Nothing Down and a Trip to Bermuda

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LAST September in Detroit, Chevrolet dealer Saul Rose felt that customers for his remaining ‘55s expected something more exciting than just a plain brand-new automobile. As a bonus, therefore, he offered buyers a prospector’s outfit, complete with Geiger counter, sleeping bag, hammer ax, boots, compass, maps of likely areas, a booklet on how to stake a claim, and — in case the buyer failed to turn up any uranium of his own — 100 shares of uranium stock.

Plump Detroiters, on the other hand, uninterested in the carefree life of a miner, may have preferred the proposition of one of Mr. Rose’s rivals, He discounted Plymouths $1 a pound for the weight of the buyer and his wife, raising the offer to $1.50 a pound on Chryslers.

These were no isolated phenomena. For nearly a year the great American automobile industry has been hawking its wares with all the restraint and understatement of a runner for a Cairo rug merchant. Proclaiming abandonment of the profit motive, dealers have competed fiercely for customers. Some, for example, proposed vacation trips as lagniappe for coy buyers. Prospects in Denver, Colorado, and Portland, Oregon, were offered trips to Hawaii. Bostonians got their choice of vacations in Paris or Hollywood. A round trip to Bermuda for two was the bait for Cleveland Pontiac buyers.

Prospects with rainy days rather than sunshine on their minds have been offered bonuses in stock: three shares of Ford stock with each 1956 Mercury; uranium shares in Birmingham; Alcoa stock in Marysville, Tennessee; GM stock in Miami.

In Cleveland, buyers were tempted by an offer of two new cars for $2999 — but they had to get there fast, for there were just two available at this price. Houston prospects were lured with an offer of 10 gallons of gas just for coming in to look, while in conservative Providence, R.I., this past February, Chevrolet buyers were offered a bonus of 1000 gallons. In Los Angeles, items of optional equipment have been advertised for $1 apiece. From New York to Portland, new cars have been offered for “10 cents down,” “10 cents a day,” or “at a one cent profit.”

The most baffling proposition of all has been described by Frank H. Yarn all, past president of the National Automobile Dealers Association: buy a used car for $595 cash, then turn it back to the dealer as down payment on a new car and drive away with $1105 “change” in cash.

The dealers haven’t depended on advertising alone to bring in the customers. An Atlanta salesman stationed himself by a traflic light on a main boulevard. As cars halted for a red light, he’d stick his head in the nearest window and deliver his sales pitch. According to Automotive News: “A few of his ‘captive’ prospects were so annoyed at this approach that they complained to the Better Business Bureau. Before he was forced back in the showroom, however, he reportedly sold nine cars at the traffic light.”

Nor do dealers limit their aggressiveness to their own prospects. It was also in Atlanta that a young man was discovered on a roof with a pair of binoculars, watching cars being appraised at a rival dealer’s lot. The license numbers he copied down were used by his employer to obtain the owners’ names and addresses from the state license bureau. They were then telephoned and offered a better deal — which many of them readily accepted.

Known as “wheel and deal” or “blitz selling,” these practices reached epidemic proportions in June, 1955, after dealers had stocked up against an auto workers’ strike that never came off. While the blitz reached a peak in early fall when dealers rushed to shed their remaining '55s, it has continued grimly if somewhat less noisily to the present. The 1956 models have been discounted from the day of their arrival in the showrooms— an almost unheard-of phenomenon. Today some of the manufacturers themselves are advertising bonuses on a national scale. Where state insurance authorities permit, American Motors and Studebaker-Packard give a free accidental death insurance policy covering owner and spouse for the first year of ownership of their 1956 cars. Dodge started its 1956 model year with a nationwide lottery that anyone could enter merely by filling out an entry blank at a Dodge dealer’s showroom, without obligation to buy. The prize: a new Dodge every year for the winner’s lifetime.

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THE big auto sales blitz has been accompanied by a little blitz of complaints from buyers, who have found themselves the victims of as weird a collection of sales practices as were ever developed by the sharp horse traders of the David Ilarum era. Better Business Bureaus recorded last year alone more than 75,000 “public contacts”—complaints and inquiries — about newand used-car advertising and selling practices. Public authorities have been similarly deluged. In Chicago, according to the Chicago Daily News, nearly 4000 auto buyers filed complaints with the State Attorney’s oflice in 1955.

For on closer examination some alluring offers are far from alluring. In Columbus, Ohio, a mail complained to the Better Business Bureau that his new car ran out of gas before he got home, after he answered an ad offering 500 gallons of free gas with each car. The common “no down payment” come-on often turns out to mean no down payment only if the trade-in car equals the down payment or if the customer signs a note for a supplementary loan — usually secured by a chattel mortgage on furniture or other possessions — equivalent to the down payment.

Some “bargains" vanish entirely when a customer asks for them — they are just bait. Sometimes what sounds like a new car in the ad turns out to be secondhand. Other ads turn out to be ingenious combinations of one car’s price, another car’s picture, and a model name that may belong to either or neither.

In piling up this unenviable record, the unethical segment of the automobile dealers has enriched the American language. A rogue’s dictionary of the trade includes some vivid cant: —

The Switch: advertising a notable bargain, then telling customers it has been sold and persuading them to switch to another car—and a less attractive deal.

Hushing: luring a buyer by offering a bargain price, then hiking the price. The original offer is made by a salesman “subject to the manager’s approval.” The manager later indignantly disclaims it and persuades the buyer, by this time emotionally committed, to accept the higher price. In some cases bushing is cruder — the buyer is given a price, persuaded to sign a blank sales agreement. Later he finds it has been filled in for much more than he expected to pay.

Lowball: sometimes the same as bushing — a low price given verbally, later repudiated — but also used to describe the practice of giving an unsophisticated customer much less than the going trade-in value of Ins car.

Highball: a very high offer made verbally on a trade-in just to get the customer inside the salesroom, where he will be pressured to take less.

Would You TakeY Cards are tucked under your windshield wiper in a parking lot asking “would you take” a fantastically high price for your car because the dealer “has a buyer.” If the prospect goes around to try to collect, he gets the full highball treatment.

Unhorsing: lending a prospect a car while his own car is taken and held for sale in an allegedly rising used-car market. It turns out after a month or so that the market has inconveniently fallen and his car has been sold for considerably less than he expected—leaving the customer with no car and under obligation to the dealer.

The Pack: a simple method of luring buyers with nonexistent bargains. A group of dealers — sometimes only one — raise their list price for a new car by several hundred dollars. This permits all sorts of alleged bargain offers from “$1 profits” to “double book value” trade-ins. In at least one case it recently enabled a dealer to offer customers more than they paid for their 1955 cars if they would trade them in on ‘56 models. The pack is facilitated by the fact that there is no real local list price: manufacturers’ prices are quoted E.O.B. Detroit. This practice is sometimes called the toy yack in contrast to a plain pack, in which various charges for mysterious accessories and services are packed onto the sales price.

The Finance Pack: a maneuver to increase the profit on financing of car purchases. Mere the dealer can sometimes recoup profits that have been squeezed out of a sale. Using a rate chart supplied by the finance company, the dealer can set the rates so high that he can sell the time contract to the finance company at a discount and still receive an extra profit for himself. This “commission” to the dealer is of course paid by the buyer in his installments to the finance company. Sometimes overcharges for insurance are included. Where these charges are lumped together into a single monthly payment, as they often are despite a Federal Trade Commission order that they be itemized, the buyer has no real way of knowing what ho is paying for.

Ballooning: drawing up a time contract with low monthly payments except for the last installment, which in some cases is so big the buyer has to refinance his note.

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THE dealers themselves have become alarmed by the flood of complaints about these practices. The National Automobile Dealers Association, with the Association of Better Business Bureaus, has drawn up a code of recommended advertising and selling practices, which local dealers’ associations are being urged to adopt. At the same time, however, even ethical dealers are inclined to blame the public itself for many sales abuses.

Looking out the showroom window, the dealer sees the average customer as a thoroughly unreliable character out to skin him of his last nickel of profit. Brice and trade-in are this citizen’s only concern; it is useless to tell him about car features or explain service facilities. This customer, say the dealers, traipses from showroom to showroom, telling salesmen highly imaginative stories of offers made at the last place and urging them to cut off another $50. One New York dealer reports: “We can tell the minute a customer walks in if he’s really interested in buying a car or just shopping around. I know one place where the salesman won’t even answer a question about the car. He just says: ‘Did you come in here to get an education or did you come in to buy a car?’”

Franchised dealers blame what they call “bootleggers” for turning the public into shoppers. The bootlegger is an independent dealer who quietly picks up his cars from overstocked franchised dealers. Even though he pays slightly more than wholesale for his cars, the independent dealer still sells them below list price — sometimes as “used: 200 m.,” sometimes as new. He usually has no salesroom or elaborate sales organization, both required of regular dealers by the manufacturers. And, as his franchised rivals point out, the bootlegger is under no obligation to either manufacturer or customer to provide service facilities, keep a stock of spare parts, or build neighborhood good will.

On the other hand, the non-franchised dealer will tell you that he succeeds simply because the normal markup on automobiles is so great that he can shave it and still make money. Both positions are basically true. The independent is the discount house of the automobile trade, he is subject to the same criticisms, and he flourishes — when he does — for the same reasons.

In recent months the so-called bootleggers have faded into the background. The reason is simple: the regular dealers have been cutting prices just as noisily. One dealer replied to a questionnaire sent out by a Senate subcommittee: “We live in a town that is 50 miles from a large city and the metropolitan newspapers are widely distributed in our city. The unethical and untrue advertising in these papers does more to affect our business than bootlegging.”

For this situation the organized dealers put the blame on the factories. They charge that the manufacturer’s desire for more and more sales and his determination to be Detroit’s top banana result in the dealer’s being so deluged with cars that he goes to extremes to get rid of them.

Last winter the National Automobile Dealers Association presented a stream of witnesses on dealer-manufacturer relations to subcommittees of the Senate Judiciary and Commerce Committees. While the dealers told only their side of the story, an aura of desperation hangs over much of their testimony even in cold print. A dealer’s whole business career and often a large monetary investment in plant depend on his having a franchise from a manufacturer to sell a specific make of car.

In the auto industry, these franchises have been until very recently one-year contracts—and the company has had the option not to renew if dissatisfied with the dealer. The manufacturer’s view of the dealer’s performance is based on “penetration of the market” — selling the same proportion in his local market that his make sells in the national market. To achieve penetration, particularly in a low-income area, a dealer must really sweat it out. As a 54-year-old Pontiac dealer told a Senate subcommittee, describing how his manufacturer urged him to sell out to a younger man: “They liked young, lean men who could run faster.”

Dealers claimed that manufacturers do not limit their pressures to sales but. constantly tell the dealers how to run their business.

A persistent issue in the dealer testimony was “phantom freight”: the practice of charging the dealer for the freight on his cars from Detroit even though they may have actually been shipped from some much closer plant. Another sore point was financing; dealers said they had to pay cash on the line — usually borrowed — for their cars when ordered, tying up their working capital while they waited for delivery. They complained also of having to take whatever cars the factory wanted to ship, rather than the kind the dealer wanted to buy. This usually meant higher-priced models, or cars so overloaded with accessories they did not appeal to budget-conscious customers. Other complaints involved the refusal of factories to pay for more than the basic cost (that is, without allowing a profit) of the service required to fulfill warranties.

Dealers also resented what they described as the compulsory purchase of heavy parts inventories, special shop tools that gather dust in their service departments, and advertising and promotional material unsuited for local use.

The consensus of the Commerce Committee witnesses was that the manufacturers had lost touch with their dealers. The manufacturers, however, and particularly President Curtice and other General Motors executives, presented a vigorous rebuttal. They pointed out that a very small percentage of GM dealers lose their franchises, and ihese for cause, such as failure to set up proper sales facilities or to seek customers aggressively. The complainants, GM implied, were dealers who had waxed fat during the early post-war years, when cars sold themselves, and now lacked the stamina for competition. In this connection, President Curtice gave some interesting figures on GM dealers’ profits.

The rate of return on net worth, he testified, was 27.6 per cent in 1940, 87.2 per cent in 1946 (first post-war year), and climbed to 97.5 per cent in 1947. Prom this high it drifted slowly down again to 24.6 per cent in 1951, and 9 per cent after taxes in 1954. At the same time Mr. Curtice pointed out that net worth of the dealers increased from $249 million in 1940 to $2200 million currently, so that these percentages in recent years were figured on a much higher net worth base. Air. Curtice estimated GM dealers’ profits for the first nine months of 1955 at $414 million. In addition, the dealers pay themselves a large amount in personal salaries and bonuses. And he pointed out that Genera! Alotors had a waiting list of nearly 5000 applications for dealer franchises — almost a third of the 17,000 GM dealerships in existence.

But if the manufacturers made few verbal concessions, they have nevertheless moved swiftly to mollify their dealers — and in part, also, to head oir proposed federal legislation outlawing some of the disputed practices and regulating dealermanufacturer relationships. General Alotors dealers are now being offered a choice of five-year and one-year franchises, both terminable only for cause. Clauses interfering with dealers’ outside activities are being abandoned. All of the Big Three have sharply modified “phantom freight” charges, although simultaneously raising wholesale prices at many points to compensate.

Other concessions have been made on such matters as payment for warranty service and requirements for parts inventory. General Alotors has appointed a vice president in charge of dealer relations, and has set up an impartial umpire in place of its Dealer Relations Board. GAI is also increasing its share of the cost of dealer-factory cooperative advertising, and has written a clause providing for maintenance of high ethical standards in local dealer advertising. Ford has cut auto prices to dealers, and established rebates and lower advertising charges. In April, Ford announced a series of dealer conferences to light bootlegging (while at the same lime opposing a proposed federal act against bootlegging). In addition, the Ford Company has set up a dealer-relations board, offered optional five-year contracts to dealers, and agreed to bill dealers for new cars on arrival in the showroom. Chrysler has agreed to take over the rent on a dealer’s property when a franchise is canceled, and has given dealers permission to will their franchises to their sons and sons-in-law.

Most important of all in easing dealer tension, the manufacturers have cut back production and reduced the flood of shipments to the franchised outlets. Actually this has been necessary: sales have fallen, and even with a 20 per cent production drop dealer inventories remained at record levels in the first months of 1956. According to President Bell of the Automobile Dealers Association, the dealers’ average profit per car sold in the first quarter of 1956 was $40, compared with an average profit of $141 per car for the first quarter of 1955. At mid-May, there were reportedly nearly 150,000 auto workers jobless.

Whether improved dealer-manufacturer relations will in turn mean fewer unethical sales practices remains to be seen. The amount of push the dealers themselves put behind their advertising and selling code will probably tell the story. Similar programs carried out in cooperation with Better Business Bureaus have been helpful in other areas of retailing, but nothing can be done unless local dealers’ organizations are willing to move.

In some places, where auto dealers are licensed by the state or there are laws against false advertising, unethical dealers are being suspended or prosecuted. In Massachusetts two indictments have been returned for misleading “bait” advertising. Everywhere local Better Business Bureaus are waging a valiant war, and in Chicago they have succeeded in winning published retractions from some dealers with pledges not to repeat the dishonest advertising.

Better enforcement of state and local statutes on misleading advertising would help. So would better policing by newspapers and TV and radio stations of the advertising they carry. The development of a more sophisticated—and somewhat less greedy — buying public is certainly important. And the reduction of factory pressure on the dealers to sell at any cost should improve things.

There remains, however, the broader economic question that underlies the whole chaotic auto-sales situation. How can lower auto distribution costs be achieved without destroying the dealer as an ethical independent businessman? High sales and low unit prices are a fundamental American economic tenet — can the present distribution system supply them? Or does the future lie in some sort of auto supermarket, where all makes of ears are sold with a minimum of sales and service force? This pattern dominates the grocery business and has become extremely important in appliance retailing: can it succeed where the product is as costly — and mechanically complicated —as the automobile?