ShareHave more to add? News tip? Tell us
"It has always seemed to me that this putting off the day of payment for anything but permanent improvements was a fundamental mistake. The Ford Motor Company is not interested in promulgating any plan which extends credit for motorcars or for anything else."
— Henry Ford, speaking to the Wisconsin Bankers’ Association, 1915It is amazing, and it is saddening: If one goes back and reads economic history concerning what brought about the Great Depression, one will find that economists and pundits discussed its primary causes in much the same way as our situation is discussed today. Nearly 80 years ago it was reported widely and often that the consumer market had become saturated, that far too many people of modest means had taken out loans for large durable goods that they could never repay. That somehow the increased pay for manual labor had seriously unbalanced our system, and so on. Certainly Ford was declaring that unsound credit practices, by which he meant borrowing money instead of paying cash for a new car, could only end in disaster. Charles Nash told the NADA convention in 1925 that the auto industry had hit market saturation two years earlier, in 1923 — meaning that virtually all automobiles sold in the Roaring mid-Twenties were unnecessary and possibly unreasonable purchases. Of course, there was some truth to what the pundits were saying, as there was in Nash’s position that because the automotive market was oversupplied, the public was spending money on things they could do without. Certainly many books, written by some of our nation’s best historians and economists, demonstrate why over production in the consumer goods market was an important factor enabling the Great Depression. But even here, in hindsight, while few economists correctly assessed why that was the real problem, few historians have gotten it right.Bankers Wrong AgainThe first blasts in protest of automobile buying came from the more conservative and rural bankers; they complained in 1910 that far too many of their farm clients were withdrawing their savings so they could purchase personal mobility. And in large cities, firms such as New York’s Spencer Trask and Company railed against the "thousands who own cars that could not afford them had they not mortgaged their properties." However, it is known that in this period only 1 million Americans earned $3,000 or more each year ($66,983 in today’s dollars). They represented slightly more than 1 percent of the total population, but only that group’s members might have been able to pay cash for a new car without wiping out whatever savings they had. Keep in mind that in 1910, the Buick Model 10 was priced at $950 plus options — more money than a teacher in a major metropolitan area earned in a year. By the end of the First World War, more widely available auto financing helped sales soar. Here’s what is known about the debate on buying cars in the Roaring Twenties, the start of the Golden Age of Automobiles: By 1926, of all 12-month auto loans that had had a sizable down payment, less than .16 percent were going bad. At the other extreme, auto loans for more than 18 months with smaller down payments were seeing a 4.58 percent repossession rate.
@Nyx.CommentBody@