Date: Wed, 18 Dec 1996 12:53:17 -0500
From: "Matt D." <afn02065-AT-afn.org>
Subject: RE: M-I: Rate of Profit


Adam Rose writes, re: Auto financing:

>Essentially, car companies offer consumer credit as
>a form of price cutting.

True, perhaps, w/ regard to the deals of a few years
past w/ "0%" or "2.9%" APR financing, but hardly true
of ventures like the Ford Fairlane loansharking project
under discussion here, don't you think?

>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.

True only in regard to the exceptionally low-interest loans
that make up, I'd bet, a relatively low percentage of the
total outstanding loans of these auto-companies' financial
enterprises, and in any event are not the very *high-interest*
loans that we've been considering, right?

Whether the marginal cost of administering these low-
interest loans is at all significant compared to the total
costs of running these finance operations is an interesting
question.  My guess is that it's not.  Doug?

As for "normal-" to high-interest loans, it seems unlikely
that the automakers are *just* increasing their production
costs ... they're also capturing profits that otherwise would
go to other finance outfits.  In fact, in-house financing has
been a source of enormous revenues for the industry, if I'm
not mistaken.

>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.

What is the evidence for either of these propositions?

>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.

You are underestimating, I think, both the size and the
long history of in-house financing by automakers.  These
are not "fresh out of the oven" operations.  Rather, the
Fairlane project represents an extension of or addition to
existing, *enormous* operations.

-- Matt D.

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