Bulk Buyir Fundament
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r Groups Is Wrong—says "S.T.R." By Including Provision for E the many Hauliers' Groups u Fundamental Error and Slut a Weapon Against the Small
Their Articles of Association 0 Forming are Committing a Ives in that They are Forging 'hey are Committed to Protect
IHAVE been taken to task by many readers of the . article in "The Commercial Motor" dated July 7, entitled " The Steady Growth of The Hauliers' Group Movement," for what I said about group buying. I stated twice, in the course of the article, that it was wrong, and a blemish on the high principles which appear to underlay the motives actuating most of those who are instrumental in forming groups.
There should have been no surprise at my attitude on the part of any of those who have attended the meetings of the committee which is forming this Association of Groups. The subject of bulk buying was raised at one of the meetings, and I pointed out then that, in my view, it was wrong.
I did not say a great deal because, in effect, my first reaction against it was almost intuitive, but I did say that it was wrong , in principle as they—the hauliers—were endeyouring to benefit at the expense of-motor agents, and that seemed to me to be wrong.
Furthermore, from the economic aspect, the application of the principle. I said, was bound to react, in the long run, to the detriment of those who applied it, inasmuch as, before long, sellers were bound to adjust their prices accordingly, with the net result that there would be no gain resulting from this bulk buying. I am hapPy. to state that I had considertble support for these views, but from a minority only of those present.
Bulk Buying Held Out as Bait Clearly, bulk buying is prominent in the minds of those who are considering the formation of groups : it. might almost be said to be the bait which is attracting them., Certainly it is regarded as one weapon by which they will be able to fight the combines: the belief is that combines buy on bulk terms and, in order to compete, the groups must do the same.
Mr. Rudman, who is a prime mover in this grouping of groups, as well as in . the formation of groups generally, is particularly keen on group buying and has writt9n to me twice on the matter.
In his first letter he said that the principle of bulk buying was incorporated in the Articles of Association, for the drawing up of which he was largely responsible, only after very careful thought. During the several years of planning which preceded the initiation of his group, they went, he said, into many hundreds of items, the proper handling of which was essential to the success of the group.
In this consideration petrol -scion became prominent. It was pointed out that one of the prospective members of the group was buying his fuel at a price of id. less per gallon than any of the others. This was stated to be on account of the fact that he used large quantities.
Quite naturally it was pointed out that, for the members of the group to be able to operate on level terms, they must be able to buy on level terms. The petrol distributors were, therefore, approached and, after protracted discussions, an agreement was reached whereby, if the group be formed in a suitable manner, the petrol distributors would raise no objection to one central body buying on favourable terms for all the members.
The Views of the Petrol Companies
It should be clearly understood, wrote Mr. Rudman; that the petrol companies took this attitude, not in, any spirit of benevolence, but because they foresaw that the financial benefits they would reap by dealing with one customer only would compensate for the difference in the price at which they sold the fuel. Instead or having to meet expenses in respect of telephones, invoicing, collections and bad debts from each individual member of the group, only one account would have to be considered.
Mr. Rudman then went on to say that it is clear from the above that no one is victimized in any way. What he should have said, of course, was that no one within his group was victimized.
As the result of this success in connection with the bulk buying of petrol, the bulk-buying clause was incorporated into their Articles of Association. What we are aiming at, he said, in effect, is that the group shall have all the advantages which the big operator obtains, and, in conclusion, he added, it is not compulsory for any member of the group to avail himself of this bulk buying if he does not so &sire.
In his second letter he told me that, recently, he had been instrumental in forming some eight or nine new groups and others are coming along, and he added, significantly, that "what most of my recent audiences have desired more information about is bulk buying."
All these people are lamentably and deplorably wrong. They are so seriously wrong because, by bulk buying they are cutting across the very prikciples for which they say.
they stand. Bulk buying puts up the price of commodities against the small man, and it is the small man they say they are out to protect. Mr. Rudman, in particular, as I stated in my 'article, holds the view that "grouping is essential, even vital, perhaps, to the protection and preservation of the small haulier • . ."
Bulk buying puts up the price against the small man because, as must be-appreciated by everyone, .the manufacturer and distributor must make, each of them, at least a minimum reasonable profit. If, in order to meet the demands of the bulk buyer, they are compelled to cut profits in one direction, they take. good care to recoup themselves in another by putting up the price against the small man.
Take a practical, simple and direct example of this. Assume the case of any well-known multiple stores haying an establishment in any town or suburb. Next door, or at least in the same street, is a small trader dealing in the .same commodities. The multiple store requires a delivery van for that particular shop and, because it is in.a position to pay on'bulk-,buying terms, it gets, say, 10 per cent. discount.
Of No Benefit to the SmallMan The little man also wants a delivery van, but, as the manufacturer has given the multiple store some of the profit ,which he must earn from the sale of his delivery vans, he puts the price up against the small man.
The big multiple stores are able to , buy in such enormous quantities that they can almost compel manufacturers to sell them the goods they buy for very little more (and sometimes less !) than they cost to manufacture. Again, as the manufacturer must make a profit somewhere, he increases the price to the small buyer, thus still further emphasizing and aggravating the artificial difference in price between these big stores and the small man who .is endeavouring to make a reasonable living in his one shop. The price is put up so high against him that he has not the ghost of a chance of selling in competition with the multiple store.
Therecan be no doubt that bulk buying, and the obtaining of special discount terms, are, to-day, some of the biggest factors in squashing out the small man in every tiade and industry.
Further, the business has a cumulai■ve effect. Let us assume that half a dozen groups are able to obtain the advantages of bulk buying and suppose that each of them is buying for a dozen vehicles or so and, as a result, obtains a discount of 10 per cent. After a time it occurs to the heads of each of these six groups that, if they combine, they can be buying not for half a dozen vehicles or so, but 70 or 80. They use that as a lever and increase the discount to 15 per cent. and so on ad infinitum.
The Middle Man Would be Hard Hit
Now, to turn for a moment to the question of the wisdom of arranging for bulk buying and, in so doing, inevitably cutting out the middle man—the local motor and service agent. He is an economic necessity and, as such, some means or other have to be found for making it wortji while for him to keep in business.
There may be cases where groups can arrange for one of their number to effect repairs and give service or, alternatively, the group, as a whole may make provision for that Even so, the premises and the facilities would have to be in some central position, and it is unlikely that the place, so chosen, would be equally convenient and accessible to all members of the group.
It is essential for the economic distribution of motor vehicles, for the servicing of them, and for the sale of supplies that there should be a link between the producer and the user.
It Is not, generally speaking,
economic for the manufacturer to arrange country-wide servicing facilities; it is, obviously, not economic, convenient or even practicable for the haulier always to be taking his vehicle to the manufacturer every time it needs a little attention. He must rely upon the local motor agent and, if he intends to rely upon him, he must realize he is entitled tO his trade discount so that he may continue to live, to operate, and to run his business.
What the groups, and the Association of Groups, should do, especially if, as hoped, they become strong enough to take such action, is to press for the abolition of discounts to conimercial users, whatever. may be the scope of their activities.
Harmful Effects of Special Discounts
There is no question of doubt that these special discounts have been the curse of the motor trade and the haulage industry, too.
Take the case of tyres, for example. in pre-war days there was a series of discounts. An operator having one to 24 vehicles was presumed to pay at list prices. One having 25 to 99 vehicles was, similarly, presumed to pay list prices less 5 per cent. The operator having 100 vehicles was assumed to obtain his tyres at list prices less 10 per Cent.
During the war all such commercial discounts have gone by the board. Every purchaser of tyres, for commercial use, pays the list prices, no more and no less, and I have good authority for stating that, as the result of the experience, thus gained, the old system of credit discounts to commercial users will not be resumed.
It will be a good thing, indeed, if the same priincipIe be applied throughout, not only to tyres but to vehicles, spare parts, petrol and oil and to all consumable commodities.
As an example of the iniquity of this system of special discounts, take the case of the list prices of commer-• cial vehicles. Everyone, save a novice in the industry, was fully aware that before the war commercial-vehicle list prices had li,ttle meaning. The mere fact that a 6-toh vehicle was listed by the manufacturer at £700 really conveyed very little. The price at which a vehicle was bought depended, first, upon the latitude allowed the salesman in his bargaining with the buyer, and, secondly, on the ability of the buyer to bargain.
It was a common thing; in those days, for a commercial-vehicle salesman to do a deal with a haulier and allow him, perhaps, as much as £200 for his old vehicle in part exchange and, when the deal was settled and the contract signed on 'the dotted line, for the salesman to say to the haulier: "You can push your old vehicle on the scrap heap." What sort of trading conditions are those?
There are, admittedly,difficulties in the way of the complete abolition of discounts for commercial users. It is hardly to be expected, for example, that the London Passenger Transport Board will go to the motor agent for its vehicles and supplies and, undoubtedly, if we get so far as abolishing these trade discounts, there will have to be a line drawn somewhere.
It should not, however, be beyond the ability of the general body of hauliers, acting in conjunction with the M.A.A. and S.M.M.T., to draw such a line, and to draw it in such a way that the scheme operates equitably throughout the indnstry.
I am quite certain that there should be an effort made to come to some sort of arrangement. No one who professes to have any sympathy or consideration for the small man in the road-haulage industry can do otherwise than support such a policy.
In conclusion, I would like to clear up a misunderstanding. Statements appeared in the technical Press a short time ago to the effect that the M.A.A. was pressing for some control over the repairing of commercial vehicles and had in mind, as one of the planks in that platform, that hauliers and commercialvehicle users, generally, should not be allowed to execute their own repairs.
Control Not the Idea of the M.A.A.
I have taken this matter up with Mr. George W. Lucas, president of the Association, and he tells me, most emphatically, that that was in no way the idea of the Association.
He says, quite bluntly, that so long as any commercial-motor user can effect his own repairs more efficiently and at less cost than he could have them done by a motor agent he is fully entitled to do them. "Indeed," Mr. Lucas added, "I strongly recommend him to continue to effect his own repairs. It is the business of the motor agent to put himself into a position to give such service that he can effect repairs more efficiently and at less cost than can the user himself." That is the objective at which the better class of motor agent is aiming. Until he achieves that end he can have no criticism to offer to those commercial-motor users who prefer to do the work themselves.