From: Adam Rose <Adam-AT-pmel.com>
Subject: RE: M-I: Rate of Profit - Car Companies and Consumer Credit
Date: Wed, 18 Dec 1996 09:09:47 -0000



My take on this is that this is an excellent example 
of the tendency of the rate to fall.

Essentially, car companies offer consumer credit as
a form of price cutting. Since most individuals who buy
cars do not have the money in the bank to buy a car,
the absolute cost of the car is more or less irrelevant.
What matters is the monthly repayment, end of story.
Therefore offering low or zero cost credit is simply
a more effective form of price cutting than reducing
the list price of the car. The car company has a double
hit on its profits : first, it is effectively reducing the price
of its cars, secondly, it is increasing the cost of producing
each car, since now there is an extra administrative
overhead.

What is the effect of this new competitive investment by the
car companies on the organic composition of capital ( ie
the ratio of capital to labour ) ?

I would argue that this investment, like any other investment,
will tend to increase the organic composition of capital for
the economy as a whole, although it may perhaps reduce
it for the car company in particular, depending on the 
possibly different ratios in the car and finance industries
respectively ( although actually I suspect they are more or
less the same nowadays ).

The new system for giving credit ( personnel, computers,
etc ) will be the most up to date system and therefore 
have a higher organic composition of capital than the
average in the finance industry. The existence of the 
new source of credit will increase the competitive pressure
on the existing credit companies ( banks etc ) , which will
tend to force them into increased computerisation, 
centralisation, etc, ie, a higher organic composition
of capital and a reduced rate of profit overall.

At the same time, the car company, even though it
has an above average level of computerisation in 
its credit operation, has a below average level of 
profit when compared with other finance houses.
Why ? Car companies are big in terms of manufacturing
but tiddlers in terms of finance. They do not have the 
economies of scale that finance houses have - ie each
worker does not produce as much - ie the rate of
exploitation is low. One way of attempting to remedy
this is to increase market share, so making each worker
work harder. Hence the car companies launch credit
card operations, in direct competition with the finance
houses. Unfortunately for the car companies, the effect
of their past entry into the credit market has been to 
drive down the rate of profit in this sector of capitalism.

The general tendency is the same as what happens
when supermarkets get involved in selling petrol.
Effectively, it breaks the near monopoly situation
in both the oil industry and the retail industry, and
so the rate of profit continues its downward path 
which may have been temporarily interrupted by
the existence of near monopolies in the two industries
beforehand.

Adam.

Adam Rose
SWP
Manchester
Britain.




















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