Financing of an automobile purchase seems so normal nowadays; it’s easy to forget that some people actually pay cash. During the past half-century or more, credit buying became ingrained into the evolving consumer culture. So, it’s hard to believe that time payments once were shunned.
Henry Ford, who revolutionized automobile production with his Model T (made from 1908 to 1927), wanted his down-to-basics car to be available to ordinary workers. Though he kept lowering Model T prices through the early 1920s, dipping as low as $260 in mid-decade, Ford decried the notion of buying on installments.
The closest Ford came to letting customers buy a car “on time” was through his “weekly purchasing plan,” launched in 1923. Unlike the now-familiar method of credit-based selling, whereby buyers enjoy the benefits of ownership right away and then pay over a period of many months, Ford’s customers didn’t get a Model T until it was fully paid for, little by little. His program was like the Layaway and Christmas Club plans that department stores have offered, allowing customers to pay a little each week toward the price of an item, then receive that product after the final installment was paid.
General Motors took a far different approach, offering–indeed encouraging–credit sales starting in the 1920s. Only by pushing customer financing could GM sales approach and eventually beat those of Ford, even though GM’s prices were considerably higher. Credit buyers, then and now, didn’t seem to care much about total price, as long as a down payment could be scraped up and the monthly payment could be met.
In his recent book Borrow: the American Way of Debt, Louis Hyman quotes a General Motors executive whose remarks appeared in Colliers magazine in 1927. The automobile, he said, has “given us all something worth working for.” Five years earlier, GM’s annual report had noted that what had previously been called “pleasure cars” were now “economical transportation.” As they turned into perceived necessities, more families felt they needed one–and most could only make such a costly purchase if credit were made available.
Henry Ford “fought back against putting Americans in debt,” according to author Hyman. As the Model T was about to fade away in favor of a more modern Model A, Ford wondered if Americans had “fallen under the spell of salesmanship.” Already, Ford observed, shoppers had “dotted lines for this, that and the other thing–all of them taking up income before it is earned.”
Ford’s old-fashioned principles of prudent economic behavior wouldn’t last much longer. Even during the Depression, consumer credit continued to grow. After World War II, young families relied on time payments to finance their emerging suburban lifestyles. Teenagers looked forward to full-time jobs, because a weekly paycheck would allow them to tool around in a sharp-looking car–bought now and paid for later. By the 1960s, as I learned while working in U.S. Bankruptcy Court, plenty of debt-saddled Americans were discovering that coming up with those car payments “later” wasn’t nearly as easy as they’d assumed–or the aggressive salesman had assured them.