Under the Counter

George G. Gilbert Jr., president of a Washington plumbing equipment company, wanted a new car--in a hurry. He needed it in his business. How did he get it? A dealer "said he could get me one if I would pay him a commission of $500, which I was glad to do." A few days later, Gilbert drove off in a new 1948 Oldsmobile.

Scores of such under-the-counter deals, which have run new car prices far above list prices, were dragged into the open last week by a House subcommittee in Washington. Detailing their new-car fever, buyers sheepishly told of 1) giving fat bonuses to dealers, 2) trading in old cars for much less than their value, and 3) paying out hundreds of dollars a car for unwanted accessories. To get new cars, four of them passed out "tips" of $500 to Robert Kearney and others in Washington's Kearney Oldsmobile Co.; four more shelled out from $300 to $480 above list price for Hudsons at Washington's New York Avenue Motor Co. Others testified that they had traded in cars to dealers who promptly resold them for $300 to $700 profit.

Good Business. Little of this surprised automobile buyers very much. What was surprising was the way salesmen and dealers brazenly owned up to their grey marketeering. George E. Adlung, salesman for New York Avenue Motor Co., admitted receiving more than $1,200 in tips on only four sales. William Manuel, a salesman for Kearney, received at least $1,520 in tips this year. "Whenever I sold a car," he testified, "I expected something as a tip . . . They do it all over the country." Raymond J. Kearney, co-owner of the agency with brother Robert, admitted that his allowances on trade-ins were far less than their value. He resold the cars at profits which averaged a whopping 95.4%. It was "good business," said Kearney, and he was still making "less than the national average."

From its Washington sampling, the committee estimated that U.S. car buyers had been "mulcted" at an annual rate of $450 million in the first seven months of the year in low trade-ins, tips and doodad accessories. There was nothing illegal about the deals. But Committee Chairman W. Kingsland Macy trumpeted that the auto industry "must police its own backyard" or face mandatory price controls. To police the backyard, Ford had already fired 23 dealers for grey marketeering. Most carmakers, while holding their own prices far under true market values, had actively campaigned against it. This week General Motors notified the Kearney agency that its franchise was canceled "effective immediately." But automen knew that, controls or not, there was just no way of checking deals in which buyers cooperated so eagerly.

Motormakers were far more worried last week over another question: How long would the grey market--and the sellers' market in cars--last?

There were plenty of signs it would end sooner than expected. Said Henry Ford II: "A customer can usually get a high-priced car today without waiting." It might be a year and a half before cars become plentiful--but "then again it might be six months."

Poor Sales. In Detroit, almost any car except Chevrolet, Plymouth and Ford could be bought right off showroom floors without trade-ins. DeSotos and Chryslers could be had with only a few dollars worth of extras (v. a postwar average of about $280 worth for all cars) while Packards could be bought "bare" (without accessories), a sign that the market was down. And across the U.S. used-car dealers were suffering their worst slump since war's end.

Prices had dropped 10% to 40% in the past six weeks and volume was down even more. Outside of the Big Three (which in some cases were still drawing premiums of $150 to $300), prices on 1948 models were well below list price. On Detroit's Livernois Avenue, capital of the used-car world, things got so bad that 20 dealers closed down. Dealers hoped for a revival next spring, but one said sadly: "The customer will never again pay more for a used car than for a new one. This time the honeymoon is really over."

Automakers brushed off the slump. They thought it was due to 1) a normal seasonal decline, 2) the revival of credit controls in September and 3) the wait for new models. In fact, General Motors last week was so confident of renewed demand that it thought it safe to boost prices $50 to $100 on 1949 Buicks and $54 to $112 on 1949 Cadillacs.

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