Clunkers & Creampuffs
Chapter 10: Selling In Hard Times
Auto dealers struggle to stay afloat as Depression rages
by James M. Flammang
Fewer families can afford cars, new
or used, as Depression reaches its low
point in 1933. This Packard dealer
handled luxury automobiles.
These were emphatically troubled times for the automakers and their dealers, operating under the franchised dealer system that had developed in the teens and '20s. New-car sales were sinking in the early Thirties. To keep from going under, auto dealers had to devise ways to change their tactics.
Good practices from the past had to be modified to meet the ambiguities of the fluctuating economic scene. Questionable tactics would have to be re-assessed. Sometimes, that rethinking resulted in shady methods for attracting and working with customers, inevitably harming the image of car salespeople and dealers.
Some dealers turned to cooperative sales methods. Others gravitated toward flamboyant (but not necessarily ethically dubious) selling processes. Those who chose to ignore public perception and focus on profits above all else could adopt and expand upon the "hard sell" techniques that had emerged in the 1920s.
Sadly, some gave in to temptation and came up with marketing methods that bordered on the fraudulent – or simply crossed the line into trickery and deceit. In the eyes of the general public, amid allegations of fraud, shenanigans and skulduggery, the image of the car dealer and his sales force was in peril. Negative opinions of the car business would intensify after World War II, as the postwar boom developed.
Asking prices for used cars had to be re-evaluated in accord with reductions in costs of new automobiles, as sales continued to slide. Retail selling prices and trade-in allowances also demanded attention.
For the better grades of used cars, meanwhile, reconditioning continued to grow in importance. Major automakers developed specific reconditioning plans, giving them compelling names and slogans:
• Ford "Renewed and Guaranteed"
• Chevrolet "OK" plan
• Buick "Gold Seal"
• Nash "Triple Safety Seal"
• Hudson "Personally Endorsed"
Warranties were increasingly available, to ease the minds of shoppers who weren't confident about the quality of the vehicles they were considering. Used cars in the 1930s could be split into three classes:
• Fully reconditioned (including a new-car guarantee of some sort)
• Partially reconditioned
• "As Is" (bargain priced)
In 1937, the National Automobile Dealers Association (NADA) asked the Federal Trade Commission to call a conference to consider the prevalence of such dubious or nefarious activities as price "packing," misrepresentation, below-cost selling, and manufacturer coercion. Automotive bootleggers, sometimes referred to in later years as "curbstoners," were offering discounts, over-allowances, and rebates on new vehicles. Such ills were largely connected to new-car marketing and sales, but the used-car end was playing a growing role in the auto business overall. According to The Price of Automobiles (1934), "An 'excessive allowance' prevails when a used car is accepted at a figure greater than that which the dealer can obtain when he sells it."
Early in FDR's presidency, the National Recovery Administration (NRA) provided fixed trade-in allowances and specified list prices that had to be charged for a new car. The NRA was outlawed in 1935, but the NADA wanted to keep its price-fixing code, despite its lack of popularity with the public.
Marketing plans for used cars (described in Chapter 7) made a comeback in the Depression years. The Windsor Plan that had fizzled by the late 1920s was revived around 1936. Under that plan, which had begun in Windsor, Ontario, Canada in 1925, with co-op advertising, used-car prices would be published like stock quotes.
The Boston Plan, also introduced around 1936, featured a central appraisal office to establish pricing. San Francisco maintained a central appraisal bureau until 1937.
Bounties emerged and junking plans were revived for cars that committed the heinous crime of being judged "obsolete." In the mid-1930s, Chevrolet was paying a $20 bonus for cars that were scrapped. By 1938, Ford was paying $12.50 apiece for some 300 junkers each week. At one point, even the federal government sought to buy the junkers.
In 1938, the National Automobile Dealers Association wanted to initiate a revived junking program, as a "public service" and to stimulate new/used car sales. Jalopy bonfires were held around the country, making a spectacle of what would otherwise be a trivial transaction. A 1939 parade of wrecks in Ogden, Utah featured smashing of two old cars as a promotion to encourage onlookers to buy only "Safe Used Cars."
During National Used Car Exchange Week (March 5-12, 1938), more than $1.2 million was spent by manufacturers on ads. Exchange Week had one primary purpose: to get rid of the used-car logjam that stemmed from the 1937 recession. Festivities included a 3-mile parade in Detroit, and another down Pennsylvania Avenue in Washington DC.
Dealers were not so thrilled with Used Car Exchange Week, which amounted to selling at "clean-out" prices. Something more than a temporary campaign was needed, they reasoned, to ease the build-up of unsold vehicles.
Since 1935, some automakers had been advertising in magazines and newspapers, as well as on the radio, to push used-car sales. Responding to the proliferation of "come-on" ads in big-city newspapers. New York City in 1939 adopted a code to protect used-car buyers from misleading advertising.
In 1936, the average dealer had to sell 2.5 used cars for every new one. A year later, one study found that 90 percent of new-car buyers had a trade-in to incorporate into the transaction. Some 70 percent of customers buying a secondhand car that had been traded-in wanted to turn in their existing vehicles. Half of those buying a car from the next "generation" brought along a trade-in themselves.
Trade-in practices had emerged early in the 20th century when a customer needed help selling his horse-and-buggy, so he could switch to a modern mode of private transportation. Early dealers might also have offered to sell the potential customer's old car on consignment, displaying it in the dealership's showroom, and applying the proceeds to a new model. By the early Twenties, dealerships were being split into separate new- and used-car departments.
Auto rows in both big cities and smaller communities were common by the 1930s. In 1939, for instance, the Chicago area had 14 distinct auto rows. The Chicago Automobile Trade Association held a used-car show in 1939 and '40, tied in with its annual new-car event.
Not unlike cafes and barber shops, a used-car lot could be a "center of social life," wrote John Steinbeck, author of The Grapes of Wrath, which chronicled the fictional lives of sharecroppers fleeing the Dust Bowl devastation of the mid-1930s. (See more on the "Okies" and their westbound jalopies in Chapter 12.)
Already, some dealers were more interested in making money on the financing than on the car itself. Some dealerships, in fact, were owned (or run) by finance companies – perhaps secretly. "Kickbacks" had been common since 1925 or so, constituting a large portion of some dealers' incomes. A bonus might be available when selling an installment contract to the finance company.
"Balloon notes," which require the unwary customer to pay a huge lump sum at the end of a loan term, began to appear. In the postwar years, they would serve as a major element of a rallying cry for legal restraints on financing practices.
Wisconsin had the most comprehensive law on dealer licensing, enacted in 1935 to eliminate price-cutting tactics due to over-allowances. Critics noted that over-allowances could be caused by careless appraisals rather than illicit tactics. Dealers and their salespeople now had a choice in pricing guidebooks, as the NADA Official Used Car Guide joined the familiar pocket-size Blue Book. Used-car salesmen's commissions in the 1930s, incidentally, typically ranged between 5 and 7 percent.
Outright crimes related to auto sales were hardly unknown, either. Serial number falsifications, for instance, were becoming a problem. An otherwise law-abiding acquaintance of this author's family once served a one-year term in Stateville penitentiary for using his metalworking skills to file down serial numbers.
Development of the Dealer System
In the early days of motoring, automobiles were distributed like most other commodities, with a wholesaler (middleman) between the manufacturer and the dealer. At the same time, many new motorcars were sold not by dealers as such, but came directly from manufacturers or their representatives. However, the move toward franchising, which would soon become standard, began well before the First World War.
The first independent car dealership is thought to have been established in Detroit, in 1898, owned by William E. Metzger. As early as 1911, Ford was signing prospective dealers to exclusive franchise agreements. Not only were they required to pay cash for the cars they would receive, they had to pay in advance.
In 1913, Ford instituted another policy that would have far-reaching ramifications for the auto trade: the quota system. Sales quotas were established for each dealership, based not upon local conditions and problems, but on census figures. If a given number of people existed in the dealer's locality, a certain number of cars would have to be sold – and it was up to the individual dealer to get rid of them, one way or another.
Supposedly intended to eliminate the "unqualified" dealer – the one who was insufficiently aggressive and therefore unsuccessful – the quota system could easily lead to high-pressure, high-powered sales tactics. Almost inevitably, too, it could result in a certain amount of semi-fraudulent transactions – and doubtless to a few displeased dealers as well as irked customers. Rather than waiting in the showroom for customers to appear, dealers actually would have to canvass door-to-door, or drum up business in any way they could devise.
Some European businessmen were shocked by the notion of quotas, believing such a practice would lead to virtual revolution in their regions. Instead, they became an integral part of the American auto distribution system – emerging into public view now and then, when dealers balk and complain to governmental investigative agencies.
Quotas were not a new idea in 1913, though. Well before the turn of the twentieth century, the National Cash Register Company previewed the eventual Age of Merchandising by establishing quotas for its salesmen. Under its founder, John Henry Patterson, NCR was a pioneer in other phases of merchandising as well, initiating the first sales conferences and annual sales meetings. Those gatherings were endowed with flamboyance and showmanship to get the boys excited – as well as sales contests with tangible rewards to the winners.
NCR also offered the first sales manual, which happened to contain what was purported to be the first "canned" sales talk: the kind of pitch that salesmen commit to memory, repeated with few variations to each and every potential customer. Many of these techniques eventually found their way into automobile salesrooms and merchandising conferences, as well as into the vocabularies of drummers hawking everything from vacuum cleaners to encyclopedias to magazine subscriptions.
Salesmanship was on the rise. The poor fellow who believed a product could be sold on its own merits would be in for a rude awakening when faced with competitors who eagerly studied every trick in every book that promised blissful success.
Like virtually everything else in the Marketing Age that was beginning to evolve, selling was to become "scientific." In the auto sales world, that meant a logical process of pre-planning every conceivable answer and response to the unvigilant customer's objections, real or imagined.
By 1919, then, the franchised dealer system was firmly established and well developed. Few automakers ever tried to buck the trend.
By the time the Twenties rolled in, manufacturers had adopted all of the essential techniques of making automobiles. Few real innovations and new inventions would enter the automotive world in the subsequent decade – and not many more in the following one either, except for development of pioneering semi-automatic transmissions.
Not every automobile offered each of the known innovations, of course, and there certainly were improvements to be made in reliability, comfort, and driving ease.
Hydraulic brakes were something new (introduced on the costly Duesenberg), whereas the Model T Ford (1909-27) had mechanical brakes on just two wheels. Gearshifts were still balky and hard to manage for many motorists. Dozens of technical improvements, from water pumps to mechanical fuel pumps to improved-flow carburetors were needed and would become reality. Nevertheless, the basics of the American automobile and the methods for turning them out from the assembly lines were well-established. Now, all the manufacturers and their captive dealers had to do was sell all the vehicles that those lines were capable of creating.
Click here for Overview: Casual History of the Used Car
Click here for Chapter 1: Early Days - Rich Men's Playthings, Poor Men's Dreams
Click here for Chapter 2: Ford's Model T and the Masses
Click here for Chapter 3: Production and Prosperity
Click here for Chapter 4: "Easy" Payments
Click here for Chapter 5: Family Cars and Family Life
Click here for Chapter 6: Five-Dollar Flivvers
Click here for Chapter 7: Rise and Fall of the Used Car
Click here for Chapter 8: Saturation and Salesmanship
Click here for Chapter 9: A Global Blowout
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