THE EVOLUTION OF CAR DEALERSHIPS
Early cars were hand-built, one at a time, and were usually sold that way. They weren’t very reliable and were mostly considered toys for the rich. If you wanted one, you went to the company — which could often just be a couple of guys toiling in a small garage — to buy it.
But as cars improved and more were built, automakers needed more than just customers occasionally stopping by. Retailers saw an opportunity for profit as well. It’s believed the first carmaker to sell through a franchised dealer was Winton, which switched from making bicycles to producing single-cylinder, wooden-framed cars in Cleveland, Ohio in 1897.
New production methods increased output. In 1913, Henry Ford started full production on a moving line that truly accelerated the process, allowing him to turn out more than a million cars in one year at the height of his Model T’s popularity.
The first sales agents took the customer’s order, forwarded it to the automaker, and waited for the car to arrive. Now, with hundreds of thousands of cars rolling out of their factories, the big automakers set up networks of franchised dealers and shipped straight to them. The cars went to customers if they’d been previously ordered, and if not, they became part of the dealer’s inventory. That caused problems for many dealers, who didn’t have the cash to pay for them.
In 1919, General Motors was one of the first to open a financing branch to cover dealers for their inventory. The dealer paid interest while the car sat on the lot, and paid out the loan when a customer bought it, and it’s still done that way today. This was done almost exclusively for dealers, but when private financing companies opened their doors to consumer car loans, the automakers extended theirs to customers as well.
In the auto’s infancy, dealers did more than just sell cars. Many customers were coming straight from horses, and salespeople often had to teach them how to drive. Some dealerships sold gasoline, since stations were rare.
Canada and the U.S. were far more rural than today, and getting cars to the middle of nowhere was a challenge. Farm stores sometimes acted as auto agents, selling both cars and wagons. Tractor manufacturer International made a short-lived line of buggy-styled cars that it sold through its rural dealers, while the Velie automobile, built by John Deere’s grandson, went to customers through that farm network.
Both automakers and dealers were hit hard by the Great Depression of 1929, when car sales plummeted. But dealers fared the worst during the Second World War. Automakers got government contracts to make war supplies, but when auto production ended in 1942, car dealers had little to sell. Many had stocked up on used cars, but customers could only buy one a year, and at federally capped prices.
In 1955, a U.S. government committee was formed to investigate dealer complaints of automakers forcing cars on them and opening too many franchises in certain areas. The chairman was Oklahoma senator Mike Monroney, who dealt with the dealers’ issues but also looked into some of their underhanded tactics, including overcharging, financing kickbacks, and false trade-in values. In 1958 he drew up the Automobile Information Disclosure Act, requiring every new car to carry a factory sticker with its suggested price, the cost of all its options, and the delivery charge. Now commonly known as the “Monroney sticker,” it’s still required on all new cars today.
A few years later, an auto dealer in Philadelphia created a new leasing option for consumers. In 1962, Chevrolet dealer Eustace Wolfington developed a plan for people who wanted to trade their cars more frequently, but couldn’t afford it. Wolfington figured out the new car’s residual value — what it would be worth in two years — and subtracted that from the purchase price. The customer paid the difference over two years, Wolfington took it back and sold it as a used car, and the customer left in a new one. Other changes hit the showroom floor. Longer warranties kept customers coming back to the dealerships. New safety requirements brought in seatbelts, crash standards, airbags and other features. In 1975, Chrysler introduced the auto industry’s first factory rebate.
Today, most people research online before they go near a dealership, which is a long way from selling cars, one at a time, at the factory door.