Pub. 2 2020-2021 Issue 2

22 Automobile Retailing in Los Angeles, 1900-1920, Part 1 Darryl Holter Region V Vice President Los Angeles T he automobile influenced nearly every aspect of American life in the 20th century. During the first two decades, the new industry overcame signifi- cant obstacles in production and merchandising that allowed the automobile to reach a mass-market of consumers. This success rested upon two related devel- opments. First, the auto manufacturers revolutionized the system of production from hand-assembled motorized carriages to assembly-line produced machines. Second, the manufacturers teamed up with local dealers to create a unique franchise system that distributed and sold cars to a geographically diverse market. Dealing with Dealers Interest in the automobile has spawned a huge number of books on technological innovation, auto design, biogra- phies of pioneers like Henry Ford, and the impact of the automobile on American culture, lifestyle, literature and art. Much less is known about the critical role played by auto retailers in the industry’s early development. While manufacturers focused on the need to produce reliable machines, it was the dealers, not the manufacturers, that learned through trial and error how to sell the automobile to consumers. Given the importance of the automobile industry in the national economy, it is surprising that so few scholars have investigated the relationships be- tween manufacturers, dealers and consumers. As Steven M. Gelber wrote in 2008, “Despite its importance for household and national economics, the dealer-customer relationship has remained almost invisible in automotive research.” 1 Perhaps the best book on the subject, James Rubenstein’s Making and Selling Cars: Innovation and Change in the U.S. Automotive Industry, devotes a mere nine pages to the role of auto dealers before 1920. 2 Fortunately, the historical records of the Motor Car Dealers Association of Los Angeles, which began in 1905, together with other historical materials, illuminate the role played by California dealers. We learn that dealers were the first to confront the obstacles to selling a new product to consumers and the first to find ways to overcome those obstacles and reach a mass-market. Franchise Agreements First, the relationship between manufacturers and deal- ers needed to be defined. While auto production was centered in Detroit and the Midwest, carmakers needed a distribution system to reach customers across the entire nation. Some OEMs attempted to sell cars directly through a factory-run “branch” system, but that method failed. Instead, most manufacturers relied upon local independent businessmen to provided their own sales facilities and hired their own employees. These “independent dealers” were granted a “franchise” to represent that brand of cars. 3 Providing Capital for Manufacturers Early period auto manufacturing was unstable because the vehicles were unreliable and because of the churning effect when more than 600 new firms entered the indus- try, but most soon failed. Traditional banks believed that the automobile was an unrealistic fad and refused to pro- vide funding. Starved for capital, the carmakers survived in large part because dealers took deposits from buyers (and often their own deposits) and submitted them to the manufacturers. The OEMs then used that capital to pay their parts suppliers and assemble the car. Meanwhile, the dealers and customers waited for the new machine to arrive. As Ralph C. Epstein noted, “Frequently such dealer deposits constitute an important source of working capital for the manufacturing company.” 4