Pub. 2 2020-2021 Issue 2

23 Providing Retail Facilities Lacking capital, the manufacturers were in no position to build a huge network of sales facilities across the nation. Again, dealers came to the rescue. The first automobile franchise agreements all required dealers to provide and maintain “suitable facilities.” At first, these were small operations and most of the early deal- ers in Los Angeles began as owners of bicycle shops. William K. Cowan, who sold, repaired and raced bikes, sold his first car in 1899 and began selling Rambler cars from his bike shop in 1901. 5 In 1905, Cowan was the Founding President of the Motor Car Dealers of Los Angeles. 6 Early dealer- ships were small storefront spaces large enough to display one “demon- strator,” a back area with some space for gasoline, oil, and a few tools, and a desk in the corner to serve as an of- fice. In 1907, Main Street became the first Auto Row with 23 dealerships. As auto retailing matured, the dealer- ships grew exponentially to include service and parts facilities, sales offices, and customer lounges. Three years later, in 1910, Auto Row moved west to Olive Street, where 70 deal- ers represented 105 brands in larger and more elegant facilities. 7 This process continued as the number of manufacturers contracted in the 1920s, but dealership facilities grew to become large, expensive three- and four-story structures. In 1927, 52 deal- erships were located on the new Auto Row on Figueroa and Flower Streets. Selling on Credit Struggling with financial insolvency, the early manufacturers demanded that dealers purchase wholesale vehicles on a cash-only basis. Dealers provided advance deposits, and when the car arrived by rail, the dealer went to a bank and paid off the balance and freight charges before taking possession. Paying cash for wholesale forced dealers to demand that customers pay for retail in cash. This arrangement worked when all the customers were affluent, but as less affluent buyers entered the mar- ket dealers began to offer deferred payments and promissory notes. Soon dealers were offering larger, deferred payments and longer-term notes. However, this type of installment buying had no legally enforceable re- payment schedule and depended on a personal relationship between the dealer and the customer. Hundreds of dealers lost their businesses because they were unable to collect payments in default. 8 Between 1915 and 1917, several finance companies began purchasing vehicle receivables from bankrupt dealers. This marked the emergence of auto finance compa- nies. Soon the manufacturers, includ- ing Willys-Overland, and Studebaker, began offering to finance. In 1919, General Motors created the General Motors Acceptance Corporation to finance all its brands. Selling cars on credit shifted decisively from the dealers to the manufacturers and finance companies. “By the spring of 1921,” wrote James Flink, “Over 110 automobile finance companies were in existence in the United States.” 9 By 1925, 75% of all new and used cars were sold on the installment plan. Part Two: Providing Service and Repairs Auto Shows and Car Races: A Regulatory System for the Automobile Notable Dealers Coming in Q3 3 1 Steven M. Gelber, Horse Trading in the Age of Cars: Men in the Marketplace, Johns Hopkins University Press, 2008, p. 42. 2 James Rubenstein, Making and Selling Cars: Innovation and Change in the U.S. Automotive Industry, Johns Hopkins University Press, Baltimore, 2001, pp 251- 254, 267-270, 273-276. 3 Automobile Manufacturers Association, A Chronical of the American Industry in America, (Detroit, no date), p. 5 and Charles W. Hewitt, The Development of Automobile Franchises, Bureau of Business Research, School of Business, Indiana University, 1960. 4 Ralph C. Epstein, The Automobile Industry: Its Economic and Commercial Development, Aron Press, New York, 1928, p. 139. 5 Los Angeles Herald, February 21, 1901 and May 12, 1901. 6 Motor Age, June 8, 1905. 7 Automobile Club of Southern California, Touring Topics, August 1910. Pp 22, 24. 8 William A. Grimes described this as “The Dealer’s Dilemma” in Financing Automobile Sales by the Time-Payment System, Chicago and New York, A. W. Shaw Company, 1926. 9 James J. Flink, The Automobile Age, MIT Press, Cambridge, 2001. P. 191. First, the relationship between manufacturers and dealers 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.