The Munitions Act and the Heavy Motor Vehicle Industry.
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By "A Director."
All branches of British engineering were, in the early days of the war, put on their mettle to increase output. Modern conditions of warfare depend to a greater extent than has ever before been the case in I he history of the world upon efficient means of transportation; the heavy-vehicle section of the motor industry of this country, therefore, found itself faced by an unprecedented demand.
It can be truly said that few, if any, of the manufacturers, when this demand arose, troubled themselves with with considerations of how much profit there was likely to accrue to them from this state of affairs ; the life and existence of the country, its ideals and principles, its policy a "Live and let live" were at stake; something had to be done to make up for past shortsightedness, errors and negligence. The subsidy scheme as introduced by the War Department a year or two before the outbreak of the war had not met with the response that had been expected. There were a number of reasons for this, but the chief rmason probably lay in the fact that the special subsidy type of motor lorry was expensive in design, and that it did not lend itself readilY to trade purposes
for which other types of chassis and bodies had been found more suitable. The inducement offered by the authorities was also insufficient, the contribution made by the War Department to the purchaser of such a special vehicle barely covering the additional cost entailed by its design. In Germany, these matters had been managed differently, and that country had its transport service ready.
British Motor Manufacturers Stand by the Govern..
ment from the Outset.
In the first week of August, 1914, officers of the War Department visited all motor works and impressed
their output. A few days later, definite contracts were placed with the manufacturers for the whole of their productions. These contracts were then subject to _three weeks notice of cancellation, but this notice was subsequently increased to six weeks. Even this, however, was then and is now totally inadequate, as
everybody deals with the purchasing of engineering material knows. As a matter of fact, at present, it would be no exaggeration to say that six months would he barely adequate.
Money Poured Out to Increase British Output.
Such and similar conditions did not deter manufacturers. They shouldered their load right nobly, and, as it was made obvious by the purchases of motor lorries in the UnitedStates that the output of this country was insufficient, all of them commenced to extend their works and to lay down additional Machinery. This was mostly done out of. profits of the current year, and the anticipated profits of the subsequent years. All available cash resources, immediate and anticipatory, were utilized. The existence of the country was at stake—Lloyd George had said so, ergo there was but one thing -Wale, to put one's shmilder to the wheel, financially and physically. The then Chancellor of the Exchequer, speaking at Bangor, on the 2Sth February, 1915, said a -" This is an engineers' war, and it will be won or lost owing to the efforts or shortcomings of engineers. Output is everything in this war." Everybody who was then still considering the advisability of incurring what was tantamount to a mortgaging of his future prosperity in business, realized that it was up to him as an engineer to answer the appeal. Incidentally, the increase of motor lorries in this country, -which followed the extension of motor works as a natural re
suit, meant an ,enormous saving to the War Department, as the prices of British lorries were, and still are, much below those of the American product.
The Consequences of Becoming a "Controlled Establishment.
A few months after the above speech had been made the "Munitions of War" Act was brought into being. Under the Act, motor manufacturers were one by one declared "Controlled Establishments." The benefits which have accrued to them by this are questionable ; as a matter. of fact, rather the reverse of bemfit has been the consequence. It looks at present remarkably like temporary ruin of the entire industry, unless most drastic amendments are introduced and the utmost liberality is exercised in their application. The " Munitions of War " Act is in the nature of a contract between the Government and organized labour, under Which organized labour undertakes to avoid strikes and to forego Various, restrictions in return for an undertaking that the employer should•not reap enormously-increased profits by .reason of the
yen:loyal of such restrictions. It can probably be shown that only to a very small extent, if at all,, do these remarks apply to motor manufacturers, as little or no female labour has been employed in the -.manufacture of motor vehicles. If, therefore, in such motor factories, the employer is not reaping any benefit by reason of the removal of Trades. Union restrictions, consideration in the contract referred to does not arise. In the case of Sunday labour, firms have gone to their men and asked them if they were willing to work on Sundays for double pay, and Sunday work was therefore entirely voluntary.
Hardship on Youthful Branches of Engineering.
As against this, "Controlled Establishments" are allowed the same profit during the "controlled period" as they made on the average during 1912 and 1913, called the "standard" period, plus an additional one-fifth. They are also allowed 8 ner cent. on additional capital investment. Special consideration and treatment will be extended where the output of a factory has been increased and where circumstances are "exceptional," or "exceptional service" has been rendered, but there is nothing definite in the Act regarding these points. Roughly speaking, 80 per cent. of what are called " excess " profits will have to be paid to the Government in cash. As regards the heavy-vehicle section of the motor industry, the term "excess" profits is a misnomer. I question whether any " excess"' profits have been made. The whole. industry being .young, it follows that there must be many firms "turned the corner" just before or during the " statcdard " period. Therefore, the profits made during the " standard " period are no criterion of the profits which would have been made under normal conditions during the taxable period. Progress is rapid in the motor industry, once the "corner has been turned." The latter process has undoubtedly been accelerated by the war, but at the expense of all available capital
resources. .
A matter that affects the-motor industry, in a way . that no other industry is affected, is that, although the many thousands of vehicles manufactured" have been sold at reasonable prices to the War'DePartment, a very large Dumber of these cars will come hack after the war : whatever arrangement may be made for disposing of cars and lorries not required
by the War Department after the war, the fact remains that such cars will have to be sold over again, and will flood the market. Therefore, if the profit on the original transaction is to be drastically curtailed, not only will the profit on that transaction have been lost to the manufacturer, but he will be faced with the inability to sell his output after the war, owing to competition set up by the returned vehicles.
Allowances Forecasted Last July.
Referring to the point of the commercial-vehicle section of the industry being a young -one, a quotation may be made from the speech of Sir John Simon (the former Home Secretary), on the 12th July, 1915, when the "Munitions of War" Bill was being considered in Committee of the House of Commons :— "You may have the ease of an establishment which before the war did not succeed in making any profit at all, or was making only a very small profit. .
" I •do not think that it would be right to say there simply because no profit has been earned in the past that it therefore follows that the whole of the profit which that establishment makes under the new conditions should be forfeited and therefore I do ask the Committee to agree that some sort of adjustment should be regarded as possible there. . ."
These remarks obviously apply to companies engaged in a young industry. In any case, apart from the exceptional relief in the application of the " excess " profits clause, due for this and other reasons to the motor industry, it is obvious that the industry is entitled to receive very special treatment as regards the returned cars, perhaps in the shape of each maker being appointed agent for the disposal of the returned cars, with a prolonged period in which to dispose of them to avoid flooding of the market.
Cost and Sale Prices, and Profits. • Contracts with the War Office were made at the outbreak of the war, and a definite price was fixed per car to cover for a long period the whole of the output of all heavy-vehicle manufacturers, and only latterly have releases been obtainable for vehicles for 'Government contractors engaged either directly or indirectly in the production of munitions of war. Since the fixing of this price, the cost of raw material and labour has experienced an increase of from 25 to 30 per cent., and only in few cases has the War Department been asked for an increase in price ; the manufacturers are in some cases supplying to-day a large portion of their output to the War Department at the price fixed in August, 1914.
Is it argued that increase of profits due to economical manufacture is to be regarded as " excess" profits dependent upon the war? It is not suggested that the profits should not be taxed, nor is there any suggestion that the motor industry should escape more than any other industry as regards the need for national finance at the present time, but the contention is that to apply the principle of "Controlled Shops" to companies which continued to manufacture their standard product is unnecessary from every point of view.
It is true to say that, so far as labour is concerned, the motor meclutuic on the whole has shown himself to be a most willing and energetic worker in all the great motor-manufacturing centres, and he can certainly claim to compare very favourably indeed with the labour employed in other industries. Had the motor mechanic shown himself recalcitrant, there would have been more reason to have applied the "Controlled Shop" principle to motor companies than would appear to be the case.
Fluidity of Assets Gone.
The "Munitions of War" Act can be said to penalize the very men who came forward at the outB30 set, surrendering the whole of their normal business in order to supply munitions of war. Under the Finance Act, " excess " profits are only taxed to the extent of 50 per cent., whereas under the Munitions Act the percentage is nearer 80. An additional hardship is that, as the Munitions Act applies to all " Controlled Establishments" which, in response to Mr. Lloyd George's appeal, had extended their works and increased their output out of revenue, they will not be in a position to meet the payments to the Treasury when they become due, as the profits, having once been invested in the above manner, are of course no longer available in cash. It is not in the least extravagant to say that, if the balanee sheets of practically all the companies engaged in the heavyvehicle industry were taken and adjudicated upon on the bare allowance of the Act, there is not one which would survive having to find the necessary money to meet the " excess " profit tax, and it is to be earnestly hoped that, whatever amounts the companies have to find, provision will be made to avoid their financial status being seriously jeopardized.
Financing Export Trade.
A great deal of stress has been laid recently upon the advisability of developing the export business of this country. Anybody conversant with foreign conditions knows that a large export business entails large cash resources, owing to the necessity of financing foreign agents and other purchasers of motor vehicles over a long period. As the Act is likely to cripple all "Controlled Establishments " for a considerable time to come, by curtailing their available cash resources, it will be an extremely difficult matter to face foreign competition after the war.
A Premium to the U.S.A.
It must be remembered that the whole circumstances of this war have enabled the United States, already a dangerous competitor before the war, to have an absolutely free hand in creating and increasing goodwill to the detriment of the British manufacturer, who has of course been prevented from carrying on any normal business whatsoever. This competition will operate even more strongly in foreign countries and the Colonies than in this country.
The Act makes no provision for any allowance in respect of loss of goodwill. Inasmuch as the entire heavy-vehicle section of the motor industry of this country has been exclusively employed since the commencement of this war on the manufacture of lorries for the War Department, and latterly to a limited extent for contractors to the Government, the whole of their valuable goodwill, created by dint of a large expenditure of capital, in travelling expenses, supplying demonstration vehicles, etc., has been lost.
The Excess That Matters is of Parts for One Size of Vehicle.
Practically only one type of motor lorry has been produced in this country for over a year. Upon receipt of the six weeks notice of cancellation, manu-facturers will have thrown on their hands an enormous stock of material and parts, all for one type of vehicle, equivalent to from Six to seVen months entire output, as, owing to the present difficulty of obtaining raw material, contracts have to be placed glue far ahead. Assuming the present entire output at the modest figure of 200 per week, this would mean that there will be at least 5000 mOtorvehicles thrown on the market, all of one type, in addition to the enormous numbers which are sure to come back.
Many other considerations of course arise, chief amongst them being the case of those companies which have put in special plant for the purpose of shell and fuse making, which plant will be useless at the end of the war. These and other points have already been raised in the House of Commons, but the case of those motor companies which have gone outside their ordinary business in this direction will need careful consideration.