Auto retailing and finance are so closely associated, it's hard to imagine that wasn't the case before General Motors and John Raskob launched General Motors Acceptance Corp. in 1919.
GMAC became the model for the modern captive finance company and helped popularize the idea of mass-market consumer financing. It also provided wholesale financing for GM dealers, a move critical to their success.
Today, about 85 percent of new-vehicle customers get financing at dealerships from captives, banks and independent finance companies, according to the National Automobile Dealers Association. And many consumers who don't get a loan at a dealership get financing elsewhere, especially from credit unions.
But before World War I, financing consumer purchases was a novel idea, except for mortgages.
Buying "on time" was limited to a few durable goods, such as furniture, sewing machines and pianos, according to the 1964 edition of My Years with General Motors, a memoir by Alfred Sloan.
Sloan, who became a key GM player in 1920, was the automaker's president from 1923 to 1937 and chairman from 1937 to 1956.
Bankers back in the day regarded automobiles as luxury purchases, and lenders saw individual consumers as risky unknowns, unless those consumers were millionaires.
"The bankers ... thought of the automobile as a sport and a pleasure, and not as the greatest revolution in transportation since the railway," Sloan wrote. "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. Consequently, automobiles were sold to consumers mainly for cash."
That mindset changed after the launch of GMAC.
Raskob, then chairman of GM's finance committee, designed the captive, but Sloan was on board with the project. "From where I was then on the Executive Committee, I supported the idea," he wrote in his memoir.