The first dealers: From humiliation to retail success
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Potential buyers weren't impressed. The Trimoto had a bum carburetor. Gasoline spilled into its engine. Worse, the three-wheeled vehicle couldn't run uphill. A dejected Staebler wrote to his Trimoto distributor: "We do not care to try any more because of the jeers from the onlookers."
Staebler didn't give up. He had better success in later years with other vehicles from brands such as Pontiac. He built his dealership into a family enterprise.
The retail palaces and professional salespeople that American car and truck buyers rely on today emerged from such humble, often difficult, beginnings.
Early on, automakers and sellers found benefits in working together. The earliest dealers sought the opportunity to corner their local markets on the latest automotive technology. Manufacturers saw the dealers as a ready source of cash and sales experience and an easy way to increase their businesses with minimal expense.
Like Staebler, many of the other early car dealers sold or fixed bikes for a living. Their main qualifications to sell cars: They knew about rubber tires, and they had some mechanical aptitude.
To find a car dealer at the turn of the 20th century, you also might have looked for the local blacksmith or farm equipment salesman. Or the dealer may have doubled as proprietor of a wagon shop, tire shop, livery stable or hardware store.
Vehicle distribution evolved fairly quickly in the industry's first few decades. The earliest inventors sold directly to consumers, starting with one-of-a-kind models that went to wealthy friends.
To reach more customers, though, carmakers started using third-party retailers. That practice gradually developed into the franchised dealer system.
In his 1928 book, The Automobile Industry: Its Economic and Commercial Development, Ralph C. Epstein said the franchise system grew out of geographic necessity. Automakers were concentrated around Detroit and Cleveland, Epstein noted, but they needed to serve a market spread across the country.
"It was practically impossible for any manufacturer to sell his product directly to the consumer," Epstein wrote.
Failed experiment
Not that automakers didn't try. After they saw how successful many bicycle shop owners and other merchants were at moving their metal, some companies opened branch operations in major U.S. cities. Those offices, staffed by company employees, sold cars and oversaw dealers within their territories.
The system worked well for a while. But as in the case of Ford Motor Co., it proved inadequate as the market grew more competitive.
"People were employed by Ford Motor Company and basically drew their salary regardless of how many cars they sold," says Robert Casey, curator of transportation at the Henry Ford Museum in Dearborn, Mich. "They weren't as enterprising as the dealers who if they didn't sell any cars didn't make any money."
Industry analyst Art Spinella, president of CNW Marketing Research in Bandon, Ore., faults an early form of "Detroit mentality" for the failure of the branch system.
Automakers "found they couldn't make any money because they didn't know what they were doing," says Spinella, who co-wrote a 1978 history of dealerships, America's Auto Dealer.
Corporations weren't willing to make the investments in a sales operation that an independent businessman would, Spinella told Automotive News. The branch system gave way to the now-familiar franchised dealer.
Modern system takes root
At its inception, the U.S. vehicle market was wide open and potentially lucrative for risk-takers. Automakers offered their dealers and distributors expansive territories in which they would be the only sellers of a given brand. Potential dealers were willing to do whatever it took to secure those territories.
In exchange for exclusive rights, automakers imposed tough conditions on dealers, wrote author Lawrence H. Seltzer in his 1928 book, A Financial History of the American Automobile Industry.
Dealers had to agree to pay huge cash deposits when they ordered vehicles, Seltzer wrote. They had to pay in full on delivery and to accept cars on a prearranged schedule regardless of market conditions.
Still, requests for dealerships poured in to automakers' headquarters. A wannabe dealer wrote to the Winton Motor Carriage Co. in 1900, insisting that the company could not keep up with the auto boom without a representative in Saginaw, Mich.
"So I hereby present myself as just such a one that would do you good and also bring credit upon your firm," he wrote.
Car companies needed dealers as much as dealers needed them. Although many banks were skeptical about the horseless carriage, automakers had to find operating capital. They got it - in cash - from their dealers.
"Dealer investments … kept the early automakers afloat," Spinella and co-authors Beverly Edwards, Mo Mehlsak and Larry Tuck wrote in America's Auto Dealer. "Men like Henry Ford, who wanted to become motor vehicle manufacturers, could rarely receive bank credit; automaking was a highly speculative enterprise, and people who made cars were considered crackpots at best."
For a dealer, the initial investment to open an "agency" - as dealerships were first called - was negligible. Charles Mason Hewitt wrote in his 1956 book, Automobile Franchise Agreements, that the largest initial expense a dealer faced was buying a demonstrator car.
"He sold for cash on delivery, customarily requiring a sizable deposit in advance," Hewitt wrote. "There were no price discounts to customers or used-car allowances to threaten his solvency. His commissions were large, and his 'exclusive' territory was enormous."
Another factor that drove automakers to develop dealer networks was the need to give consumers a chance to inspect cars they may have only read about.
"The unreliable nature of the early product and the general lack of confidence of the consumer made it imperative that the manufacturers make the cars conveniently available to the consumer for demonstration and testing in advance of purchase," Hewitt wrote.
Outside dealers also helped automakers resolve the problem of getting vehicles repaired, he wrote. In addition, dealers provided "some means of coping with the off-season storage problem. Production on a continuous basis was essential if lower manufacturing costs were to be achieved. The manufacturers had no facilities and little capital with which to solve this problem."
The trailblazers
In 1898, Detroit bicycle merchant William Metzger opened what is thought to have been the nation's first dealership designed specifically for vehicle sales. He sold his first car, a Waverly electric, to furrier Newton Annis in 1899. Soon afterward, he sold a curved-dash Oldsmobile to a druggist.
Also in 1898, H.O. Koller opened the earliest known franchised dealership, in Reading, Pa. Koller sold vehicles for Winton Motor.
Typical franchise agreements in the early 1900s made dealers "exclusive agents" of automakers for no more than a year at a time, Hewitt wrote. They required dealers to maintain a "suitable" showroom and repair shop at an appropriate location and to keep a reasonable inventory on hand.
Dealers had to agree to sell cars only within a prescribed territory. They paid 10 percent of the list price up front with each vehicle order.
They were expected to devote their "best energies" to sales, Hewitt wrote. Automakers typically reserved the right to pull a franchise with 30 days' notice if the dealer failed to meet factory expectations.
Dealers also had to agree to take a certain number of cars in advance of each selling season and to keep a minimum number of demonstrator vehicles on hand. Dealers who failed to comply could lose their deposits. But automakers rewarded the top performers with rebates.
By 1910, franchise agreements generally required dealers to appoint "subdealers" in their territories. "By designating strong dealers as distributors and by having them absorb part of the financing, storage and control burden, the manufacturers could obtain more widespread representation," Hewitt wrote.
Struggle and success
The long-suffering Edward Staebler failed to achieve immediate rewards. After repeated, unsuccessful attempts to get his Trimoto to work, he finally traded it in for a Toledo Steam Wagon. The new car proved an even bigger headache for the fledgling dealer.
Staebler wrote in a memoir that he endured two years of shipping cars and components back to the factory for repairs. He still hadn't sold a single vehicle. He finally unloaded the Toledo around 1906.
Things improved in later years. The Staebler and Son dealership sold Reo, Dort, Franklin, Oakland and Pontiac cars. But the store closed in 1952, as its principals shifted from auto retailing to real estate sales.
You may e-mail Leslie J. Allen at lallen@crain.com
You can reach Leslie J. Allen at lallen@crain.com. -- Follow Leslie on 
