The Installment Plan
Unable to catch Ford, GM competed not on the car but on the way of buying it. Its finance subsidiary GMAC, founded in 1919, sold on thirty-five per cent down with the rest over a year, and by the mid-1920s somewhere between half and three-quarters of new cars were bought on credit. GMAC's real skill was taking on the buyer's installments and the dealer's inventory financing at the same time — putting the showroom itself on a financial footing. Henry Ford opposed buying cars with debt. His counter-offer, launched in 1923, had customers pay five to ten dollars a week into an account through the dealer and receive the car once the price was covered — saving in advance, rather than paying later. Customers saw through it: why not simply save at a bank? It did not work. And in 1928 Ford set up an auto lending company of his own. GM passed Ford in unit sales briefly in 1927 and settled it in 1931, in the depths of the Depression. The lead changed hands on the design of the payment, not the performance of the product.
The myth, corrected
The installment plan was invented by General Motors
It had been running for more than a century. In 1807, Cowperthwaite & Sons, a New York furniture dealer, began selling on installments. By the 1850s Singer was selling sewing machines on «a dollar down, a dollar a week» and tripled its sales in a year — and Singer had borrowed the method from piano dealers. What spread installment buying between 1840 and 1890 were four things: furniture, pianos, farm machinery and sewing machines. What GMAC did was carry the mechanism into an expensive purchase called a car.