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Why Sell Now? By S.T.R.

1st April 1938, Page 44
1st April 1938
Page 44
Page 45
Page 44, 1st April 1938 — Why Sell Now? By S.T.R.
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Which of the following most accurately describes the problem?

Rates Stabilization the Crux

There is Astonishing Ignorance Amongst Hauliers of Imminence of Stabilization and its Inevitable Effects on their Businesses

pAST history indicates, with unerring finger, the direction which the development of road transport will take. The railways set the example and the passenger side of our industry has already followed suit.

The railways, but a short time ago, comprised a large number of small concerns. It will, no doubt, surprise the majority of readers of this journal to learn that, immediately prior to the passing of the Act of 1921, which consolidated the railways as they are to-day, there were 214 such companies, and in the earlier days of railway. history the number was even greater. There was a multitude of concerns, fiercely competitive. Preliminary co-ordination reduced that number, but brought in its train even more ferocious competition. Buyers of transport took advantage of that competition and played off one company against another.

Financial Interests that Almost Brought Ruin.

Then.ecame co-pperation between these companies, which had to unite to fight their customers (road transport operators should note that) and, finally, that stage was reached, in 1921, which reduced the number of railway companies to four, as we now know them.

In the early days of this development financial interests took a hand, and the country was almost brought to financial ruin as a result.

The course followed by the passenger side of the road-transport industryparalleled that of the rail-. ways, with the important exception— for which we ought to be most truly thankful—that there was no attempt at financial manipulation.

So soon as the Act of 1930 had become effective, and when rates for the majority of passenger-carrying operations were stabilized, co-ordination proceeded apace, and to-day the bulk of the industry, apart from municipally operated services, is in the hands of a comparative few.

The process of attrition, directed towards diminishing the number of independent operators, is still proceeding.

In the early days of this change in B30. the face of the coach industry, the process of amalgamation went -ahead quickly, too quickly for many. Large numbers of small operators were rushed into disposing of their businesses, not realizing that values were bound to increase.

A few, well-advised, perhaps, or more far-seeing than their contemporaries, held bp.ck, and, as a result, obtained for their businesses amounts three or even four times as great as the original oilers. I have personal knowledge of instances in which original bids of £10,000 and thereabouts increased, in the courseof a year or two, to £35,000 and more. _ It is with the object of preventing small. goods-service operators from being stampeded into the acceptance of current offers and thus failing to obtain full values for their concerns that these articles are being written.

Justifiable Expectations.

I have pointed out that there are three prospective developments which justify expectation of increase in the values of hauliers' businesses. They are wage regulation, rates stabilization and in-creased security of tenure offered by the extension of the licensing -periods. The greatest. of these ie rates stabilization.

To my intense surprise I have discovered, during the past two or three weeks, that many; possibly the majority of, hauliers do not appreciate that rates have to be_ stabilized. Neither do many realize what that stabilization will eventully come to mean: It must result in increases in rates throughout the whole range.To emphasize and demonstrate that this must be so, I can usefully refer to a recent broadcast from the Belfast station of the B.S.C., the subject ot the discussion being road transport for agriculture in Northern Ireland, where the whole of road transport is in the hands of a Board. The only useful tact which emerged from that debate was that the outstanding effect of the transference ot the control of road transport to theNorthern Ireland Transport Board was a considerable increase in rates. In other words, rates. from being uneconomic, were placed on a corn-. mercial basis.

That is what will result in this country when rates are properly stabilized.

What rates stabilization may mean to some hauliers can be shown, with almost startling effett, by reference to an actual case with which I have had to deal. The haulier concerned was in a fair way of business and was earning a reasonable, if not, perhaps, extravagant, net profit.

How Rates Stabilization Will Increase Values.

Part of his success vas admittedly due to the fact that he was accepting back loads at cut prices. His revenue for these back loads was in the region of 030 per week. The faxing of rates on a more rational basis would increase that revenue to at least £100 per week, which is an addition of 82,000 to his income per annum. Since his business already shows a net profit, it means that the whole of this Rf...&000 is an actual increase in profit. I should emphasize, here, that this £2,000 will not bring the total net profit to an excessive amount, remembering the extent and ramifications of the business which I have in mind.

Now, according to one report—or rumour, perhaps—one, amongst the many offers going, includes provision for goodwill on the basis of a ten-years' valuation, taking an average of the net profits over the. past three years as assessment of goodwill. On that basis, this operator's business will, three years after the inception of stabilized rates, be worth £20;000 more than it is to-day.

The foregoing is an indication of what I mean, when I claim that it is .1/4 in the haulier's interest that. lie

should defer selling his business. I am being told, again and again, e that these schemes will benefit the mien haulier more than any other, but I am quite unable to perceive how that can be so. Take the case of the owner Of one vehicle, earning a

net profit of £100 per annum, which is more than the majority can show if the business be properly valued over three years. On the absurdly high assessment already quoted, the business is worth £1,000. He may receive £500 M cash and 333 £1 shares in payment for his business. He. invests the £500, which brings him in, probably, a revenue of £20 per annum.. A further £35 to £40 is the most that he can expect from his shares in the new company. His return is, therefore, not likely to exceed £60 per annum and he has completely lost his independence.

If there be one thing which, above all others, attracts and retains men in the road-haulage industry it is that they are independent—" masters of their fate."

True, they must, according to my own showing and belief, lose that independence eventually, but, at the moment, they are being asked to sacrifice it for as little, in such

instances as this, as £60 per annum. Surely it is worth more than that.

Three years after rates are stabilized, the profit frorrisheh a business as this may well be £400 instead of £100. It is not, of course, to be expected that the extravagant offers now prevailing will still be available. The business will, however, be worth much more than the £1,000 which is being talked about just now.

It will be a stabilized business. carried on under conditions which ensure reasonable security of tenure and fair competition, not being sapped and undermined by the erosive effects of evasion of regulations and the payment of insufficient wages. It will be earning a revenue which will place it amongst the best-run commercial enterprises. The operator will be able to discuss the matter of purchase on level terms with those who wish to buy and, if he does decide to sell, he will obtain a price commensurate with its real

value, not on the basis of an assessment deflated by conditions as they are to-day.

If he does not wish to sell he will be just as well able to continue to operate as he is to-day, but under far better conditions.

I must not leave it open for someone to say, in criticism of the foregoing, that I have not referred to the service agreement which is included in most of these current offers to purchase. The service agreement will have no more value than an engagement as traffic manager or, in the case of the single-vehicle operator, lorry driver.

If the reader be in any doubt as to the truth of that, let him seek out one of the many one-time coach operators who accepted a similar service agreement as part of the purchase price when he disposed of his small business and let him ascertain from that man the true value of such an agreement

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