Joining the New Marketplace
Early bicycle boosters predicted that the new machines would seriously reduce dependence on horses. There is some evidence that they did have a slight impact, but it was much less than forecast.1 Motorcars, not bicycles, replaced horses as the primary means of individual transportation.
In the first third of the twentieth century, the new automobile industry tried very hard to become part of the new one-price retail marketplace. By World War I, automobiles were being sold in well-appointed stores at advertised prices. Car manufacturers and retailers tried to appeal to women as well as men, and they repeatedly denounced price haggling when it broke through this façade of modern marketing. Bargaining, however, could not be suppressed. All too often, published auto prices were not selling prices, and from a retail perspective cars would turn out to be not horseless carriages but horseless horses. The auto industry sought to retain the appearance of modern retailing by advertising new car prices through the late 1930s and even sought laws to mandate manufacturer-set retail prices, but bargaining persisted and became the acknowledged norm after World War II. Even when General Motors’ Saturn line finally broke the pattern of negotiated new car prices in 1990, it was unable to bring along the rest of the industry.
Despite its significance for household and national economics, the dealer-customer relationship has remained almost invisible in automobile scholarship. The perennial conflict between factory and dealer has been the focus of most academic research on automobile retailing. In his study of automobile sales James Rubenstein mentions customers only briefly in conjunction with his discussion of early cars as luxury items. Similarly, Walter Friedman omits the interactions between sales staff and customers in his history of salesmanship as a profession.2 Their very useful studies do, however, help flesh out the ways in which manufacturers used dealers to market their products through a series of stages, usefully classified by Richard Tedlow as fragmentation, unification, and segmentation. Tedlow shows how the marketing of automobiles, like that of many new consumer categories (personal computers are a good recent example), passed through each of the three stages. Initially, in the fragmentation phase, large numbers of manufacturers competed in a virgin market until the public reached a consensus on what it expected. Fragmentation was followed by unification, which took place as marginal makers dropped out of the competition and public taste consolidated behind one particularly successful example—in the case of the automobile, the Ford Model T. However, once the mass demand for the new standard was satisfied, firms sought to expand their market through segmentation, a stage in which manufacturers diversified products to appeal to a variety of niche markets. In the automobile industry, General Motors took this step under Alfred Sloan when it marketed “a car for every purse and purpose.”3
Marketing, however, is not selling. If industrial histories tell the story of cars from the top down, and social histories relate it from the bottom up, then selling is the interface where the trajectories meet—perhaps collide would be more accurate.4 In modern department stores and supermarkets the sale, that is, the decision to buy a product, occurs seamlessly when the consumer plucks it off the shelf. The product and store advertising have done their job, and little if any input from a sales staffer is needed. This is the rational, democratic process that remains so conspicuously absent when a customer decides to buy an automobile.
Coachmen to Chauffeurs: The Male Lineage
Early car dealers did not want to be saddled with the shady reputation that clung to horse traders and made every effort to create an industry structured according to the newer single-price retail model, but history and economics ambushed them at every turn. The gendered aspects of personal transportation helped atavistic patterns survive, not because they were more economically rational, but because they were deeply ingrained and the reasons to change were weaker than the momentum to continue. An early example was the continuity between horse workers and car workers. Wealthy urban horse owners (and most urban horse owners were wealthy) employed grooms and coachmen to look after their personal transportation. As cars began to replace carriages (“car” is a linguistic variant of cart or carriage), coachmen made the transition by learning to drive and attend to the needs of automobiles. Classified advertisements during the first decade of the twentieth century featured men who had skills in handling both horses and cars, and automobile schools advertised instruction in driving and car care for coachmen who wanted to become chauffeurs.5
Horse owners had often given their equine-care staff the responsibility of buying new animals. Not surprisingly, given the general moral tone of horse trading, many grooms and coachmen saw this as an opportunity to make some extra money. Horse dealers cultivated grooms by paying them a commission on sales to their masters, but at the same time they complained bitterly about coachmen who extorted them by demanding kickbacks for recommending their horses.6 This pattern of collusion between sellers and buyers’ agents was easy to continue in the purchase of cars. A large number of the first generation of car owners were not car drivers and assumed there was no reason to learn to drive or maintain their vehicles.7 They were used to being driven around by others, and looking after the well-being of an automobile was only marginally less unpleasant than looking after a horse. Just as horse buyers were advised to rely on the expert advice of their grooms, car buyers were warned that unless they were master mechanics, they would be wise to take along a “disinterested professional chauffeur” if they were planning to buy a used car.8 Early cost comparisons of horses and cars usually factored in the coachman’s wages in the former and the chauffeur’s wages in the latter.9
The writer who advised taking along a chauffeur when looking at used cars was recommending that the car be examined by a professional, but trusting a professional chauffeur was as risky as trusting a professional coachman. In 1908 the Times Square Automobile Company sought to assure its customers that it was an honest outfit by announcing, “We pay no commissions to chauffeurs.”10 Historian Stephen McIntyre has found that chauffeurs were extorting commissions from auto repairmen as well during the same period.11 Thus, the first of many seeds of impropriety were planted at the start of the automobile era. The widespread use of chauffeurs was, to be sure, a temporary phenomenon that disappeared quickly, especially after the introduction of the self-starting ignition in 1912. It is doubtful that the stain of this original sin would have been enough to taint the whole history of retail automobile sales, but it surely did not set a propitious precedent.
Cars in Stores
The basic question of just who would sell automobiles and how they would do so took about twenty years to sort out. Early manufacturers, who were mostly small, poorly capitalized, and essentially experimental, were not in any position to dictate how their products would be retailed. They wholesaled autos however and to whomever they could. The standard mode was to find a man willing to act as an agent, supply him with a sample car, and have him take orders and deposits. These early agents came from a variety of backgrounds. Some were simply salesmen who saw cars as a product to peddle. Most, however, had some relationship to the field of personal transportation. They were often bicycle shop or livery stable owners who had the space or the technical experience to take on a product as large, as new, as complicated, and as unreliable as the automobile.12
The size and cost of automobiles, as well as the attention they required, militated against selling them in department stores. Nevertheless, there was a brief experiment in doing just that. John Wanamaker was a car buff and a man who was proud that customers could buy almost anything in his stores, which carried low-cost items like handkerchiefs, stickpins, and stockings as well as expensive ones like diamonds, sideboards, and sable robes. Furthermore, boasted a store ad in 1900, they carried unusual items like banjos, rowboats, and automobiles, which, like all the store’s goods were sold “at fair prices and with the Wana-maker guaranty of quality.”13 Wanamaker’s stopped carrying cars in 1905, apparently because of their size and the staff needed to maintain them.14
Sears Roebuck was the one other mass retailer that attempted to use the standard retail model to sell cars. Sears already had experience selling light carriages and carts through its catalog when automobiles made their appearance at the turn of the century. However, the mail-order store waited until 1909 to decide that the automobile was here to stay and introduce its “Sears Motor Buggy.” It would ship the motor buggy, complete with driving instructions, for prices starting at $370. Complete, but not ready to drive; the car came partially knocked down, and the purchaser had to have sufficient mechanical skill (and tools, also available from Sears) to finish the assembly at home. Sears stopped selling its unprofitable car three years later, driven out of the market by other brands that gave drivers more car for their money. The Sears car was cheap, but it was also little more than the motorized buggy its name implied. And even on the farm in 1912, car drivers were demanding at least the modicum of style provided by Ford.15
Universally acknowledged as the perfect combination of product design and production engineering, the Ford Model T was introduced in 1908, and the assembly line was first used to make it in 1913. Ford’s mass manufacturing of a light, cheap car demonstrated that the sales strategy used for small household consumer products like soap and breakfast cereal could be applied to large ones as well. A company could make a lot of money by turning a luxury into a commodity and by selling more cheap items rather than fewer expensive ones. The Model T was no beauty in its day, but at least it was an improvement over the Sears Motor Buggy. It cost about the same, and with its numerous options and superior reliability, it quickly dominated the market. Henry Ford did not invent the design or manufacturing concepts he used, but he did combine them in a way that turned him and his company into the embodiment of modern practicality.
Selling Ford’s paragon of automotive efficiency presented an entirely different problem. The cost-effectiveness of centralized factory production did not transfer easily to the automotive retail sphere, as the isolated experience at Wanamaker’s showed. Like almost all automobile manufacturers, Ford started in 1903 with independent agents who could collect deposits and handle the details of final preparation and delivery. For three years, from 1907 to 1910, the company experimented with direct factory-owned outlets in six large cities; these were abandoned in favor of a return to a network of independent agents who could act as buffers against the seasonal swings in customer demand. To even out production schedules over the course of the year, Ford required its dealers to purchase their annual orders in equal monthly allotments, an inconvenience to the dealers who had to stock up in the slow winter months to meet the spring demand. In return, the dealers were given exclusive sales territories, and the factory stores were closed so that the company would not be competing with its own retailers.16
These early agents were often combination storeowners, salesmen, mechanics, and driving instructors. Most Ford owners were not the kind of people who would hire chauffeurs, so they needed to learn to drive their new cars for themselves (though, on doctor’s orders, my own grandfather hired a chauffeur to drive his Model T). Dealers discovered that often the only way to make a sale was to give driving lessons to the new owner. Doctors who made house calls were a prime market segment, and John Eagal, a Ford dealer in Iowa, found that he frequently had to teach them to drive by going with them on their patient rounds. Eagal remembered that the absent-minded doctors complained that driving a car demanded too much attention; they were used to their horses navigating the routes by memory while they attended to deeper thoughts.17
After they taught their customers to drive, the dealers had to be there to repair what they sold. Every year after about 1900, the car press published encomiums to the progress that had been made in automobile reliability, each one an unintentional affirmation of how bad cars had been in previous years. While there is no doubt that automotive quality did improve significantly over time, there is equally no doubt that a good mechanic was a vital dealer accessory. The first generation of drivers, or their chauffeurs, expected to do a lot of minor repairs and adjustments themselves, and magazines said that the man who could not learn to do so in a month’s time “ought to push a perambulator” rather than drive.18 Cars may have become more reliable as the years passed, but they also became more complex, which meant that there were more parts to fail and it took greater skill and more specialized tools to set them right.19 Having a properly equipped and staffed maintenance department was one of the standard requirements for holding a retail franchise. Dealers and manufacturers frequently cited well-equipped service departments as the reason why showrooms were not just another retail outlet.20
The first generation of manufacturers sold their cars through mail-order catalogs, traveling salesmen, consignment agents, franchise dealers, and factory-owned stores.21 Many of the agents sold cars as a sideline to another business and sometimes handled competing brands. Bicycle store owners, who had experience with selling and servicing mechanical transportation, were good prospects as car dealers, as were livery stable owners who had large buildings and experience selling personal transportation to men. For example, Clarence Vallery, who opened a livery stable in southern Ohio in 1900, added cars to his inventory fourteen years later by dividing his stable down the middle, horses on one side, Fords on the other.22
The businesses that sold cars to the public might refer to themselves as agencies, dealerships, or branches, with the actual contractual relationship between the factory and retailer varying considerably.23 After World War I, however, a pattern crystallized that remained the industry standard for the next thirty years. Retail automobile outlets, with very few exceptions, became franchises with exclusive geographic territories. In return, they sold only one company’s cars under conditions set forth in contracts that generally gave the manufacturers undisputed authority to terminate the agreement if they did not approve of the way the dealer was operating.24 Some unauthorized gray-market dealers sold diverse brands in the 1950s, and in 1957 a group of dealers near San Francisco combined their sales floors, but each brand was sold by a different business.25 By the 1980s, several other forms of multiple brand dealers emerged, but none of these was akin to a standard retail store because buyers did not have an opportunity to compare similar models from different manufacturers, nor did they have a posted one-price policy.26
Although sometimes challenged on the state level, closed territories and fixed prices (wholesale and retail) generally remained intact until 1949, when the Justice Department warned manufacturers that “territorial security” provisions in franchises were probably a violation of federal antitrust policy. To the regret of a majority of the dealers, territorial protection subsequently disappeared from franchise agreements as all three branches of the federal government continued to weaken the factories’ iron grip on their dealers.27 Nevertheless, and despite sporadic attempts to encourage more competition among dealers, the fundamental relationship between factories and dealers remained intact until the 1950s, when federal and state franchise laws began to make it harder for manufacturers to cancel retail agreements.28
The retailer existed in what an observer during the Depression called “comfortless independence,” almost like a factory worker in his obligation to obey the rules of the manufacturer if he wanted to earn a living.29 The aspect of this one-sided power relationship that dealers found most onerous was the maker’s expectation (sometimes a virtual requirement) that they sell a minimum number of cars if they wanted to maintain their franchise, a tactic that the manufacturers could not have used if they owned the dealerships themselves.30 The factory wholesaled cars to every dealer at the same price but varied the quotas according to its estimate of how many cars each should sell.31 These factory quotas put the retailers under tremendous pressure to move cars by cutting their profits during slow times, but published retail prices and limited production capacity gave them no way to expand their sales in good times.32
An anonymous Ford dealer complained publicly about these problems in 1927, describing how he had agreed to sell twenty cars a month but World War I had interrupted the supply. Buyers were willing to pay a premium, but his franchise agreement bound him to sell at the retail price set by the manufacturer. This allowed customers in effect to buy at a discount. He found that they would take delivery of a new car, “drive around the corner, and sell it for fifty dollars profit.” Unwilling to let the “bootleggers” make all the profit, he added phantom names to his waiting list and sold those cars sub rosa for an additional markup. The Ford factory representative got word of the scheme and demanded an end to the practice. When, however, demand diminished in the slump of 1920, the factory said it expected him to sell thirty cars a month, which it shipped like clockwork even when his unsold inventory exceeded 140 vehicles. One month the factory, anxious to reduce its own surpluses, told him that he had to accept fifteen cars above his already inflated quota if he wanted to stay in the automobile business.33
One Posted Price to All
The mythical narrative that auto industry affiliates repeat to each other contends that prior to some original sin, there was an era when the car business was a clean, upstanding profession in which owners and their sales staffs were admired members of the community who sold their high-prestige product at the same fair retail price to all customers.34 “There was a time (back prior to 1955),” said a speaker at the 1960 National Automobile Dealers Association (NADA) convention, “when I (and others in my [non-auto] industry) looked upon automobile retailing with respect and envy. You fellows knew how to sell value and features … service and satisfaction over price.”35 Observers variously date the fall from grace as 1909 (when the first wave of consumer demand was satisfied), 1925 (when used cars were identified as a “problem”), 1930 (when the Great Depression decimated discretionary income), 1947 (when pent-up wartime demand created a peacetime black market), or, as in this case, 1955 (when the marketing sins of the late 1940s became the standard culture of auto retailing).
Each of these events did in fact have a discernible impact on the way cars were bought and sold, but the real original sin predated the car: it was horse trading. As soon as car dealers and car buyers tapped into the culture of horse trading, any paradise was lost. Tales of a Golden Age of auto retailing circulate within the business because dealers know they sell mass-produced consumer goods differently from any other industry and are as uncomfortable with the process as are their customers. The idea that there was a era when car salesmen conducted themselves in the standard retail fashion implies that there is no insurmountable obstacle to once again selling cars at one price, if only the retailers could figure out how to recapture the elements that once upon a time made it possible. Was there ever such a prelapsarian age when conservatively dressed, soft-spoken salesmen filled their clients’ needs with just the right car, which the clients bought at the advertised price the way they would have purchased a new suit? The answer seems to be yes, but it was a fleeting Eden, lasting less than a decade, from 1900 to 1908.
For five or six years after their first appearance in 1895, automobiles were handmade and more experimental than practical. The people who made them and the people who bought them were mostly adult males intrigued by the machinery, the power, the danger, and the reputation of being on the cutting edge of a new technology that promised to combine the speed of the railroad with the flexibility of the horse. Despite automobiles’ obvious shortcomings (unreliability and high price prominent among them), society seemed to grasp almost immediately that cars were the future. Their superiority as personal transportation was so evident that after 1900 it is difficult to find a contemporary who thought there was any long-term future for horses. Between 1900 and roughly 1908, the nation’s cities were in the grip of an automania very similar to that which had marked the bicycle business a decade earlier. There were more buyers than sellers, innovations came on almost a daily basis, and early adopters were advocates as much as they were customers. Buying a car in these circumstances was not a typical consumer purchase. It was a financial transaction between members of a fraternity of adventurous pioneers, none of whom could be sure that either their company or their car would be operating a year hence.
Despite the product’s unproved reliability, manufacturers and their agents had no trouble selling cars at published list prices as was required by the terms of most franchise agreements.36 As standardized products, manufacturers could market automobiles as a uniform commodity, and prices, which held steady at high levels for almost a decade, appeared in advertisements.37 Because there was no need to adjust prices to reflect the peculiarities of the individual vehicle, retail sales could take place in an environment more like a store than a stable. Historical materials from this period make little reference to negotiation, bargaining, trading, or otherwise dickering over the price of the car, other than an occasional reference to buyers paying premiums of as much as 25 percent to avoid having to wait months for delivery. It was a true sellers’ market, and the sellers were not shy about taking advantage of it.38
There is some evidence from this pre-1909 period that a few auto retailers lured customers by promising to sell at less than list price. However, price flexibility on the showroom floor could not be a significant selling point as long as demand outstripped supply.39 The balance shifted some time between 1908 and 1911 when, to attract reluctant buyers, a number of dealers began to offer discounts off the manufacturer’s list price. A small advertisement for the Times Square Automobile Company at the end of the 1908 season promised half-off list price on certain unnamed “popular makes” bought from “overstocked” manufacturers.40 Four years later Elliott Ranney, a Hudson dealer in New York City, felt obliged to warn car buyers about “the fallacy of buying a ‘discount’ automobile.” Ranney explained that there were two kinds of discounts, those deducted from an artificially inflated list price, and those taken off a legitimate list price by cutting dealer profit. With the former, Ranney said, the discount varied with each sale so that the buyer never knew the real value of the car being bought. The latter, he said, was an unmistakable sign of a failing dealership that would soon be out of business.41
The Ford Motor Company fought a continuing battle to keep its dealers toeing the price line in the years before World War I. The company, which aggressively marketed its cars’ low prices, started its war on price-cutting early on, when it found that some distributors had circumvented the company’s strict list-price policy by giving dealer discounts to individuals.42 Then in 1911 and again in 1913, the factory had to send warning letters to all branches to stop under-pricing so-called demonstrators that had not in fact been used to demonstrate rides to customers.43 Any dealer who sold a Ford below list did not deserve to be called a businessman because he was “nothing but a short-sighted bungler,” a “fraud,” and a “disorganizer in the business,” charged the management in Dearborn. Name-calling was followed by threats as the company reminded dealers that “the provision of the Ford contract regarding price cutting will be enforced to the dot of an i. Better read the contract and see what will happen if you cut prices on Fords.” Finally, the company appealed to the dealer’s ethical sense by insisting that a price-cut to any one customer “is manifestly unfair to those who pay the full price in good faith.”44
Invoking the still-common male experience of horse swapping, Ford management reminded the dealers that when shopping at their stores “The Buyer Doesn’t Have to Beware or have his eye-teeth cut to horse-trades when dealing with us.”45 No trading also meant no boot: Would a customer ask a railroad to throw in a meal or a sleeper car when he bought a ticket to the Falls? asked the factory. Of course not. “It is just as much of a joke to throw in chains and gas tanks.”46 “In six cases out of seven when a prospect tries to make his price your price—he is merely testing your nerve as a salesman.” And not only that, warned the factory, he will tell what happened “to every other prospect in your community.”47 No salesman wanted to get a reputation as a pushover. Any concession was the first step down a slippery slope that would take the cars out of the one-price world of manufactured goods and back into the horse-trading arena with its flexible prices and equally flexible ethical standards.
Even as Ford management was railing against price-cutters, the company offered the industry’s first manufacturer’s rebate, a factory-sponsored version of the retail discount. In the spirit of its new five-dollars-a-day factory wage, Ford called its customer rebate program “profit sharing.” The company announced that if it increased its sales from August 1914 to August 1915 by 20 percent, it would give between forty and sixty dollars back to every one of the 300,000 or more people who bought a new Ford “at full list price.”48 The program worked, and each of the 308,000 people who had registered their new Ford with the company received a fifty dollar check. Ford’s rebate program was a one-time event that constituted a 10 percent discount. No other firm followed Ford’s lead until 1960, when American Motors tried a similar but much more modest program.49 Other manufacturers offered rebates to their dealers during the 1960s as a way to encourage them to cut prices to their customers, but it was not until 1975 that the factories started giving rebates directly to the buyers.50 The customer rebates started in the 1970s were de facto admissions that buyers did not trust dealers to pass on price cuts.51 Factory rebates had to function independently of the sales staff because both the manufacturers and the buyers knew that otherwise salesmen would try to pocket the rebate.
One-Price by Law
The Ford anti-price-cutting campaign that ended with the company-sponsored price-cutting rebate is just one of many indicators that list prices were subject to negotiated discounts before World War I. Something was starting to go wrong in the automobile market. Traditional horse-trading tactics were threatening to displace newer department store methods. Ford tried to nip this self-destructive behavior in the bud but failed. It kept pleading and threatening, and the dealers kept giving discounts. So in 1915, as they would again in the 1930s, car manufacturers looked to the government to save them from themselves. This took the form of a demand for what the American business community cleverly, if somewhat misleadingly, called “fair trade” laws. Neutral observers labeled the law “resale price maintenance,” and critics referred to it as “price-fixing.” Fair trade laws would permit contracts that required all retailers to sell their products at the price established by the manufacturer. There would still be price competition among manufacturers of similar products, but not among retailers of identical brands. Legally enforceable list prices were popular among small retailers, who feared competition from bigger and more efficient department and chain stores. Manufacturers generally supported price-maintenance because they thought discounted list prices undermined the public’s confidence in their brands and because they did not want to alienate their many smaller retailers in favor of their few larger ones.52
Oblivious to the inconsistency of their position, the advocates of fair trade laws borrowed the logic that an earlier generation of department stores had used to promote their one-price policies. The department stores had prided themselves on posting prices and not dickering over them with each customer. Now the same kinds of small-store merchants who had clung to discriminatory pricing as department stores abandoned it wanted mandated prices to protect them from the department stores. What had been touted as “fair to all” and “democratic” when practiced within a single department store now became a way of ensuring that prices were not discriminatory among different stores. “It is clear that if certain hats are advertised to patrons all over the country at five dollars,” explained a price-maintenance proponent in 1914, “the makers should be allowed to enforce the sale of their product at that price.” To do otherwise was to be “guilty of discrimination” because the salesman would be free to adjust the price according to his estimate of the customer’s ability to pay.53
Not only would fixed prices be more democratic, said advocates, but they would also promote other reforms popular in the Progressive Era. Supporters argued that by maintaining a set price competition would take place on quality, rather than be determined by cost, which had resulted in “unsanitary conditions, overwork and underpay, [and] employment of children.” In the absence of such legal protection, they warned, “either manufacturers and publishers would have to cease advertising any price, or the price advertised would no longer mean anything because it was not the actual selling one.”54 They warned, in other words, about an end to the single-price marketplace and the return of universal haggling, which is exactly what would happen in the automobile business.
Representatives of both Ford and Packard testified before Congress that price maintenance was “the only moral and truthful method of doing business,” because unfair competition was just as bad as unfair monopoly.55 Ford briefly attempted to finesse court prohibitions on price maintenance in this period by once more setting up its retail outlets as company agencies but preferred to have independent dealers—as long as they were not independent enough to set their own prices. Small business champion and progressive reformer Louis D. Brandeis, soon to be appointed to the Supreme Court, argued in 1915 that a federal law guaranteeing the legality of price maintenance contracts would put all business on an equal footing. Brandeis pointed out that large businesses like Ford could open factory agencies to sell their products at a standard price, but smaller manufacturers lacked the same opportunity, allowing corporate money to buy unfair protection from the pressures of the marketplace. Brandeis wanted that protection from price competition guaranteed to all businesses.56
Neither the courts nor Congress were convinced that resale price maintenance was good for the economy, and American retailers remained free to set their own prices until the 1930s. Denied a specific legal basis for price maintenance, the auto industry maintained the quasi-fiction of manufacturers’ suggested retail prices through the 1920s. “The principle of one-price to all has been generally accepted as fundamental in modern merchandising,” explained an auto sales manual in 1919, turning a blind eye to numerous violations in the auto business. A rare pre-Depression academic study of the auto industry also accepted the generalization that list prices were firm, claiming that the informal norms of car selling “have led to a system of price maintenance equaled in few other industries.”57
There is no way to judge precisely how many dealers adhered to the suggested list price, but there is no question that a significant number were willing to bend the legally unenforceable rules. “The dealer who begins to cut prices to a few of his customers is likely to find that within a short time everybody knows about it and everybody expects to be given the cut price,” warned a dealer’s manual in 1919.58 “Do not make concessions. You have one price—stick to it,” ordered (or begged) the marketing experts at Ford.59 Price-cutting continued through the decade, and in 1929 one General Motors executive despaired, “Selling-buying relationships in business during the past few years have been pretty much on a plane of horse-trading,” during which the seller would “make allowances and discounts and preferential terms until his fair price could no longer be recognized.”60 As late as 1930, Chevrolet was officially instructing its salesman to respond to customer requests for free extras (boot) by saying it was the same thing as asking for a price cut: “If you were to offer me $740 for a $765 car, naturally you would not expect me to accept.”61 That, however, is exactly what many customers had come to expect.
Then the Great Depression dealt a severe blow to the already shaky tradition of selling at list. With money hard to come by and buyers scarce, dealers had to fight for every sale, and discounting the factory price was an obvious way to lure customers. “It takes very little effort to get from $75.00 to $100.00 reduction on either Chevrolet or Plymouth,” complained a top Chicago area Ford salesman in 1935.62 By 1937 members of the industry were routinely referring to dealers who competed on retail price as “chiselers.” Such a man, said the National Automobile Dealers Association (NADA), is engaging in “unfair and underhanded methods to compete in business. Lacking business ethics and ability, the only weapon that the ‘chiseler’ can use is price advantage.”63 The last three stanzas in a parody of the “Ten Little Indians” nursery rhyme in NADA’s newsletter sum up industry antipathy to price competition and customer bargaining:
THREE little chiselers, didn’t know what to do;
One met a low price, now there’s only two.
TWO little chiselers, a-cuttin’ by gum;
One cut the other’s throat, now we have one.
ONE little chiseler, left without a penny;
He can’t cut no more, so now we haven’t any!64
The vociferous criticism of “chiselers” in the 1930s makes two things clear: first, price-cutting was common enough to warrant both a specific appellation and a concerted attack from industry spokesmen; and second, even in the Depression era, there was a sense that cars should be sold at list price, despite a thirty-year tradition of negotiating discounts.
The vituperation of 1937 was the backlash to the end of an experiment in legally sanctioned price-fixing. For two years, from 1933 to 1935, the auto industry had operated under a set of price regulations put into effect by the National Recovery Administration (NRA), Franklin Roosevelt’s experiment with centralized business self-regulation. While the industry-wide codes established under the NRA did set minimum prices, they were usually much lower than the retailers desired.65 However, for the automobile merchants the NRA did something even more important; it established a list of maximum prices that could be paid for used cars traded in as part of the purchase of new cars. This issue will be dealt with more completely in chapter 4 on the “used-car problem.” Suffice it to say here that dealers liked this experiment in regulating the market. Twenty years later, a NADA spokesman told Congress that trade-in allowances made legally established prices impractical in the retail automobile business, forgetting how dealers had welcomed them during the Depression.66 When the Supreme Court declared the NRA unconstitutional in 1935, NADA, along with other small businesses groups, looked for ways to bring back the benefits of an unfree market. They managed to secure two pieces of federal legislation that made half-hearted attempts to limit price discrimination, but neither would have a major impact on the retail auto business.
The two laws, the Robinson-Patman Act of 1936 and the Miller-Tydings Act of 1937, appeared to hold out some possibility of “price stabilization,” as proponents sometimes called it. Congress passed both laws despite continuing judicial disapproval and a distinct lack of enthusiasm from the executive branch.67 The first law defined the circumstances under which manufactures could give larger discounts to some distributors and retailers than to others. The second permitted manufacturers to require resale price maintenance agreements from their customers in states where it was legal.68 NADA backed the passage of both laws and threw its support behind the necessary state legislation that would allow manufacturers to prohibit competitive price-cutting.69 By 1939, forty-four of the forty-eight states had passed such laws.70 Wisconsin, a perennial pioneer in neo-Jeffersonian progressivism, led the way with a state “Recovery Act” that gave the governor the power to impose industry codes prohibiting unfair business practices. One such rule forbade companies from selling below cost, which the auto dealers interpreted to mean that over-allowances were illegal.71 In 1940, NADA hired ex-NRA administrator Donald Richberg to represent it before the Federal Trade Commission, whose rulings on the application of the two federal laws did not always work to the advantage of the dealers.72 Pulled between the mutually exclusive interests of the consumers and the merchants, the FTC, along with Congress and the executive branch, sometimes leaned one way and sometimes the other.
The post-NRA experiments with fair trade legislation never gained much traction. As business historian Jonathan Bean explains, they were undercut by changing state laws, judicial interpretations, consumer antipathy, and ultimately by an inability to enforce them in either letter or spirit. Chain stores and cut-price stores flourished in spite of them, and fewer and fewer manufacturers insisted on price maintenance contracts after the end of the Depression. The number of states with fair trade laws had fallen from a high of forty-four before World War II to eleven in 1975 when Congress finally repealed the Miller-Tydings Act, ostensibly as an anti-inflation measure, although in 2007 the Supreme Court muddied the waters once more when it declared that manufacturer-set retail prices might be permissible under some (unspecified) circumstances.73
The automobile industry was not a major player in the fair trade law endgame because its circumstances had changed dramatically and list price discounting had ceased to be the focus of industry concern. From the beginning of World War II to the early 1950s, the issue facing the industry was not charging too little but charging too much—not price cutting but price gouging. After the war started in Europe in 1939, American production rebounded, and auto retailers quickly reverted to the established practice of pushing for every last dollar. Harlow Curtice, the president of General Motors, recalled that when he was head of the Buick division in 1939, he tried to publicize Buick retail prices, but he ran into stiff opposition from dealers who complained that national price advertising reduced their opportunities to jack up local prices with dealer add-ons.74
Once America entered the war in 1941, the list price issue was moot since no new cars were produced, but after the transition to a peacetime economy had been officially ratified with the lifting of wartime price restrictions in 1946, market forces came into play again. What emerged was a gray market in which speculators, including some dealers, used a variety of subterfuges to acquire new cars and then resell them at a premium. The public was furious. The manufacturers were worried about their reputations. The dealers were frustrated at not being able to take open advantage of the opportunity, and the whole situation gave rise to a mentality that ushered in what could be called the “definitive” (in the sense that it defined the business) period of American automobile dealing. The excess that characterized the automotive retailing environment between the end of the war and 1958 were so extreme that they will be detailed in their own chapter.
Advertising List Prices
Both manufacturers and retailers knew what was wrong with the automobile business, and both knew how to fix it: post list prices and stick to them. Every time a factory executive or a car salesman bought a new suit, the difference between his and other industries was obvious. Like the car salesman, the clothing salesman did not just collect money; he “sold” the suits. He assured the customer that the suit fit perfectly and looked great on him. He praised his product’s quality and style, and promised the customer that wearing it would enhance his prestige. He noted that such a high quality suit at such a remarkably low price would not last long on the rack, and if the buyer wanted it, he had best buy immediately. Finally, the suit salesman, like the car salesman, collected a commission on the sale. The clothing salesman did everything the car salesman did except bargain over the price. The lesson was not lost on the car industry. As George Romney, the president of American Motors, observed in 1956, “After all, John Wanamaker built a great business by having one price.” Harlow Curtice, the president of General Motors, agreed.75
From the local retailer’s perspective, the major change that took place in the dozen years after the end of World War II was the virtual disappearance of manufacturers’ retail prices from both national and local advertising. Car ads with prices had begun in 1901 with the curved dash Olds, America’s first mass-produced car, which was regularly advertised at the factory price of $650.76 Ford, too, was prominently advertising prices in 1904, well before the Model T appeared.77 The pattern of prices in manufacturers’ ads before 1920 indicates that both the factory and the retailer expected that the cars would be sold to the public at a single price, although consumers could sometimes get discounts if they tried.
List prices remained the advertising norm through the 1920s and 1930s, although the advertised figures were often misleadingly low because they did not include shipping costs and frequently excluded essential “accessories” such as bumpers and spare tires. During an investigation of industry practices in the late 1930s, the Federal Trade Commission found that the manufacturers’ national advertisements were deceptive and that the prices the customers actually paid were “packed” with a variety of additional fees.78 The prices may have been minimized, but they were there. Between 1924 and 1940 approximately half of the automobile advertisements in national magazines contained a list price, and in some months almost 90 percent did. During the same years, prices also appeared in about half the car advertisements in local newspapers. After World War II, however, selling prices were nowhere to be found. Fewer than 5 percent of national ads and only about 10 percent of local advertisements told the public what the car was supposed to sell for. Car stores would offer “low prices,” “great deals,” “$372 savings,” and similar promises, but no actual prices.79 The carmakers still issued retail price schedules to dealers as the basis for dealer wholesale discounts, but they were not used for price advertising.80
There were no formal announcements about this change in advertising policy. Manufacturers’ suggested list prices just faded away over a fifteen-year period of retail price turmoil that started with the price controls of the NRA in 1933 and proceeded through the post-NRA period of fair trade laws, the wartime Office of Price Administration and black markets, and the postwar gray markets. Dealers told customers that the factories prohibited them from giving over-allowances because they amounted to slashing the list price, but they refused to disclose that list price.81 The case of the disappearing list price came to an end in 1958 when Congress mandated the manufacturer’s suggested retail price (MSRP) window sticker beginning with the 1959 model year (dealt with in more detail in chapter 5). The legally ordered price tag was intended to force car sales to adhere more closely to the standard conventions of the retail marketplace. The disappearance of posted prices had been a de facto acknowledgement that cars were still being sold in a preindustrial style, and the new law was an attempt to force car sales into closer compliance with the standard retail model.
The desire to attract customers, not legislative mandates, had given rise to the original retail culture of satisfaction in department stores, and a law that only obligated posted prices was not enough to change the traditions of sales-floor negotiation in car dealerships. The sticker requirement did, however, add an unprecedented element of honesty to the process. Around 1979, in a moment that deserves an award for car-market candor, automobile sellers began to include a price sticker labeled “ADM” or “additional dealer markup” on high-demand cars. If customers wanted a car badly enough, they were going to have to pay more than list price for it—up front and above board. Forbes, a conservative business publication, referred to the practice as “baldly labeled additional dealer profit.”82 It was “bald” only because the law required car price tags to categorize the charges. Free market advocates pointed out that hiking the price of desirable cars was merely the flip side of discounting dogs. Buyers, however, complained that it was unfair dealer gouging, even as they bragged about haggling down the dealer’s asking price.83
Isolated examples of dealers advertising and posting non-negotiable prices popped up from time to time after the war. In 1957 a Philadelphia Pontiac dealer let customers browse alone through his inventory. The owner said the salesmen were just there to take orders: “Customers pay the price painted on the windshield. No haggling.”84 Every couple of years another dealer would get the bright idea to embrace the one-price system. He would generate a flurry of publicity when he announced that at last automobiles would be sold like all other consumer goods—by helpful sales personnel at posted prices.85 A California Buick dealer, self-proclaimed as “the only honest guy in the business,” tried selling at a flat $150 over invoice beginning in 1973. He abandoned the cost-plus scheme three years later but continued to sell at a firm posted price and refused to bargain over trade-in allowances. In a move that emphasized his deviation from the masculine practice of price negotiation, he fired his salesmen and hired four “girls” who greeted the customers, showed them around, and directed them to the office when they were ready to buy.86
Usually the one-price dealer would claim that profits were up sharply and that both customers and sales staff were happier in the new non-adversarial environment. A General Motors dealer in Michigan who sold cars for $49 over wholesale in 1983 said he thought there were about fifteen other dealers in the country doing the same thing. Other GM dealers were reportedly furious with him for poaching their customers, but he liked the program because there was “no trickery, no dickering, no lowballs.” He contrasted his method of selling with that of his father, for whom he had worked as a sales manager. When it came time to sign the final papers and turn the car over to the customer, it had been his job to “discover” that the salesman had made a mistake and then bump up the price.87
There is no indication that any of these posted-price experiments lasted more than a couple of years. A solitary one-price seller might make some sales to people who hated to haggle, but other customers would use his posted price to bargain down competitors’ prices, forcing him to cut prices further or lose sales. Single-pricing would be much easier if prospective buyers could not go to another dealer for a competitive quote, which is what General Motors accomplished when it introduced its Saturn in 1990. For the first time since the days of the Model T, a manufacturer was able to make a single posted price stick—for almost twenty years thus far. But Saturn has remained an exception. Its no-dicker sales policy did not chart a new course that other auto retailers followed. Instead, Saturn found a market among people (especially women), who did not want to haggle.88 By the mid 1980s, the women’s movement had changed the retail car culture sufficiently that a significant number of women were buying cars by themselves for themselves. Saturn’s sales pattern vindicated the assumption that women disliked the hardball negotiation process and wanted to be able to buy a car the same way they had been buying everything else for a hundred years, off the shelf for a standard price. In the mid-1990s Saturn had a higher percentage of female sales staff, almost a quarter, and a higher percentage of female buyers, almost two-thirds, than any other brand.89
Saturn is an aberration in the history of retail car sales because of the longevity of its one-price policy. It managed to survive because the manufacturer was able to control the way the retailers sold the car by limiting the number of franchises.90 Each of these relatively scarce dealers could attract enough negotiation-averse customers to stay in business and, for the first decade at least, make higher per-unit profits than other brands while enjoying unprecedented customer satisfaction with its sales system.91 Yet even for Saturn buyers, car shopping was a one-price experience only if they did not have a trade-in. A Saturn manager told a would-be salesman that his store was a great place to work because “when you work here you won’t have to lie” about the price of the new car. On second thought, he added, “Actually, it depends on your definition of lying.” He explained that if the used-car manager said a trade-in was worth $4,500, it was perfectly okay to offer the buyer four thousand, thus adding $500 profit to the deal. “But,” he concluded, in a telling commentary on sales staff ethics, “we won’t ask you to do anything that conflicts with your core beliefs.”92
The Saturn experiment was the first real opportunity to turn the 1959 window sticker price into a new-car market standard. Purveyors of other brands understood this and responded to it with something they called “value-pricing,” which turned out to be a negotiable non-negotiable price. This new system offered a handful of selected models with a large number of optional accessories at a posted price that was much less than a similarly equipped car would normally cost. However, the “value-price” was limited to certain models that were excluded from rebates being offered at the same time on most other models. And the amount of the rebate just happened to be the amount the value-priced car buyers would save. If all of this seems confusing, it was supposed to. Although Ford officials (who originated the concept) conceded that “without exception, consumers have told us there’s too much hassle buying an automobile,” at the same time they asserted, “There’s a psychology in the market that says you barter for a car.” The value-pricing plan seemed to reduce the hassle but still left room for bartering (i.e., negotiating) if the dealer were tempted and the customer insistent.93
Saturn and “value pricing” prompted a boomlet in what dealers called “no-dicker sticker” prices. The dealers who switched said they were pleased because they were able to reduce the size of their sales force and attract larger numbers of women and minorities, two groups particularly suspicious of high-pressure sales. The general manager of the Chevrolet division of General Motors said he had seen marketing fads come and go, “but this one has staying power.” At the same time, however, the sales manager of a no-dicker local dealership admitted that if a customer offered $9,900 for a $10,000 car, “I’d have a hard time not taking the deal.”94 Both the factory and the retail executives were right. The new system did have staying power for some. These dealers believed that their customers felt good—not because they had gotten the lowest possible price but because they knew nobody else had gotten a lower one.95 At the same time, however, most dealers had a hard time not accepting a customer’s final offer that was a few dollars shy of the “no-haggle” price.96
Dealers said they were pleased to abandon the “lies and games” that characterized their predatory sales techniques.97 Yet even as some dealers were praising the new “soft sell” pricing strategies, others were complaining, especially about value-pricing.98 They worried that by advertising a low package price, the factory made it impossible for them to squeeze maximum profits from unsophisticated customers, and since some customers still insisted on bargaining, overall profits were likely to decrease.99 In 1994 an industry insider said that dealers were so “predatory that they can’t stand losing the possibility of a person walking in and paying full sticker.”100 Over half the dealers surveyed by NADA in 1993 opposed value-pricing by manufacturers, and about half opposed one-price selling as well. Perhaps because per vehicle profits dropped to an all-time low in 1993–94, the one-price concept could not grow beyond a small retail niche.101 Salespeople still dreamed of hitting the “home run” of a full price sale, and buyers worried that paying the sticker price meant they were not getting the best deal.102 Estimates of the number of one-price dealers varied from 1 to 5 percent of the country’s 23,000 dealers at their peak in 1992 and fell by half four years later.103
In an attempt to rein in price competition and customer exploitation, in 1999 both Ford and General Motors experimented with a technique that recalled the early days of the century by purchasing substantial shares in some regional dealerships as a way to impose a consistent standard of retailing that included no-haggle pricing.104 A growth in factory-owned, one-price dealerships might have changed the face of car retailing, but it was a feint not a strategy, because the big changes were expected, not from the revival of an old system, but from the arrival of a new one—the Internet. Many dealers’ initially feared they would have to abandon their forty-five-year tradition of bargaining down from the sticker price and simply post their non-negotiable price on the Web, where their customers could do comparison shopping. At long last, cars would be sold like washing machines.105 The Internet will be discussed in more detail in the epilogue, but suffice it to say that it took only about three years for the ever-evanescent promise of normal retail pricing to evaporate as the retail car market learned how to incorporate the Internet into the time-honored tradition of individual negotiation over each and every sale.
The dealer’s desire to maximize profit on the sale of a new car and the customer’s desire to minimize it are the reasons usually cited for the failure of posted one-price selling to become the car industry norm. That is an accurate but incomplete explanation because it deals with only half of most car transactions. In addition to buying a new car, the vast majority of customers are selling a used one. The easiest customer to sell the used car to is the dealer from whom they are buying the new car. These trade-ins have always been the flies in the ointment of modern auto retailing. Used cars are what forced automobile retailers to be car dealers. The “deal” in car dealer was the equivalent of the “trade” in horse trader. Even if the custom of one-price sales had taken hold in car stores, the “used-car problem” had to be confronted. The manufacturer might suggest or even insist on a retail price for the new car, but nobody could suggest a price for a used car because each secondhand car, like each horse, was different.