Cashback Flashback: The Start of the Rebate

The Martin Luther King Jr. holiday weekend might have you thinking of snagging a bargain price on a new car, but bargains, and big rebates are hard to come by.

The price of cars, trucks, minivans and SUVs is skyrocketing as COVID-19 has led to a shortage of microchips and other elements essential in building cars. As a result production levels dropped and dealers are left with scant inventory. With few, if any, new cars sitting on dealer lots, the flow of customer rebates and other incentives, which accounted for more than 10% of a vehicle’s sale price in August 2019, has largely dried up. These days, you’re lucky to get a discount off the manufacturer’s suggested retail price, or MSRP.

Of course, new cars didn’t always carry customer rebates, and customers didn’t expect them. But that changed during Super Bowl IX in 1975.

A bad idea takes hold

The story has its origin in the late 1960s. Typically, automakers produce vehicles based on dealer orders. So factories generally run based on consumer demand. Chrysler President Lynn Townsend’s idea was overproduce cars without dealer orders to create the perception of high-volume sales in an effort to please Wall Street. Christened the “sales bank,” this infamous bookkeeping gimmick would be continued by his successor, John J. Riccardo. Both Townsend and his successor came to Chrysler as accountants with no automotive experience.

“At regular intervals the Manufacturing Division would tell the Sales Division how many and what types of vehicles they were going to produce. Then it would be up to the Sales Division to try to sell them,” remembered Lee Iacocca in his memoir, “Iacocca.” Iacocca joined the company in 1978, by which point the sales bank had become endemic at Chrysler. “Building cars had become a gigantic guessing game. It had nothing to do with a customer ordering what he wanted on the car, or a dealer ordering what the customer was likely to ask for.”

The unwanted cars would be shipped off to places like the Michigan State Fairgrounds, which would become jammed with thousands of unsold Chryslers, Dodges and Plymouths, slowly decaying until they could be unloaded to a dealer, rental car company or fleet service at fire sale prices. 

Christmas 1974 brings no joy to Chrysler

The sales bank may have made the books look good, but it started slowly rotting the company from below, something that wouldn’t become apparent until Arab members of the Organization of Petroleum Exporting Countries (OPEC) imposed an oil embargo against the United States in retaliation for the U.S. decision to re-supply the Israeli military during the 1973 Arab-Israeli War. Car sales nosedived as fuel prices skyrocketed overnight, leading to inflation. 

Soon, the brilliant bookkeeping move didn’t seem so brilliant.

As the 1974 Christmas season approached, sales were still in the tank, and the sales bank’s failure was evident by a shocking statistic: Chrysler was sitting on a 120-day supply of cars in its sales bank, or enough cars for four months without orders. 

A brainstorming session was called to come up with ideas on how to move the metal.

In the room was Bob McCurry, whose in-your-face management style had earned him the nickname “Captain Crunch.” McCurry previously served as Dodge general manager where he guided development of the Charger and Daytona muscle cars, and had Dodge sponsor NASCAR races. Later, he would be responsible for Chrysler’s ad campaign featuring actor Ricardo Montalban espousing his love of the Chrysler Cordoba’s “rich, Corinthian leather.”

An answer to a serious problem

But that was in the future. Now, there were parking lots bulging with unwanted cars. What to do? How about offering consumers a cash rebate? It would be McCurry’s most influential marketing innovation and cost the company $10 million, or $53.7 million when adjusted for inflation.

And so, on Jan. 12, 1975, during halftime of Super Bowl IX, sportscaster and Dodge spokesman Joe Garagiola, uttered the words in a Chrysler ad that would change automotive retailing forever: “Buy a car, get a check!”

The program was supposed to be temporary, lasting five weeks starting Jan. 12. Consumers would get up to a $300 rebate depending on model, and an additional $100 rebate for those who trade in certain models made by competitors. To get the rebate, the buyer had to call a toll-free number and give the serial number of their new car and the trade-in, after which Chrysler mailed a rebate check.

While other automakers were horrified at the prospect that a company would pay buyers to purchase a car, within two weeks they had all followed in Chrysler’s footsteps. Cash on the hood became an expected norm, one that would last until the present day.

But the rebate’s time may be coming to an end as the effects of COVID-19 are eliminating the need for rebates, and changing automotive retailing in many unforseen ways, possibly forever.

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