The effects of the Great War have made themselves felt throughout the whole structure of the motor industry. In the first instance, the war caused a sudden dislocation due to the temporary but immediate extinction of some markets and the abnormal development of others. The ordinary everyday business of the industry was totally suspended in every one of the countries engaged in the war, and largely modified even in neutral countries. From the first, it was realised that motors would play a very important part, though it was not perhaps generally understood that they would prove to be one of the first essentials among munitions. Within a few months, the motor industries of all the countries engaged had been completely mobilised in the services of their respective governments. The production of a car, vehicle, or cycle for any other than government work became next door to impossible. The naval war and the demands for sea transport added to the difficulties and helped to extinguish the last remnants of export trade. Thus, the motor industry of Europe, regarded as a whole, found itself suddenly prohibited from making any use of the goodwill which it had accumulated in past years. In the meanwhile, it was at an advantage as compared with many other European industries, inasmuch as it was kept more than fully occupied upon work for which it was paid at a reasonable rate. Problems connected with the disposal of the whole of the projected output ceased for the time being to exist. Expenses incurred in connection with selling dropped to an irreducible minimum. Consequently, payments made by governments, based upon pre-war prices, showed at first very substantial profits to manufacturers. As time went on, the cost of material and the cost of labour rose enormously, much more than counterbalancing the saving effected in sales organisation. Meanwhile, however, a high degree of standardisation in each individual factory had been ensured. Instead of producing several models, the manufacturer was concentrated upon one or, at most, upon two. His output of these particular models increased immensely, and the increase was further encouraged by the constant placing of new government orders necessitating enlargement of factories and the introduction of new machine tools. Thus, instead of a given output being divided up among five or six types, twice or three times that output was focussed on one type alone. Manufacturers were thus compelled to ascertain by experiment the result of adopting the one-model policy, and they found the influence of the change so favourable that, despite the immense rise in the price of material and labour, they were in general able to continue to supply their governments at the prices originally fixed, and to make satisfactory profits on the transactions.
The Wolseley
Up to this point, it would seem that the motor industry had no grounds for complaint. It must be remembered, however, that, though sales to government might be profitable, they were also compulsory and consumed the entire output. Moreover, special taxation of profits in excess of those made prior to the war had the effect of reducing possible dividends to normal dimensions, and preventing the accumulation of large reserves. It is necessary to distinguish clearly between liquid assets and assets represented by enlarged buildings and new plant. The latter are not, like the former, available for purposes of current expenditure. They cannot be applied to the perfecting or enlargement of a selling organisation, to a big scheme of publicity, or in any way directly or indirectly towards the paramount object of regaining and maintaining goodwill.
A very widespread misconception on the part of the public as to the war-time position of the European motor industry is due primarily to the fact that the value of goodwill is very difficult to assess exactly, and is consequently apt to be left out of account altogether. To take a simple example, if a certain business transaction shows a cash profit of 1,000 and leads to the loss of goodwill to the extent of 1,200, then that transaction is inherently a bad one. While the European motor industry was making apparent profits by the sale of the whole of its enlarged output to the various governments, its established goodwill was being automatically reduced in value, and, worse still, was not merely sinking out of existence, but was passing into the hands of the industries of competitive firms. Thus, the European industry came face to face with a very difficult after-war problem. Without any considerable accumulation of liquid assets, it had to find enlarged markets for its enlarged outputs, and in order to do so it had first to solve the problem of how to regain goodwill which had been transferred into the hands of very active and able competitors. It is much more difficult and costly to accumulate goodwill at the expense of an able opponent who already has it in his possession, than to build it up in competition with others who must themselves start from the same point.
It must be remembered, too, that the motor industries of temporarily neutral countries were, as the result of the war, flooded with orders on favourable terms. The profits thus accruing were not in their case liable to excessive taxation, since their governments were not involved in the prodigious expenditure inseparable from modern warfare.
Let us endeavour to make the position clear by means of a typical illustration. For this purpose, we will take a British manufacturer who, before the war, had sold his output through agents in all parts of the world, and a neutral manufacturer who, before the war, had catered mainly for his home market, but who was looking for opportunities of extending his business and disposing of his surplus output. The agents of the British firm, finding that their principal was prohibited from supplying them with any more new vehicles, were compelled to look about for a means of livelihood. They must either sell something or shut up shop. At this juncture along comes the neutral manufacturer anxious to appoint good agents, and able to deliver cars. The result is inevitable. The agent changes his allegiance from the British to the neutral firm. He uses his established connection, built up largely on the merits of the British car, as a means of introducing the neutral one. If the latter is any good at all, and if its makers offer the agent favourable terms and conditions, a permanent relationship is presently formed; and when the British manufacturer, able once more to build cars for the public, appeals again to this agent to help him, he finds himself in negotiation with a man who is deeply involved in business connections with another manufacturer, and is very unwilling to take a .second time the risks involved in any considerable change in his scheme of business. The agent has lost touch very largely with the class of customer on whom the British manufacturer mainly depends, and has cultivated the class to which the other car is likely to appeal. He has, in fact, built up for himself a new goodwill and connection, and he is not going to throw this overboard in the interests of the goodwill of the British manufacturer unless some very strong monetary inducement is offered to him.
Even if the agent be willing to do his best to reestablish the local market of the British manufacturing firm, he has difficulty in doing so. Deliveries for a time at least are likely to be uncertain and unpunctual, and the new models offered have in most instances not proved themselves in public. Their manufacturer is for the time hampered by the necessity for re-organising his whole system, reverting from munitions to motor cars. In doing so, he finds that while the machinery that he has put in is excellent for its own special purpose, and no doubt well adapted to deal with certain parts of his business as a producer of motor cars, it is badly balanced. In other words, it is suitable for producing some motor car parts in much greater proportional quantities than others. Consequently, to get things on a proper manufacturing basis, yet more new machinery must be purchased. It is no good to be capable of producing some components of the complete car in huge quantities if one’s works are able only to produce other components in comparatively small quantities. The rapidity of production of each component part must be right in relation to all the others, so that all the parts of a complete car take the same time to produce.
Meanwhile, the British manufacturer also has to deal with big changes in respect of labour. Jobs must be found for men who are coming back, and probably men and women who have for some time been employed must be dispensed with for one reason or another. Thus, even the most perfect handling cannot in a moment produce perfect system during the period of re-construction and re-arrangement. Elsewhere, manufacturers, on the other hand, have been able to concentrate attention on this difficult period, and so to ensure that when free competition comes again they will be able to show up at an advantage. This advantage is not noticeable only in respect of manufacture. Any manufacturer who has been involved in the war only for a comparatively short period has almost certainly accumulated very large reserves. These can be applied to a price-cutting war, or to the organisation of a comprehensive sales and publicity department, bringing it closely into touch with all the world’s markets.
Thus, while the European motor industry may have been fortunate as compared with certain other European industries during the war, its relative strength as against other motor industries has been very much weakened. In the struggle for supremacy, this is what really matters. The man with a few thousand pounds of capital may be fortunate when we compare him with the man who. possesses no capital at all. If the two were engaged in one industry, he would undoubtedly have the advantage and the better future prospects. It is equally true that, as against the man who can speculate in millions, the small capitalist has hardly any chance. Thus, it is poor consolation to the European motor industry to know that some of its neighbours are in even worse plight, if, with small reserves and shorn of its goodwill, it finds itself face to face with a competitive industry that has been presented with most of the goodwill of all the world’s markets and has an immense accumulation of capital available for the maintenance thereof.
These considerations give us a fairly clear idea of the present position. The war has taught the European motor industry the advantages of quantity production so far as the method may be applicable in view of the extent of the available markets. It has also taught the art of constructing machines to stand up under the roughest conditions of service, even when the facilities for repair and maintenance are somewhat restricted. All other manufacturers have, in the war, been taught these lessons, so far as they required to know them, almost equally well. They have also enjoyed the immense advantage of being permitted to accumulate funds and being free to conserve their markets and goodwill, and to take over the markets and goodwill of the European industry. Consequently, at the moment, the latter is in a precarious position, and in the next and concluding chapter we propose to deal briefly with the steps that must apparently be taken if the national motor industries of European countries are to be rendered permanently strong. We shall also endeavour to sum up the reasons why a strong national industry must henceforth be essential to every great country.
A study of the future of the motor industry is, at the time of writing, rendered somewhat difficult owing to the abnormal circumstances now prevailing, coupled with the fact that the position is changing daily, and that what are now only contingencies may in a few weeks or months be features of established national policy. From the last chapter it will have been gathered that the main question as to the future is the degree to which the handicap inflicted on the industries of nations which have taken part in the Great War from its early stages may prevent equal competition with those who have remained neutral during the whole or the greater part of the struggle. We need not concern ourselves here with the industries of Germany and her Allies. Neither need we at this juncture deal directly with the industry of the United States, since the motor manufacturers of that country are, comparatively speaking, in a very fortunate position. This is due partly to the circumstances detailed in the last chapter, and partly to the fact that the States have been the first to develop the principles of standardisation and quantity production and combination. The motor market of the United States is enormous, even if we disregard export trade. This market has from the very first been created into a preserve for the American manufacturer by the erection round it of a high tariff wall. Under existing circumstances, it is doubtful whether the American industry would suffer very severely if this protection were removed, since it is now so strongly established, and so thoroughly capable of meeting all competition in the matter of price. It was during its earlier stages that the tariff exercised its greatest influence. It then prevented European cars, undoubtedly of higher quality than those manufactured in the United States, from entering the American market except under the handicap of immensely inflated prices. The home industry was thereby enabled to grow up with the sure knowledge that, when it planned expansion, it might be certain of its ability to dispose of a properly estimated output based on the national demand for motors. It was not liable to have that demand cut in half by the sudden arrival of competitive foreign goods in large quantities.
There are those who believe that, even if the Great War had not intervened, the expansion of the American motor industry would still have brought about in a very few years the almost total extinction of the European industry. Any tendency that may have existed in that direction has been greatly accentuated by the war, and we may now take it for granted that no national industry has much chance against that of the United States, unless it can provide itself with very considerable markets adequately protected. At the time of writing, the main item of the programme of the British motor manufacturer in that respect consists of an advocacy of a system of tariffs to apply for at least five years after the war. This system would provide the highest preference for all goods manufactured within the British Empire, a secondary preference for the goods of Allied countries, somewhat substantial duties against the goods of countries that had not suffered in the same degree from the war, and a prohibition or prohibitive tariff against the products of Germany and other enemy countries. However far British manufacturers may find it possible to carry the principles of standardisation and quantity production in the near future, it is in the opinion of the writer impossible for the industry to enjoy a reasonable degree of security and opportunity for development, unless it is assisted by a system of adequate tariffs.
