The plight of postwar car dealers can shed light on when seller’s market ended. Charles E. Edwards’ (1965) book, Dynamics of the United States Automobile Industry, offered a scholarly dive into the data that included the declining fortunes of dealers.
“During 1953, the number of dealer failures increased significantly. Annual dealer failures climbed from 80 in 1951, to over 88 in 1952, and to 219 in 1953. Liabilities of failing dealers were over $13,000,000 in 1953 compared with less than $3,000,000 in 1951 and about $3,500,000 in 1952. Dealer failures in the earlier period had ranged from a low of nine in 1946 to high of 174 in 1949 but had declined to 110 in 1950.
Clearly, there was a significant change in selling conditions confronting car dealers in 1953. It was this period that ‘bootlegging’ of new cars to nonfranchised ‘supermarket’ dealers was initiated by overloaded franchised dealers. Dealers found it increasingly difficult to sell their cars; and so did manufacturers, thought it was mainly the Independents who were unable to maintain factory sales. This was the change which resulted in the observations of the leading Independents that competitive conditions had returned. Production capacity was no longer a limit on sales; the willingness of consumers to buy at the prevailing prices was the principal limit after the middle of 1953. The changed market conditions were reflected in the deteriorating sales and financial performances of the leading Independents, who apparently were unable to weather the return to more ‘normal’ competitive conditions.” (pp. 30-31)
Edwards noted that average operating profits for dealers fell from 6.3 percent in 1950 to 2.2 percent of sales in 1953 — and then to only 0.6 percent in 1954. Even mighty General Motors dealers saw their after-tax profit as a percent of net worth fall from 42.4 percent in 1950 to 14.4 percent in 1953 (pp. 29-30).
Meanwhile, Studebaker dealers, whose return on net worth “approximately equalled that of General Motors dealers” in 1947-48, suffered a loss of 1.3 percent in 1953 (p. 30). That was despite having a redesigned lineup that included the iconic low-slung coupes designed by Raymond Loewy’s consulting firm.
The deteriorating condition of dealer networks contributed to a rash of mergers in 1953 and 1954. Within roughly a year all six Independent automakers would partner with another firm.
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RE:SOURCES
- Edwards, Charles E.; 1965. Dynamics of the United States Automobile Industry. University of South Carolina Press.
ADVERTISING & BROCHURES:
- oldcaradvertising.com: Studebaker (1953)
It isn’t perhaps a stretch to say that whatever had been working in the US Auto Industry that had propelled it to the global forefront, broke in 1953.
If I infer correctly in 1953 most automakers were developing the 1955 model year cars and it is not fortuitous that in 1955 some automakers began to experience quality qualms (for example the 1955 Buick). It might then have changed automakers, but the fall of build quality by the late 1950s had significantly spread to become an industry trend.
I once read a paper that stated that in the 1930s the US auto industry built its fortune on a cooperative attitude rather similar to what the Japanese would do in the 1980s (admittedly Detroit had a more informal approach on it, but it’s a fifty years difference after all).
This sales demarcation line determination was very interesting. Thanks. And also that there was a “blip’ in ’49 dealer failures (Crosley and Kaiser/Frazer? They were the only ones that fell in annual production stats)!
The ’53 Studebaker ad on top really caught my eye because our local club had a swap meet (first event of the season) yesterday and l bought a similar series of ads.
40 years ago l had the pleasure of talking to a retired long-time Studebaker of Canada employee who began with the company in 1918! He had an anecdote that reinforces CIRO’s conjecture above: When Studebaker’s inventory of rear axles ran low at one point, they called their colleagues at Dodge (pretty sure he said “Dodge” which may mean that this was perhaps before 1928) to ask if they could “borrow” a couple hundred Timken axles (Studebaker used the same) until their late shipment finally arrived. The Dodge boys said – sure, no problem!
The US Automobile Industry was also characterised by having a mismatch between the market structure of automobile manufacturers (the names under which cars were sold) and of semi-finished goods manufacturers, also known as the suppliers. For example Briggs supplied bodies to both Ford and Chrysler in the 1930s, and the case of Timken axles is telling too.
Suppliers did have actual market power and often weren’t dependent on one single OEM, and when it happened then internalisation had to occur.
What caught my eye was the liability per dealer in 1953 was approximately twice that of 1951. This indicates to me that failures were spreading from small mom and pop dealers to larger ones. I’m not familiar with the affect the Korean war had on production and the economy in general so maybe other factors were involved.
Urban sprawl and the movement of the middle class (Remember them ?), augmented by a rapidly completing interstate highway system forced most dealers out of the inner cities. Most auto dealers had dealerships that were rooted in association with gasoline stations and mechanic repair outlets until after the Korean War. G.M. and later Ford began to push their franchised dealers to the suburbs in modern facilities. Chrysler’s Lynn Townsend began his new dealership push in 1963 with Chrysler Realty !