Beyond the sea: The rise of the imports and distributors
At the same time, many American GIs had come home with cute little European roadsters and sedans. Europhiles wanted to be seen driving something with panache, rather than the big, clumsy American sedans of the time.
As Europe regained its footing after the war, its crippled manufacturing base turned to auto production. But because few Europeans could afford a new car, automakers on the Continent began to export their vehicles to the rich U.S. market.
The United States was too big for many smaller marques to handle distribution by themselves. Instead, automakers relied on local entrepreneurs to make arrangements to import and distribute their vehicles. They needed investment partners who knew the market.
These relationships spawned a new kind of auto retailing in America.
Most established U.S. auto dealers wanted nothing to do with small, cheap foreign cars that had uncertain capitalization and long supply lines. Some of the cars came from Germany, America's sworn enemy just a few years before.
That didn't stop European manufacturers who were willing to take a shot at entering the United States from making deals with entrepreneurial businessmen. Most of the arrangements were handshake deals.
For example, the book Small Wonder - a history of the Volkswagen Beetle - recounts that VW signed a Midwestern distributor because the factory representative liked the sparkle in the prospect's eyes.
Costume jewelry to cars
If one man deserves credit for the rise of the import-car business in America, it is Max Hoffman. Hoffman, a Hungarian immigrant who loved European cars, earned a small fortune during World War II making plastic costume jewelry.
After the war, he picked up distribution for any foreign-car manufacturer that was interested in doing business in the United States. He handled the tentative entries of such companies as
Volkswagen, Porsche, Mercedes-Benz and BMW. Just about every European car that hit these shores in the postwar period can be linked to Hoffman.
Hoffman was more in touch with the factory than the typical distributor or dealer. He helped manufacturers develop tactics for marketing and product planning.
Hoffman contributed to the design of the Porsche crest and pushed for the development of the Porsche Speedster and Alfa Romeo Giulietta Spider. His initiative paved the way for more active business relationships between dealers and manufacturers.
Hoffman was not the only up-from-the-bootstraps entrepreneur who took a flier on European brands.
Norwegian immigrant Kjell Qvale was a U.S. Navy pilot during the war. He landed on his feet when he was given a Willys Jeep dealership in Alameda, Calif., by a friend who was the regional distributor.
Qvale walked away from Jeep when he saw an MG parked on a New Orleans street. Even though he was just scraping by, MG signed him up as its West Coast distributor.
"When I started in 1949, I had $8,500," recalls Qvale, who has since sold or distributed 34 automotive brands. "I wasted all of it doing things to my dealership. Nowadays that amount wouldn't even pay for the lawyer to approve the plans."
Import dealers' salad days
Distributors such as Hoffman and Qvale sold their cars to local import dealers. Those dealers typically hung a shingle and sold whatever exotic cars they could get their hands on. Most of them had been used-car salesmen, mechanics or hobbyist aficionados.
For those dealers, service was shade-tree and parts were hard to get. Someone who bought an import car was usually adventurous and probably mechanically inclined. Sales were hard to come by.
As a result, many European startups failed. The cars were unreliable, lacked creature comforts that Americans required, or simply were bad.
Volkswagen's first foray into America in 1949 was treated with scorn, as were Toyota's first Toyopets a decade later. But those brands ultimately succeeded, while strong starters such as Hillman, Humber and Morris fizzled.
Given the uncertain financial condition of the import companies, dealers and distributors often had problems getting access to capital. Qvale remembers the day he told his creditors at Bank of America that he was switching from selling Jeeps to import cars.
"They didn't know who MG was," Qvale told Automotive News. "They said they weren't going to finance it, so there was going to be no flooring and no retail paper. It took me five years to convince them to take it. By then, they realized they'd made a horrible mistake and were crying for more."
VW calls the shots
As sales grew, so did the need for decent vehicle service. Most import brands took a buyer-beware approach to service and repairs. That put many American car shoppers on edge.
Volkswagen led the charge to require its franchised dealerships to service the vehicles it sold. It wanted stand-alone stores or at least a dedicated service department. If a dealer didn't like it, VW pulled his franchise.
With a stronger service network in place, the European brand gained a U.S. foothold.
"When you became a VW dealer, when you did what VW told you to do, you made good money," says Carl Hahn, who led VW's American operations in the late 1950s and early 1960s. "We were number one in dealer profit. We were way better than Detroit."
In 1947, only about 1,500 cars were imported into the United States. By 1959 that number had swelled to roughly 600,000.
Enter the Japanese
Even though the European brands were growing, most domestic-brand dealers still wanted no part of the upstarts. The same pessimism greeted the U.S. arrival of Japanese carmakers Toyota and Nissan in the late 1950s.
Leading the West Coast launch of Nissan Motor's Datsun brand in America was Yutaka Katayama - or "Mr. K," as he was known by his U.S. associates. Katayama was an independent executive who fiercely fought headquarters in Japan on product matters - for example, when he renamed the Fairlady sports car the 240Z in the United States.
Katayama also demanded higher dealer discounts - 17 percent, compared with the usual 13 percent for U.S. brands. That was logical to Katayama; the lower sticker price on Datsuns meant a dealer needed to sell more vehicles to make the same per-unit grosses as a domestic-brand dealer.
"If the dealer makes money, we make money," Katayama declared. Still, he had trouble recruiting dealers.
"The American dealers were very busy with their own business and had no ear to listen to some funny new Asian car salesman," Katayama, now 96, told Automotive News. "So I visited used-car dealers and foreign-car dealers in the country. I thought I should develop our network like a mold, stealthily extending its hand all over."
Katayama also defied his superiors in insisting that Nissan manage its own distribution. He thought that if Nissan were to succeed in the United States, it had to shed its affiliation with the trading companies Marubeni and Mitsubishi, which handled Nissan's early importation and distribution.
"Marubeni worked with a wait-and-see attitude," Katayama says. "We could not depend on our automotive business with an agency like Marubeni. To develop automobile sales, we had to come up with parts and service, with special technical help. That was not like consumable commodities."
Katayama reached the same conclusion as many of the European importers: Distributors were in business for their own fortunes and often didn't have the interests of the factory at heart.
Taking distribution inside
Buyouts of independent distributors gave importers the kinds of things any established sales operation wants: control over pricing, rebates, warranty claims, image, dealer appointments and inventory allocation.
"When you are a foreigner starting out, you need help from some bright fellows who live there," says VW's Hahn. "But eventually, we felt we could do it better ourselves."
While Nissan and European automakers took control over U.S. distribution of their vehicles, Toyota chose to stay with regional distributors.
Toyota had a slow start in the United States. Much of its first shipment of 200 Toyopets in 1957 sat unsold in a Sacramento, Calif., warehouse until they were stealthily shipped back to Japan, Qvale says.
Toyota made ends meet by selling its workhorse Land Cruiser SUV through the early 1960s. It finally crashed the import party with the 1965 Corona compact.
Despite the Corona's success, Toyota was cautious. The company
didn't want the expense and logistics of establishing its own distribution network. It needed true believers who would oversee its interests on American soil.
Toyota's early distributors were small-time entrepreneurs or venture capitalists. But as Toyota grew, it needed automotive men. Perhaps the most important conversion was Jim Moran's.
Moran was the largest Ford dealer in the United States when he quit the car business to battle melanoma. After Moran beat the disease, he heard that Toyota was looking for a regional distributor in the Southeast. He took a drive in a Corona and was sold.
At a meeting with Seisi Kato, Toyota's executive vice president, Kato asked: "What would you do, Moran-san, if I shipped you 10,000 cars?"
Moran replied instinctively: "I'd sell them."
Building Toyota's network
Moran's pitch to dealers: Just drive the car. All it cost was a $25,000 startup fee and $1,500 in parts.
Big-time domestic dealers were used to making bigger money by selling more vehicles. Most established dealers passed on Moran's pitch. So he hit the road, visiting gas stations and garages.
Moran won over some domestic dealers with his assurance that Toyota would treat its dealers fairly. Franchise laws were not what they are now. Agreements with Detroit 3 dealers could be terminated at any time by the factory, so Moran's pitch was well-received.
But not everyone was convinced. In the late 1960s, race team owner Carroll Shelby was in the running for the Gulf States Toyota distributorship. He asked his pal Lee Iacocca, then a top executive at Ford Motor Co., for advice.
Iacocca told him not to do it - that U.S. companies were going to push the Asians back into the sea. Shelby passed the tip on to racer friend Thomas Friedkin, who jumped at the chance.
Forbes magazine recently estimated Gulf States' annual revenues at more than $3 billion. Friedkin's fortune exceeds $650 million, according to a 2003 Forbes report.
As European and Japanese automakers grew, most of them decided it would make more fiscal sense to handle their own distribution. The transformation wasn't cheap. In the early 1980s, Toyota paid $285 million, plus $200 per vehicle for two years, to buy out the Mid-Atlantic Toyota private distributorship.
Jack Thompson, who owns Toyota dealerships in the Philadelphia suburbs of Doylestown and Langhorne, Pa., worked with the independent distributorship as well as Toyota's wholly owned Central Atlantic Toyota distributorship. He says there is "a world of difference" working directly with Toyota.
"Toyota is much more responsive, and they run it like a big business," Thompson says.
Today, Toyota is the only mass-market automaker that still uses regional distributors: Gulf States Toyota and Southeast Toyota.
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