View original document

The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.


February 12, 1949

Board of Governors of the
Federal Reserve System
Washington, D. C #
Dear Sirs:
In accordance with the Boardfs letter of January 27 there is
enclosed an interim report showing results of a spot survey conducted in principal trading centers of the Tenth District for the
purpose of obtaining information concerning recent tendencies in
the durable goods and instalment credit field. Members of our
staff at the head office and branches have interviewed representatives of automobile, household appliance, and furniture dealers in
Kansas City, Missouri, Kansas City, Kansas, St. Joseph, Joplin,
Topeka, Wichita, Omaha, Lincoln, Denver, Grand Junction, Oklahoma
City, and Tulsa, We have also covered a few banks and finance companies in each zone of the district*
We find no considerable body of opinion among registrants in
the district favoring either discontinuance of Regulation W or relaxation of the down payment requirements* On the contrary, the
great majority of registrants interviewed express the hope that the
regulation will be continued with only some relaxation of maturity
requirements. W e recognize, of course, that registrants who express
these views may be motivated by considerations affecting their own
business operations and credit extensions rather than by concern for
the underlying objectives of the regulation. Nevertheless, we are
inclined to believe that it is important to be aware of the general
reaction to the regulation and to adopt such measures to retain public
good will as may not be unduly damaging to the objectives of the regulation*
In response to the Board's request, our next quarterly reply
to S-953 will give further special attention to recent tendencies
in the durable goods and instalment credit



February 12, 194?


1* With respect to regulated articles, is there evidence of recent
undue inventory accumulation? If there is no general evidence, are there
any unsatisfactory inventory situations far individual articles or makes
of articles?
Inventory accumulation above requirements is fairly general, but a
critical inventoiy situation is not general*
Used car inventories are excessive* Among new cars,- the situation
varies as to make and model* New cars in excess inventory are nonstandard models, such as convertibles and station wagons, rather generally;
off-brand cars, notably Kaiser-Frazer; and large cars except Cadillac*
Among appliance dealers, the inventory situation is mixed* Many of
the smaller and newer dealers are overstocked, as are some others, and
all have fully ample stocks• The reason why the inventory situation is
not seriously excessive among well-established dealers, despite the more
ready flow of goods from suppliers and slower sales, is that many of
those dealers have adjusted their buying policies to a conservative
lihile some retailers of furniture have more stock than they need
relative to current sales volume, we do not find evidence of serious inventory situations* With sales VOIUUB off, most retailers have tried to
adjust their inventory policy accordingly* Presumably the effects of
this policy are reflected in the manufacturing and wholesaling stages of

both the furniture and appliance industries*

Federal Reserve Bank of Kansas CityFebruary 12, 1949
- 2 ~

We understand that seme manufacturers and wholesalers are offering
large blocks of new merchandise on a consignn^nt basis with a small down
payment, 10 to 15 per cent, on merchandise received*

2* Are premiums still prevalent on "used" new cars and, if so, for
what makes and about how large? To what extent is there increasing evi~
dence of price or other merchandising concessions by sellers of automobiles, household appliances, and furniture? Does it appear that such
tendencies are probably seasonal, or greater than could be explained by
seasonal or other texrrporary influences?
Premiums are no longer generally prevalent on "used" new cars* They
exist only on makes of cars recently introduced* New Chevrolet models
carry premiums ranging up to §500, and the Cadillac $200 to $300* In
some localities, standard models of the new Pontiac, Buick, and 01ds~
mobile lines still carry some premiums* The trade believes that these
premiums will be very short-lived, since they consider the premiums as
being payments for new models* We are inclined to the same belief* While
this view may be debatable concerning the Chevrolet, the lack of premiums
on new Fords is strong supporting evidence* The fact that the forthcouw
ing new Plymouth and other standard models of the Chrysler line may carry
premiums upon introduction is not evidence to ttie contrary*
The principal changes in the pricing of automobiles are:

(1) lower

prices in the used car field all along the line, (2) more liberal tradein allowances, (3) accessories only at buyerfs choice, and (4) price concessions in certain lines* Our reports on price concessions include
Lincoln and Eaiser-Frazer cars, vdth concessions ranging up to $500, and
smaller price concessions on the Mercury*

Federal Reserve Bank of Kansas City
February 12, 1949

- 3With respect to appliances and furniture, more liberal trade-in allowances and price concessions are fairly general*
Seasonal influences are a factor, as are the severe weather conditions of recent weeks # However, the adjustment appears to be greater
than such factors can esplain* Other factors are: (1) goods are no
longer in short supply, (2) the public is generally aware of the improved supply situation, and (3) many people cannot meet required credit
terms •

3* Are banks and finance companies showing increasing reluctance
to handle any -type of retail instalment paper? lhat explanations are offered for such tendencies?
There has been no change in policy of the major finance companies,
such as Commercial Credit, G.MJUC*, and Universal C»I»T«, with respect
to their willingaess to handle retail instalment paper under the custonw
ary repurchase agreements• Commercial banks and independent finance
companies have changed their policy principally by being less willing
to accept paper "without recourse•*' In the case of radios, there is infer eased reluctance to accept such paper even when the retailer participates in the risk*
The explanation for the change in policy is the increased danger of
default, as well as the loan volume already outstanding* The attitude
on radios stems from both their rapid depreciation in market value and
the tendency of consumers, in case of financial difficulty, to concentrate their funds on instalment payments for necessity items and to de~
fault first on less needed items, such as radios*

Federal Reserve Bank of Kansas City
February 12, 1949

4* Is there any tendency for financing institutions to tighten
credit lines extended to dealers for floor plan financing or other whole
sale transactions?
Financing institutions are tightening credit lines extended to
dealers for floor plan financing, particularly in the case of used car
dealers and newer and weaker appliance dealers* There is a tendency to
shorten the line of credit and to require a larger margin* We find that
a large proportion of new car dealers do not need to borrow for such

5« Are reports becoming more frequent that dealers in durable goods
lines are financially over-extended?
Evidence of financial overextension is appearing among the newer
appliance dealers, used car dealers, and some Kaiser-Frazer dealers*
Business failures among the newer appliance dealers are increasing; others
in this group are offering large lots of merchandise to the better established dealers at sacrifice prices* Some used car dealers are entering
voluntary liquidation, and others are openly discussing such action,
since they face unprofitable operations* Some Kaiser-Frazer dealers
apparently are approaching the same choice*
Host new car dealers, furniture dealers, and appliance dealers except as already stated are in good financial condition* However, some
appliance and furniture dealers are overexpanded on basis of present
sales volume and, accordingly, may find their profits affected adversely*
Some of the new car dealers who built expensive physical facilities are
showing some concern over meeting -their overhead costs if sales contract;

that problem does not impinge at the moment, however*

Federal Reserve Bank of Kansas City
February 32 , 1949

6* To vfo&t extent have there been lay-offs in manufacture and distribution of regulated durable goods? Have such lay-offs resulted from
recent sales declines or from other factors, such as model changes,
ventory*? talcing, supply shortages, etc*?
Manufacture of regulated durable goods i s not an important source of
employment in tiiis District except in the assembling of automobiles, and
in the latter field there have been no lay-offs*

While there has been

some increase in unemployment compared with a year ago, im have l i t t l e
evidence of lay-offs in the distribution of regulated durable goods other
than some unconfirmed reports* The Bendix distributor for Kansas has reduced his force by 4 per cent and expects to reduce his force another 6
per cent in the near future* None of the lay-offs in this instance are
in the sales force, and i t appears tjaat the adjustment in number of
workers i s an effort to reduce costs of operation* No doubt the
enixg of sales i s -Hie motivating force f however*