Clunkers & Creampuffs
Chapter 7: Rise and Fall of the Used Car
Used Car "Problem" Grows Through the 1920s
by James M. Flammang
For years, industry experts warned that the
market for new and used cars would dry up,
because just about everyone who wanted an
automobile already had one.
Secondhand models had become an important factor in new-car sales as early as 1911-12. Well before the 1920s, in fact, the used car was seen as a formidable "problem" by some in the trade. A 1914 study by Curtis Publishing called the used car the most serious problem faced by dealers ndash; and one that would become even more acute.
Even before the teens, used cars were getting more consideration by dealers. In 1911, the Glidden Buick Company of New York City established a separate used car outlet. A used-car show was held by Chicago dealers in 1916, then repeated in the following two years, as a means to promote sales. Several years earlier, in 1911, Chicago dealers began a "blue book" of used car values, used nationally by 1915.
Until the 1920s, most dealers didn't want a trade-in on any used car. Many weren't so thrilled about any trade-in. But within the next couple of years, accepting trades on used cars became mandatory for most. The practice of accepting a "trade on a trade" began with dealers in higher-priced automobiles. By 1928, about 70 percent of new-car sales included a trade-in.
By the 1920s, used-car sales were at least as important as new transactions. In 1919 alone, more than one million used cars were sold (58.7 percent of new-car sales). In 1924, some three million used cars went to customers, compared to 3.3 million new vehicles.
Three years later, for the first time, more used cars were sold than new ones – a pattern that would continue from that point onward. In 1929, almost five million used cars changed hands (three-fifths of the total).
New-car prices were dropping by 1922, allowing some former used-car owners to contemplate buying new. In the mid-Twenties, Ford prices reached their bottom level. Nevertheless, many people opted for a used car anyway, bypassing those final Model Ts, because used-car prices were low, too. At the end of the decade, customers could find some good values in used cars, including big and originally expensive motorcars for surprisingly low cost on the used car market.
Rather than being an entity in itself, the used car has been called a "medium of exchange," a mere stepping stone on the way to ultimate profit (or loss) on a new-car transaction. Little wonder, then, that dealers resisted taking them seriously.
During the Twenties, in any case, the selling of used cars started to be considered as important (if not more so) than the selling of new models. Early in that decade, automakers pushed over-allowances, to sell more new cars. By 1922, ironically, the used-car market was troubled, suffering a market glut due to low prices and those over-allowances.
Factories considered the situation to be a "dealer" problem; but dealers wanted aid from the automakers to cope with their growing stocks of used cars. Automakers had to advise their dealers about used-car values and their importance to the business and the industry.
As the Twenties decade came abruptly to an end, one proposal advocated to deal with the used car problem would require a certificate of title in each state. Even in 1929, only 24 (of the 48) states had such a law. Even better, it was thought, would be a junking certificate. Thus, when a car was scrapped, its title would officially cease to exist (a policy already operating in Pennsylvania).
Dealers Take the Initiative
During the teens and '20s, several dealer cooperative plans arose, including the Appleby, Windsor and Saginaw plans. Each purported to control used-car values (allowances) by means of appraisal, and make them uniform.
Automakers had plans of their own, pushing reconditioning of used cars to be sold, along with junking of the rough ones. Chevrolet prepared the first junking plan, in 1925. The National Automobile Chamber of Commerce launched its junking plan in 1929.
During 1929-32, about 350,000 cars were destroyed each year under various junking plans. Though justified in terms of public safety, the obvious ultimate goal was to sell more cars. Factories paid bounties for used cars turned in to be scrapped. Attempts to cope with the vehicle surplus even included jalopy-burning drives. In 1927, there was a proposal to ship used cars to other countries.
Junking plans ceased in 1933 as the National Recovery Act (NRA) came into effect, which gave the federal government authority to control prices.
Details: The Used Car "Problem"
Concern about the secondhand car as a developing problem began surprisingly early. The year 1911 was considered a critical point for the automobile, and for the secondhand car problem (at least as seen from the vantage point just five years later). At that time, it was common practice for dealers to actually bid for each used car offered, leading to considerable price-cutting and a squeezing of available profits.
In 1913, dealers worried about used-car sales asked the National Association of Automobile Manufacturers to "investigate" the dilemma. Little of a tangible nature seems to have been done, though, until the Twenties, when the "problem" was indeed acute.
The author of a 1916 book suggested that the average car had three owners by the time it reached its final resting place, the junkyard. In reality, many had larger numbers of prior owners, and the total would grow as cars became longer-lived, thus available for "consumption" by the less affluent.
By the mid-Twenties (1925, for sure), used cars were clearly a major problem. Rapidly expanding new-car sales in the early part of the decade exacerbated the rising concern. Something would eventually have to be dome about the trade-ins that were filling up dealers' lots, and couldn't be moved nearly fast enough. In effect, a dealer's profit (or potential profit) was sitting on his sales lot, half-bald tires sinking into the ruts while waiting for yet another buyer to come along and squeeze out a bit more revenue.
The burgeoning replacement market was a major factor. By 1926, one source estimated that 85 percent of new-car sales involved a trade-in, though others believed that figure might be exaggerated.
Many dealers even thought automobile assembly should be halted until the existing used-car stocks were cleared away. While it seemed like a rational approach to the problem, this route was (no surprise) ignored by the factories, which still preferred to see used cars as the dealers' problem. Or in any case, as something that could not be allowed to stand in the way of increased production.
The first automakers to even discuss the used-car problem with their dealers were those producing higher-priced car models – partly because their dealers had to accept used cars that were worth more than certain new models on sale elsewhere. It was a veritable paradox that had to be dealt with.
Even so, most automakers, at least prior to the Twenties, considered it a dealer problem. In fact, AHA studies prior to 1929 still considered used cars to be a dealer issue. Only in that year's study did their report refer to such proposals as junking plans and cooperative advertising as a means of dealing with the situation.
By 1925, dealers could expect to handle as many as four used cars for every new one sold. In a Motor Age survey, 53 percent of dealers were selling more used cars than new.
One individual case in the mid-l920s, upon scrutiny, uncovered 47 separate transactions stemming from a single new-car sale. Obviously, that was hardly typical, but it illustrated the possible magnitude of the developing problem.
At this time (1925), some dealers of high-priced new cars reported that nearly everyone had a trade-in to offer. But low-priced car dealers reported a figure as low as 10 percent, presumably reflecting the fact that many more buyers of lower-cost new autos were first-time buyers.
Late in the 1920s, a variety of organizations promoted "junking" plans as a way to get rid of surplus used vehicles, firmly eliminating them from the marketplace. In 1927, for instance, Kansas City dealers put forth a plan to junk some 12,000 cars – but soon found that perhaps 40 percent of them wound up back on the road, patched together. That was a prime flaw in the early junking programs. (See "junking" plan details below.)
In 1928, while others were speaking of the used car as a grave problem, some automakers' representatives saw them as an asset. One such was R.H. Grant, vice-president in charge of sales at Chevrolet. Speaking to an Automotive Industries interviewer, Grant emphasized the need for reconditioning and the "OK" Tag on Chevrolet's used cars, as well as the need for convenient installment payments.
"Junking" Plans (1920s - 1930s): a bold but sshort-lived experiment
During the period from 1929 to 1932, some 350,000 cars were destroyed each year under the junking plans sponsored by the factories. One junking program alone, circa 1929, was expected to scrap as many as 3/4 million cars a year, starting with 400,000 in 1930.
Chevrolet began a junking policy for its dealers early: around 1925. It added five dollars to new-car prices and allowed dealers a $25 rebate, which would apply to a junked car after five new models were sold. The entire car was to be turned into scrap, with no salvageable parts. The 5-for-l ratio assumed that there was one junker involved in the sale of every five new cars.
Ford's 1930 junking plan would give out $20 for every junk car delivered to Dearborn (the River Rouge plant). A salvage operation there picked out any usable components from the hulk, and scrapped the rest. In 1930 alone, 40,755 cars were turned into junk.
Chrysler began its junking plan in 1930, similar to those used by Ford and GM. Each of them gave the dealer a several-dollar credit for each new car he sold. Under the GM version, that credit was $3 to $4. When the credit total reached $40, GM would take back one used car, pay the dealer the amount he had allowed for it in trade, then junk the car. Therefore, one old car could be scrapped for every 5 or 10 new cars sold.
On December 24, 1929, the National Automobile Chamber of Commerce unveiled its own used car junking plan, known as the Highway Safety Plan. Similar to Chevrolet's program, it would subsidize the dealer for any losses he sustained on a junker. The junking allowance given by manufacturers varied from $25 to $40 (but not over one percent of new-car list price). The NACC program, in 1930, hoped to scrap 360,000 junkers.
Like Chevrolet's program, the NACC version also insisted on total demolition. With all the old parts destroyed, the program would stimulate sales of new parts as well as new cars.
A separate plan in Cleveland gained national attention in 1930. An exclusive contract with a salvage company, scrapping in volume, was intended to halt the recycling of junkers into "new" used cars. The interesting fact is that the program revealed that junkyards could earn a profit only by salvaging used cars, not from the scrap business alone. It also showed that destroying all the parts from older cars was poor economy, since dealers didn't wish to carry parts for cars older than about four years anyway.
The rationale for getting rid of junkers was twofold: first, to ensure public safety, presuming, that the junkers were in a condition that increased their vulnerability to accidents; and secondly, to assure continuing prosperity for the industry.
One can be pardoned for believing that the pious pronouncements on the matter from industry spokesmen and groups had at least a slight leaning toward the latter reason.
Junking plans had one notable problem, noted in 1984 by Old Car Weekly: scrap yard operators typically kept parts that should have been destroyed, and sold them. Some even sold the whole car, rather than destroy it. A Highway Safety Plan, supervised by factory representatives, supposedly prevented trickery.
An AMC Directive of December 24, 1919 spelled out the definitions of a "junked" vehicle:
"It is necessary that each car be so damaged that it cannot be repaired or resold. To accomplish this purpose, smash starting motor, generator and coil, carburetor and manifolds, cylinder heads, cylinder block, and transmission. Break the radiator, head lamp and instrument board, and drive the grease plug into the rear axle.... To qualify for an allowance, the car scrapped must have been a complete unit, with the possible exception of tires, battery, and windshield glass."
The amount added to the new-car price varied by make and model. So did the bounty for crushing the junker. Manufacturers of high-priced cars paid more, and it was up to the manufacturer to determine how much to tack onto the new-car price to compensate.
In 1930, about 350,000 cars were scrapped under the Highway Safety Plan. By 1931, manufacturers of 19 car makes were participating. Most dropped out in late 1933, with the NRA (National Recovery Administration) code in effect.
Details: Automakers' Used Car Policies (1920s)
By 1914, dealers across the country had significant numbers of difficult-to-sell used cars: some serviceable, others not. Already, plans were envisioned to start a fund, with manufacturers purchasing the old cars and either repairing them for resale or scrapping them. General Motors was the first major manufacturer to come up with a stable used car policy, in 1925.
In the early 1920s, automakers encouraged over-allowances, to promote additional new car sales. Henry Ford, on the other hand (at least during the Model T era) thought used cars should be profitable in themselves. After the Model A's introduction, however, he too changed his tune, encouraging steps that would yield maximum new-car sales.
In 1922, some suggestions were devised to cope with the used-car problems. These included:
1) halting trade-ins
2) not taking cars over a certain age in trade
3) taking no trades on used cars (this was actually done by some dealers)
4) accepting cars for sale only on consignment, not as trade-ins
5) accepting in trade only those cars that were worth rebuilding
The used car policy put forth by Ford in 1925 would fix values according to a car's condition and potential remaining use. (In 1924, Ford of Canada began to set values according to national averages.) Ford planned to give buyers a one-week trial of a used car, which could then be returned for another used car if not satisfied (or put toward a new Ford).
Ford's policy also involved reconditioning so a car would yield its reasonable potential mileage, and
scrapping any cars with limited further value (or selling them "as is"). Ford management also began to insist that dealers make money on their used cars, viewing them as part of the
overall transaction and commercial process.
The 1928 General Motors used-car plan emphasized reconditioning and the OK Tag (which was supposed to make buyers feel secure in the knowledge that the car being sold had been placed in
tip-top workable shape), as well as with getting rid of junkers immediately. There was a provision, though, for some of the less-serviceable trade-ins to be sold "as is" (but honestly stated as such, with no warranty for anything).
Also in 1928, Dodge issued its comprehensive used-car plan, advising dealers of a 6-point reconditioning program. They also advised dealers to keep a close watch on the used-car operations – appraisal, sales, inventory and the changing market – rather than letting the vagaries of the moment control their ultimate profits.
Sales techniques also received heavy emphasis: such practices as placing floodlights and banners around the lot to draw attention, and initiating an early version of "bird-dogging" (whereinCadillac, for one, began to give people a $10 finder's fee for providing leads to customers who would buy a car.
Perhaps most important and meaningful, though, the GM divisions planned to spend $2.5 million in 1928 on advertising, intended to give "character" to used cars. And the advertising of subsequent years does reveal this change in attitude, giving readers the clear feeling that they would be safe in buying the cars described.
At bottom, though, the plans initiated by Ford in 1925 and GM in 1928 were intended to aid dealers in making profits.
Details: Dealers' Used Car Plans
A number of cooperative dealer measures were proposed or initiated in the Teens and Twenties, to develop a unified procedure for dealing with used car valuations and distribution.
The Saginaw Plan, introduced in Saginaw, Michigan in 1914, was an early attempt at price control. A dealer committee would establish maximum trade-in allowances, made known generally by distributing a price book to each dealer. Similar schemes came into operation in other cities, at various subsequent times.
The Appleby Plan (copyrighted by Chamberlain Associates of Detroit) received considerable attention in the early Twenties. Appraisals of used cars presented to a dealer were to be made by independent appraisers. They would note any repairs that were needed, to be paid for by the car's present owner. After reconditioning, the car would go to a cooperatively owned Motor Mart, where it would be put up for sale.
Why did the Appleby Plan fail? It put the burden of used-car disposal squarely on the shoulders of the car's original owner, rather than being accepted by the dealer (as had previously been the case). It also took no note of differences in dealer gross margins, nor of variances in the size, philosophy and profit-making goals of the various dealers involved. A single unified plan apparently could not please everyone.
In the early Twenties, suggestions were made to have auto manufacturers publicize market values of their particular makes when they came on the market as used cars, at various ages (1.5 to 4 years). Dealers would also be able to exchange information on the current selling prices. Automakers did not go along with these proposals, but price exchanges between individual dealers did become popular. Dealer associations were active in this way in several large cities, and remained so for years to come.
Several other plans would come into some use during the 1930s, including the Michigan Plan and the West Coast Plan.
Dealers' Used Car Policies (1920s)
In 1914, through their trade association, Chicago auto dealers founded what would become the National Used Car Market Report (the well-known "blue book"), listing average values for used cars as an aid to salesmen and managers in producing rational trade-in valuations and selling prices.
In fact, the Chicago Automobile Trade Association began devising that price guide for used cars in 1911. Member dealers were asked to report their sales by make, model and price. First called the "Central Market Reports on Used Cars," the publication became nationally known by 1914. So popular was the notion that a national used-car report was initiated in late 1914, to be used four times per year. That first Blue Book came off the press in March 1915, a forerunner to the little price guides used by dealers until recent years. It divided the country into 12 zones, each with its own pricing structure. With the second issue, the title was changed to the National Used Car Market Report.
In June 1915, the Chicago association also began to issue a Red Book – a pocket-size guide, with pricing for a single zone.
One seemingly radical scheme came to light in 1927, but was never actually begun. This was a plan to ship surplus used cars to other countries – especially to Mexico, Cuba, South America, and Central America. Sounds reasonable – except for the fact that dealers in those countries had a surplus of used cars, too! Besides, adding in import duties and tariffs would have brought the prices too high, according to the Department of Commerce at the time.
In 1924, the Automotive Testing Laboratory (a division of Chicago's Automotive Trade Association) was opened to test used cars, charging a $10 fee to the dealer. The organization also provided appraisals. Chicago, it seems, was long in the forefront of innovative ideas in handling the used car problem.
Of all the cooperative advertising plans pondered and initiated in the twenties, the Windsor Plan perhaps deserves special mention as a good illustration. Begun by dealers in Windsor, Ontario in 1925, it permitted dealers to place group ads in newspaper classified ads – a "Used Car Buyer's Guide," as it were, with actual selling (asking) prices given. This gave dealers access to considerably more advertising space (and readership) than they could afford alone.
Prior to this time, prices for used cars were not commonly given in advertisements. Now, however, it was presumed that "price was paramount" to the buyers of secondhand vehicles. In addition to offering specific cars for sale, it would also demonstrate to car owners how much their cars were worth as trade-ins at the present time.
Some dealers thought the newspapers should even provide the space free, operating like a stock market report. At first, some newspapers actually did so, to draw the initial business. Backed by a number of automakers, the Windsor Plan spread to other Canadian cities, doing best in smaller communities with fewer classified ads in total. By mid-1927, these plans were in activd in more than 20 American cities.
Some American dealers, however, wanted to give average prices in those ads, instead of real prices for a real car, which would drop used-car values. In effect, they preferred a central
clearing house of sorts to an actual selling aid. But that alternative program didn't get off the ground.
Other dealers supported the idea of "appraisal stations," wherein a car owner could simply drive in and receive an appraisal on the spot. Such a station would be supported by the local dealers, and would supposedly eliminate haggling over price. That idea got nowhere either, though such stations
were used in some German cities for a time in the mid-1920s.
In any case, the Windsor Plan idea faded away by the late Twenties, as automakers brought out other forms of used-car plans, including national used-car advertising and direct mail campaigns. The stage was set for change, too, in that the bazaar-like atmosphere of used-car lots came into being around this time.
By 1923, Appleby Plan Motomarts were operating in 25 Pacific Coast cities. The motorist wishing to dispose of his auto turned it in at the mart, and was given a receipt that could be put toward a new-car purchase at one dealership or another (or would even be accepted as security for a loan at up to half its face value). His car would then be appraised, conditioned by a dealer for that make (with repairs paid for by the original owner), and placed on sale. A selling expense of $10 was charged to the original owner. Orphan cars (those no longer manufactured) would be conditioned by a general service shop in the area. It sounds like a reasonable approach, eliminating much of the messiness and ambiguity that surrounds used-car transactions to this day; but it didn't last.
Cooperative used car exchanges began sometime in the 1920s.
Obviously, dealers who would not accept trade-ins lost out to those who did. So by the mid-1920s, the practice of trading in the old bus was virtually standard in the market, and remained so from that point onward.
In 1929, some dealers began to set up co-op salvage yards to get rid of junkers; but automakers were already into the act.
Perhaps the strangest fact about all the programs – dealer, automaker, association or whatever – is that they failed to last. Used cars continued to be a problem through the Depression, and critics would be railing abour jalopies for decades to come.
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 8: Saturation and Salesmanship
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