d , b u t a p r i o r
a ssu m p tio n sh o u ld n o t be made t o f i t o th e r c a s e s .
j
j F in a n c in g t h i s o p e r a t io n . One may a s k , ”Where do
| th e s e com panies o b ta in th e f in a n c in g t o be a b le t o expand
i
so r a p i d l y i f th e need a r i s e s ? ” The n eed c e r t a i n l y a r o s e ,
! and th e consumer and s a l e s fin a n c e com panies expanded many
]
1 f o l d .
48
C o n tro l and common sto c k ow nership i n the consumer
f in a n c e com panies, w ith the p o s s ib le e x c e p tio n o f th e
la r g e com panies, i s c lo s e l y h e l d . I t h as b e en r e l a t i v e l y
easy to o b ta in fu n d s o th e r th a n from common sto c k f i n a n c
i n g . P u b lic and p r i v a t e o f f e r i n g s of p r e f e r r e d s to c k and
o th e r lo n g and s h o r t term b o rro w in g i s d e s i r e d .
Budget F inance P lan*s 1956 A nnual R eport shows
c a p i t a l s u rp lu s and common s to c k t o be $ 2 ,1 4 6 ,1 6 2 out of
t o t a l l i a b i l i t i e s and c a p i t a l of $ 2 7 ,2 5 0 ,8 0 2 . (See Balance!
S h eet i n Appendix B .) The p r e f e r r e d sto c k i n th e 1956 j
R eport sto o d a t $ 5 ,1 8 2 ,8 5 0 w ith th e l a r g e s t p a r t o f t h i s !
j b e in g i n s e r i a l p r e f e r r e d s to c k of $ 2 ,6 9 6 ,6 7 0 . T his s e r ia l!
p r e f e r r e d i s c u r r e n t l y b e in g u s e d i n a c q u i s i t i o n s of o th e r
com panies and p r o p e r t i e s . The p r e f e r r e d s to c k was is s u e d
i
I i n t h i s case so t h a t th e company would n o t have to u se
|
, borrow ed money i n t h e i r p u rc h a s in g of new com panies. • '
! j
, In th e be/ginning o f 1958, Budget F inance P la n found j
( i
I
I t h a t t h e i r n o te s pay able t o banks had f a l l e n to a b o u t
i
| $10 m i l l i o n from a y e a r e a r l i e r 1s $12.6 m i l l i o n w h ile bank
| l i n e s of c r e d i t were b e in g in c r e a s e d from $15 t o $16 m il-
I
l i o n . T h is means t h a t th e y a re only u s in g 5 /8 th s of e x i s t -
I
t j
i in g bank l i n e s . These d a ta co n firm th e f a c t t h a t t h i s j
| Company h a s n o t had a trem endous problem i n o b ta in in g !
money as have some o th e r f i l m s . '
' I t i s im p o rta n t t o n o te t h a t i n r e c e n t y e a r s p e r
so n a l fin a n c e com panies have foun d i t advantageous t o be
49
aware of b o th money and c a p i t a l m a r k e ts . When th e com
m e r c ia l banks t i g h t e n t h e i r m onetary p o lic y tow ards fin a n c e
com panies, th e fin a n c e com panies go t o o th e r i n s t i t u t i o n a l
in v e s t o r s f o r a lo n g term d e b t. A re a s o n f o r t h i s co u ld
be t h a t th e p e rs o n a l fin a n c e com panies a re r e l a t i v e l y more
s t a b l e , c y c l i c a l l y , th a n the s a l e s fin a n c e com p anies.
A noth er re a s o n i s t h a t banks lo o k fa v o ra b ly upon s e n io r
lo n g - te r n d e b t and e s p e c i a l l y s u b o rd in a te d d e b t which
g iv e s the f in a n c e company an e x p an sio n b a s e .
S a le s fin a n c e com panies and l a r g e r fin a n c e com
p a n ie s use the com m ercial p a p e r, open m ark e t a s a f in a n c in g
t o o l . Budget F in an ce F la n f a v o r s open bank l i n e s of c r e
d i t i n s t e a d .
j S u b o rd in a te d d e b t r e p r e s e n ts fu n d s borrow ed from a
I le n d e r on a term b a s i s i n a c o m p e titiv e m ark et f o r an i n -
| c re a s e d i n t e r e s t r a t e i n r e t u r n f o r a p o s i t i o n o f i n f e r -
! 1
| i o r i t y t o bank c r e d i t . The prim ary advantage i n i s s u i n g
i s u b o rd in a te d d e b e n tu re s r a t h e r th a n p r e f e r r e d s to c k i s
i
t h a t th e i n t e r e s t on th e s u b o rd in a te d d e b e n tu re s comes as
l
t
; an ex pense b e fo re t a x e s . Kane s t a t e s t h a t p ro p e rly sub-
; o rd in a te d d e b t, from a b a n k fs p o in t o f v iew , i s i n e f f e c t
i q u a s i- e q u ity c a p i t a l , and can be c o n s id e re d w ith the n e t
I
i w o rth i n m aking th e base f o r s h o r t- te r m bo rro w in g s h i g h e r .
^ C h a rle s J . Kane, Bank F in a n c in g o f S m all I*n&n
Companies (K entucky: C itiz e n s F i d e l i t y Bank and T ru s t Com
pany, 195 5 ), p . 4 5 .
50
Most p e rs o n a l fin a n c e com panies, l i k e Budget Finance P la n ,
can o b ta in s u p e r io r in d e b te d n e ss of 2 .5 to th re e tim e s th e
a g g re g a te of l i q u i d n e t w o rth and s u b o rd in a te d in d e b te d
n e s s . O ther a d v a n ta g e s ©f s u b o rd in a te d d e b t to a sm all
lo a n company a re many. I t g iv e s g r e a t e r le v e ra g e t o th e
common s to c k and i t i s g e n e r a lly p la c e d w ith one or a few
in s u ra n c e com panies w hich re n d e r a more fa v o r a b le nego-
2
t i a t i on.
L ong-term s e n io r d e b t i s on a p a r w ith bank l i n e s ,
e x c e p t f o r the f a c t t h a t i t i s of a lo n g e r m a t u r it y n a tu r e
u n le s s a c c e l e r a t e d . In su ra n c e com panies ta k e th e s e bonds
| and demand an i n t e r e s t r a t e of n o t to o much more th a n th e
| b a n k s. Uo com p ensating b a la n c e s and c le a n -u p p e rio d s a re
j r e q u ir e d as i n the e ase o f bank l i n e s . The in s u ra n c e com-
| pany u s u a lly r e q u ir e d t h a t th e bank l i n e s m atch or exceed
t
j lo n g -te im s e n io r d e b t. Kane sum m arizes sm all lo a n com-
: pany b o rro w in g a d v an tag e s t h u s l y :
From a c r e d i t s ta n d p o in t th e f l e x i b i l i t y of the
c a p i t a l s t r u c t u r e o f the sm all lo a n company i s one
; of i t s b e s t f e a t u r e s a lo n g w ith i t s l i q u i d i t y and
! wide d i s t r i b u t i o n o f sm a ll c r e d i t r i s k s . The p r i n -
! c i p a l c o s ts of d o in g b u s in e s s a re o p e r a tin g e x p e n se s
and c o s t of b o rro w in g s. When b u s in e s s f a l l s o f f i t
i s a b le to reduce b orrow ings and e x p e n se s prom ptly
| and a t a f a s t e r pace th a n o th e r b u s in e s s e s w ith
| la r g e o v e rh e ad . Very l i t t l e o f i t s c a p i t a l i s i n
i f i x e d a s s e t s
% jOC . c i t .
^L oc. c i t .
51
In 1956, th e breakdown of l i a b i l i t i e s , c a p i t a l and
s u rp lu s f o r Budget F inance F la n showed th e fo llo w in g ;
Fer c e n t
S h o rt-te rm d e b t T 6 7 3 “
L o n g -te rn d e b t 2 7 .5
O ther l i a b i l i t i e s 4 .4
C a p ita l and s u r p lu s 2 1 .8
T o ta l lOO.O
A 1957 F e d e ra l R eserve stu d y o f te n consum er f i
nance com panies (1956) w ith o u ts ta n d in g s over $25 m i l l i o n
were broken down th u s ly s
Per c e n t
S h o rt-te im d e b t 2:8.9
L o n g -te rn d e b t 3 9 .6
O ther l i a b i l i t i e s 5 .2
C a p it a l and s u r p lu s 2 6 .3
T o ta l 100 .0
The F e d e ra l R eserve showed t h a t 3 ,1 8 0 consumer
'
I
| fin a n c e com panies h ad th e f o llo w in g breakdown;
i
i P er c e n t
S h o rt-te rm d e b t 34 .6
Long-term d e b t 3 1 .0
O ther l i a b i l i t i e s 4 .8
C a p ita l and s u r p lu s 29.6
T o ta l T M 7 3
! The above f i g u r e s te n d t o i n d i c a t e t h a t Budget
I F in an ce P lan i s w o rk in g w ith very good nl e v e r a g e T o
i b e t t e r compare t h i s Company w ith an i n d u s tr y g roup, one
i
: m ust lo o k t o the l i a b i l i t y and c a p i t a l breakdow n o f a
| group of f i f t y com panies w ith o u ts ta n d in g s from f i v e t o
52
tw e n ty -f iv e m i l l i o n d o l l a r s . ^
B udget F inance 46*5 27*5 4*4 21*8 100*0
50 Companies 4 5 .6 25*2 4*7 24*5 100.0
The 4 6 .3 pep c e n t i n s h o r t- te r m d e b t (only 85 p e r
c e n t of open bank l i n e was u s e d ) does n o t compare w ith
3 4 .6 p e r c e n t s h o rt- te r m d e b t average of th e 3 ,1 8 0 com
p a n ie s a lth o u g h i n 1957, Budget F in an ce P la n red u c ed t h e i r
s h o r t - t e r a d e b t p e rc e n ta g e and r a i s e d t h e i r lo n g -te rm d e b t
p e rc e n ta g e t o where th e y w i l l f a l l more i n l i n e w ith th e
i n d u s t r y . Budget F in an ce P la n h as alw ays used s a l e s con
t r a c t s as a supplem ent t o t h e i r lo a n o p e r a tio n s . The
I
amount of s a l e s c o n tr a c ts o u ts ta n d in g does n o t e f f e c t
1 t h e i r c a p i t a l s t r u c t u r e . I f th e y m a in ta in e d a la r g e
*
i
I amount of th e s e c o n tr a c t s th e y migjat be a b le t o u se com-
j m e r c ia l p ap er fin a n c in g *
I I . POTENTIAL PROFITS FRCM THIS OPERATION j
! i
! j
! When one i n i t i a t e s a new f u n c t i o n o r o p e r a tio n i n J
i
; an e s t a b l i s h e d b u s in e s s o r m erely expands a n a lr e a d y com- j
| menced o p e r a tio n , c e r t a i n b a s ic c r i t e r i a have to be a n a -
I
ly z e d . Many f a c t o r s may be la b o re d o v e r; th e f i n a n c i a l
f j
| c o n s i d e r a ti o n b e in g th e a l l - i m p o r t a n t , a l l - d e c i d i n g i n
m ost c a s e s .
4Board of G overnors o f th e F e d e ra l R eserve System ,
Consumer I n s ta lm e n t C r e d it (W ashington, D .C .s U n ited
S t a te s Government P r i n t i n g O ffic e ; 195 7 ), p . 72.
53
Upon v e n tu r in g i n t o a new f i e l d or e x p an d in g an
e s t a b l i s h e d f u n c t i o n t o the p o in t of p o lic y , p ro c e d u re ,
and even o b je c tiv e c h a n g e s, we m ust a tte m p t t o c r e a t e a
p la n , or f o r e c a s t , or b u d g e t— c a l l i t w hat you may— b u t
management h a s t o e n d e a v o r t o la y down a p r o j e c t i o n o r
p la n o f a n t i c i p a t e d c o s t s and p r o f i t s .
D e te im in a tio n o f c o s t s . An a tte m p t m ust be made t o
p e n c i l out a n t i c i p a t e d c o s t s . In r e c e n t y e a r s , sm a ll lo a n
!
com panies have w itn e s s e d a s t a b i l i t y i n g ro ss income and a
| r i s e i n t o t a l e x p en se s or c o s ts of d o in g b u s i n e s s . A
! i
I g r e a t e r em phasis h a s been p la c e d on a sound system f o r d e- J
j te r m in in g c o s t s . Many e co n o m ists f e e l t h a t the 1945 t o
I 1955 in s ta lm e n t c r e d i t boom h a s le v e le d o f f . The r a t e of
| grow th w i l l n o t be as r a p i d . Every d e t a i l of o p e r a tio n s ,
! from management t r a i n i n g t o sound f i n a n c i a l o p e ra tio n and
; i n t e r p r e t a t i o n , w i l l have to be i n s t a l l e d i n o rd e r t o
compete f a v o r a b ly .
'
There a re no " r u l e of thumb" s ta n d a r d c o s ts i n j
s a l e s c o n tr a c t f in a n c in g . A t y p i c a l bran ch o f f i c e i n th e
I Budget F inance P lan c h a in was a n a ly z e d . The f o llo w in g
! f i g u r e s r e p r e s e n t f i v e y e a r s 1 expenses f o r t h i s b ra n c h :
54
EXPENSES (P er c e n t t o a v e ra g e a n n u a l o u ts ta n d in g )
T o ta l
Y ear
D ir e c t
E xpenses
Money c o s ts and
I n d i r e c t E xpenses
T o ta l
Expense s
1953 11*64# 8 . 20# 1 9 .8 4 #
1954 11.9 5 8 .1 5 20.10
1955 12.73 7.73 20.46
1956 12.7 1 8 .0 6 20.77
1957 12.00 9 .0 6 21.06
TOTAL: 61.03 4 1 .2 0 102.23
5 Y ear
Average 12. 21# 8 .2 4 # 2 0 .4 5 #
The p e rc e n ta g e (on th e average o u ts ta n d in g s a n n u a liz e d )
of g ro ss p r o f i t a t t r i b u t e d t o the s a l e s c o n t r a c t d e p a r t-
i
| m ent of t h i s b ran c h was*
!
1953 2 2 .0 4 #
| 1954 17.54
; 1955 22.83
j 1956 23.28
i 1957 2 3 .6 8
; T o ta l 109.37#
! Average 2 1 .8 7 #
These f i g u r e s , i f ta k e n a t fa c e v a lu e , w ould le a d one t o j
, I
< b e lie v e t h a t t h e r e was a f i v e y e a r av erag e sp re ad (21.87 j
; !
' t o 2 0 .4 5 ) of 1 .4 2 p e r c e n t . T h is 1 .4 2 p e r c e n t would be I
' i
, th e av erag e p r o f i t f o r th e f i v e y e a r p e r io d . T h is b ran c h i
I (
. I
■ has b een n o te d f o r c a r r y in g on h ig h ly s u c c e s s f u l lo a n and ,
i s a l e s c o n tr a c t o p e r a tio n s . They e x h i b i t an a t t i t u d e of
!
c o n s ta n t aw areness of p r o f i t and c o s t problem s and have j
a c h ie v e d a h ig h e f f i c i e n c y i n o p e r a tio n s . The t o t a l
! a v erag e p r o f i t f o r t h i s p e rio d , how ever, h as been 4 .4 9
' _Pe r c e n t due t o t h e ad d it i o n a l d i r e c t lo a n and in s u ra n c e
55
income •
Now l e t u s look a t the e n t i r e c h a in . In a la r g e
b ran ch o f f i c e c h a in one m ust be r e a l i s t i c and u n d e rs ta n d
t h a t th e r e w i l l be some v e ry good o f f i c e s and some t h a t a re
n o t up t o p a r . Management r e a l i z e s t h a t the below p a r
b ra n c h e s a r e r e d u c in g th e s ta n d a r d , or s h a l l we say mean,
b u t t h a t as lo n g a s th e y a re p r o f i t a b l e th e y a re u s e f u l as
a fu n n e l f o r volume and r e c e i v a b l e s , c a r r y i n g p a r t o f th e
u n a llo c a te d c o s ts and e s t a b l i s h i n g g o o d w ill. One m ust
a l s o r e a l i z e t h a t th e s e o f f i c e s can become h ig h ly su c c e s s -
l
f u l th ro u g h h a rd work and a c o n c e n tr a te d e f f o r t t o r a i s e j
j g ro s s income and red u ce t o t a l ex p en ses and d e lin q u e n c ie s .
| E very y e a r sm all lo a n com panies have t o make a r e -
I
| p o r t t o th e S ta te of C a l i f o r n i a c o n c e rn in g t h e i r prim ary
t
j source o f income ( l o a n s ) , and o th e r s o u rc e s of incom e,
i I
1 w hich would b a s i c a l l y be s a l e s c o n t r a c t s and i n s u r a n c e . j
I
| A th o ro u g h stu d y o f th e s e r e p o r t s was made and a lth o u g h
| th e Company w ants t o keep th e f i g u r e s c o n f i d e n t i a l , th e
■ a n a l y s i s may be p r e s e n te d . I
i I
The p a s t f iv e y e a rs were a n a ly z e d . The o th e r i n - j
| come was b ro k en down and an a tte m p t to i s o l a t e s a l e s con- j
. t r a c t s was m ade. A f te r e li m in a ti n g in su ra n c e income and j
i th e ex p en ses # i i c h c o u ld l o g i c a l l y be a tta c h e d t h e r e t o , J
th e p r o f i t on s a l e s c o n t r a c t s rem ained i n a d e f i c i t s t a t e
i
! i n a l l b u t one y e a r . Have the s a l e s c o n tr a c t s a c t u a l l y
l o s t money i n fo u r o u t of f iv e y e a rs ?
56
The C o m p tro lle r of th e Can pany I s of th e o p in io n
t h a t c o n tr a c t s a re n o t as p r o f i t a b l e as management would
l i k e to b e lie v e and t h a t th e r e p o r t s t o the S t a te of C a li
f o r n i a g iv e t h i s i n d i c a t i o n . Management, how ever, f e e l s
t h a t th e s e f i g u r e s a re u n j u s t . W hether we p r o r a te or ap
p o r t io n t o t a l c o s t s of o p e ra tio n on a u n i t , or p e r r e c e i v
a b le o u ts ta n d in g , or a s t o th e average r e c e i v a b l e s o u t
s ta n d in g i n b o th lo a n s and s a l e s c o n t r a c t s , we would be
M lo a d in g n th e s a l e s c o n t r a c t s down w ith to o many e x p e n se s.
They f e e l t h a t t h e r e a re c e r t a i n c o s ts w hich do n o t ap p ly
i t o s a l e s c o n t r a c t s , e i t h e r i n p a r t or e n t o t o . The c o s t
a c q u ir in g a c o n tr a c t i s much l e s s t h a n t h a t of a lo a n .
The Company a d v e r t i s e s i t s d i r e c t lo a n s e r v ic e so a d v e r-
! *
j t i s i n g ex p en se s s h o u ld be throw n o u t . Top management a re
j a ls o o f th e o p in io n t h a t where an employee can only h a n d le i
j a b o u t 300 lo a n a c c o u n ts , he would be c a p a b le o f h a n d lin g J
j 600 t o 1000 c o n t r a c t s . T h e r e fo r e , p a r t o f th e p e rs o n n e l
: c o s ts sh o u ld be e m itte d from c o n tr a c t ex p en se s f o r a t r u e r j
| I
| p i c t u r e . They a l s o f e e l t h a t th e r e i s n o t q u i te as much
i
| of a c r e d i t r e p o r t and check in v o lv e d i n s a l e s c o n tr a c t
| p u rc h a se s as i n l o a n s . Some f e e l , how ever, t h a t a h ig h e r
! p r o p o r tio n of e n te r ta in m e n t, p ro m o tio n , and d e a l e r s e r
v ic e sh o u ld be a t t r i b u t e d t o s a le s c o n t r a c t s .
M a th em atica l a p p ro a c h . Management o f th r e e o f th e
l a r g e s t p e rs o n a l lo a n com panies o f f e r e d v a rio u s s o lu tio n s
57
t o th e d e te r m in a tio n of s a l e s c o n tr a c t c o sts* One answ er
was t o s e t up a p i l o t o p e ra tio n or p i l o t b ran e h w hich
would only h a n d le c o n tr a c t s i n e v ery sta g e* A ll a u d it i n g ,
s u p e r v is io n , and bookkeeping would be done i n and by t h i s
b ra n c h ; t h e r e f o r e , g iv in g a t r u e p i c t u r e o f c o s ts and p ro
f i t s * Budget F inance P lan t r i e d t h i s to an e x te n t b u t d id
n o t keep th e b ran eh lo n g enough f o r a t r u e p ic tu r e to be
c re a te d * As a m a tte r of f a c t , i t was a very c le a n (very
l i t t l e d e lin q u e n c y ) o p e ra tio n and i t s t i l l l o s t money* |
|
A nother d e v ic e would be t o use a very ex p en siv e j
tim e -a n d -m o tio n stu d y i n a few , or even one, b ra n c h o f f i c e
t o d e te rm in e th e c o r r e c t expenses and p r o f i t s of lo a n s ,
c o n t r a c t s , in s u r a n c e , and any o th e r f u n c t i o n th e b ran c h i s
perform ing* P a c i f i c F in an ce Gem pany claim s t h a t th ey w i l l
answ er th e problem when th e y i n s t a l l h ig h -s p e e d e l e c t r o n i c
1 equipm ent*
j An a tte m p t was made t o f i n d a m a th e m a tic a l form ula j
i
I w hich would answ er th e prob lem . The c l o s e s t e q u a tio n
; w hich c o u ld be found was t h a t d ev elo p ed by D o c to rs T r e f f t z
j 5
1 and H i l l s . I n t h e i r book, M athem atics of B u s in e s s . Ac-
! c o u n tin g , and F in a n c e , T r e f f t z and H i l l s a tte m p t t o i n -
i
| d i c a t e t h a t sim u lta n e o u s e q u a tio n s can be s e t up and so lv e d
i J
i n c a s e s in v o lv in g more th a n two unknowns. The f o llo w in g j
l j
t
— ......... - ........... j
j ^K* L . T r e f f t z and E . J u s t i n H i l l s , M athem atics
of B u s in e s s , A c c o u n tin g , and F in an ce (Hew Yorks H arper
and B r o th e r s , 1 9 4 7 ).
58
i s an example of th e u se o f t h i s ty p e o f m a th e m a tic a l
a n a l y s i s :
Y ear Humber of Item s Made and S old Net P ro fit'
Hammers M a lle ts Axes
1 1 0 ,OOOx •/ 5 , 000Y ■/ 2,00 0z - #8,400
2 8 , OOOx / 6 , 000Y + 3,00 0z - 7,900
3 9 , OOOx + 4 , OOOY + 4,0 0 0 z = 6,5 0 0
P r o f i t p e r Hammer--50^; p e r M a lle t- - 8 0 ^ ; p e r Ax— 3 0 ^.
As was i n d ic a te d above, g iv e n the s u f f i c i e n t amount
of d a t a , th e n e t p r o f i t p e r u n i t c o u ld be fo u n d . An a t
tem pt was made t o u t i l i z e th e above fo rm u la i n d e te rm in in g
th e c o s t s of th e v a rio u s o p e ra tio n s w ith in a s i n g l e b ra n c h .
A S o u th e rn C a l i f o r n i a b ra n c h o f f i c e was chosen and
a l l th e m a t e r i a l t h a t was n e c e s s a ry was g a th e re d . T h is
b ra n c h , l i k e m ost o t h e r s , made d i r e c t l o a n s , p u rch ased
|
i
j s a l e s c o n tr a c t p a p e r, and s o ld i n s u r a n c e . I t was th e e s -
; t im a tio n o f the b ra n c h m anager and h i s s u p e r v is o r t h a t a l l ;
| of th e s e v a rio u s o p e ra tio n s made p r o f i t s . E x a c tly how
I
! much p r o f i t and w hat p e rc e n ta g e o f t o t a l c o s t s c o u ld be
I a t t r i b u t e d to e a c h o f th e above was unknown. On th e f o l -
( low ing pages we w i l l see how th e above fo rm u la was u s e d ;
n a t u r a l l y r e p l a c i n g hammers and a x e s w ith lo a n s and s a l e s .
: Branch ABC:
(000 e m itte d )
Y ear Loans* S a le s In su ra n c e P r o f i t
1953 708x 4 138y 4 41z = $ 28
1954 762x 4 45y 4 36;& = 2 5 .5
1955 957 x 4 121y + 47z = 29
1956 l,0 4 4 x 4 385y / 65z = 36
1957 964x 4 402y 4 44z = 33
59
The d a ta was s e t up as sim u lta n e o u s l i n e a r e q u a tio n s . An
example of th e y e a r 1953 i s s
708x 4 - 138y -/ 41z - & 28.00f000)
I n ta k in g co m b in atio n s of th r e e y e a rs a t a tim e ,
we f e l t t h a t s i m i l a r answ ers would be o b ta in e d f o r the x ,
th e y , and th e z . These l e t t e r s , such a s f,y , !t r e p r e s e n te d
c o s t s . A c tu a lly , th e y were a p e rc e n ta g e o f th e p re c e d in g
num ber. The ta s k proved f r u i t l e s s as no c o r r e l a t i o n or
s i m i l a r i t y of answ ers was o b ta in e d . B asic re a s o n s f o r
t h i s was t h a t th e r e a re to o many v a r i a b l e s i n b o th the
volume and t o t a l o p e ra tin g c o s t s . The 708, 138, and th e
41 r e p r e s e n te d th e volume done i n th e r e s p e c t iv e c a t e -
j g o r i e s . The 28 r e p r e s e n te d th e n e t p r o f i t f o r th e p e r io d .
j
j I f th e r e were more c o n s t a n t s , such a s , th e f i r s t two y e a rs
i
| only h a v in g lo a n volum e, th e n e x t two y e a rs h a v in g lo a n
j and s a l e s c o n tr a c t volum e, and th e l a s t y e a r h a v in g volume !
I i n lo a n s , s a l e s , and in s u r a n c e , th e n th e e q u a tio n would 1
\
! have proved s u c c e s s f u l . W e b e lie v e t h a t a b ra n c h o f f i c e j
h a v in g th e s e p e c u l i a r i t i e s would f i n d th e s e e q u a tio n s u s e -!
| ful. I t would a ls o be s i g n i f i c a n t t o n o te h e re t h a t th e
; c o n s ta n ts i n th e problem tu rn e d out t o b e , i n e f f e c t ,
j
| v a r i a b l e s .
i
P r o f i t d e t e m i n a t i o n . The Budget F inance P la n <
■ !
j f e l t t h a t s a l e s c o n tr a c t s p u rch ased on an average o f over ;
■ $200.00 would y i e l d a p r o f i t . To d eterm in e the v a l i d i t y I
60
of t h i s f i g u r e , an a n a ly s is was mad© t o determ in e th e p ro
f i t a b i l i t y of s a le s c o n tr a c t e x p a n s io n . One b ran ch i n the
Company showed t h e i r g ro ss p r o f i t t o be th e fo llo w in g s
J u ly 1956 t o J u ly 1957
Average p e rc e n ta g e
D isc o u n t e a rn e d 2 4 .3 4 $
D isc o u n t e a rn e d and
a c c e l e r a te d .78
L ate c h a rg e s c o l l e c t e d 1.49
I n v e s t i g a t i o n f e e s .81
Average g ro ss p r o f i t 2 7 .4 2 $
* * T h e s e f i g u r e s are computed on an a n n u a liz e d p e r-
| c en tag e t o d o l l a r s i n v e s t e d .
i The lo a n i n t e r e s t e a rn e d i n the same p e rio d was
23.43 p e r c e n t w hich would give s a l e s c o n t r a c t s a f o u r
p e r c e n t e d g e . Management of t h i s b ra n c h claim t h a t d i -
j r e c t c o s ts a t t r i b u t a b l e t o s a l e s c o n t r a c t s a re e s tim a te d
!
| a t e ig h t t o n in e p e r c e n t as compared w ith a f i v e y e a r |
; i
j a v erag e d i r e c t expense o f 1 2 .2 p e r c e n t . I f we h y p o th e -
! i
I c a te th e fo llo w in g s i t u a t i o n by t a k i n g r e a s o n a b le f i g u r e s , |
| ' !
j i n d ic a t e d by th e p re v io u s c o s t a n a l y s i s , we f i n d a good !
; r a t e o f r e t u r n : j
| G ross income 2 7 .4 $
, D ir e c t expense 8 .4
I n d i r e c t expense 9 .0
■ ! T o ta l expense 1 7 .4 $
G ross p r o f i t on s a l e s 1 0 .0 $
I c o n tr a c t s
I T h is com pares fa v o ra b ly w ith the n in e p e r c e n t t o
i
! tw elve p e r c e n t w hich a to p e x e c u tiv e a t Seaboard claim s
61
th e y make • The a c c o u n tin g and p r o f i t p la n n in g d e p a rtm e n ts
a t P a c if i c F inance gave th e fo llo w in g d a ta w hich a re f o r
th e C a li f o r n ia o f f i c e s o n ly . They r e v e a le d t h a t t h e i r n e t
income was 2*8 p er c e n t . On an av erag e n e t in v e stm e n t
b a s i s i t was 4 .5 p e r c e n t . They f e l t t h a t s a l e s c o n tr a c t s
were p r o f i t a b l e i f th e a c q u ire d p r ic e i s over 250 d o l l a r s .
M a rg in al C o s ts
( i n t e r e s t c o s t ; a c q u i s i t i o n
c o s t , m ain ten an ce c o s t , c o l
l e c t i o n c o s t s ) $ 1 6 .5 5 /a v e ra g e
c o n tr a c t
O ther f ix e d expenses- 4 .0 0
A d m in is tra tiv e ex p en ses and
o th e r i n d i r e c t expense 8 .4 0
C ost p e r account $28.75
j How, i f we suppose th e av erag e r a t e to be t e n
i p e r c e n t and o th e r income one p e r c e n t, th e n a $260
!
j c o n t r a c t i s a t a b o u t th e b re a k -e v e n p o i n t, ($260 tim es
i
1 e le v e n p e r c e n t y i e l d s $ 2 8 .6 0 ). The a v erag e P a c if i c F i -
i
j nance s a l e s c o n tr a c t i s $350. P a c if i c F in an ce f e e l s t h a t
I $450 to $750 c o n tr a c ts w ith an av erag e tw elv e t o f o u r te e n
i m onth m a tu r ity w i l l m axim ize p r o f i t s . I
H y p o th e tic a l exam ple. Of th e com panies i n t e r -
| v iew ed , m ost to p e x e c u tiv e s claim ed t h a t th e n o im al a n -
I
! t i c i p a t e d g ro ss income on s a l e s c o n tr a c t s would average
from n in e te e n p e r c e n t t o tw e n ty - s ix p e r c e n t .
I
i The s a l e s c o n tr a c t s u p e r v is o r a t Budget F in a n ce
1 P lan is s u e d seme d a t a w hich would be u s e f u l i n sub s ta n -
62
t i a t i n g an i d e a l , b u t h y p o t h e t i c a l o p e ra tio n * Here i s one
p la n f o r a s u c c e s s f u l s a l e s c o n tr a c t o p e ra tio n *
1* Average s a l e s c o n tr a c t a c q u ire d a t 400 d o l l a r s
(18 m onth m a tu r ity )
2 . Y ie ld , a l i t t l e l e s s th a n an 11 p e r c en t add-on
3* A verage r e s e r v e of 4 p e r c e n t
4* D elinq uen cy n o t t o e x ceed 4 p e r c en t
5* T h e re fo re , an approxim ate g ro ss of 24 p e r c en t
j 6 * Add a n o th e r 2 p e r c e n t f o r l a t e c h a rg e s , i n -
| v e s t i g a t i o n f e e s and a c c e l e r a t e d e a rn in g s
7* Keep d i r e c t expense t o 8 p er c e n t
8 * Keep t o t a l i n d i r e c t ex p en ses t o 4*5 p e r cent
9* Money c o s ts i n n e x t few y e a r s sh o u ld av erag e
j no more th a n 4*5 p e r c e n t
i
j 24 p e r c e n t , g ro ss income
2 p e r c e n t a d d i t i o n a l j
1 " 2 6 p e r c e n t ,
-17 1
, G ross p r o f i t ;
■ 9 p e r c e n t on t o t a l o u ts ta n d in g
; (would be more i f computed on j
t o t a l d o l l a r s in v e s te d ) j
' !
j In 1957 seme o f f i c e s could show some o f th e above j
i f i g u r e s . Money c o s t s were h ig h , b u t th e r e h as a lre a d y |
1 i
| been a b re a k i n the prime r a t e . (At p r e s e n t i t i s 3 .5
i
j p e r c e n t •)
i
I
(
CHAPTER V
OTHER ADVANTAGES AND DISADVANTAGES
There a re c e r t a i n secondary c o n s id e r a tio n s w hich may
have some e f f e c t on th e d e c is io n o f e n tra n c e or e x p an sio n
i n th e f i e l d o f s a le s c o n t r a c t s . These f a c t o r s of a l e s s o r
s ig n if ic a n c e a re b a s i c a l l y n o n - f i n a n c i a l . The prime con
s i d e r a t i o n i s t h a t of d e te rm in in g th e p r o f i t a b i l i t y of th e
v e n tu re b o th over a s h o r t and a lo n g term p e r io d .
P o t e n t i a l lo a n b u s i n e s s . One o f th e b a s ie re a s o n s
sm all lo a n com panies began p u rc h a s in g s a l e s c o n tr a c ts was
t h a t th e y f e l t t h a t seme in s ta lm e n t s a le s c o n tr a c t r e -
j c e iv a b le s co u ld be tu r n e d i n t o consum er lo a n s . In the
e a r l y y e a r s of t h i s type of f in a n c in g , a s h i $ i a s s ix ty
j p e r c e n t to sev en ty p e r c e n t c o u ld be tu rn e d i n t o lo a n s . j
I l
j Even a f t e r World War I I th e r a t e o f w f l i p ” was a v e ra g in g i
j from t h i r t y p e r c e n t to f o r t y p e r c e n t. Some com panies
i
* s t i l l f e e l t h a t th e y can m a in ta in a f l i p r a t e of t h i r t y -
i f i v e p e r c e n t . I t i s im p o rta n t to n o te how ever, t h a t th e
i
f l i p r a t e i s d im in is h in g . Seme c o r r e l a t i o n can be r e l a t e d j
, !
' t o th e consum er1s grow ing aw areness t h a t th e r a t e ( s e r v ic e I
i i
i c h a rg e ) w hich h a s to be p a id on th e s a le s c o n tr a c t i s low er
i
. th a n th e r a t e o f i n t e r e s t payable on s n a i l lo a n s . The con-1
i sumer i s a ls o becom ing aware of the f a c t t h a t he can c a r r y
i
! lo a n s and c o n tr a c t s s im u lta n e o u s ly . The m a rk e ts f o r th e s e
64
v a rio u s consumer f in a n c in g m ethods a re n o t q u ite th e same.
I t would n o t he w rong to s t a t e t h a t m ost p eo p le w ith con
sumer in s ta lm e n t lo a n s e i t h e r have or would f i n d tb s s a le s
c o n tr a c t an a c c e p ta b le way to fin a n c e a p u rc h a se ; how ever,
one could n o t s t a t e w ith a u th o r ity t h a t m ost people w ith
consumer in s ta lm e n t c o n tr a c t s have consum er lo a n s . A sm all
lo a n company, such a s Budget F inance P la n , a c t i v e l y s o l i
c i t s th e s a l e s c o n t r a c t s w hich th ey have on th e b o o k s.
Branch v e r s u s c e n t r a l i z e d o p e r a ti on (s a l e s con
t r a c t s ) . The q u e s tio n on how to expand the s a l e s c o n tr a c t
o p e ra tio n c o n fro n ts management i n th e e a r l y s ta g e s of de
te rm in in g th e v a rio u s im p o rta n t c r i t e r i a f o r e x p a n sio n o r
j i n i t i a t i o n of a s a l e s c o n t r a c t o p e r a tio n . The fo llo w in g
i
'f a c t o r s only p e r t a i n to a b ranch o p e ra tio n a s a u n i t o p e r-
i :
I a t i o n w i l l n e v e r w orry a b o u t d e c e n t r a l i z a t i o n u n le s s th e y j
i
'a re p la n n in g on m oving frcm a u n i t s t r u c tu r e t o a r e g io n a l
i ,
|o r branch s t r u c t u r e .
i
! S eaboard F inance Company i s an ad v o cate of a d e -
I
i c e n tr a l iz e d bx* b ra n c h s a le s c o n tr a c t p u rch ase o p e r a tio n .
'S eaboard f e e l s t h a t an employee sh o u ld be v e rs e d i n b o th
i
jthe lo a n and th e s a l e s c o n tr a c t o p e ra tio n s b e fo re he a d -
t
ivances to th e p o s i t i o n of b ran c h m anager. A m anager i s ,
! i
t h e r e f o r e , burdened w ith b o th sm a ll lo a n and s a le s c o n tr a c t
f u n c ti o n s.
In l a t e 1957, Budget F in an ce P lan d e c id e d t o r e - j
65
o rg an iz e t h e i r s a l e s c o n tr a c t d i v i s i o n . The Seaboard m eth
od w hich was p re v io u s ly u s e d , was changed t o a c e n t r a l i z e d
o p e ra tio n i n th e S o u th e rn C a l i f o r n i a a r e a . Many b ra n c h e s
i n th e c h a in c o n tin u e d to p u rch a se t h e i r own c o n t r a c t s ,
b u t th e S o u th e rn C a l i f o r n i a a re a r e v e r t e d to a c e n t r a l
s a l e s c o n tr a c t p u rch ase o p e r a tio n . T h is was th e t h i r d
tim e i n th e Companyfs h i s t o r y t h a t t h i s method was t r i e d .
I f the p la n i s s u c c e s s f u l th e n o th e r c o n c e n tra te d a re a s
w i l l change t o c e n t r a l i z e d s a l e s c o n tr a c t p u rc h a s e s . The
g r e a t e r Los A ngeles a r e a has s i x t e e n o f f i c e s and i s th e
m ost c o n c e n tra te d a r e a of company o f f i c e s i n the c h a in . |
The p l a n . The fo llo w in g i s a g e n e ra l r e c a p i t u l a -
! t i o n o f a memorandum t o the P r e s id e n t of Budget F in an ce
| P lan from one o f th e s u p e r v i s o r s . The d a te o f t h i s p ro -
j
; p o s a l was th e 2 1 s t o f A ugust, 1957. S h o rtly t h e r e a f t e r i
I
a c e n t r a l i z e d s a l e s c o n tr a c t o p e r a tio n was s e t up i n
J Budget F inance P la n h e a d q u a r te r s , Los A n g eles. T h is i s
| th e
1
I
p la n i n e sse n c e s
A d e p artm e n t m ust be h ead ed by a p e rso n whose
f o r t e i s M o p e r a t i o n s .n He m ust w ear th e c lo a k of
a u t h o r i t y second to none w ith th e e x p re s s c o n f i
dence and c o o p e ra tio n o f th e e n t i r e company. He
m ust be a b le t o s e t th e p o lic y f o r h a n d lin g and
o b ta in in g new b u s in e s s commensurate w ith the l i n e s
of c r e d i t s u p e rv is e d by o ur P r e s i d e n t. He i s to
d eterm in e where and when an o f f i c e i s read y t o
conform and f o r how much. S u p e rv is o rs r e p o r t i n g
t o th e d i r e c t o r of s u p e r v is io n m ust a ls o r e p o r t
t o th e h ead of t h i s d e p a rtm e n t. D u p lic a te su p e r
v i s i o n r e p o r t s a re to be f u r n is h e d t h i s d ep artm en t
in c lu d in g the l e t t e r t o th e Branch and th e V ice-
66
P r e s id e n ts rem arks to the S u p e rv is o r. T h is i s
n e c e s s a ry f o r th e c o n tr a c t d ep artm en t to be p ro
p e rly inform ed of th e o v e r a l l p ro d u c tio n and
judgment u se d by Branch M anagers; of c o u rs e ,
o th e r r e p o r t s a re n e c e s s a ry w h ic h may be d ev elo p ed
a t a l a t e r d a t e . C o n tra c ts t o be fin a n c e d a re
u n lim ite d and w i l l in c lu d e f u r n i t u r e , a p p lia n c e s ,
c a r p e t s , f r e e z e r s , fo o d , d r a p e s , la n d s c a p in g ,
t r a v e l , b o a ts , vacuums, r e c o r d s , H i-F i equ ipm ent,
u se d c a rs w ith ap p ro v ed down paym ents, a u to r e
p a i r s (w ith o u t t i t l e s ) , u p h o ls te r y (a u to and f u r
n i t u r e , f e n c e s , p a t i o s , w a te r s o f t e n e r s , sew ing
m a c h in e s, d is c o u n te d n o t e s , b u lk p u rc h a se s and
any item t h a t r e p r e s e n ts a need f o r c r e d i t t h a t
may be l e g a l l y c o l l e c t e d . P r o te c tio n m ust be
f u r n is h e d t h i s d ep artm en t a g a i n s t th e o c c a sio n
when a S u p e rv is o r f i n d s our lo a n b u s in e s s d e c r e a s
in g b ecau se of heavy c o n tr a c t c le a r a n c e s . In -
j s te a d of d e -e m p h a siz in g t h e i r p u rch ase to concen-
| t r a t e on lo a n s th e r e w i l l have to be a s u i t a b l e
s o l u t io n and v ic e v e r s a . (T his u n d e rs ta n d in g i n
a d v an c e • )^
I A pproxim ately f i f t y p e r c e n t o f th e Company1 s
i
[ o p e r a t i n g expense i s s a l a r i e s , p a y r o l l and f r in g e b e n e f i t s
r e l a t i n g t o com pensation o f em ployees. As m ost f i n a n c i a l
* i n s t i t u t i o n s f i n d i t d i f f i c u l t t o keep up w ith v a rio u s j
!
, I
' i n d u s t r i e s i n com pensating t h e i r em p lo y ees, com plim enting :
| |
i s te p s are ta k e n as a supplem ent t o w ages. An advantage j
: t o a c e n t r a l s a le s c o n tr a c t p u rch ase o p e ra tio n i s t h a t a [
i
| r e l a t i v e l y sm a ll s t a f f i s r e q u ir e d t o p u rch a se and a c q u ir e j
i ;
a l a r g e volume o f c o n t r a c t s . Top p e rs o n n e l can be u t i - j
i l i z e d i n t h i s program and a h ig h e r a c c o u n t p e r employee
! r a t i o can be m a in ta in e d .
^■Letter from S a le s C o n tra c t S u p e rv is o r t o P r e s i -
1 d e n t (U n published, Budget F inance P la n , Los A n g e les,
I A ugust 21, 1 9 5 7 ).
67
A f te r d e liv e r y o f th e m erch an d ise t o th e consum er,
th e f in a n c e company can p u rch ase the p ap er from the d e a l e r .
The acc o u n t can be s e t up and s e n t t o th e o f f i c e n e a r e s t
th e consumer f o r c o l l e c t i o n and s e r v i c e . S eaboard s t a t e s
t h a t u n d e r t h i s p la n th e b ran c h m anager may n o t have a s
g r e a t an i n c e n tiv e t o c o l l e c t an a cco u n t as i f he had p u r
chased i t h im s e lf . There may even be a ” so u r g ra p e s” a t
t i t u d e to w ard s c e n t r a l p u r c h a s in g . Budget F in a n ce F lan
f e e l s , how ever, t h a t the bran ch m anagers w i l l r e a l i z e the
| p r o f i t a b i l i t y i n t h i s program and w i l l c o l l e c t them on an
| e q u a l p a r w ith lo a n s . In f a c t , th e m anager may f e e l t h a t
i
! he h a s more tim e f o r c o l l e c t i o n because he does n o t have
| to spend any tim e i n the a c q u i s i t i o n or s e t t i n g up o f th e
i
! a c c o u n t.
i G re a te r e f f i c i e n c y may a ls o be a t t a i n e d i n a c e n -
i
i t r a l i z e d o p e r a tio n . The c e n t r a l o f f i c e can s p e c i a l i z e i n
i s a l e s c o n tr a c t s only and can r e g u l a t e volume of p u rc h a s e s , ;
| a c c e p t a more homogeneous ty p e of r i s k , and have a more
\ a c c u ra te c o s t a p p r a i s a l c e n te r th a n th e b ran ch o f f i c e s .
i A c e n t r a l i z e d p u rc h a s in g o p e ra tio n i s n o t a d v is a b le j
i i
i n an u n c o n c e n tra te d a r e a . A r a d i u s may be d e te m in e d
! by th e company. The a fo re m e n tio n e d Budget F inance p la n
»
j s t i l l n e g o ti a t e s c o l l e c t i o n s on th e b ra n c h l e v e l to g iv e
. l o c a l i z e d s e r v ic e t o the consumer and th e d e a l e r . They
i
| f e e l t h a t t h i s i s a b e t t e r m ethod th a n t h a t used by some
1 s a l e s fin a n c e com panies of a f f e c t i n g b o th r e g i o n a l p u r -
c h a se s and c o l l e c t i o n s .
68
Reasons f o r e n t e r i n g t h i s f i e l d . W hether t o go
i n t o s a l e s c o n tr a c t f in a n c in g was a q u e s tio n p ro b ab ly
q u e rie d by M r. A. P. G ia n n in i, Bank of Am erica fo u n d e r,
M r. S t r a d e l l a , P r e s id e n t of G e n era l M otors A cceptance
C o rp o ra tio n , and Mr. MacDonald, P r e s id e n t of H ousehold
F in an ce Company. Upon in te r v ie w in g many e x e c u tiv e s i n th e
consum er c r e d i t f i e l d , one h a s t o ta k e o p in io n s and r e
c o l l e c t i o n s as b e in g a l l im p o rta n t and d is c o u n t v ag u ely
remembered f a c t s . L et u s remember t h a t a b a s ic re a s o n f o r
e n t e r i n g i n t o a b u s in e s s e n t e r p r i s e i s p r o f i t . The l a r g e r !
s a l e s fin a n c e o r g a n iz a tio n s claim t h a t th e y e n te r e d t h i s !
!
1 f i e l d of consumer in s ta lm e n t s a l e s fin a n c e f o r re a s o n s of
! re s p o n d in g t o s o c i a l and economic needs and because th e
i
; a lr e a d y e x i s t i n g f i n a n c i a l i n s t i t u t i o n s f a i l e d t o m eet j
j i
1 s o c i e t y fs new and c h an g in g n e e d s . The t h r e e l a r g e s t s a l e s !
I . 1
j fin a n c e com panies a re b a s i c a l l y co n cern ed w ith au to m o b ile j
i i
j p a p e r a lth o u g h th e y have w e ll d i v e r s i f i e d o p e ra tio n s le a d - I
1 i n g th ro u g h many c h a n n e ls . T h e ir b a s ic re a s o n s f o r remain-]
i i
. i n g where th e y a re a t the p r e s e n t tim e i s a trem endous
; le v e ra g e p o s i t i o n , r e l a t i v e l y low i n t e r e s t c o s t s , and
i
i fa v o r a b le e a r n i n g s .
One o f th e re a s o n s f o r consumer fin a n c e com panies j
r i
: i
; e n t e r i n g the f i e l d of s a l e s c o n tr a c t fin a n c e i s t h a t th e y
i
f i n d t h a t th e y can t u r n a h ig h p e rc e n ta g e of th e s e co n
69
t r a c t s i n t o l o a n s . A nother m ain re a s o n i s t h a t when they
have a l o t of money t o p u t o u t, i t i s much e a s i e r t o p lace
i n t h i s m ark et th a n th e sm all lo a n m a rk e t. I t i s a l s o
e a s i e r to t u r n o f f and l i q u i d a t e , g iv in g much more f l e x i
b i l i t y to s a l e s f i n a n c in g .
As i n d ic a t e d i n C h ap ter I I I , th e r e t a i l o u t l e t s
a re l o s i n g a g r e a t e r p e rc e n ta g e of th e in s ta lm e n t c r e d i t
t o th e f i n a n c i a l i n s t i t u t i o n s , whose in c r e a s e i n a b s o lu te
d o l l a r o u ts ta n d in g s h as been s u b s t a n t i a l . By 1960, th e
r e t a i l o u t l e t s w i l l h o ld about t e n b i l l i o n d o l l a r s o f
in s ta lm e n t c r e d i t . The y e a r of 1953 saw th e e s ta b lis h m e n t
of G e n era l E l e c t r i c C r e d it C o rp o ra tio n . T h e ir m ain re a so n s
*
j f o r e n t e r i n g t h i s f i e l d were t h a t d u rin g the d e p r e s s io n i t
i
j was h a rd t o g e t a d eq u a te f in a n c in g from e x i s t i n g i n s t i t u -
; t i o n s . They w anted g r e a t e r d i r e c t c o n tr o l o v e r d e a le r s
l
who m ark e te d t h e i r goods and a p p lia n c e s , and th e y f e l t j
i i
i t h a t a p r o f i t c o u ld be e a rn e d by t h i s ty p e o f b u s in e s s .
' W esting house, R .C .A ., B org-W am er, and many o th e r firm s
i
a re j u s t now ccm ing i n t o t h i s f i e l d of in s ta lm e n t c r e d i t , i
• j
' S e a rs Roebuck i s becom ing known as th e r e t a i l le a d e r of ;
i
i
in s ta lm e n t c r e d i t , w ith a g r e a t e r p e rc e n ta g e of t h e i r
, i
; over th r e e b i l l i o n d o l l a r s a l e s go ing i n t o t h e i r c r e d i t !
i
i ch an n e l y e a r l y . |
l S a le s c o n tr a c t f i n a n c i n g . Budget F inance P lan j
! f e e l s t h a t th e re a re c e r t a i n fund am ental p r i n c i p l e s of j
70
s a l e s c o n tr a c t f i n a n c in g w hich sh o u ld be re c o g n iz e d and
2
giv en d e f i n i t e a d h e re n c e . The f o llo w in g b a s ic r e q u i r e
m ents a p p ly t o s a le s c o n tr a c t f i n a n c in g : (1) The d e a le r
should have s u f f i c i e n t e x p e rie n c e and a b i l i t y to j u s t i f y
c o n fid e n c e . One of the m ost im p o rta n t f a c t o r s i n th e suc
c e ss of t h i s type o f f in a n c in g i s th e su c c e ss ( p a s t and
f u t u r e ) of th e d e a le r whose p a p e r you a re b u y in g ; t h e r e
f o r e , the i n t e g r i t y o f th e d e a l e r sh o u ld be s a t i s f a c t o r y to
th e company. (2) The f i n a n c i a l s ta te m e n t o f the d e a l e r
should show re a s o n a b le n e t w o rth and th e p o t e n t i a l volume
| of b u s in e s s sh o u ld be s u f f i c i e n t t o j u s t i f y ta k in g th e ac- J
!
| c o u n t. A low volume of b u s in e s s may n o t be a p r o f i t a b l e
| u n d e rta k in g . Many d e a l e r s a re l!f l y - b y - n i g h t n o p e r a to r s ;
j t h e r e f o r e , i t i s im p o rta n t t o go i n t o t h e i r n e t w o rth ,
j sta k e i n th e b u s in e s s , and t e r n s o f i n c o r p o r a tio n or p a r t -
| n e r s h i p , w h a tev e r th e c ase may b e . I f the d e a l e r i s a
t
( c o r p o r a tio n , the amount o f s to c k i s
! sho uld be c h ec k ed , a s i t i s p o s s ib le t o i-s-aue- f 50,000 w orth
| i
of s to c k and only have $ 1,000 s u b s c r ib e d . (3) The p r o -
i
; b a b le average s iz e of the c o n tr a c t sh o u ld be g iv e n c o n a i- i
i
d e r a t i o n , f o r th e c o s t o f s e r v i c i n g sm a ll t r a n s a c ti o n s i s (
!
i as c o s t ly a s th e la rg e o r above a v erag e a c c o u n ts . Top
Seaboard F in an ce o f f i c i a l s f e e l t h a t the l,b re a k ev en 1 *
o
i Budget F inance P la n , M anual of Ope r a t i ons (Los
; A n g e le s), P a r t I I I .
sued and p a id i n
} mma maa m
71
p o in t on a s a l e s c o n tr a c t i s about #150*00. Top execu
t i v e s of P a c if ic F inance claim t h a t p r o f i t s can be m axi
m ized on f u r n i t u r e and a p p lia n c e p ap er i f th e p ap er i s
a c q u ire d a t from #450 t o #750 w ith an av erag e m a tu r ity of
from tw elv e t o f o u r te e n m on ths. (5) The custom er sh o u ld
have a d e f i n i t e use or need f o r the a r t i c l e to be fin a n c e d
and h i s re c o r d sh o u ld i n d i c a t e h i s a b i l i t y and w i l li n g n e s s
to re p a y in s ta lm e n ts when d u e . The Company i s p r e s e n tly
f in a n c in g f u r c o a t s . S h a ll we say t h a t t h i s c o u ld p o s s ib ly
be f u l f i l l i n g an in ta n g i b le need? C ustom ers o v e rlo a d ed !
!
w ith m erch an d ise r e s u l t i n g from o v e r-z e a lo u s s e l l i n g i
j
p r a c t i c e s sh o u ld be re g a rd e d as h a za rd o u s r i s k s .
D e a le r r e l a t i o n s . Seaboard F in an ce keeps a c lo s e
j w atch on th e f o llo w in g o u t - o f - l i n e d e a le r o p e ra tio n s ! j
! I
' 1 . Abnormal d e lin q u e n c y p e rc e n ta g e , j
i 2 . High p e rc e n ta g e o f r e j e c t i o n s , j
1 3 . E x c e ssiv e r e p o s s e s s io n s ,
• !
| 4 . In c re a s e i n volume and d e c re a se i n amount I
| of r e s e r v e , j
! 5 . E x ce ssiv e number of custom er c o m p la in ts , |
' 6. E x c e ssiv e c h a rg e s to l o s s r e s e r v e s ,
; 7 . D e a le r who g iv e s a n argum ent on e v ery r e -
j j e c t i o n ,
8. D e a le r u n c o o p e ra tiv e i n e f f e c t i n g c o l l e c t i o n s
i or r e p o s s e s s io n s ,
: i
! 9 . D e a le r c o n s i s t e n t l y sw itc h e s m erch an d ise w ith
r e s p e c t t o c o lo r , m od el, e t c . , d i f f e r e n t th a n
72
cu stom er o rd e re d ,
10* D e a le r whose volume shows abnorm al I n c r e a s e
over the p re v io u s m onth.^
D e s ira b le c o n d i t i o n s . Budget F in an ce F la n n o te s
c e r t a i n d e s i r a b l e c o n d itio n s w hich sh o u ld be re c o g n iz e d
a s sup p lem en tary c o n s id e r a tio n s a lth o u g h th e y are n o t en
t i r e l y e s s e n t i a l . The Companyfs M anual o f O p e ratio n s e t s
f o r t h the f o llo w in g c o n d itio n s as b e in g re g a rd e d as f a v o r -
| a b l e :
1 . The m erch an d ise sh o u ld have a d e f i n i t e and
ta n g ib le w o rth g r e a t e r th a n t h e amount in v e s te d i n
th e c o n t r a c t p u rc h a s e . ;
j 2* The m erch an d ise sh o u ld be r e p o s s e s s ib l e and
th e ty p e t h a t i s r e a d i ly s a l a b l e .
: 3 . The down payment on th e m erch an d ise p u rch ased
I sh o u ld be s u f f i c i e n t to give th e p u rc h a s e r a p e rs o n a l
| f e e l i n g of o w n ersh ip . j
i I
I 4 . The p e rio d of repaym ent m ust be s h o r t enough j
so t h a t th e d e p r e c ia te d v a lu e of th e m erch an d ise i s j
1 alw ays g r e a t e r th a n the l i e n . ^ i
’ ‘ ffQsras and r e q u ir e m e n ts . There a re many ways i n j
! w hich s a l e s c o n tr a c t p a p er may be p u rc h a se d . A company j
I i
! w hich h as an a t t i t u d e t h a t th e r e sh o u ld o n ly be one s e t
| of r u l e s and re q u ire m e n ts g o v e rn in g the p u rch ase and m ain-!
i te n a n c e of t h i s p a p er i s a company ’ which p ro b ab ly h a s v e ry |
!
^S eaboard F in an ce Company, S a le s C o n tr a c ts M anual,
p . 516.
i
: ^ Budget F in an ce F la n , l o c . c i t .
73
l i t t l e volume i n t h i s f i e l d * A consum er f in a n c e company
h as t o be v e ry f l e x i b l e * Each d e a l e r h a s h i s own s e t o f
c irc u m sta n c e s and v a r i a b l e s w hich can only be m et by a
f in a n c e company who can a d j u s t i t s v a rio u s needs of d e alers;
and o f th e m a rk e t.
An i d e a l w o rk in g s e t of r u l e s may be d eterm in ed and
e s t a b l i s h e d , b u t an aw areness of th e need f o r a d ju s tm e n t,
i n some c a s e s , m ust be k e p t i n r e s e r v e . The f o llo w in g a re
p o l i c i e s w hich sh o u ld be a d h ered t o i n g e n e r a l. A need
f o r d e v ia tio n w i l l a ls o be d is c u s s e d .
!
J
J N o n -re c o u rs e . G e n e ra lly s p e a k in g , i t i s w ise to
!
i c a r r y n o n -re c o u rse p a p e r. I f a d e a l e r i s so weak t h a t
1 only a re c o u rs e agreem ent w i l l be s a t i s f a c t o r y t o the f i -
j nance company, th e n e i t h e r th e d e a l e r or h i s m e rc h a n d ise ,
l 1
| or b o th , a re b o r d e r lin e c a s e s . A re c o u rs e agreem ent i s ;
!
! only as s a f e as th e d e a l e r . The paper sh o u ld be p u rc h a se d ;
’ I
■ on i t s own m e r i t , t h a t i s , th e a b i l i t y , s t a b i l i t y , and j
' c h a r a c t e r of th e consum er who i s to make the paym ents. |
j
1 One of th e m ain r e a s o n s a d e a l e r looks t o the lo a n company j
t o h a n d le h i s s a l e s c o n t r a c t s r a t h e r th a n s e t up h i s own 1
; c r e d i t d e p a rtm e n t, i s t h a t he w i l l be th ro u g h w ith th e j
; t r a n s a c t i o n upon d e li v e r y o f the m e rc h a n d ise . The d e a l e r j
i i
' does n o t w ant t o be b o th e re d w ith the a cc o u n t p a s t t h i s j
; s t a g e . On the o th e r h an d , th e fin a n c e company r e a l i z e s I
i
' t h a t th ey a re g o in g t o in c u r a lo s s r a t i o on t h e i r t o t a l
74
volum e. They only want th e lo s s to be i n l i n e w ith , or
below , t h e i r a n t i c i p a t i o n s . The f in a n c e company does n o t
want to have t o r e l y on th e d e a l e r .
CHAPTER VI
SUM M ARY AND CONCLUSIONS
In th e p re v io u s c h a p te rs t h e r e h a s b e en an a tte m p t
t o b re a k down th e study i n t o l o g i c a l p a r t s ; t h e r e f o r e , the
t h e s i s was composed of v a rio u s d a ta w hich e f f e c t the
s t a t e d problem of d e te rm in in g th e f e a s i b i l i t y o f e x p an d in g
i
a program of s a l e s c o n t r a c t p u r c h a s e s . N ecessary s te p s
were ta k e n t o conduct t h i s surv ey w hich would le a d u s to
j c o n c lu s io n s a s to the p r o f i t a b i l i t y , a c c e p t a b i l i t y and
j f e a s i b i l i t y o f such an u n d e rta k in g . C e r ta in assu m p tio n s
| and o b s e rv a tio n s were made i n each c h a p te r w hich b a s i c a l l y
J a p p lie d t o a s p e c i f i c problem or p o i n t made i n t h a t chap-
I t e r . I t i s now p o s s ib le t o c o n n ec t and r e l a t e th e s e ob-
' s e r v a tio n s t o th e t o t a l p r o j e c t . I
t |
I . SUM M ARY |
! I
! An h i s t o r i c a l rev iew of t h a t p a r t o f th e A m erican
i economy w hich e f f e c t s the sm a ll lo a n b u s in e s s , and e s -
: !
' p e c i a l l y th e p u rc h a se s of s a l e s c o n t r a c t s was m ade. Spe
c i a l em phasis was p la c e d on th e grow th of th e s a l e s fin a n c e
i \
I
■ company. An h i s t o r i c a l a n a l y s i s o f Budget F inance P la n i
! j
was made, p a y in g s p e c i a l a t t e n t i o n to grow th, c o r p o r a te ,
; s t r u c t u r e , o r g a n iz a tio n , c a p i t a l s t r u c t u r e , and e a r n in g s .
A stu d y of consumer c r e d i t was in c o r p o r a te d i n th e
76
r e p o r t . In o rd e r to la y a s tr o n g b ase of in fo rm a tio n
u n d e r ttth e problem 1 * s p e c i a l em phasis was p la c e d on ( 1 ) i n
s ta lm e n t c r e d i t , (2 ) th e consum er1s a c c e p t a b i l i t y o f i n -
i
s ta lm e n t c r e d i t , (3) th e p e rc e n ta g e of d is p o s a b le income
i n in s ta lm e n t d e b t, and (4) th e r e l a t i o n s h i p o f a d v e r t i s i n g
to consum er c r e d i t . A g e n e ra l know ledge, a w a re n e ss, and
stu d y of th e s e above f a c t o r s w i l l give a sm all lo a n com
p any’ s to p management a sound economic approach to a
problem such a s th e one i n t h i s r e p o r t . The e f f e c t s of
th e money m ark e t on the p e rs o n a l fin a n c e in d u s tr y were
shown f o r th e y e f f e c t the c o s t f a c t o r of th e p e rs o n a l lo a n
b u s in e s s to a g r e a t e x t e n t . D i v e r s i f i c a t i o n of a sm all
lo a n company’ s o p e ra tio n was d is c u s s e d and th e ad v an tag e s
| were i n d i c a t e d . M ention was g iv en t o how the p u rch ase of
j s a l e s c o n tr a c t s m ig h t a c t as a hedge a g a i n s t i n f l a t i o n and
* i
' r i s i n g c o s t s . The c o m p e titio n w hich a sm all lo a n company 1
! I
f
j f a c e s was d is c u s s e d , showing the v a rio u s ty p e s of i n s t i - |
; i
• t u t i o n s t h a t a re dom inant i n t h i s f i e l d . i
i
' The n u c le u s of th e problem was rev iew ed i n C h apter
! IV. A com parison betw een Budget F inance P la n and o th e r
(
\
; com panies was i n d i c a t e d , and b re a k downs of t h e i r b a la n ce j
' s h e e ts were g iv e n . S p e c if ic a s p e c ts and c h a r a c t e r i s t i c s |
I of t h i s program were re v ie w e d . \
The second h a l f of th e c h a p te r d e a ls w ith the po- |
j t e n t i a l p r o f i t s of s a l e s c o n t r a c t s . F i r s t , a detexm ina-
i
•t i o n of c o s ts i s m ade. Both a n a l y t i c a l and m a th e m a tic a l
77
a p p ro ach es a re e n d ea v o re d , P o t e n t i a l p r o f i t s u n d e r a hypo
t h e t i c a l example a re i n d i c a t e d .
In C h a p te r V o th e r a d v an tag e s and d is a d v a n ta g e s of
t h i s program were d is c u s s e d w ith s p e c ia l em phasis b e in g
p la c e d on c e n t r a l i z a t i o n v e rs u s d e c e n t r a l i z a t i o n . The
c e n t r a l i z a t i o n p la n was mapped o u t, and c e r t a i n a d v an tag e s
i n d i c a t e d . V a rio u s re a s o n s why th e d i f f e r e n t i n s t i t u t i o n s
e n te r e d t h i s f i e l d were d is c u s s e d and d e s i r a b l e c o n d itio n s ,
d e a le rs * te rm s, and re q u ire m e n ts f o r d e a le r s were i n c o r
p o ra te d i n th e r e p o r t .
i
j IX. CONCLUSIONS
I
l
I I t i s th e c o n c lu s io n of t h i s t h e s i s t h a t i t would
be h ig h ly f e a s i b l e f o r Budget F inance P la n t o expand t h e i r
s a l e s c o n tr a c t p urchase o p e r a t io n . I t h a s been in d ic a t e d
; I
t h a t th e r e i s a p r o f i t a b i l i t y i n t h i s ty p e o f f i n a n c in g .
The l i m i t a t i o n s p la c e d upon t h i s c o n c lu s io n are (1) th e
a v erag e a c q u i s i t i o n p r ic e o f th e s e c o n t r a c t s sh o u ld be
betw een 400 and 700 d o l l a r s , (2) th e average r a t e of d i s
count or a d d -o n sh o u ld be a t l e a s t e le v e n p e r c e n t , and
i i
! (3 ) w herever p o s s i b l e , a c e n t r a l i z e d p u rch ase o p e r a tio n j
i
sh o u ld be e s t a b l is h e d so as t o reduce c o s ts and m axim ize j
e f f i c i e n c y and p r o f i t s . j
I
In c re a s e d u t i l i z a t i o n o f t h i s s e r v ic e w i l l con-
i
I
| t i n u e , a s e v id e n ce d by ( 1 ) th e a lm o st u n in te r r u p te d and
i
c o n tin u e d growth o f th e p e rs o n a l fin a n c e company, (2 ) i n
78
s ta lm e n t c r e d i t , (3) a h ig h e r p e rc e n ta g e o f Net D isp o sab le
Inceme g o in g t o in s ta lm e n t c r e d i t , and (4) th e d e c re a se d
bad a t t i t u d e to w ards th e use o f c r e d i t .
There w i l l be g r e a t e r u se s of consumer c r e d i t i n
th e coming y e a r s . Almost a l l ty p e s o f consumer d u r a b le s ,
s e r v ic e s and s i t u a t i o n s a re f i n d i n g t h e i r way i n t o c r e d i t
c u r r e n t s . C o m p etitio n h a s fo rc e d out m ost o f the i n e f
f i c i e n c y and u n e t h i c a l p r a c t i c e s i n t h i s f i e l d . The u s e
of t h i s c r e d i t h e lp s t o m a in ta in a h i ^ i economic l e v e l
and a v e ry h ig h s ta n d a rd o f l i v i n g .
J I t i s th e th e o ry of t h i s t h e s i s th a t, the p e rs o n a l
j
1 f in a n c e company w i l l become more a c t iv e i n the f i e l d o f
s a l e s c o n t r a c t p u rc h a s e s .
The s i m i l a r i t y of s a l e s c o n t r a c t s t o lo a n s w i l l
I e n a b le th e sm all lo a n com panies t o grow r a p i d l y i n t h i s
> f i e l d . ;
| !
| I t i s a l s o th e c o n c lu s io n o f t h i s t h e s i s t h a t i
! Budget F in an ce P lan and o th e r la r g e sm a ll lo a n com panies
I
1 sh o u ld e n d ea v o r to f i n d o u t more ab o u t p o t e n t i a l c o s ts j
I p r o f i t s and s t a b i l i t y o f s a l e s c o n tr a c t p u rc h a s e . T his '
i
, r e p o r t s u g g e s ts v a rio u s ways to do t h i s .
i 1 i
j A p i l o t o p e ra tio n can be s e t up w hich w i l l do an j
i e x c lu s iv e s a le s c o n t r a c t b u s in e s s . They w i l l keep an
; i
| a c c u ra te re c o rd of t h e i r c o s t s , p r o f i t s , and any o th e r fi-j
I n a n c i a l and s t a t i s t i c a l d a ta of im p o rta n c e . O ther ways t o j
■ do t h i s would be by th e u se o f m a th e m a tic a l e q u a tio n s by j
79
a b ran ch o f f ic e t h a t h a s c o n s ta n t d a ta on lo a n s , s a le s
in s u r a n c e , and o t h e r s . Time and m o tio n s tu d ie s may be
m ade. The m ost r e v e a l i n g may be th e i n t e r p r e t a t i o n Tihich
hi^b. sp eed , e l e c t r o n i c equipm ent g iv e s on t h i s o p e r a tio n ,
I I I . LIMITATIONS AND ADDITIONAL RESEARCH
As was m en tio n ed i n th e f i r s t c h a p te r , t h i s r e p o r t
was lim ite d a s t o scope and v a rio u s u n d e rta k in g s . I t was
n o t th e i n t e n t i o n of t h i s t h e s i s to expound on and de
s c rib e th e s a l e s f i n a n c in g o f th e a u to m o b ile . As t h i s r e
p o r t I s a case stu d y on one sm all lo a n company1s s i t u a t i o n ,
d a ta w hich a p p lie d to t h i s company was re v ie w e d . O ther
r e s e a r c h which may be u n d e rta k e n would be ( 1 ) the advan-
j
j ta g e s of d i v e r s i f y i n g a sm all lo a n company f s o p e ra tio n s
j i n t o many f i e l d s , such as lo a n s , c o n t r a c t s , com m ercial
J lo a n s , f a c t o r i n g , in s u r a n c e , and p o s s ib ly m a n u fa c tu rin g
|an d d i s t r i b u t i n g , ( 2 ) th e s i m i l a r i t y of f u n c tio n s b e -
i
|tw een f a c t o r i n g of a c c o u n ts r e c e iv a b le and s a l e s c o n tr a c t
i
p u rc h a s e s , (5) th e f e a s i b i l i t y of th e u se of a d v e r t i s i n g
j .
i In th e s a l e s c o n t r a c t and s a le s fin a n c e f i e l d , (4) the
use o f higjh. sp eed e l e c t r o n i c equipm ent i n sm a ll lo a n a c
c o u n t i n g , paym ent, and b ra n c h o f f ic e c o n t r o l .
Now t h a t th e sm all lo a n i n s t i t u t i o n s a re f i n d in g
t h a t th ey have an ^ i n d u s t r y ,” more r e s e a r c h , ccmmunica-
j t i o n s , and exchange o f id e a s w i l l o c c u r, g iv in g t h i s type
! of i n s t i t u t i o n a s tr o n g f o u n d a tio n f o r grow th, e x p a n sio n ,
and g oo dw ill c r e a t i o n .
BIBLIOGRAPHY
BIBLIOGRAPHY
A. BOOKS
Cox, Re a v i s . The Econom ics of I n s ta lm e n t B uying. Hew
Yorks The R onald P re ss Company, 1948.
D auer, E r n s t A ugust. C om parative O p e ra tin g E x p erien c e of
Consumer In s ta lm e n t F in a n c in g A gencies and Commercial
B anks, 1 9 2 9 -4 1 . Hew Yorks N a tio n a l Bureau of Eco
nomic R e se a rc h , 1944.
M ors, W allace P. C onsum er-C redit T h e o r ie s . An H i s t o r i c a l
and C r i t i c a l A n a ly s is . Volume XVLL, Ho. 2 , C hicago:
The U n iv e rs ity o f C hicago P r e s s , 1944.
H i e f i e l d , M. R. The P e rs o n a l F in an ce B u s in e s s . N ev«r York;
H arper and B r o th e r s , 1933•
Prochnow, H e rb e rt V. Am erican F i n a n c i a l I n s t i t u t i o n s .
Hew Yorks P r e n t ic e - H a l l, I n c . , 1954.
R o b b in s, W. D av id . Consumer In s ta lm e n t L oan s. Ohio;
The Ohio S t a te U n iv e r s ity , 1955.
S e lig n a n , E . R. A. The E conom icss o f In s ta lm e n t S e l l i n g .
New Yorks H arper and B r o th e r s , 1927, Volumes 1, 2 .
T r e f f t z s , K. L . and E . J u s t i n H i l l s . M athem atics of B u si- J
n e s s , A c co u n tin g , and F in a n c e . Hew Yorks liar p er and
B r o th e r s , 1947.
W h ittle s e y , C h a rle s R. Money and B ank ing. Hew Yorks
W. W. N orton and Company, 1952.
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Board of G overnors of th e F e d e ra l R eserve System . Con
sumer In s ta lm e n t C r e d i t . W ashington, D .C .: U n ited
S t a te s P r i n t i n g O ff ic e , 1957.
________ , ^ R e v isio n of Consumer C r e d it S t a t i s t i c s , 1 1 F e d e ra l j
R eserve B u l l e t i n . W ashington, D .C .: U n ited S t a te s
P r i n t i n g O f f ic e , 1953, and A p r i l , 1957.
83
Kan©, C h a rle s J . Bank F in a n c in g of S n a il Loan Com panies*
K entucky: C itiz e n s F i d e l i t y Bank and T ru s t Company,
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P h e lp s, Clyde W. The Role o f th e S a le s Finance Companies
i n the Am erican Economy. B altim o re : Commercial C red
i t TJcmp5S57T:554“---------
, U sin g In s ta lm e n t C r e d i t . B a ltim o re : Commercial
C r e d it Company, 1955.
_______ , F in a n c in g th e In s ta lm e n t P u rc h ases of th e Am erican
F a m ily . 1954.
Scbmus, Elm er E . R a tio s of S n a i l 'Loan Com panies. C hicago:
The F i r s t l a t i o n a l Bank o f C hicago, 1956.
The Value L ine In v estm en t S u rv e y . New Y ork: A rnold B ern- j
h a rd and Company, I n c . , O cto b er, 1956. I
C. PERIODICALS
B a r t e l s , R o bert Ph.D . ^Economic F a c to r s R e la te d S p e c i f i -
! c a l l y t o Consumer C r e d i t , ” Consumer F inance News.
! V ol. XXXVIII No. 5, November, 1953.
i
I B urck, G i l b e r t and S an fo rd P a rk e r . ”The Coming T urn i n
I Consumer C r e d i t , ” F o rtu n e . V ol. L I I I , M arch, 1956,
^ 98-103.
D. CQ€ PANY MANUALS
. Budget F in an ce P la n , M anual o f O p e ra tio n s . Los A n g eles,
! 1957, P a rt I I I .
S eaboard F inance Company, S a le s C o n tra c t M anual. Los
Ange le s .
‘ S to c k h o ld e r1s R e p o r ts , 1956.
1 B e n e f ic ia l F inance j
I Budget F inance
G en eral A cceptance C o rp o ra tio n
| G en eral M otors A cceptance C o rp o ra tio n j
1 Commercial C r e d it Company I
H ousehold F in an ce !
l_. P a c if i c F in a n ce ...S eaboard F in a n ce______________________ j
APHSHDIX A
APPENDIX A
T H E FIRST N A TIO N A L B A N K O F C H IC A G O SM A L L L O A N C O M P A N Y RATIOS W ITH
C O R R ESPO N D IN G FIGURES FO R B U D G E T FINANCE P L A N
(O O P omitted!)
S T A T E M E N T D A T E 12/31/51 12/31/52
12/31/54 ... 12/31/55 .
12/31/56 6/30/57
Cash to Debt 1 I S .53
13.86
1 19.67
11.92
$ 18.83
12.37
$ 19.21
12.65
$ 16.64
10.66
I 16.77
10.49
1 16.03
17.8$
Ratio-D ebt to Net Worth 2.60 to 1
3.61 to 1
2.77 to 1
3.59 to 1
2.58 to 1
2.66 to 1
2.40 to 1
3.43 to 1
2.52 to 1
3.92 to 1
2.71 to 1
3.49 to 1
2.55 to ]
3.23 to 1
R atio-D ebt to Working C apital 2.19 to 1
2. $5 to 1
2.27 to 1
3.09 to 1
2.06 to 1
2.32 to 1
l.$ 9 to 1
2.74 to 1
1.93 to 1
2. $5 to 1
2.0$ to 1
2.2$ to 1
1.98 to ]
2. $7 to 1
Aggregate O utstandings of
Loan R eceivables-in d o lla rs -
from monthly t r i a l balances
4/1,383
7,384.
551,019
$,663
609,997
10,722
659,336
12,537
719,782
15,264
$63,005
24,917
942,181
23,396
Aggregate Monthly Cash P rin
c ip a l C o llectio n s (renewals
excluded)
36,504
786
43,132
724
44,847
864
46,111
1,069
50,660
1,312
54,925
2,240
58,434
2,083
% Average monthly Cash
P rin c ip al C o llectio n to
Average O utstandings
8.27
10.65
7.83
8.36
7.35
8.06
6.99
$.53
7.04
8.60
6.74
8.99
6.58
8.90
D ebt-Total Unsordinin-
a te d -in D ollars
564,319
6,315
653,789
7,089
706,545
8,956
745,359
10,665
861,388
14,342
1,026,$2$
17,826
1,057,991
16,562
No. of Months1 C o llectio n s
required to pay net debt-
applying % in r a tio No. 6
to-f-i seal--date - outstand-ings-----
7.12
6.34
7.55
8.31
$.22
7.$$
$.04
7. $9
7.94
$.16
8,44
7.06
8.35
6.88 j
1
T H E FIRST N A TIO N A L B A N K O F C H IC A G O SM A L L L O A N C O M P A N Y RATIOS W ITH
C O R R ESPO N D IN G FIGURES FO R B U D G E T FINANCE P L A N
(CONTINUED)
________ _ ___ (O O P om itted)
ST A T E M E N T D A T E
12/^1. A l_
..12/31/52
1
c A
<1
1
1
12/31/52.— .-L2/31/55-.... 12/31/55. 5/30/5.2-
% Bank borrowings to Debt 66; 34. 64.62 62.05 61.92
65.28 60.50 58.93
79.2 s 78.33
81.78 65.16 60.12 70.77 53.89
PAST D U E A C C O U N T S
90 day accts.-N o c o lle c tio n s 1.63 1.4-5 1.61 2.12 1.61 1.81 1.85
received fo r 90 days or more
• 1.79 1.4-3
2.32 2* 82 2.57 2.81 2.85
60-89 day accts.-N o C ollec
tio n s received fo r 60 to 89 1.37 1.29 1.38 1.37 1.16 1.31 1.23
days .91 .53
1.12 .70 .62 1.00 .91
I n te re s t only ac cts.-A cc ts on
which in te r e s t and charges 1.73 1.33 1.26 1.52 1.09 1.11
1.12
only were received in the 1.02 .38 .20 .42
.52 .52 .57
l a s t 60 days of the period
Average Amount-individual 203.00 232.00 225.00 251.00 267.00 285.00 290.00
loan b alan ces-in d o lla rs 209.36 226.01
277.12 268.23 310.52
323.01 321.32
Average Amount-individual 250.00 282.00 296.00 305.00 329.00 322.00 328.00
loans made-in d o lla rs 285.32 332.66 363.4-2 352.59 366.85
236.96 393.23
% Loss Reserves to Notes 3.58 3.65 3.61 3.68 3.67 3.60 3.59
O utstanding 2.00 2.00 2.66 2.83
2.26 2.86 2.70
T H E FIRST N A TIO N A L B A N K OF C H IC A G O S M A L L L O A N C O M P A N Y RATIOS W ITH
C O R R ESPO N D IN G FIGURES FOR B U D G E T FINANCE PL A N
(CONTINUED)
_________ . ___________ (O O P omitted )
ST A T E M E N T D A T E 12/31/51
12/31/52 12/31/53 12/31/54 12/31/55 12/31/56
b l M S L
% Loss to Average Notes
Outstanding
1.65
1.72
1.63
1.33
1.90
1.15
1.94
2.69
1.92
2.35
1.62
1*35
1.06
1.28
% Recovery on loans
charged off
26.55
10.84-
23.84
14.. 4-1
21.90
14,59
18.71
5,13
22.03
14.89
22.69
13.88
17.29
8.41
% Loans renewed w ith -
increas'es of unpaid balances
71;32
54-. 52
71.18
54-. 13
70*32
56.43
79.95
58.55
69.19
58.61
69.14
58.89
70; 23
59.49
% Loans renewed w ithout
in creases of unpaid balances
.69
1.23
*74.
4.32
.57
2.32
.59
; 28
.49
.34
.45
.41
1.67
P referred or
Preference Stocks
36,857
1,575
4-7,4-63
1,575
44,547
2,822
40,655
2,278
39,288
2,447
39,019
3,182
71,416
3,157
Common Stock
81,794-
000
81,174
,000
98,225
912
111,864
471
115,010
,970
118,366
005
89,164
.130
Surplus Earned and C apital 110,727
4-25
134,349
.....947
146,779
.551
157,671
219
185,051
1,684
212,559
2,491
228,968
2,532
Net W or th 229,378
1,94-9
262,986
2,061
289,551
3,701
310,190
3,769
339,349
4,313
369,944-
5,924
389,548
_ 5,940
D ebentures-indicate
i f subordinated (s)
269,031
1,750
337,521
1,750
424^466
2,270
445^048
2,790
498,776
3,070
651,583
2,400
693.444-
2,400
3
T H E FIRST N A TIO N A L B A N K O F C H IC A G O SM A L L L O A N C O M P A N Y RATIOS W ITH
C O R R ESPO N D IN G FIGURES FO R B U D G E T FINANCB PIAN
(CONTINUED)
ST A T E !,(E N T D A T E ' 12/31/51 12/31/52 12/31/53 12/31/53 12/ 3 1 /5 5 .
12/31/56 6/30/57
T otal Net Worth
and Debentures
498",409
>3,699
600,507
3,811
714,017
5,971
755,238
- 6,55.9
838,125
7,383
1,021,527
8,334
1,082,992
8,340
Volume fo r period 3,365,230
13,979
1,4-73,391
16,084-
1,599,616
17,222
1 , 642,046
- 17,585
1,940,345
25,873
2,258,524
- 38,871
1,224,760
14,346
T otal O utstandings 755,989
8,060
888,369
8,998
972,887
12,352
1,044,083
13,841
1 , 204,886
18,270
1,425,329
25,148
1,474,554
22,209
% T otal expense including
tax es to gross earned
in te r e s t, etc.
85.38
B8./.8
86.29
86.26
86.31
87.10
85.08
87.47
86.33
87.91
86.10
89.20
86.91
91.61
$ Gross Income to Total
Loans and Purchases
13.92
13.08
14-. 38
13.73
15.31
15.95
16.44
18.38
15.08
15.18
15.07
14.17
16.26
19.79
% Net P ro fit to Total
Loans and Purchases
2.02
1.51
1.92
i.8 7
2.15
2,06
2. 4O
2.30
2.18
1.84
2.05
1.53
2.04
1.66
% Expense to Total
Loans and Purchases
11.90
11.58
12.4-6
11.85
13.16
13.89
14.04
16.08
12.90
13.35
13.02
12.64
14.22
18.13
% Net P ro fit to Average
Net 7/orth
13.4-3
12.74
12.69
15.13
13.39
12.19
13.10
10.84
12.75
11.75
12.54
11.62
7.53
4.02
% Dividends to Net P ro fit
52.31
54.52
48.09
50.06
47.76
71.36
45.66
69.81
45.93
62.31
44*43
62.58
42.19
82.20
C Q .
0 0 -
T H E FIRST N A TIO N A L B A N K O F C H IC A G O S M A L L L O A N C O M P A N Y R A T C O S W ITH
C O R R ESPO N D IN G FIGURES F O R B U D G E T FINANCE PIAN
(CONTINUED)
STA T E E /IE N T D A T E
_ 12/21/51... 1 2 /2 l/5 2 _ .-12/2lZ5i_- 12/31/54..
. 12/21/55
12/31/56 6/30/57
% C urrent and Long
Term Debt to 69.65
70.49
40.37 69.71 70.24 70.57 69.57
T otal Resources
74-. 82 75.20 69.71 73.39 75.74
73.70 73.61
% Loss and Contingent 4.70 5.20
4.89 5.04 5.43 6.01
6.33
Reserves to Total Resources 4-. 51 4.97 4.86
4.19 4.21 5.83 4.60
% Net Worth to
25.65 24.31 24.74 25.25 24.23 23.42 24.10
T otal Resources 20.64. 19.83 25.43 22.42 20.05 20.47 21.79
% Non-Current Assets
3.34
3.30 3.32 3.15 3.70 3.26
3.39
to T otal Resources 4.32 3.87
6.74
8.28
4.84 4.80 5.46
Note: Budget Finance P lan 's fig u re s appear on the bottom lin e of each statem ent.
ca
\0
APPENDIX B
I r .
22l
37
38
39
4.0
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
T W E N T Y Y E A R STATISTICAL H IST O R Y
No.
of
O ffices
Volume of Receivables
Business Outstanding
T otal A ssets Gross
C a p ita liz a tio n Employed Income
T otal
Dividends
Net Income Net Income Paid to
Before A fter Sharehldrs.
Taxes Taxes A ll Classes
2 $ 172,672 | 119,899
$ 34,906 $ 54,733 1
3 491,733
281,376 62,925 278,019
4
584*811 313,365 83,331 319,999
4 969,091 612,314
82,318 644,697
4 974,731
637,338 151,572 684,321
4
1,074,598 670,973
188,576 716,598
5 1,483,394
764,023
185,816 809,390
5
2,190,300 859,687 185,711 914,451
5 2,318,314 968,344
213,786 1,054,850
11 5,336,987 2,805,680 694,613 3,369,199
14 8,370,141 3,946,204
1,120,671 4 ,412,443
17 9,539,919 4,779,703
1,261,298 5,314,123
19 10,000,689
5,432,322 1,331,049 5,970,815
23 11,255,515 7,042,974 1,577,441
7,520,562
23 13,979,116 8,060,855 3,619,425 9,014,470
25
16,084,968 8,998,430 3,731,947 9,881,227
34
18,721,946 12,352,127 5,891,027 23,847,752
41 19,851,454
13,841,837 8*439*136 16,104,585
46 27,944,516 18,270,086 9,263,127 20,605,544
52 44,528,277 25,148,696 13,424,514
27,250,802
68 32,523,607 23,956,351
16,498,537 27,714,998
42,315 i 2,607 $ 2,351 1 2, 500
102,847 3,548 3,245
1 j
749
113,299
1,050 483
2} ,430
131,929 4,597 3 ,9 U 3.,795
175,350 7,971 6,061
6,,184
175,883
7,708 6,418 7 ,416
166,013 5,807 4,272 7 ,100
218,934
15,757 11,592 8',284
218,462 18,219 13,241 13.
,241
421*588 91,295
50,302 37 ,707
803,173 207,401
141,702 62
,569
1,120,322 259,725 163,410 75',964
1,296,542 309,135 192,889 94
,388
1,561,582 266,877 166,293 99 ,563
1,829,028 320,638 210,786
114 ,925
2,208,943 468,063 303,500 151 ,928
2,746,372 548,535
354,270 252 ,817
3,232,199 642*574
405,006 282 ,738
3,928,018 ■790,853
474,936 295 ,915
5,509,963
1,025,877 594,783
372,,229
5,782,921 888,258 546,461 391,,451
T W E N T Y Y E A R STATISTICAL H IST O R Y (C O N T IN U E D )
Year
Number
of Accounts
Served
Number
of Accounts
Outstanding
Average
Size
of N ew
Accounts
Average
Balance
O utstanding
Shares of
Common Stock
(End of Year)
Book
Value Per
Common
Share
Earnings
Per Common
Share
Cash Dividends
Fhid On
Common Stock
1937 1 1,177 1 937 $147 $128
Record since p u b licly held
1938
2,4-15 1,705 204 165
11 tt 11 it
1939 2,904- 2,176 201
144
tt it 11 it
194-0 4-, 24.7 3,088 223 198
it ir it tt
194-1
3,776
3,054 258 209
it 11 11 11
194-2 3,611
3,139 298
234
n 11 11 ti
194-3 4-, 565 2,906 325 263
ti 11 tt tt
1944 7,64.7 3,324 236
259
- it it 11 ti
194-5 7,878
3,744 294 259 $100,000
$ .53
. . . ■
194-6 19,517
14,059 273 200 100,000
.64 $ .33 # 20,000
194-7 22 , 4 -4 -8 13,798
373 286 200,000 1.46 .53 25,000
194-3
26,758
18,044 359 265 200,000 1.16 .57 26,001
194-9 32,684 23,273 306 233 200,000 1.66 ■ .68 37,000
1950
40,855 31,605 282
223 190,000
1.89 .58 42,750
1951 43,993 38,502
285 209 194,950 1.92 .66
32,874
1952 48,352 36,577
333 246
197,325 2.72
1.04 54,176
1953 54,192 44,570
395 277 235,150
3.74 .76
76,340
1954-
56,201
51,604 398 268
315,593 4.72 .78 121,580*
1955 74,867 55,946 396 326
359,279 5.19 .88 136,388*
1956
102,094
73,316 501
343 497,335 5.51 .80 171,956*
1957 84,718 74,767
384 320
497,585 5.82 .71 199,024*
*In ad d itio n a 5 % stock dividend was paid during these y ears.
APFEHDIX C
APPENDIX C
THE QUESTIONNAIBE
HO
QUESTION______________ YES M O QPIMIQH
1. Do you f e e l t h a t th e work i n y our o f f ic e i s o v e r - d e ta ile d ? 46$ 54$ 0$
2 . I s th e paperwork i n y our o f f i c e e x tr a o r d in a r y as compared
w ith t h a t of c o m p e tito rs ? 36$ 50$ 14$
3 . Would you, i n a c t u a l i t y , s e l l more in su ra n c e i f le s s
paperw ork were in v o lv e d ? 12$ 78$ 10$
4 * Do you f e e l t h a t Budget h a s a t i g h t e r lo a n p o lic y th a n
o th e r com panies? 64$ 3 2 $ 4$
5.
Can Budget lo o s e n i t s lo a n p o lic y w ith o u t h a v in g h ig h e r
d e lin q u e n c y , e t c . ? 24$ 66$ 10$
6 .
Do you b e lie v e t h a t new em ployees r e c e iv e adequate
t r a i n i n g ? cn
to
48$ 0$
7. Would t r a i n i n g supplem ents be u s e f u l? 80$ 20$ 0$
8 * Can you su g g e st any m ethods which would reduce employee
tu rn o v e r?
C M
( 3 0
16$ 2$
9 .
Do you b e lie v e t h a t your o f f i c e i s u n d e rs ta f f e d ? (w ith
j u s t i f i c a t i o n )
14$ 86$ 0$
10.
Do you f e e l t h a t you are a d e q u a te ly com pensated f o r y o u r
ty p e of job?
40$ 60$
94
o
THE QUESTIOKHAIRE (CONTINUED)
QUESTION YES HO
NO
OPINION
•
H I
H I
Do you f e e l t h a t c o m p e tito rs pay more t o t h e i r p e rs o n n e l
i n e q u a l jo b s? 38# 48# 14#
1 2 . Do you f e e l t h a t th e r e i s a b e t t e r chance f o r prom otion a t
Budget as compared w ith a l l c o m p e tito rs , such as fin a n c e
com panies, b an k s, e t c . ? 12% 1 2 # 16#
13. Do you have f u l l a u th o r i ty i n c a r r y in g out th e r e s p o n s i
b i l i t y of y o u r o f f i c e ? 84# 1 2 # 4#
14. Do you b e lie v e t h a t th e r e i s an adequate supp ly o f p o ten
t i a l m anagers i n y o u r o f f i c e ? 38# 60# 2#
15. I s th e r e a need f o r a company p e n sio n or p r o f i t - s h a r i n g
p lan ? 94#
4#
2#
16. Are you i n com plete u n d e rs ta n d in g a s t o the o b je c tiv e s
o f:
Budget F inance?
Top Management?
Your O ffic e ?
94#
82#
96#
6#
18#
4#
0#
0#
0#
17. When you ask q u e s tio n s r e g a r d in g company p o l i c i e s , p ro
c e d u re s , a n d /o r o b je c tiv e s do you re c e iv e
Good answ ers?
U n d e rstan d a b le answ ers?
... . -Vasue- answ ers?
84#
96#
4#
16#
4#
96#
0#
0#
Q# ..
APPENDIX G
THE QUE3TIONNAIHE—ANALYSIS AND EVALUATION
T h is q u e s tio n n a ir e can be c o n s tru e d a s an i n s t r u
m ent o f su p p o rt and supplem entary m a t e r i a l r a t h e r th an an
a l l - i n c l u s i v e o r com prehensive r e s e a r c h . As I had i n t e r
view s w ith over f i f t y p e r c e n t of to p management and ad
d i t i o n a l t a l k s w ith s t a f f p e rs o n n e l, I d id n o t p r i n t th e
r e s u l t s of a q u e s tio n s h e e t s e n t to t h i s gro u p . F u r th e r
m ore, th e r e s u l t s were very poor a s t o th e number of r e
t u r n s •
I b e lie v e d t h a t th e c i r c u l a r sh o u ld be a s s h o rt a s
p o s s ib le and e a s i l y i n t e r p r e t e d t o in s u r e a good p e rc e n ta g e
of r e t u r n s . The q u e s tio n s ask ed were a r r i v e d a t m o stly
w ith my e x p e rie n c e i n t h i s type of o r g a n iz a tio n and s h o r t
in te r v ie w s w ith th e l o c a l s u p e r v is o r s . The views of th e
e n t i r e c h a in a re w e ll i n th e m inds of th e l o c a l men a s th e
I a n n u a l s u p e r v i s o r ^ m e e tin g has, j u s t ta k e n p la c e .
! The a v erag e age of m anagers was 32 y e a rs o ld . T h is
| i s a good f a c t to i s o l a t e . I t g iv e s a b e t t e r p i c t u r e of
jth e man we a r e q u e s tio n in g . S t i l l b e t t e r i n d i c a t i o n of
ith e s ig n if ic a n c e and v a l i d i t y of answ ers i s th e average
|e x p e rie n c e a t Budget F inan ce P la n , (fo u r y e a r s ) and the
leverage f i n a n c i a l e x p e rie n c e , which was s i x and o n e -h a lf .
!y e a r s . The r e a s o n f o r a tte m p tin g to d e te rm in e th e av erag e j
i f i n a n c i a l e x p e rie n c e i s t h a t Budget F inance P la n h a s a c - *
jq u ire d many o f f i c e s i n the l a s t few y e a r s . The b ra n c h !
imanagers have worked i n b o th o th e r ty p e s of f i n a n c i a l i n -
j s t i t u t i o n s and th e o f f i c e s w hich were a c q u ire d by Budget
'F in an ce P la n . !
I i
! I
Q u e stio n s JL, J2, j3. A grow ing c o m p lain t from m ana- j
Igers i s th e a d d i t i o n a l paperwork and d e t a i l e d o f f ic e r e - i
!p o r ts needed t o keep pace w ith a grow ing com pany^ demand j
• f o r work of t h i s n a t u r e . F o r t y - s i x p e r c e n t say t h a t the I
;work i n t h e i r o f f ic e i s o v e r - d e t a i le d . T h i r t y - s i x p e r !
‘c e n t say t h a t th e paperw ork i s e x tr a o r d in a r y even when com-j
p a re d w ith t h a t of c o m p e tito r s . When a s k in g q u e s tio n s |
ab o u t c o m p e tito rs , we w i l l f in d a h ig h e r deg ree of w no j
o p in io n 1 1 a n sw e rs. T h is i s o b v io u s, as many of th e men do i
n o t know th e tr u e n a tu re of a f f a i r s of th e o th e r com panies.
,Many m anagers com plain t o t h e i r s u p e r v is o r s t h a t the re a s o n j
jfo r n o t i n c r e a s in g volum e, s e l l i n g in s u r a n c e , c u t t i n g de
lin q u e n c y , and o t h e r s , i s because of the problem s and tim e
consum ption of d e t a i l e d r e p o r t s and e x c e s s iv e paperw ork.
97
The r e s u l t s of Q u e stio n 5 p o in t o ut t h a t th e r e c o u ld be
some r a t i o n a l i z a t i o n i n t h i s p o in t of view w ith the pos
s i b l e e x c e p tio n of g o in g out of th e o f f ic e f o r new b u s i
n e s s .
Q u e stio n s _ 4 and _5. I t i s g e n e ra lly n o te d t h a t
Budget F in an ce P lan has a somewhat t i g h t e r lo a n p o lic y
th a n o th e r com panies. T w o -th ird s claim t h i s to be the
c a s e , b u t th e same number a ls o say t h a t th e p o l i c i e s c a n
n o t be lo o se n e d w ith o u t seme i l l e f f e c t s . T h is q u e s tio n
comes a t a tim e when m ost of th e com panies have clamped
down because of t h e ' h i c o s t of money.
Q u e stio n s j3, J7, 8 # P e rso n n e l problem s i n f i n a n c i a l
i n s t i t u t i o n s a re becom ing more complex and employee t u r n - |
over i s i n c r e a s in g ly ad d in g to b o th t h i s problem and highei^
c o s t s . Reasons f o r t h i s seem to be tw o fo ld . The m o u n t j
of tu r n o v e r i n m ale p e rs o n n e l h a s n o t in c r e a s e d t o a
p o in t of any g r e a t alaim • I t i s th e use of more women j
w hich a f f e c t s th e tu r n o v e r r a t e . In th e Los A ngeles a re a |
th e lu r e of th e a i r c r a f t and grow ing e l e c t r o n i c s in d u s - J
t r i e s a re a n o th e r problem . I t i s h a rd t o can p e te w age-w ise
w ith th e s e g i a n t s . I t i s i n d ic a t e d t h a t alm ost f i f t y p er
c e n t claim t h a t new em ployees do n o t re c e iv e adeq uate
t r a i n i n g . Most of th e m anagers w rote t h e i r views on th e s e
q u e s t io n s . Most of them were s p e a k in g of th e new m ale
‘ em ployees who co u ld same day be m an ag ers. The r e s u l t s on,
| **Would t r a i n i n g supplem ents be u s e f u l ?1 1 answ ered tty e s tl ;
j e ig h ty p e r c e n t . Over e ig h ty p e r c e n t answ ered ny e s tt to j
th e q u e s tio n , w Can you su g g e st any m ethods w hich would r e - ■
j duce employee t u r n o v e r T h e consensus fa v o re d h ig h e r
. s t a r t i n g s a l a r i e s , a p e n sio n p la n , and g r e a t e r s e l e c t i v i t y j
, and s c r e e n in g of new p e rs o n n e l. j
i „ ' I
! Que s t i on 9< . "Do you b e lie v e your o f f ic e i s u n d e r- j
s t a f f e d f M i s a q u e s tio n aim ed a t a m a jo r g r ip e . When a s k - 1
! in g i t , h ow ever, e i g h t y - s i x p e r c e n t claim ed w n o .w Maybe j
I th e f a c t t h a t I a sk ed f o r some j u s t i f i c a t i o n c o lo re d th e 1
' an sw er. One can see t h a t many m anagers use t h i s u n w isely j
1 i n c o n n e c tio n w ith th e f i r s t th r e e q u e s tio n s , c la im in g !
! t h e i r paperw ork s u f f e r s a t the hands of u n d e r s t a f f i n g . j
I |
I
! Q u esti ons 10, 11, 1 2• In a l l p o s i t i o n s , no m a tte r ^
; what i n d u s t r y , w e la e a r a h ig h clam or f o r h ig h e r rem unera- j
: t i o n . I was s u r p r i s e d , i n f a c t , to f in d t h a t f o r t y p e r |
: c e n t of th e m anagers thought t h a t th e y were b e in g a d e q u a te ly
98
com pensated. However, th e s i x t y p e r c e n t sa y in g ”no” s a id
so w ith e x c la m a tio n p o i n t s . A f o r t y - e i ^ i t p e r c e n t n eg a
t i v e a n sw e rin g as a g a i n s t a t h i r t y - e i g h t p e r c e n t a f f ir m a
t i v e group gave some i n d i c a t i o n t h a t Budget F in a n ce P lan
i s n o t la g g in g b eh in d the i n d u s t r y . The answ er to Budg
e t s good b ran c h management i s th e answ er to Q u e stio n 12.
Most (72 p e r c e n t) m anagers f e e l t h a t t h e r e i s an e x c e l
l e n t o p p o rtu n ity f o r prom otion and f u tu r e in c r e a s e i n
b e n e f i t s . The growth p o s i t i o n of th e Company, co u p led with!
th e need f o r people to f i l l more and h ig h e r p o s i t i o n s , i s
in c e n tiv e f o r men i n a l l b ran ch p o s i t i o n s . Top management
h a s a ls o been d o in g a good job i n h o ld in g men of c a p a b i l i t y
i n t h e i r p o s i t i o n s .
Q u e stio n 15. An e i ^ i t y - f o u r p e r c e n t ”y e s ” re sp o n se
does n o t le a v e to o much t o be s a id about m anagers .h a v in g
enough a u t h o r i t y . I do n o t w ant t o d e v ia te from th e
e v a lu a tio n , b u t t h i s h a s been j u s t th e o p p o s ite as we go
up th e management l a d d e r .
! Que s t i ons 14 and 15. M ost of th e bran ch m anagers j
j r e f e r r e d to th e s e two q u e s tio n s a s b e in g h ig h ly i n t e r - |
j r e l a t e d w ith many o f th e o th e r q u e s t io n s . S ix ty p e r c e n t
| s a id h ig h e r s t a r t i n g s a l a r i e s , t r a i n i n g g u id e s , l e s s
i paperw ork, and o th e r s , would a t t r a c t and h o ld a h ig h e r
| c a l i b r e in d iv i d u a l t o th e company.
| The n eed f o r ” f r i n g e ” b e n e f i ts t o a t t r a c t good i
' people and keep them i s i n f e r r e d h e r e . I can n o t u n d e r- j
; s ta n d why even f o u r p er c e n t would answ er ”no” t o th e ,
; q u e s tio n on p e n sio n p la n s . !
I I
I
Q u e stio n s 16 and 1 7 . The l a s t two q u e s tio n s had t o i
! do w ith the r a p p o r t betw een h e a d q u a rte r s and th e b ran c h of-!
i f i c e s . The f i r s t p a r t gave seme i n d i c a t i o n t h a t , by and i
i l a r g e , th e branch m anagers had a good aw areness of th e ob- j
j e c t i v e s of Budget F in an ce P la n . U n d e rsta n d in g to p j
;management*s o b je c tiv e s l e f t some room f o r improvement |
w ith an e ig h te e n p e r c e n t n e g a tiv e an sw er. T h is co u ld pos
s i b l y be im proved a lo n g com m unication l i n e s . The f a c t
, t h a t fo u r p er c e n t d id n o t co m p letely know th e o b je c tiv e s
of t h e i r own o f f ic e c o u ld be due t o new o f f i c e a c q u i s i t i o n s
; or newly a p p o in te d or t r a n s f e r r e d m an a g ers. I f a m anager
c o n tin u e s to have t h i s problem th e n some change i s d u e. j
; On com m unication of p o l i c i e s , p ro c e d u re s , and ob-
1 j e c t i v e s from above, th e r e s u l t s were good. The s i x t e e n
p e r c e n t ”no” answ er on, ”Do you r e c e iv e good an sw ers?”
99
p o in ts o u t a need f o r men from h e a d q u a rte rs and s u p e r
v i s o r s to give more th o u g h t to th e a n sw e rin g o f b ran c h
m a n a g e rs1 q u e s t io n s . N in e ty - s ix p e r c e n t th o u g h t t h a t th e
answ ers t h a t th ey r e c e iv e d were u n d e rs ta n d a b le .
Many o th e r q u e s tio n s c o u ld have b een a s k e d , b u t I
b e lie v e t h a t th e s e r e p r e s e n t a good c r o s s - s e c t i o n of
b ra n c h m a n a g e rs1 a t t i t u d e s and c o m p la in ts .
N ote; The p re c e d in g q u e s tio n n a ir e i s an e x c e rp t
from a r e s e a r c h done f o r th e P r e s id e n t of Budget F inance
P lan i n Ju n e, 19 57, by the w r i t e r .
_ _______ _ ________ ( O a iy e r s if y o t ^ u th e r » _ C a ) U B © f f » it________________________________

Asset Metadata

Creator Reynolds, Donald Laurence (author)

Core Title An analysis of the feasibility of a small loan company expanding their program of sales contract purchases (a case study of budget finance plan)

Contributor Digitized by ProQuest (provenance)

Degree Master of Business Administration

Degree Program Business Administration

Publisher University of Southern California (original), University of Southern California. Libraries (digital)

Tag business administration, banking,OAI-PMH Harvest

Language English

Advisor Trefftzs, Kenneth L. (committee chair), Schultz, Robert E. (committee member)

Permanent Link (DOI) https://doi.org/10.25549/usctheses-c20-149514

Unique identifier UC11262916

Identifier EP43502.pdf (filename),usctheses-c20-149514 (legacy record id)

Legacy Identifier EP43502.pdf

Dmrecord 149514

Document Type Thesis

Rights Reynolds, Donald Laurence

Type texts

Source University of Southern California (contributing entity), University of Southern California Dissertations and Theses (collection)

Access Conditions The author retains rights to his/her dissertation, thesis or other graduate work according to U.S. copyright law. Electronic access is being provided by the USC Libraries in agreement with the au...

Repository Name University of Southern California Digital Library

Repository Location USC Digital Library, University of Southern California, University Park Campus, Los Angeles, California 90089, USA