Jallopies

Among the statistical curiosities resulting from the New Deal was a record-breaking fourth quarter in the automobile industry. At President Roosevelt's suggestion the automotive year was shoved ahead two months to flatten the curve of employment in the industry. And while more automobiles were made and sold in the last three months of 1935 than in any other fourth quarter in U. S. history, comparisons were quite invalid, inasmuch as previous periods included, not the post-automobile show selling season, but the annual shutdowns for retooling. However, November shows are apparently here to stay despite the fact that an early start has created a problem which last week had the motor industry by the ears. That problem was used cars.

Less than 10% of all new car sales are "clean sales" for cash or installment rates. The rest are for old cars plus. Advancing the automotive year boosted new car sales, but used-car buyers have apparently clung to their habit of waiting until spring to purchase. Thus used cars have piled up steadily in the hands of dealers, are now 25% to 35% above normal. And spring is still two months away. While the threat of dealer bankruptcy is no greater than usual, there is so much cash tied up in used-car inventories that dealers' ability to buy new cars from manufacturers may soon be impaired.

To move one new car the average dealer has to sell two and a half used cars. A used-car buyer generally has an old one to trade in too. By the end of the third transaction in this series the dealer will probably have on his floor what the trade calls a "jallopy"'--anything from plain junk to a museum piece.

Early in Depression when used cars were accumulating rapidly, motormakers made several attempts to retire jallopies from circulation. Henry Ford offered $20 for each & every jallopy delivered at Dearborn. So great was the rush that he had to set up a demolition line functioning in reverse of an assembly line. Before a car was finally dumped into a furnace cupola it was stripped of glass, tires, battery, upholstery, top fabric, copper, brass. Serviceable equipment was sold to Ford employes, the rest used to the last scrap in the meticulous Ford economy. More than 300,000 jallopies were junked before the demolition line finally shut down.

Another plan, for eliminating jallopies was prompted by General Motors' Richard H. Grant and approved by the industry's trade body. Dealers were rewarded for each jallopy junked. Difficulty was to prove that a car really had been junked. The rules provided that radiators be crushed, carburetors smashed, engine block cracked, transmission ruined, grease plug driven into the rear housing, etc. Nevertheless, chiseling was rampant, since a wreck was worth only $3 as junk while a reasonably complete car brought $12. Moreover, junk dealers often managed to salvage something which could be sold in competition with new factory parts.

Against the current used-car glut General Motors has again led the attack. Chevrolet is paying a $20 bonus for each jallopy junked, additional bonuses to salesmen who move more used cars than normally. Oldsmobile also has a bonus plan, stresses "safety inspected" used models. No mean share of GM advertising in the past few months has been devoted exclusively to used-car promotion.

However, the real used-car burden rests, as usual, upon the 35,000-odd U. S. automobile dealers. Assembled in New Orleans last week for the annual convention of the National Automobile Dealers Association, their representatives could talk of little else. Since the selling price of new cars is fixed by the manufacturer, price competition is confined to allowances on trade-ins. Hottest competition is between dealers in the same lines, not between rival lines. Under NRA the dealers had a code which set a ceiling on used-car allowances, and many a dealer now loudly laments the Blue Eagle's death. Fact was, the dealers' code did not end inflated allowances. One way dealers circumvented the code was to offer a prospect the full legal allowance, then bet him $25 or $50 in cash that he could not spit out the window. Some 800 dealers reporting to NADA for 1934 made a total profit of $697,000 on sales of $257,000,000. Had it not been for the "kickback" from finance companies on installment sales, they would have been in the red. Used car losses more than wiped out profits from new-car sales.

To alleviate the woes of his individualistic colleagues, NADA's tireless General Manager Jack E. G. Frost proposed in New Orleans last week that dealers set a definite gross profit margin for their used-car departments, just as they did on new cars and parts. Margin suggested was 20%--about enough to cover expenses. Strumming the thesis "no profits, no dealers." Jack Frost proposed a central auditing agency for the used-car trade with dealers agreeing under bond to open their books for inspection. Policing will really be up to the motor manufacturers, who will be asked to see to it that this 20% margin is maintained, and maintained as effectively as new-car prices.

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