Financial strategies

It is not difficult to surmise that with the takeover of Vauxhall by General Motors much of the capital investment which was needed would be provided by the American parent company. The initial purchase price of 2½ million dollars (approx. £½ million) was supplemented by the acquisition of the ordinary shares which were increased in value from 10 shillings to a £1 each. The preference shares were also increased from 10 shillings to £1. The total shares were thus 600,000 made up of 300,000 shares of each type. The debenture stock raised in 1925, just prior to the GM purchase, remained on the books and totalled £350,000 at 7 per cent interest redeemable in 1928 and 1952. Thus of the £950,000 in shares and debentures, GM only held £300,000 in 1926. The strategy of GM was to increase its holdings by expanding the ordinary shares while the preference shares and debentures remained unchanged. In 1927 the ordinary shares were increased by 68,000 and in 1928 increased by another 82,000 to give a total of 450,000 GM owned ordinary shares. This situation was to remain until 1936 when the ordinary shares were increased to 1,000,000 because it was felt necessary ‘to bring the issued capital of the company more into line with the capital actually employed in the business.’ The shares were, of course, totally GM owned.

The ‘capital normally employed in the business’ had been enormously expanded in the interim period in order to precipitate the rapid expansion of Vauxhall to cope with mass production. The additional capital investment came from two sources, initially from General Motors and after 1934 from profits, once all previous debts had been paid off. Internal financing was also a predominant feature of Austin, Morris and Ford. Both Vauxhall and Ford achieved this by making heavy provisions for depreciation as Table 16 shows.

The share capital of the firm was not increased until after the war and expansion was financed mainly through retained earnings and depreciation. In 1948, despite having only 1½ million ordinary shares, the company report states that ‘the true capital is over £7 million.’ In 1949 the ordinary shares were increased to 3½ million to finance an expansion programme totalling £10 million, of which ‘the balance will be provided out of the company's own resources.