A newly formed beverage company, moderately capitalized, has purchased 40 units of delivery trucks from a motor vehicle dealer. The total value of the trucks amounted to P1,350,000. The local bodies built at the expense of the buyer was valued at P500,000. The buyer made an initial down payment of P250,000 and mortised the balance, with finance charged for 36 monthly instalments.

The company promptly paid the first two (2) instalments of the amortization schedule. Then, it met a series of difficulties. First, one of its two principal machinery broke down. Then it suffered from acute water shortage such that it had to contend with the rising cost of sugar which made production doubly expensive. As if these problems were not enough, it met difficulties in the procurement of empty bottles which is reportedly controlled by a giant soft drinks company.

The present status of the account –P450,000 overdue equivalent to six (6) monthly instalments. The total unpaid balance is about P1 million. Present value of the vehicles – P1,250,000. The Credit Manager of the vehicle dealer made a thorough evaluation of the account as it presently stands. In point of CHARACTER, the major stockholder of the company is a successful businessman in his own right. He has varied interest here and abroad and, moreover, except for this particular business, he has been proven financially responsible and capable. From the point of view of capital, the company fails for indeed it is suffering from dire lack of capital. CAPACITY is impaired for the moment although there are high hopes that come summer time, assuming the operational difficulties are solved, business should pick up and prove profitable COLLATERAL WISE, the transaction is still viable. Note that of the present balance of P1 million, the total value of the trucks including the cost of locally-built bodies is still P1,250,000.

The question that confronts the credit manager is whether t this particular point the company should lower the boom and repossess the vehicles. Judging from the mount overdue and the number of instalments outstanding and unpaid, the initial answer seems to be YES. Yet, there are factors that militate against taking repossession action, to wit:

1. If this action is taken, surely the selling company would have lost a potential fleet customer.

2. If the units are repossessed, the seller faces the problem of having in its inventory P1 million worth of assets which it cannot hope to readily convert into cash since the trucks are constructed for soft drinks delivery purposes and there is a limited market for this type of trucks

3. The cost of storing the vehicles will be approximately 2 1⁄2 per month.

Full recovery of account, plus good prospects of reselling units even at a profit after reconditions, considering the upward trend or prices of used vehicles.

What are the chances that this small bottling company will survive? 

a. Giant competition 

b. Bottles controlled by competition 

c. Production problems

Questions:

1.) What are the problem and objectives in this case?

2.) Provide relevant case facts and analysis using the SWOT(Strengths, Weaknesses, Opportunities and Threats) analysis.

3.) What are possible alternative courses of action?

4.) If you were the credit manager, what would be your recommendations or chosen course of action?