A cold, ill wind blew through Detroit as 1974 drew to a close. There was not a lot of holiday cheer in the auto industry.
From a record 11.2 million new-car sales in 1973, the market plunged almost 23 percent to 8.6 million. But the overly optimistic Big 4 had expected a bigger year and were slow to throttle back their assembly plants.
'We had cars piled up all over Detroit. We took every field we could find,' Robert McCurry recalls. McCurry, a retired Toyota executive who lives in Palm Springs, Calif., was vice president of U.S. automotive sales and service for Chrysler Corp. in Detroit in 1974.
By some accounts, Chrysler had 80,000 cars its dealers would not take because they already had a 136-day supply on their lots. The company was desperate.
Executives from Chrysler and its ad agency worked through the Christmas shutdown to try to find a solution, McCurry recalls. 'We decided we had to do something different' than the typical dealer incentives and contests that offered trips to Hawaii.
So it was that during halftime of Super Bowl IX on Jan. 12, 1975, that baseball star and broadcast personality Joe Garagiola pre-sided as 'ringmaster' for Chry-sler's Car Clearance Carnival.
Thus was born the modern era of rebates.
Rebates remain an integral part of marketing arsenals today, more than 20 years later, despite the warning offered in February 1975 by John Naughton, sales group vice president for Ford Motor Co.: 'Rebates are like dope. You've got to get off it. If something like that continues, it's an indication something is basically wrong.'
Storm clouds had been gathering over the U.S. auto industry since 1971, when President Richard Nixon imposed price and wage freezes in a bid to bring inflation under control. For 90 days, Nixon's order included a 10 percent surcharge on imported cars, and it also forced the Big 4 to cancel price increases for 1972 models and sell them at the same prices as 1971 cars.
The president's price commission later allowed automakers to raise car prices 4.5 percent for the 1972 model year, and the import duty was scaled back to 3.5 percent.
While price controls were still in force, automakers were allowed to pass through to dealers and buyers price increases related to the addition of equipment to meet federally mandated safety and environmental regulations. And there were many increases as automakers hustled to meet new standards for fuel economy and exhaust emissions.
Nonetheless, U.S. car registrations rose from 8.3 million in 1970 to 10.4 million in 1972 and peaked at 11.2 million in 1973.
America's economic psyche was jolted in October 1973 when the Organization of Petroleum Exporting Countries stopped shipments of crude oil to the United States to retaliate for its support of Israel in the Arab-Israeli War. Gas prices skyrocketed; lines formed at filling stations, and gas-guzzling cars were shunned in favor of smaller, more fuel efficient models.
But when the oil started flowing again six months later and gas prices fell, Americans renewed their love affair with big cars, leaving the Big 4's smaller offerings piling up on dealers' lots.
At the same time, inflation raged. All of Detroit's automakers had resorted to mid-year price increases in 1974.
Early that year, Lee Iacocca, then the
No. 2 man at Ford, told Automotive News: 'During the past 12 months, our profit per car in North America was less than $150 before taxes, and federal income taxes took half of that.'
Consumers had just begun to recover from the oil embargo, when they were socked again in fall 1974. In August, General Motors hiked prices 10 percent - equivalent to about $500 per car - for its 1975 models. For buyers expecting to pay about $4,100 for a loaded Chevrolet Impala, the increase was unbelievable.
Ford and Chrysler chimed in with increases of 8.5 percent on 1975 models, American Motors boosted its stickers an average of 13 percent. GM ultimately rolled its increase back to 9.5 percent.
So from an average transaction price of $3,742 in 1971, the price of a new car had jumped to $4,950 by 1975 - a 32 percent increase in four years.
The boost on the 1975 models brought forth a new term - sticker shock - and tales of couples walking into a showroom, taking a look at the prices and running out the door before a salesperson could even say hello.
GM dealers and newly inaugurated President Gerald Ford complained about the size of the price hike, but it did have one possibly unintended effect: Most of the 1974 models left on dealers' lots didn't stay there very long.
Buyers stayed away from new-car dealerships. Registrations for 1974 were 8.6 million, down 23 percent from a year earlier. By Jan. 1, 1975, dealer stocks climbed to a record 96-day supply.
The normal industry practice to spur sales was to offer cash prizes and trips to dealers and salespeople. But Chrysler's campaign was not the first time rebates had been offered directly to the public.
In 1914, even though sales of his Model T were strong, Henry Ford announced that buyers of new Model T's would 'share in the profits of the company.' Ford promised rebates of $40 to $60 a car, provided the automaker sold 300,000 new cars from Aug. 1, 1914, to Aug. 1, 1915. At the same time, Ford reduced the price of the touring car $60, to $490.
The plan worked, costing Ford more than $15 million in rebates.
Chrysler budgeted $10 million for its 1975 Car Clearance Carnival ad campaign. The five-week promotion offered buyers rebates of up to $400, as well as drawings for the free use of a Chrysler Corp. vehicle for one year.
Chrysler changed the vehicles covered by the rebate each week, with the new models and incentives announced in newspaper ads and TV commercials on Sunday. In addition, bonus payments were offered to those who traded in a specific Chrysler model or competing make.
Although not happy about it, GM, Ford and AMC followed with rebates within two weeks. And many auto suppliers jumped in, offering cash to their employees who bought cars produced by their customers.
It worked. In the Jan. 11-20 reporting period, Chrysler sales soared 89.3 percent over the first 10 days of the month.
Four of the top five selling cars in January 1975 had rebates. For the domestic industry as a whole, January 1975 sales totaled 462,691, up 7.8 percent from December 1974, but down 16 percent from January 1974.
Not everyone was happy about customer rebates. 'It's an insult to the dealer, as though the factory figures he can't be trusted to pass along a rebate,' said an Oldsmobile dealer from Birmingham, Ala., quoted by Automotive News in February 1974.
But those dealers were in the minority.
Said Ford sales exec Naughton in a mid-February 1975 interview with Automotive News: 'Rebates have certainly done the job for our company. It was the doggonedest thing I've seen in all my years in this business. We put a $500 rebate on the (Mercury) Capri and we had 9,000 or 10,000 cars still in port in inventory. We sold more Capris at wholesale in 72 hours than we did in the previous 30 days.'
Originally, the rebates were set to expire at the end of February. But Chrysler extended its program, dropping the weekly changes in favor of heavy emphasis on a final clearout of 1974 models and on the 1975 Plymouth Duster and Dodge Dart. GM and AMC responded by announcing lower prices for some of their vehicles - achieved by deleting standard equipment.
But when the rebates died, so did the floor traffic. Ultimately, Chrysler ran some form of rebate program for the rest of 1975.
While the use of rebates has ebbed and flowed since then, automakers have never fully taken them off, says Susan Jacobs, an analyst with Jacobs & Associates in Rutherford, N.J.
Even today, automakers don't hesitate to play the rebate card. In January 1996, faced with growing inventories, Ford slapped a $600 rebate on almost its entire lineup, including the all-new Taurus/Sable.
But after hearing the automakers say for two decades that rebates are as poisonous as drugs, the days of cash-back offers may finally be numbered, Jacobs says, as automakers get better at launching new vehicles at prices buyers consider reasonable.
'I think the automakers want to get rid of them as quickly as they can,' she says. Jacobs believes GM, in particular, is working toward a no-rebate position with the new vehicles it plans to launch in the next two years. *
Dale Jewett is engineering editor of Automotive News.