Business: Credit for Sale

Many economists scoffed at installment buying in 1928, blamed it for the market crash of 1929, predicted that it would disappear from U. S. business life. Yet installment selling has withstood Depression better than most other economic devices of the Turbulent Twenties. Particularly has it held its own in the automobile business, as the earnings of two of the biggest automobile finance companies dramatically testify. While nearly every motor company sank into the red manufacturing cars. Commercial Investment Trust and Commercial Credit continued to make handsome profits from financing the sale of the same cars.

There are about 800 automobile finance companies in the U. S. but Commercial Investment Trust, Commercial Credit and General Motors Acceptance Corp. get the lion’s share of the business.* Their technique is simple: A man buys an automobile for $1,000, paying the dealer $400 down. The finance company pays the dealer $600 for the account. Then the customer pays the finance company $55.75 a month for twelve months, thus making his new car cost him not $1,000 but $1,069. The $69 is the finance company’s gross profit, out of which must come cost of handling the account and of fire & theft insurance on the car. The $69 represents 7% of the total cost of the car, but 11% of the balance after the first down payment of $400. Credit companies also finance automobile sales between wholesalers and dealers. Lately this business has expanded in volume. But on the basis of funds employed, retail financing continues to be the major source of income. Wholesale and retail automobile credits are not the only items in the business of Commercial Investment Trust and Commercial Credit. The companies finance industrial equipment sales including machines and heavy goods, sales between textile manufacturers and merchandisers, hundreds of other miscellaneous transactions. However, automobile financing is the biggest part of their business and it is the current automobile boom which enabled Commercial Investment Trust to announce record half-year volume and profits last fortnight and Commercial Credit to report a similar achievement last week.

CIT’s automobile volume soared to $396,000,000, a gain of $113,000,000. Its total volume for all kinds of financing was $539,000,000 against $437,000,000 in the first six months of 1934. Net profits were $7,256,000 against $5,100,000.

Commercial Credit’s volume of $267,000,000 was up 28% over the corresponding period last year and net profits were $3,345,000 against $2,379,000.

It was John North Willys who laid the foundation for automobile installment financing when he developed automobile installment sales in 1915. But the actual founders of CIT and Commercial Credit were, respectively, Henry Ittleson and Alexander Edward Duncan, both still active today.

Dynamic, cerebral Henry Ittleson, born in Berlin, brought up in Manhattan and Kansas, was a young executive of much promise in Colonel David May’s shoe & clothing store in St. Louis when he started his finance company in 1908. Colonel May and his partners put up the money. By 1915 a large part of Henry Ittleson’s finance business, chiefly in furniture and machines, was coming from the East. Accordingly, one Saturday noon he piled his filing cabinets into an express car, his employes into a Pullman and the following Monday morning opened shop in Manhattan. Around 1920 Henry Ittleson became convinced that his business was leaning too heavily on the motor industry. He launched a program of diversification which took him into phonographs, vacuum cleaners, barber and beauty shop equipment, electric refrigerators, oil burners and finally into the textile factoring business. But he was not averse to increasing his automobile business by acquisition of Henry Ford’s financing company, Universal Credit Corp., in 1933. Today CIT finances the sale of Graham-Paige, Hudson, Nash, Reo, Pierce-Arrow, Studebaker and Ford.

Founder-Chairman Alexander Duncan of Commercial Credit looks and acts like a cinematic tycoon. A canny Kentuckian of Scottish descent, he is tall and slender, ruddy of face, commanding of presence. He rarely entertains, almost never allows himself a vacation. He started his first credit house in 1907, organized Commercial Credit in Baltimore in 1912 with a capital of $300,000. More than half Commercial Credit’s total financing comes from the automobile business and the company estimates a profit of from $5 to $7 on each automobile transaction. It has official contracts with Chrysler and Packard. Last December Walter P. Chrysler arranged to add a slice of Commercial Credit’s profits to his own by acquiring a substantial block of stock in that company.

*Last week General Motors Corp. was so cheerful about present and future earnings that it upped the quarterly common stock dividend from 25¢ to 50¢, threw in an extra dividend of 25¢