Auto Dealers in Time of Crises

Dear Colleagues! In order to better understand what measures the auto industry can take in the current difficult times, we turn to the biggest crisis in modern history - the Great Depression. Let’s discuss how the Great Depression influenced and reformatted the US auto dealership community. But first, a few words about the main industrial organization of the US auto retail industry – NADA

NADA

NADA, the National Automobile Dealer Association, was born in 1917 when a group of dealers decided to change Congress’s views on cars. Thirty dealers from state and local associations went to Washington. By convincing Congress that cars were not luxury goods, as classified, but vital to the economy, the group succeeded in reducing the proposed 5 percent luxury tax to 3 percent.

These businessmen realized that 15,000 dealers in the country needed a permanent representation in Washington. Two months later, on July 17 and 18, dealers gathered in Chicago to elect the management. A dealer from Milwaukee, George W. Browne became the first president of NADA.

So... we are transported almost a hundred years back in time, in 1929. Car sales in the United States grew 25 of the first 29 years of the last century, peaking at 4.3 million in 1929. The car market was virtually unregulated. Franchising laws, licensing, and other aspects of industrial law were in their infancy. And, suddenly, out of nowhere, the Great Depression! By 1932, car sales in the United States were down to 1.25 million units, falling by more than 70 percent, and did not return to the level of 1929 until 1949.

From peak to the rock bottom

Idle production capacity have made auto manufacturers dependent on dealers. The key objective of auto manufacturers was to maintain production volumes.

During the depression, desperate auto makers were forcing dealers to take new cars that dealers did not order. Auto manufacturers also increased the number of new dealers, including those who sold cars from their home, off the street, or simply from accessible parking lots. This tactic has led to the development of fierce competition among dealers.

Large dealers, with significant investments in their dealerships, real estate, experienced employees and stocks, began to give big discounts on cars and at the same time overpaid for trade-in’s to support new car sales. But they were faced with brokers and unlicensed dealers, with low investments, who had little interest in sales territories, customer satisfaction or quality of work.

Competition often escalated into unproductive actions: selling at the expense of price, fierce price wars, rampant overpayments for trade-in, odometer roll backs, concealing defects or other customer fraud.

By 1932, most dealerships were losing money on both new and used cars. The difficult financial situation did not bypass NADA - the number of members was reduced to 2,000 dealers, and most of them were behind on their membership fees.

In May 1932, NADA cut staff at its St. Louis headquarters by three employees. President Floris Nagelvoort of Seattle agreed to pay for his own NADA office space as the association’s treasury was exhausted.

National Industrial Recovery Act 

In January 1933, the ailing automobile industry became a key component of the New Deal, as described in the National Industrial Recovery Act and the National Restoration Administration Act.

A strong-willed and powerful program included the creation of codes of conduct for specific industries and professions. 400 different areas of activity were governed by the rules of the National Recovery Authority, but the very first fair competition code adopted was for automotive retail!

 In June 1933, President Roosevelt described the spirit of the National Recovery Administration: "If all employers in each trade now band themselves faithfully in these modern guilds - without exception - agree to act together and at once, none will be hurt and millions of workers, so long deprived of the right to earn their bread in the sweat of their labor, can raise their heads again. The challenge of this law, is whether we sink selfish interest and present a solid front against a common peril." 

The cessation of the merciless race in auto retail could be successful only if everyone obeyed together. Enforcing the federal retail code was crucial.

To streamline car retail, in 1933 NADA published its first used car price guide.

"The New Deal, with a greater measure of social and economic justice, is breaking down our feudal system," said James Dalton, the editor of Motor magazine and the keynote speaker at NADA's annual "Yours is becoming a legitimate business instead of a racket," Dalton told the dealers. "Soon there will be no place among honorable merchants for those who are racketeers by instinct or who cannot break the habit. Violators are lawbreakers and they must be treated as such. Traitors, snipers, chiselers and weaselers must be rooted out. If any of them offend persistently and wantonly, send them to jail where they belong." 

Dalton's speech reprinted in the NADA Newsletter sounds harsh to modern ears. But such passion was common during the Great Depression.

Supervision and management were entrusted to the new president of NADA, F.W.A. Vesper, who returned for a third term after working in 1918 and 1919. Auto dealers who created NADA initially opposed government regulation, but after a severe recession in 1932, they supported the need for federal measures.

In the NADA newsletter dated August 10, 1934, a column marked “personal message of President F.W.A. Vesper" and titled “Enforcement of the law is the responsibility of every dealer”, Vesper took a tough stance on the code, comparing offenders with famous gangsters. "It took all the police machinery of the nation quite a long time to enforce a very well established and unanimously popular law against John Dillinger, others of his ilk are still at large." 

The strategy worked! Car sales, as well as the profitability of dealers in the United States, recovered.

US auto retail after the Great depression 

Desperate times required desperate measures. And the automotive community in the United States found the will to understand this and take decisive action.

The Great Depression allowed the disparate auto industry in the United States to unite and form the foundation of all future interactions. In 1936, when NADA moved to Detroit, a new legislative department was formed to lobby legislative initiatives and regulate interactions in the auto industry. Later in the USA, laws on franchising, licensing and regulation of many aspects of auto retail were created and are constantly updated, providing reliable mechanisms for financial interaction, fair competition and protection of the rights of auto manufacturers, auto dealers and consumers.

All this allowed the United States to create one of the most advanced and highly competitive auto markets in the world.

How can these events be extrapolated to the current situation in the auto market?

Historically, in times of crisis, people seek leaders. This equally applies to the current crisis and the operation of car dealerships. NADA considers current circumstances to be an opportunity for car dealerships to show themselves as leaders. That is - to show how they differ from other car dealerships. The same message is also given by other authoritative industrial organizations in the United States, for example, the Weekly Auto Dealership Information Network.

Right now, car dealerships are creating new online and digital strategies, and new ways to interact with customers. My opinion is that it makes sense for car dealerships not to “expect” market recovery, but to proactively change their working methods. When the market recovers, it may not be the same as it was before, and car dealerships that put an effort and start adapting now may be better prepared to work in new conditions and maximize their true potential.