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on vacation a survey o j the travel and vacation industry o j the Philadelphia fed eral reserve district the talk of “ automobile row” A Survey o f the Travel and Vacation Industry o f the Philadelphia Federal Reserve District SUMMARY 1. It is a big industry. A. Vacationers spend about $600 million a year in our district. B. The travel and vacation industry is one of the d istric t's top ten industries. C. For size, the industry is about on a par with agriculture or textiles; is outranked by only two of the d istrict's 19 manufacturing industries, and by only three of the major types of retailing. D. It is the principal economic activity in Atlantic and Cape May counties of New Jersey, and Monroe and Pike counties in Pennsylvania. The industry is a contender with agriculture for firs t place in Ocean County, New Jersey, and Bedford County in Pennsylvania. 2. Vacation resorts are widely scattered throughout the district. A. The principal resort counties are Atlantic, Cape May, and Ocean counties in New Jersey, and Monroe County in Pennsylvania. Runners-up are Bedford and Pike counties in Pennsylvania, and Sussex County, Delaware. B. Vacationers spent approximately $250 million in these seven counties in 1956, and about 88,000 people were employed in serving the vacationers. C. The seven counties have room accommodations fo r 350,000 visitors. D. Atlantic County, New Jersey, receives more than double the vacation expendi tures in any of the other six resort counties. 3. Businesses of all types share in vacation expenditures. A. 63 cents of the vacation dollar are spent at lodging and eating and drinking places. B. 19 cents go to retailers and for personal services. C. 7 cents for transportation. D. Hotels serving meals do the biggest business— their annual take averages about $100,000 each and about 60 per cent of this is for rooms. E. Individual guest homes and apartment houses are numerous and operate on a scale much smaller than other resort establishments. 4. Seasonality is a problem. A. The great majority of resort establishments operate less than six months each year. Many are open less than three months. B. 5. Unemployment claims in the off-season are almost double those in season. Vacationers demand modern facilities and services. A. An expanding variety of services and attractions is becoming increasingly im portant. B. The older establishments without modern facilities are doing rather poorly. b usiness re v ie w The information fo r this study was collected fo r the year 1956 from 1,200 proprietors and managers of vacation business establishments. A probability sample was employed and the data were collected by both mail questionnaire and personal interview. The response rate was 96 per cent. The collection, analysis, and interpretation of the information and most of the work of writing the final report were done by Francis E. Brown of the Statistics De partment of the Wharton School of Finance and Commerce, University of Pennsylvania. THE NATURE OF VACATION SPENDING food, automobiles, and general merchandise. Six A vacation may be almost anything. It may be a hundred million dollars is enough to support for a tan and a breeze, a rod and a reel, high collar or year the entire population of the state of Delaware. high heels, a tent and a skillet, castles and art gal The same amount of money spent on a line of leries, sail and spray, boots and saddle, brush and automobiles would create a horrible traffic jam easel, national parks and strip maps, popcorn on a from Philadelphia to Chicago. ferris wheel, or perhaps just a feast o f “ whodunits” in an easy chair. The district’s travel and vacation industry and its agricultural industry are of about equal size. Conventional yardsticks for measuring the size Both industries produce about the same dollar vol of an industry defy application to the travel and ume of goods and services, and both industries vacation industry because of the infinite variety of employ about the same number of people. Conse goods and services produced. That is why hereto quently, both are of approximately equal impor fore there has always been a lot of guessing about tance in the many-sided economy of the district. the importance of the industry in this district. In asmuch as people always speak of spending their vacation, we chose to find out, with respect to vaca tioners in the district, how much they spend, what TRAVEL AND VACATION AMONG THE LEADING INDUSTRIES 1956 they spend it for, where they spend most of the money, and who gets it. M ILLIO N S $ How much? It is amazing how much people spend on vacation — $600 million. That towers over most of the other industries of the district. It is larger than the dis trict’s mineral industries dominated by hard and soft coal. Another evidence of the stature of the travel and vacation industry is the fact that it is exceeded in size by only two of our major manu facturing industries, namely, chemicals and pri CHEMIC AL PRIMARY M A N U FA C TURIN G M ETA LS mary metals. Moreover, the vacation industry is exceeded by only three major lines of retailing— 4 *1954 estimate. A G R IC U LTU R E ’ TRA V EL AND V A C ATIO N TEX TILE S b usiness re v ie w How the vacation dollar is spent HOW THE VACATION DOLLAR IS SPENT One thing all vacationers do— absolutely all va cationers — is eat and drink. Shelter is almost equally essential. So it is not surprising to find 63 cents of the vacationers’ dollar clinking into the cash registers of proprietors of lodging, eating and drinking places. Almost half of this is for lodging — just lodging. Eleven cents go for amusements, like movies, summer theatres, pony golf, shooting galleries, and other forms of diversion. Seven cents cover transportation, both public and pri vate. That is how 81 cents of the vacationers’ dollar are accounted for. The remaining 19 cents are for this and that and everything else, appropriately labeled miscellane ous. This catch-all category of spending takes place in grocery stores, barber shops, appliance stores, and other retail shops. All of the shops supplying these miscellaneous goods and services are not generally regarded as full-fledged members of the travel and vacation industry, but their combined share of the vacation dollar is exceeded only by lodging places and eating places. Almost half of the money spent for lodging, meals and beverages is taken in by hotels and mo tels serving meals. Much of this is spent at the big resort hotels and their counterpart, the modern and such costs must be included in the rates luxurious motels. These establishments cater to the charged. About 5 per cent of the gross covers these vacationer who wants super service, the best of costs, according to estimates of officials and man facilities, and accommodations deluxe. The swank agers. places, of course, have a lot of capital tied up, em Only seven cents for transportation (o f which ploy a sizable staff, and usually operate the year about one-fourth is public transportation) may round. Some of these hotels gross over a half mil seem very small. The reason for the small cost of lion dollars a year. Whether operating on the transportation is that in this study the spotlight is American or European plan or whether offering thrown on expenditures made in the resorts only, guests the choice of either, it is estimated that in contrast with many such studies that include all rooms yield about 60 per cent of the revenue. costs incurred while away from home. Most of the big resort hotels offer recreational Vacation dollars, howsoever spent, have more services to their guests without additional charge. than a one-shot effect on the local resort economy. Obviously, costs are incurred for these services The recipients of the dollars are just as ready 5 b usiness re v ie w spenders as the vacationers, and so there are sec Jersey, agriculture is a strong challenger to the ond and .third rounds of spending initially un vacation industry which, nevertheless seems to leashed by the vacationers. hold first place. In Bedford County, Pennsylvania, the race between the vacation industry and agricul Where vacation dollars are spent ture is also close, with agriculture probably Where land and sea meet, especially when they slightly in the lead. In Sussex County, Delaware, meet on a gentle, sandy gradient, there the travel direct expenditures by vacationers are superseded and vacation industry is prone to flourish. The in dustry also abounds inland where Nature, over by agriculture and also by some phases of manu facturing; nevertheless, Sussex deserves to be in eons of time, used her glacial bulldozers to rough cluded as one of the district’s leading vacation up the land mass, to scoop out great valleys leaving counties because of the sizable dollar volume of lofty mountains and rangy ridges, smoothly carved expenditures in the district’ s southern-most seaside by dripping clouds, flowing waters, and sweeping county. winds, and decorated with a profusion of vegeta The seven resort counties, with one-eighth of the tion. Thus Nature wrought an invitation to the land area and one-twentieth of the population of travel and vacation industry in the 37,000 square the district, do almost half of the district’s resort miles of the Federal Reserve District of Philadel business. In 1956 these seven counties collected phia. ' over $250 million of the $600 million spent by The travel and vacation industry is widely dis vacationers in the Philadelphia Federal Reserve persed throughout the 60 counties of the Third District. The industry in these seven counties fur Federal Reserve District. The importance of the nish employment to 88,000 workers. industry in a county may be determined by com paring the direct expenditures by vacationers with Along the beaches other economic activities in a county, such as Atlantic County is far out in front as the largest farming, manufacturing, mining, trade, and trans resort center. In 1956, vacationers spent $115 portation. Seven of the district’s counties stand million in this resort. All but a fairly small por out as the principal centers of the travel and vaca tion of this was attributed to Greater Atlantic tion industry. In most of the counties where the City. By any yardstick, Atlantic City ranks first travel and vacation industry is the predominant — be it number of employees, or number of lodg economic activity, agriculture is the challenger or ing places, miles of boardwalk, or diversity of runner-up. attractions. Vacationers brought funds into the The seven leading vacation counties are Atlan county at the rate of $750 per permanent resi tic, Cape May, and Ocean counties in New Jersey, dent, or over $2,000 per family. This arterial flow Bedford, Monroe, and Pike counties in Pennsyl of vacation dollars is the life blood of the area. vania, and Sussex County in Delaware. In Atlan Atlantic City is in a class by itself. It combines tic, Cape May, Pike, and Monroe counties, the va the convenience and culture of metropolitan life cation industry thoroughly dwarfs agriculture; with carefree, timeless leisure. The city is white vacation expenditures in these counties are more collar and open shirt; sunshine and an ocean than five times greater than receipts from the sale breeze by day; neon lights and an ocean breeze of agricultural products. In Ocean County, New by night. Built on an island, the city has a beach 6 business re v ie w and a back bay, a boardwalk and boat piers. It of the impact and concentration of vacationers on has skyscrapers and cabanas, airports and bicy the area and its permanent residents. Cape May, cles, seafood deluxe and hot dogs with mustard, on the southern-most tip of the peninsula; Wild ticker tape and time tables, fashion parades and wood, a short distance to the north; and Ocean water skiing. City, whose residents can see the skyscrapers of Atlantic City is the metropolitan host in the grand manner. It has huge hotels and a conven Atlantic City across Great Egg Inlet, are the prin cipal resorts of Cape May County. tion hall large enough to house the entire resident “ A. Lincoln and family” is inscribed in the population. Resort facilities are available in every President’s own hand on an old register of one of season of the year, and promotions are geared to the hotels in Cape May. Later Presidents also vis every holiday of the calendar. Overnight accom ited Cape May, and perhaps it is these distin modations with push-button service are in abun guished visitors of days gone by that have given dance and do-it-yourself housekeeping units are character to the kind of resort that Cape May is also available. Room accommodations of all kinds today. Compared with some of the other resorts, are sufficient to take care of 100,000 guests. Mo Cape May still has some of the subdued and re tels, once frowned upon, have made their appear fined qualities that characterized the resorts in the ance in recent years. Their number has multiplied rapidly, and the accommodations offered are on a par with those available in the boardwalk sky scraper hotels. VACATION RECEIPTS IN PRINCIPAL RESORTS 1956 M ILLIO N S $ Cape May County, on the southern tip of New Jersey, ranks second to Atlantic County in total vacation receipts, with over 50 million dollars. The entire seashore of this county is a broken chain of little islands separated from the main land, and on the map, the islands resemble crumbs of all sizes and shapes brushed off the table land. Almost the entire insular formation is a resort land. Travel and vacation dollars are of great importance to the economy of Cape May County where vacation expenditures in 1956 were the equivalent of over SI,250 per permanent resi dent— more than 50 per cent higher than in any other county, and very close to the per capita in come of Cape May County. Both Cape May and Atlantic counties received over $200,000 per square mile from vacationers in 1956. Neither ex penditures per permanent resident nor expendi tures per square mile should be interpreted as measures of efficiency, but both are indications 7 b usiness re v ie w early days before the turn of the century. The general pattern observed all along the shore— the hotels have the dignity and charm and grace that larger the resort, the higher the proportion of ac go with age. Whaling boats no longer sail out of commodations in rooms in contrast to housekeep Cape May, but the abundance of smaller fishing ing units. Visitors who remain only a short time craft reflects the attractions that Cape May offers prefer a room to a housekeeping unit. Vacation to deep sea fishermen. At Cape May, to this day, ers planning a long stay often seek a small, quiet rest and recreation are interspersed with social resort; the short trip or visit is more likely to activity, but it is never conspicuous, it is always “ proper” and “ quiet.” have as its destination a large resort with a vari Wildwood, just a short spin up the ocean drive, goes in for more of the excitement and gaiety of ety of amusements and activities. Therefore the large resort needs rooms and the small resort needs housekeeping units. hours it offers the most expansive beach of the Ocean County received approximately 32 mil lion dollars from vacationers in 1956. This is on district. According to a local appraisal, Wildwood a par with Monroe County, Pennsylvania, and affords “ the best, the cleanest, the widest, and the larger than any other resort county of the district safest beach in the world.” The extent of the area except Atlantic and Cape May. Ocean County has included in that appraisal may be somewhat too quite a few rental units, but it also has a large generous, nevertheless there is some solid sub portion of privately owned cottages. The presence amusement rides and night life; and for daytime stance to the statement, as anyone knows who is of a large group of semi-residents adds stability familiar with the Wildwood and other New Jer to the travel and vacation industry of the area. sey beaches. After dark, the night clubs take over The presence of such a group also changes the and it is alleged that Wildwood has more clubs nature of the resort area to a large extent. and taverns per capita than any other spot on the Long Beach Island from Barnegat Light to coast. In Wildwood, as in most other seashore re Beach Haven has a variety of resort communities sorts, rooming accommodations are at a premium with major emphasis on quiet cottage vacation- in the height of the season. Ocean City is predominantly “ a family resort.” The guests, including children, arrive in the fam A TECHNICAL NOTE ily car and bring the family habits of living with Th is study has included travel and vacation ex them. Games of chance and alcoholic beverages penditures at resorts in the Philadelphia Federal are prohibited in Ocean City, and the usual work Reserve District. Outlays fo r customary living ex day business ventures are not a part of Sunday ac penses by permanent residents of resort areas have been excluded. tivity. Sunday evening church services move into the boardwalk theatres and the boardwalk shops and places of amusement, open all week, take their rest on the Sabbath. The seven counties classified as resort counties had to meet two tests: an absolute and a relative standard. The county had to have a sufficient dollar volume of vacation business to register a A large portion of Cape May County’s visitors notable impact on the local economy. Travel and choose to rent cottages or apartments. Only in vacation expenditures had to constitute a fairly Wildwood are rooming accommodations fairly substantial portion of the county's entire economy. important. This division is consistent with the 8 busii lew ing. There is a minimum of commercial activity In the mountains and very little party atmosphere. In these resorts, The Poconos are the largest and the most popular suburban living is transplanted for the summer. of the mountain resorts of the district. Woods, Summer residents who wish to commute to Phila trails, streams, and lakes are the main attractions delphia do so by private automobile because there in the Poconos, an Indian place name meaning is no railway service to Long Beach Island as “ a stream between mountains.” Here summer af there is to Atlantic City, Ocean City, Wildwood, fords relief from heat and noise of the city, and and Cape May. winter attractions include hunting, skiing, and Still more resorts have developed farther up the quiet relaxation. Monroe and Pike counties com New Jersey coast from Seaside to Point Pleasant. bined produced a volume of almost 40 million None is large, but great is the variation from the dollars of vacation spending in 1956. This is the carnival atmosphere of Seaside Heights to the equivalent of over $800 for each permanent resi large summer homes of Bay Head and Mantolok- dent of the two counties. Monroe County alone is ing. Inland is Lakewood, one of the few winter of about the same magnitude as Ocean County, resorts of New Jersey. but the relative impact of the vacation industry is Rehoboth, Delaware, is a less sedate version of greater in Monroe since the population is smaller. Cape May. Those of the social register are a part Camps for children and adults plus large self- of the summer population, but many others enter contained resort hotels typify the Poconos. The into the activities of the area. Proximity to Balti very nature of the terrain and the stress on the more and Washington makes Rehoboth easily accessible to those population centers and people scenic beauties make a certain amount of self containment mandatory within any mountain re from various embassies in Washington are fre sort. The maintenance of hiking trails, the pres quently seen in Rehoboth. The resorts from Lewes ervation of woodland, and the provision for out to Fenwick are small and the emphasis is fre door sports all necessitate a relatively large por quently on fishing. A large portion of the vaca tion of unoccupied ground. The result is an ex tioners along the Delaware coast own their own tremely heterogeneous business composition. The cottages. Compared to other shore counties, the resort hotels and the camps generate a substantial volume of vacation business is small (between portion of vacation expenditures of the area. 5 million and 10 million dollars in 1956), but Many smaller establishments are also in exist the area in which it operates is also small. ence, but they offer fewer services and frequently Common to all the beaches of the district are function as family enterprises. Communities of fishing, boating,, bathing, and basking in the sun. substantial size have not developed in the Poco At each of the beaches any one of these activities nos. Stroudsburg and East Stroudsburg are the may be stressed more than the other but an inte only towns of over 2,500 population. gral part of the offerings centers about the ocean and the beach. Supplementary Variation in accommodations is perhaps more of pronounced within the Poconos than elsewhere. course, devised by vacationer or host are legion Some camps pride themselves on the opportunity and may be anything contrived by human ingenu for “ roughing it” ; and the other extreme is the ity, including things which, if done at home, plush modern hotel with luxurious accommoda would be laborious. tions. Small family-size cabins are also available activities, 9 business re v ie w for those who prefer to plan their own activities, other resorts of somewhat smaller magnitude than and there are numerous guest houses and motels. those already mentioned. Boiling Springs and A comparatively recent development within the Gettysburg, south of Harrisburg; Eagles Mere, Pocono area is the sign “ Honeymooners Only,” west of Scranton; Wellsboro— the Grand Canyon and the sign means just what it says. One pro of Pennsylvania; and perhaps a dozen more are prietor explained his position this way: “ These all part of this vast industry. kids are young, just starting life together. Their hearts are filled with love. We can give them a setting that will produce fond memories for the The mountain resorts are all alike in one sense, and in another sense they are all different. All rest of their lives. Our whole program, our whole have characteristics in common, yet each resort has its own peculiarity. Accommodations, rates, physical setup is geared for them. We can help services, entertainment, and scenery vary from them to a good start and it’s good business for one resort to another. The vacationer can find us. No, we’ll stick to ‘Honeymooners Only.’ ” within the Philadelphia Federal Reserve District Others share this philosophy and practice it with profit. As a result, the Poconos have become a rival for Niagara Falls, and local partisans claim VACATION RECEIPTS PER ESTABLISHMENT BY TYPE OF BUSINESS 1956 this is the new honeymoon capital of the country. THO USA NDS $ Bedford County is well endowed with attrac 0 tions for nature lovers. Scenery, camping, and mountains are the main items of appeal. Bedford LODGING PLACES I SERVING MEALS I Springs and White Sulfur Springs were formerly visited for their medicinal value. The springs still exist but the medicinal appeal is no longer of AMUSEMENTS commercial importance. The transient trade adds considerably to the travel and vacation industry of Bedford County. East-west traffic from both the Pennsylvania Turnpike and the Lincoln Highway passes through the county. Breezewood, at the intersec RESTAURANTS I tion of these two highways, at Route 126 to the south, occupies the position of “ Gateway to the South” . The motel is the most popular type of accommodation in Bedford County and the trend is increasing in that direction. Total vacation re ceipts in Bedford County in 1956 were about 8 SERVICE STATIO NS million dollars. Compared to some of the other areas this is not great, but it is a source of reve nue amounting to more than $200 per resident— a welcome addition to the income of the area. Also within the Third District are a number of 10 LODGING PLACES N O T SERVING MEALS 100 business re v ie w the vacation spot that will perfectly fit his needs. are quite abundant, but many of them do not It is equally true that he can find within any sin take in as much as $5,000 a year. Nevertheless, gle resort of the district, accommodations and lodging places that offer good overnight accom facilities that will insure a pleasant holiday within modations are by no means an insignificant part the price he can afford. of the travel and vacation industry. Lodging places not serving meals account for about one- Who gets the vacation dollars? eighth of the vacation dollars spent, as previously As might be expected, there is considerable di observed. versity among the enterprises catering to the va cationer depending upon the nature of the serv ices rendered. The biggest collectors of travel and Travel and vacation is an industry unlike any vacation dollars are the hotels that serve meals. other. It conforms to no one type, pattern, or In 1956 their average collections were just under mold. The industry produces both goods and $100,000 each— almost double the take of places services but not according to any prescribed for of amusement. Amusement enterprises which em mula. The establishments catering to vacationers brace boat slips, games, rides, piers, theatres, and often cater also to people not on vacation. The similar recreational attractions, ranked second origin of the industry is hard to pinpoint but its with average collections of $50,000 per establish growth has been prodigious. The industry is easy ment. Camps, which are usually located in the to identify, hard to define, statistically slippery. mountains, ranked third with an average take of The industry is confined to no one place, no one $32,500 per establishment. class of clients, no one type of services. It is easy Lodging places not serving meals had an aver to enter, easy to leave. It is proud of its accom age intake just under $15,000, as Chart 4 shows. plishments but not always sure it wants to be an This occasions no surprise in view of the large industry. number of private homes in scenic locations that The travel and vacation industry also has its have put up “ Tourists Welcome” signs. The problems. These will be explored in the May issue $15,000 average is probably somewhat mislead of the Business Review. ing. Tourist Homes belong in this class and they 11 business re v ie w W e interviewed 5 0 Third District dealers. Sagging sales and the reasons behind them are , , , THE TALK OF "AUTOMOBILE ROW" Walk down any street; eavesdrop on any chance Based on past experience, sales should begin conversation. The odds are you’ll hear either to “ perk” about the first of March then build “ How’s business?” or “ Think it’s going to rain?” steadily during the month. Not so this year. Only These two topics — business and the weather — 15 per cent of the dealers interviewed noticed any have long been favorite conversation starters. definite signs of the spring trend by the time the Where they used to be mentioned in casual snow began to fall on the twentieth. Even worse, chatter, now they are subjects of real concern. about one-fourth said the situation had actually In few places is the concern greater than on that deteriorated— that March sales were below Febru indefinite street called “ Automobile Row.” Car ary’s. sales have slumped and the recession plus the rugged winter are important reasons why. Dealers are worried and they are talking about it. We went out and listened to about 50 of them The “ used” market seems to be somewhat stronger than the new. More than half of the dealers we called on rated the demand for usedcars as “ strong” or “ steady.” during the last two weeks in March. We heard On further investigation, however, it appears from dealers who sell all major makes and mod there are really two used-car markets— one for els of cars. It’s a rather bleak story they tell. This late models, one for older cars— and they are be has been one of their worst post-war winters. having quite differently. The dividing line seems Three out of four dealers told us that present sales to be around the 1955 vintage. There is a brisk are lower than last year’s. And March 1957 was demand for fully equipped late models. A number mediocre in our district. of people who normally buy new cars are now 12 business re v ie w trading down to used and letting the first owner relatively improved customer acceptance. In al pay the initial depreciation. Furthermore, the most every line, the high-priced,, fully equipped supply of these late model cars is short because models are moving comparatively well. Dealers fewer owners are trading early these days. who sell Cadillacs and other expensive prestige If you go back beyond the 1955 models you cars still are savoring a brisk demand. find a different situation. Sales are poor and in It is curious that higher-price cars should be ventories are rising. This drop in demand has in selling relatively better than cheaper ones in a directly hurt new-car sales. Dealers cannot sell recession year. Perhaps the well-to-do buyer— the older cars for as much, thus they can’t give such man who wants an expensive car and can pay attractive allowances to the new-car buyer with cash for it— isn’t fazed as yet by the change in an older model to trade. business conditions. In addition, the trend to used Different shades of gloom “ low-price” new cars. cars has undoubtedly weakened the demand for Experiences of individual dealers, of course, var Nevertheless, for most dealers, even the bright ied considerably. Few, if any, were having a spots are “ tattle-tale-grey” this year; there is banner year but some dealers were doing better gloom in the show room as dealers wonder where than others. When our conversations were tallied the customer went. and analyzed, some patterns took shape. In general, Philadelphia dealers were faring better than those in other areas of the district. The wait-and-see game March sales were relatively higher here and deal We already have named the two main troubles— recession and the weather. Both have kept cus ers somewhat less pessimistic. This was a switch from a similar survey made a year ago, when the tomers out of the showrooms. Recessions affect automobile sales in two re out-of-town areas showed up more favorably. Another reversal of last year’s form occurred lated ways. Recessions bring a reduction in con sumer income through layoffs and shorter work in the competition between the low- and medium- weeks. Those affected cut back their spending to price classes. In 1957 the “ low-price” three were bare essentials like food and shelter. They put off selling much better than their more expensive new-car plans to the indefinite future. cousins. Our present survey, however, gives a But dealers believe that unemployment and re definite edge to the “ mediums.” We don’t mean duced incomes are not now the major factor. that more medium-price cars are actually being More important are the fear and uncertainty that sold; it’s just that their dealers report more fa recessions bring to the people who are still work vorable experiences — present sales compared to ing. One dealer put it this way, “ Say one guy last month or last year, increased showroom traf loses his job. Pretty soon everybody on his street fic, etc. hears about it and figures, ‘ It happened to Joe Makes and models also have changed position . . . I may be next . . . better start saving my from last year, judging from dealer attitudes. money.’ You see, one layoff can keep a whole Chrysler products, really “ hot” in 1957, have neighborhood from buying cars.” cooled considerably. Chevrolet and Oldsmobile Thus, in the automobile world, the most impor have been extensively restyled and are enjoying tant effect of the recession has been psychological. 13 business re v ie w Many people have the money for a new car— is that it’s over. We have had the kind of weather they just don’t want to spend it now. A recent that grandfather used to tell about, “ when he was magazine survey showed that the typical new-car a boy,” and nobody really believed. In Philadel family earns $7,800 a year. The breadwinner is phia we had 42 inches of snow from December probably a highly skilled worker with consider through March, the most since 1905. Some parts able seniority or an executive of some sort. He is of the district got that much in one storm. Over likely to be earning as much now as he ever did, all temperature readings were below normal, and for unemployment has hit these groups very lightly. timer.” Prospective new-car customers are playing a “ wait-and-see game.” They want definite proof sion worries. Showrooms were snowed in and in February we had a cold wave that was an “ all Snow and cold really compounded the reces the recession is over before they buy. Besides, customers were snowed out. We heard that at they probably have a perfectly serviceable 1955 least one dealer could not even see his used-car or 1956 model sitting in the driveway to make waiting easy. was out of the question for most people when there Some consumers are waiting for more than a turn in the recession. They are holding back to lot for several days. Shopping for automobiles was a cozy fireside to sit by. Customers stayed home in droves. see what is going to be done about the excise tax. Many dealers mentioned this deterrent. They be Higher cost of ownership lieved that the uncertainty about its status, not Manufacturers raised prices on their 1958 models the tax itself, was slowing sales. by an average of 3 per cent. This boost has proved to be another sales inhibitor, in the opin An old-fashioned winter ion of 42 per cent of the dealers contacted. Many The only nice thing you can say about this winter termed it “ unfortunate” that prices had to go up when demand was weakening. THE “ BEAR” MARKET FOR AUTOMOBILES Registrations of new passenger cars, Philadelphia County T H O U S A N D S O F CARS The pinch of higher prices would have been still greater but for the fact that many dealers have absorbed all or part of the increase them selves. “ Have to do it to make sales” a dealer explained, “ buyers are so price conscious today.” In effect, the purchaser often pays about what he did last year and the dealer makes less profit. Conditions “ on the cuff” Credit terms that lenders offer through dealers are almost the same as 6 months ago. Lenders are naturally more fussy about the credit rating of borrowers but, according to our interviews, maximum maturities, down payment require ments and interest rates are unchanged. 14 b usiness re v ie w The vast majority of dealers and lenders alike their “ reserve” or share of the interest paid on hope that terms remain the same or even tighten. loans they originate. They feel that terms are about as easy as they can safely be and that further relaxation would be The fabulous “ Doodlebugs” dangerous. Maturities of 36 months are now Small foreign cars are the success story of the common. Cars are old before they are owned. year. They are the most popular thing to come Any longer loans, any lower down payments, out of Europe since Gina Lollobrigida. We would virtually eliminate the already small own wanted to know what dealers thought of them. er’s equity during the first year of the loan. This Were they fad or fixture? would reduce the incentive to repay and could The consensus is that small cars are here to stay, but that they don’t offer serious competi substantially raise the default rate. Nevertheless there are pressures for further tion to large American cars. Our dealers be relaxation. Banks and finance companies are geared for mass-production lending and need a lieved that small foreign cars are sold mostly as high volume of business to cover their overhead. buy a second car, or to fixed-income groups who Dealers need more sales, period. In the past, easier otherwise couldn’t afford a new car at all. terms have been used effectively to stimulate sales. second cars to people who otherwise would not These cars appear to have brought new people So there is concern that terms may be loosened into the automobile market rather than lured again to encourage the extra business both lend customers away from American makes. Only two ers and dealers need. dealers thought that foreign cars had significantly hurt their sales. Com petition among individual lenders is terms. Most lenders now have plenty of funds “ Would you like to sell smaller cars in addi tion to your present line?” , we asked dealers for is getting who don’t. We got a resounding yes from seven keener and easier terms may be used as a out of ten. Most of those giving negative replies weapon. We received scattered reports from “ up state” that a few small finance companies were these cars. They were worried about the service relaxing their standards in an effort to win a angle. “ A whole new line of parts plus special greater share of the market. So far this brand of training for my mechanics would make it too competition has been confined to isolated in complicated.” another factor that could lead to easier credit consumer credit. Competition did not question the permanency of demand for stances. Lenders have begun to compete more actively in Philadelphia, too, but in a different way. When summer comes It has been a rough winter but what will the rest Several banks have reduced the interest rates they of the year be like? Will the public think of charge on direct automobile loans (loans not automobiles when the sun begins to shine? And, arranged through dealers). This troubles some more important, will they buy? Some dealers dealers for the rates lenders offer on dealer-origi seem to think so. About 25 per cent of those we nated loans have not changed. More buyers are talked to expected to have a better year than in likely to arrange their own financing directly with 1957. Most dealers qualified their outlook. “ How banks. Dealers worry for this means they lose we do in 1958 depends on the breaks,” they said 15 b usiness re v ie w — breaks in the weather and breaks in the re cession. The weather will have to improve quickly to A PROMISING POSTSCRIPT do much good, for the spring selling season is Just before this article went to press (in early already stunted. We consulted the Farmer’s Al April) we rechecked with a number of dealers. manac, which had called the turn on several win Many of them were seeing signs ter storms. Its forecast: A cold, wet spring. Several balmy days had brought a welcome in The real key to 1958, however, is in the eco of spring. crease in the number of interested, tire-kicking nomic outlook. A healthy pickup in business will visitors to their show rooms. " A t least we have a melt more sales resistance than balmy weather ever could. With the fear of recession out of the fighting chance if the people will come in and look way, buyers should get back in a spending mood. In Philadelphia registration figures offered fu r But without a marked change for the better in ther encouragement. Sales in the final week of at the car," one dealer told us. the economy, it looks as though 1958 will be a March were up sharply over the preceding weeks disappointing year for Third District automobile of the month. Th is was still well below expectations dealers. Sales volume probably will be several but, at least, it was a step in the right direction. cuts below 1957. 16 Additional copies of this issue are available upon request to the Department of Research, Federal Reserve Bank of Philadelphia, Philadelphia 1, Pa. F O R TH E R E C O R D . . . muons T h ird Fe d e ra l Reserve D istric t Fa ctory* U n ite d States SUM M A R Y LO CA L mo. ago O U TP U T M anu fa ctu ring p ro d u c tion. . . 3 C o nstruc tion contracts............... - 3 2 C o a l m in in g .................................... - 1 5 EM PLO YM EN T A N D IN C O M E Factory employment ( T o t a l) . . . TRA D E* Department sto re s a le s ............. yea r ago -1 2 -2 2 -2 8 -1 3 -3 3 -3 2 Feb ruary 1 9 5 8 from mo. ago 0 5 6 - yea r ago -1 1 -1 0 -2 2 2 mos. 1958 from yea r ago 2 4 B A N K IN G ( A ll member banks) 0 D e p o sits............................................ L o a n s.................................................. 0 Investm ents...................................... 0 1 U . S . G o vt, s e c u ritie s ................ O t h e r .............................................. + 1 Check paym ents............................ — 1 2 t -1 0 -1 0 -1 9 6 -1 1 -1 2 + 1 - 5 9 - 7 + 1 + + 1 + + 2 + 1 +11 + + 4t + 1 1 1 2 9 2 - 2 - + 5 1 1 0 2 1 2 5 - - 8 9 2 + 3 + 3 + 4 + 3 +11 + 2 - 7 S a le s Stocks P e r cent change Feb ru a ry 1 9 5 8 from Pe r cent change Feb ru a ry 1 9 5 8 from P e r cent change Fe b ru a ry 1 9 5 8 from P e r cent change Feb ru a ry 1 9 5 8 from Pe r cent change Feb ruary 1 9 5 8 from mo. ago mo. ago mo. ago mo. ago year ago 9 -1 7 - 4 -1 3 -1 9 - 4 year ago -1 - 5 +1 - 9 La nc a ster. . . . -1 yea r 090 - 0 5 + 2 + 3 + 3 + 1 + 10 + 3 -2 - 4 -2 - 5 -2 4 P h ila d e lp h ia .. - 2 - 6 -3 - 7 - R e a d in g ........... - - 8 Sc ra n to n ........... -3 0 yea r ago year ago 0 -1 9 - 4 + -1 7 7 -1 1 7 +3 -1 1 + 3 +11 -8 -1 5 -2 0 -1 8 + 7 +1 -1 7 - 2 -1 0 -1 -1 3 -1 3 -1 9 +11 +4 -1 5 - 6 -1 3 -1 8 -1 0 -1 2 -1 -2 6 + 9 - +11 0t [+ 2t + 3t f 2 0 C itie s 0 0 + + 2 3 + + 2 3 T re n t o n ............. -3 -1 1 -6 W ilk e s - B a r r e . -2 - 6 -3 -1 1 -1 1 + 6 -1 -1 0 W ilm in g t o n .. + + + -1 P R IC E S ‘ A d ju ste d fo r seasonal va ria tio n . tP h ila d e lp h ia CH AN GES P a y ro lls F la rris b u rg . . . -1 0 3 C o n su m e r......................................... Check Payments Em ploy ment P e r cent change 2 mos. 1958 from yea r ago Departme nt Sto re mo. ago Pe r cent change Feb ru a ry 1 9 5 8 from MEMBER BANKS 3RD F. R. D. t -3 - 2 -5 - 5 - 8 -1 3 + 3 -3 + - 8 - 6 - 9 - 5 + 5 -3 -1 6 Y o r k ................... 0 0 6 5 +17 0 ‘ N o t restric ted to corporate lim its of c itie s but covers area s of one o r more counties.
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