The Cause & Cure

AUTO BOOTLEGGING

In 1954's auto market, sales and production are down, but the output of ill will between car dealers and manufacturers has hit an alltime high. With a total of 647,000 unsold cars on dealers' lots, the National Automobile Dealers Association says that its dealers are "dying like flies," that some 1,800 have gone under in recent months. In turn, manufacturers complain just as sharply that dealers are falling down on the sales job. For the U.S. public, the bickering has been magnified to the point where the industry appears to be in serious trouble, and buyers have the idea that no car is a bargain unless it is a giveaway.

Actually, the auto industry's troubles, while bad, are not as bad as they sound. Auto production for the first six months was 2,958,000 cars, only 298,000 under 1953. Sales are down approximately 150,000. But dealers' unsold stocks are now 44% higher than a year ago. Panicky dealers, resorting to suicidal sales gimmicks and price-cutting dodges, have let selling costs get out of control. Result: dealer profits have hit bottom at .8% of sales, compared to 4.4% in 1953.

One of the most damaging of the sales tricks is auto bootlegging. While comparatively few dealers resort to it, it has a widespread effect on the trade. To get rid of unsold cars, bootlegging dealers shunt them off to used-car dealers at bargain prices (as much as 24% below list). The cars are then put on sale at near-wholesale prices, thus undercutting new-car sales. In the resulting price chaos, local new-car dealers are forced to whack their own prices drastically or offer fantastic lures to sell their goods.

Many do both. In Boston, dealers offer toasters, trips to Bermuda, gold watches, electric ranges or TV sets with each new sale. In other cities, dealers promise trade-ins of $500 or more for anything customers can drive, push or shovel onto their lots, flood newspapers with ads offering wonderful-sounding deals that often turn out to be phony. Sample: $195 down for a 1954 Plymouth, payments of only $44 per month for 24 months. What the ads do not say is that the 24th payment is a whopping $750.

Are such gimmicks successful? Most often not, since fancy premiums and lavish advertising come out of the dealers' 24% markup on the car, not out of the manufacturers' profit.

The dealers blame their woes on the manufacturers, and they especially blame Ford and Chevrolet for over producing in their all-out race for first place. Furthermore, dealers angrily charge that factory distributors themselves are among the worst bootleggers. Manufacturers could easily check bootlegging by simply lifting franchises.

Many dealers also feel that auto prices are too high, and should be cut at the factory level so that dealers would not have to bear all the burden of present reductions. For example, a Chevrolet that sold for $800 in 1940 is now about $1,600. Automakers like to say that a 100% price rise in 14 years is no more than the general increase in prices. What they neglect to say is that the price they quote in ads is the stripped-down one. On some low-priced models, extra equipment can run up to $746. a 300% price boost over 1940. So far, automakers have shown no signs of cutting factory prices. Even if the Big Three could stand cuts, they argue that the others probably could not, might be forced out of business.

Actually, manufacturers and dealers must share the blame for the trouble. When the auto industry caught up with demand after World War II, neither side was prepared for the new kind of market. Dealers hated to go back to the old, hard selling practices of prewar days, and manufacturers continued to pour out cars based on their economists' estimates of the market rather than on what the market actually would take.

In prewar days, production and sales stayed in balance, because a car was not usually made until a dealer ordered it. In the early postwar years, when factories could not meet demand, cars were allocated to dealers on a quota basis. Until a few months ago, a dealer still had to take his quota, whether or not he could sell all the cars, or face loss of his franchise. Automakers have belatedly realized that the quota system often forced a dealer to bootleg cars to stay in business, have now relaxed it. Manufacturers have also finally realized that the chief source of the trouble is too many cars. They now plan to cut output to an average of 415,000 cars a month for the rest of the year, compared to an average 481,416 a month to date. While cutting down inventories, manufacturers and dealers hope to persuade buyers that mink stoles and 24% discounts are not the normal way of selling cars. But they face a tough job. After years of being taken for a ride when cars were scarce, the U.S. buyer is now firmly in the driver's seat.

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