Hire-purchase and the Commercial Vehicle.
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0 CONSIDER if and when hire-purchase-(or, as it should more properly be called, hire with
• option to purchase) can be a help to the vehicle operator, the whole. question of the finance of a business has to be taken into account. There is an inherent dislike to. heavy liabilities on the part of most traders—responsible traders, that is to say—and the irres.pensible ones, lighthearted in matters of financial obligation, are of very little use to anybody, least of all to the hire-purchase finance houses. One trader put it that : "A hire-purchase agreement is like something hanging over you—you are never comfort
able till it's off your shoulders!' • .
That dictum might; of course, apply equally well to -trade debts, despite the contra :credits due, as, if a business is properly. managed, it should. 'be capable of earning interest on capital, and hire-purchase charges represent interest on borrowed capital, with the
added advantage that principal and interest are redeemable at the option of the hirer. Invariably, additional vehicles mean _reduced costs, n26 as, up to a certain point, turnover can be increased without overhead charges being increased in the same ratio, and the diminution of the latter per vehicle is all to the good. .
Most traders—large and small—engaged in vehicle operation have experienced the bugbear of undercapitalization at one time or another. There may be a new route available for the bus operator, and unless he can quickly produce a suitable vehicle to pass the Watch 'Committee his larger competitor a mile or so away will step in; or the haulier has a good contract in view for which his existing vehicles are too large— or too small—in capacity. He will go to hie bank, perhaps, but, unless very tangible securitycan be given, and security which, unlike motor vehicles and other movable property, can be controlled by the bank, he will have a charming conversation and the manager will be suave and bland—but there will be no money forthcoming 1 Taking in a partner may have attractions, but a business partnership sometimes has attributes not unlike other kinds of
partnerships and may. quickly show "incompatibility of temperament."
In these circumstances, a vehicle on hire-purchase may well be a desirable method of business expansion, but reasonable prudence and forethought arenecessary, and the vehicle operator keen on business expansion would do well to avoid the glamour of catch phrases and seriously to study his position and make sure that he will be able to complete the contract he proposes to enter into. "Buying out of income" is a phrase commonly. used in connection with the hire-purchase system, and it is, in the writer's opinion, optimistic to presume that a bus or char-k-basics costing, say, £1,000 to £1,500 can be bought out of its income, after running expenses and standing charges have been paid and proper depreciation allowed for. It would, however, be fair to say that an owner running three or four vehicles can, subject to good management, buy an additional vehicle out of the net income of the whole. He is, in other words, sinking his profits, or a goodly part of them, in additional rolling stock and correspondingly increasing his assets. The financial difficulties of the vehicle owner and especially of the small operator, are many, and they are rather different from those of other businesses. The grocer, for instance, receives a statement of account for his supplies, which he pays at the middle
of the month following, and he has usually disposed of his stock in the three or four intervening Saturdays before payment is made. With the vehicle owner taxation, insurance and depreciation are paid very much in advance, whilst petrol and wages are virtually cash transactions, and, in considering business expansion,. some regard should be paid to the additional working capital rendered necessary by an increased fleet.
A trader should not be afraid of credit ; it is probably the basis of all commerce, but, nevertheless, credit in the larger sense can only occur when confidence exists as well. To enter into engagements which 'there is no clear or definite prospect of meeting is to court disaster, and to "chance it" in financial matters is probably as dangereus as in driving. When a year or two's profit showing exists and a sphere of usefulness can be clearly seen for an additional vehicle, the bnsiness is ripe for development.
A word or two concerning hire-purchase agreements might be useful to the potential hirer. Generally speaking, they all follow the same stereotyped form, but care should be taken to see that the option to purchase is contained in the first payment, as it is clearly advantageous to have a definite option at the start, and a fair agreement should always contain a clause providing for a lesser sum to be paid if the agreement does not run its full period.