Discounters on Wheels

The U.S. buyer, who can already shop for everything from clothes to furniture in the nation's spreading discount houses, is being tempted by a new phenomenon: the auto discount firm. Operating mostly in big cities and their suburbs, the cut-rate car sellers have cropped up in Southern California, New York, St. Louis, other parts of the Middle West and the South.

The discounter's economics are simple: he buys a new car from an authorized dealer at anywhere from $50 to $150 above the dealer's cost, tacks on from $100 to $200 as his own profit. He may sell from his own showroom or lot, or refer customers to a cooperating authorized dealer, who gives him a cut. Under normal market conditions, the discounter might be cheaper than regular dealers, whose markup runs as high as 24%. But under current conditions, many "discounters" are selling cars at higher prices than regular dealers. With auto sales in a slump, dealers are so anxious to move their cars that they often will sell them direct to customers for as little as $100 or $150 above cost.

Some discounters rely on the gullibility of unknowing buyers who think that "discounter" always means "bargain." In New York City last week, a discounter was offering a 1961 Valiant two-door V-100 for the "bargain price" of $2,395--even though the list price for the same car is only $2,346.55.

Detroit's automakers look on the new sales development as a threat to the dealer organizations they have carefully built up over the years, and most dealers disapprove of the practice. Chevrolet recently sent a letter to all its dealers warning of the "pitfalls of the 'quick-profit' bootleg sale." Subtle pressure from Detroit on dealers who sell to discounters (such as reviewing the dealers' financing) and concerted action by dealers' associations have held the discounters in check, and in some places forced them out of business.

The industry has itself to blame for the discounters' threat. Auto manufacturers often pressure dealers into accepting more cars than they can readily sell. To move the cars and save storage expense, a dealer is often willing to sell to a discounter at a small profit--even though the discounter is in competition with other authorized dealers. Some dealers have learned their lesson the hard way. Los Angeles Citizens Chevrolet, once a supplier to discount houses, has stopped the practice. Reason: a discounter failed to pay promptly for his cars and is now facing a possible suit by his creditors.

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