New Penumbras of Property

WHEN HENRY FORD’S assembly line began turning out automobiles by the thousands, it was not hard to awaken the American’s desire to own a car. But democratizing the automobile was not merely a question of engineering or of automotive and production design. The first Model T, produced in October 1909, could not be bought for less than $900. Even after improved production techniques and widening demand reduced the 1916 Model T Runabout to $345, the price strained the budget of the American millions. For the first time there was a mass-produced consumer’s item that cost between 10 and 20 percent of a family’s annual income.

To put the automobile in the hands of the American people required other social inventions no less novel than the assembly line. After the mid-1920’s (except for the World War II years), the birth rate of new passenger cars generally exceeded that of persons, and before 1960 there were some sixty million passenger cars registered. This had been made possible by new institutions for selling and buying and financing which had developed even more rapidly than the techniques of automobile production. These would give a new ambiguity to ownership.

EVEN WHILE FORD was willing to try all sorts of new ways to produce automobiles by the millions, he stuck by his old-fashioned morality. He thought people should be thrifty and prudent, buying what they could pay for. From the beginning Ford opposed all sorts of time-payment plans. The only kind of consumer-financing arrangement he supported was not really a credit plan at all but, like the Christmas Clubs, was a scheme to encourage people to save up their money until they could pay for their Ford with cash. In 1923 he announced the Ford Weekly Purchasing Plan, under which the customer registered with a Ford dealer, paid at least $5 into a bank, and made weekly payments until he had accumulated the price of a Ford. Meanwhile he received interest, and could withdraw his money if he wished. As soon as he had saved the full price, the customer handed over the money and the dealer gave him his car. In the first year and a half of this plan, about 400,000 persons enrolled, of whom 131,000 (fewer than the number of Fords then regularly sold in one month) finally completed their payments and acquired their cars. Dealers, looking for quick turnover, lost interest in the scheme, and salesmen did not like to wait for their commissions. From the buyer’s point of view the fatal flaw was that he had to wait until he had saved the full price before he could have his car.

What was needed was some scheme allowing people to “own” cars before they really owned them. The millions who could not “afford” to buy a car wanted cars anyway. If a costly new product like the automobile was speedily to become a common possession, Ford’s old-fashioned morality, with its calculus of abstention, thrift, and foresight, would not do.

The “installment plan”—an Americanism that had first come into use for purchasing land—was the answer, and with the spread of the automobile it became a major American institution. Henry Ford himself clung to his ethic of thrift. But other enterprising Americans risked fortunes on schemes which revised the old notions of saving and owning; and they helped sell Fords by the millions. In 1923, more than three and a half million passenger cars were sold, nearly 80 percent on some kind of time-payment plan. The essence of these plans was that they enabled the buyer to possess and use a car as his own before he had saved the price.

A similar arrangement had long been familiar in the mortgage of land. But in all western European legal systems, the law of mortgages was extremely technical. It was hedged around with all sorts of safeguards for the lender’s security against irresponsible borrowers, and with protections for borrowers against unreasonable lenders. But land was, of course, indestructible and immovable. The creditor always knew where to find his security, and the debtor could not abscond with the property. Real estate was a peculiar commodity. And until automobiles came off the assembly lines by the millions there was no other object of universal use so costly as to require a scheme for time payments.

After the mid-nineteenth century there had been some American experiments with installment plans in selling sewing machines and a few other expensive mass-produced consumers’ items like stoves and pianos. These, however, were simply manufacturers’ sales schemes which did not spread through the economy. But even before the automobile there were clearly new forces already at work which would prepare the way for a nation of installment buyers. Industry was using newly improved metals (especially iron and steel) to turn out millions of durable objects which nearly every citizen could imagine owning. Since a sewing machine could usually be reconditioned for the secondhand market, it did not seem imprudent for the retailer to allow a customer to use the machine while he paid for it. Moreover, with the rise of industry, the rhythm of wages was changed. The farmer’s or farm laborer’s flow of income was seasonal. But the factory worker, who was becoming a larger proportion of the population, received a regular flow of wages, and he was therefore in a better position year-round to keep up the weekly payments on an installment purchase.

Still, the transformation of installment buying into a dominant American institution did not come until the age of the automobile, and it was essentially the story of the automobile. The American expression “installment plan” was both more ambiguous and more optimistic than the English term “hire-purchase.” The automobile was too costly an item for the dealer himself to subsidize credit purchases by his customers. In 1915, when the annual sales of passenger cars had reached nearly one million, some businessmen in Toledo, Ohio, organized a corporation, the Guaranty Securities Company, to finance the installment purchase of Willys-Overland cars. When the company was overwhelmed by the demand from the dealers in other makes, the company moved to New York, and announced to both car buyers and dealers that in the future Guaranty Securities would finance the installment purchase of twenty-one listed makes. Calling themselves “The First Organized National Service to Help Dealers Sell Automobiles,” their advertisement in the Saturday Evening Post promised: “You Can Now Get Your Favorite Car on Time Payments.” By 1917 there were 40 sizable automobile-sales-finance companies; in 1922 they numbered 1,000, and by 1925 the number of such companies exceeded 1,700. Automobile manufacturing now ranked first among the nation’s industries.

The major car manufacturers began to set up their own financing firms. General Motors, seeing the success of the new Guaranty Securities Company, pioneered the field in 1919. Ford finally changed its policy in 1928 with its Universal Credit Corporation, which had the dual purpose of financing dealers in the stocking of Fords and Lincolns, and of helping customers to buy cars. The corporation required a dealer to advance only one tenth of the price of each car he stocked; and then financing by the corporation enabled the customer to take delivery of his car for a payment of only one third the purchase price, with a full year to pay the rest. Fire and theft insurance was included at no additional charge. Ford now began to include the cost of installment financing in their production figures, explaining that “this cost of credit is just as vital as the cost of any of the material that goes into the building of the automobile. It is in every sense a commodity.”

The shift in point of view was dramatized by the fact that the old established institutions lagged behind. The commercial banks, which might have seemed the normal agencies for financing installment sales, resisted and even opposed this new style in owning. “The bankers,” Alfred P. Sloan, Jr., of General Motors noted, “… must have had their minds on Barney Oldfield and Sunday outings in landaus along the boulevards then in existence; that is, they thought of the automobile as a sport and a pleasure, and not as the greatest revolution in transportation since the railway. They believed that the extension of consumer credit to the average man was too great a risk. Furthermore, they had a moral objection to financing a luxury, believing apparently that whatever fostered consumption must discourage thrift.” In 1926 the American Bankers Association, still believing that automobiles ought to be bought for cash, advised its members not to finance installment purchases by their customers. But by the early 1930’s the banks themselves had gone into the installment credit business, and before World War II they were energetically seeking customers for installment loans. The expression “down payment” entered the American language about this time. The new “credit unions” (also an Americanism) were cooperatives formed to make installment buying easier, and by the mid-1950’s they had outstanding more than $1 billion of installment credit.

THE CONCENTRATION OF automobile manufacturing into a few firms encouraged the growth of installment credit. For in the early years of the century, new makes of automobiles had come and gone with the seasons. Up until 1950 about two thousand different makes of automobiles had been manufactured in the United States. In a market so uncertain, there was a good chance that by the time a particular car was paid for, the manufacturer might have gone out of business, making it impossible to secure parts and keep the car in running order. When the market had come to be dominated by General Motors, Ford, and Chrysler, as it was by the 1950’s, the customer was buying an established brand, and this reduced the lender’s risk.

Installment buying then became as reliable and as respectable as any other form of credit. During World War II, bankers feared that the millions of buyers who had entered the service would take advantage of the Soldiers’ and Sailors’ Civil Relief Act, which freed persons in the armed forces from the need to make installment payments in wartime. But actually few servicemen interrupted their payments or turned in their installment-purchased cars. And this remarkable fact established installment buying even more firmly after the war. Within less than a half-century (1919–63) General Motors’ Time Payment Plan had financed nearly fifty million car buyers.

While the automobile provided the opportunity for the biggest pool of installment credit in the nation, installment buying became a more common way of acquiring the increasing number and variety of durable consumers goods. It was hardly an exaggeration to say that the American Standard of Living was bought on the installment plan. At the outbreak of World War II, the major appliances sold on the installment plan included radios and phonographs, refrigerators, gas and electric stoves, food mixers, water heaters, washing machines, ironing machines, and vacuum cleaners. Twenty-five years later the list for the general market had expanded to include air conditioners, dehumidifiers, power lawn mowers, food freezers, waste disposers, dishwashers, FM radios, television sets, wall ovens, counter cooking units, dryers, floor polishers, automatic coffee makers, blenders, hair dryers, saunas, exercising and reducing equipment, and electric knives. Easy installment plans were enlarging the market, too, for costly leisure items such as motor boats, vacation trailers, and European holidays. By the mid-’60’s, the volume of installment credit was three times that of any other kind of consumer credit. More than one quarter of all American families were buying their automobiles on installment. Small down payments and easy terms made it possible for Americans to climb up the ladder of consumption, each year buying a higher-priced car. By 1970, two thirds of all new passenger cars and half of all used cars were being bought on the installment plan.

As installment buying became the normal way, the personal qualifications for securing installment credit became lower, or virtually disappeared. Almost anyone could buy a car on time. The down payment on a new car was often only one fifth or less of the purchase price, and it was not uncommon for the buyer to be given three years to pay the balance. As annual and semiannual model changes were featured, and as advertising campaigns touted the indispensable virtues of the latest model—by implication advertising the inadequacy of last year’s model—the emotional attachment of many buyers to their last-year’s or year-before-last’s model meant less and less. But the lenders’ risks were being justified by hidden high interest rates, by the accumulation of voluminous statistics on the resale value of cars of all makes and ages, and by information available from consumers-credit-rating agencies.

The American’s fickle love affair with his late-model automobile was fraught by attenuated feelings. When he took delivery of his new car, usually he was by no means the owner, and he was tied to it by only a small investment. By the time he had paid for it, it was obsolete (or at least so he was told by the automobile manufacturers themselves). “Once in my life,” Willy Loman, the hero of Arthur Miller’s Death of a Salesman (1949), complained, “I would like to own something outright before it’s broken! I’m always in a race with the junkyard! I just finished paying for the car and it’s on its last legs. The refrigerator consumes belts like a goddam maniac. They time those things. They time them so when you finally paid for them, they’re used up.”

When installment credit became universal, the old thrift ethic had less meaning than ever. For the American Standard of Living had come to mean a habit of enjoying things before they were paid for. And that habit was becoming an industrial necessity.

BY THE MID-TWENTIETH CENTURY, the needs of the automobile had given birth to still another piece of business machinery which threatened to transform the very function of money. As the automobile had spread over the nation, competing gasoline companies had tried to attract motorists to their brands by offering credit. But gas-station credit had to be as mobile as the automobile. As a result, gasoline companies issued to their customers identifying cards which were valid in thousands of outlets throughout the country. This was the beginning of the “credit card”—an Americanism which proliferated into an institution and became a symbol of the American Standard of Living.

The gasoline credit card was then transformed into an all-purpose credit device. Beginning in 1950 with Diners’ Club, followed by Carte Blanche and American Express, supplying credit cards and assuming the risk of credit-card accounts became a profitable new business. Incidentally exploiting the federal income-tax laws which required records and receipts of business expenses to justify deductions, these firms supplied a single itemized bill for a businessman’s deductible expenses. The retailer was enticed into the scheme by the card-issuing firm’s commitment to pay him promptly in cash, less a service fee varying from 2 to 5 percent, for all accounts charged against cards. And customers were induced to pay their annual membership fees (from $6 up) for the convenience of a ubiquitous charge account. Banks soon began issuing their own charge cards. By 1967 there were more than two million holders of the BankAmericard (issued by the Bank of America), and their annual billings amounted to $250 million.

The credit card in still another way democratized the world of business. Now the owner of even a single filling station or of a small restaurant could benefit from the advertising done by a vast national organization, and in addition have the advantages of its nationwide credit network. Credit cards became so universal a form of currency that thieves preferred credit cards to dollar bills. And the extreme in attenuating the personality of the consumer came when it was possible to steal and use another person’s credit without his knowledge. Credit, once closely tied to the character, honor, and reputation of a particular person, one of a man’s most precious possessions, was becoming a flimsy, plasticized, universal gadget. By 1971 the Wall Street Journal was facetiously recounting the troubles of a customer who insisted on paying cash. The structure of retailing was now planned around the charge account, and the cash customer had become the Vanishing American.

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