:OLE OF GIANT CORPORATIONS
HEARINGS
BEFORE THE
SUBCOMMIHEE ON MONOPOLY
OP THE
lELECT COMMITTEE ON SMALL BUSINESS
UNITED STATES SENATE
NINETY-FIRST CONGRESS
FIRST SESSION
ON
THE ROLE OF GIANT CORPORATIONS IN THE AMERICAN
AND WORLD ECONOMIES
PART 1
AUTOMOBILE INDUSTRY— 1969
JULY 9, 10, AND 11, 1969
M>iS
rA \
Printed for the use of the
Select Oommittee on Small Business
IfOLE OF GIANT CORPORATIONS
HEARINGS
BEFORE THE
SUBCOMMITTEE ON MONOPOLY
I OP THE
SELECT COMMITTEE ON SMALL BUSINESS
UNITED STATES SENATE
NINETY-FIRST CONGRESS
FIRST SESSION
ON
I THE ROLE OF GIANT CORPORATIONS IN THE AMERICAN
f
AND WORLD ECONOMIES
PART 1
AUTOMOBILE INDUSTRY— 1969
JULY 9, 10, AND 11, 1969
<^.,.,=a^ \jy]%ri\\j(l ■</.^.'0t I
Printed for the use of the
Select Committee on Small Business
ROLE OF GIANT CORPORATIONS
HEARINGS
BEFORE THE
SUBCOMMITTEE ON MONOPOLY
OF THE
SELECT COMMITTEE ON SMALL BUSINESS
UNITED STATES SENATE
NINETY-FIEST CONGEESS
FIRST SESSION
ON
THE ROLE OF GIANT CORPORATIONS IN THE AMERICAN
AND WORLD ECONOMIES
PART 1
AUTOMOBILE INDUSTRY— 1969
JULY 9, 10, AND 11, 1969
Printed for the use of the
Select Committee on Small Business
U.S. GOVERNMENT PRINTING OFFICE
32-493 0 WASHINGTON : 1969
For sale by the Superintendent of Documents, U.S. Government Printing Office
Washington, D.C. 20402 - Price $2.50
SELECIT COMMITTEE ON SMALL BUSINESS
[Created pursuant to S. Res. 5S, 81st Cong.]
ALAN BIBLE, Nevada, Chairman
JOHN SPARKIVLAN, Alabama JACOB K. JAVITS, New York
RUSSELL B. LONG, Louisiana PETER H. DOMINICK, Colorado
JENNINGS RANDOLPH, West Virginia HOWARD H. BAKER, Jr., Tennessee
HARRISON A. WILLIAMS, Jr., New Jersey MARK O. HATFIELD, Oregon
GAYLORD NELSON, Wisconsin ROBERT DOLE, Kansas
JOSEPH M. MONTOYA, New Mexic« MARLOW W. COOK, Kentuclcy
FRED R. HARRIS, Oljlahoma TED STEVENS, Alaska
THOMAS J. McINTYRE, New Hampshire
MIKE GRAVEL, Alaska
Chester H. Smith, Staff Director and General Counsel
Raymond D. Watts, Counsel
James P. Duffy III, Minority Counsel
Subcommittee on Monopoly
GAYLORD NELSON, Wisconsin, Chairman
JOHN SPARKMAN, Alabama MARK O. HATFIELD, Oregon
RUSSELL B. LONG, Louisiana ROBERT DOLE, Kansas
THOMAS J. McINTYRE, New Hampshire MARLOW W. COOK, Kentucky
♦ALAN BIBLE, Nevada 'JACOB K. JAVITS, New York
•Ex officio member.
(II)
•04^4^ <
CONTENTS
statement of —
Arkus-Duntov, Yura, executive vice president, Equity Funding Corp. Page
of America, 11 East 44th Street, New York, N.Y. 10017 401
Boyd, Alan S., president, Illinois Central Railroad, 125 East 11th
Place, Chicago, 111. 60605 513
Cohen, Raphael, chairman, executive committee. Metropolitan In-
dependent Dodge-Chrysler Dealers Association, Inc., Box 421,
Ridgewood, N.J. 07451 34,92
Dowd, Douglas F., professor of economics, College of Arts and Sciences,
Department of Economics, Cornell University, Ithaca, N.Y. 14850_ 521
Hammond, Alexander, counselor at law, 54 Riverside Drive, New
York, N.Y. 10024 18
Housman, David, chairman, Automatic Radio Mfg. Co., Inc., Mel-
rose, Mass. 02176 407
Jacoby, Neil H., professor of business economics and policy. Univer-
sity of California at Los Angeles, 405 Hilgard Avenue, Los Angeles,
Calif. 90024 502
Luntz, Richard S., chairman, R S L Corporate, Building II, Cleveland
Division, 1424 Hamilton Avenue, Cleveland, Ohio 44114 466
Mann, Thomas C, president. Automobile Manufacturers Association,
Inc., 1619 Massachusetts Avenue NW., Washington, D.C. 20036. _ 67,97
Schupack, Mark B., associate professor of economics. Department of
Economics, Brown University, Providence, R.I. 02912 492
EXHIBITS
1. Subcommittee chairman's exhibit No. 1: Table prepared by the sub-
committee staff: The "big four" of the U.S. automobile industry:
rank by sales in Fortune magazine's list of 500 largest U.S. industrial
corporations, 1954-68 4
2. Subcommittee chairman's exhibit No. 2: Excerpt from the Senate
Small Business Committee's 18th annual report, S. Rept. 1155, 90th
Congress, 2d session (1968, for year 1967): chapter V, section A,
"Hearings on planning, regulation, and competition" 4
3. Subcommittee chairman's exhibit No. 3: Report by Senator Gaylord
Nelson, chairman. Subcommittee on Monopoly, to the Senate Small
Business Committee: "Hearings before subcommittees of the Senate
Small Business Committee on 'Planning, Regulation, and Competi-
tion: Automobile Industry — 1968' — a brief description of the hear-
ings, their background, and the questions presented that are of
special concern to the Subcommittee on Monopoly" (May 1969) 10
4. Raphael Cohen's exhibit No. 1: Table: Allegheny County (Pittsburgh,
Pa.) sales of new Dodge passenger automobiles: private-capital and
Chrysler-financed dealers' percentages of total Dodge sales, 1960-67. 48
5. Raphael Cohen's exhibit No. 2: Table: Losses of three Chrysler-
financed dealerships, Allegheny County (Pittsburgh), Pa., 1961-66.. 49
6. Raphael Cohen's exhibit No. 3: Newspaper advertisement placed by
a Chrysler-financed Dodge dealer, Oakland, Calif 50
6A. Raphael Cohen's exhibit No. 4 (withdrawn and subsequently re-
submitted) : Opinion of Judge Coolahan granting preliminary
injunction on plaintiffs' motion in Swartz v. Chrysler Motors Corp.,
U.S.D.C, N.J., Civ. No. 1230-68; 1969 Trade Cases, 72,854 51
7. Raphael Cohen's exhibit No. 5: Order for a Dodge placed by Merit
Motors, Inc., and shipping notice for Dodge delivered with un-
ordered equipment 57
(m)
IV
8. Raphael Cohen's exhibit No. 6: Order for a Dodge placed by Merit
Motors, Inc., and shipping notice for Dodge delivered with un- P^^e
ordered equipment 59
9. Raphael Cohen's exhibit No. 7: Order for a Dodge placed by Merit
Motors, Inc., and shipping notice for Dodge delivered with un-
ordered equipment 61
10. Raphael Cohen's exhibit No. 8: Chrysler Corp. form:
"Dealer Financial Statement" (monthly) 63
Automobile Manufacturers Association exhibits: 48 pamphlets on eco-
nomic contribution of motor vehicles in 48 States. (Six of the
pamphlets, those for Alabama, California, Florida, Michigan,
Nevada, and New York, will be found in appendix III, infra. The
remainder are retained in the committee's files.) '
11. Automobile Manufacturers Association's exhibit No. 1: Article by
Douglas A. Condra, "9 Car Divisions Offering Incentives to Spur
Sales," Automotive News, May 27, 1968 77
12. Automobile Manufacturers Association's exhibit No. 2: Article by
Douglas A. Condra, "Sales Incentive Contests Sponsored by Eight
Divisions," Automotive News, January 27, 1969 79
13. Automobile Manufacturers Association's exhibit No. 3: Article by
Douglas A. Condra, "Eight Divisions Offer Incentives To Spur
Sales — Factories Expected To Further Loosen Purse Strings,"
Automotive News, May 26, 1969 81
14. Automobile Manufacturers Association's exhibit No. 4: Article, "More
Contests to Exhort Dealers," Ward's Automotive Reports, March
17, 1969 83
15. Automobile Manufacturers Association's exhibit No. 5: Article, "Chevy
Has a $2,000 Car, II!," Ward's Automobile Report, April 7, 1969.. 83
16. Automobile Manufacturers Association's exhibit No. 6: Article by
Charles B. Camp, "Auto Economy Kick — More New-Car Buyers
Choose Smaller Models Over Big, Costly Ones — Frugality Traced
to Inflation, Tax Hikes; Detroit Profits May Suffer, Analysts
Say — Price Battle Spurs the Trend," the Wall Street Journal,
July 1, 1969 83
16A. Subcommittee chairman's exhibit No. 4 (subsequently submitted) :
Summary of relevant facts and the opinion of the California Court
of Appeal, First District, Division 2, in the case of Barth v. B. F.
Goodrich Tire Company et al., 71 Cal. Rptr. 306 (1968) 103
16B. Subcommittee chairman's exhibit No. 5 (subsequently submitted) :
Materials relating to tire safety: (A) Introductory note. (B) Test
results (preliminary) published by the National Highway Safety
Bureau, Department of Transportation, January 2, 1969. (C) Press
release of Senator Gaylord Nelson concerning the tire tests. May
11, 1969 118
17. Automobile Manufacturers Association's exhibit No. 7 (excerpts ^) :
"Proceedings, General Motors Corp. Automotive Safety Seminar,
GM Safety Research & Development Laboratory, General Motors
Proving Ground, Milford, Mich., July 11-12, 1968" 130
18. Automobile Manufacturers Association's exhibit No. 8: Article, "A
Braking System That Thinks for Itself: Sure- Track," Ford Science
Front, November 1968 160
19. Automoi)ile Manufacturers Association's exhibit No. 9: Article by
Jim Dunne, "New Electronic System To Eliminate Tailgating,"
Popular Science, December 1968 161
20. Automobile Manufacturers Association's exhibit No. 10: Paper by the
Inter-Industry Emission Control Program, "Clean Air Research".. 167
21. Automobile Manufacturers Association's exhibit No. 11: Paper by the
Chrysler Corp. and the Standard Oil Co. (New Jersey), "Two
Hands" 178
22. Automobile Manufacturers Association's exhibit No. 12: Paper by the
Engineering Office, Chrysler Corp., "Chrysler's 'Cleaner Air System'
for Exhaust Emission Control" 195
• Exhibits not numbered by witness and not numbered serially by subcommittee; retained in part in
committee's files, rcproluced in part in appendix III, infra.
2 Thecxhibit consists of 32 technical papers and introductory addresses by two General Motors executives.
Because of its leiigtii and specialized nature, tlie exhibit was received by tlie subcommittee chairman for re-
tention in the connnittce's files and not for publication. However, the cover page, preface, the table of con-
tents, the introductory addresses by lleneral Motors Vice Presidents H. K. Barr and II. O. Warner, and tlie
authors' abstracts of the 32 papers are reproduced herein.
23. Automobile Manufacturers Association's exhibit No. 13: Paper by
General Motors Corp., "GM Progress of Power Background In- PaB«
formation" (1969) 207
24. Automobile Manufacturers Association's exhibit No. 14: Paper by
General Motors Corp., "GM Progress of Power — A General Motors
Report on Vehicular Power Systems, Presented at the General Motors
Technical Center, Warren, Mich., May 7, 8, 1969" 281
25. Automobile Manufacturers Association's exhibit No. 15: Paper by the
Engineering Office, Chrysler Corp., "History of Chrysler Corp. Gas
Turbine Vehicles" (January 1964, revised August 1966) 342
26. David Housman's exhibit No. 1: Table: "Percent Factory Installation
on 1969 Model Cars (Through March 31, 1969)," Ward's Automotive
Reports, May 26, 1969 409
26A. Senate Small Business Committee's Minority Counsel's exhibit No. 1
(subsequently submitted) : Prospectus and Registration State-
ment of Automatic Radio Manufacturing Co., Inc., dated Feb-
ruary 4, 1969 422
27. David Housman's exhibit No. 2: Cover page and page 12 of a catalog
entitled "Bendix Radio Service Manual 1964 FO-MO-CO FM-AM
All Transistor Radios" 463
28. David Housman's exhibit No. 3: Letter dated January 22, 1969, from
Marcus A. HoUabaugh, attorney for General Motors Corp., to Worth
Rowley, attorney for Automatic Radio Manufacturing Co., Inc 414
28A. Subcommittee chairman's exhibit No. 6 (subsequently submitted):
Letter dated August 22, 1969, from Willard F. Mueller, Director,
Bureau of Economics, Federal Trade Commission, to Senator
Nelson 547
29. Subcommittee counsel's exhibit No. 1: Article by Jan Nugent, "Big
Firms Fight Data Requests From Competitors, Critics, Capital," 553
the Journal of Commerce, New York, N.Y., July 9, 1969
30. Subcommittee counsel's exhibit No. 2: Article by Tim Metz, "Auto-
Age Eyesore — Abandoned Cars Litter City Streets, Posing Huge
Disposal Problem — Low Scrap Prices Deter Junk Yards From
Taking Them; Haul- Away Efforts Costly — 'Like Sweeping Back
Water';" and related article, "Swift Parts Thieves Turn Parked
Cars Into Junkers," both from the Wall Street Journal, June 25,
1969 554
APPENDIXES
(Pkinted Separately in Part 1A)
I. Invitation to National Automobile Dealers Association to partici-
pate in the hearings, and letter declining invitation:
A. Explanatory note 557
B. Letter dated May 28, 1969, from Senator Nelson to Lyman
W. Slack, president, National Automobile Dealers Asso-
ciation 557
C. Letter dated June 9, 1969, from Lyman W. Slack to Senator
Nelson 558
II. Correspondence and materials on new-car distribution and market-
ing:
A. "Open letter to Senator Nelson" from Wisconsin Automo-
tive Trades Association, and related correspondence:
1. Letter of transmittal dated Oct. 2, 1968, from Louis
Milan, executive vice president, Wisconsin Auto-
motive Trades Association, Post Office Box 5345,
Madison, Wis. 53705, to Senator Nelson 559
2. "An Open Letter to Senator Nelson," from Bulletin
No. 20 of the Wisconsin Automotive Trades As-
sociation, Oct. 1, 1968 559
3. Letter dated Oct. 10, 1968, from Senator Nelson to
Louis Milan 560
4. Letter dated Sept. 26, 1968, from Ross Roy, chair-
man of the board, Ross Roy, Inc., 2761 East
Jefferson Avenue, Detroit, Mich. 48207, to Senator
Nelson, with enclosure 561
Enclosure: article by Philip Meyer, "Senator
Blasts Auto Markups," the Detroit Free
Press, Sept. 25, 1968 562
VI
II. Correspondence and materials— Continued p^^^
B Anonymous letter dated June 15, 1969, to Senator Nelson 563
Enclosure: article, "Auto Cost Secrecy Under Fire, the
Milwaukee Journal, June 15, 1969 -^^----,--w^"e
C Telegram dated June 17, 1969, from W. W. Rank, Rank &
Son Buick, 4200 North Green Bay Avenue, Milwaukee,
Wis., to Senator Nelson 565
D. Correspondence between John W. Amatucci and Senator
Nelson: ^ , „^ .
1. Letter dated April 21, 1969, from John W. Ama-
tucci, Jack Amatucci Chevrolet, 10901 Georgia
Avenue, Wheaton, Md. 20902, to Senator Nelson. 566
2. Letter dated May 29, 1969, from Senator Nelson to
John W. Amatucci 569
E. Correspondence between William E. Scott and Senator
Nelson:
1. Letter dated June 17, 1969, from William E. Scott,
Scott Motor Co., Inc. (Buick Motor Cars), 219
South Center St., Goldsboro, N.C. 27530, to
Senator Nelson 571
2. Letter dated July 17, 1969, from Senator Nelson to
William E. Scott 573
F. Comments of dealers and others on the views expressed by
John W. Amatucci and William E. Scott:
1. Letter dated May 20, 1969, from Raphael Cohen,
chairman, executive committee, Metropolitan In-
dependent Dodge-Chrysler Dealers Association,
Inc., Post Office Box 421, Ridgewood, N.J. 07451,
to Senator Nelson 573
2. Comments on John W. Amatucci's letter to Senator
Nelson by Werner Hanstein, service manager.
Triumph Sports Cars, Inc., 1745 Broadway, New
York, N.Y. 10019; and Robert J. Natzel, general
manager, Natzel Oldsmobile, 1253 East Colorado
Blvd., Pasadena, Calif. 91101 (from Automotive
News, June 2, 1969) 574
3(a). Letter dated June 13, 1969, from J. Roy Alphin,
Alphin Motors, Inc., 5055 Virginia Beach Blvd.,
Virginia Beach, Va. 23462, to Senator Nelson.. 575
3(6). Letter dated July 2, 1969, from Senator Nelson to
J. Roy Alphin 575
3(c). Letter dated July 9, 1969, from J. Roy Alphin to
Senator Nelson 576
4(a). Note concerning the following two letters 576
4(6). Letter dated June 17, 1969, from a Chrysler-Ply-
mouth dealer in Ohio to Senator Nelson 576
4(c) . Letter dated July 2, 1969, from Senator Nelson to
a Chrysler-Plymouth dealer in Ohio 577
5(a) . Note concerning the following letter 577
5(6). Letter dated June 11, 1969, from a Chrysler-Ply-
mouth dealer in one of the North Central States
to Senator Nelson 577
6. Letter dated July 30, 1969, from Harold Reese,
Reese Bros., Inc. (Dodge), 855 Sunrise Highwaj^,
Lynbrook, Long Island, N.Y. 11563, to Senator
Nelson 578
7. Article by Robert M. Finlay, "Mitchell, Cohen Urge
Efforts to Correct Malpractices — Attack on Sena-
tors Called Unwise," Automotive News, August 4,
1969 578
8. Comments on William E. Scott's letter to Senator
Nelson by "Indiana Reader;" Lane R. Baird,
vice president, Parrish & Clark, Inc. (Dodge), 1001
S. Boston St., Tulsa, Okla. 74119; and Raymond
Feidcn, president, Hall Oldsmobile, Inc., 1900
Coney Island Ave., Brooklyn, N.Y. 11230 (from
Automotive News, August 11, 1969) __. 580
VII
II. Correspondence and materials— Continued
F. Comments of dealers — Continued
9. Letter from Jack H. Leopold, Twin Town Sales &
bervice Inc. (Plymouth, Chrysler, Imperial), 630
New York Aye., Huntington, N.Y. 11743, to
Letterbox column. Automotive News, August 18, Page
G. Letter dated June" 2^, "l969V from' L. "?: FrancYs," pVesidenY, ^^°
Francis Chevrolet Company, 11200 St. Charles Rock
Road Bndgeton, Mo. 63042, to the Honorable John
Mitchell, Attorney General of the United States, and
related correspondence:
1. Letter from Mr. Francis to the Attorney General 581
2. Letter dated July 18, 1969, from Senator Biblelo
Senator Symington _ _ coo
3. Letter dated July 24, 1969, from" L."r "Francis" to
Senator Symington. _ _ roo
4. Letter dated July 28, 1969, from Senator "s'ymington
to Senator Bible. _ _ _ I __ "iSS
H. Letter dated July 2, 1969, from Irving Berm"an72"9'5 Ce'ntral
Park West, New York, N.Y. 10024, to Ralph Nader,
and related correspondence:
1. Letter from Irving Berman to Ralph Nader. _ 583
2. Letter dated August 14, 1969, from Raymond D
Watts, counsel. Senate Small Business Committee
to Irving Berman ' gg^
3. Letter dated August 18, 1969, from YVving" Berman
to Senate Small Business Committee ... _ _ 585
1. Statistical data on U.S. domestic make new-car dealershi'ps"
1. Number of U.S. (domestic make) new-car dealer-
ships, 1947-69, Automotive News, 1969 Almanac
issue.
585
2. Numbers of dealers handling U.S." makes 'of "passen-
ger cars, by make, 1966-69:
- Tables from 1967, 1968 and 1969 Automotive
News Almanac issues _ _ _ 536
Article by John K. Teahen, Jr., "U^S." Deafer
Total Dips; 200 Drop Out in 1st Half," and
supporting table, Automotive News, August
4:j lyby p\ftQ
3. New-car sales per U.S. ma"ker: c"o"r"p"or"ate "t'otafs" per
dealership, 1955-68, Automotive News, 1969
Almanac issue cqq
4. Average numbers of new-car sales "per deafer "13
principal makes, 1957-68, Automotive News, 1967
and 1969 Almanac issues _ _ _ 599
J. Statistical data on imported new-car dealershi"ps" "in" the
United States:
1. Number of imported-car dealerships in United
States, 1957-69:
Tabids from 1967, 1968 and 1969 Automotive
News Almanac issues and Automotive News
August 25, 1969 ' 591
Table, "Import Dealers, 1957-1969," 'knio-
motive News, August 25, 1969 592
Article by John K. Teahen, Jr., "Import
Dealerships Increase to 8,083; Exclusives
Gaining," Automotive News, August 25
1969 ' ego
2. Numbers of dealers handling imported" pass"en"o-er
ioaVih^o^'''}^'^ ^^^*^^' "^y "^ake, 1966-69, from
1967, 1968 and 1969 Automotive News Almanac
issues and Automotive News, August 25, 1969. 594
6. Average numbers of imported-car sales per dealer 25
principal makes, 1959-68, Automotive News 1969
Almanac issue, April 28, 1969. _ 595
VIII
II. Correspondence and materials — Continued
K Business failures of new-car dealers in the United States,
1954-68, Automotive News, 1969 Almanac issue, April Pase
28, 1969 (from Dun & Bradstreet, Inc.) 596
L. Statistical data on U.S. truck outlets:
1. Number of truck outlets in the United States,
1961-69, Automotive News, 1969 Almanac issue-. 597
2. Numbers of sales outlets for trucks, by make, 1966-
69, Automotive News, 1967, 1968, and 1969
Almanac issues 597
3. Average numbers of truck sales per outlet, 14 (or
15) principal makes, 1960-68, Automotive News,
1967, 1968, and 1969 Almanac issues 598
M. Article, "Is the Leasing Tail Wagging the Dog?", Car
Dealer Newsletter, July 21, 1969 599
N. Article, "Try to Interest Nader in Dealer Problems," Car
Dealer Newsletter, July 28, 1969 600
O. Articles on manufacturers' computer-accounting systems for
dealers :
1. Article, "Is Ford's New Computer Test Last Arm of
Octopus To Strangle Independent Dealer?", Car
Dealer Newsletter, June 23, 1969 601
2. Article, "GM versus Ford Approach to Computeriz-
ing," Car Dealer Newsletter, July 14, 1969 602
P. Article by Bob Fendell, "Ford Dealer Suit Seeks To Bar
Factory Retailing," Automotive News, September 1, 1969. 605
III. Automobile Manufacturers Association publications on economic
importance of motor vehicles in the several States of the United
States :
A. Note 607
B. "Motor Vehicles in Alabama" 609
C. "Motor Vehicles in California" 627
D. "Motor Vehicles in Florida" 646
E. "Motor Vehicles in Michigan" 664
F. "Motor Vehicles in Nevada" *. 686
G. "Motor Vehicles in New York" 702
IV. Correspondence from automobile manufacturers in response to
points and questions raised at the hearings:
A. Letter dated July 30, 1969, from Byron J. Nichols, vice
president, marketing, Chrysler Corp., Detroit, Mich.
48231, to Senator Nelson 721
B. Letter dated August 8, 1969, from Rodney W. Markley, Jr.,
vice president, Washington staflf. Ford Motor Co., 815
Connecticut Ave. NW., Washington, D.C. 20006, to
Senator Nelson 722
Enclosure: List of New York City new-car dealers
holding Ford Motor Co. franchises 723
C. Letter dated August 29, 1969, from Ross L. Malone, vice
president and general counsel, General Motors Corp., 767
Fifth Avenue, New York, N. Y. 10022, to Senator Nelson.. 724
Enclosure: List of New York City operations retailing
new General Motors passenger cars as of Julj^ 31,
1969 725
D. Letter dated Oct. 2, 1969, from John M. Sheridan, assistant
corporate secretary and general attorney, American
Motors Corp., 14250 Plymouth Rd., Detroit,'Mich. 48232,
to Senator Nelson 727
Enclosure: List of New York City new-car dealers hold-
ing American Motors Corp. franchises 727
V. Correspondence and materials on the automobile manufacturers,
their economic and social role:
A. Table: Net income as a percent of net worth for the four
major U.S. automobile manufacturers: 1957 — first 6
months, 1968 (by the Legislative Reference Service of
the Library' of Congress, from Moody's Industrial
Manual) 729
IX
V. Correspondence and materials — Continued
B. Letter dated October 21, 1968, from Karl U. Smith, professor,
department of psychology, University of Wisconsin, Madi-
son, Wis. 53706, to Senator Nelson and Representative Page
Kastenmeier 729
C. Articles on growing markets for U.S. auto manufacturers:
1. Article, "Bulk auto sales burn up the road," Business
Week, October 12, 1968 73O
2. Article, "Roche Sees Huge Gain in Overseas Car
Sales," the Washington Post, May 24, 1969 732
D. The Federal Trade Commission's investigation of new-car
price advertising:
1. Letter dated June 20, 1969, from William D. Dixon,
Division of Trade Restraints, Federal Trade Com-
mission, to Senator Bible 733
Enclosure: Federal Trade Commission, "Notice
of Public Hearing and Opportunity To Submit
Data, Views, or Arguments," dated May 23,
1969 733
Enclosure: Federal Trade Commission press
release, "FTC Initiates Public Hearings on
Price Advertising Practices of the Automobile
Industry," dated May 23, 1969 735
2. Article by Dan Fisher, "Auto Industry Attacked on
Ads," the Milwaukee Journal, June 16, 1969 736
E. Consumer complaints about automobile defects:
1. Letter dated July 1, 1969, from Charles Kligman, 629
East 77th St., Brooklyn, N.Y. 11236, to Senator
Nelson 737
Enclosure: Letter dated June 16, 1969, from
Charles Kligman to Edward N. Cole, presi-
dent. General Motors Corp 738
Enclosure: Article, "GM Assails Critics Who Say
Auto Firms Shortchange Customers — Cole's
Attack Is Sharpest by Company in Years,
Indicates Hardening Stance in Industry," the
Wall Street Journal, June 16, 1969_- ___ ._ 739
2. Letter dated August 5, 1969, from D. F. Woofley, Jr.,
26 Bennington Rd., Convent Station, N.J. 07961,
to customer relations manager, Ford Motor Co.- - 739
3. Letter dated August 5, 1969, from Christopher
Wiese, 5036 W. K. K. River Parkway, Milwaukee,
Wis. 53219, to Senator Nelson 741
Enclosure: Letter dated July 28, 1969, from
Christopher R. Wiese to Volkswagen of
America, Inc _ _ 741
4. Article by UPI, "Public Ceremony— Angered" "by-
Repairs, Owner Buries Ford," the Washington
Daily News, January 2, 1969 743
5. Statement in the House of Representatives by Rep-
resentative Charles A. Vanik, "Ford Motor Co.
Announces Reduced Warranty Period," the
T. rr. • Congressional Record, September 3, 1969 744
F. Two editorials from Automotive News:
1. "Communicating in a Frustrating Time . . . It's
What You Do That Talks," Automotive News,
June 2, 1969 _ 744
2. "Should We Hide Our Heads in the Sand'?— An
Industry and Its Critics," Automotive News,
August 11, 1969 745
G. Letter dated August 14, 1969, from David H. 'Libby, Libby
Distributing Co., 120 Four Winds Rd., Portland, Maine
04102, to Senator Nelson, and related correspondence:
1. Letter from David H. Libby to Senator Nelson. _. 745
2. Letter dated August 25, 1969, from Senator Nelson
to David H. Libby _ _ 746
H. Letter dated June 29, 1969, from James G. Ma'ier "(former
General Motors employee), 18750 Philomene St., Allen
Park, Mich. 48101, to Senator Nelson _ _ 747
VI. Economic analysis of Ford Motor Co. pricing policy as revealed by
comparison of factory cost data and wholesale price list: paper
by Paul Burgess and Fred R. Glahe; comment by Mark a.
SpnllOJlClc*
A. Letter of transmittal dated April 16, 1969, from Fred R.
Glahe, associate professor of economics. University of
Colorado, Boulder, Colo. 80302, to Raymond D. Watts, i'aee
counsel. Senate Small Business Committee. _------- 748
B. Paper by Paul Burgess and Fred R. Glahe, The Price
Equation: Some Microeconomic Evidence" . - 749
C. Comment on Burgess and Glahe's paper by Mark B.
Schupack, associate professor of economics, Brown
University r"V
VII. The Securities and Exchange Commission's new requirements for
line-of-business sales and profits reporting by conglomerate
corporations, and related materials:
A. Statement by Senator Nelson, "The Securities and Exchange
Commission's New Rules on Disclosures by Conglom-
erates," with exhibits, the Congressional Record, July
18, 1969 -^------ "^"
Exhibit 1: Letter dated June 20, 1969, from Senator
Nelson to the Honorable Hamer H. Budge, Chair-
man, Securities and Exchange Commission (en-
closures omitted) 759
Exhibit 2: Letter dated July 9, 1969, from Chairman
Budge to Senator Nelson, with enclosures 761
Exhibit 2A (enclosure) : Memorandum prepared by
Office of Chief Accountant and Division of
Corporation Finance, Securities and Exchange
Commission, with respect to letter dated June
20, 1969, addressed to Chairman Budge by
Senator Gaylord Nelson 762
Exhibit 2B (enclosure): Securities and Exchange
Commission, Securities Act release No. 4922,
dated September 4, 1968: "Notice of Proposed
Amendments to Forms S-1, S-7 and 10" 764
Exhibit 2C (enclosure): Securities and Exchange
Commission, Securities Act release No. 4949,
dated February 18, 1969: "Notice of Revision
of Proposed Amendments to Forms S-1, S-7
and 10" 766
Exhibit 3: Securities and Exchange Commission,
Securities Act release No. 4988, dated July 14, 1969:
"Adoption of Amendments to Forms S-1, S-7 and
10"_.- 770
Exhibit 4: Article, "Revision of Divisional Reporting
Proposals Draws Negative Comment," Securities
Regulation and Law Report, June 25, 1969 774
Exhibit 5: Article by Jan Nugent, "Big Firms Fight
Data Requests," the Journal of Commerce, July 9,
1969 (omitted here; appears as exhibit 29, p. 553) — 778
Exhibit 6: Article by Edwin L. Dale, Jr., "Disclosure
Rules For Big Divisions Adopted by SEC," the
New York Times, July 15, 1969 778
Exhibit 7: Article, "SEC Sets Conglomerate Reporting
Guide; Regulation Altered To Help Small Firms,"
the Wall Street Journal, July 15, 1969 778
Exhibit 8: Article, "SEC Ordering Conglomerates To
Explain Net," the Washington, D.C. Evening Star,
July 14, 1969 779
Exhibit 9: Article, "SEC Adopts Disclosure Regula-
tions," from the Washington Post, July 15, 1969 780
B. Letter dated July 16, 1969, from the Honorable Hamer H.
Budge, Chairman, Securities and Exchange Commission,
to Senator Nelson 780
XI
VII. The Seciirities and Exchange Commission's — Continued
C. Excerpts from "Public Reporting by Conglomerates — The
Issues, the Problems, and Some Possible Solutions,"
edited by Alfred Rappaport, Peter A. Firmin, and Stephen Pa&e
A. Zeflf 781
1. Introductory Note by Senator Nelson 781
2. Table of contents of "Public Reporting by Con-
glomerates" 782
3. Paper by John M. Blair, "Antitrust Implications of
Conglomerate Reporting" 782
4. Paper by Dudley E. Browne, "Discussion of SEC
and Antitrust Viewpoints" 791
5. Appendix : examples of segmental reporting 796
D. Statistical materials from the Bureau of the Census on the
reported enterprise industry category activities of the 200
largest manufacturing companies 812
1. Letter dated October 23, 1968, from Russell C. Parker,
senior staff economist, Cabinet Committee on
Price Stability, to Murray D. Dessel, coordinator,
enterprise statistics. Bureau of the Census 812
2. Letter dated December 31, 1968, from Murray D.
Dessel to Russell C. Parker 812
3. Tables prepared by the Enterprise Statistics Staff,
U.S. Bureau of the Census:
Table 1. — Counts of the 200 largest manufac-
turing companies and their reported enter-
prise industry category activities. Crossclassi-
fied by company sales rank and by percent of
total sales reported in the primary enterprise
industry category: 1963 815
Table 2. — Counts of the 200 largest manufac-
turing companies and their enterprise industry
category activities in 1963, crossclassified by
company sales rank and by percentage of
total company sales that would be reported
for separate enterprise industry categories
under various proposed SEC reporting rules. 816
Technical notes to foregoing tables 817
E. Staff of the Cabinet Committee on Price Stability, "Public
Financial Reporting by Conglomerate Firms" (excerpt
from Study Paper No. 2: "Industrial Structure and Com-
petition Policy") 820
Appendix Table 11: Number of broadly defined indus-
trial categories for which the 200 largest companies
would provide separate reports under selected report-
ing rules 821
F. Commentary of the Chrysler Corp., Ford Motor Co., and
General Motors Corp. on the September 1968 and Febru-
ary 1969 proposals of the Securities and Exchange Com-
mission on product-line and line-of-business reporting 821
1 . Comments filed by the Chrysler Corp 822
(a) Letter dated November 1, 1968, from R. J.
Helder, comptroller, Chrysler Corp., De-
troit, Mich., to Orval L. DuBois, Sec-
retary, Securities and Exchange Com-
mission 822
(6) Letter dated February 28, 1969, from R. J.
Helder to Orval L. DuBois 823
2. Comments filed by the Ford Motor Co 824
(a) Letter dated October 28, 1968, from Fred G.
Secrest, vice president-controller. Ford
Motor Co., the American Road, Dear-
born, Mich., to Orval L. DuBois 824
(6) Letter dated March 7, 1969, from Allan
Wear, assistant controller, Ford Motor
Co., Dearborn, to Orval L. DuBois 825
XII
VII The Securities and Exchange Commission's— Continued
F Commentary of the Chrysler Corp.— Continued Page
3 Comments filed by the General Motors Corp. . 825
(a) Letter dated November 4, 1968, from K. C.
Gerstenberg, executive vice president,
General Motors Corp., General Motors
Building, Detroit, Mich., to Orval L.
DuBois ----- 825
(6) Letter dated November 4, 1968, from T. A.
Murphy, comptroller. General Motors
Corp., Detroit, to Orval L. DuBois 829
(c) Letter dated March 7, 1969, from T. A.
Murphy, treasurer. General Motors Corp.,
Detroit, to Orval L. DuBois 831
(d) Letter dated March 10, 1969, from R. C.
Gerstenberg to Orval L. DuBois 832
G Securities and Exchange Commission proposals of September
4 1969, for revision of annual report Form 10-K, to re-
quire line-of-business reporting by conglomerates, and
other proposals .--.--- Vt" "'" V^" '" 1
1. Securities and Exchange Commission News Digest
No. 69-169, "Disclosure Rules Modification Pro-
posed," dated September 4, 1969 834
2. Securities and Exchange Commission, Securities Act
Release No. 8682, dated September 4, 1969,
"Notice of Proposed Revision of Form 10-K" 836
3. Article by Wayne E. Green, "SEC Will Propose
Sweeping Changes in Rules on Companies' Dis-
closures— Annual Report Forms Would Include
Firms' Current Developments, More Data," the
Wall Street Journal, September 2, 1969 866
VIII. United States Steel Corp.'s response to criticism of the American
steel industry by Willard F. Mueller, Walter Adams, and Joel B.
Dirlam in initial hearing on "Planning, Regulation, and Compe-
tition" and related materials:
A. Letter of transmittal dated October 23, 1967, from John S.
Tennant, general counsel. United States Steel Corp., 71
Broadway, New York, N.Y., 10006, to Senator Smathers- 868
B. Paper by David R. Dilley and David L. McBride, United
States Steel Corp., "A Brief Critique of the Adams-Dirlam
Thesis" 868
C. Letter dated" November 3, 19'67, from Senator Smathers to
John S. Tennant 871
D. Letter dated August 27, 1969, from Senator Nelson to John
S. Tennant 872
IX. Selected materials on corporate giantism and public policy:
A. Address by Hon. John N. Mitchell, Attorney General of the
United States, "The Conglomerate Merger Movement,"
before the Georgia Bar Association, June 6, 1969 873
B. Report of President Johnson's Task Force on Antitrust
Pohcy ("The Neal Report"), filed July 5, 1968, released
May 21, 1969 877
1. Membership of the task force 877
2. Letter of transmittal dated July 5, 1968, from Phil C.
Neal, Chairman, Task Force on Antitrust Policy,
to President Johnson 878
3. Outline of contents, text of report, appendixes, and
separate views 879
C. Report of President Nixon's Task Force on Productivity and
Competition ("The Stigler Report"), the Congressional
Record, June 16, 1969 906
1. Summary of recommendations of the Task Force on
Productivity and Competition 906
2. Report of the Task Force on Productivity and Com-
petition, with dissenting views 907
XIII
IX. Selected materials on corporate giantism — Continued
C. Report of President Nixon's Task Force — Ck)ntinued
3. Working papers for the Task Force on Productivity
and Competition:
"Tlie Conglomerate Merger," by Ronald H. ?»««
Coase 919
"Reciprocity," by George J. Stigler 920
"Vertical Integration by Merger or by Con-
tract," by Ward S. Bowman 920
"Advertising and Product Dififerentiation," by
Richard Posner 922
D. Commentary on the Attorney General's speech, the "Neal
Report" and the "Stigler Report" 924
1. Article by Morton Mintz, "Justice Dept. to Reveal
Secret Report on Antitrust Laws," the Washington
Post, May 18, 1969 924
2. Article by Stephen M. Aug, "Secret Nixon Study
Would Avoid Probe of Conglomerates," the
Evening Star, Washington, D.C., May 22, 1969_. 925
3. Statement by Senator Nelson, "The Stigler Report
on Antitrust Policy and Enforcement," with
insertions in the Record, the Congressional
Record, June 12, 1969 927
Insertion: text of "Stigler Report" (omitted
here; see part C of this appendix IX).
Insertion: article by Stephen M. Aug (omitted
here; see part D-2 of this appendix IX).
Insertion: article by Eileen Shanahan, "Trust-
Law Shift Urged," the New York Times,
May 22, 1969 928
Insertion: article, "The Switch on Mergers:
Report of Panel Picked by Johnson Runs
Counter to New Tack on Conglomerates,"
Business Week, May 24, 1969 930
Insertion: article by Morton Mintz, "Caution
Urged With Mergers," the Washington Post,
May 23, 1969 931
Insertion: article by Louis M. Kohlmeier,
"Study of Conglomerates for Nixon Urges No
Antitrust Suits To Bar Their Mergers," the
Wall Street Journal, May 23, 1969 931
Insertion: article, "Antitrust: 'Let's Turn It
Loose'," Newsweek, June 2, 1969 931
Insertion: article by Helen Kahn, "Nixon Task
Force Writes Its Own Antitrust Report —
Different View Taken on How To Handle
U.S. Auto Industry," Automotive News, June
9, 1969 934
Insertion: article, "Nixon Task Force Disagrees
With Present and Past Administrations'
Merger Policies," Antitrust and Trade Regu-
lation Report, June 10, 1969 936
4. Statement by Senator Talmadge, "Report of Presi-
dent Nixon's Task Force on Productivity and
Competition," with insertions in the Record, the
Congressional Record, June 16, 1969 938
Insertion: text of "Stigler report" and working
papers (omitted here; see part C of this
appendix) .
Insertion: address by Hon. John N. Mitchell
(omitted here; see part A of this appendix).
Insertion: article by Lyle Denniston, "Mitchell
Warns 'Top 200' on Mergers," the Evening
Star, Washington, D.C., June 6, 1969 939
XIV
IX. Selected materials on corporate giantism — Continued
D. Commentary on the Attorney General's speech — Continued
5. Letter dated July 11, 1969, from Nick Papolos,
Investors in America, 6005 Eighth Ave. North,
St. Petersburg, Fla. 33710, to Senator Nelson,
with enclosure and related correspondence:
Enclosure: Memorandum dated July 7, 1969,
"Analysis of Address by John N. Mitchell
before the Georgia Bar Association, June 6, Page
1969" 940
Letter dated July 23, 1969, from Senator Nelson
to Nick Papolos 946
E. Report by the Bureau of Economics, Federal Trade Com-
mission, "Current Trends in Merger Activity, 1968,"
March 1969 947
F. Article by Richard J. Barber, "Big, Bigger, Biggest —
American Business Goes Global," the New Republic,
April 30, 1966 969
G. Article by Richard J. Barber, "The New Partnership — Big
Government and Big Business," the New Republic,
August 13, 1966 974
H. Article by Max Ways, "Antitrust in an Era of Radical
Change," Fortune, March 1966 982
I. Article by Arthur Barber, "Emerging New Power: The
World Corporation," War/Peace Report, October 1968.- 990
J. Article by George W. Ball, "Making World Corporations
Into World Citizens," War/Peace Report, October 1968_ 997
K. Table, "Money Power" (gross national products of countries
and net sales of companies interspersed : first 40, by rank —
1966), War/Peace Report, October 1968 1001
L. Editorial, "The World Corporation," War/Peace Report,
October 1968 1002
M. Article by Howard V. Perlmutter, "Super-Giant Firms in
the Future," the Wharton Quarterly, winter 1968 1003
N. Two commentaries by Ed Wimmer, vice president. National
Federation of Independent Business, 116-120 East Second
St., Covington, Ky. 41011 1012
1. Article, "Agri-Business Centers— Big New Threat,"
the Independent Banker, June 1969 1012
2. Broadcast, "Federal Help or Self-Help?" radio sta-
tion WPFB, Middletown, Ohio, August 20, 1969. 1014
O. Article by Edward P. Morgan, "The American Dream — Is
the GNP the Holy Grail?" the Washington Post, July 5,
1969 - 1017
P. Article by Neil H. Jacoby, "The Conglomerate Corpora-
tion," the Center Magazine, July 1969 1018
Q. Bibliography by Julius W. Allen, "Conglomerate Mergers:
A selected bibliography, 1955-68" 1032
R. Article by W. H. Ferry, "The Unanswerable Questions,"
the Center Magazine," July 1969 1033
S. Article by John R. Seeley, "The Corporation and Youth,"
the Center Magazine, July 1969 1039
HEARING DATES
July 9, 1969:
Morning session 1
July 10, 1969:
Morning session 97
July 11, 1969:
Morning session 491
THE ROLE OF GIANT CORPORATIONS IN THE
AMERICAN AND WORLD ECONOMIES: AUTOMOBILE
INDUSTRY— 1969
WEDNESDAY, JULY 9, 1969
U.S. Senate,
Subcommittee on Monopoly of the Sem:ct
Committee on Small Business,
Washington^ D.C.
The subcommittee met, pursuant to notice, at 10 :15 a.m., in room
G-308, New Senate Office Building, Senator Gaylord Nelson (chair-
man of the subcommittee) presiding.
Present : Senators Nelson, Dole, and Cook.
Also present: Chester H. Smith, staff director and general coun-
sel ; Raymond D. Watts, counsel ; and James P. Duffy III, minority
counsel.
Senator Nelson. Our witnesses this morning are Mr. Raphael Cohen,
chairman, executive committee of the Metropolitan Independent
Dodge- Chrysler Dealers Association, Inc., of New Jersey, Mr. Alex-
ander Hammond, counselor at law. New York, Mr. Thomas C. Mann,
president. Automobile Manufacturers Association.
Unfortunately the Senate is going into a closed session at 12:30.
I do not know how long we will be in session. And so, it puts some
limitations on our discussion here. It may even be worthwhile to —
if we think it is necessary and agreeable — to carry on some of the
exchange of questions and dialog at a later date.
I have an opening statement but because of the limitations on time,
I will simply release it to the press and have it printed in the record
and not take up the time of these hearings between now and 12 :30 in
reading it.
(The complete prepared statement and supplemental information
submitted by Senator Nelson follows:)
OPENING STATEMENT BY SENATOR GAYLOED NELSON,
SUBCOMMITTEE CHAIRMAN
The Monopoly Subcommittee today begins an inquiry into the role
of giant corporations in the American and world economies. We are
starting our study with the automobile industry.
I call this a beginning, even though we are, of course, building on
the hearings on planning, regulation, and competition held by this
subcommittee and Senator Morse's retailing subcommittee in the last
Congress. I presume to say we are "starting," even though I know, and
gratefully know, that we are treading ground that has been plowed
diligently for many years by the Senate Judiciary Subcommittee on
(1)
Antitrust and Monopoly, first in the late Senator Kef auver's adminis-
tered prices hearings, more recently in the eminent hearings on
economic concentration presided over by Senator Hart.
But we are the Senate Small Business Committee's subcommittee,
so our interests and approach will be different, though the basic prob-
lems are the same. Those problems, as I know Senator Hart agrees and
I imagine Senator Kefauver would have agreed, are thorny enough
to occupy the attention of every Senate committee and subcommittee,
as they impinge upon the jurisdictional concerns of all.
The basic problem is well defined and may be summarized very
briefly : ever greater power in ever fewer hands.
The 200 largest U.S. corporations now own over 58 percent of all
assets used in manufacturing. Two decades ago, the 200 largest cor-
porations owned 48 percent of those assets.^
The share of assets held by the 100 largest corporations of today is
about equal to the share held by the 200 largest of 1948.-
For these increases in aggregate concentration to occur, there must
naturally have been great increases in the size of individual corpora-
tions. An examination of the annual directories of the 500 largest
industrial corporations, compiled by Fortune^ bears that out.
In 1954, the first year that Fortune published its directory, the assets
of number 500 on the list (it was Copperweld Steel that year) were
$36.9 million, and its sales were $49.7 million. In 1968, the 500th cor-
poration on Fortune's list (Briggs & Stratton) had assets of $77.6
million and sales of $143.7 million.
In both 1954 and 1958, and every year in between, General Motors
headed the list of Fortune's 500 ; but in the directory's first year, GM's
sales were under $10 billion, while in 1968 they were almost $23 billion.
Assets of No. 1 were $5.1 billion in 1954 and $14 billion in 1968.
Professor Perlmutter of the Wharton School of Finance and Com-
merce believes, on the basis of "discussions with political and business
leaders over the past 6 years," that the commerce and industry of
the whole world will be dominated by about 300 supergiant interna-
tional corporations in 1985. He suggests that General Motors in that
year might have sales of $160 billion.^
To me, it is an astonishing thing that so few people seem to be aware
of these trends and, among those who are aware, so few are curious,
much less concerned about them. Americans, ever suspicious of concen-
trated political power, have permitted concentrations of economic
power to develop, substantially unchallenged, that would make a
Roman em])eror gasp.
I think it i)ossible, even ))robable, that the reason this power has
been so little challenged is that most ))eople who think about it at all
believe that it is being used wisely and for their benefit, as consumers,
jobholders, share owners, or all three. Obviously, there is much truth
in that belief.
Nevertheless, there are questions. Out of the thousands of questions
that might be asked, I suggested seven in a report I submitted recently
to the Senate Small Business Committee sunnnarizing last year's
hearings.
.>^lm-^*^T5" V *•'*;. 9'J''',"*'^^^'"'?,'"^ ^" P""'^ stability. "Industrial Structure and Com-
*Ibk" '^'' ^*"*^^ Vfi\)^v No. 2, pp. 45-46 of collected study papers (January 1969).
wi"nVoT?QrQ^'i^i^^'"'"l""-^^.V "^"E^'"-^'*'^"* ^"""s i° t^e Future," Wharton Quarterly,
Winter 1968. The text of the article will be found in appendix IX-M.
There are copies of my report available in the room, and it will be
printed in the record, along with other materials,* so I shall not re-
peat the seven questions now.
There is, however, one point that I want to make clear at the outset.
We are here to try to learn something, not to teach or preach some sure
gospel that we already know. We have sought and will continue to
seek a wide range of views from a wide range of backgrounds. We
expect, as a result, to get a wide range of quite varied perceptions on
what the role of giant corporations is and might become ; but it would
be quite impossible now to predict what this subcommittee's own ulti-
mate view may be, if, indeed, it ever forms one. At one extreme, the
ultimate conclusion might be that giant corporations pose a serious
threat to democracy, peace and freedom. At the other, the conclusion
might be that the giant corporation is a logical and necessary develop-
ment in our evolution from a competitive to a cooperative mode of
human existence and therefore may be man's last, best instrument for
building a peaceful and abundant world society. Or we could find
something in between, or touches of both.
It is worth noting, however, that the trend so clearly projected does
not leave much room for small business, as we have known it, in the
most significant parts of the economy — manufacturing, especially.
That will be true whether the conclusion is that the growth of corpo-
rate giants and economic concentration is a benign or malignant
development.
There is just no avoiding the fact that as big business becomes more
important, small business becomes less so.
And that, for what it is worth, is my answer to the question I have
been asked : "Wliy should a Senate small business subcommittee hold
hearings on giant corporations?" To the next question that springs to
the mind of some — "Why start with the automobile industry ?" — ^there
is an even shorter, simpler answer: that is where the very largest
corporations are.
General Motors and Ford are perennially Nos. 1 and 3 on Fortune's
list. Chrysler is currently No. 5 and has never been lower than No. 12.
Even American Motors, the midget of this industry, has ranked be-
tween Nos. 38 and 131 during the 15 years Fortune's directory has
been published. (See appended table.) If we cannot understand the
role of giant corporations in this compact industry of four giant cor-
porations, we cannot understand it anywhere.
In the hearings this week, we shall use the panel session form.
Witnesses will sit together. To the utmost extent feasible, all will
complete their statements before any are questioned, and then we
shall, as the group dynamics people like to say, interact — witnesses
and committee members together.
* The materials intended to be appended to the record Include : excerpt from the Senate
Small Business Committee's 18th annual report, summarizing the 1967 hearing ; my re-
port to the Senate Small Business Committee summarizing the 1968 hearing ; my invi-
tation to Mr. Lyman Slack, president of the National Association of Automobile Dealers,
to participate in today's hearing (invitations to other witnesses were substantially
similar) ; Mr. Slaclc's reply, declining the invitation : a paper by Messrs. Burgess and
Glahe of the -University of Colorado on the Ford cost data presented at the 1968 hearing;
other miscellaneous correspondence and materials, received and to be received, on the
subject of these hearings. The first two documents mentioned follow this statement. The
remainder will be found in the aippendlxes, printed separately as Part lA of this record.
32-493 O— 69— pt. 1-
Our fir^ panel is concerned with distribution in the automobile in-
dustry, and its members are Raphael Cohen, Alexander Hammond,
and Thomas C. Mann.
Mr. Cohen is chairman of the executive committee of the Metropoli-
tan Independent Dodge- Chrysler Dealers Association, of the New
York area.
Mr. Hammond, an attorney in private practice in New York, is a
leading practitioner under the Automobile Dealers Day in Court Act.
Mr. Mann, the former distinguished Under Secretary of State, is
now the president of the Automobile Manufacturers Association.
I shall insert in the record before their testimony, without objec-
tion, biographies of each of them. Following Mr. Cohen's biography,
I also want to insert an editorial about him that appeared recently in
Automotive News. It is very complimentary.
(The table, the excerpt from the 18th Annual Report of the Senate
Small Business Committee, and the report to the Senate Small Busi-
ness Committee by Senator Nelson, referred to in the chairman's state-
ment, follow :)
EXHIBIT 1
(SUBCOMMITTEE CHAIRMAN'S EXHIBIT NO. 1: TABLE PREPARED BY THE SUBCOMMITTEE STAFF.-THE
"BIG FOUR" OF THE U.S. AUTOMOBILE INDUSTRY, RANK BY SALES IN FORTUNE MAGAZINE'S
LIST OF 500 LARGEST U.S. INDUSTRIAL CORPORATIONS, 1954-68)
Rank by sales
General
American
Motors
Ford
Chrysler
Motors
(0
6
76
3
5
81
3
7
87
3
6
112
3
3
3
11
9
7
83
47
38
3
3
12
12
49
44
3
7
44
3
6
55
2
5
63
2
5
92
3
5
113
3
5
131
Year:
1954.
1955.
1956.
1957.
1958
1959
1960
1961
1962
1963
1964
1965
1966
1%7
1968
> Not listed. Ford's financla. data (and stock) were not yet public.
Source: Table prepared by the subcommittee staff from the directories of the 500 largest industrial corporations pub-
lished annually by Fortune.
Exhibit 2
(Subcommittee chairman's exhibit No. 2: Excerpt from the Senate Small Busi-
ness Committee's 18th annual report, S. Rept. 1155, 90th Congress, 2d session
(1968, for year 1967) : chapter V, section A, "Hearings on planning, regulation,
and comi)etition.")
Chapter V. Antitrust Activities
A. HE5ARINGS ON PLANNING, REGULATION, AND COMPETITION
The New Industrial State, by John Kenneth Galbraith, a best-seller from the
day of its publication in June 1967, has enjoyed, quite possibly, more attention
from the general public than any other treatise on economics in the long and
stormy history of "the dismal science."
The main thrust of the book was known before its publication, througli lec-
tures ^ and articles ^ of the same title which Professor Galbraith had published
in late 1966 and early 1967. A principal conclusion of the book — that giant cor-
porations and pervasive industrial concentration are natural and inevitable de-
velopments of an industrial society, and therefore desirable — had excited the
interest and concern of Senator Morse at the time of your committee's hearings
in March on the status and future of small business.' The Senator inserted one
of Galbraith's lectures in the Jiearing record * and questioned Federal Trade Com-
mission Chairman. Paul Rand Dixon* and Assistant Attorney General (Anti-
trust Division) Donald F. Turner" about them.
On May 18, 1967, Senator Morse announced ' that his Subcommittee on Retail-
ing, Distribution, and Marketing Practices, and the Subcommittee on Monopoly,
chaired by Senator Nelson, would hold a joint public hearing for the purpose of
confronting Professor Galbraith with some of his oflScial and scholarly critics — ■
and subjects of his own criticism.
The witnesses who faced the two subcommittees, and one another, on June
29, 1967, accordingly, were Dr. Galbraith; Assistant Attorney General Turner;
Dr. Willard F. Mueller, Chief Economist of the Federal Trade Commission ; and
Dr. Walter Adams, professor of economics at the University of Michigan. The
question before them, as posed by Senator Morse, was "Are planning and regu-
lation replacing competition in the new industrial state?"*
Dr. Galbraith's statement, in your committee's judgment, amounted to an em-
phatic "Yes." The answers of the other three witnesses to the title question were
varying shades of "No."
Citing familiar and generally accepted statistics on the disproportionate per-
centages of manufacturing assets," employment," defense contracts," research and
development expenditures," and gross revenues " accounted for by the very large
corporations, Dr. Galbraith argued :
"* * * by common agreement the heartland of the industrial economy is now
dominated by large firms. The great bulk of American business is transacted
by very large corporations." "
The giant corporations very substantially control their supplies and suppliers,
their prices, their customers, and, beyond that, "not surprisingly, impose both
their values and their needs on the society they are assumed to serve."^
^ Six Reith lectures entitled "The New Industrial State" were delivered by John Ken-
neth Galbraith over the facilities of the British Broadcasting Corp., In 1966 and published
in The Listener, BBC's weekly magazine, issues of Nov. 17 and 24, Dec. 1, 8, 15, and 22,
1966.
2 A series of three articles on "The New Industrial State," by Galbraith, was published
in The Atlantic, issues of April, May and June 1967.
3 Hearings before the Select Committee on Small Business, U.S. Senate, on the status
and future of small business In the American economy, 90th Cong., first sess., in 2 parts
(1967). See ch. VII, sec. A, Infra.
* Id., at 438.
6 Id., at 438-447.
8 Id., at 749-750. 762-763, 766, 772-776.
■^ Congressional Record, p. S7109 (daily edition. May 18, 1967).
8 Hearing before subcommittees of the Select Committee on Small Business, U.S. Senate,
on planning, regulation, and competition, 90th Cong., first sess. (1967) ; hereinafter
In this section referred to as "hearing."
* "In 1962, the five largest industrial coriwrations in the United States, with combined
assets in excess of $36 billion, possessed over 12 percent of all assets used in manufactur-
ing. The 50 largest corporations had over a third of all manufacturing assets. The 500
largest corporations had well over two-thirds. Corporations with assets in excess of $10
million, some 2,000 in all, accounted for about 80 percent of all the resources used in
manufacturing in the United States," hearing, p. 5.
^'' "In the mid-1950's. 28 corporations providetl approximately 10 percent of all em-
ployment in manufacturing, mining, and retail and wholesale trade. Twenty-three corpora-
tions provided 15 percent of all the employment In manufacturing." ibid.
" "In the first half of that decade — June 1950-June 1956 — a hundred firms received
two-thirds by value of all defense contracts ; 10 firms received one-third," ibid.
>- "In 1960 four corporations accounted for an estimated 22 percent of all industrial
research and development expenditures. Three hundred and eighty-four corporations
employing 5,000 or more workers accounted for 85 percent of these research and develop-
ment expenditures ; 260,000 firms employing fewer than 1,000 accouoited for only 7 per-
cent," ibid.
""[I]n 1965, three industrial corporations. General Motors, Standard Oil of New
Jersey, and Ford Motor Co.. had more gross income than all of the farms in the coun-
try. * * • The income of General Motors, of $20.7 billion, about equaled that of the 3
million smallest farms in the country — around 90 percent of all farms. The gross revenues
of each of the three corporations just mentioned far exceeded those of any single State.
The revenues of General Motors in 1963 were 50 times those of Nevada, 8 times those of
New York, and slightly less than one-fifth those of the Federal Government," hearing, p. 6.
" Hearing, p. 7.
15 Ibid.
In his book Dr. Galbraith told the subcommittees, he had argued that this
trend to the I'arge corporation and this resulting exercise of substantial ix)wer
over the prices costs wages, capital sources, and consumers is part of the
broad sweep of economic development. Technology, the extensive use of «ipital,
affluent and hence malleable customers, the imperative of organization, the role
of the union, the requirements imposed by public tasks, including arms develop-
ment and space exploration, have all weakened the authority of the market. At
the same time, these developments have both enabled and required hrms to
substitute planning with its management of market for a simple response to
the market." " ^. v, i.v, ^ ^»,
These developments, the witness asserted, pose the question whether concen-
tration and attendant market control and planning can be escaped at all and.
if so whether the antitrust laws "are an effective instrument for this escape.
His answer to that question was that the antitrust laws are a "charade." Insofar
as any impact on market power is concerned, "the antitrust laws legitimatize the
real exercise of market power on the part of the large firms by a rather diligent
harassment of those who have less of it."
"* * * Where firms are few and large they can, without overt collusion, estab-
lish and maintain a price that is generally satisfactory to all participants. * * *
But if there are 20 or 30 or more significant firms in the industry, this kind of
tacit pricemaking— this calculation as to what is mutually advantageous but
without overt communication — becomes more difficult." ^'
To meet the difficulty, meetings or exchanges of information occur ; but these
are illegal, and the Department of Justice vigorously prosecutes :
"What the big firm in the concentrated indu.stry can accomplish legally and
effortlessly because of its size, the small firm in the unconcentrated industry does
at the pain of civil and even criminal prosecution." "
The antitrust laws, in Dr. Galbraith's view, are even more discriminatory in
their application to mergers.
"If a firm is already large, it has as a practical matter nothing to fear under
antimerger provisions of the Clayton Act. It will not be demerged. It can con-
tinue to grow from its own earnings ; if discreet, it can even, from time to time,
pick up a small and impecunious competitor, for it can reasonably claim that this
does little to alter the pattern of comi)etition in the indutsry. But if two medium-
sized firms unite in order to deal more effectively witii this giant, the law will
be on them like a tiger. Again if large, you are exempt. If you seek to become as
large, or even if you seek to become somewhat larger, although still much smaller,
you are in trouble." ^^
Dr. Galbraith conceded that giant companies may not be more efficient but,
by virtue of their market power, they have advantages in planning their own
future. And, he asserted, big business is inevitable and will not be affected by the
antitrust laws. To call for an all-out attack on achieved market power would
mean "action, including enabling legislation." against a number of the coun-
try's largest industrial corporations, "tanltamount, given the role of the big firms
* * * to declaring the heartland of the modern economy illegal."
No such antitrust crusade is likely to be launched, the witness averred, adding,
••I am frank to say I would not favor it myself." The task, therefore, is to find
other means of facing "the real problem, which is how to live with the vast organi-
zations— and the values they impose — that we have and will continue to have."
His approach to that task was in two parts, the first clearly stated, the second
only implied. First. Dr. Galbraith would "withdraw our faith from the anti-
tru.st laws * * * allow them quietly to atrophy." That done, the giants could no
longer, as they now do, assert that they are "controlled" by "the markets."
If the market were generally acknowledged to be dead as a regulator of corporate
power, then it would be politically feasible to impose other forms of control on
the giants. The form that such controls might take was not spelled out ; but the
subcommittees were, of course, aware that Dr. Galbraith, during World W^ar II,
was Deputy Director of the Office of Price Administration.
Dr. Adams's statement characterized Dr. Galbraith's picture of the modern
economy as asking questions that were to the point, and giving the wrong
answers. The society depicted by Galbraith, in the view of Dr. Adams, "is a
blueprint for technocracy, private socialism, and the corporate state." The
18 Id., at 6.
" Id., at 7, 8.
" Id., at 8.
M Ibid.
Michigan professor attacked, seriatim, the Harvard professor's assertions (as
paraphrased by the former) that Brobdingnagian size is the prerequisite for, and
the guarantor of —
( 1 ) Operational eflSciency ;
(2) Invention, innovation, and technological progress ; and
(3) Effective planning in the public interest.'"
Empirical studies by John M. Blair and Joe Bain, said Dr. Adams, demon-
strate conclusively that multiplant industrial giants have grown far larger than
the optimal sizes required for eflBciency. Noting that Dr. Galbraith had conceded
as much. Dr. Adams said :
"If size is to be justified, then, this must be done on grounds other than
efficiency." ''
The relative roles of giant and smaller firms in the area of technological
progress will not afford such grounds.
"In a study of the 60 most important inventions of recent years, it was found
that more than half came from independent inventors, less than half from
corporate research, and even less from the research done by large concerns."
Moreover —
"roughly two-thirds of the research done in the United States is financed by the
Federal Government, and in many cases the research contractor gets the patent
rights on inventions paid for with public funds. The inventive genius which
ostensibly goes with size would seem to involve socialization of risk and privatiza-
tion of profit and power.'^
The tardiness of the American steel industry, "which ranks among the largest,
most basic, and most concentrated of American industries," to adopt the basic
oxygen process of steel production was cited by Dr. Adams as a further example
of his contention that major technological change more often than not originates
in small firms. "The cold wind of competition" — introduction of the process, in-
vented by a miniscule Austrian firm, into the United States by a small American
firm — "not the catatonia induced by industrial concentration," caused American
"Big Steel" to modernize its plant some years later.
Dr. Adams reserved his strongest attack for what he described as Dr. Gal-
braith's contention that the giant corporation is the "chosen instrument" of
planning, and planning, in turn, is made essential by modem technology. Asserting
again that the premise of giantism as an "inevitable" concomitant of technology
was unproved by Galbraith and, in fact, disproved by the works of others, Dr.
Adams went on to challenge Dr. Galbraith's belief that most giant corporate
planning is beneficent and in the public interest.
"What are the safeguards — other than the intellectual in politics — against
arbitrary abuse of power, capricious or faulty decisionmaking?"*^ Dr. Adams
asked.
He added to his prior example of the basic oxygen process three further case
histories in support of his own central premise :
"The competitive market is a far more efficacious instrument for serving
society — and far more viable — than Galbraith would lead us to believe." ^
(1) The yardstick competition of TVA proved to the private electric power
industry that lower electric rates were profitable and increased the demand for
electric power. (2) The "nonsked" airlines' competition proved to the scheduled
air carriers and "their overprotective public regulators" that low "coach" fares
would generate new business and new profits, not reduce the revenue from
an assumed "inelastic" market. (3) Oligopoly planning in the steel industry has
resulted in "truly shabby performance," which will be improved, if at all,
"through an accommodation to the exigencies of the world market, and not by
insensitive monopolistic pricing, practiced under the protectionist shelter of
the tariffs which the industry now seeks."
"Without multiplying such examples, it is safe to say that monopoloid plan-
ning is done in the interest of monopoly power. Seldom, if ever, is society the
beneficiary." ^
Industrial giantism in America, Dr. Adams concluded, is fostered by many
acts and omissions to act on the part of Government, of which inadequate anti-
trust enforcement is only one. Because there is a "conservative bias inherent in
20 Hearing, p. 12.
21 Id., at 13.
2" Ibid.
23 Id., at 14.
« Id., at 15.
« Ibid.
any organization devoid of competition," the aim of the policymaker should be
?o promote competition in and by every aspect of Government action Named
for special attention were defense contracts, R. & D. support, patent policy, tax
nolicv stockpiling arrangements, tariffs, subsidies, policy for the regulated in-
dustries, and, of course, antitrust. "An integrated national policy of promoting
competition * * * is not only feasible but desirable."
Dr Mueller's statement began with his own summary and interpretation of
the main ideas of Gailbraith's The New Industrial State, including those already
mentioned and a few that Dr. Galbraith had omitted from his own summary.
One such point, as phrased by Dr. Mueller : „^„ .^v, ^- ^ ^v.„<- ^i,^
"Where is the new industrial state taking us? Galbraith predicts that the
mature corporation [Galbraith's term for a giant corporation substantially di-
vorced from control by its stockholders and operated with almost total autonomy
bv its management bureaucracy or "technostructure"] is increasingly becoming
a part of the administrative complex of the state and that there will be a grad-
ual convergence of capitalistic and communistic societies." ^
But the FTC economist said this result, if it ensues, will be by policy choice,
not be technological imperative. ^ ^ ,, ..»., .v.
Dr. Mueller, like Dr. Adams, selected for challenge three of Galbraith s theses
which seemed to him central to the latter's argument. These were :
(1) Technological imperatives dictate vast industrial concerns and high
levels of market concentration and, hence, the death of the market.
(2) Public policy aimed at maintaining a market economy has failed in
the past and is doomed to fail in the future.
(3) The necessity for state planning in certain areas further diminishes
the need for reliance on the market as a regulating and planning agent. "^
The same studies cited by Dr. Adams, and more, were cited by Dr. Mueller in
his assault on the first of these premises. He pointed out that the doctrine that
economies of scale in research and innovation make high concentration and near
monopoly an inevitable outcome of modern capitalism, first set forth by Joseph
Sehumpeter in 1942 and expanded by Galbraith in 1952, had since been subjected
to extensive empirical testing. The result is that the doctrine is "on the verge of
collapse." He rebutted a fanciful example given by Galbraith in illustration of
the supposed principle — the evolution and marketing of a new type of toaster —
by pointing out thajt the real electric toaster was invented and first marketed
by a small concern, to be belatedly imitated by the electrical giants. He mentioned
again the example of the basic oxygen process and the dormant steel industry
giants.
Under the heading, "Is the Market Dead?" Dr. Mueller took Dr. Galbraith to
task by asserting that, in fact, concentration is declining across a broad front
in the producer goods sector of manufaoturing. And, like Adams, he challenged
Galbraith's belief that those with great market power act admirably and in the
public interest. The need accordingly is for more, not less, competition.
To the question, "Is antitrust a charade?" Dr. Mueller answered that the Celler-
Kefauver Act had demonstrably reduced and prevented much concentration. He
expressly denied Dr. Galbraith's contention that the act has "been an attack on
industrial midgets. Over 60 percent of the largest, those with over a billion dollars
and nearly a third of the top 200 have been the subject of arntimerger complaint.
* * * In my opinion, this enforcement effort represents a great victory for com-
petition, as well as a clear demonstration that antitrust policy can be an effective
instrument of public policy in the last half of the 20th century."
Dr. Mueller conceded, nevertheless, that "the market may well be destroyed in
the next generation as Galbraith predicts, but," he added, "not for his reasons.
It will be a matter of public will or neglect, not technology."*
Under the heading, "Planning and the State," Dr. Mueller conceded for the
State many of the important planning functions adumbrated by Dr. Galbraith :
"Specifically, it stabilizes aggregate demand, underwrites expensive technology,
restrains wages and prices in limiting inflation, provides technical and educa-
tional manpower, and buys upward of a fifth of our economic output." ^
Dr. Galbraith's error, according to Dr. Miller, lay in his assumption that
these functions, as well as the planning functions legitimately carried on by
business concerns, are inconsistent with the life and functioning of the market.
» Hearing, pp. 17-18.
'^ Id., at 18.
28 Id., at 25.
» Ibid.
9
Rather, planning, regulation, and competition support and complement one
another. There are social tasks best performed by fully and freely competitive
industry, others by regulated industry, and still others by the state :
"Unfortunately, many persons are inclined to damn the market — ^which to
them means the businesses operating within it — for failing to do jobs better left
to the State. And, unfortunately, the defensively hostile responses of some busi-
ness leaders to every social welfare proiX)sal lend credence to the argument
that the real issue at stake is the market system. Actually, however, the real issue
usually is whether or not a particular job should be done at all, and who is going
to pay for it. Once it is agreed that there is nothing inherently un-American or
antimarket in admitting that some things are best left to the State, the State and
the market can live in happy coexistence." ^
Dr. Turner's statement, which was made extemporaneously, opened by agreeing
with the main points made by Adams and Mueller and disagreeing with Gal-
braith's evaluation of the market structure of the American economy. He said,
however, that he wished to confine his remarks largely to Dr. Galbraith's charges
against and characterization of the antitrust law and its enforcement.
The Assistant Attorney General admitted that antitrust has been more effective
in attacking price fixing and other restrictive practices, and in preventing mer-
gers, than in dealing with established market power. To begin, Dr. Turner said,
the failure to deal with existing size and market power clearly makes sense,
where size truly reflects and accompanies economies of scale. It may also make
some, if less, sense, where market power was initially acquired by competitive
superiority and maintained without exclusionary behavior. "It would be a little
paradoxical, to say the least, to turn on the winner when he wins." Disincentive
problems could thereupon arise.
Beyond that. Dr. Turner continued, he agreed that it would be desirable to
increase the effectiveness of antitrust in dealing directly with existing market
power. Possibilities under existing legislation are "worth probing, and * * *
[are] being probed." In addition, he said, he still favored enactment of new legis-
lation, as recommended by himself and Prof. Carl Kaysen some years ago,
"which would make it easier to deal with monopoly and oligopoly problems."
"However," he went on, "I suppose it is highly likely that if I sent such a pro-
posal forward to the administration, it would not be rushed over to the Hill the
following morning." "
But even if it be assumed that "our present relative inactivity in dealing with
existing undue market power shall continue for the indefinite future," the Assist-
ant Attorney General insisted, "I do not agree that it is bad public policy or bad
law or bad anything to continue to attack price-fixing and other restrictive
agreements and mergers likely to increase market power in those areas where we
still have hope." This is not, as characterized by Dr. Galbraith, discrimination.
"Past mistakes by no means compel repetition."
Dr. Turner next pointed out that, in his opinion. Dr. Galbraith had overstated
the extent of oligopoly and monopoly. Taking mining and manufacturing together
with transportation and public utilities, he estimated that the oligopolistic sec-
tors account for only about 20 to 25 percent of the national income. He conceded
that this is not trivial but does not amount to the domination claimed by Gal-
braith for the giants. He concluded that it is good public policy to defend com-
petition in that majority of the economy where it still exists.
The Antitrust Division's chief vigorously defended the policy of prosecuting
price fixers. A price-fixing agreement contains all the disadvantages inherent in
noncompetition, with none of the size economies of the oligopolistic giant com-
panies.
Turning to mergers. Dr. Turner noted that in some unconcentrated industries
economic changes make certain minimum firm sizes necessary for achievement
of eocnomies ; nevertheless, he questioned the desirability of permitting concen-
tration to develop in such industries by merger. Internal growth can and should
meet the need, he asserted. He further stated :
"Where there is already a fair degree of concentration in an industry, even
where there may be one or two or three dominant firms, the problem posed by
merger involving firms other than the largest is indeed a somewhat more diflB-
cult problem than it appears to be in the unconcentrated industry. But it is also,
I suggest, much more complicated than Professor Galbraith suggests by using
the term "discrimination." ^^
» Id., at 27.
31 Hearing, p. 28.
«" Id., at 29.
10
He cited the successful Government attack on the proposed Bethlehem- Youngs-
town merger, several years ago, as an example. Although the two together, if
merged would still have been much smaller than the dominant firm in their in-
dustry,' United States Steel, there was no showing that their amalgamation
would have improved competition in the industry in any way, and much show-
ing that the reverse would have occurred.
In conclusion, said Dr. Turner, a strong antitrust preventive policy would pro-
mote longrun benefits for the economy, even if nothing more were done to at-
tack undue market power. ^ ^ -,, .j.-. , r,-
In the period allotted for discussion and rebuttal, Dr. Galbraith pressed his
critics to agree with him that, whatever their evaluation of his other premises,
as a practical matter there would be no antitrust "crusade" to break up the
giants of industry, and that the giants, their power thus immunized against
attack, enjoyed a very real "advantage." Dr. Adams, urged by Dr. Galbraith to
consider General Motors as the prime example, remarked that, if Chevrolet
were to be carved out of the General Motors empire, it would still be as large
as Chrysler and almast as large as Ford and presumably could operate quite
eflBciently.
But do you think that is ever really going to happen?. Dr. Galbraith persisted.
An answer came, not from the panelists, but from Senator Russell B. Long, co-
chairman of the hearing, in these words :
"My impression of what happens, in the legislative process up here, is that
something which is wrong continues to get worse and worse until the public
becomes aware of it, and it continues to get worse still until everybody becomes
so outraged about the matter that something has to happen, and then Congress
has to pass a law in competitive or other fields. Management goes so far that
eventually people are outraged and they pass a Wagner Act. Then something
else goes so far, labor gets out of hand, and we pass the Taft-Hartley law.
*******
"But as far as moving against one of these major companies goes, I agree that
there is no prospect of it until the public becomes upset, enraged and aroused
about it — and then you cannot justify voting any other way.
"As an example, we could not have done anything about these drug companies
a year or so ago. You watch us now. * * *" ^
Conclusion: Your committee concludes that planning, regulation, and com-
petition are all here to stay. They coexist in the American economy, have long
done so, and quite properly will continue to do so. But the committee disagrees
with Dr. Galbraith, as earnestly as any of his critics, that the market is dead or
dying and that it is, should be, or will be supplanted by planning and regulation,
whether by private oligopoly, the state, or a combination. Planning about, plan-
ning for the market by competitors therein is proper and desirable. Every
business, large and small, must plan if it is to succeed. But if the American
system is to succeed, some business plans must fail. More than competition
and the market are in danger — economic and political freedom are in danger —
when any business is able to supplant planning by control, to be quite certain,
for example, that its plans for a 30-percent return on invested capital will be real-
ized year in and year out. It is quite clear that many American corporations are in,
or approaching, that position. There does exist, in sober fact, a power of size,
a certitude of profits engenedered by size, and a resulting arrogance of size, ac-
knowledged by Galbraith and this critics alike, that gravely concern your com-
mittee. It has no detailed approach to recommend right now ; but it will continue
to ponder the matter. Generally, your committee agrees with Dr. Adams that the
best way of dealing with the problem is by "an integrated national policy of
promoting competition." That has always been and will continue to be your
committee's policy.
Exhibit 3
f Subcommittee chairman's exhibit No. 3: Report by Senator Gaylord Nelson,
Chairman, Subcommittee on Monopoly, to the Senate Small Business Com-
mittee : "Hearings before subcommittees of the Senate Small Business Com-
mittee on 'Planning, Regulation, and Competition : Automobile Industry—
1968' — a brief description of the hearings, their background, and the questions
presented that are of special concern to the Subcommittee on Monopoly" (May
I960).)
*• Id., at 38. See next following section of this report for explanation of the reference
to drug companies.
11
(A Report to the Senate Small Business Committee by Gaylord Nelson,
Chairman, Subcommittee on Monopoly)
At a 1967 seminar hearing' on the question, "Are planning and regulation
replacing competition in the new industrial state?", the automobile industry was
most often mentioned by the witnesses " as one in which market i)Ower of domi-
nant corporations had supplanted competition in the classical sense.
To explore that contention in more detail, the Senate Small Business Com-
mittee's Subcommittee on Retailing, Distribution, and Marketing Practices,
chaired by Senator Wayne Morse, and Subcommittee on Monopoly, of which I
am chairman, convened another joint hearing, in panel-session or seminar form,
at which responsible executives of that industry could exchange views with an
industry critic. Ralph Nader was invited to perform the critic's role and ac-
cepted. In succession. General Motors Corporation, Ford Motor Company, the
Automobile Manufacturers Association, Chrysler Corporation, American Motors
Corporation and Checker Motors Corporation declined the subcommittee's invi-
tations to participate. Senator Morse and I thereupon decided to hear Mr. Nader
separately and permit the automobile manufacturers and their business associa-
tion to respond separately later if they wished.
Accordingly, Mr. Nader's testimony was received at public hearings held on
July 10 and 23, 1968.'' His statement was long, extensively documented and in-
tensely critical of the automobile industry's performance and present organiza-
tion. He singled out for his strongest; attack the size and woldwide market power
of the General Motors Corporation, the world's largest industrial corporation.
"The history and attainments of GM's market power make it a classic candi-
date for antitrust enforcement under Sherman [Act, sections] 1 and 2 and Clay-
ton [Act, section] 7. In law and in economics there are solid grounds for pro-
ceeding toward dissolution or divestiture of General Motors vmder the t^'o anti-
trust laws," the witness declared, adding :
"The only obstacle is political * * *." "
At the conclusion of the initial session on July 10, Senator Morse and I wrote
to each of the "big four" automobile makers, stating the questions suggested
by Mr. Nader's testimony which, in our judgment, it was most important for
the companies to answer. Each manufacturer was again invited to testify by
personal appearance of a representative selected by it, if it wished.^
SECRECY OF PRODUCTION COSTS AND DIVISIONAL FINANCIAL DATA
In our letters to the manufacturers. Senator Morse and I placed particular
stress on the public's need and right to have more information about the costs
of making an automobile and the profits realized by individual divisions of the
major corporations. Mr. Nader's testimony had sharply criticized the practice
of publishing only consolidated financial data, and no reports at all on costs, as
a means by which the companies exercised flexibility in market power, covering
up high profits in some operations that are used to subsidize "other company
activities for the purpose of driving competitors out of business^® Senator Morse
and I also requested the manufacturers' comments on Mr. Nader's allegation
1 Hearing before subcommittees of the Senate Small Business Committee on Planning,
Regulation, and Competition, 90th Congress ( 1st Session (1967). See also Senate Small
Business Committee, ISth annual report, S. Rpt. 1155, 90th Congress, 2d Session, p. 37
(1968). _
- Professor John Kenneth Galbraith of Harvard University, Professor Walter Adams
of Michigan State University, Dr. Willard F. MueUer of the Federal Trade Commission,
and then Assistant Attorney General Donald F. Turner of the Justice Department's Anti-
trust Division.
3 Hearings before Subcommittees of the Senate Small Business Committee on Planning,
Regulation, and Competition : Automobile Industry — 1968, 90th Congress, 2d session
(1968) ; hereinafter refererd to as "hearings."
* Hearings, pp. 213, 214.
6 The letters to each company, and their replies, are in the hearings : American Motors,
p. 591 ; Chrysler, p. 594 ; Ford, p. 600 ; General Motors, p. 607.
8 Hearings, p. 200. See also pp. 200-207 (speech by Andrew Barr, chief accountant of
the Securities and Exchange Commission, on the need for product-line reporting by con-
glomerates) ; pp. 428-446 (colloquy between Senator Morse and Mr. Nader on divisional
reporting, and related exhibits presented by Mr. Nader) ; pp. 897-901 (notice of proposed
action by Securities and Exchange Commission, on product-line reporting by registrants) ;
pp. 916-917 (comments of Professor of Economics Samuel M. Loescher and Associate Pro-
fessor of Economics Lloyd D. Orr, of Indiana University, on need for "detailed records
on operations ' of giant corporations as "probably one of the more useful alternatives to
dissolution").
12
that the direct and indirect labor cost of a medium-priced car does not exceed
$300, while annual sityling changes cost the consumer "at least $700 of the price of
his new car." ' , . ^ ^.
All the manufacturers declined to give any specific information on production
costs, although General Motors, Ford and Chrysler each termed the $300 labor-
cost estimate low and the $700 styling-change-cost estimate high. General Motors
and Ford, which were asked to supply divisional financial data as well as selected
unit-cost data, refused for the reason that they would be, they averred, com-
petitively damaged by such disclosures.
Mr. Nader had argued that the manufacturers knew each other's costs, "if
not to the fourth decimal point." He stated :
"The myth that secrecy is necessary to preserve the bitter competition between
companies . . . has to be a big joke in Detroit where there are few auto secrets.
. . . Secrecy is really directed against the public, pursuant to the tried precept
that concealing the facts prevents the criticisms." *
He pointed out that, in 1958, the "big three" had refused the request of a
Senate subcommittee to disclose their materials costs, on competitive grounds,
while American Motors, the smallest of the major manufacturers, had made the
public disclosure requested. "And AMC had its best years to come," the witness
remarked.
In support of his estimate of $300 as the labor cost of a medium-priced car,
Mr. Nader cited : (1) a Wall Street Journal study reported in the issue of Decem-
ber 10, 1957;® (2) estimates of the Senate Subcommittee on Antitrust and
Monopoly ; ^" and (3) a document identified by Mr. Nader as an internal auditing
record of Ford : a 26-page computer print-out of the standard unit costs ("inven-
tory valuation records") of 19 models of Ford ears, and accessories, in July 1966
at an unidentified assembly plant." In support of the $700 estimated total "cost
to the consumer" (not the manufacturers' own direct costs) of annual styling
changes, Mr. Nader offered a study published in the October 1962 issue of the
Journal of Political Science, by Fisher, Griliches and Kaysen.''
The comments of the "big three" on these points follow :
Chrysler Corporation. — "Our direct and indirect labor costs of a medium-
priced automobile far exceed $300. To the extent that the inaccurate reference
to labor casits in the testimony is inltended to imply exorbitant profits on the
part of the automobile industry, we would like to point out that in 1967 Chrysler
had a net profit of 3.2% on sales and 10.89% on investment, less in both cases than
the average of the 500 largest industrial corporations in the United States.
"Our annual styling changes cost us " a minor fraction of $7(X) per car and are
far less than direct and indirect labor costs.
"As to the question of the confidentiality of costs in the automobile industry,
while we can estimate what it would cost Chrysler to build a competitor's car,
we do not know what our competitors' costs are nor, we hope, do they know
what ours are, and for this reason we must decline to submit the specific cost
data you outlined."
*******
"Our total revenues minus our total costs would seem to be the only relevant
factors and these are already a matter of public record." ^^
Ford Motor Company. — ^"Questions 1 and 2 request divisional and product
line financial data from Ford Motor Company. As indicatetl in my letter of July
22, these data are highly confidential ; therefore, we must decline to answer. I
can tell you. however, that statements made during the hearings to the effect
that the direct and indirect labor cost of a medium-priced car does not exceed
$300, and that "annual .styling changes" cost the con.sumer at least $700 i>er new
car, are without foundation. With respect to Ford products, at lea.st. the $300
figure is very seriously understated and the $700 figure is grossily overstated.
■''Hearings, p. 267 (labor costs) and p. 350 (costs of styling changes).
» Hearings, p. 267.
9 Hearings, p. 26S (reference) and p. 497 (text of the article).
1" Subcommittee on Antitrust and Monopoly. Senate Committee on the Judiciary, report
on "Administered Prices: Automobiles." S5tli Congress. 2d session, p. 127 (committee
print, 1958). The subcommittee staff's estimate of direct and indirect labor costs to General
Motors to build a car in 1957 was $375 to .$400; the source of the $300 figure from that
period is the Wall Street Journal study by Dan Cordtz, footnote 9 above.
'1 Hearings, p. 268 ff.
"Id. at p. 350 (reference) and p. 1075 (text of article).
"Mr. Nader and the article upon which he relied (footnote 12. above) referred to the
total cost to the consumer of annual styling, changes, not costs to the manufacturer
directly.
" Hearings, pp. 595-596.
» Id. at p. 599.
13
"It was suggested during the hearings that the automobile companies know
each other's costs. The fact is that we do not know our competitors' costs, al-
though we can estimate the effect on our own cost structure of adopting designs
or manufacturing processes followed by competitors. As to the effect on confiden-
tiality of the occasional movement of executives among companies, such indi-
viduals are prohibited by law, as well as by business ethics, from disclosing
confidential data of any nature to their new employers."
"The principal purpose of [Ford's] inventory valuation records" is to deter-
mine changes in inventory levels at specific plants during specific periods. They
reflect only those elements of cost that are charged to assembly plants in the
Ford accounting system. Many significant cost elements are never entered on
the books of assembly plants, including special tool amortization, selling and
marketing expenses, engineering and research costs, warranty and policy costs,
and general administrative expenses. Subtracting inventory values of a single
plant from the final selling prices of our end products to dealers yields numbers
which do not remotely resemble the profits earned by the company on its auto-
motive business.
"By the usual objective standards. Ford's profit margins are not abnormal or
excessive. Ford's 1966 pre-tax profit margin of 9^2 per cent on sales was lower
than in any of the seven previous years, and it was lower than the average mar-
gin reported for the 30 companies in the Dow Jones Industrial Average and about
the same as the average for all manufacturing companies." ^*
General Motors Corporation. — GM's responses were too lengthy to be directly
quoted here, except in the most fragmentary excerpts. The company argued that
its divisional financial accounts, in addition to being confidential for competitive
reasons, are not comparable with corporate financial statements. One reason
is that :
"* * * many and significant items of assets, liabilities, income, cost and net
worth are not carried on divisional books and hence are not reflected in the
divisional statements." "
Another is that :
"* * * there are certain expenses beyond the control of the divisions which
nevertheless are charged against divisional operations and are included in their
records and financial statements. Examples are expenses in connection with the
operations of the Proving Ground, Technical Center, Research Staff and Mar-
keting Staff.="
» » * 4: 9 « 4:
"The lack of comparability between the divisional financial statements and
corporate statements is further complicated by the fact that divisional sales in-
clude so-called allied 'sales' which actually are not sales at all but are really
interdivisional transfers." '^
In language remarkably similar to that used by Ford and Chrysler, GM
averred :
"We do not know the details of our competitors' data nor, we are convinced,
do they know ours." "-
On the labor-cost and styling-change-cost estimates, GM responded :
"It is not necessary to reveal confidential internal cost data to demonstrate
clearly, through the analysis of published financial statements, that the figures
quoted . . . are grossly in error.
"The 1967 Annual Report of General Motors reveals that 31% cents out of each
sales dollar went to employes for payrolls, employe benefit plans, etc. (p. 4).
Since the average wholesale price of cars sold by General Motors is slightly over
$3,000 (including optional extras), this means that the labor cost ("direct and
indirect") would be approximately $1,000 per car.
w Id. at p. 602.
'^ See text at footnote 11, above, and cited materials in hearings.
1'' Hearings, p. 604.
" Hearings, p. 729.
=0 Ibid.
21 Id. at p. 730.
23 Id. at p. 731.
14
"The bulk of style change costs is included in the cost of special tools. In 1967,
General Motors' Annual Report showed that the total tool amortization expense
wis $840 million (p. 9). This would amount to $134 per vehicle not the $700
mentioned^by Senators Morse and Nelson, quoting Ralph Nader] for the over
?^Son vehicles sold by General Motors in 1967. Even this figure of $134 over-
^ti the cost of syling since it includes a large amount for tool amortization
?SaUng to functional changes. It also includes tool amortization relating to non-
automotive products." ^
OTHER QUESTIONS IN CONTENTION
In addition to the divisional-reporting and unit-cost issues, the hearings
raised— and left unresolved— these further important questions:
(1) Price competition.— Is price competition in the automobile industry real
and effective or greatly tempered by the concentrated structure of the industrj-
and the dominance of General Motors. The testimony of Dr. Nader and the
written responses of the companies— especially a lengthy statement submitted
bv General Motors^— were squarely at odds on the point. In a post-heanng
comment Associate Professor of Economics Mark B. Schupack of Bro\ATi Uni-
versity suggested that a comprehensive study of the automobile industry "aimed
at developing the necessary data ... to propose policy action" conceivably could
result in a 5 percent average price reduction in cars, worth $1 billion annually
to American consumers.*^
(2) Barriers to entry.— Would the automobile industry sen^e the American
people better if it consisted of more and smaller companies? Is the present
small number of manufacturers the result of natural and fair competition and
industrial evolution-^r of excessive and anticompetitive power? Mr. Nadei-
argued strongly that the size and power of the industry's giant manxifacturing
corporations both dissen-e the consumer and prevent the entry of new com-
petitors.^ General Motors responded :
"Entry into the [automobile manufacturing] business is open to all who are
willing to assume the risks ; there are no artificial barrier-s." " Professor Schu-
pack stressed the product identification (brand loyalty) built up and maintained
by the major manufacturers through vast advertising expenditures as the most
formidable barrier to new entrants."*
(3) The dealer system. — How accessible are the franchised dealers of the
major automobile companies to direct competitors of the franchisors? If any
automobile manufacturer, no matter how small and powerless, is now free to
market his product, on its merits alone, to and through the franchised dealers
of the "big four," it is obvious that one barrier to entry often cited in the litera-
ture has fallen. It was the contention of the "big three" that no restrictions
were placed on their dealers about what products they could market, including
directly competitive products.^^ It was Mr. Nader's argument that dealers are
23 Hearings, pp. 735-736. The General Motors Annual Report for 1967 is reproduced in
full in the hearings, page for page, beginning at p. 750.
2^ General Motors Corporation's statement to the subcommittees. "The Automobile In-
dustry : A Case Study of Competition" will be found at pp. 617-72S of the hearings, with
the original pagination also preserved. Chapter III is entitled "Competition in Prices"
and Chapter IV "Competition in Marketing." Mr. Nader's principal commentary on auto
industry noncompetition in pricing begins at p. 207 of the hearings ; see also testimony
beginning at p. 495.
25 Professor Schupack's "Statement Regarding Competition in the Automobile Industry
begins at p. 917 of the hearings. His conclusion on the possible $1 billion annual benefit
to consumers of a "comprehensive complete study of the auto Industry structure, conduct
and performance," costing only $2- to $5 million, is on p. 926.
20 Hearings, pp. 239-240. Mr. Nader cited and inserted an excerpt from Joe Bain, In-
dustrial Organization (1959) on "Examples of conditions of entry in specified industries."
27 Hearings, pp. 711-714.
28 Id. at pp. 922-924.
=9 General Motors : "The franchised dealer is an independent businessman. He can and
often does accept more than one franchise. He buys the cars from the manufacturer and
is free to sell to anyone, anywhere, at any price." Hearings, p. 675.
"Proof that General Motors does not require its dealers to handle its vehicles exclu-
sively Is evidenced by the fact that of its 14,035 dealers at least 1,662 handle new
vehicles produced by domestic and foreign competitors at the same locations." Id. at p. 739.
Ford: "Some of our dealers [7,035 total in the U.S.] also sell (in the same general
facilities used to sell Ford pro<lucts) cars made by other manufacturers. We do not have
a precise count of this, but we estimate that there are approximately 300 such dealers.
It also should be noted that some of our dealers own, or have financial interests in, dealer-
ships that sell other-make vehicles in facilities separate from those employeti in the sale
of Ford products. We have no way of determining the extent of the participation of our
dealers in such ventures." Hearings, p. 603.
Chrysler : "Chrysler has approximately 6,315 dealers of whom about 1,000 sell cars
made by manufacturers other than Chrysler or Its affiliated companies." Hearings, p. 596.
15
under strong, if miwritten and indirect pressure to conform to "a policy of . . .
exclusivity." '° The record also contains extensive conflicting materials on the
alleged foreclosing of the franchised-dealer market by the auto makers to the
manufacturers of competitive accessory products, such as radios.'"
(4) Environmental and safety factors. — To what extent has the oligopolized
condition of the industry contributed to the automobile's annual toLl in human
lives and limbs and the internal combustion engine's damage to the atmosphere?
Conversely, does the small number of companies manufacturing cars make it
easier for an awakened society, by law and regulation, to cause all automobiles
to be less dangerous to life and heajth? General Motors recited in some detail
its efforts to make cars safer and cleaner.'- Mr. Nadar submitted materials on
an alleged conspiracy of the "big four" and the Automobile Manufacturers
Association to retard the development of safety and emission-control devices^
and commented at length on the industry's derelictions in both fields.^*
(5) Technologioal advance. — Does the concentrated structure of the industry
impede or hasten the development of better automobiles and alternative modes
of transportation? Mr. Nader contended that the vast size and power of the
major auto makers had caused the development and marketing of better auto-
mobiles to progress more slowly than would have been the case if companies in
the industry were smaller and more numerous.'" He also argued that the auto
makers had impeded the development of mass transit.^ The General Motors
statement pointed out the "variety and versatility" of the industry's product^'
and argued that the pre-eminence of the highway and the automobile and the
corresponding decline of mass-transit, off-highway transport modes in America
were the result of public preference, not corporate power.®®
(6) National values and priorities. — What is the effect of the giant corpora-
tion on the American "life style?" To what extent do corporations of vast
size shape the Nation's values and priorities to suit their own needs? Does
the emergence of the giant corporation as the paramount force in the American
and world economies presage an improvement or a further decline in the over-
all condition and importance of the individual in society, and of the concept of
individualism? These remain the most troubling of all the questions presented
by the hearings. They are also the most important and relevant to the Senate
Small Business Committee, for our society's esteem for small business as an
institution rests in large part on our esteem for individualism. To Mr. Nader, the
giant corporations are a threat to the individual, by virtue of their need — and,
through vast expenditures on advertising, their ability— to shai)e consumer
tastes to their own product-marketing ends.'® He, and some of the professors
who submitted comments for the record, also referred to the great political
influence, and some possible political activity, of the large corporations.^ The
™ Hearings, p. 155. See also pp. 446-449.
31 Id. at pp. 44-93, 448^50.
32 Hearings, pp. 659-662, 720-728. 859 (safety and other improvements) ; 861-862,
S65-S71 (pollution control activities, including researcli on alternate modes of propulsion).
33 Hearings, pp. 103.3-1038. See also pp. 332-333.
3* Id. at pp. 450-463, 954-956 (advertising on speed and power themes) ; 450-451.
463—469 (Federal Trade Commission investigation of automobile warranties) ; 469^95
(planned obsolescence and automotive defects) ; 332—350 (air pollution problem, steam
cars as possible solution, California's law on emission control) ; 351—354 (insensitivitj*
of manufacturers to safety) ; 552-555 (greater influence of government on less concentrated
industry).
35 Hearings, pp. 256, 554-5. See also footnote 34, above.
3« Hearings, pp. 556-565.
^ See General Motors' statement, especially Chapter V, hearings, pp. 682-683.
38 Id. at p. 657.
38 Hearings, pp. 155, 183, 545-546 (General Motors' advertising expenditures and bank
deposits) ; 212 (advertising by appeals to romance) ; 333 (corporate prevarication an
accepted business practice) ; 353-354 (corporate practices that weaken incentive and
responsibility of professional and management employees) ; see also pp. 910-912 (comment
of Professor J. K. Galbraith).
«> Hearings, pp. 213-214, 239-240, 253-254, 427-428 (political influence is only bar
to antitrust action against General Motors for divestiture or dissolution) ; 332-333
(decision to drop criminal action after air-pollution investigation by grand jury) ; 385—
387 ("half-hearted investigation" by Internal Revenue Service of "undercover corporate
contributions to the political candidates") : 391-422 (political dangers of economic con-
centration and breakdown of antitrust) ; 333, 450^63 (alleged "privileged access" of auto
makers to confidential information of the Antitrust Division and the Federal Trade
Commission) ; 910 (comment of Professor Douglas F. Dowd) ; 926 (comment in final
sentence of Professor Mark B. Schupack) ; 933-934 (question by Ralph Nader on activi-
ties of a GM executive in politics) .
16
autx) makers insisted that, their size notwithstanding, they remained subservient
to the disciplines of a competitive market in which the consxmaer, not the
corporation, was king.*' And they denied political activity, if not political
influence."
CONCLUSIONS
The questions presented by the 1968 hearings, as briefly outlined above, are
among the most urgent and difficult that the American people face. Obviously, im-
partial and intelligent men will differ on the answers, and the Senate Small Busi-
ness Committee should not jump to hasty conclusions of its own. on either the
factual or policy aspects of this immensely complex subject. But I would suggest
that two conclusions, at least, might now be drawn :
(1) Hearings must continue. — The record already made indicates to me that
Congress and the country need a clearer understanding of the automobile in-
dustry—and possibly a different public policy for that industry. Accordingly, I
have already announced my intention to hold further hearings on this subject.
The present plan is to take testimony from panels of witnesses representing many
different business Interests and academic disciplines and also representing the
widest range of conflicting and contrasting vi swpoints. This approach, initially at
least, should be the most productive.
(2) There is too much needless corporate secrecy. — The claims made by the
world's largest international corporations to a "right" to keep almost all of their
financial and operating data a close secret of their top managements would appear
to be increasingly insupportable. The recitation of modest or low, total-corporate
profit as an excuse for continued concealment of divisional, line-of-business or
product-line financial data completely begs the question. The question is whether
high profits — even exorbitant profits — in some lines of business are being used
to subsidize low or non-profit operations in other liens of business, to the great
damage of independent small-business competition in those lines, and to the
damage of stockholder interest in the best possible total corporate profits. If
corporations want to reinvest large earnings from their most profitable lines in
high-risk or intensely competitive ventures in another line, it may well be their
right to do so; but do not the public and the stockholders have a correlative
right to be fully informed of the decisions that are being made and the cost /profit
consequences of those decisions, in order to exercise their own judgments on
whether public (and stockholder) interests are being well served by the decision
makers ?
The claim that the "approximate" labor cost of building a General Motors car
can be inferred by applying to the average wholesale price of the car the ratio
of GM's total payroll costs to its total sales is an egregious example of corporate
question-begging and obfuscation. While GM is most important as the maker of
over half of the Nation's passenger autos, it is also the leading producer of trucks,
buses and locomotives — and automobile cigarette lighters." It makes at least 167
separate products other than cars.** It is the tenth largest defense prime con-
tractor.*" It is, in short, a conglomerate^ — oue of the first and definitely the largest.
Given this span of products and activities, it seems astonishing that GM would
suggest that the labor cost of building its cars can be "approximately" inferred
by the method it suggested. The company could as well and as rationally have
claimed that the "approximate" annual salary of GM's highest officers or lowliest
laborers could be inferred by dividing the total corporate payroll by worldwide
total employment.
The Senate Small Business Committee's advisory council, in its report to the
committee, recommended :
"The Securities and Exchange Commission should require all corporations to
report on a divisional and subsidiary basis rather than on a consolidated basis
"Heariners. pp. 595-597 (Chrysler); 602-606 (FORD); 610-611. 613-614, 619-741
(General Motors. Cf. comments of Professor J. K. Galbraith of Harvard University, p. 910.
*- Id. at 595, 596 (question to and answer by Chrysler on "influence" sales) ; 601, 603
(question to and answer by Ford on "X plan" sales) ; 609, 741 (question to and answer by
General Motors on "influence" sales) ; 744, 747 (Ralph Nader's 12th and 30th "Stock-
holder questions for General Motors," on political contributions, and the company's
reply).
"115 Congressional Record, p. S3089 (dally ed., March 24, 1969). Cf. hearings, p. 589.
" Hearings, pp. 103-105.
« Jhid.
**■ Department of Defense, "100 Companies and Their Subsidiary Corporations Listed
According to Net Value of Military Prime Contract Awards, Fiscal Year 1968."
17
and supply more detailed information with respect to the results of their divisional
operations." "
It \vould appear that the committee might well adopt that recommendation as
its own and inform the SEC of an earnest hope that it will not much longer delay
in effectuating the new disclosure regulations that it first published for comments
on September 4, 1968, after more than two years of preliminary study. While far
too limited in scope to meet the long-felt needs, the new rule would be a start.^^
Inasmuch as none of the other questions presented by- the hearings can be fully
and fairly discussed without more information, there must be, in the future
hearings of the Monopoly Subcommittee, a persistent focus on obtaining more
detailed financial data from the giant integrated and conglomerate corporations
for full public scrutiny.
Washington, May 1969.
OPENING STATEMENT OF SENATOR MARLOW W. COOK
In response to Senator Nelson's opening statement, I can only say
that I share his concern over the apparent decline of small business in
the United States.
The Senator stated that accordino; to Fortune magazine, the assets of
the 500th largest corporation in 1954 were $36.9 million and $77.6
million in 1968. During those same je^re sales were $49.7 million and
$143.7 million respectively. He also pointed out that the assets of the
largest corjDoration (General Motors) were $5.1 billion in 1954 and
$14 billion in 1968. Sales for those 2 years were just under $10 billion
in 1954, and almost $23 billion this past year. Senator Nelson also sug-
gests that G.M.'s sales in 1985 may he as high as $160 billion.
I thank the Chairman for alerting the Subcommittee to these figures.
However, in order to bring them into the proper perspective, they
should be viewed in relation to the total economic picture. For example,
in 1954, this country's Gross National Product was $364.8 billion,
while in 1968, it was $860.7 billion. While I don't have any figures for
1985, the National Planning Association has estimated that real eco-
nomic growth at an average annual rate of 4.4 percent will boost the
current dollar G.N.P. to approximately $1,920 billion by 1980. Ob-
viously, the increase would be considerably more by 1985.
The percentage sales increase for the 500th largest corporation from
1954 to 1968 was approximately 188 percent. During this same time
G.M. increased its sales by only 130 percent. Using this same fourteen
year span, the Gross National Product increased by well over 136
percent.
*' Report of the Small Business Adyisory Council to the Select Committee on Small
Business, U.S. Senate. 90th Congress, 2cl Session, p. 23 (committee print. Senate Small
Biisiness Committee. 1968).
■""Hearings, p. 897 (notice by Securities and Exchange Commis.sion). A revised proposal
was issued by the SEC on February IS, 1969. for comments. The period for filing comments
closed March 10. 1969. The comments received are available for public inspection at the
offices of the SEC. The SEC's revised proposal would require line-of-business, not divisional
or product-line disclosure. [See Appendix IX in Part lA of this record.]
18
Therefore, in using Senator Nelson's index to measure the growth of
G.M. in relation to the 500th largest corporation (and also the G.N.P.) ,
it is apparent that no real conclusion may be drawn as to General
Motors' increased dominance in our economy.
Senator Nelson. The statement of each panel member will be printed
in full in the record. If you find it possible to do some smnmarization
extemporaneously, gentlemen, we probably could get to the question
period a little more quickly, but I will leave that entirely up to you.
In any event, the record will contain your full statement as you have
presented it. _
The order of speaking has been determined by drawmg lots. Our
first witness is Mr. Alexander Hammond. Mr. Hammond.
(A biographical note on Mr. Hammond follows:)
Biographical Note
Alexander Hammond, 54 Riverside Drive, New Torli, N.Y. 10024, is a graduate
of Columbia College (1937) and Columbia Law School (1939). During the
'forties he spent approximately two years in the used car business and was an
income tax specialist with Wall Street law firms for more than five years.
During the 'fifties, he was associated with a new car dealership and then became
a new car dealer (Ford franchise) in New York City. During the last eight years,
he has been in legal practice, engaged in principal part in representing dealers
in suits against automobile manufacturers. His practice is limited to antitrust
and franchise-termination matters in the automotive and oflace machine indus-
tries and to representing trade associations in those fields. He has been, during
the past year, a frequent lecturer at programs on automobile dealer and other
franchised dealer problems, under the sponsorship of the Practicing Law Insti-
tute and various business associations.
STATEMENT OF ALEXANDER HAMMOND, COUNSELOR AT LAW,
NEW YORK,*N.Y.
Mr. Hammond. Thank you. I wish to thank the distinguished mem-
bers of this committee for the opportunity of di.scussing the increiis-
ing participation of automobile manufacturers in retail distribution
and its implications for the continued existence of automobile dealers.
In earlier hearings before committees of Congress, economists have
clearly demonstrated the probability that, if present trends are not
checked, the manufacture of all major products will in the near future
be concentrated in a limited number of industrial corporations. Cap-
italism can exist only where there is meaningful price and other com-
petition in a marketplace not controlled by private powers. Our form
of political democracy is inseparable from our economic democracy,
which depends upon the continued existence of countless relatively
small and independent businessmen. It would be a very, very sad day,
indeed, if all economic activities were to be conducted by a few hun-
dred giant corporate enterprises. Furthermore, such concentration of
power in private hands inevitably would lead to full government regu-
lation and control.
The facts and statistics showing the growing concentration in manu-
facturing are widely known, and I might add goes back as far as, I
think, 1932 to Gardner Means and Professor Berle's well-known book,
and economists and congressional committees liave naturally directed
their attention to this trend. But there is little or, indeed, no statistical
information available on the subject of the increasing entry of giant
19
corporations into retail distribution and the resulting reduction of
private enterprise in this sector of our economy. Tliis aspect of the
growing concentration of more economic power in giant corporations
has been largely ignored until today.
By reason of its size, importance, and concentration, the automobile
industry epitomizes the development of industiy in the United States.
Where there were once over 1,000 automobile manufacturers, there are
now four passenger car manufacturers, three of whom have 97 per-
cent of the domestic car market. Eveiy year there has also been a con-
tinuing reduction in the number of dealerships handling U.S. makes of
passenger cars. The 1969 Automotive News Almanac reveals at page
74 that as of January 1, 1969, there were 27,486 dealerships, whereas
there had been 49,173 on Januaiy 1, 1949, a decrease of 44 percent in
20 years.
But these figures do not indicate the full reduction of independent
dealers, for many existing dealerships are factory subsidiaries or arc
financed and controlled by the manufacturers. The manufacturers, for
many reasons, have adopted a policy of secrecy concerning both the
nature and extent of their involvement in retail distribution. They
have not divulged this information, and no statistics are available to
show the alarming increase in their open and disguised retail activities.
By reason of my background and special concern with the survival of
small business, I have had the opportunity to observe closely this trend.
I have spent much of the last 30 years either in the retail new car busi-
ness or in the practice of law^ engaged essentially in representing
dealers in litigation with automobile manufacturers. In the last 8 years
I have been consulted by hundreds of dealers, many of whom were able
to furnish me with information concerning their manufacturers' retail
activities. Most of my cases contained issues of law and fact that re-
quired the manufacturer to disclose in discoveiy procedures specific
information about their retail practices. Much of the specific data and
information I have gathered is unfortunately privileged and con-
fidential as a result of the lawyer-client relationship.
On the basis of my direct observations, I sadly must agree with those
thoughtful automobile dealers who predict that, if present trends con-
tinue, all independent dealers in large cities and their suburbs will
eventually be replaced by factory-financed and controlled dealerships.
Complaints and resolutions on this subject by dealers and their trade
associations throughout most States are commonplace in automotive
trade publications.
In many large cities and their suburbs, factory-financed and con-
trolled dealersliips are becoming the rule rather than the exception.
The trend is accelerating everyw^here at an alarming rate in a period
of relative prosperity and record automobile sales. The manufacturers
cannot claim they have been forced to enter the retail business because
their retail sales are falling.
It is clear to me that there is no evidence that the entry of manu-
facturers into retail distribution is in any way based upon the expecta-
tion of making profits in retailing as such. Most of the manufacturers'
wholly owned retail branches in the big cities operate at staggering
losses. In addition, manufacturers have made and continue to make
repeated loans to controlled dealerships without reasonable expecta-
tions of repayment since these dealerships are continuously losing
32-493 O— 69— pt. 1 3
20
money. If the establishment and continuation of the various forms of
factory dealerships depended upon profitable operations, there would
be no problem as very few of them could meet this test. The operating
losses sustained by the factory-controlled dealerships in Pittsburgh
and surrounding areas, as shown by the evidence in Mt. Lebanon
Motors, Inc. v. ChrysW Corj).. 283 F. Supp. 453 (D.C.W.D. of Pa.
1968), is typical of factory retail operations throughout the United
States.
The incentive, I repeat, the incentive, as well as the ability to engage
in loss retail operations, is the j^roduct of unusually large manufactur-
ing profits. In effect, manufacturers' prices are administered by Gen-
eral Motors, and followed by others, and there is no price competition
at the wholesale level. The manufacturers' profit per car is so large
that they can afford to lose money at the retail level if even a small
increase in sales volume occurs. This is true because the extra addi-
tional units sold yield a much larger profit than the average profit
of the preceding units. With all of the overhead met by a given volume,
the gross jjrofit on extra units becomes almost net profit after the cost
of labor and materials. There have been estimates that the cost of
labor and materials to manufacture a car runs anywhere from $500
to $1,000. But whatever it is, the profit on the extra units is tremendous.
Senator Nelson. I do not get the definition of an extra unit.
Mr. Hammond. My definition. Senator, simply is this, that if with-
out engaging in loss, subsidized retail operations, the manufacturer
were to make, for example, a million units, the average profit might
be at a certain figure, but on those extra units, with all the overhead met,
with the tooling costs, the administration charges and everything else
fixed, the particular units created by subsidized retail selling, are
extra units for the purpose of this discussion as well as, I think, for
other purposes.
By extra units I mean something that is created by special efforts
over and above the normal advertising. Let me put it another way.
When Chrysler, a number of years ago, offered and gave very sub-
stantial fleet and leasing discounts, many, many, many hundreds of
dollars below the dealer cost, they were thereby creating or, if you
please, buying an additional share of the market that was not otherwise
available to them. These were extra units that they were able to pick up,
to purchase, by this special technique; and for that purj^ose I am
calling them extra units over and above what they otherwise might
have if they were selling all their cars to dealers at their normal prices.
Senator Nelson. So, the extra unit in the fleet car situation was the
fact that they got part of the market they could not otherwise get?
Mr. Hammond. Yes.
Senator Nelson. And that their profits in your judgment, were so
substantial that even though they sold the extra units at a very low
price, they still made a profit on them. Is that what you are saying?
Mr. Hammond. Yes. And I am going on to point out in the next few
paragraphs that you have to make a distinction between their average
profit on units as compared with the profits that those particular
additional units derived once you consider all their overhead costs
as having been absorbed by all the other volume. I think I make it a
little more clear in the next paragraph.
21
Senator Cook, Mr. Chairman, for purposes of definition, does the
accounting field or, for instajice, the Internal Revenue Service have
any definition of what you call extra units as applied to their gross
profits ?
Mr. Hammond. Oh, no I think there is just a traditional economist's
point of view on the special role that additional volume may have
over and above a normal volume that is otherwise obtainable in the
normal way.
Continuing, thus a manufacturer can profitably operate or finance
retail operations at large losses and can engage in anticompetitive pric-
ing practices, if at the same time retail sales volume is increased. Again,
because of the unusually large manufacturing profits on the extra, on
the additional units, the combined retail and manufacturing opera-
tions result in a larger overall profit.
The manufacturers have entered the retail business in majiy ways,
especially during the past 6 years. They sometimes operate by way
of factory branches and wholly owned subsidiaries. Much more fre-
quent is the wholly or substantially financed dealership with a nominal
dealer or, as they sometimes call it, "operator" who has very little
or no capital at risk and who may be replaced at will by the dealership's
board of directors, composed of essentially employees of the manu-
facturer. Other dealerships are factory-controlled in that they are the
recipients of favored treatment — a subject I am not going to go into for
many reasons — or receive large loans that they are unahle to repay.
In addition, manufacturers are invading traditional areas of the
retail business in many ways. Directly and indirectly, they have by-
passed their dealers and have taken over a substantial portion of the
fleet and leasing business by the use of low and indeed, predatory pric-
ing policies. They have established auction centers for the sale of
used cars; have established new car preparation centers; and have
announcecl the establishment of diagnostic or repair centers.
Companies are erecting large numbers of elaborate and costly facili-
ties without reasonable expectations that these real estate investments
will return a fair profit. In the last few years Chrysler has built over
600 large dealership facilities for lease to controlled aaid nominally
uncontrolled dealers, and new facilities are constantly being erected at
a very rapid rate. Dealers whose existence naturally depends upon the
renewal of the leases for their facilities and also upon the amount of
rent they must pay are obviously subject to continuing domination and
control. Moreover, and I think this may be more important in the fu-
ture, when dealers become unable to pay their large rents because of
reduced opportunities for profit or because of reductions in the current
large volume of new car sales, aaid this is something that is foreseeable,
the manufacturer will be obliged to take over the operation of the
dealership or engage in various forms of discriminatory practices to
allow the dealer to continue in business.
Factory dealerships very often operate to increase retail sales and
the company's share of the market in the dealerships' territory, and at
the same time to stimulate or increase the volume of sales by other deal-
ers of the manufacturer in the area. The stimulation of the market is
accomplished by pricing practices which generally do not take into
account the dealers' cost of doing business or sometimes by outright
predatory pricing practices. By lowering the average retail price of
22
its cars as against those of competitive makes, the manufacturer is able
to increase its share of the local market.
For all of the above reasons, retail prices are depressed m many
markets, many dealers cannot operate their business at a fair profit,
other dealers operate at a loss, and many dealers, and this is a con-
tinuing process, are forced to leave the business. The opportunities for
profit of existing and potential future dealers are diminished or often
destroyed, and this is my theme really. This process continuously feeds
upon itself. As dealers leave the business because of insolvency or lack
of profit, the manufacturer is hard pressed to find new dealers with,
or perhaps even without, sufficient capital by reason of the reduced
or nonexistent profit opportunities. The manufacturer replaces the
independent dealer with one form or another of factory-controlled
dealerships that do not operate at a fair profit.
Once this process has taken hold, it generates its own increased mo-
mentum, which may not easily be controlled by the manufacturer. A
manufacturer will seek, and indeed does seek, to explain or defend the
establishment of a new factory dealership in some location as being
necessary for it to retain its normal percent of penetration in that
market. This explanation appears credible and is credible until
the economic forces which created the necessity for such action are
examined: it is the manufacturer's own retail practices and some-
times those of its over-zealous competitors, and that to a lesser extent,
which have destroyed the opportunities for profit and driven in-
dependently financed dealerehips out of business. Again, once economic
forces are put in motion, they do not depend on the intention or good
will of men, and they are inexorable and I am afraid often irreversible.
In brief, if pre.sent trends continue, and I do have to say if the pres-
ent trend continues, the total elimination of independent dealers in
the large cities and in metropolitan areas will come about because of
the operation of two inter-related and self-reinforcing forces: the
operation at a loss of factory financed and controlled dealerships and
the resulting destruction of the opportunities for profit for independ-
ent dealers.
As of this date. General Motors has not yet, because of its dominant
position in the market, found it necessary to enter the retail business
except in New York City and some other major markets. In fact,
the other manufacturers have used factory dealerships as a means of
attempting to maintain or increase their share of local markets at the
expense of General Motors which is reluctant, in my view, because of
antitrust reasons to presently adopt similar retail practices.
However, American Motors Corp. has been the intended or the un-
intended victim of these retail practices. American Motors does not
begin to have the additional capital funds necessary to finance numer-
ous large-scale retail operations, nor does it have sufficient manufac-
turing profits to incur substantial retail losses in many markets. If
we were to compare American's percent of market penetration in those
markets where its manufacturing competitors are involved in retailing
or extensively involved in retailing, with other markets where no such
activity exists, it will be found that American is suffering serious
losses in its share of the market as well as in unit sales. I might add
that I have done this kind of comparison in a cursory kind of way and
it bears that conclusion out.
23
I am unable to make any meaningful estimate of the number of
sales lost by American, but I am sure it is substantial.
In all events, speaking from my view of the industry, I strongly
believe that American Motors will not be able to maintain its present
volume in the face of this competition. What I am saying is that its
competitors are using profits made in one market, manufacturing, to
subsidize losses in another market, retailing. As manufacturers' par-
ticipation in retailing increases, and it has continued to increase weekly
and monthly and yearly, American's share of the market and its volume
must continue to decline. I believe that American Motors cannot
for more than a few years sustain further reductions in its sales as a
result of competition of the kind I have been describing at the retail
level.
The survival of American Motors, the last remaining competitor of
the "big three", is important ; and perhaps just as important, its sur-
vival has symbolical importance in efforts to slow down industrial
concentration. A full investigation disclosing all of the facts is an
immediate necessity before it is too late for American Motors.
About 6 years ago Chrysler started to sell fleet and lease cars at
hundreds of dollars under dealer cost by way of special discounts, guar-
anteed used car prices, and numerous other devices. Now, unlike other
manufacturers. General Motors could ignore for a time the resulting
diversion of its traditional shnre of this business. But General Motors
had to react ; and after waiting a sufficient number of years to allow
it to claim a legal defense of a bona fide meeting of competition, it
met, it finally met, the much lower fleet prices of its competitors last
fall, at the time of the introduction of the 1969 models. Similarly, Gen-
eral Motors can be expected in the near future to be forced to react to
the competition of the other manufacturers at the retail level, after
again waiting to allow it to claim this legal defense. General Motors
has already done so in some large cities, such as New York. Senators,
when General Motors joins the other manufacturers in retail distribu-
tion on a large scale, the dealers' opportunities for profits will be
further dramatically reduced or destroyed, and there will be a whole-
sale elimination of private capital, private enterprise, and independent
dealers.
In many industries direct selling by manufacturers is a fact of life.
For example, in a field that I am familiar with, all major U.S. office
machine manufacturers sell directly to consumers, and most of the
sales volume of some manufacturers is channeled through factory
branches or divisions. Many of them, including IBM, the largest, do
not have any dealers.
In the truck industry. International Harvester sells an estimated 40
to 45 percent of its trucks through approximately 265 retail branches
and other divisions of the company, all of which are in direct competi-
tion with its dealers. This company exercises many controls over its
dealers' ability to compete and make a profit. For example, it effec-
tively fixes the prices at which its dealers may sell parts to their cus-
tomers by a special discount structure. Special discounts are available
to all parts customers without regard to any functional basis ; and by
reason of the competition by the branches, dealers must extend these
lower prices to all or practically all of their customers. The branches
in other ways are given important competitive advantages denied to
24
their dealers. By way of illustration, through special arrangements
with tire manufacturers, its branches are able to exchange new truck
tires at comparatively small or indeed nominal costs, while its dealers
must pay significantly higher charges to make the exchange.
It is of the utmost importance to ascertain the existing nature and
extent of the manufacturer's invasion into automobile retailing. Auto-
mobile retailing is a large business affecting the fortunes and lives of
hundreds of thousands, and I think that is an understatement, of
people employed in the business. The increased takeover of the retail-
ing business by automobile manufacturers will also disastrously af-
fect and eventually destroy great numbers of manufacturers and sup-
pliers and dealers in accessories, parts and supplies who presently are
able to compete with automobile manufacturers in supplying some,
and I repeat, some of these products to independent dealers. These
manufacturers and suppliers will find ultimately in the future that
their present markets will be further curtailed and ultimately fore-
closed. I think we could spend hours on the importance of this threat
to private business and enterprise in this country, but I do not think
it is in my province to do so here.
In conclusion, I would like to say that numerous violations of exist-
ing laws should be revealed by full disclosure of all of the facts. Pri-
vate legal actions by dealers can only begin to uncover a meaningless
fraction of a manufacturer's course of conduct. It is absolutely neces-
sary that Congress and the Federal Trade Commission undertake a
full investigation into the retail practices of the manufacturers. Should
all the facts and figures become known, I believe Congress will soon
find the necessity of protecting small business from destruction. Among
other things, it may be appropriate to make specifically illegal those
retail operations conducted at a loss by large manufacturers in com-
petition with their dealers or indeed, with each other. If the Federal
Trade Commission were to conduct a sweeping economic investiga-
tion, it would find that the use of manufacturing profits to engage
in unprofitable retail operations and other current practices consti-
tute unfair methods of competition under section 5 of the Federal
Trade Commission Act.
The problem is an immediate one. Action must be taken before it
is too late.
Thank you.
Senator Nelson. Thank you very much, Mr. Hammond, for your
very thoughtful statement. The committee will allow the other wit-
nesses to present their statements so that we can get them in the record
before 12 :30. However, if Senators do have some questions
Senator Dole. Mr. Chairman, I wonder, since the next witness, Mr.
Mann, has a 41-page statement, will the other witnesses be available
tomorrow for questioning, because it may take until 12:30 to finish
41 pages and then the other two witnesses will not be available for
questioning.
Senator Nelson. Mr. Mann is on the panel tomorrow.
Senator Dole. I mean the other two.
Senator Nelson. The other two are not.
Mr. Hammond. I am sorry, I am not, sir. It is absolutely impossible
for me to be available tomorrow. At any other time I would be very
happy, any time at all, but this week is impossible for me.
25
Senator Dole. I think maybe, Mr. Chairman, because of the length
of the statement and the fact that Mr. Mann will be here tomorrow,
it might be helpful to ask Mr. Hammond some questions now. He may
not be available tomorrow and he made a statement which I think
deserves some questioning.
Senator Nelson. If you would like to ask some questions of Mr.
Hammond at this stage, I think that w^ould be all right.
Senator Dole. First of all, I understand, Mr. Hammond, that you
are now involved in some litigation involving some of the very ques-
tions you set forth in your statement, is that correct?
Mr. Hammond. I am involved in and liave been involved in litiga-
tion on these very questions for the last 8 years. Putting it another
way, a good deal of my law practice involves just those issues.
Senator Dole. Is there anything that you are looking to this com-
mittee to find for you that you have not been able to fiiid in a court
of law?
Mr. Hammond. No, Senator. My only purpose in making this state-
ment, I think, is that things are continuing at such a rapid pace that
if the facts are not known and disclosed and available to Congress,
it may be too late before anything can be taken to either hold back
these mexorable forces or just do anything about it.
Senator Dole. Well, there is some doubt in my mind frankly, about
the propriety of having hearings concerning matters presently in liti-
gation. I understand you represent many clients and have many mil-
lions of dollars at stake and probably a rather healthy fee, but there
is a question in my mind about the propriety of having these hear-
ings at this time, whatever the facts may be, whatever the problems
may be, while litigation is pending. I thnik there is also some prece-
dent here, the Senate earlier considered this in document No. 99
entitled, "The Congressional Power of Investigation."
But at any rate, on page 10 of your statement you indicate, and I
quote :
It is of the utmost importance to ascertain the existing nature and extent of
the manufacturer's invasion into automobile retailing.
Now, is that esentially the same thing you are trying to determine
in the litigation?
Mr. Hammond. I have no present litigation that involves that par-
ticular issue. Anything that might be done this year will not in any
way aid or influence any of the evidence in the cases that are at issue.
Senator Dole. I wonder if you might elaborate, then, what the
real thrust of that statement is on page 10 which says it is of the
utmost importance to ascertain the existing nature and extent of the
manufacturers invnsion in automobile retailing.
Mr. Hammond. Well, simply what I am saying, Senator, is that the
continuing increased participation by manufacturers in retailing is
at such a rapid rate and the reduction of profit opportunities and the
elimination of dealers is continuing so that there will be posssibly,
and I cannot predict when, a certain flash point in many major metro-
politan markets where all dealers will necessarily be unable to exist.
They will be insolvent or will leave the business; and we will be con-
frontpd with a situation wliere there will be no private enterprise in
retailing in most of the big populous areas of the country. So this
is, I think, for the future.
26
I am not saying that if a law is not passed in this session of Congress,
all this will necessarily happen within the foreseeable 3 or 4 years.
I do think in many markets it may be impossible to restore private
capital because things have just gone too far, but I am less worried
about, shall I say, what happens in 20 or 30 or 40 markets than I am
as to what will certainly happen if present trends continue in all the
populated areas of the country. So, it is a long-term view looking for-
ward, and I do not know whether this flash point will occur 2 years or
5 years or 7 years. I do think that when we have a recession of a sharp
curtailment in automobile buying, you will have a blood bath in the
dealership body. At that point the manufacturers' necessity of trying
to maintain the volume that they had or of getting even somewhere
close to it will be such that they will increase their heavy loss retail
operations and the thing will just snowball like anything. So, it has
nothing to do with any of the cases that I have in a sense that were
issues in previous cases.
Senator Dole. I understand now there are a number of cases pend-
ing including where you are the attorney of record in the case of
Broadway Rambler, Inc., versus American Motors Sales Corp.
Mr. Hammond. That case is no longer pending.
Senator Dole. That has been disposed of ?
Mr. Hammond. Yes.
Senator Dole. I will not ask you how it came out. You are smiling.
How about Beach Rambler, Inc., versus American Motors?
Mr. Hammond. That case involves the legality of a contract. The
entire case involves two causes of actions that relate to specific language
in a contract.
Senator Dole. And Lindenhurst Rambler versus American Motors
Corp. and American Motors Sales Corp., is this still pending?
Mr. Hammond. Yes, indeed.
Senator Dole. And does that touch on anything that we are touching
on here today ?
Mr. Hammond. In a very remote sense by reason of distance and
otherwise, and also I might add because American Motors activities
in this area are very minimal, one can say that it is an issue of the
least importance, but it is there. But it is a minor side issue.
Senator Dole. And then you have, I guess one case, at least against
Chrysler Corp., Long Island Motors, Inc., versus James F. Walter and
Ashdown Motor Sales. Is that case pending or does it have any refer-
ence to any of your statements here today ? Of the issue in that case ?
Mr. Hammond. Well, in the sense that I am asking Congress to look
into the present and the future, that case would have nothing to do
with that because all the activities that are involved there go back 7
or 8 years. So, if you investigate what may be happenina; this fall,
it certainly does not bear on what happened in 1959 or 1960.
Senator Dole. Do you have any other suits pending against manu-
facturers?
Mr. Hammond. Not in the automobile industry ; no, sir.
Senator Dole. As I understand it, your i:)ractice primarily repre-
sents dealers. Have you ever represented a manufacturer ?
Mr. Hammond, They have never sought my legal i-epresentation.
Senator.
Senator Cook. Will the Senator yield ?
Senator Dole. Yes.
27
Senator Cook. Mr. Hammond, you said in relation to the Senator's
question on the phrase, "it is the utmost importance to ascertain the
existing nature and extent of the manufacturer's invasion into auto-
mobile retailing," you are talking about all phases of retailing. You
are not only talking about the automobile itself, but the parts dis-
tribution, the whole system, are you not ?
Mr. Hammond. I could be and I should be although this paper was
directed primarily to this aspect of it. I think I would be remiss
in saying that those other areas should not be looked into. I was con-
centrating purely in this statement on this danger which I consider
paramount.
Senator Cook. The reason I am giving this broad view is because
you speak repeatedly in your statement about parts, about the fact that
industry-owned dealerships have a benefit on parts, benefit on tires,
that the other individual does not, but yet you said that in relation to
this statement, it had nothing to do with the present litigation that
you are involved in.
Now, let us look at for instance, the Broadvmy Ratnhler case. This
case was dismissed with prejudice in April of 1969 and was a suit
for $2,100,000 which also included in it the preferential treatment to
competitive dealers in forced purchasing of parts and accessories. In
the Beach Rambler case there was not only the matter of the franchise
but it was also claimed an antitrust violation including forced pur-
chasing of parts and accessories. The Lindenliurst case included those
same items, but yet a moment ago you said in dealing with American
Motors this was rather a small segment or infinitesimal part of Ameri-
can Motors activities but these three lawsuits amounted to $5,585,000.
Now, that is not to be considered a small and infinitesimal part of their
business, is it ?
Mr. Hammond. The Beach Ranibler case, Senator, involved only
and very clearly the particular language in the agreement itself.
Senator Cook. As it applied to forced parts and accessory purchases?
Mr. Hammond. As the agreement itself indeed in my view required
that ; yes.
Senator Cook. Are all of these cases treble-damage cases ?
Mr. Hammond. The antitrust causes of action are. The good faith
causes of action would not be.
Senator Cook. Thank you. Senator.
Senator Dole. I want to pursue that just a bit further. I assume
that you feel the people who appear before the committee should come
here sort of with the mind of a juror, open and objective and not having
prejudged the issues. Is that correct? You come here somewhat
prejudiced.
Senator Nelson. Let me comment so that it is clear to the Sen-
atorp. Mr. Hammond did not ask to appear before the committee.
Mr. Watts, staff counsel, was seeking the people with the best
understanding that he could find, and experience, in dealing with
precisely the problems that Mr. Hammond has commented about.
So he w^as invited to come I might say that if the Congress were
going to wait and never have hearings on any issue on wliich there
was some problem of litigation, remotely connected or directly with the
hearings, there would not be any hearings on any issue of importance.
I have been conducting hearings for 2 years oil the drug industry.
28
There have been lawsuits filed probably every single day involving
drug companies and issues that this committee has been hearing. In
fact, lawsuits have been filed as a consequence oi niiu^i..... ..ii J.e-
veloped by this committee. So, I just want the Senators to understand
Mr. Hammond was invited to come and I think he gave a very fine,
intelligent statement.
Senator Dole. I do not have any quarrel with his statement and I
assume he was invited by the chairman to come. We were not consulted
on that side. That makes no difference really, but I think the important
point is that if we are going to arrive at some objective analysis of the
problem, we ought to be talking to persons who sort of feel objective
about it and I do not have any fixed opinions. I notice the editorial
comment in the chairman's statement about giant corporations. I do
not know how to describe a giant corporation. I would like the record
to note at this point that I do not own any stock in any corporation or
have any interest in any corporation. I do drive an automobile and
that may be part of a giant corporation, but at any rate I think it is
important for the record to show that you do have a special interest
in these hearings, at least if not the hearings, you have got lawsuits
totaling about $10 million pending and I would guess that you might
be classed as a big city lawyer. I am just a small country lawyer myself,
from Russell, Kans., and I assume I could look upon you with some
disdain because you make those big fees in these big cases. I no longer
have any clients. I decided to try something else.
Mr. Hammond. May I answer your questions ? Just picking up the
last one, representing the small man, the small dealer, I assure you is
not profitable and any lawyer who undertakes that route has to do it
on the basis of, if you please, ideological conviction, and that takes me
to
Senator Dole. Plus a contingency fee.
Mr. Hammond. Yes. We must never overlook the fact that people
must eat in this world. Coming back to your first comment and ques-
tion, Senator, I would have to in all honesty say that I have precon-
ceived opinions. I would have to in all honesty say I am partisan, and
if you want to use word
Senator Dole. You may be correct. I am not saying-
Mr. Hammond (continuing). "Prejudiced," you can use that word,
too, but I will tell you what my prejudice or partisanship is, and that
is for the continuation, not only in the automobile industry and other
industries but the continued existence of hundreds of thousands and
perhaps millions of small businessmen who are threatened with extinc-
tion and who are rapidly being eliminated; and it is my passionate
conviction, and if you want to call that a prejudice, you may, that our
system of economic and political democracy are one and the same and
that to have cur kind of meaningful political democracy, we must pre-
sence the independence of millions of people to act as businessmen. We
must preserve private enterprise. And I do not think, and I am going
to reveal my opinions, I do not think we will have private enterprise
or capitalism if some day — we are drifting in that direction — we are
going to have two or three or four hundred big corporations con-
trolling retailing, manufacturing, and servicing. And if we are
drifting in that direction, and there is a lot of evidence that we are, I
think it is about time that Congress should not only look at the con-
29
centration in the industrial areas but also in retailing and, if you please,
in servicing as well.
Senator Dole. I think generally I am not disagreeing with what
you are saying but I go back to my original thought — I think our
committee should be very objective and I am certain we will be.
The small businessman is indeed in trouble everywhere in America,
whether it be Kansas or New York City, so I think our ideas of small
business may differ depending on what area you may come from,
but I would hope that the thrust of these hearings, and I am certain
they are as the chairman indicated in his statement, not only the
answers to the seven questions he has posed but also to determine
just what the facts are, and I recognize, too, that we can j^orobably
never have a hearing if we did not have someone testifying who
knew a little bit about it, but I want the record to show that you do
have a prejudice, that you do have a special interest, in fact, you
would not be in court if you did not think you have a case, and some
of the very issues you are discussing there before the judge are
touched on at least broadly before our committee today.
Now, you mentioned in your statement about General Motors in-
creasing its factory outlets. Just how many factory outlets have they
added in the last 20 years, do you know?
Mr. Hammond. My knowledge is hearsay and from reading news-
papers and other newsletters. I do not really know, and I think it
would be best if the Senate were to try to find out, but they are not
numerous. In terms of Chrysler, for example, I have weekly con-
tacts almost with that increasing trend, so I have solid familiarity
with the facts there. And really. Senator Dole, all I was asking for
in this hearing is I think it is about time that this committee and
the Senate learned the facts before it may be too late.
Senator Dole. What do you suggest — this is not a legislative com-
mittee but what do you suggest that we do as a Congress? How do
we stop it? You indicate the flash points may be coming next year
or 10 years from now. How should we respond in the Congress, the
Senate and House ?
Mr. Hammond. My first sugarestion. Senator, would be to get the
facts from the manufacturers. They are hiding the nature, the kind,
and the disguised participation in retail activities. Before you can
understand the appropriate form of action, I think the facts have
to be ascertained out in the open. Independently of that, I think if
you were to make that investigation, you would slow down the process
considerably for a number of years. That would be a great positive
benefit in the short term view.
Ultimately, and perhaps not too far in the future, it seems to me
appropriate that there should be a law passed prohibiting a manu-
facturer from using manufacturing profits to engage in retail opera-
tions. This is using power arrived at in one way or another in one
market to not compete in another market but rather destroy the
competitors in the other market and this is a continuing process and
that is really what I am talking about. Incidentally, the competitor,
the manufacturing competitor that is most vulnerable is American
Motors and in reply to your earlier questions, I would say my present
litigation really has nothing to do with this major problem at all.
Senator Dole. I think
30
Mr. Hammond. Except most tangentially.
Senator Dole. How do you justify any of these companies having a
retail outlet, say, in New York City where they absorb a tremendous
loss in the retail facility? ^^Hiat is your rationale for that? Wliy do
they do that when they cannot make a profit, just to drive out com-
petition ?
Mr. Hammond. No. Once this tiling starts, you see, th^ cannot turn
back and once the other fellow is losing a large sum of money, they
have to meet him. And American Motors did not want this situation,
I would say, but just found themselves trapped into it. And in certain
markets, to the extent they have capital, they are trying in a small way
to meet this kind of competition, but they cannot because they surely
do not have the money to invest in facilities, they do not have the money
to lend to the dealers, nor do they have the actual money to lose. So,
American Motors will be the victim of this very thing, and if nothing
else comes out of this hearing, I would say you had a better look at
what this process is doing to American Motors. If you sit here and do
nothing, and 5 years later American Motors is no longer manufactur-
ing cars, I would say that this hearing had an opportunity to maybe
look at the facts and possibly do something about the situation. I am
not saying that it could accomplish that result, but the time to look at
some of these things is here now, and it just does not do much good to
look at the situation after the horse is out of the barn.
Senator Dole. I think you indicate that American Motors is in this
vice, you did not say vice, that is my word, but I also note in the July
3d issue of the Wall Street Journal, it indicates American Motors
just signed up 28 new dealers which is the highest monthly total of
new dealers in 2 years. Would this indicate demise or maybe a little
spark of some kind ?
Mr. Hammond. I think their total dealership numbers over the years
is on the decreasing curve. Any movement — you move two steps back-
ward and one step forward and one step sidewise and still be losing
ground all the time.
Senator Dole. They are also planning to come out with a new car
and some other new products. I hope it does not mean the demise. I
hope they stay in the field and stay competitive and I understand also
that I am certain we are dealing primarily today with manufacturers
of automobile, but I also feel there may be the same problem, alleged
problem, existing in many other fields of American industry, and we
find the same true in rural America with reference to farming. We
find more and more small farmers going by the wayside. We find cor-
porate farming on the march in some areas. So I would not want, and
I am certain you do not believe that it is just isolated, that it deals
only with the manufacture of automobiles. It is true in many areas in
industry,
Mr. Hammond. Yes, Senator. I think if you want to generalize from
what I am saying, in those concentrated industries that have the
power to practically or actually administer prices, the unit profit is
large. The additional unit profit is large. And as a result of this power
that they have in manufacturing, they have the ability, they have the
power to take over the retail activities. And the tentacles of power
spread and spread in such a way as to destroy and potentially destroy
over the foreseeable 10, 20, 30 years, perhaps millions of small busi-
31
nesses, so that ultimately some day, if all present trends continue, our
children or our grandchildren will have the choice of working for big
government or big business or big education, and that is not the kind of
private enterprise system that I believe is worth living for and dying
for.
Senator Dole. I agree with that general premise. I have told my
friends for many years that I do not think small business really has
any strong thrust in the Congress, and from that standpoint I have
no quarrel with your statement. I do think in fairness that it is liard
to describe you as an unbiased witness, and I have no further questions.
Senator Nelson. Let me say the committee invited Mr. Hammond
because we knew he had a biased position. We invited Mr. Mann be-
cause we knew that he represented the automobile manufacturers. We
invited a representative of General Motors, Chrysler, Ford, American
Motors, to come before this committee because we knew they had bias.
I have sat around here and listened to Senators say to professors,
"Well, you are just talking theory. You do not have any practical ex-
perience. Let us get somebody with practical experience." Then the
Senator says, "Yes, you have got a bias."
We are having every bias that we can find before this committee.
Senator Cook. Mr, Chairman
Senator Nelson. Yes.
Senator Cook. I would like to say, Mr. Hammond, that I have no
objection to your statement from that standpoint. I would only hope,
with all due respect, that this committee does reach a far-reaching
conclusion, that does not show any bias in its own conclusions.
Mr. Chairman, with all due respect, in the statement that you did
not read but put into the record, there are many things in here that
seem to point a finger at business, yet using figures from 1954 to 1968,
not taking into consideration the gross national product in relation to
their profits, not taking into consideration the tremendous inflationary
situation that we find ourselves in in this country, and I am afraid if
we do not put things in their true perspective, we might find ourselves
getting off to a rather bad start. I would like to ask permission to put
a statement into the record in regard to your opening statement show-
ing the increase of the gross national product, showing the increase
in the inflation of the dollar with regard to these profits from 1954 to
1968 because I think it is ( xtremely important and I think it might
well put things in a true per? ipective.^
I might also say for the record, Mr. Hammond, that as far as
General Motors is concerned, and I do not own any General Motors
stock, that they have six dealerships that they own themselves. There
are four in New York City, one in Pontiac, Mich., and one in Chicago.
The thing that I wanted to ask you, if this historically has been that
company's policy, to leave it up to its dealer, then how can you say
that it refrains from retail sales only because it suddenly feels anti-
trust consequences?
Mr. Hammond. I think my statement also included something else
and that is because of its dominant position in the manufacturing and
retail market place, it can ignore that for the time being.
Senator Cook. Let me ask you another question, Mr. Hammond, as
lawyer to lawyer. When you talk about the proposal that Congress
1 See p. 17, supra.
32
seriously consider legislative actioil that would see to it that manu-
facturing profits could not be used to maintain retail or wholesale out-
lets, are you suggesting that this be aimed directly at the automobile
industry and the automobile industry only. Do you feel legislation of
this kind could be sustained as a matter of legal consequence?
Mr. Hammond. Yes.
Senator Cook. Do you feel
Mr. Hammond. I have no problem there.
Senator Cook. Do you think it could be sustained as to the automo-
bile industry and ignored by IBM or ignored by Sperry Rand or
ignored by Remington or all of the rest of the companies who do not
have retail outlets individually owned ?
Mr. Hammond. IVhat I was suggesting is not that manufacturers
should be precluded from using money or capital to enter into retail
activities. I am not opposing dual distribution as such. I am only
saying that when manufacturers do enter into retail activities, and by
that I mean all manufacturers, they should not be permitted to subsi-
dize continuing losses in retail operations by manufacturing profits.
That may be the existing Taw and indeed, I think an antitrust lawyer
would say you have that already on the books in a sense, but it is being
ignored and it must be ignored in the nature of litigation. So all I am
saying is that our independent dealers, our small businessmen, should
not be eliminated by loss operations that are offset by manufacturing
profits. Companies should not destroy competitors in one industry as a
result of the profits made in another industry, and all the more so in
this kind of situation. That is all I am saying.
Senator Cook. Only in conclusion, Mr. Haimnond, I might suggest
to you that having represented dealers just as you have, I have come
to the conclusion that maybe what the automobile industry is doing is
the same thing that the Government has been doing for years, and that
is it gets into everything, gets into every facet of what it has any con-
nection with and maybe this is the same thing the automobile industry
has been doing and maybe we are the ones that have been setting the
bad example, not the giant corporations throughout the country.
Mr. Hammond. Senator Cook, I am sure we both do not like either.
Senator Cook. Thank you.
Senator Nelson. May I say as to the statement I put into the record,
that statement represents my own viewpoint which I have expressed in
hundreds of speeches, I suppose, and I have no objection to anybody on
the committee putting in any response they please.^
I would just like to point out that each member of this committee —
the full committee, that is, not just the subcommittee — received a letter
a month ago announcing these hearings. I have not to this day recei^'ed
a suggestion from anybody of the minority or the majority as to any
other witnesses to have before this committee in order to make it a
balanced hearing. It has always been my objective to have balanced
hearings and in the 2 years I have l)een conducting hearings of this
subcommittee, I have had witnesses representing every single view-
point. Many of them were biased obviously and represented a specific
viewpoint and that is why we had them here. I will say for the record
that I Avill be glad to have suggestions for any other witnesses that
membei'S of this committee would like to hear before the committee, but
1 statement of Senator Cook appears at p. 17, supra.
33
as I said, each member received notice of these hearings a month ago.
and it is a little late to raise the question about whether or not these
hearings this Aveek are balanced.
Now, it is 11 :25. I do not know just exactly how we ought to handle
this. Mr. Cohen will not be here tomorrow^, Mr. Mann, and you will be.
Maybe we had better proceed with Mr. Cohen. Would that be satis-
factory, and then you certainly will get yours in either today or to-
morrow.
Mr. Mann. Wliatever you want to do, Mr. Chairman, is all right
with me.
Senator Nelson. I think we had better proceed that way. Then if
we do not get to yours, Mr. Mann, we will make yours the first state-
ment tomorrow.
Mr. Mann. Very well.
Senator Nelson. Our next witness will be Mr. Raphael Cohen, chair-
man of the executive committee, Metropolitan Independent Dodge-
Chrysler Dealers Association, who is also invited because we thought
he had experience and understanding and could make a contribution.
I assume he has a bias, too. Mr. Cohen.
(A biographical note on Mr. C^hen follows :)
Biographical Note
Raphael Cohen, Merit Motors, Inc., 132 S. Broadway, Yonkers, New York
10701, was born in 1924 and has been a second generation newear dealer In
Yonkers since 1947. He has been the elected representative of the New York
Region Dodge Dealer Council for the past five years "and is presently chairman
of the council. He is also a member of the National Dodge Dealer Advisory Coun-
cil. Mr. Cohen appears at this hearing as chairman of the executive committee
of the Metropolitan Independent Dodge Chrysler Dealer Association, a national
organization with members in 41 States and one foreign country. The associa-
tion's address is Box 421, Ridgewood, New Jersey 07451.
(The following editorial appeared in Automotive News, June 23, 1969, on the
subject of Mr. Cohen's acceptance of the subcommittee's invitation to appear at
this hearing. — Editor. )
Ray Cohen To Make It . . . PSesenting Dealer Case at Nelson Hearing
The opportunity to testify before a Senate subcommittee is not something that
would thrill the average dealer, but we wonder if Lyman Slack may not have
missed an opportunity when he declined an invitation given to the National
Automobile Dealers Assn. to testify at the July 9-11 Senate hearings on auto
comi)etition.
Slack explained :
"The keen competition at the retail level does not give us any special insight
into the role of competition among automobile manufacturers."
The first day of hearings before Senator Gaylord Nelson's Monopoly subcom-
mittee, will deal with auto distribution.
NADA and Slack, or a representative selected by him should have been pre-
pared to testify at great lengths on this topic.
For some time, NADA speakers at state dealer conventions and individual
retailers have complained that distribution encompasses one of the larger areas
of inequity in the factory-dealer relationship.
After Slack's decision, the subcommittee turned to Raphael Cohen, leader
of New York City-area group of dealer dissidents and an advocate of turning to
government or the courts for dealer redress.
iCohen is dedicated, persuasive and articulate. He is a low-key salesman of
high order and a veteran of Washington anoearinoes.
H-^ h^idc- seats on both national and local Dodge dealer councils.
Cohen knows the ropes in the dealership, in Detroit and in Washington.
34
STATEMENT OF RAPHAEL COHEN, CHAIRMAN, EXECUTIVE COM-
MITTEE, METROPOLITAN INDEPENDENT DODGE-CHRYSLER
DEALERS ASSOCLA.TION, INC., RIDGEWOOD, NJ.
Mr. Cohen. I think we live in a nation of bias and we all fall on
one side of the aisle or the other, and I do not believe in any way
this will reflect on what I am saying or certainly has not reflected in
my opinion, on anything any of the Senators have been saying as
of this moment.
The Metropolitan Indenpendent Dodge- Chrysler Dealers Associa-
tion wish to thank your committee for the privilege of appearing today.
We desire to contribute one of the opinions on the competition as it
pertains to the manufacturer and retail distribution of automobiles.
One of the grave errors that is made when discussing whether there
is, or is not, competition in the auto industry is brought about by the
manner in which the question is posed. For I believe the question
should be stated in the following fashion : Is there meaningful com-
petition in the auto industry that takes place to benefit the consumer
who is the largest segment of the society ? The reason that I make this
distinction is not to split hairs, but to really arrive at the crux of the
problem.
One need only open any newspaper or magazine, turn on any radio
or television station, and he can find one of four manufacturers
fiercely competing for his business. Examine the same newspaper and
the dealer is offering all kinds of goodies to the purchaser for the op-
portunity of selling him a car. So, to flatly state that competition does
not take place, brings me to defend a position that can be easily
refuted.
Now let me add that word meaningful to competition and we arrive
at the point of where this forum can begin. This Nation purchases
some 9 million new vehicles each and every year, not totally out of
desire. The automobile is, and will be for many years to come, the
major mode of transportation, so it is most important that the com-
petition taking place has true meaning.
Entry for new domestic manufacturers is closed for all intents and
purposes. This is a most unhealthy situation, but there is one method
now available that can accomplish the same ends as new entry. But,
a mere mention of this method brings down an avalanche of criti-
cism on those who suggest it. That method would be to take the cur-
rent manufacturei-s, and divide them into smaller entities. I believe
this would accomplish many of the healthy things that we are looking
for. However, I do not see this happening. In an asymmetrical oli-
gopoly the leader, in this case General Motors, sets the price standards
for the industry and the others merely comply.
To illustrate — this past year Chrysler announced price increases on
new 1969 models. They claimed that these increases were most modest
and actually accounted for only 60 percent of their added cost. They
stated that they were absorbing the other 40 percent. A roar came from
our executive branch of Government that the increase was unjusti-
fiably liigh and inflationary. General Motors then met with the chair-
man of the President's Council of Economic Advisors and General
Motors set the price increase. Chrysler res]>onded in the only manner
available to them ; they lowered their prices.
35
To those who doubt that prices are administered by the leader of
the oligopoly, what further proof do you desire ?
Senator Cook. Mr. Cohen, would you yield just a moment? Are you
not really saying that it is conceivable after General Motors met with
the President's Council of Economic Advisors it was the Federal Gov-
ernment who saw to the increase or failure of the increase in the auto-
mobile price and not General Motors ?
Mr. Cohen. No. I am basically saying it is a freedom of choice. The
Government has put pressure on other industries from time to time
not to raise their prices, sometimes successfully and sometimes unsuc-
cessfully. With the large concentration of power, Senator, it behooves
General Motors to respond.
Senator Cook. What I am saying to you is in the case of not only
the automobile industry but also the steel industry and the present
pressure on the banking industry, that if the majors decrease, then
everybody else is going to do it, but the real incidence of the decrease
is not the majors doing it but the Government doing it.
Mr. Cohen. In this particular instance I would say that the Gov-
ernment had no small hand in it.
Senator Cook. All right.
Mr. Cohen. I certainly have to concede that point to you. But there
w^as still the freedom as the steel industry after the Kennedy admin-
istration stopped them from rolling back prices and the Johnson ad-
ministration tried it, I think a similar position, they were not success-
ful and the steel industry did go up.
Senator Cook. Partially.
Mr. Cohen, Yes, partially. So I believe the necessity for GM to
respond is that in this industry the power is so concentrated in their
area, and I will go on later in my statement and show that this con-
centration
Senator Cook. But you will admit that the Federal Government is
probably one of the biggest purchasers that General Motors has.
Mr. Cohen. Well, I think it was a past chairman of General Motors
that made the statement that what was good for General Motors is
good for the country and what was good for the country was good for
General Motors.
Senator Cook. Too late to learn that that statement was not quite
what he wanted to say.
Mr. Cohen. Whether he wanted to say it or not. Senator, he was
most accurate.
To continue, and I might say that any portion of this that you
care to interrupt, I would certanily appreciate your interrupting me
so that I could explain anything that I am not clear about in the
statement. What happens, so many times with those that are making
statements, is that we understand our subject so well that we do not
explain it to the next fellow.
To those who doubt that prices are administered by the leader of
the oligopoly, wliat further proof do you desire? In fact, with only
four domestic manufacturers in the field it is necessary for the leader
to keep prices sufficiently high in order for the others to survive.
Now the question arises of why I have opened with a statement on
manufacturer competition at wholesale when the subject today is dis-
tribution systems and their effect on competition. It is solely to point
32-i93 O— 69— pt. 1 4
36
out that the only place that meaningful competition exists is on the
retail level. The three major manufacturers remain competitively
together.
Senator Dole. I think you are right. Some of us do not understand
the problem maybe, but now as I understand it, if one manufacturer
lowers his price to meet the price of another manufacturer, that is
not competition. Is that what you are saying?
Mr. Cohen. No. That is not what I am saying. Actually, what I
pointed out here I think in this paragraph, is that the leader. Gen-
eral Motors, sets all the price patterns and the others just follow along
and I think
Senator Dole. If you lower the price on your car and the others
just follow along, that is competition.
Mr. Cohen. Are you talking on the retail level or wholesale level ?
Senator Dole. I am trying to find out on both.
Mr. Cohen. On the wholesale level the market is set by competition —
on the retail level in a particular area, and this is where meaningful
competition takes place. However, you have to remember that on the
wholesale level the dealer can only purchase his product from the
particular manufacturer he is franchised to. He has no economic
leverage to say if your price is not reasonable enough I am going to go
over to Ford or American Motors and buy it for less because the prices
are not less. If you check them across the board you will find that they
are competitively together, and that in this case, the price is set by
General Motors. I have no doubt about it. And I think any investiga-
tion on your part will pretty well sustain my point.
Senator Dole. I am just trying to determine the essential difference
in how you might define competition. What is competition as far as
the wholesaler is concerned, and what is competition as far as the re-
tailer is concerned ?
Mr. Cohen. I think meaningful competition as far as the consumer
is concerned, and that is who feeds me, is price competition, getting the
most he can for his economic dollar, and that this competition be kept
open. But when he has a fixed wholesale price that he is bucking, he
really has no competition unless it be on the retail dealer level who will
take a lesser markup or higher markup. This has other effects in other
areas but this committee is not getting into parts and service and I
think Senator Hart is doing a fairly decent job in handling that.
I think these hearings of these committees are most meaningful even
though we accept subjective views. In all these hearings at least it
gets open on the boards and on the table for everybody to reason out
and understand what the problems are. I do not say that we have
any overnight solutions. Certainly there is a debate that starts here
at 12 :30, in the Senate, that is certainly more meaningful in my esti-
mation, than what I am saying here this morning and I am sorry to take
up the time of the committee to make a statement when there are things
on the Hill that are very important.
Senator Dole. I think this is very important but I tliink meaningful
competition is about like meaningful tax reform. If you lower my taxes
and raise yours, that is meaningful.
Mr. Cohen. I would rather
Senator Dole. Maybe there is not any hard and fast definition for
meannigful competition. You view it one way and I assume the whole-
37
salers view it another way and as you say, we are talking about subjec-
tive judgments and maybe this is the way it ought to be.
Mr. Cohen. Well, Mr. Mann's statement which I have gone through
shows what the manufacturer considers meaningful competition and
they certainly have a comj^letely different side of it than I have, and
I know that when he delivers his statement
Senator Dole. In essence, then, when Chrysler lowers its price to
get in line with GM, that is not meaningful competition. That is just
following along.
Mr. Cohen. Well, the only time this has been done is at times when
there has been some kind of a — ^as Senator Cook said — some kind of
Government pressures on the leader to hold the prices down. There
has not been this kind of price competition — General Motors — it has
not in the middle of the model year, for example, if Chrysler is doing
real poorly, they do not lower the price of the automobile. They still
keep the same exact price and do not go into that kind of competition to
get the market:
Now, where I as a retailer, if I am not selling my amount of cars in
competition with the Ford and General Motors dealer down the street,
I will just have to lower my prices to try to entice some of his customers
away. This is what I mean by meaningful competition.
If Chrysler was having a bad year, or Ford was having a bad year,
for example, and they came out with a price reduction to take part of
GM's market away this would be meaningful competition. But if they
tried to do it with an increased budget, shorter miniskirted girls on
television, this to me is not meaningful competition in the area of
selling cars.
Senator Dole. Interesting, but not meaningful.
Mr. Cohen. Shall I continue?
Senator Dole. Yes.
Mr. Cohen. During recent hearings of the Subcommittee on Anti-
trust and Monopoly of the Committee on the Judiciary, it was clearly
developed that the manufacturers control and regulate warranty
service price. At the completion of the initial segment of these hearings,
General Motors, our leader, responded to the criticism with a new
formula. Shortly afterward, Chrysler adopted the exact same formula.
After 60 days or so the Ford Motor Co. surprised no one by introducing
the identical formula. Do you see the pattern of competitive to-
getherness ?
Senator Cook. In the banking industry it takes about 5 minutes.
Mr. Cohen. Well, let us say that they feel more secure.
The automobile retail distribution system has been through
franchised dealers of each particular manufacturer. This franchise is
a nonexclusive agreement which grants each franchisee the right to
purchase cars from his manfacutrer but does not grant him an ex-
clusive territoiy in which to sell them. There have always been
sufficient numbers of franchisees of each particular make so as to allow
the consumer the opportunity to purchase competitively.
Senator Cook. Mr. Cohen, at this point, I do not mean to con-
tinue to interrupt
Mr. Cohen. That is all right, sir.
Senator Cook (continuing). But we are talking about the fact that
we have four major manufacturers and are fighting to save the fourth
38
one and this may not happen and yet we turn right around in this
business of saying that they almost have a monopoly, but then you say
one of the things you complain about is that you cannot get a contract
for a particular territory. Now, are you not in essence saying the same
thing?
Mr. Cohen. No. That was not the complaint, Senator. That was just
an explanation of what the franchise system is. I am not looking for
any protected territories.
Senator Cook. You do not want a protected territory ?
Mr. Cohen. Absolutely not, sir. I think at this point you misinter-
preted what I was trying to say. I certainly do not think it would be
competitive and to the competitive advantage of the consumer if he
had to buy from me because I was in a specific town.
Senator Cook. You would have some complaint if you had another
dealer right straight across the street, though, would not?
Mr. Cohen. I have one 2i/2 miles away and we have dinner or lunch
quite frequently and although we compete fiercely, we still play
together a little. I think it is like what goes on here in the Senate.
Senator Cook. Lawyers do the same thing.
Mr. Cohen. However, over the past 20 years, there has been an
erosion of the number of franchise dealers. In 1949 there were 49,173
f ranchised new car dealers. In 1969 we have 27,486. This portends seri-
ous consequences upon competition.
New blood is not being infused in the retail end of the business and
the manufacturer claims it is the high startup costs for new dealer-
ships. Where in this country have we found a shortage of capital for
new ventures w'hen the opportunity of success has been afforded ? The
true answer is that the dealer franchise agreement is an invitation to
serfdom. General Motors originally offered a 1-year selling agree-
ment. After Senate hearings in the fifties, in which the franchise
agreement was criticized, they raised the terms to 5 years. Chrysler
Corp. offers term letters from 1 to 5 years or permanent franchise
agreements which can be canceled for cause. The Ford Motor Co. has
a similar agreement. Who in their right senses enters into such an
agreement ? Would you invest over a half million dollars for any one
of these agreements ?
There are other parts of these agreements which I would like to
cover. They cannot be sold without company approval. The new can-
didate is not only judged on his qualifications and his ability to finance
the business, but on what he is paying for its purchase. That is correct.
You can independently negotiate a satisfactory cash arrangement to
sell your business and the factory can tell you that you have been paid
too much and refuse transfer of the franchise.
If the franchisee dies, his wife or family can run the business for
1 year. Then she can either sell out, which, under such circumstances
rarely brings a fair price, or she can take an approved partner. What
other retail endeavor carries such restrictions? I wonder how many
company executives accept their stock options under the same condi-
tions ?
Now a new threat, the takeover of the retail market through unfair
dual distribution systems, rears its ugly head. Chrysler Corp., through
its dealer enterprise division, and Ford through dealer development,
is putting up the capital to start new operators on the path to
39
independent success, but it assures neither success nor independence.
In the Chrysler system two of the three men on the board of directors
are Chrysler employees. All voting: stock is retained by Chrysler
until they are completely bought out. That is to say, if the operator
has purchased 90 percent of the corporate stock and Chrysler retains
10 percent, they still own all voting stock.
Allow me to illustrate what has happened in one market, Allegheny
County, Pa.
Exhibit I [Serial Exhibit No. 4] shows that in 1960 100 percent of
all Dodge dealerships in x\llegheny County were privately capital-
ized. By 1967, only 44.6 percent of the dealers were private capital
and 55.4 percent were Chrysler financed. Chrysler had taken over
better than half the dealerships.
How was this accomplished? Exhibit II [Serial Exhibit No. 5]
illustrates this.^
From 1961 through 1966, Staley Dodge, owned by Chrysler, lost
$235,868.47. Cloverleaf Dodge, from 1962 through 1966, lost $132,-
380.21. Hillside Dodge lost $113,320.31 from 1962 through 1966. Years
1963 through 1966 were among some of Chrysler's best years. But,
by priming the stimulators with cash they were able to put other
private dealers out of busines. This form of operating is known as
stimulator-dealerships. Tliey falsely stimulate a market.
Senator Dole. "Wliat happened to Staley Dodge?
Mr. Cohen. They are putting up a new facility for him.
Senator Dole. He is still in business, though.
Mr, Cohen. He is a Chrysler directly owned factory branch. It
is not Mr. Staley's money.
Senator Dole. "WHiose money was lost ?
Mr. Cohen, Chrysler's.
Senator Dole. Mr. Staley did not lose any money ?
Mr. Cohen. No, sir. In fact, in one of these years he was paid a
$58,000 bonus for making $4,000. Quite frankly, I felt after making
all these statements
Senator Dole. That is referred to as serfdom ? [Laughter.]
Mr. Cohen. I think that is not what I am referring to as serfdom.
Mr. Staley was one of the privileged classes.
Senator Dole. Privileged serf, but there are 247,000 serfs, appar-
ently. You mention on page 5 that, the true answer is that the dealers
franchise agreement is an invitation to serfdom. If they are making
that kind of money I know a lot of people who would be willing to
accept that proposition.
Mr, Cohen. There are many professions in this world, if you would
call them professions, that have not been looked upon highly but
have been highly j^rofitable.
Senator Dole. I mean, the point is on the one hand you say it is
Mr. Cohen. Well, because
Senator Dole (continuing) . Almost slavery and on the other hand,
apparently Mr, Staley and the manager of Cloverleaf Dodge profit
from this same franchise system, right ?
Mr, Cohen. They do not profit from the same franchise system.
They profited from a completely different one because when the
manufacturer totally owns — these were totally owned subsidiaries
^Note. — Mr. Cohen's exhibits appear together, beginning at p. 48, infra.
40
of the manufacturer, so they were, although the agreement was a
franchise agreement, they were an operator and not an investor. So
their agreement was completely diiferent than the normal franchise
agreement and I think this is
Senator Dole. They did not own any stock at all.
Mr. Cohen. That is right. I think this is where you are losing
sight of
Senator Dole. They owned the 10 percent.
Mr. Cohen. That 'is right. The 10 percent example was to show
the total control they hold of the dealership even when they are the
most minor stockholder. I wonder if I could buy 10 percent of the
Chrysler stock with some of your cash assistance and if I would be
able to go up to Detroit and take over the board of directors. I doubt
that very greatly and I do not see where in a real free enterprise
system, where a contract is so drawn up, so that where one holds 90
percent of the stock and the one who owns 10 percent has total control.
Senator Dole. How did Mr. Staley make a $58,000 bonus ?
Mr. Cohen. For a $4,000 profit. I think that is one of the dis-
closures you can ask of the manufacturers better than I. I did not
give it to him.
Mr. Hammond. If I may interject, I think the money he was
receiving was that of a manager and not that of a dealer. It is another
capacity, another function.
Senator Cook. I think the important thing Mr. Cohen has struck
on here really, and the independence that Mr. Hammond discussed,
is this real business of the franchise itself.
Mr. Cohen. That is right, sir.
Senator Cook. And I am very familiar, representing one, as a
matter of fact, who has got it down to about 10 or 12 percent and
still does not have control of his dealership, I think the important
thing that you are discussing here is this independent financial ability
to own a franchise which is in fact yours.
Mr. Cohen. That is correct, sir.
Senator Cook. And I am interested in this and hope that we can,
Mr. Chairman, expound on this phase of it because I think the inde-
pendence which Mr. Hammond is talking about in relation to the
dealer itself, rather than maybe a law as such, which goes to the
distribution of profits, could more strongly be established in relation
to the direct ownership of the franchise itself without all of the
inhibiting matters that occurred through it, than the package you are
discussing. I would kind of pose that as an open question to both of
you but it seems to me you have really hit on the key and that is
the fact that here is a man who owns a franchise, here is a man who
goes out and borrows all the money and maybe even has to borrow
it from General Motors or from Chrysler but at least he pays it back
and he at least has a profitable function under that franchise but it
really is not his. That is what you are saying really.
Mr. Cohen. That is correct. Senator. I am glad I have been clear
enough to get that across because that was my point. I am very i^leased
with it. Of course, I hope you do not represent a dealer in litigation
because maybe this conversation would be out of place.
Senator Cook. I do not. [Laughter.]
41
Mr. Cohen. I am sorry, Senator. Sometimes we have to have a little
fun.
Senator Cook. As a matter of fact, really and truly, I think if I did
it would be all the better for me in that regard.
Senator Dole. I already cleared him.
Mr. Cohen. I hope you have cleared me, Senator.
Exhibit III [Serial Exhibit No. 6] is an ad that appeared in Oak-
land, Calif. This ad was placed by a factory-managed retail outlet.
They offered tremendous price cuts and advertised high volume and
they had just entered into business.
In 1956, because of the disparity in size between franchisor and fran-
chisee, the Senate passed a law called the Grood Faith Act. It was to
attempt to equalize the powers of both parties during litigation. Un-
fortunately, it has, in most instances, proven to be ineffective. Only
the decisions of Judge Will, Matsen Motors v. Chrysler G ovporation^
and Judge Coolahan, Sicartz Motors v. GhrijsJer Oorporation, did the
judges interpret the act in the fashion it was written. They both de-
cided that the minimum sales responsibility clause was being applied
by Chrysler in a discriminatory fashion. That the minimum sales
responsibility was, in fact, coercive, arbitrary, and unfair.
I would like to make a correction in my statement here, recognizing
that the Judge Coolahan litigation was still pending and that any dis-
closure here might in some way prejudice the jury when the Sioartz
case is heard, I have withdrawn exhibit IV out of my papers.^ So I
think, Senator Dole, I took your point before you made it.
Swartz Motors was a dealership formed in the early thirties. It was
three generations old. However, Chrysler decided they wanted their
own dealership in close proximity to Mr. Swartz. So he was cancelled,
and Chrysler applied for zoning variances on their property. Judge
Coolahan negated this action and Swartz Motors is operating today
under a preliminary injunction against failure to renew his term
letter.
This system worked so well for Chrysler that Ford has decided to
follow suit. Plaza Ford in Newark, N.J., is reported to be losing
$20,000 per month. Presidential Ford in Philadelphia boasts the same
record. How long will the independent remain in such an environ-
ment ?
Another form of control of distribution is through Americo Realty,
the realty division of Ford, and Chrysler Realty, the realty arm of
Chiysler. Americo owns $20 million in real estate in New Jersey alone.
Chrysler claimed recently in an article in Automotive News that they
were purchasing $2 million worth of real estate per week. Where does
this leave our leader. General Motors? Biding its time until they can
enter the market under the guise of competition.
The last bastion of price competition for the consumer lies in the
independent f rancise system. I foresee in the future trading stamps and
1 Editorial Note. — Mr. Cohen's statement, as originally prepared, included, as exhibit
No. 4. the text of an opinion by Judge Coolahan, U.S. District Court, District of New
.Tersey. jrrantincr plaintiff s motion for a preliminary injunction in Swartz v. Chrysler
Motors Corp., civil action No. 1230—68 in that court. The opinion as submitted by Mr.
Cohen was a mimeographed text marked, at the head and foot, "Not for publication."
Accordingly, on advice of the subcommittee counsel, Mr. Cohen withdrew the exhibit.
Subsequently, the opinion was published in "1969 Trade Cases," Commerce Clearing
House, Inc. Mr. Cohen thereupon resubmitted the exhibit, and it is included with the
rest of his exhibits, following his statement.
42
games as the only method of competition when the "Big Three" have
complete and final control of all retail sales.
Another area in which giant corporatism injures the average con-
sumer and competition in the automotive field is in fleet and leasing
subsidies. Avis may be No. 2 in car rentals, but the deal they receive
when purchasing their vehicles is second to none. They receive the fol-
lowing benefits not available to the consumer, or for that matter,
dealers :
(1) Large advertising subsidies.
(2) Preferential delivery schedules at announcement time.
( 3 ) Price concessions on equipment.
(4) Guaranteed trade-in value on their used cars.
A Ford dealer in New Jersey displayed an order placed by a na-
tional fleet. After figuring in the special guaranteed value paid to the
dealer by Ford, and the $50-over-dealer invoice, the fleet paid $500 less
than an individual consumer would have had to pay. This is not to say
that the dealer makes $500 more on the private purchaser, but with
factory subsidies, the fleet, in reality, is purchasing the car for less
than the dealer. This complaint has been voiced to the manufacturer,
but dealer protests fall on deaf ears. With the fleet buying for less
than the dealer, the consumer has been subsidizing fleet purchases.
Another area of unfairness is displayed by my exhibits V through
VII [Serial Exhibit Nos. 7 through 9] .
These represent orders placed with my manufacturer on May 26,
1969. If you will examine my order, as opposed to what Chrysler de-
cided to build, you will find the following equipment added :
( 1 ) Glove box light.
(2) Ash receiver light.
(3) Ignition switch time delay.
(4) Headlamp warning switch.
(5) Bumper guard, front and rear.
The dealer cost on these items adds $41.35 to my invoice on items
that I did not order. Furthermore, since this is our most reasonably
priced car, and is generally purchased by the price-conscious con-
sumer, my chance of recovering these costs are minimal.
I would further like to point out that at no time was I consulted
on these additions. I think I should add something here if I might.
There have been dealers that have been consulted on additions to their
cars. However, what you must recognize is that when it comes to
this time of the year we order our closeout merchandise and if we do
not accept these cars with the additional equipment, we get nothing to
sell at all. So we have even when offered the option, we have very little
option, and I would just to be fair to the manufacturer, and I think you
will appreciate that, Mr. Mann, but just to be fair to the manufacturer,
I might say that in some instances I do know that they have called the
dealers and said do you want these cars and in fact, after shipping 15
of these units to me, they offered to purchase these 15 units back, but
I will need these 15 units to try to cover my overhead, so I accepted
them.
Senator Cook. Mr. Cohen, getting back to this fleet price business,
being familiar with it from a local executive point of view, we would
buy, say, 300 or 400 cars a year. That is not like Avis, but I would note
when we would put out such bids that we would have to give a longer
43
period of time to receive the bids in because the dealers apparently
many of them, and ])articularly the manufacturer's own dealers, would
have to work with the home office to get a price. The only result of this
would be that as a result of almost buying it from the manufacturer,
really not buying them from the dealer, that our service on these
automobiles was just absolutely horrible.
Mr. Cohen. Well, that is another problem that is posed by fleet
selling, saturating the market. This is an area that Senator Hart's
committee was covering. You see, many times, in many instances, the
selling dealership is a great distance from the point of use of the
vehicle. Then the service burden falls upon the dealer in the locale of
where the oar is being used.
Now, since we have been complaining of losses on warranty, it has
crowded our service departments. In many instances it has not afforded
us the opportunities to serve those who have given us a margin of profit,
who have allowed us to exist, who are really our bread and iDutter
customers. However, I will say this for the dealers, they have taken
this like champions and have been on the w^hole providing the service.
But I will admit that they are starting to get rather filled up on this
kind of stuff and they are finding more an more reasons not to accept
this type of service.
Senator Cook. I must confess that we had to eliminate certain man-
ufacturers from bidding, particularly upon police units, because of
this business of warranty, and we just could not get the facilities that
really were necessary to keep these units in operation.
Senator Dole. With reference to the additional equipment men-
tioned on page 10 and page 11, in other words, the points you were
making is that in some cases this wasn't deliberate. It was either taking
the car with that equipment or not taking the car at all. You weren't
consulted.
Mr. Cohen. I wasn't consulted on 15 of these units which I pointed
out but I did want to inject that some dealers had been consulted and
I am not trying to say here that they had picked on me or in any way
chosen not to tell me. It was probably an error inside their office. But
even if I had the choice, even if I had been notified that this equipment
was going to be added, would I have been in a position to refuse these
vehicles ?
Senator Cook. Not if you needed them.
Mr. Cohen. Not if I needed them, that is correct. And the second
part of this is that these vehicles could have w^ell been built without
this equipment. I mean, you don't have to build a car with an ash re-
ceiver light, but what happens, at the end of the model year, the manu-
facturer wants to get rid of all the equipment he has in the plant so
he just puts it in the car. If it hasn't been purchased before, well, that
is just tough.
Senator Cook. There is another item, too. The $41 it costs you doesn't
cost him anywhere near the $41 and this is another reason I like to put
it in that car.
Mr. Cohen. I am certain it doen't cost him anywhere near the $41
or he wouldn't have been selling it to me at that price. I think the
major points I am trying to make here, and make in this entire state-
ment, this entire presentation, is that the franchise system is really
the only hope left for the consumer and I say this from a very sub-
44
jective point of view. I am a franchised car dealer. I am very prej-
udiced on things that concern this Nation because I am a citizen of
this Nation. So I make no excuses in any case to anybody for my sub-
jectivity in this area. The only thing I would like to say is that I be-
lieve that hearings of this type do serve a function. If nothing happens
past the conversation in this room. Because they do have effect on those
that have heard them. Would we have gotten the increase on war-
ranty if Senator Hart's committee had not pursued that, and no legis-
lation has been passed and no regulation has been put into effect and we
did get the change because it was necessary. It was tokenism at the
best but at least it was some tokenism and it shows there was a sen-
sitivity to these hearings.
Senator Cook. It was done before the legislation. That is the real
point.
Mr. Cohen. Well, I think we have enough laws on the books right
now, quite frankly. We don't really need any more. I do think, how-
ever, in certain areas we can use more strict enforcement of them and
more inspection of them. I did not place an exhibit of a 1939 Federal
Trade Commission report to this Congress in which it almost sounds
like they wrote this paper I have produced here today. That was in
1939. Now, this is 1969, 30 years later, and the same situations prevail
but now they are transferred to the other two manufacturers. General
Motors has its initial rate. They are there. And Mr. Hammond has
brought up a good point, the point of American Motors. Why did this
legislative body see it necessary to grant a $19 million tax rebate to
American Motors if they didn't recognize that it was very vital that
American Motors remain in business? So that we did have a less
shrinking of the manufacturers. I think that this Con^-ess has been
sensitive to the needs. I wish they were more sensitive m more areas,
but I can't say that our legislative branch of government has not
worked. I think it has worked and I think my appearing here today
shows it can work if you want to participate.
I will continue.
I can readily assure you that this is only one instance of adding ad-
ditional equipment. A dealer recently complained to me that he had
received a new car which was ordered for a specific customer and they
had added a $100 option. He further stated that he could not pass this
on to the consumer and was forced to absorb it. He could have refused
to deliver the car, but who do you believe the customer would have
termed the unethical party ?
Again, allow me to raise a point covered in your inquiry. It is that
of corporate secrecy. I am not quite sure of what infonnation you be-
lieve should be public knowledge. I do know one requirement which 1
must divulge to Chrysler Corp., which is part of my contractual obliga-
tion. Exhibit VIII [Serial Exhibit No. 10] is a blank copy of a fi-
nancial statement that is required by Chrysler each and every montli.
Ford and General Motors have the same requirement. This state-
ment breaks down my entire operation and supplies the manufacturer,
in the most minute details of (1) liow much gross profit I make on
sales of new and used cars; and (2) what my service department earns.
In fact, it shows every area of my operation.
Now keep in mind that tlie same corporation has retail outlets, so
by contract, I am forced to supply my competition with my operating
45
statement. I believe that this is the most ridiculous situation I have
ever heard. If the trend that is now taking place continues and we
have the statistics of the past 20 years as an example, we may see the
end of independent retail sellino; in the foreseeable future.
Thank you for your attention. I will be glad to answer any questions
on my testimony.
Senator Nelson. Thank you, Mr. Cohen, for a very thoughtful state-
ment. I think we had better move on to Mr. Mann's statement and at
least get through part of it. Then I would — if there are some questions
that any members of the committee would like to ask for the record, I
would assume, Mr. Hammond and Mr. Cohen, and Mr. Mann, that you
would be willing to respond to written questions for the record if any
member of the committee had some ?
Mr. Cohen. Gladly. At some future date or any way the committee
desires.
(The complete prepared statement and exhibits submitted by Mr.
Cohen follow:)
Statement of Raphael Cohen, Chairman, Executive Committee, Metro-
politan Independent Dodge Chrysler Dealers Association
The Metropolitan Independent Dodge Chrysler Dealers Association wish to
thank your committee for the privilege of appearing today. We desire to con-
tribute one of the opinions on the competition as it pertains to the manufacturer
and retail distribution of automobiles.
One of the grave errors that is made when discussing whether there is, or is
not, competition in the auto industry is brought about by the manner in which
the question is posed. For I believe the question should be stated in the following
fashioai. Is there meaningful competition in the auto industry that takes place
to benefit the consumer who is the largest segment of the society? The reason
that I make this distinction is not to split hairs, but to really arrive a;t the crux
of the problem.
One need only open any newspaper or magazine, turn on any radio or television
station, and he can find one of four manufacturers fiercely competing for his
business. Examine the same newspaper and the dealer is offering all kinds of
goodies to the purchaser for the opportunity of selling him a car. So, to flatly
state that competition does not take place, Ijrings me to defend a position that
can be easily refuted.
Now let us add that world meaningful to competition and we arrive at the
point of where this forum can begin. This nation purchases some 9,000,000 new
vehicles each and every year, not totally out of desire. The automobile is, and will
be for many years to come, the major mode of transportation, so it is most impor-
tant that the competition taking place has true meaning.
Entry for new domestic manufacturers is closed for all intents and purposes.
This is a most unhealthy situation, but there is one method now available that
can accomplish the same ends as new entry. But, a mere mention of this method
brings down an avalanche of criticism on those who suggest it. That method
would be to take the current manufacturers and divide them into smaller entities.
I believe this would accomplish many of the healthy things that we are looking
for. However, I do not see this happening. In an asymmetrical oligopoly the
leader, in this case General Motors, sets the price standards for the industry and
the others merely comply.
To illustrate — This past year Chrysler announced price increases on new 1969
models. They claimetl that these increases were most modest and actually ac-
counted for only 60% of their added cost. They stated that they were absorbing
the other 40%. A roar came from our executive branch of government that the
increase was unjustifiably high and inflationary. General Motors then met with
the Chairman of the President's Council of Economic Advisors and General Motors
set the price increase. Chrysler responded in the only manner available to them :
they lowered their prices.
To those who doubt that prices are administered by the leader of the oligopoly,
what further proof do you desire? In fact, with only four domestic manufacturers
46
in the field it is necessary for tlie leader to keep prices sufficiently high in order
for the others to survive.
Now the question arises of why I have opened with a statement on manufacturer
competition at wholesale when the subject today is distribution systems and their
effect on competition. It is solely to point out that the only place that meaningful
competition exists is on the retail level. The three major manufacturers remain
competitively together.
During recent hearings of the "Subcommittee on Antitrust and Monopoly of the
Committee on the Judiciary", it was clearly developed that the manufacturers
control and regulate warranty service price. At the completion of the initial seg-
ment of these hearings, General Motors, our leader, responded to the criticism
with a new formula. Shortly afterward, Chrysler adopted the exact same formula.
After sixty days or so the Ford Motor Company surprised no one by introducing
the identical formula. Do you see the pattern of competitive togetherness?
The automobile retail distribution system has been through franchised dealers
of each particular manufacturer. This franchise is a non-exclusive agreement
which grants each franchisee the right to purchase cars from his manufacturer but
does not grant him an exclusive territory in which to sell them. There have always
been sufficient numbers of franchisees of each particular make so as to allow
the consumer the opportunity to purchase competitively.
However, over the past 20 years there has been an erosion of the number
of franchise dealers. In 1949 there were 49,173 franchised new car dealers. In
1969 we, have 27,486. This portends serious consequences upon competition.
New blood is not being enfused in the retail end of the business and the manu-
facturer claims it is the high start-up costs for new dealerships. Where in this
country have we found a shortage of capital for new ventures when the oppor-
tunity of success has been afforded? The true answer is that the dealer fran-
chise agreement is an invitation to serfdom. General Motors originally offered
a one. year selling agreement. After Senate hearings in the 50s, in which the
franchise agreement was criticized, they raised the tenns to five years. Chrysler
Corporation offers term letters from one to five years or permanent franchise
agreements which can be cancelled for cause. The Ford Motor Company has
a similar agreement. Who in their right senses enters into such an agreement?
Would you invest over a half million dollars for any one of these agreements.
There are other parts of these agreements which I would like to cover. They
cannot be sold without company approval. The new candidate is not only judged
on his qualifications and his ability to finance the business, but on what he is
paying for its purchase. That is correct. You can indei^endently negotiate a satis-
factory cash arrangement to sell your business and the factory can tell you
that you have been paid too much and refuse transfer of the franchise.
If the franchisee dies, his wife or family can run the busines for one year. Then
she can either sell out, which, under such circumstances rarely brings a fair
price, or she can take an approved partner. What other retail endeavor carries
such restrictions? I wonder how many company executives accept their stock
options under the same conditions?
Now a new threat, the takeover of the retail market through unfair dual
distribution systems rears its ugly head. Chrysler Coriwration, through its
Dealer Enterprise Division and Ford, through Dealer Development, is putting
up the capital to start new operators on the path to indei^endent success, but it
assures neither success nor independence. In the Chrysler system two of the three
men on the Board of Directors are Chrysler employees. All voting stock is
retained by Chrysler until they are completely bought out. That is to say if the
operator has purchased 90% of the corporate stock and Chrysler retains 10%,
they still own all voting stock.
Allow me to illustrate what has happened in one market, Allegheny County,
Pennsylvania.
Exhibit I shows that in 1960 100%) of all Dodge Dealerships in Allegheny
County were privately capitalized. By 1967, only 44.6% of the dealers were
private capital and 55.4% were Chrysler financed. Chrysler had taken over better
than half the dealerships.
How w^as this accomplished? Exhibit II illustrates this. From 1961 through
1966, Staley Dodge owned by Chrysler, lost $235,868.47. Cloverleaf Dodge, from
1962 through 1966, lo.st $132,380.21. Hills-ide Dodge lost $113,320.31 from 1962
through 1966. Years 1963 through 1966 were among some of Chrysler's best
years. But, by priming the stimulators with cash they were able to put other
private dealers out of business. Tliis form of operating is known as stimulator-
dealerships. They falsely stimulate a market.
47
Exhibit III i.s an ad that appeared in Oakland, California. This ad was placed
by a factory managed retail outlet. They offered tremendous price cuts and
advertised high volume and they had just entered into business.
In 1956, because of the disparity in size between franchisor and franchisee,
the Senate passed a law called the Good Faith Act. It was to attempt to equalize
the power.'^ of both parties during litigation. Unfortunately, it has, in most in-
stances, proven to be ineffective. Only the decisions of Judge Will, Matsen Motors
V. Chrysler Corporation, and Judge Coolahan, Schicartz Motors v. Chrysler Cor-
poration, did the judges interpret the Act in the fashion it was written. They
both decided that the minimum sales responsibility clause was being applied
by Chrysler in a discriminatory fashion. That the minimum sales responsibility
was, in fact, coercive, arbitrary, and unfair. I have attached to my statement
a copy of Judge Coolahan's decision, marked Exhibit IV. [Note.— This exhibit
was withdrawn by Mr. Cohen.] Schwartz Motors was a dealership formed in
the early 30s. It was three generations old. However, Chrysler decided they
wanted their own dealership in close proximity to Mr. Schwartz. So he was
cancelled, and Chrysler applied for zoning variances on their property. Judge
Coolahan negated this action and Schwartz Motors is operating today under
a preliminary injunction against renewal of his term letter.
This system worked so well for Chrysler that Ford has decided to follow
suit. Plaza Ford in Newark, New Jersey reported to be losing $20,000 i^er month.
Presidential Ford in Philadelphia boasts the same record. How long will the
independent remain m such an environment?
Another form of control of distribution is through Americo Realty, the realty
division of Ford, and Chrysler Realty, the realty arm of Chrysler. Americo owns
$20,000,000 in real estate in New Jersey alone. Chry.sler claimed recently in an
article in "Automotive News." that they were purchasing $2,000,000 worth of
real estate per week. Whei-e does this leave our leader, General Motors? Biding
its time until they can enter the market under the guise of competition.
The last bastion of price competition for the consumer lies in the independent
franchise system. I foresee in the future trading stamps and games as the only
method of competition when the big three have complete and final control of all
retail sales.
Another area in which giant corporatism injures the average consumer and
competition in the automotive field is in fleet and leasing subsidies. Avis may
be number two in car rentals, but the deal they i-eceive when purchasing their
vehicles is second to none. They receive the following benefits not available to
the consumer, or for that matter, dealers :
(1) Large advertising subsidies.
(2) Preferential delivery schedules at announcement time.
(3) Price concessions on equipment.
(4) Guaranteed trade-in value on their used cars.
A Ford dealer in New Jersey displayed an order placed by a national fleet.
After figuring in the special guaranteed value paid to the dealer by Ford, and
the $."»0 over dealer invoice, the fleet paid $500 less than an individual consumer
would have had to pay. This is not to say that the dealer makes $500 more on
the private purchaser, but with factory subsidies, the fleet, in reality, is pur-
chasing the car for less than the dealer. This complaint has been voiced to the
manufacturer, but dealer protests fall on deaf ears. With the fleet buying for
less than the dealer, the consumer has been subsidizing fleet purchases.
Another area of unfairness is displayed by my Exhibit V through VII. These
represent orders placed with my manufacturer on May 26, 1960. If you will exam-
ine my order, as opposed to what Chrysler decided to build, you \vill find the
following equipment added :
(1) Glove box light ;
(2) Ash receiver light;
(3) Ignition switch time delay ;
(4) Headlamp warning switch ;
(5) Bumper guard, front and rear.
The dealer cost on these items adds $41.35 to my invoice on items that I did
not order. Furthermore, since this is our most reasonably priced car, and is
generally purchased by the price-conscious consumer, my chance of recovering
these costs are minimal.
I would further like to point out that at no time was I consulted on these
additions. I can readily assure you that this is only one instance of adding
additional equipment A dealer recently complained to me that he had received
48
a new car which was ordered for a specific customer and they had added a $100
option. He further stated that he could not pass this on to the consumer and
was forced to absorb it. He could have refused to deliver the car, but who do
you believe the customer would have termed the unethical party?
Again, allow me to raise a point covered in your inquiry. It is that of cor-
porate secrecy. I am not quite sure of what information you believe should be
public knowledge? I do know one requirement which I must divulge to Chrysler
Corporation, which is part of my contractual obligation. Exhibit VIII is a blank
copy of a financial statement that is required by Chrysler each and every month.
Ford and General motors have the same requirement. This statement breaks
down my entire operation and supplies the manufacturer, in the most minute
dtetails of (1) how much gross profit I make on sales of new and used cars;
and (2) what my service department earns. In fact, it shows every area of my
operation.
Now keep in mind that the same corporation has retail outlets, so by con-
tract, I am forced to supply my competition with my operating statement. I
believe that this is the most ridiculous situation I have ever heard. If the trend
that is now taking place continues and we have the statistics of the pasit 20 years
as an example, we may see the end of independent retail selling in the fore-
seeable future.
Thank you for your kind attention and I will answer any questions my state-
ments may bring to mind or any other that you may have in your mind.
Exhibit 4
(Raphael Cohen's exhibit No. 1: Table: Allegheny County (Pittsburgh, Pa.)
sales of new Dodge passenger automobiles : private-capital and Chrysler-
financed dealers' percentages of total Dodge sales, 1960-1967)
PERCENTAGES OF DODGE SALES, 1960-67
Calendar years—
Model years—
1960 1961 1962 1963
1964
1965
1966 1967
Allegheny County private capital dealers 100 99.1 60.0 59.0 54.0 47.7 47.1 44.6
Allegheny County Chrysler-financed dealers .-. .9 40.0 41.0 46.0 52.3 51.9 55.4
Total 100 100.0 100.0 100.0 100.0 100.0 100.0 100.0
PERCENTAGES OF DODGE REGISTRATIONS
Allegheny County private capital dealers 93.5 90.1 59.0 58.3 51.0 42.9
Allegheny Country Chrysler-financed dealers 8 39.4 40.4 43.4 47.1
Non-Allegheny County dealers (net) 6.5 9.1 1.6 1.3 5.6 10.0
Total 100.0 100.0 100.0 100.0 100.0 100.0
49
Exhibit 5
(Raphael Cohen's exhibit No. 2: Table: Losses of three Chrysler-financed
dealerships, Allegheny County (Pittsburgh), Pa., 1961-66)
LOSSES
Staley :
1961 ($10, 389. (X))
1962 (54, 042. 34)
1963 (57, 401. 54)
196i (55, 465. 78)
1965 (21, 618. 32)
1966 (36, 948. 49)
Total loss (235, 868.47)
Cloverleaf :
1962 (7 months) (77, 959. 20)
1963 (87, 74.5. 91)
1964 48, 816. 41
1965 33, 110. 70
1966 (48, 602. 21)
Total loss (132, 380. 21)
Hillside :
1962 (43, 514. 98)
1963 (49, 843. 99)
1964 6, 530. 93
1965 (27, 005. 41)
1966 513. 14
Total loss (113, 320. 31)
50
Exhibit 6
(Raphael Cohen's exhibit No. 3: Xewspai^er advertisement placed l^y a Chrysler-
financed Dodge dealer, Oakland, Calif.)
O:^ DCI!C!III¥E CARS ^^
fuairiy modeSs, mckes end coiors to Ca^sose ■'tosti
Don't delay— v/hen
these 'jGouiies arc
3o!d, thsre'ii be no
more — Bay Now
loiay Scve a big
51000.
o Ful! Finsnoing
o Danl; Tsrnis
o Gro^it llnicn;
o Casii-sPiyway
you v/anUo Wj
■ Complete service
• Body and Paint Dcpt. 'Tunc-ups • Factory Parts
I Be treated like a ciJStonisr-iiOt 11!;? a niuiitWy qaota . . .
- ' , Bus 'Jo o:i"r [isiijIIij-'/GiiyR^Q r?-,"
_. .^ _•,.-,-.. -—r -seIos — rje rare ©yereC'OC-":-"
.GuoronJocd ' U V / C J tJLiLilii'j U hLuLs ti L-.i-J.J>Jwt)»
^ by Koncs:
:':;<:;ont • Two (2) Used cor locations to serve you better •
'.^vv;„ 4054 E. 14th St. 261-1258 • 51st and E. 14tii St. 201-27-'
'^^
J^^'
^>i^
IfK
T
f
//^M
51
Exhibit 6-A
(Raphael Cohen's exhibit No. 4 (withdrawn and subsequently resubmitted) :
Opinion of Judge Co()lahan grnntins prelJmlnary injunction on plaintiffs'
motion in Swartz v. ChrysJcr Motors Corp., U.S.D.C., X.J., Civ No 1230-68-
from 1969 Trade Cases If 72,8o4 )
; Court Decisions
Swartz V. Chrysler Motors Corp.
[H 72,854] Herbert C. Swartz, Norman I. Swartz, Eleanor Lattig and Swartz
Motors V. Chrysler Motors Corp.
In the United States District Court for the District of New Jersey. Civil Action No
1230-68. Filed March 11, 1969.
Automobile Dealer Franchise Act
Preliminary Injunction — Retention as Dealer. — A preliminary injunction to continue
an auto dealer's status as a franchised dealer was granted, since it was reasonably probable
that the dealer would succeed in the jury trial in showing that the manufacturer had
mserted a minimum sales requirement clause in the franchise agreement which permitted
termmation, that the clause was not uniformly enforced, that actual sales performance
would not justify termination, and that the manufacturer wanted the termination because
of the planned construction of a company-owned dealership in the area.
See Refusal to Deal, Vol. 1, ^2540.
For the plaintiffs: Cohn & Burger, by Martin Burger.
For the defendant: Pitney, Hardin & Kipp, by Frank C. O'Brien.
Opinion
CooLAHAN. District Judge: This is an
action in which the plaintiffs seek to re-
quire Chrysler Corporation to continue
Swartz Motors as a Dodge dealer. The
jurisdiction of this court is invoked under
the Automobile Dealer's Day in Court Act,
15 U. S. C. § 1221 et seq. The case is
presently before the court on plaintiffs' mo-
tion for a preliminary injunction continuing
Swartz Motors' status as a Dodge dealer;
a temporary restraining order to that effect
was signed on November 23, 1968, and has
been continued pending this decision.
[Preliminary Injunction]
In order for a preliminary injunction to
be issued here, the plaintiffs must prove
that there is a "reasonable probability of
eventual success" in the current law suit
and that there is a "likelihood of irreparable
injury" if the injunction is not issued. Ikirt
V. Lee National Corp., 358 F. 2d 726 (3d
Cir. 1966). There seems little doubt that an
automobile dealer will be irreparably harmed
if the manufacturer which supplies its stock
of cars terminates dealings with it. The loss
of identification as a Dodge dealer and the
resulting monetary loss will not be easily
susceptible of proof at trial. Moreover, a
measurement of the momentum lost by a
failure to continue Dodge advertising on
a regular basis could only be based on specu-
lation. While the complaint asks for mone-
tary damages in the alternative, as is pointed
out by the defendant, it is clear that the
main relief sought in this action is the
injunction requiring Chrysler to continue
Swartz as a Dodge dealer. The only ques-
tion remaining, therefore, is whether it is
"reasonably probable" that the plaintiffs will
eventually succeed in this action.'
Swartz Motors was begun in 1933 as a
partnership consisting of the father, grand-
father and uncle of the present President
of the corporation, Herbert C. Swartz. From
1933 until 1955 Swartz acted as a dealer
for Chrysler in both the Plymouth and
Dodge lines of cars. In 1954, Mr. Herbert
Swartz' father died, and, as a condition of
continuing the dealership, Chrysler required
that Swartz Motors incorporate and add
a new shop. This was done. Then, in 1955,
the Plymouth franchise was taken away,
leaving Swartz with only its Dodge fran-
chise. Finally, in 1965, Chrysler theatened
to terminate the Swartz franchise if sales
failed to improve, and sent in an inspector
to survey the facilities of the dealer and to
recommend changes. According to the un-
controverted testimony of Mr. Swartz,
Swartz Motors, in order to prevent Chrysler
from terminating the franchise at that time,
was forced to consent to a cancellation of
its permanent Direct Dealer Agreement,
and to the substitution of a Term Agree-
ment running from August 13, 1965 until
June 1, 1966. On January 18, 1966. Chrysler
had Swartz execute a "sales locality amend-
ment," enlarging the territory involved in
fixing the sales formula for Swartz from
the immediate Dover area to the entire
Newark metropolitan region, extending as
far south as New Brunswick and as far east
as Jersey City.
The term agreement was renewed, after
Mr. Swartz flew to Detroit to work out the
terms, in May of 1966, and was to run from
> As a result, the facts recited hereafter and tentative conclusions reached from evidence thus
the legaJ conclusions set forth represent only far adduced in the case.
32-493 O — 69— pt. 1-
52
June 1, 1966 to June 1, 1967. This first
^ extension was itself extended, by agreement
on June 1, 1967, until December 1, 1968.
A clause in the original Term Agreement,
wliich continued to be a part of the con-
tractual arrangements of the parties through
the extensions, provided that a new Direct
Dealer Agreement would be granted by-
Chrysler if Swartz fulfilled the responsibili-
ties set out therein. These responsibilities
included: (1) increasing working capital;
(2) providing monthly financial statements
to Chrysler; (3) selling a sufficient number
of cars and trucks "to equal or exceed"
the Minimum Sales Responsibility (MSR)
as defined in the Direct Dealer Agreement;
and (4) "Dealer is otherwise qualified for
a regular Dodge Direct Dealer Agreement."
The report of Scott Smith, a Chrysler in-
spector, dated October 8, 1965, calls for,
among other things, an improved used car
display, a remodeling of the showroom, an
enlarged sales force, increased advertise-
ment, and the removal of two persons then
working at the dealership, Mr. and Mrs.
Bruno Storck, Mr. Swartz' uncle and aunt.
According to the testimony at the hearing
on the preliminary injunction, all of these
recommendations have been followed at
great cost to the plaintiflFs, but Swartz
Motors has still not been able to equal or
exceed its MSR. Chrysler maintains, there-
fore, that it has the right to refuse to
allow Swartz to remain as a dealer and to
refuse to sign the permanent Direct Dealer
Agreement. Swartz, on the other hand,
contends that the use of MSR is "un-
equitable, discriminatory and coercive," and.
that failure to meet MSR is being used as
a subterfuge to cancel the dealership to
allow Chrysler to establish a company-owned
dealership. Swartz further alleges that, to
further this plan, Chrysler expanded the
area within which Swartz' MSR is coni-
puted, thus increasing Swartz' MSR, and
reclassified Swartz' location in Dover from
a "designated" to a "non-designated" area.
[Minimum Sales Formula]
The Direct Dealer Agreement provides
that a dealer's MSR is computed as follows:
From time to time, but at least once
a year. Dodge will compute the ratio of
the number of new Dodge passenger cars
or Dodge trucks, as the case may be,
registered for the most recent 12-month
period for wiiich registration figures are
available in the Dodge Sales Region in
which Direct Dealer is located to the
number of all ncvv passenger cars or
trucks, as the case may be,, so registered
in that Region. The ratio thus obtained
will be applied to th.e number of all nrw
passenger cars or trucks, as the case may
be, registered during the same 12-moiith
period in Direct Dealer's Sales Locality.
The resulting number (and th- pcrccMta^e
share of market that such nutnl^cr rcjire-
sents for the Sales Locality) will be Di-
rect Dealer's Minimum Sales Responsi-
bility for this same twelve (12) month
period, subject to such adjustment as is
described below. . .
If. Direct Dealer's Sales Locality is
in a metropolitan or other market :;rea
where there are located one or more au-
thorized dealers in the passenger car or
truck as to which the Minimum Sales
Responsibility computation is made . , .
Direct Dealer's fair share will be deter-
mined on the basis of recent trends in
sales performance, availability of motor
vehicles, local conditions, revisions in
Direct Dealer's Sales Locality descrip-
tion, location of facilities, and the other
factors, if any, directly aflfecting sales
opportunity.
At the hearing, however, Jack Casement,
the manager of the department of Chrysler
responsible for the computation of MSR for
Plymouth and Dodge and for the calcula-
tion of each dealer's Fair Share, testified
that the MSR and Fair Share were arrived
at somewhat differently. The truck MSR,
he. explained, was not computed separately;
instead, the figure was taken to be the
same as the passenger car MSR. He
testified further that the Fair Share was
established by determining the relative impor-
tance of each dealer's local market, which
is measured by the number of new cars
registered in what Chrysler designates as
the dealer's prime trading zone and after
considering the combined selling strength
of all dealers, including those of other
automobiles which are located in the same
general "dealer cluster." Mr. Casement did
not deal specifically with the facts in the
Swartz' MSR assignment, but testified only
as to the general method by which MSR's
were assigned.
While the Direct Dealer Agreement also
provides that
Where appropriate. Dodge will adjust
Direct Dealer's Minimum Sales Respon-
sibility to take into account the avail-
ability of motor vehicles, local conditions,
revisions in Direct Dealers' Sales Locality
description, the recent trends in Direct
Dealer's sales performance, and the other
factors, if any, directly affecting sales
opportunity
Raymond Cox, Regional Manager for the
New York Region, testified at the hearing
53
that lie had never been involved in any
case in wliich the above paragraph was
utihzed during the sixteen years he has
been employed in the regional office. His
interpretation of the paragraph's use of the
phrase "local conditions" was restricted to
"a drastic situation which might adversely
affect the dealer's ability to perform, such
as a fire, which would have burned out his
facilities." In considering whether MSR
is "unequitable, discriminatory and coer-
cive," therefore, this paragraph may be
ignored.
[Local Conditions]
Turning, then, to a consideration of the
propriety of the MSR formula, its basic
failure immediately becomes clear: The
formula does not take into account the
socio-economic level of the particular area
surrounding the dealership or use as a
factor the greater or lesser degree of ac-
ceptability which Dodge automobiles have
in the vicinity of the dealership. Obviously
local conditions are of paramount impor-
tance in any consideration of a dealer's
performance, and the responsiveness of the
MSR formula to these conditions has not,
at least at this stage of the proceedings,
been indicated. Furthermore, the method
by which Chrysler made the decision to
incorporate Swartz into the Newark Region,
while not incorporating its dealer in Sparta,
whicli is in a neighboring area of the same
general character as that of Dover, was not
elucidated at the hearing, nor was the
subjective method of Fair Sharing used in
deciding Swartz' MSR. In addition, it is
clear that, given the method by which
MSR is calculated, approximately one-half
of all Chrysler dealers would be subject
to termination at any time by virtue of the
MSR clause,' since Chrysler defines "ade-
quate performance" as the "attainment of
minimum sales responsibility . . . [a]ccom-
plishment would be a hundred per cent."
It is evident, because nowhere near that
number have been terminated, that Chrysler
accepts less than 100 per cent achievement
of MSR as adequate sales performance.
This court agrees with Federal District
Judge Will, who after a trial on the merits
in Madscn v. Chrysler [1966 Trade Cases
1171,950], 261 F. Supp. 488 (N. D. 111. 1966),
vac. as moot, 375 F. 2d 773 (7th Cir.),
stated:
As we shall note subsequently in some-
what greater detail, Chrysler can properly
waive "strict performance" of the MSR
requirement and substitute a standard of
conduct which accepts a lesser degree
of performance as satisfactory. Having
done so, however, it cannot claim the
right to vary the standard of satisfactory
performance between dealers so as to gain
the right to terminate dealers for causes
other than those enumerated in the con-
tract, i.e., applying a more rigorous stand-
ard of satisfactory performance to one
dealer because it has reasons for desiring
termination, when those reasons, in and
of themselves, would not constitute cause
for termination under contract. Such ac-
tion is tantamount to rewriting the con-
tract to give Chrysler the right to terminate
at will which the contract — as written —
precludes.
We conclude that MSR calculated simply
as provided in the Chrysler dealership
agreements without adjustment for the
various factors herein discussed and which
results at all times in a substantial number
of dealers being in technical default is an
arbitrary, coercive and unfair provision
since it would enable Chrysler to termi-
nate roughly one-third to one-half of all
its dealerships at any time. We conclude
also that Chrysler has waived failure to
achieve MSR as a default in plaintifFs
dealership agreements by treating it as a
performance goal rather than as a con-
dition of those agreements.
In this court's view, it is obvious that to
allow Chrysler to terminate, based solely
on the use of these MSR and Fair Share
figures which are computed by a division
of Chrysler, would be unfair.
This is in accord with the legislative
purpose behind the Automobile Dealer's
Day in Court Act, which indicates that the
words "fair and equitable" are to be in-
terpreted within the context of coercion
by the manufacturers, which arises from the
inequality of bargaining power between the
oligopolistic automobile manufacturer and
the local dealer who possesses little eco-
nomic power. Milos v. Ford Motor Co. [1%3
Trade Cases 1170,794], 317 F. 2d 712 (3d
Cir. 1963). If the franchise of a dealer is
terminated for wrongful reasons, the manu-
facturer is liable under the statute. Berry
Brothers Buick, Inc. v. General Motors Corp.
[1966 Trade Cases 1171,875], 257 F. Supp.
= Full data on this point was not adduced at
the hearing on the preliminary injunction.
Plaintiffs' exhibit 10. covering the entire 1965
model year, however, shows that nine out of the
thirteen dealers listed on that sheet prepared by
Chrysler had failed to achieve MSR. See also
Madsen v. Chrysler, infra. Th\s point, and the
many others which were not elucidated at the
hearing, will hopefully be clarified through the
use of the expanded discovery techniques per-
mitted by the Federal Rules of Civil Procedure,
and will be further pursued at trial.
54
542 (E. D. Pa. 1966), aff'd fl967 Trade
Casks If 72,111], 377 F. 2d 552 (3d Cir.
1967). As the Fiftli Circuit Court of Ap-
peals has pointed out, in Woodard v. General
Motors Corp. 11%2 Tkadic Casks 1170,191],
298 F. 2d 121, 127-28 (Slh Cir. 1962):
The policy behind tiic enactment of
the Automobile Dealer Francliise Act
was to cstabUsh a balance of power as
between manufacturers and dealers in the
automobile industry by curtailinpf tlie eco-
nomic advantages of the larger manufac-
turers and increasing those of the dealers.
* * *
[0]ne of the principal evils which the
Act was designed to remove was the
exertion of pressures by the dominant
automobile manufacturers upon dealers to
accept automobiles, parts, accessories and
supplies which they neither needed nor
wanted and which they felt their market
would not absorb.
The insertion of the clause allowing Chrysler
to terminate any dealer who falls below
MSR, a figure which a very substantial
number of dealers fails to meet, appears
to have been inserted only as a result of
the tremendous bargaining pressure possessed
by Chrysler over its dealers, a pressure
which the Act was intended to counter-
balance.
None of the cases cited by the defendant
is authority to the contrary. In Garvin v.
American Motors Corp. [1963 Trade Cases
1[ 70,800], 318 F. 2d 518 (3d Cir. 1963), cited
by defendant, the court says at p. 520:
■ As we have previously noted, Garvin
promised to hire at least one full-time
salesman in 1958. Certainly, there is
nothing arbitrary or unreasonable about
this requirement. Indeed, the very pur-
pose of the franchise was to assure the
sale of automobiles. Hence, the manu-
facturer's insistence on the performance
of this contractual commitment could not
possibly be considered coercion or in-
timidation. Miles V. Ford Motor Co. [1963
Trade Cases If 70,794], 317 F. 2d 712 (3d
Cir. 1963); Woodard v: General Motors
Corp. [1962 Trade Cases If 70,191], 298 F.
2d 121, 128 (5th Cir. 1962).
It appears from the court's statement that
where there is an arbitrary or unreasonable
requirement imposed upon the dealer by
an automobile manufacturer as a result of
its great bargaining power, the court may
intervene under the Automobile Dealer's
Day in Court Act. In this instance, as noted
above, all requirements insisted upon by
Chrysler were complied with. The show-
room was redecorated, a new used car lot
was purchased, a new lighting system was
installed, the amount of working capital
was increased, more workers were anployed,
the amount of money spent on advertising
was increased to a level higher than that
recommended by Chrysler, and, finally,
Mr. and Mrs. Storck, founding members of
the company, were bought out at a cost of
more than $50,000. As in Madsen, supra
at 506:
to permit Chrysler to terminate in re-
liance on plaintiffs' failure to achieve
MSR would be particularly unfair here
where, at Chrysler's urging, plaintiffs in-
vested substantial funds in new sales and
service facilities for the purpose of in-
creasing sales and service volume.
To allow Chrysler to terminate Swartz' dealer-
ship in reliance on the coercive MSR clause,
merely because the solutions Chrysler itself
proposed are not totally effective in the
Dover area, would be unfair.
[Sales Record]
The question before this court, therefore,
is whether the sales record of Swartz Motors
would warrant Chrysler's refusal to sign a
permanent Direct Dealer Agreement' The
bare sales figures alone, showing an in-
crease of from 65 cars sold in 1962 to 120
cars sold in 1967* are not sufficient for the
court to conclude that Swartz' sales per-
formance, absent other considerations, may
be considered unsatisfactory by Chrysler.
The new MSR formula devised by Chrysler
and computed over the entire Newark area
does not seem by the court, for the reasons
heretofore g^iven, to be of much assistance.
Nor, for that matter, is the old MSR for-
mula computed only in the surrounding
area, because of the inequities which neces-
sarily inhere in any computation of MSR.'
The court therefore is left to its own devices
in deciding whether or not Swartz' perfomi-
' While the court could simply strike the MSR
clause, leaving Chrysler with no method for ter-
minating a dealership because of poor sales
performance, the court thinks it wiser to narrow
the MSR clause to cover only cases where a
dealer has an Inadequate sales performance.
Therefore, the adequacy of Swartz' sales per-
formance remains an issue in the present C£ise.
* Final figures for 1968 were not available at
the time of the hearing, although Mr. Swartz
indicated that, as of December 1, 1968, 130 cars
had been sold.
= The court is especially troubled by the dif-
ferent results attained through the use of the
varying territories used in calculating MSR.
For example, under the territory used In com-
puting the MSR for 1962, plaintiffs' attainment
for 1966 was over 63%, while using the wider
territory allocated in January, 1966, the attain-
ment was only 44.4%. The court cannot under-
55
ance was so unsatisfactory as to warrant
Chrysler in terminating the franchise.
[Increase in Sales]
According to Mr. Swartz' testimony at the
Iiearing on the preliminary injunction, which
was uncontroverted by defendant's witnesses,
Swartz* Motors did not experience any criti-
cism of its sales performance by Chrysler
until 1963. The year 1962, the earliest year
for which the court was supplied sales fig-
ures, may therefore be used as a base year
in any calculations, a year in which Swartz'
sales performance was considered satisfactory
by Chrysler. Swartz' growth in sales must be
measured against the growth experienced
nationally by Dodge, which increased its
share of the market from 3.43% in 1962 to
5.8% in 1967.' The following table indicates
that Swartz' growth, extrapolating from
the sales figure for 1962, has more than
equaled Chrysler's nationwide percentage
growth in all but 1964, the year prior to the
survey prepared by Scott Smith:
Dodge %
Year Nationwide
1962.... 3.43
1963 5.02
1964 5.74
1965 5.60
1966 6.03
1967 5.87
Cars to be Sold, Cars actually % by which Swartz
Using 1962 as Sold by Exceeded National
the Base Year Swartz Market Growth
65
95
109
106
114
111
65
104
9%
105
-4%
116
9%
143
25%
120
8%
Thus, using the figures supplied by Chrysler,
it appears that Swartz' performance is not
so unsatisfactory as to permit Chrysler to
refuse to sign the permanent Direct Dealer
Agreement. Based on the data presented at
the hearing on the preliminary injunction,'
therefore, it appears to this court that there
is a "reasonable probability" of plaintiiTs
eventual success in proving that Swartz' re-
cent performance has been as satisfactory
as, or more so than, it was in 1962, and that,
therefore, Chrysler's termination, if based
solely upon Swartz' sales performance, was
unreasonable.
There has been some testimony here as to
a possible motive for Chrysler's action in re-
fusing to sign the permanent Direct Dealer
Agreement, the proposed new factory-dealer-
ship for Mountain Lakes, New Jersey, which
is located about five miles from Dover. None
of the contractual arrangements between
plaintiffs and the defendant permit termina-
tion in the event that Chrysler constructs
such a facility. On objection, Mr. Swartz
was not permitted to testify as to the date
indicated on Chrysler's plans for the dealer-
ship, which Chrysler's attorney presented to
the Mountain Lake's Board of Adjustment,
in order to gain a zoning variance, but it is
clear that, by "early 1968," according to
the testimony of Dodge's Regional Man-
ager, Mr. Cox, the dealership was already
in the planning stages. Nevertheless, on
February 13, 1968, Chrysler wrote to Swartz
that:
The possibility of your buying out your
partners whom you felt was contributing
to this poor sales performance was brought
up. We urge you not to delay any action
that will reverse the present unacceptable
sales performance record made by you.
Excluding the self-serving statement that
the buy-out of Mr. and Mrs. Storck was
desired by Swartz, rather than by Chrysler,
a statement contradicted by the 1965 report
of Chrysler's inspector, which called for
their removal, it is clear that Chrysler was,
at that date, still pressing Swartz to proceed
with the buy-out, while knowing of the
planned Mountain Lakes company-owned
dealership. To permit Chrysler now to ter-
minate under the guise of Swartz' failure to
attain MSR would be unconscionable. Chry-
sler's motivation for refusing to reinstate the
permanent Direct Dealer Agreement is fur-
ther illuminated by the decision to make
Dover an "open point," the effect of which
is to make it impossible for Swartz to find
a buyer for its dealership facilities to take
over the Dodge franchise in Dover. Plain-
stand how Chrysler can maintain that use of
these territories, which brings about such dif-
ferent results, is equitable and based on objec-
tive factors.
• The effective sales area of Swartz Motors
was not delineated at the hearing to the satis-
faction of the court, nor was the increase In the
number of all cars sold to Inhabitants of that
area brought out. These variables are therefore
ignored in the following calculation.
' Of course, Chrysler may bring forth addi-
tional evidence at trial to convince the Jury that
Swartz Motors' performance was unsatisfactory,
and that it exercised reasonable business Judg-
ment In terminating Its franchise because of
that poor sales performance.
56
tiffs' contention that the termination was
the result of other than its failure to meet
MSR is further borne out by the statement
of Mike McGee. Chrysler's distnct man-
ager, who, Mr. Swartz testified, said that
Swartz Motors' dealership would not be re-
newed even if it sold 600 cars, which would
be far above its MSR. Mr. McGee was not
called as a witness by Chrysler Corporation
at the hearing. The sole testimony on this
point from Chrysler was by Mr. Cox, who
stated that he did not recall hearing Mr.
McGee make that particular statement.
As the court noted in Mt. Lebanon Motors,
Inc V Chrvslcr Corp. [1968 Trade Cases
1172,523], 283 F. Supp. 453, 456 (W. D. Pa.
1968) :
Plaintiff's cancellation was purportedly
for inadequate sales performance. . . .
Testimony indicated that in fact other
factors were considered by the company.
Mere breach of contract by the dealer
does not necessarily relieve the manu-
facturer of liability under the statute, whose
very purpose was to afford protection
aga'inst undue bargaining power on the
part of the automobile makers, further-
more, failure to meet MSR does not per
se prove inadequate or unsatisfactory sales
performance, in view of the criteria for
determining MSR and a dealers fair share
thereof. Testimony indicates that some-
times more and sometimes less than 507o
of dealers fall below the prescribed figure.
See Madsen v. Chrysler Corp. [1966 Trade
Cases H 71,950], 261 F. Supp. 488. 492, 506
(N. D. 111. 1967).
It is a jury question whether Chrysler's
action was motivated by honest business
judgment or bv personal animosity against
plaintiff's president Samuel A. Liberto be-
cause of his prominent part in promoting
opposition by privately-financed dealers
to the operation of "factory-stores or tor
other insufficient reasons.
Likewise, here it is a jury question whether
Chrysler refused to sign the permanent
Direct Dealer Agreement because m its
honest business judgment Swartz Motors
sales performance was unsatislactory or
because it planned to open a company-
owned dealership in Mountain Lakes.
The extensions of the Term Agreement
provided that, upon fulfillment of all the
conditions contained in the ongmal Term
Agreement and those contained in the ex-
tensions, Swartz would be granted a permanoit
Dodge Dealer Agreement. It appears to the
court that plaintiffs have fulfilled all the
conditions contained in all the agreements,
with the exception of the MSR sales per-
formance condition. In order for the court
to grant the plaintiff's relief, it is only neces-
sary to find that it is reasonably probable
that plaintiffs will succeed in the jury trial
to follow in showing that Chrysler violated
the Automobile Dealer's Day in Court Act
by inserting the clause permitting termina-
tion for failure to meet MSR as a result of
its superior bargaining power and coercion
and intimidation of the type which the Act i
was meant to prevent, and then using that
clause to terminate Swartz, a termination
desired by Chrysler because of the planned
construction of a company-owned dealership
in Mountain Lakes. It appears to the court
that- in light of the testimony at the hearing,
it is "reasonably probable" that plaintiffs
will succeed in convincing a jury of these
facts The indicated relief at trial would
appear to be an order requiring Chrysler to
reinstate Swartz Motors' permanent Direct
' Dealer Agreement. A preliminary injunc-
tion requiring Chrysler to continue Swartz
as a Dodge dealer pending trial is therefore
warranted.
Let an appropriate order be submitted.
57
Exhibit 7
(Raphael Cohen's exhibit No. 5: Order for a Dodge placed by Merit Motors,
Inc., and shipping notice for Dodge delivered with unordered equipment.)
OOOOE DIVISION
^^ CHRYSLER
1969 MODEL DART
RED OUTLINED AREAS IMST BE FILLED IN
206274
DISTRICT DEALER
Music Maslei Radio, Powei Steeling, Vaiiable Speed Wipeis and
Electiic Washeis. Deluie Wheel Covets. Leit Remote i;ontiol Mii
All Foam Fiont Seat (Sid- w'Buckel Seats)
|i'iIi;i;iii:m _ Lett Side Remote Conliol
Rigtit Side Manual
Tit^ M^
Protective Rubbei Flooi Mais. Bumpei Guards Fiont & Reai.
Undeicoating & Hood Insuialoi Pad
niH- Bell - Avail IJC3,GTt GTS
Glove Boi Light. Tiunk Ligtit, Map* Courtesy Liglil[Std. Conveils.).
AshTiayLight.lgnitionLighl w Time Delay, Headlamp-On
Remindei, Glove Box LockfSld. GT& GTS)
- Door Upper Frame - LL41 1 LH41
- Sill -Sid GTS - Optional All Oltiers
IJJ.HH.I=IA<<IIJi
LL23 S LUl - Diip Rail & Body Side Moulding
LM23 - Swiniei - Drip Rail i Wheel Lip Moulding
■""""=« "'''"■'""
w Aulomatic Tiansmission Only-N/A 170 or 383 Engines
N A6Cyl, w Air Cond.
(See Code Sheet tof Details)
Sieenng - N 'A w/Sleefing - Fast Manual
JMJH
IMilliM - Music Maslei AM "
Solid Slate AM- FM
laiE^
mjJ.II.'M"l!IJJM
l:m< J;H - 59 AMP. - Cold Weather Type - Sid, w/383 Enjiiir
Spo t Type - Simulated Wood
'mUJJ.'UI.I.'l:»H'iJl-Fil.^KHw.-SwavBa|-
l:mM - Shoulder Front - Convert. Only - Sid. Olhei Models
- Shoulder Rear - NA Convert.
H.lililil.'.mjJ -« Console 8 V-8 Only - N/A w,/Aii Conditioning
lilJJUililHiB - 14" Wheels & Tries Aie Slandaid
jl'UKM - Fender Mounted
:lll,'JJJJ^II:lll.H- Fron-
lil.'lin,lil».»l[3 It Hood Insulaloi Pad
jEajsi
l!IJJl.l.l'JJ.iM.'l!IJdl.fr^^F¥l
HJilJAM - LL23, LL41 1 LIC3 Only, Sid, vi/4 Speed & All Other Models
]Sj(n
Simulated 'Mag' Type
IHWJtHIHIimf - LLZ3. LL41 1 LIIB3 Only, Std. Olhei ModeJi"
Cast Center Road Wheel
■HiJ.'MiUM- »i Bucket Seals 8 T/F oi 4 Spd. Only - Req'd. ii/383 T/F
l','li;iiH!IIJIil','IIJJ;M - Variable Speed t Electric Washers"
3a;
maaaa - Rear Wmdow - NA ConvtiT"
H
K!MIS
P'oleclive Rubbei
■ii»:vmii,'tJJiM - All Windows - Recommended w An Conditioning
33
Windshield Only
^msmsmiM:
Right
Lett and Right
l!M:l!HillH^- LL23. LLAl i Um Only. Sid, Otheis
(^ - Indicates Items Included in Radio Group
GS - Indicates Items Included in Protection Group
Dl - These Items Available in the Group Only
58
0-3200188 (7-eSI
ADVANCE DEALER SHIPPING NOTICE
OOOOE DIVISION
^^ CHRYSLER
K|W MOTORS CORPORATION
HAMTRAMCK ASSY
VEHICLE IDENT. NO.
LL23-B9B-433245
SHIP TO DLR. NO.
HEG. SOLO TO DLR. NO. SPEC.
32
53628
ROUTE:
B57
PAID FOR BY:
C.C.C. WHITE PLAINS
NYC-LITTLE FERR Y-M£G-CONVOY
so. NO.
626-BL-206274
MERIT MOTORS INC
597 WARBURTON AVE
HASTINGS N Y
00000
MERIT MOTORS, INC.
132 SOUTH BROADWAY
YONKERS, N. Y.
ttiiii
AND
PRICE
^/i
LL23 F8 L2X DOOGF DART SWINGER -6- 2DR. HARDTOP
D3^ TORQUEFLITE TRANSMISSION
051 AXLE RATIO 2.71/2.76
225 CID ENGINE
GLOVE BOX LIGHT
Lis ASH RECEIVER LIGHT
TRUNK LIGHT
IGNITION SWITCH TIME DELAY
HEADLAMP ON WARNING SIGNAL
BUMPER GUARDS - FRONT £ REAR
Ril MUSIC MASTER AM RADIO
S77 POWER STEERING
W61 7.C0X13 2P/^PR BSW TIRE
SUB TOTAL
265 DESTINATION CHARGE
MFGR. SUGG. RETAIL PRICE TOTAL
L25
L65
L72
M85
2730
^3
4
7
41
7
2,400.00
175.45
46.35
2.20
2.20
4.40
7.25
25.30
61.55
85.15
2,809.85
65.00
2,874.85
FACTORY WHOLESALE PRICE TOTAL
06-18-69
TOTALS
2,357.71
2832
1 Dealer Copy
59
Exhibit 8
(Raphael Cohen's exhibit No. 6: Order for a Dodge placed by Merit Motors,
Inc., and shipping notice for Dodge delivered with unordered equipment.)
DOOOC Divisicm
^ CHRYSLER
60
BJSKVoies {7-es\
ADVANCE DEALER SHIPPING NOTICE
DOOOE DIVISION
^^ CHRYSLER
KMf MOTORS CORPOMTION
PLANT
H^MTRAMCK ASSY
vehicleident.no.
LL23-69S-A33246
SHIP TO DLR. NO.
REG.
32
SOLD TO DLR. NO.
53628
ROUTE:
raiOFOR BY:
C.C.C. WHITE PLAINS
NYC-LITTLE FEPRY-MCG-CONVOY
S.O. NO.
626-BL-206275
MEP IT MOTORS INC
597 WARBURTON AVE
HASTINGS N Y
00000
MERIT MOTORS, INC.
13? SOUTH BROADWAY
YONKERS, N. Y.
!2Sf COLOR AND
LL23 F5
L2X DODGE DART SWINGER -6- 2DR. HARDTOP
D34 TORQUEFLITE TRANSMISSION
D51 AXLE RATIO 2.71/2.76
E24 225 CID ENGINE
Lll GLOVE BOX LIGHT
L15 ASH RECEIVER LIGHT
L25 TRUNK LIGHT
L65 IGNITION SWITCH TIME DELAY
L72 HEADLAMP ON WARNING SIGNAL
M85 BUMPER GUARDS - FRONT 6 REAR
Rll MUSIC MASTER AM RADIO
S77 POWER STEERING
W61 7.00X13 2P/4PR BSW TIRE
SUB TOTAL
265 DESTINATION CHARGE
MFGR. SUGG. RETAIL PRICE TOTAL
2730
43
FACTORY
4
7
41
7
2,400.00
175.45
46.35
2.20
2.20
4.40
7.25
25.30
61,55
85.15
2,809.85
6 5.00
2,874.85
FACTORY WHOLESALE PRICE TOTAL
06-18-69
TOTALS
2832
2.357.71
1 Dealer Copy
61
Exhibit 9
(Raphael Cohen's exhibit No. 7: Order for a Dodge placed by Merit Motors,
Inc., and shipping notice for Dodge delivered with unordered equipment.)
OOfXlE DIVISION
^CHRYSLER
^Uaf MOTORS CORPORATION
1969 MODEL DART
RED OUTLINED AREAS MUST BE FILLED I
62
S>32Mie8 l7-«ai
ADVANCE DEALER SHIPPING NOTICE
OOOOE DIVISION
^
CHRYSLER
MOTORS CORPORATION
H/5MTRAMCK ASSY
VEHICLE lOENT.NO.
SHIP TO OLR. NO.
LL23-B9B-433247
REG. SOLO TO OLR NO.
32 53628
ROUTE:
B57
PAID FOR BY:
c.c.c.
NYC-LITTLE FEPR Y-M6G-C0NV0Y
WHITE PLAINS
S.O. NO.
626-BL-206276
MERIT MOTORS INC
597 WARBURTON AVE
HASTINGS N Y
MERIT MOTORS, INC.
132 SOUTH BROADWAY
YONKERS, N. Y.
00000
DESCRIPTION
LL23 F5
^.
■<
L2X DODGE DART SWINGER -6- 20R. HARDTOP
034 TORQUEFLITE TRANSMISSION
D5I AXLE RATIO 2.71/2.76
E24 225 CID ENGINE
Lll GLOVE BOX LIGHT
L15 ASH RECEIVER LIGHT
L25 TRUNK LIGHT
L65 IGNITION SWITCH TIME DELAY
L72 HEADLAMP ON WARNING SIGNAL
M85 BUMPER GUARDS - FRONT £ REAR
Rll MUSIC MASTER AM RADIO
S77 POWER STEERING
W61 7.'^0X13 2P/APR BSW TIRE
sue TOTAL
265 DESTINATION CHARGE
MFGR. SUGG. RETAIL PRICE TOTAL
2730
43
4
7
41
7
2,400.00
17 5.45
46.35
2.20
2.20
4,40
7.25
25.30
61.55
85.15
2,809.8?
6 5.0C
2,874.85
FACTORY WHOLESALE PRICE TOTAL
2,357.7]
06-18-69
TOTALS
2832
1 Dealer Copy
63
Exhibit 10
(Raphael Cohen's exhibit 8: Chrysler Corporation form: "Dealer Financial
Statement" (monthly).)
DEALER FINANCIAL STATEMENT . :iS£j
*T,iuKinN
^»Fr.inN *F.»„„P ♦rnn
:e sheet
0
BALANC
ASSETS
AMOUNT
c
LIABILITIES AND NET WORTH
AMOUNT
CURRENT LIABILITIES
c.s- 0
n HAND
i"f
ACCOUNTS PA.AecC
20,
C>SH » ,KHK
.0!
NOTES RATABLE
201
CONIXCTS >N IR.NJII
IDE
D,V.DENDS
205
TOTAL CASH AND EQUIVALENT .lines l-li
.
► >
CUSTOMER SERV.CE DEPOSITS
206
nCCEIVABLES
CREDIT BALANCES-SERVICE PARTS . VEHICLE ACCTS
St««.C£« P.I.IS »CC00r.t5
I
no
fj) a
TOTAL ACCOUNTS i NOTES PAYABLE C^i'f* )
(i.)
s
ACCRUED CKPENSeS
CUiTO»E« NOTES
lU
ID
PATROLL AN. EDU.VALENT
2,0
IIA
INTEREST
2,2
,2
INSURANCE
2,1
.....NT.SE...CE
,1
TA.ES PAYROLL
2. A
N0L>8.C>
,.
TA.ES OTHER THAN PAVROLL • .NCONE
215
SPEC.LVENICLE.NCO.I
15
INCOME TAIES
2.6
16
OTHER ACCRUED E.PENSES
2.7
WHOLESALE P.NIS CONPENSAIION
,7
TOTAL ACCRUED EXPENSES (LINES 10- 16)
(D)
"
WHOLESALE FINANCE LIABILITY,
OTHE«
1160
„
«E« CARS AND IRUOS
220
LESS .LLOW.KCt F0« OOUBIFUL .CtOUN.S
( !*2.
DENONSTBATORS
226
NET RECEIVABLES ,L,NES.,»»U 20,
USED CABS AND TRUCKS
227
fp.
OUE >.0M FIN.NCE . l»iU..NCE CO 5 CU..EN,
119
22
OTHER INVENTORIES
210
V
TOTAL RECEIVABLES ,L.NES ...22,
( 1 21
TOTAL WHOLESALE FINANCE LI ABILITY {^i""'
IB
TOTAL CURRENT LIABILITIES , LINES 8 .7*2)
-1
"" —
25
II
■■°'i-"
.l"'lt.
'« 1 "•■"'
110
26
WORKING CAPITAL
..L >A»
,„,^
DART
-*
121
27
■ ELV
;o,i!
■ „ijj
,11
2.
FU«.
;o:M
POLARA
1..*
121
2S
CMH.SLEU
,!l A,
?J!c"s
I..A
12.
M
'"""'' '""'°°" •''"'"'"""'
mPEPUL
1... Ai
.»(«
I2S
TOTAL NEW V H.CLES ,l,ne, .. - .,,
;'bi "
OTHER LIABILITIES-
)
Bl "
DRIVER EDUCATION CARS
255
— ..s :;:; .K,;-»„ ,^.„
B >■
LEASE VEHICLES
256
~" ;■;;: * ,n;., )*•-
B «
COMPAN. CARS .SERVICE VEHICLES
25A
|i.
TOTAL OTHER LIABILITIES ilines U-IS.
0
130
iB ='
LONG TERM DEBT
»".°,"."', °i'„
ACCESSORIES
ni
Bl "
NOTES RATABLE ^*(1AnV
260
U2
( tBi "
■ORTS.OES PA.ABEE
261
fD)
TIRES .NO TUBES
ill
.0
OTHER NOTES. CONTRACTS
265
111
.,
TOTALLO»0TE««0EeT(V,"S§
-- --- _-__ i-L
ID)
lis
<2
TOTAL LIABILITIES , LINES 2. 16 > All |
1
<1
II
TOTAL PSA » MISC INVT T , LINES 3..«,
i
► "
NET WORTH
1
NON.„TO.0„.E INVENTORIES
116
igj"
CAPITAL STOCR PREFERRED
270
4
1"
COMMON
271
I
«»R<ET«iiEE SECURITIES
1.0
(C1"
RETAINED EARNINGS
275
I.S
ro"
DIVIDENDS
277
I 1
& "
INVESTMENTS 1 PROPR.ETOB OR PARTNERS,
2 BO
TOTALCUR»ENTASSETSiLiNES,,T...,-.,i
50
V,,TH.RAWALS
265
( )
ADJUSTMENTS
2 90
OTHER ASSETS
ISI
CURRENT EARNINGS BEFORE TAXES
OUE F«0» FINANCE ■ INSURANCE CO S DEFERRED
IS2
;"?.
AMOUNT
.51
IS.
FESRUART
.RIVEN EDUCATION CARS NET (uNITS )
.S5
MARCH
(UNIT, )
.S6
APRIL
157
,CI5,
MAT
TOTAL OTHER ASSETS iLiNESS.S.i
ICUO
JUNE
,-ANO.BLDOS,»EOU,PT. ( — -■"'")
.,
JULY
COST
62
AUGUST
LAND
.60
(OS.
SEPTEMBER
.6.
e"
OCTOBER
SERVICE EOUIP.ENT
.62
NOVEMBER
PARTS • ACCESSORIES EOUIPT
.65
DECEMBEB
CO CARS SERVICE VEHICLES
.«.
TOTAL
,65
ESTIMATED INCOME TA.
1 :
296
,66
NET EARNINGS , LINES .7.inuS68,
299
NET VALUE OF LAND BLDGS.EOUIPT(i.«||)
:C: .0
TOTAL NET WORTH iLiNES.5 52 . 69,
J
1 "
1]
TOTAL ASSETS, LINES,., SCO, | | <i> „
TOTAL LIABILITIES AND NET WORTH (ATI.) | | '$ |
.
—
—
HATE POST »
ARK
ED
«N
TH.
^
IMPORTANT: Electronic processing requires legible informofion on lines with key punch symbols.
REMINDER- Statemenr conihti of — Page 1, Balance Sheet — Page 2, Sterement of Income and Eipente — Page 3, Departmental Grau Profit
Anolyiit end Page 4, Management Operating Information — REMOVE CARBONS AND STAPLE INTO SETS.
Mail Original (White) ond First Carbon Copy (Green) to Regional Office prior to 10th of month.
64
'_ ., ; PERIOD
^
.roDF
PAGE 2
"'^""■" STATEMENT OF INCOME AND EXPENSE
r
" NAMEOFACCOUNT j
CCT NO
MONTH
YEAR . TO - DATE
■
-
V
E
H
1
c
L
E
s
E
L
L
1
N
G
E
X
p
E
N
s
E
s
-
301
<►
-
J SALES SUPERVISrON COMMISSIONS A INCENTIVES
302
lO
-
5 NEW VEHICLE PRE-DELIVEBY
VAR.
303
ffl
"
6 POLICY SERVICE — NEW VEHICLES
304
(i)
-
7 NEW VEHICLE VARIABLE SELLING EXPENSES aINES J . 61
TOTAL
(I
(i)
"
,
1
1
"
9 ADVERTISING
307
(0
-
0 SALESMEN'S SALARIES
308
ffl
-
1 SALES SUPERVISION SALARIES
309
CO
-
; SALES PERSONNEL TRAINING- NEW
310
(!)
"
3 DEMONSTRATION EXPENSE
VAR.
312
^
"
< INTEREST ON INVENTORY FINANCING
31!
®
s NEW VEHICLE SEMI-VARIABLE SELLING EXPENSES ILINES 9 - Ml
TOTAL
\^ ^
J
1
1
J SALESMEN'S COMMISSIONS S INCENTIVES
USED
VAR.
321
(?)
8 SALES SUPERVISION COMMISSIONS » INCENTIVES
322
9 POLICY AND WARRANTY SERVICE— USED VEHICLES
324
®
0 USED VEHICLE VARIABLE SELLING EXPENSES ILIBES 1? . 191
TOTAL
^ ., T
,
1
1 ADVERTISING
USED
SEMI
VAR
327
®
3 SALESMEN'S SALARIES
328
C')
4 SALES SUPERVISION SALARIES
329
®
S SALES PERSONNEL TRAINING - USED
330
®
6 DEMONSTRATION EXPENSE AND INVENTORY MAINTENANCE— USED
332.33
t
7 INTEREST ON INVENTORY FINANCING
335
9
8 USED VEHICLE SEMI-VARIABLE SELLING EXPENSES ILINES 22 - 27i
TOTAL
(^ (3)
9 TOTAL NEW VEHICLE SELLING EXPENSES (LINES 7 a T51
NEl*
0 TOTAL USED VEHICLE SELLING EXPENSES .lines 20 « 281
USED
1 TOTAL VEHICLE SELLING EXPENSES i LINES 29 «JOi
TOTAL
2 VEHICLE NET ILINE 1 MINUS 311
'
3
A SERVICE AND PARTS DEPARTMENT GROSS PROFIT 1PAGE3LINE 76)
5 SERVICE AND PARTS DEPARTMENT DIRECT EXPENSES
D
1
R ^
E ^
c ^
N
s
6 SALARIES WAGES AND INCENTIVES— SERVICE
34 2
®
J, SALARIES, WAGES AND INCENTIVES PARTS
343
®
8 VACATION AND TIME-OFF PAY
345
(s)
39 SERVICE AND PARTS PERSONNEL TRAINING
347
y
40 SHOP SUPPLIES AND SMALL TOOLS
348
®
1 UNIFORMS AND LAUNDRY EXPENSE
349
(?)
42 ADVERTISING
350
w
43 SERVICE AND PARTS VEHICLE EXPENSE
353
w
44 POLICY ADJUSTMENTS
354
®
45 FREIGHT EXPRESS AND SHIPPING
L
S
355
<>
357-89
w
47 TOTAL SERVICE AND PARTS DIRECT EXPENSES 1 LINES 38-461
<
> «1
48 SERVICE AND PARTS NET (LINE 34 MINUS .471
"*'"*'
49
SO INDIRECT EXPENSES
SI SALARIES AND WAGES— ADM 1 N ISTRATIVE AND GENERAL
362
w
52 EMPLOYEE BENEFITS
363
CO
53 PAYROLL TAXES
365
(f)
5. ADVERTISING GENERAL AND INSTITUTIONAL
367
C«)
SS STATIONERY OFFICE SUPPLI ES AND POSTAGE
368
w
SS LEGAL AUDITING AND COLLECTION EXPENSE
370
C<)
57 OTHER OUTSIDE SERVICES
371
(*)
58 COMPANY CAR EXPENSE
372
(t)
59 DUES SUBSCRIPTIONS AND CONTRIBUTIONS
373
60 TELEPHONE AND TELEGRAPH
375
0
81 TRAVEL AND ENTERTAINMENT
377
S2 BAD DEBTS
378
63 MISCELLANEOUS
380
64
65 RENT AND EQUIVALENT
66 MAINTENANCE AND REPAIRS — HEAL ESTATE
382
67 INSURANCE— (OTHER THAN REAL ESTATEl
389
68 TAXES AND LICENSES— . OTHER THAN PAYROLL AND REAL ESTATE 1
390
69 DEPREC . MAINT S REPAIR AND RENTAL— FURN ITU RE SIGNS S EQUIPMENT
391. 2-3
,0 HEAT. LIGHT POWER AND WATER
395
71 TOTAL INDIRECT EXPENSES ILINES 51 - 701
r ^' i
72 SALARIES— OWNERS AND OFFICERS
36, [ ;r «
73 TOTAL OVERHEAD EXPENSES (LINE 71 AND 721
1
14 TOTAL EXPENSES (LINES 31 . 47 AND 73 ,
16)
« OPERATING PROFIT (LINES 32 8, A« MINUS 731
77 OTHER INCOME AND DEDUCTIONS NET (PAGE 4 LINE 11 - NETi
1
— NET EARNINGS OR (LOSS) (LINE 70 PLUS OR MINUS 771
k
,0.«0(,.S^,. = ..2-..( ,»....NO.O <,(O.CO .,,.,». o„,o.„.(.
' • ^
as ...^Cl
--""°
The perfotoled slrips hove been added lo locllilote typing- They should be removed prior lo moiling.
REMINDER- Srotcmcnt conlilla of — Page 1, Bolonee Sheet — Poge 2, Stotcmenr ot Income ond Expense — Poge 3, Depciftmen»al Grots Profit
' Anolyiii end Poge 4, MonogemenI Operoting Informotion — REMOVE CARBONS AND STAPLE INTO SETS
Moil Originol (V^hirel end Fi™t Cortion Copj IGreenI to Rcgionol Ollico prior to lOHi of month.
65
PERIO
FIT ANALYSIS
CODE
—
PACE 3
DEPARTMENTAL GROSS PRO
•r
MONTH
ACCOUNT
YEAR. TO. DATE
SALES 1 CC
51 or S4LES 1 CROSS PROFIT | UNITS
NAME |nO
UNITS 1 SAL
S 1 COST OF SALES
GROS
S PROFIT
NEW VEHICLE DEPARTMENT
I
y) (6) Si!kl,*."rnn. ""AIL
401
1
9) ^.E..E.E»E .ET.IE
103
,
^J^ 6).U„ .E,..
405
5
rj^ fS,C„«,5EE» .ET.IE
107
6
Q) §) IMPEHIAL RETAIL
109
J
(J) 10) OART RETAIL
111
S
(5) aiT,i^.}i »^...
413
5
lis
10
^ ^) OTH N CARS RTl
11
if)
1 fd) TOTAL CARS RETAIL
ii
$} fOl OODCE tR.5 RTL
417
11
,» ,0) 0,„„ 7„5 .71
419
<<
IF)
] 1 TOTAL TRUCKS RETAIL
<s)
IS
«) <1>C.R5 ELEET
421
16
« * """5 ELEET
122
II
(F^
1 1 TOTAL FLEET
16)
U
(^
123
19
h
121
(
)
;o
)^ (P' HE'O »E" L0SSE5 4!SE
: ;
: :
(X) (PI FIN « INS ir.CO»E 427F
; :
(
)
(^ 1 TOTAL NEW VEH DEPT.
c
)
;i
USED VEHICLE DEPARTMENT
;4
1 1 (P).5„C.„5 »7.
4 30
1
15
(l) ^ |«C0. .C..5.7.
4300
tt,
^ (PI USED CARS WHSLE
133
1
It
135C
;
.■8
IF,I
ill TOTAL USED CARS
Z9
1 ,»„5EOT.„C«5 -Tl!.3S
JO
(,) (L) 1 »ECON „,.K5 RTE
1360
11
fl) (P) USED TRKS-WHSLE
139
1
Ji
■ (
1100
: ;
!3
4
i)
TOTAL USED TRUCKS
14
(Gj
L ''
NON-AUTO » OTHER
414
1
)
«
)((' ■P)—VE« LOSSES
44SE
: :
JS
1
(Ij rpi FlN . INS INCOME
117F
; :
K
)
It
TOTAL USED VEH. DEPT
<
►
IB
TOTAL VEHICLE DEPT
1-
I
.CAR ivGliIB
1
^^ SERVICE DEPARTMENT
CAB llT
RUCK
l4
.CAB
TRUCK 1 I
V.RO
4J
'Si
i'
CUST IBR-RO -CARS
450
<i
'?
4
CU5T LBR-RO-TRKS
4S1
>■,
WARRANTY LABOR
152
4S
^
^
LABOR-INTERNAL
451
47
o
**
CUST LBR-NON-AUtO
155
4S
©
M
SUBLET WORK
156
49
©
*J
CAS OIL-LUBRICANTS
15S
.
50
fG)
W
CUST LABOR-SUP
160
51
1^1
^
WRIT LABOR-BJP
162
5?
A
M
SUBLET WOBK-BSP
464
5!
lit
.ft
B.P SHOP «ATLS
465
•>'
[
; )n
UNAPPLIED TIME
4670
;
1
5S
«i
M
TOTAL SERVICE DEPT.
(
)
!!
PARTS AND ACCESSORIES DEPARTMENT
"
«'
0
PARTS-R 0 5- CARS
470
1
ijl
^;
PART5-R0 S-TRKS
60
'jj
^
PARTS-WRTY CLAIMS
®
^
PARTS-RETAIL
6;
®
^
PARTS-WHOLESALE
6!
Wl
PARTS-INTERNAL
64
w
M
ACCESS -RET > R 0
65
®
W
ACCESS -WHOLESALE
6 6
^
'^
ACCESS INTERNAL
67
(I)
h
PARTS-DS PRO S
69
(!)
Ml
PARTS-BSP WBTT
69
f
^
ACCESS B « P-RO 5
1
70
: yj)
OTY PUR OISC PSA
4a5E
; :
71
[ KJ)
WHSLE PARTS COUP
186F
: :
11
i )^
P.A INVTY ADJ
1870
! :
73
^I)
<0)
TIRES AND TUBES
190
1
74
^P
0
NON.AUIO 1 "ISC ]495
I
75
'^
0'
TOTAL PSA DEPT
I
76
1
TOTAL SERVft PTS.DEPT
"
'!• 1 1
TOTAL ALL DEPTS.
{
I ro.
^""-' "— =-'- ■
■ • " *
REMINDER: Stolement
Anolyiii
Moil Orig
used unit soles in both the moi
6 on Line 41 ond 42,
ge ^, Balance Sheet — Poge 2,
ogement Operoting Information
irst Corbon Copy (Green) to Re
: Office prior to lOth of month.
66
OTHER INCOME
OTHER INCOME AND OTHER DEDUCTIONS
OTHER DEDUCTIONS
TOTAL OTHER INCOME
TOTAL OTHER DEDUCTIONS
MANAGEMENT OPERATfNG INFORMATION
1 FLEET UNIT SALES |
1 SPEC
AL VE
HICLE INCOME
ANALYSIS 1
1 PERSONNEL SUMMARY
C»R UNE I MONTH
T-T-0
"iV
MONTH
YEABTO-DATE
NEW 1 USED 1 SESV | PAI>TS
>DM TOTAL
VAL.SAR
VAL.BAR
EXEC OWNER
BELVEDERE
BELVEDERE
«03D
».N.OE.EN, 1 1
FURT
FURT
4DSD
S.EES.E. 4> &
CHRYSLER
CHRV5LER
407 D
9)
DART
IMPERIAL
40SD
OTHER
CORONET
TOTAL CHRYPLV
MECH.SERV
i
i
DART
4110
MECKB>P
CORONETC
4130
"ECH.INTL
^
4150
1
1 1
4110
TOTAL
h a a A< fy 1
CARS-<2.
TOTAL DODGE
1 ANALYSIS OF OPERATIONS |
CURRENT MONTH
CURRENT YEAR TO.DATE
PREVIOUS YEAR-TO-DATE |
UNIT
DOLLARS
RNUR
SALES
DOLLARS
PNUR
SALES
DOLLARS
PNUR
NEW VEHICLE DEPT. GROSS PROFIT IP 3. L !21
USED VEHICLE DEPT GROSS PROFIT IP 3. L 371
VEHICLE SELLING EXPENSES IP 2, L 3ii
VEHICLE NET ip 4. L 33 a 34 MINUS 351
SVC-PTS a OVHD EXPENSE IP !. L 47 » 73)
SERVICE a PARTS GROSS PROFIT (P 3. L 761
UNABSORBED OVERHEAD IP 4. L 37 MINUS 38)
OPERATING PROFIT ip 4. L 3S MINUS 39 i
OTHER INCOME 9 DEDUCT . NET IP 2. L 771
NET EARNINGS OR LOSS |P4. L.40 PLUS OR MINUS 41 1
1 RECEIVABLE ANALYSIS |
REc'ETvAeLE
DAYS PAST DUE
•doSbtpuT"
CURRENT
130
3 1-60
61-SO
9 1 a OVER
SERV SPTS ACCTS. (P-I.L-BI
VEHICLE ACCOUNTS IP-I,L-91
CUSTOMER NOTES IP-I.L-101
OTHER RECVBLES rp-I.L-lll
WAR NTV SERVICE IP-i.L-131
OFRSaEMP ACCTS IP-I.L-SSI
TOTAL
USED VEHICLE INVENTORY ANALYSIS |
CARS
TRUCKS 1
INVENTORY
DAYS IN INVENTORY
INvT^CiRY
DAYS IN INVENTORY |
1-20
2I-30
OVER 30
120
21-30
OVER 30
UNITS
DOLLARS
UNIT DAYS SUPPLY
DOLLAR DAYS SUPPLY
COMPUTATIONS;
COMPUTATIONS: |
USED CAR UNIT DAYS SUPPLY
;;;;^";;£"-- ----- ^ ■
USED TRUCK UNIT DAYS SUPPLY
1 TOTAL INV UNITS IPAGE 1 ASSET
[ ::f£:,;EH:r
'EEEE^^
USED CAR DOLLAR DAYS SUPPLY:
USED TRUCK DOLLAR DAYS SUPPLY |
:;::::::
'::::::z:
::Zs..,
! E:I£
™Ei:
ASSETS LINE 3
MONTH
ARE OTHER INCOME AND OTHER DEDUCTIONS AND PERSONNEL SUMMARY SECTIONS PROPERLY COMPLETED?
REMINDER: Slolcmcnt consii's of — P09C I, Boloncc Sheet — Page 2, Slotcmcnt ol Income ond Eipcnsc — Pogc 3. DepoYtmcnIol Gross Prodt
AnolYiis ond Pogc 4, Monogcmcnl Opctoting Inlormolion — REMOVE CARBONS AND STAPLE INTO SETS
Moil Orlglnol (While) ond Flnt Corbon Copv IGrccn) to Regional Office prior lo 10th ol monHi.
67
Senator Nelson. Our next witness is Mr. Thomas C. Mann, presi-
dent of the Automobile Manufacturers Association. The committee
appreciates your taking time to come here today, Mr. Mann. Your
statement will be printed in full in the record. We are sorry we took
you out of the order that we had agreed upon. You may proceed.
(A biographical note on Mr. Mann follows:)
Biographical Note
Thomas C. Mann, President, Automobile Manufacturers Association, Inc., 1619
Massachusetts Ave., N.AV., Washington, D.C. 20036, is a native of Laredo, Texas,
and a retired Foreign Service Officer. From August 1, 1966 to January 31, 1967
he was associated with the Johns Hopkins School of Advanced International
Studies, and has been in his present position since that time. Mr. Mann served
as Under Secretary of State for Economic Affairs until his departure from
Government service on June 30, 1966. He twice served as Assistant Secretary
of State for Inter-American Affairs, holding the office first from September 1,
1960 to March 30, 1961 ; his second term in that post began January 3, 1964 and
ended when he became Under Secrtary for Economic Affairs in March of 1965.
From September 1957 to September 1960, Mr. Mann was Assistant Secretary of
State for Economic Affairs. Born in Laredo on November 11, 1912, Mr. Mann
was graduated from Baylor University in Waco, Texas, in 1934, receiving Bache-
lor of Arts and Bachelor of Law degrees. He practiced law in Laredo from 1934
until 1942. Between 1942, when he joined the Foreign Service, and 1957 Mr.
Mann served in several positions in the Department of State and at our Foreign
Service posts in Montevideo, Uruguay ; Caracas, Venezuela ; Athens, Greece ;
and Guatemala City, Guatemala. He was appointed in 1955 as Ambassador to
El Salvador and in 1961 as Ambassador to Mexico.
STATEMENT OF THOMAS C. MANN, PRESIDENT, AUTOMOBILE
MANTIFACTUREES ASSOCIATION, INC., WASHINGTON, D.C.
Mr. Mann. Thank you, Mr. Chairman.
As you know, I am appearing before this committee both today
and tomorrow.
Senator Nelson. Yes.
Mr. Mann. And I have a statement here which is rather lengthy
for which I apologize. But I did try to be responsive to all seven ques-
tions that the chairman asked, and whatever extra time I take today,
I yield tomorrow. So, thank you very much for this opportunity, sir.
Mr. Chairman, Senators, thank you for this opportunity to present
my point of view concerning some of the questions being considered
by this committee.
Perhaps I should begin by saying a few words about the association
I represent.
Because of the competitive nature and traditions of the 10 member
companies, and because of the requirements of our laws, the associa-
tion does not concern itself with what may be properly described as
the areas of competition between companies. Thus, the association has
no responsibilities in many areas such as service, costs and prices,
manufacturer-dealer relationships, warranties of product, advertis-
ing, product development, and others.
The association's interest in these areas is strictly limited to those
aspects which are public knowledge and which in no way affect com-
petition. My information on all these subjects is limited to that which is
already in the public domain.
In the areas in which the association works, individual member com-
panies often have conflicting interests and different points of view.
32-493 O — 69 — pt. 1 6
68
Diversity of opinion reflects the intensely competitive nature of the
industry and is, in my opinion, desirable.
I mention this diversity of interest and opmion here so that every-
one will understand that the views I express here are my own and do
not necessarily represent the opinions of individual member companies.
This applies not only to my written statement but to answers to ques-
tions put to me and opinions which I may volunteer during the dis-
cussion periods. • j j. u
Since several witnesses have described what they consider to be
wrong with the industry, perhaps it would lend some perspective to
the discussion if, before considering several of the questions posed m
this hearing, I were briefly to list some of the things that the industry
does well— specifically, the ways in which it contributes to the strength
and dynamism of our economy.
Notice, Mr. Chairman, I am going to skip some pages here following
your suggestion, as it will be in the record, but
Senator Cook. Mr. Chairman— Mr. Mann, I am wondering if you
would name — do you name in your statement the 10 companies ?
Mr. Mann. I don't but I will be happy to do that. Listed alphabeti-
cally, the 10 are: American Motors Corp, Checker Motors Corp.,
Chrysler Corp., the Duplex Division of Warner & Swazey Co., Ford
Motor Co., General Motors Corp., International Harvester Corp.,
Kaiser Jeep Corp., Mack Trucks, Inc., and White Motor Corp.
Senator Cook. Thank you, sir.
Mr. Mann. The point I make in the next two pages is simply that
the automobile industry has more than any other industry in our econ-
omy promoted mass consumption and prosperity through mass pro-
duction. It is a national industry. I have here, Mr. Chairman, and offer
for those who are interested in reading them, some 48 pamphlets on
48 States that we have on the contribution the industry makes to the
economic well-being and progress and jobs and taxes, and so forth, in
48 of the 50 States. We haven't finished the other two. You have a
copy there and I believe the reporter has one.
Senator Nelson. The committee will receive them for the committee
files and perhaps, in part, for the record.
(The pamphlets referred to will be found in the files of the com-
mittee. Six of the pamphlets — those for Alabama, California, Florida,
Michigan, Nevada, and New York — are reproduced in appendix III,
infra.)
(Pp. 2^ of Mr. Mann's prepared statement follow:)
The ten companies are taxpayers rather than subsidy receivers. Last year they
paid around $4 billion in direct local, state and federal taxes. Similarly, in 1968
motor vehicle owners paid $14.3 billion in special state and federal motor vehicle
taxes, one-third of which were taxes on trucks.
More than 13 million people are emiployed in the manufacture, distributiooi,
maintenance and commercial use of motor vehicles. In one way or another, one
out of seven American workers is dependent on the motor vehicle industry for
his employment.
An estimated 819,000 U.S. businesses, one in every six, depend on the manu-
facture, distribution, service and use of motor vehicles.
The number of people who, through the direct purchase of stocks, share in the
ownership of the industry now stands at about 3 million and millions more
participate through mutual funds, insurance company investment portfolios and
the like.
While Michigan, Missouri, California, Ohio and Wisconsin lead in automotive
assembly, the industry is important to the economy of every state in the union.
69
The Association I represent is in the process of compiling data on the contri-
bution which the industry makes to the economy of each state. We have completed
some 48 of these studies which I have with me and which the Committee or its
staff may be interested in looking at. I have no objection to their inclusion in
the record if that is the Committee's wish.
The industry plays a key role in transi>orting i^eople and goods from one place
to another. Eighty-six percent of travelers* use automobiles. Eighty-two percent
of commuting workers use automobiles as a means of transport. Ninety percent of
all livestock and 65% of all fruits and vegetables are delivered to major markets
by trucks. Trucks haul 52% of all inter-city tonnage of manufactured products
excluding petroleum and coal products.
These figures convey, I hope, not only some idea of the importance of the
automotive industry to our economic well being, but als the magnitude of the
economic job done by this industry. More than any other industry, it has promoted
mass consumption and prosperity through mass production.
Mr. Mann. We all agree here that price competition is what we
are really talking about and I take it my colleagues here on the panel
agree that competition is a good thing. So a large part of what I want
to talk with you about is the competitive nature of the industry itself.
PRICE COMPETITION
Ultimately, competition in price or in an5rthing else is of value
because of what it does for the consumer. As you know, the Consumer
Price Index considers the average price level in 1957-59 to be 100.
The Index for May 1969 shows that the level for all included items
has risen to 126.8 while the index of new cars has risen to only 101.8.
The index for public transportation, for example, has risen to 148.0,
homeownership to 138.0, food to 123.7, medical care to 154.5. The
price index for new cars is among the lowest of the major components
of the index. If I may ad lib here and say that I think a great many
of the problems of the dealers are the same that the manufacturers
have, namely, a very, very intense competition and low margins of
profit per unit.
Senator Nelson. May I ask a question at this stage? If Mr. Ham-
mond and Mr. Cohen are correct, the automobile companies subsidize
dealer outlets ; in fact, if I understand the testimony, what they are
saying is that they intentionally run some of them at a loss. I don't
Imow whether you agree that that is true or not. If you do, what
justification for that is there?
Mr. Mann. Mr. Chairman, if it can be clearly understood that I
don't have any knowledge about this area, it is unlawful for us to
enter into this area as an association, and that I speak only from
what is clearly in the public domain, largely what I get out of reading
Automotive News and the newspapers, my own reaction.
Senator Cook. Mr. Cliairman, would it also be out of order to ask
Mr. Mann to write to at least those on your list who are in direct unit
sales — I am not talking about the parts manufacturers, but I am talk-
ing about Ford, General Motors, White Motors, International Har-
vester— to obtain through your association copies of their standard
franchise agreement?
Mr. Mann. Senator Cook, I don't even know whether there is a
standard franchise agreement. I know very little about details of this
kind of thing, but certainly any question that you have I would sub-
♦Defined as trips to and from an out-of-town place for overnight or longer or to and
from a place at least 100 miles away.
70
mit to the companies for their consideration. I really don't know what
their problems are in this area.
Senator Cook. Mr. Chairman, I would like would like to merely
suggest really to Mr. Mann that if it would be agreeable with the
committee, if he would — and this obviously is a request of condolence
on your part, really — if you would write to the manufacturers and ask
if they have standard contracts and ask if they would submit them.
Senator Nelson. Either by staif, Mr. Watts, or by letter, we will ask
them for those forms. It hasn't been the easiest thing, I might sa;^, to
get information out of the manufacturers. In terms of the questions
raised by Senator Dole about balanced objective hearings, everyone
should know that we invited the corporations, all four of them, twice
last year, to appear before this committee and they declined to do so.
We will invite them again this year. This committee is seeking very
diligently to get testimonj^ on all aspects of this problem, but strangely
the four big corporations involved don't want to appear before a sena-
torial committee. I think that speaks rather loudly for some of the
charges that have been made against them before this committee.
Mr. Mann. In answer to your question. Senator, and with the reser-
vations I made, I would like to say that my own impression is that
most dealers, a great many dealers, make a very good profit in their
business. I personally know many dealers who are much wealthier
than I am and I don't know whether I would be willing to exchange
what little assets I have with my colleague on my left, but I would
say it was a pretty good bet that if I offered to trade even, that he
would come out the loser.
Mr. Cohen. Make the offer. [Laughter.]
Mr. Hammond. I'll write the contract. [Laughter.]
Mr. Mann. Well, you will get very little from me.
The first point I want to make to keep this in some perspective, is
that I don't think all dealers are on the verge of bankruptcy. I think
this is apparent to anyone who knows much about the industry.
What was your question, Senator, again ?
Senator Nelson. I asked if Mr. Hammond and Mr. Cohen were cor-
rect, that the companies establish company-owned outlets and run
them intentionally at a loss, yet are still able to make a profit at the
manufacturing level. If that is correct — have I stated correctly your
position, Mr. Hammond?
Mr. Hammond. Yes.
Mr. Mann. All right. Now, if I may
Senator Nelson. If that is correct, how can that be justified in an
economy which is claiming to be a free enterprise capitalistic economy
and General Motors is often mentioned as the great exponent of the
free enterprise system? If that is the case, how can we justify this?
Mr. Mann. You are talking now about the so-called company
store.
Senator Nelson. Yes.
Mr. Mann. There are, I think, various situations that I would im-
agine exist. For example, I doubt that it is economically feasible to
maintain a dealership in downtown Manhattan and pay the rent, and
so forth, that is necessary to pay in that locality. And yet a manufac-
turer might well feel that his competitors have an establishment there
which may or may not be operated at a profit and that it is necessary
71
for his business to mainitain a presence, let's say, in downtown
Manhattan.
Senator Dole. To break into that market.
Mr. Mann. At least to compete by showing his product in that area.
Now, I think that is one situation, one type of situation, where it
is just not economically feasible to operate a business in the center of
town. I have noticed here in Washington that 25 years ago most of
the dealers were in the downtown areas, high rent areas, and I notice
that they are moving out to the suburbs as many other businesses are.
This is a general thing across the whole economy and I imagine the
reason they are moving is that they need more spa<^e, they need cheaper
land, they need cheaper rent. And the average customer has an auto-
mobile, he has got mobility, and so he gets lower prices if he goes out to
a dealer who is in a low-rent area.
Senator Nelson. Well, may I ask you
Mr. Mann. Now, this is one type of problem that has to do with the
company store as I understand it just from what I know from general
knowledge. Now, I must say that the practices of the companies, in-
dividual companies, all 10 of them, vary very substantially, so I am not
trying to speak for them or state what they do.
Now, Mr. Cohen, I didn't interrupt you.
Mr. Cohen, I am sorry,
Mr, Mann, I haven't finished answering this question.
Mr, Cohen, I am sorry,
Mr, Mann, I have been very quiet all morning.
The other problem is that the retail business is an intenseh^ com-
petitive business. It is very intensely competitive. You will find, as
in all businesses, some businessmen who are better businessmen, better
salesmen, and who make a very large profit, and you will find a com-
petitor down the street or two and a half miles away who doesn't make
a profit and who operates at a loss. The company then, I would imagine,
has the option of either closing down that location or allowing the
dealer to go bankrupt. If he were truly in debt, this is what would
happen in economic terms. They have the option of trying to bring
in new management, better management, giving him the finances he
needs. And it is a very expensive operation. I think a dealership costs
anywhere from a half million dollars to a million dollars if you have
the right equipment in your service establishment.
And the manufacturer may feel that it is necessary for him in order
to maintain his share of the market to help finance the dealer.
Now, it may be that he considers a dealer with a very bad record,
let's say, of being able to make a profit. If the manufacturer puts
in a substantial sum of money, he may feel that he wants his own
management there and his own control and I think this is what we
mean by the voting stock, something of this kind. He wants con-
trol. But it is also true, Mr, Chairman, if my general understanding
is correct, that the man who does get financing— and he is not forced
to take it from the manufacturer, he can get it from a bank — ^the
man who does get financing is always able to, by repaying the loan,
regain full control of the franchise.
It is also my understanding that all manufacturers desire to get
out of the retail business just as fast as they possibly can, consistent
72
with the necessity of maintaining dealerships that are representative
across the Nation.
Senator Nelson. Are you saying manufacturers are trymg to get
out of the dealerships?
Mr. Mann. Yes, sir. I don't know of any dealership that isn t for
sale to somebody with a demonstrated capaxiity to serve the customers
of the manufacturer in a given area.
Now, I repeat again, with all the inhibitions, with all the limita-
tions that I expressed in the opening paragraph of my statement. We
do not get into this. I am just talking from public knowledge aiid
not on behalf of any company. But I would be surprised, Mr. Chair-
man, if there were any dealership that is not for sale to a person with
a demonstrated capacity to operate it successfully. In fact, good
dealers are in great demand. And companies compete with each other
for good dealers.
Senator Cook. Mr. Chairman, I might say in regard to that state-
ment that I do know of one major corporation on his list that started,
oh, a year or so ago, to sell its wholly owned dealerships to its man-
agers and, as a matter of fact, I had occasion to advise one gentle-
man who has not only bought the one that he had but has purchased
one in another community and is in the process of trying to acquire
another one in another. And this is all on his own capital. And this
is not corporate financed funds that he is doing this through. I am
familiar with that.
Mr. Mann. I think it is fair to say, Mr. Chairman, that the ideas
of a truly independent successful dealer, able to sell merchandise and
to give good service, really was conceived of by the manufacturers as
a way to sell and service their products. I am coming to that later in
my statement. And they have stoutly resisted over the years any at-
tempt to destroy the independent character of the dealer because
they believe, as I understand it, that this suits their own interests.
I don't know whether that answers your question, Mr. Chairman,
but
Senator Nelson. Well, I realize-
Mr. Mann. I am not the most knowledgeable person on details.
If you were to ask me what does a contract look like I couldn't tell
you because I have never seen one and we don't talk to the manu-
facturers about this.
Senator Nelson. I realize.you are handicapped by the fact that you
are not, on these questions, speaking for them. I would hope to have
the companies here to speak for themselves.
However, with a cursory glance at the provisions of those franchises,
as a lawyer I would advise any sensible businessman not to sign one,
if the provisions as described in the testimony are correct, because
it is a one-way street. But I don't expect you to respond to that.
Mr. Mann. Well, there are many thousands of dealers who have
signed them and who have gone in on a shoestring and I know of sev-
eral personally who are now millionaires.
Senator Cook. I do, too.
Mr. Mann. And I suppose it must be roughly the same kind of
agreement. There must be some similarities between them.
Senator Nelson. All I am saying is that, obviously, from the legal
standpoint, it is not an arm's length agreement. It may very well be
73
that — I am sure it is tme that a good many dealers have become
wealthy men and it is because they were good businessmen. But at
any moment, if they signed these kinds of franchise agreements, at any
moment the company could destroy them. That is all I am saying.
Mr. Mann. I think the real problem in here is competition and the
difference in the business abilities of people.
Senator Cook. Mr. Chairman, I am not sure you can make that total
analysis, that at any moment it can be canceled. Mr. Cohen certainly
stated in his statement that, for instance, with the Chrysler Corp.,
that some of them are even lifetime contracts, that they are canceled
for cause. Now, I think this cause has a definite connotation and I
think Mr. Hammond would agree with this. Certainly I want to say
as a lawyer I never wrote a contract for my clients that I didn't try
to get everything for my clients and nothing for the fellow he was
signing with. I also must confess that I am not quite convinced that
we could make this broad statement that a franchise can be taken away
just at any moment. Mr. Hammond is in court on many dealerships
that are still in existence. Obviously if the corporation wanted to take
away the franchise by reason of the fact that somebody filed a multi-
million dollar suit against him he could do it, but I don't think in this
instance that the manufacturers have taken away those franchises.
That is correct, Mr. Hammond ?
Mr. Hammond. I would say not withstanding the existence of the
good faith act, and not withstanding the theoretical protection that
appears to exist on the law, there have been practically no successes
by dealers in lawsuits against the manufacturers.
Senator Cook. Yes, but what I am saying to you, though, is that
even though there may not have been successes based on law and
fact, the franchise has not summarily been canceled by reason of the
fact that a dealership filed a suit against his manufacturer.
Mr. Hammond. The effect of the disparity in power between the
manufacturer and the dealer to test the legal rights are such that even
if the law. Senator, were many times better, the dealer would have no
practical, meaningful right to get legal redress.
Senator Cook. But you are not answering my question. The question
is that the franchise has not been denied during the course of this law-
suit. The point I am trying to make is that the statement has been
made that here is a franchise that once it is signed can be summarily
taken away at any time by the whim or caprice of the manufacturer,
and I am saying this is not really the case. In the instance of some of
the lawsuits that you have, the people are in business and they will
continue in business.
Mr. Hammond. I have never had a lawsuit where the manufacturer
was enjoined to continue the business relationship. I would estimate
that there have been well over a thousand suits brought under the
Good Faith Act and there are only two to my knowledge, and they
are the ones that were mentioned by Mr. Cohen, where there was any
success in the securing of injunctive relief, and they stand out as
exceptions.
Senator Cook. Mr. Hammond, this is for the relief that was re-
quested in the action. What I am saying to you, Mr. Cohen, you are
here today and I think your statement was an exceptionally fine one,
but you are not concerned that because you are here today, that Chrys-
74
ler Motor Corp. is going to knock on your door tomorrow and tell
you that you no longer have a franchise, are you ?
Mr. Cohen. I would not say that would keep me from being here
because I would be here anyhow. But I do not want to get the impres-
sion across that what you said is totally accurate. Mr. Mann has been
very kind to allow me when he drew No. 2 slot to speak in his st^d
and Senator Nelson saw the time limitations and I appreciate that,
but I think there is one thing we should go into here that you have
raised a question on. Senator Cook, and that is the causes of termi-
nation. For example
Senator Nelson. May I interrupt just a moment? I think maybe
the Senator made his remark based on an interpretation of my state-
ment. I said that if a dealer signed some of the franchises that you
commented on, "at any moment" it could be ended.
Mr. Cohen. Minimum sales responsibility.
Senator Nelson. In a literal interpretation of my remark, a 1-year
franchise could at the end of 8 months be terminated. I did not intend
that. At any moment the manufacturer could make a decision that he
could get rid of this fellow is what I meant.
Senator Cook. I am glad the chairman clarified it.
Senator Nelson. I did not mean he canceled the franchise, because
he obviously could not do that.
Mr. Mann. Mr. Chairman, there is one other thing on this thin^
we are talking about here. I do not think we should imagine that this
serfdom, if it is serfdom we are talking about, is obligatory. There are
four automobile passenger car manufacturers in the United States and
I have a long list here, let us say a dozen substantial foreign manufac-
turers. One of the freedoms that a good franchise dealer has is the
freedom to cancel himself the franchise agreement on short notice
and to decide that he wants to represent another manufacturer.
Now, that is rather an important freedom. And I do not think we
should leave the impression here that anybody is obliged to sign a
franchise agreement or that having signed it, that the dealer is bound
in eternal serfdom to a particular manufacturer. It may be that some-
body does not like one manufacturer's practices. Well, how about all
the others ? Or is everybody wrong ? How about the foreign manufac-
turer? There are a good many of them and dealers do move.
My point is that since we are talking about serfdom, dealers do
move from one manufacturer to another. I know personally of sev-
eral who have done this. And they have done it several times. I am
just trying to keep this in perspective. A contract is signed. From
the manufacturer's point of view, his interest is in having a good
businessman who can sell his products, who can maintain his share
of the market in the locality which the dealer serves. If the dealer
does not do that and his sales begin to drop in that particular locality,
the manufacturer obviously has a problem.
Now, they do not have problems when sales go well and service is
good and the customers do not complain. Things go very well. And
I think this is true of the majority of dealers. We are really talking
about perhaps in some of these cases, in some of these areas, at least,
a minority of dealers. My colleague on my left does not represent the
largest dealer organization in the United States. He represents an
independent group
75
Mr. Cohen. Absolutely.
Mr. Mann (continuing) . Located in one locality.
Mr. Cohen. No. I would like to correct that, Mr. Mann. We are
in 41 States and one foreign country.
Mr. Mann. Fine. I do not say, Mr. Chairman, that, like anything
else, it is all black or all white. There are problems and I personally
welcome a discussion such as this, but I make these statements to try
to get a little bit of perspective into some of the things we have been
talking about.
Senator Nelson. Do either of you have any comments to make on
that? , ,,
Mr. Cohen. Well, because of the time I think I should not make
any comment at this time. I would hope that Mr. Mann would some
day have lunch with me and we can go over some of these things to-
gether and maybe I can give him a little better understanding of what
I am saying and maybe he can give me a little better understanding
of what he said.
Mr. Mann. It will be my pleasure.
Senator Nelson. The closed session of the Senate has been canceled,
so you can proceed with this statement.
Mr. Mann. Fine. We were talking about price performance and how
this benefits the consumer, Mr. Chairman. And I have just pointed out
that according to the price index, the price of new cars — and this is
one way of judging the quality of competition— hase risen very, very
little in a time of inflation and at a time when other costs are rising.
In contrast with the 1.8 percentage increase in the car price index
since the 1957-59 base period, official indexes show the following in-
creases in some important elements entering into the cost of manufac-
turing an automobile: Iron and steel, up 10 percent; nonferrous
metals, up 34 percent; ^lass, up 15 percent; metal working machinery,
up 32 percent commercial and factory buildings, up 45 percent; aver-
age hourly wages in motor vehicle manufacturing, up 55 percent.
Another way of looking at performance in price would be to com-
pare the average price actually paid for a new car. I mean by that
with today's inflated dollars as compared with dollars of more value
some few years ago. Based on Survey Research Center data, average
expenditures for new cars have increased by only 1.2 percent per year
between 1959 and 1968. This increase does not take into account in-
flation or the general improvement in the quality of cars (for ex-
ample, a better laminated windshield) or the increase in equipment
features on the car (for example, the rate, of installation of air con-
ditioning in new cars — and I believe they sell for around $400 per
unit^-has risen from 6.2 percent in 1959 to 43.3 percent in 1968).
I think that is a remarkable achievement in price performance.
As I understand the record of these hearings, the critics have not
contended that the industry has a poor price performance record.
Rather they speculate that it could have been better. And they seem
to be saying that automotive prices are not ultimately determined in
the marketplace but are contrived in advance by manufacturers. One
suspects that this thesis is, in part at least, the result of a lack of under-
standing how the industry' actually operates in the real world. While
I have no firsthand knowledge about individual company product
development or pricing procedures, it is common knowledge that it
76
takes 2 to 4 years to design, develop, and produce a new model auto-
mobile.
In considering whether a new model should be produced, any man-
ufacturer obviously must consider a number of factors. He must con-
sider whether the proposed new model offers something to the public
which his prior offerings and his competitors' products do not have.
He must estimate the level of customer demand for the new product.
And because of the "leadtime*' involved, he must attempt to antici-
pate what changes there will be in customer j>references in this inter-
val. He must guess what his competitors will be offering when he
offers his new product. He must determine whether new technological
developments can be relied upon to reduce cost. He must attempt to
estimate the future levels of personal income and take into account
general economic trends which may affect sales.
Obviously, many of these estimates involve subjective judgments
which can neither be proved nor disproved in advance. These and the
size of the capital required to bring out a new model help to explain
why this is a high risk industry. Even more important, the manufac-
turer knows that most of his potential customers now have cars and
do not have to buy any new car — that they will not buy unless they
are offered a superior product at an attractive price. There are no pat
formulas for success as the failure of many automotive manufac-
turers and the sifting fortunes of those who have survived (which I
shall refer to later) attest to.
At any point during this process, a company may well conclude
that its hoped for new model will not sell or will not sell at a price
which makes its production worthwhile. Under these circumstances,
the model may well have to be dropped. All of the time, effort, and
money expended upon it may be lost. However, let us assume that a
manufacturer has surmounted these difficulties, developed a new
model and initiated production. Tlie next step is to make a decision
as to the price which will be asked for this new product. This is not a
"fixed" price. It is an initial offering price arrived at after consider-
ing all of the factors which are important in the marketplace.
No manufacturer can price his product much above comparable
models of his competitors without diminishing his own volume of
sales. I do not think this is unique to the automobile industry. I think
it applies to chewing gum and everything you buy in the stores. The
prices for competitive products are more or less the same and this is
the way the competitive system is supposed to work, as I under-
stand it.
Likewise, there are limits to a manufacturer's ability to reduce
prices to meet competition and still, risks considered, make a profit
adequate to attract investors.
I have tried to describe some of the factors which must be con-
sidered by a manufacturer in arriving at the initial offering price. It
may happen that this price is not competitive. Mistakes in judgment
may have been made. Or conditions may have changed.
In 1958 imported cars demonstrated a demand for smaller cars.
American Motors responded with its Rambler, the first American
compact. Other domestic producers followed with their compacts. In
1967, in response to a resurgence of foreign car sales American Motors
sharply reduced the price of the Rambler American to a position
midway between domestic compacts and imports.
77
The recent introduction by Ford of the Mustang and then the
Maverick are other examples of changed conditions. The Mustang
forced other manufa<!iurers to react^for example, GM brought out
the Camaro and the Firebird and American Motors brought out
the Javelm. Tlie Maverick was, in part, a response by Ford to for-
eign competition to which all U.S. manufacturers are subjected.
Chrysler, responding to the Maverick, recently substantially reduced
the price of its Valiant in order to improve its competitive position.
(I do not know what the price reduction was. I do not remember off-
hand but I read in the paper aromid $180 or something of that kind.)
For sitoilar reasons, GM reduced the price of its Nova relative to
other cars at the beginning of the 1969 model run.
Another example of competition in offering price — and I cite the
same one that my friend on my left cited to prove exactly the oppo-
site thesis : In 1968 GM's list prices for its 1969 models were lower
than those announced earlier by Chrysler for its 1969 models. Shortly
thereafter Chrysler reduced its prices. And I think this is for obvious
reasons.
In addition to this kind of price competition, manufacturers en-
gage in price competition with each other during the model year
through incentive programs to salesmen and dealers. Many of these,
by in effect reducing manufacturers' prices to dealers, enable dealers
to sell to the customer at a lower price. As the records of these hear-
ings show, these incentives vary from small amomits per unit to $400
or more. Programs of this kind are frequently reported in the trade
press. I have here a number of press clippings describing them which
the committee may wish to see. I have ho objection to the inclusion
of these in the record if the committee so desires,
I think again that
Senator Cook (presiding) . Without objection, we will just put them
into the record.
Mr. Mann. Fine.
(The articles referred to follow :)
Exhibit 11
(Automobile Manufacturers Association's exhibit No. 1: Article by Douglas
A. Condra, "9 Car Divisions Offering Incentives to Spur Sales," Automotive
News, May 27, 1968)
9 Cab Divisions Offering Incentives to Sptjk Sales
(By Douglas A. Condra)
Nine of the auto industry's 10 divisions are currently offering sales incentives
programs to dealers, sales managers or salesmen. Cadillac is the only division
without a contest in progress.
Chevrolet, Pontiac, Oldsmobile and Lincoln-Mercury are conducting cash and
merchandise contests for salesmen only. Buick, Ford Division, Dodge and
American Motors are offering dealers, sales managers and salesmen such prizes
as trips, merchandise or cash, and Chrysiler-Plymouth has contests for dealer
trips and salesmen's cash awards.
One Dodge program involves rebates on ears ordered between May 1 and
July 31, and Ford Division is paying rebates on Mustang and standard-size
models.
Dodge has a dealer purchase qudta plan in which a dealer must buy a required
number of ears from the factory to be eligible for rebates on retail deliveries.
78
The rebates are set at three levels. Level 1 : Dart, $10 ; Coronet and Charger,
$15; Polara, $20, and Monaco, $25. Level 2: Dart, $15; Coronet and Charger,
$22.50 ; Polara, $30, and Monaco, $40. Level 3 : Dart, $20 ; Coronet and Charger,
$30 ; Polara, ^0, and Monaco, $55.
Wo qualify for Level 1, a dealer must purchase and accept his May quota by
May 31 and his June quota by June 29. He may then qualify for Level 2 by
purchasing his July quota by July 31. To reach Level 3, he must buy his July
requirement plus 25 percent of his three-month total objective by July 31.
Rebates on car bought under the program will be effective for the rest of the
model year.
The Dodge "Swing in Spring" sales managers' contest, April 21-July 10, is a
two-phase plan offering 75 two-day trips to Houstin for leaders as of June 10,
and 75 four-day trips for two to Montreal as grand awards.
rrhe Dodge salesmen's incentive program. May 11-July 10, offers factory cash
awards to the top three salesmen in each participating dealership. The dealer
equals the factory money in a contest of his own choosing.
Chevrolet is staging its traditional May-June "pots and pans" program for
salesmen on all new cars. Objectives are set for each salesman, who works for
merchandise prize points.
A salesman begins receiving points after he achieves one-third of his objec-
tive, and the point award increases as sales go up. If he achieved one-third
of his objective in the first 10 days of the contest, his wife was awarded bonus
points.
A conquest deal, in which a standard Chevrolet is sold and the tradein is a
standard Plymouth or Ford, nets the salesman additional bonus points.
Dealers and their wives stand to benefit from the contest, with the top 500
dealers in the country winning a week's trip for two to Hawaii. Over 800 sales
managers will win a five-day trip to Puerto Rico, or the value of the trip in
prize points.
Pontiac's "Go-Getter" contest, which started May 11 and ends July 10,
provides cash-award opportunities for salesmen on cars in their dealership's
stocks at the time the contest started. When a salesman sells such a car, his
name is sent to his zone office and he becomes eligible for cash drawings.
Oldsmobile is conducting a "Go for Dough" contest for salesmen and sales
managers, which started May 1 and lasts through July 10. Each dealer provides
$4 per car in his objective.
The entire program is said to involve a total of $1 million. Dealerships are
divided into groups in their zones, and salesmen and sales managers compete
for cash put up by their own dealerships, plus a portion of the factory cash,
which is determined by a dealership's i)erformance against its quota. Dealer-
ships share in the division jackpot, which is also determined by performance.
Buick's incentive program, which started March 21 and lasts through June 30,
awards week-long Hawaii trips to dealers and three-day trips to Flint for sales
managers and their top salesmen. There are also merchandise prize points for
salesmen.
There are 220 dealer groups competing for contest points, with the highest
over his objective each month receiving 10 points, the mnnerup receiving 7
points, and so on. Sales managers, divided into 100 groups, compete on a similar
basis.
Dealerships ftirnish $5 per unit in the salesmen's objectives, with the money
awarded as the dealer.
One Ford Division cash return program for dealers is a March 1-May 31 plan
on Mustang. A dealer receives $40 per unit on sales between 51 and 100 percent
of his objective and $70 per car sold over 101 percent of his objective. A fast-
start feature for dealers who hit 100 percent of their April 10 objectives pro-
vides an additional $10 per unit on cars sold after 101 percent of the full contest
objective is reached.
The second cash reltum plan, effective April 1-May 31, involves standard^size
Fords. A dealer gets $45 per unit on sales between 51 and 100 percent of his
objective ; $75 per unit on those between 101 and 125 percent, and $125 per unit
after he reaches 126 percent.
Dealers who hit 100 percent of their April objectives and also hit 101 percent
of their full contest objective get an additional $25 per car sold after reaching
101 percent. If such a dealer hits 126 percent of his overall objective, his total
cash return on cars sold after that is $150.
79
Ford's program, for sales managers (March 1-May 31) and salesmen (April 1-
June 30) Involve both cars and trucks and are based on percentage of achieve-
ment of objectives.
Three sales managers in each dealership group will win trips, with the top
man taking his choice of Hawaii, Puerto Rico or Las Vegas, the runnerup
choosing from the two that are left, and the third-place finisher receiving the
remaining trip. Leaders on April 10 won trips to the Indianapolis 500 race.
The "Switch It On" salesman's contest offered by Ford has a top prize of an
ocean cruise, and a number of merchandise prizes.
Lincoln-Mercury's Spring Sports Bingo contest for salesmen is identical to
one conducted last year. It started April 1 and will end May 31, and offers cash
awards of $5 to $20 per car to salesmen on all L-M lines except Mark III.
Each salesman has a bingo card bearing 25 spaces, and each car he sells
accounts for one square. He receives the $5-per-car payment after four squares
are filled, and his award grows as more are filled.
If a dealership makes 100 i>ercent of its objective, the dealer is required to
pay only 25 percent of the salesman's awards, while those not making their
objectives pay 50 percent.
Chrysler-Plymouth's "Step up the Beat" program, which runs from April 24
through June 30, involves all lines. The 15 top volume dealers and 165 dealer
group winners will receive a three-day trip to New York for the premiere of 1969
models, followed by another three days in Montreal.
A fast-start feature provides three-day regional trips to the 15 volume leaders
and 165 group leaders at the end of May. C-P salesmen are competing for cash
awards on a point basis.
American Motors has three plans under way — two of them strictly for sales-
men. The first, offers a $20 cash bonus to salesmen for the sale of each Rebel,
Ambassador or Javeline built prior to Jan. 1, 1968.
The second, effective for the month of May, offers another $20 to salesmen
for the sale of any Javelin.
The third program, in effect May 11-June 30, offers a trip to Puerto Rico for
dealers, weekend trips for sales managers and merchandise prize points for
salesmen. Top-volume dealerships in each group will win the trips. Salesme^n
who delivered up to five cars in the first 10 days of the contest receive bonus
points for each car they sell after that.
Exhibit 12
(Automobile Manufacturers Association's exhibit No. 2: Article by I>ougla& A.
Condra, "Sales Incentive Contests Spon.sored by 8 Divisions," Automotive
News, January 27, 1969)
Sales Incentive Contents Sponsored bt 8 Divisions
(By Douglas A. Condra)
Sales incentive contests, most of them aimed at building momentum through
the rest of the winter, are being conducted by eight of the domestic auto indus-
try's 10 divisions.
Some contests are designed to clean up the few remaining unused 1968 models
in dealer stocks, and others are pushing '69s built early in the model run.
At Greneral Motors, Chevrolet has a plan in effect which carries travel awards
for dealers and merchandise prize points for sales managers and salesmen.
Pontiac is offering cash awards to salesmen and savings bonds to sales managers,
and Oldsmobile is conducting its traditional prize points contests for salesmen.
Cadillac and Buiek are ndt offering incentive plans.
A Ford Division program has travel awards for dealers, and Lincoln-Mercury
features cash awards for salesmen on Montegos.
Chrysler-Plymouth and Dodge Divisions have similar wholesale-retail cam-
paigns offering cash payments for qualifying dealerships, and are winding up
programs which offered trips to dealers and sales managers.
American Motors dealers and sales managers may win trips under the current
plan.
Chevrolet's "Selling Showdown," which includes used cars, runs from Jan. 1
to Feb. 28 and is divided into three periods. The first, Jan. 1-20, was used to
80
determine the number of points per unit a salesman can win in the second
(Jan. 21-Feb. 10) period.
The more oars he sells, the higher his point rate will be.
The number of cars he sells in the second period gains him actual prize points,
in addition to determining his point rate for the third period. Double-point credit
is given on new Camaros, staition wagons, convertible®. Chevy Vans, CE-20 and
CS-20 Series pickups and Suburbans, and some dealer-designated used units.
The sales manager receives prize points equaling 10 percent of his sales force s
total. , , . ..
The dealer travel award, given according to percentage over sales objective, is
a "Jet Set Holiday" trip to San Francisco, from where the dealers may be flown
daily to various pleasure spots and returned to San Francisco each evening.
Chevrolet and the dealers share equally in the cost of the contest, and a dealer
may earn up to half his investment back by exceeding his objective. The dealer's
entry fee is $45, not subject to recovery.
Oldsmobile's contest— its usual early-year program— provides prize points for
salesmen on retail delivery of any new Oldsmobile model. It started Jan. 1 and
rims through Feb. 28. -r^ , „
Four Pontiac incentive programs^all carrying "The Great Pontiac Breakaway
theme, are underway.
One plan which applies to Custom S. LeMans, Catalina and Bonneville models
other than station wagons and convertibles, provides a $50 bonus to the dealership
for each car sold with specific equipment. It is in effect Dec. 21 -Jan. 31. The spec-
ified equipment includes Cordova top, front disk brakes, custom wheel covers and
remote control deck lid.
A sales managers' contest, also running Dec. 21-Jan. 31, provides a savings bond
for the winning manager in each of several groups of dealerships. It is based on
best percentage over sales objective and does not include fleet sales.
A third contest, in effect Jan. 1-Feb. 28, provides the dealer with a mailing list
bearing names of multiple-car owners of comi)etitive makes. A salesman receives
a $25 cash bonus from the factory for each new Pontiac he sells to anyone on the
mailing list.
The fourth Pontiac program, involving optional dealer participation and no fac-
tory money, is aimed at moving older unused cars in dealer stocks. It provides
cash bonuses for salesmen on any 1969 model, except Grand Prix, built before Nov.
1 and in stock on Dec. 21. Bonuses are set by the dealer. The plan ends Jan. 31.
Ford Division is conducting a national program featuring a week's trip to Ha-
waii for dealers and wives. Dealers are divided into groups, with some competing
against objectives and others competing against each other. The dates are Jan. 1
to Feb. 28.
The division's 35 districts are conducting various contests for sales managers
and salesmen, most of which feature cash.
Lincoln-Mercury offers cash payments for salesmen on Montegos sold and de-
livered from stock. The contest started Dec. 1 and was due to end in December,
but was extended through January. The payments start at $25 for the second car
sold by a salesman, and increases with each unit to $60 per car for nine cars or
more.
Chrysler-Plymouth is conducting a "Great Sale Bonus" program, which started
Jan. 1 and runs through April 30. It has two phases — a wholesale phase involving
cars purchased by the dealer from Jan. 1 through March 31, and a retail delivery
phase involving new 1968-69 models sold from Jan. 1 through April 30.
Three levels of cash payments are provided on retail sales for dealers who
qualify by buying specified numbers of wholesale units.
Level 1 payments^— Valiant, Belvedere, $10 per unit; Barracuda, $20; Fury,
$15, and Chrysler, $15.
Level 2— Valiant, Belvedere, $20 ; Barracuda, $50 ; Fury, $30, and Chrysler, $35.
Level 3— Valiant, Belevedere, $30 ; Barracuda, $75 ; Fury, $45. and Chrysler, $50.
To qualify for the first level in January, a dealer must buy 25 percent of his
total wholesale objective by Jan. 30.
If he does not qualify in January, he may become eligible for first-level pay-
ments in February by buying 55 percent of his total objective by Feb. 27. However,
payments under the circumstances are not retroactive to January sales.
He may also qualify for the first level in March or April by buying 80 percent
of his objective by March 29, but here, again, payments are not retroactive to
January or February.
To attain second-level payments, a dealer must increase his units from 100 to
124 percent of his total wholesale objective by March 29. He may qualify for the
81
third level by increasing his units to at least 125 percent of his total objective by
March 29.
Qualifying dealers will earn a $50 r)er unit bonus for retail delivery of any 1969
Fury or Chrysler with a shipping order indicating the car was scheduled for pro-
duction prior to Nov. 1, 1968.
"Dodge Fever Booster '69," a program similar to that of Chrysler-Plymouth's,
also runs from Jan. l-April 30.
Dodge's level 1 payment — Dart, Coroneit, Charger, $10 per unit and Polara,
Montaco, $15.
Level 2— Dart, Coronet Charger. $20 ; Polara, $30, and Monaco, $3o.
Level 3 — Dart, Coronet, Charger, $30 ; Polara. 45, and Monaco, $50.
American Motors' "Sell-In '69" new-car plan, which ends Feb. 28, offers an eight-
day cruise of the Rhine River in April for 300 dealers and wives. Sales managers
may win five-day trips to Nasi^au or to Mexico City.
The trips will be awarded on the basis of percentage of new-car sales over as-
signed quotas.
Exhibit 13
(Automobile Manufacturers Association's exhibit No. 3 : Article by Douglas A.
Condra. "Eight Divisions Offer Incentives to Spur Sales — Factories Expected
to Further Loosen Purse Strings," Automotive News, May 26, 1969)
Eight Divisions Offesi Incentives to Spur Sales — Factories Expected to
Further Loosen Purse Strings Soon
By Douglas A. Condra
Eight of the U.S. auto industry's 10 car-making divisions are offering incentive
programs to their dealers in an effort to spur lagging new-car sales.
All but American Motors and Cadillac have at least one incentive program
going for dealers. Most of the campaigns are annual affairs at about this time of
year, but there are some specials designed to trim the industry's huge stockpile
of new cars. More such special programs are expected soon.
Some dealers have been caught in a pinch between the factory — which may
have built too many cars — and the customer, who appears to be reacting to
government efforts to curb inflation by not spending his money.
The super-competitive market this spring has placed a strain on dealers who
did not plan correctly. "It's been a dilly," said one veteran Chrysler-Plymouth
dealer. "We've had to outguess the factory, the competition and the customer.
The sales contests are vicious now compared with a few years ago. They used to
be designed just to sell a few extra cars."
Both Chrysler Corp. divisions are conducting annual buy-and-sell incentive
programs for their dealers. Chevrolet and Buick have annual contests in prog-
ress, and Pontiac is offering bonuses on cars in stock built before April 1. Olds-
mobile, Ford and Lincoln-Mercury Divisions are offering plans which provide
trips, prizes and cash awards.
AMC recently made a special mailing to sporty-car owners, offering them $100
off on the price of a new Javelin. "We don't have any contests going now," said
one Rambler dealer, "but when the IBM cards start slowing down, somebody
in central office is going to say, 'let's give'."
Dodge's traditional buy-and-sell program — this year called "Clean Sweep" —
involves cash payments to dealers if they meet purchase quotas, and additional
payments if they meet sales quotas before the 1970 new-model introduction date.
The campaign, which started May 1, will end on announcement day, at which
time the factory's 5 percent rebate for cars in dealer stocks takes effect.
Payments are set at several levels. Under the buy program, they start at $10
per car for Dart. Coronet and Charger and $20 for Dodge. Payments at this
level are to dealers who buy up to 100 percent of their purchase quota.
A dealer in this category may qualify for $10 payment on the sale of any car
after he sells 51 percent of his buy quota. After he sells 75 percent of the quota
he receives $15 for Dart, Coronet or Charger sale and $20 for each Dodge sale.
If he sells over 100 percent of his quota, the payments are $25 for Dart, Coronet
and Charger and $40 for Dodge.
To achieve maximum payments in the program, a dealer must buy over 125
percent of his assigned quota. He then qualifies for a $20 payment on Dart, $30
on Coronet or Charger and $50 on Dodge.
82
On the selling end, such a dealer receives $25 for any car sold after he sells 51
percent of his quota. After 75 percent is achieved, he receives $45 for Dart,
Coronet or Charger and $60 for Dodge, and after 100 percent of quota, he gets
$75 for Dart, Coronet or Charger and $140 for Dodge.
The payment levels are not retroactive. A similar plan, with different payment
levels, is offered on Dodge trucks.
Dodge is also conducting a "Grand Slam" contest — a three-phase program
involving trips for dealers and sales managers, prize drawings in the five Dodge
sales areas and salesmen's prize points. It started March 21 and will end June 30.
Chrysler-Plymouth's buy-sell campaign, called "Twin Double," involves pay-
ments to dealers on a basis similar to the Dodge campaign, but the buy portion
involves only Fury and Chrysler cars.
If the big-car buy quota is met by a dealer, he becomes eligible for rebates on
Belvedere and Baracuda. Valiant, which underwent a recent price cut and
dealer discount reduction, is not included in the program. Plymouth dealers were
to receive rebates for Valiants in inventory, constituting the difference between
the new and old wholesale price.
Under the C-P plan, payments on Fury and Chrysler start at $20 per unit after
a dealer buys 80 percent of his purchase quota and sells 50 percent of his selling
quota.
If he buys 80 percent of his purchase quota and sells 100 percent, he gets $60
per car for Fury and Chrysler, and if he buys 100 percent of his purchase quota
and sells 100 percent, he gets $120 per big-car unit. A dealer who buys 125 percent
of his purchase quota and sells 100 percent receives $190 per unit.
Payments on Belvedere and Barracuda start at $10 per unit and range up
to $80 per unit.
A March-June contest, "Action-Time, '69," is also under way at C-P. Based
on sales objectives, it offers 10-day international trips for winning dealers and a
fast-start trip to Montreal. Prize points are available for salesmen.
Lincoln-Mercury's three programs include an "Indy 500 Pari-Mutuel" for
salesmen, under which a salesman receives a $15 "share" for sale of any full-
size Mercury. He then selects the Indianapolis driver he thinks will win and,
if the driver wins, the salesman collects the $15 share. The contest started May
11 and ends May 31.
Another L-M plan involves bonus payments for sales of Mercury line cars
built before January of this year. Dealerships must hit 80 percent of assigned
objectives before they can collect bonus payments.
The third contest, "Write Your Own Ticket to Palm Springs," offers trips to
the resort area to the top 20 selling dealers from April 11-June 30.
Lincoln-Mercury recently ended enother program under which salesmen
received trading stamps for any car sold.
Ford Division is conducting a "Maverick Gold Rush" program for salesmen
and sales managers on Maverick "companion" units, which include all but top-
of-the-line, wagons and Maverick.
The April-June program offers bonus points to salesmen, who work on a
volume basis, for sale of such units. Sales managers receive a percentage override
on their salesmen's bonus points. Prizes may be taken in cash, merchandise
or trips.
Dealers participate in the program by furnishing up to 50 percent of the prize
funds. A dealership's contribution can be reduced to as low as 25 percent if it
achieves a total car-truck sales quota.
Ford also offers free floor planning on any Thunderbird invoiced after May 1,
and a rebate plan ranging up to $200 on any T-Bird on quota.
Chevrolet's yearly May-June program, entitled "Pacesetters Sale," to tie in
with Camaro's role as the Indianapolis 500 pace car, offers trips to Mexico City
and Acapulco to winning dealers, other resort trips to new and used-car sales
managers and prize points for salesmen.
Pontiac's bonus plan offers the salesman $25 on his second sale of any car in
stock built before April 1, and $50 on any such car sold thereafter. The contest
runs through May.
Buick has its usual "Rivera Club" plan going, offering salesmen who sell three
Riveras in an alloted time a chance to win an Opel GT and cash awards. Buick
recently wound up its 100-day contest, under which half the sales force of each
qualifying dealership attends a special "stag day," at which they may draw for
runs through May.
Oldsmobile's March 21-June 10 contest offers trips to dealers and prize points
to sales managers and salesmen after they reach assigned sales quotas.
83
Exhibit 14
(Automobile Manufacturers Association's exhibit No. 4: Article, "More Contests
to Exhort Dealers," Ward's Automotive Report, March 17, 1969)
More Contests To Exhort Dealers
Chrysler Corp. during March-April has upped the anite to $75 per unit from
$59 announced previously for the sale of each car of certain of its makes built
prior to Nov. 1, 1968, and delivered in the program period. In addition, GM has
launched a Camaro contest for its salesmen, Chevrolet an incentive for Chevy
Van sales during Mar. 1-^June 30 if a competitive truck is taken in on a trade,
and Pontiac a $25 per unit ineenltive for Firebird. In a Feb. 21-May 10 cam-
paign Pontiac Div. dealers compete for cruises, and GMC Truck & Coach dealers
Mar.l-June 10 compete for trips.
Exhibit 15
(Automobile Manufacturers Association's exhibit No. 5: Article, "Chevy Has a
$2,000 Car, II !", Ward's Automotive Report, April 7, 1969)
Chevy Has a $2,000 Oar, II!
Chevrolet Div. for April has what is tags as a "Special Value Program" for
the Nova, formerly known as the Chevy II.
Under the program Ohevy Nova dealers will receive from the factory a $52
discount at the wholesale delivered price level on Novas with four-cylinder
engine. Torque Drive transmission, whitewall tires and AM radio.
What this means is that Chevrolet is moving into concerted action during
competitor Maverick's introductory period with a consumer message that spells
P-R-I-C-E all the way.
Ford will be touting the below-$2,000 price ($1,995) of its new Maverick in an
advertising barrage. But don't be surprised if Chevy dealers take the same tact
with Nova advertising in certain marketing areas in coming weeks. Niova is priced
close enough to $2,000 to get the dealer advertised price down to that level with
some factory encouragement, which it is getting.
Chevrolet's message to potential Maverick buyers : Yes, there is a choice.
This doesn't necessarily mean Chevy will sell a burgeoning number of four-
cylinder Novas, but it does promise more showroom traffic and the possibility of
more sales of six-cylinder Novas and other models.
Exhibit 16
(Automobile Manufacturers Association's exhibit No. 6: Article by Charles B.
Camp, "Auto Economy Kick — More New-Car Buyers Choose Smaller Models
Over Big, Costly Ones — Frugality Traced to Inflation, Tax Hikes; Detroit
Profits May Suffer, Analysts Say — Price Battle Spurs the Trend," the Wall
Street Journal, July 1, 1969)
Auto Economy Kick — More New-Car Buyers Choose Smaller Models Over
Big, Costly Ones — Frugality Traced to Inflation, Tax Hikes; Detroit
Profits May Suffer, Analysts Say — Price Battle Spurs the Trend
(By Charles B. Camp)
Late last year Georgene Schneeberger of AUentown, Pa., bought a 1969 Chrysler
New Yorker with air conditioning, power steering, power brakes and a vinyl-
covered roof. It cost $5,600.
This spring she traded it in on a $2,100 Maverick, the Ford Motor Go's new
small car. The most costly option on her Maverick is a radio ; the car doesn't
even have an automatic shift.
"I did it primarily for economy," says Miss Schneeberger, who is a nurse.
Though she obviously lost a sizable amount on depreciation of the Chrysler, the
32-493 O — 69 — pt. 1 7
84
trade resulted in a sharp reduction of her automotive debt — and a 40Vi drop in
her monthly car payments.
Much to Detroit's distress, a growing number of car buyers are in an equally
frugal frame of mind. Mindful of the pinch put on their pocketbooks by infla-
tion, higher taxes and rising interest rates, many big-car fanciers are turning to
cars that are cheaper to buy and more economical to operate.
COMPACT SALES RISE 25 PERCENT
Of course, few motorists are going so far as to get rid of almost-new cars like
Miss Schneeberger's Chrysler just because they're big. But more and more people
who find themselves in the market for new cars are choosing the smaller, less
costly compact or intermediate models. During first five months of this year,
auto industry figures showed deliveries of domestic compact cars rose 25% over
the year-earlier period while total new car sales remained unchanged. The in-
crease was not at the expense of low-cost imports, moreover ; sales of small
foreign cars are running 5% ahead of last year — while sales of some big American
cars are down as much as 40%.
"The pressure is on the consumer," says David Healy, automotive analyst for
Argus Research Corp., an investment advisory service. "He simply has less money
left over at the end of the month for car payments."
One such consumer is Donald J. Kennedy, a Winter Park, Fla., father of five
who just picked a $3,300 Rambler station wagon over bigger wagons costing up
to $900 more. "I'd like a larger car," he says, "but these days who can afford
one? The price of everything is going up, and recently I got word my property
taxes are going up 25%, too."
The dealer who sold Mr. Kennedy his car says he's hearing such comments
with increasing frequency. "Everyone I sell to these days would buy a larger
car if they felt their pocketbooks could stand it," says the dealer, Raymond
Reed Jr. of Kissimmee, Fla. "But almost nobody is moving up to a larger car
now. They're all moving laterally or down.
REVERSES FOUR- YEAR TREND
Many other new car dealers agree. "Since 1964, the trend had been all toward
large family cars, but about the first of this year things began to reverse them-
selves," says Roy Benson, sales manager of a Seattle Chrysler-Plymouth dealer.
A Detroit car dealer says his sales of full-sized cars have "just about stopped,"
while compact cars now account for close to 40% of his sales, compared with
less than 30% at the start of this year. Medium-sized intermediate models ac-
count for most of the remainder of his sales.
Motorists are learning that buying a compact car doesn't necessarily mean
they have to give up all the comforts ordinarily associated with more expensive
cars. Many are finding they can dress up a small car with optional equipment and
still wind up with a lower price tag than if they had started with a big model.
"They aren't sacrificing the extras; they're saving their money on the base
price of the car," says Walter Creech, general manager of Raynal Brothers
Dodge Inc. in Detroit. He says the average Dart compact delivered by his outlet
carries a price tag of $2,700 to $2,800, compared with about $2,100 for a stripped-
down model. But, Mr. Creech adds, the average dressed-up Dart is still $450 to
$800 less than a full-sized car with typical options.
The savings on operating expenses for those who buy smaller cars can be con-
siderable. Miss Schneeberger, the new Maverick owner, says she used to spend
$5 a week for just enough gasoline to get her back and forth to work in her
Chrysler. Now the same amount of money takes her to and from work all week
and pays for gasoline for weekend excursions as well. "Insurance on the big car
was costing me almost $300 a year," she says. "The Maverick insurance costs
$104."
UNLOADING A GAS-GUZZLER
The prospect of saving on gasoline prompted Phil Boike, a Detroit pipe fitter,
to trade in his 1968 Plymouth Road Runner, a sporty intermediate car, on a
six-cylinder 1969 Dodge Dart for a second car. "That Road Runner was too pow-
erful and drank too much gas to suit me," Mr. Boike says.
Auto makers admit the trend to smaller cars disturbs them. "Everybody makes
more money when the public buys big cars," says one Detroit executive. Analysts
of the industry agree. "This could hurt the industry's profits, especially if small
85
cars continue to sell at the direct expense of big ones," says Mr. Healy of Argus
Research.
Dealers are unhappy, too. Their profit margins on compacts are considerably
smaller than on bigger cars to begin with, and many complain that economy-
conscious car buyers are making margins even slimmer by bargaining harder
these days. "Our gross profit lyer car is reaUy getting skinny," says one West
Ooast dealer. "We have to fight for every deal. People are really price-shopping—
$20 either way can make or break a deal."
Ironically, the industry itself has been encouraging the trend. Since the intro-
duction of the Maverick — ostensibly as an import-fighter — in the low priced
market in mid-April, all four of the big domestic auto makers have been furi-
ously advertising and promoting and even cutting prices of their small cars.
Mr. Mann. To sum up what I have said about price competition at
the manufacturer's level : Prices are not static. The effective price to
the dealer changes in response to changing conditions in the market-
place and the efforts of each manufacturer to increase his sales and
share of the market. These changes benefit the consumer and par-
tially explain the excellent price performance of the automotive
industry.
There are other aspects of price competition that I would like briefly
to refer to.
There is also intensive price competition at the retail level. I do not
think there is any need to describe this in detail. It is a matter of com-
mon knowledge that dealers compete vigorously with others handling
the same make as well as with dealers handling different makes. This
competition at the dealer level is, of course, reflected back to the manu-
facturer. It is a major element leading to the previously described
price competition at the manufacturing level.
There is price competition not only between different makes of new
cars but between new cars and used cars, and I think this is very im-
portant as a self-taught economist. The fact that there is a very strong
used car market in this country which provides direct competition for
new car sales is of considerable importance.
There is also competition between new cars and other forms of trans-
poration and between new cars and nonautomotive products and ser-
vices. A prospective buyer of a new car has a wide range of options.
He may elect to keep the car he has for a while longer. He may decide
to buy a used car. He may decide to do without a car and use other
forms of transportation. He may decide to invest his savings, buy a
house or to take a trip or to do a number of other things. The result
of all this is that each manufacturer is forced to improve his product
and keep his prices down.
At this point, I should say a few words about alleged price "domi-
nance" of the industry by a single company.
It would be wrong to say that the pricing decisions of any one of the
four major domestic passenger car manufacturers has no effect on the
others. In a competitive economic system something would be wrong if
any manufacturer could ignore his competitor's prices and charge
whatever he wished. No one in the auto industry can do this. However,
domestic manufacturers and foreign firms able to ship a substantial
volume of cars into the United States, can each influence prices in a
downward direction. In this sense, they all have "dominance."
If, on the other hand, "dominance" is meant to imply the ability to
raise prices by restricting overall supply, the evidence I have seen
leads me to conclude that no automotive manufacturer has this capa-
86
bility. Should any producer attempt to raise prices by restricting out-
put it seems clear to me that it would be acting against its own interests
because its competitors, having the ability to increase their production,
could quickly fill the vacuum and, in the process, increase their sales
and shares of the market. Self-interest in this competitive setting is
the best price protection the consumer can have. So much for price
competition.
THE DEALER DISTRIBUTIGN SYSTEM
On another area of inquiry, the dealer distribution system, I am re-
sponding here not so much to Avhat we have heard today but to the
questions posed by the chairman. I know of no "artificial" barriers to
entry of new companies into the automobile industry. There are a num-
ber of natural ones in this industry just as there are in others. The most
obvious of these is the existence of efficient competitive firms w4iich
produce superior products. Another is the substantial investment re-
quired for large-scale production of a complex machine. Another is the
teclmical, managerial, and other skills which a large organization re-
quires in order to be efficient. Another is the need for an effective system
for sales and servicing.
If we think of these so-called barriers in terms of producing and
selling an automobile which is inferior in performance and quality
at the price of products now being offered the consumer, they can
be formidable. If, on the other hand, someone comes up with a bet-
ter mousetrap — with a better or lower priced automobile than those
now available — these "barriers" disappear. This appears again to me
to be entirely compatible with the basic principles of our economic
system.
One question posed in this hearing is whether newcomers can mar-
ket their products on their merits.
The answer to this question is, I think, in the affirmative. Manu-
facturer-dealer agreements are nonexclusive: Dealers may and do
sell competitive cars, both within the framework of a single business
at the same location and within the framework of multiple outlets
operated by the same owner as separate and distinct operations. One
company has stated in these barings that of its more than 14,000
dealers, more than 1,600 handle at the same locations new vehicles
produced by domestic or foreign competitors. Another has estimated
that of its approximately 7,000 dealers, around 440 sell cars made by
other manufacturers. Another manufacturer has estimated that of
its more than 6,300 dealers about 1,000 sell cars made by other manu-
facturers. I understand that more than one-fourth of the dealers of the
fourth domestic passenger car manufacturer sell the products of
competitors.
These figures might well be higher were it not for the belief on the
part of some dealers that they can sell more efficiently and effectively
by concentrating on one car line ; and by the belief on the part of others
that the substantial additional investment required to sell and service
more than one line would not be justified by the increase in sales that
might result from selling other products. However this may be, deal-
ers do sell and service competitors' products and also switch from one
manufacturer to another.
Good dealers, like other good businessmen, are hard to come by.
There is competition among manufacturers for dealers able to sell
87
cars and to keep their customers satisfied by providing good service.
Manufacturers give careful consideration to the advice and counsel of
such dealers.
The contention seems to be that notwithstanding the freedom of
dealers to sell a competitor's product their wills are forced by "pres-
sures" of manufacturers. Perhaps what is needed is a generally ac-
cepted definition of the word "pressures." What one person may con-
sider the exercise of his legitimate right to stress the merits of his
product and to promote its sale may be regarded by another as a cam-
paign to force the will of dealers.
Nothing that I have seen and read in the press in my two and a
half years with the association leads me to believe that dealers are
timid about pressing their own independent points of view or de-
fending in various forums what they consider to be their own indi-
vidual rights and interests. They have what appears to me to be a
very active, articulate, and effective national organization. Now, since
I have been enlightened by Mr. Cohen, I will say they have at least
two.
Mr. Cohen. Thank you.
Mr. Mann. The dealer system is not based simply on an abstract
idea about how to market cars. Other methods have been tried. The
present system evolved to meet a number of legitimate needs:
The need, and I mean of manufacturers, for dependable local busi-
nessmen capable of marketing in their communities a complicated, ex-
pensive machine under intensely competitive conditions ;
The need for dependable local businessmen capable of providing the
facilities, equipment and mechanical skills necessary to service a prod-
uct which is not only complex but highly mobile ;
The need for local businessmen capable of jjroviding information
concerning current and probable future demand for automotive prod-
ucts to manufacturers engaged in high-risk, large-scale production
operations.
It is not an accident that the dealer system has been adopted through-
out the world by major automotive manufacturers, both domestic and
foreign. And I think I have already said that I believe nobody is more
interested in perpetuating the independence of dealers than the manu-
facturers themselves.
The distribution system does not, of course, guarantee success for
either the manufacturer or the dealers. Efficient systems did not pre-
vent the discontinuance of the DeSoto, the Edsel, or the Corvair. A
distribution system will not make up for a product which consumers
are unwilling to buy. It is rather a system which, up to this point in
time, automobile manufacturers have found to be the most efficient and
effective way to distribute and service their products.
A newcomer to the manufacturing industry is, however, not obliged
to use the existing dealer network. He is free to market and service
his cars in any way he chooses. He could decide, for example, to dis-
tribute and service his product through a large retail chain enterprise
which sells a variety of products. And I have reference there to Sears
and Montgomery Ward or any number of firms of that kind. He could
decide to establish his own independent dealer network as German
and Japanese manufacturers have recently demonstrated can be done
in a relatively short period of time. He is free to convince franchise
88
dealers handling his competitors' products that they should also dis-
tribute his product— or to convince them that they should handle only
his product. He could sell directly to retail buyers or distribute only
through factory-owned retail outlets.
Now, Mr. Chairman, I pass to the question of the number of com-
petitors or concentration that we have heard about, and
Senator Cook. Excuse me just a moment.
Mr. Chairman, are we going to complete this statement ?
Senator Nelson (presiding). I had hoped to rather than adjourn
and come back.
Senator Cook. It was my understanding that the debate on the floor
starts again at 1 o'clock and I would like to be there as soon thereafter
as I could be.
Mr. Mann. I have no objection to finishing tomorrow, Mr. Chair-
man, if that is your pleasure.
Senator Nelson. All right. Why do you not go until 1 o'clock, then,
and you can finish your statement tomorrow.
Mr. Mann (reading).
NUMBER OF COMPETITORS
Prior to the mid-1920's, the high profits made in those years by a
few successful automobile manufacturers attracted a large number
of entrepreneurs. Hundreds of companies failed and in doing so dem-
onstrated that the industry was not only potentially high profit but
also high risk. Those who survived the intense competition presum-
ably did so because they were more efficient and because consumers
chose to buy their products.
The passenger car companies which survived continued to compete
with each other. There are several ways to judge the quality of the
competition among them :
One is the price performance of the industry. As pointed out ear-
lier, this performance record is excellent.
Another way to judge quality of competition is by looking at the
areas of competition between the companies. It would be theoretically
possible, for example, for one company to concentrate its efforts in
producing small economy cars. Another might produce a slightly
larger "compact" car, another an "intermediate" size car and another,
large luxury cars. But instead the companies traditionally have met
each other in head-on competition in a wide range of automotive prod-
ucts. It should be noted that different companies lead in different
product groups. As the record of these hearings show, for example, in
1967 Chrysler led in sales of domestic compacts. Ford led in sales of
domestic specialty cars and General Motors led in sales of domestic
intermediates.
Another way to judge the quality of competition is by the variety
of choice which is offered the public. The more than 360 different
model cars produced by domestic manufacturers offer the consumer
a wide range of choice in product price, in size, functional character-
istics, style and other features. In addition, the options available, in-
cluding some of those mentioned by Mr. Colien, to the consumer pro-
vide him with an almost unlimited number of vehicle combinations to
choose from. It is much more difficult for manufacturers to offer a
89
great variety of models and options than it is to offer a few. The fact
they offer such a great variety is solid evidence of competition.
Another way of judging the quality of competition is by looking
at the industry's record of change and innovation. All anyone has to
do is to compare the automobile of today with those of yesteryear to
see the many improvements that have been made in handling and sta-
bility (for example, lowering the center of gravity and improving
cornering characteristics), in passenger comfort and convenience (for
example, power steering, power brakes, air conditioning, reduction of
noise levels), in materials (for example, high strength fibers, new al-
loys) and in many other areas. I will speak about safety innovations
a little bit later.
This record of continuous innovation is also solid evidence of com-
petition.
Another way to judge competition is by looking at each company's
share of the market. In the post-World War II period General Motors'
share of new car sales has varied from 38 percent in 1946 up to 51 per-
cent in 1954, down to 42 percent in 1959, up to 52 percent in 1962, down
to 47 percent in 1968. Ford's sales, which reached a peak of some 60
percent in the early 1920's, were under 19 percent in 1948, up to over
30 percent in 1954, down to 24 percent in 1968. Chrysler's share was al-
most 26 percent in 1946, down to less than 10 percent in 1962 and up
to over 16 percent in 1968. American Motors' share was about 2 per-
cent in the mid-1950's (prior to its introduction of the compact) , up to
about 7 percent in 1960 and down to about 3 percent in 1968. I would
like to say at this point, Mr. Chairman, that I really do not share Mr.
Hammond's pessimism about the future of American Motors. I know
the people there. The management is really first rate. The engineering
skills are good. They are aggressive, they are confident, and their rec-
ord in the past few months, far from suggesting that they are about
to go under, shows a steady improvement.
Senator Cook. I think the real answer to that question will be
whether American Motors will join Mr. Hammond or stay with your
organization.
Mr. Hammond. May I add that I concur with the judgment of the
management of American Motors and the quality of their product. I
think on all counts that they are great. But I remain with the other
problem.
Senator Cook. Let me get back to this business of competition you
were talking about, the fact that whatever one does everybody else
does and they all stay in line with an intended degree of mediocrity
apparently.
It seems to me none of us had any what is commonly referred to as
the buses until the Volkswagen introduced the bus into the United
States and immediately Ford went into it and Dodge went into it,
General Motors went into it with the Chevrolet, and after Volkswagen
got as much of that market as it could get, it moved to a small station
wagon. So, I think this proves basically the point of competitive
market and the acquisition to that degree.
I passed a note over to the chairman just a minute ago on the research
and development on these projects. I only hope that the overrun on re-
search and development in the automobile industry is not as disastrous
as it is in the Defense Department.
90
Mr. Mann. We cannot afford those kinds of mistakes, Senator, and
still survive.
Thank you very much, Senator.
Every company must earn its place in the market each model year
by competing for customer preference. These changes in the fortunes
of particular companies are solid evidence of competitive striving.
A great deal has been said about the number of domestic manu-
facturers of passenger cars. The correct picture is not of a single giant
towering over three small, weak, defenseless firms. The correct pic-
ture shows four aggressive, experienced domestic producers that, in
the process of competitive striving over the years, have grown into
efficient, innovative corporations. Each is large by almost any stand-
ard. Each believes it has a superior product. Each has confidence in
its future.
The correct picture would also show — and I think this is very im-
portant— more than a dozen foreign competitors. It is quite a bit more
than a dozen. I selected only the 12 largest, each of which is striving
to increase its sales in the United States and other markets. The U.S.
market is especially attractive to foreign automobile manufacturers.
They are highly efficient producers with a high degree of technol-
ogy. They have an advantage over domestic manufacturers in wage
rates. They have an advantage in tariff barriers.
Our tariffs on automotive products, which were among the lowest
in the world, were further reduced in the recent Kennedy round ; yet
our automobile manufacturers have never asked for protection against
foreign competition. By contrast, many foreign countries maintain,
in addition to higher tariffs, formidable nontariff barriers against our
automotive exports.
It is worth while noting, in this connection, that foreign manu-
facturers cite superior technology, managerial skills, and competitive
efficiency of American manufacturers in justification of this lack of
reciprocity — a thesis which is exactly the opposite of a point of view
which has been expressed in these hearings. Partly because of larger
markets created by regional trading arrangements — thereby creating
markets more comparable to ours in size — it is also interesting to note
that the trend abroad is toward larger and fewer, not smaller and
more numerous, automotive manufacturing enterprises, the merger
between Leyland and British Motors is one example but not by any
means the only one.
The passenger car manufacturing industry is in a very real sense
a world industry. Foreign passenger car manufacturers compete with
American manufacturers in all countries which have liberal policies
toward automotive imports. Our domestic market is truly an inter-
national market.
That there is real and effective competition here at home between
foreign and domestic manufacturers is evident from the fact that
foreign manufacturers achieved about 10.2 percent of sales in 1959,
declined to about 4.9 percent in 1962^ — I presume that is because of
American Motors compact and its competition there, and because of
vigorous price and product competition from the U.S. companies as
well — and then they fought their way back to about 10.5 percent of
the domestic market in 1968. In sum, the American consumer may
choose not only from the products of the four domestic automobile
91
manufacturers but from the products of a dozen or more foreign manu-
facturers as well.
I do not mean to imply by all of this that I believe the quality of
competition is determined by numbers. At most numbers is only a sin-
gle criterion and not a very reliable one at that. Contrary to what
some have said, I believe competition can be just as vigorous between
a relatively small number of firms as between a larger number. To the
extent, however, that numbers of competitors have relevance to the
quality of competition, the number in the U.S. market is closer to 14
than to four.
I do not think there is a great deal to be gained by debating theo-
retical concepts about optimum size of manufacturing establishments.
I doubt that anyone knows what the answers are. I especially doubt
whether general theories, intended to apply to all industries, are neces-
sarily applicable to the automobile industry as it actually functions in
the real world. The process of designing, testing, mass producing,
marketing, and servicing a highly mobile machine consisting of 15,000
parts is unique in many respects. The capital required is large. Risks
are high. Managerial, engineering, marketing, and many other skills
are required in depth. Efficient automobile producers are, I believe,
likely to be large in any case.
We can be sure, however, that the risk to our national economic
strength and well-being would be very considerable if the Govern-
ment should attempt artificially to reconstruct the automobile indus-
try according to theoretical concepts. Let us suppose, for the sake
of argument, that governments should artificially fix limits on the
share in our market which any manufacturer could have. Would not
the most efficient few slacken their competitive efforts when they
approached the limits of their allotted share ? What would the incen-
tive be to improve the product or reduce price to the consumer if com-
panies had no hope of substantially increasing sales and profits? What
assurance would there be that price to the consumer would not
increase?
Or let us suppose, for the sake of argument, that having created a
large number of small companies, they were all left free to compete
with each other. What reason would there be to believe that some
would not become more efficient than others? What reason is there
to believe that the less efficient producers would not gradually be
eliminated as they were in the past ? And what reason do we have for
believing that the companies who survived and enlarged their share of
the market would not again be made targets of attack simply because
they had succeeded in producing a better or a cheaper product for the
consumer ?
Do you want to stop here, Mr. Chairman, or shall I go on ?
Senator Nelsox. We will recess until tomorrow morning at 9 o'clock
rather than 10 o'clock. We may have some questions from some mem-
bers of the committee, which you may respond to. If any of you wish
to comment in writing on the statements of the other witnesses, feel
free to do so and it will be printed in the record.
(The following statement was subsequently received pursuant to
the foregoing invitation :)
92
Supplemental Statement of Raphael Cohen, Chairman of Executive
Committee — MIDCDA
/The MIDCDA truly regrets that the afternoon session of the Subcommittee on
Monopoly of the Senate Small Business Committee was curtailed, due to other
pressing Senate business. AVe realize that this was unavoidable. You were kind
enough to give us the opportunity to comment in writing on the remarks and ideas
put forth by other panelists. This paper is that document.
On most of the opinions expressed by Mr. Alexander Hammond, antitrust and
dealer attorney, we are in full agreement. We do believe that he could have been
clearer on the so-called "extra cars".
IThe automobile manufacturer work on a system termed, in accounting circles
as liquidating cost. That is to say that all fixed overhead items are computed
and then this overhead is divided into a fixed amount of production. To translate
into simple terms, if total fixed overhead was one hundred dollars, and this was
divided by a planned production of ten cars, the fixed overhead would be ten
dollars a car. However, were the manufacturer able to build 20 cars, the fixed
overhead would be reduced to five dollars a car, if 40 cars, to $2.50 a car and
so on. Fixed overhead expenses do not fluctuate, they remain constant. So what
we believe Mr. Hammond was trying to point out is that the additional cars over
the figured production bring exceedingly higher profits to the manufacturer.
Now to translate this into retail distribution. If General Motors made $1000.00
per car, and by setting up their own retail distribution they sold 100 additional
units they could not sell through their franchise system, they would realize
$100,000.00 in additional manufacturing profits. In turn, if on the retail level they
lost $300.00 per unit, they would lose only $30,000.00. So you can see that when a
manufacturer sets up his own retail outlets, he can offset retail losses by realiz-
ing higher wholesale profits. His franchisee being only a retail distributor has no
such benefit. Therefore, in competing with his own retail outlets, he can easily
afford to undersell them.
You might ask why then does he not set up his own distribution system and
do away withthe dealer? He desires to make the greatest profit possible, and when
he destroys his own franchise system, he will lose many dollars that he would
not have necessarily had to.
This acts as a price subsidy to his own outlets. We would truly recommend
that this Committee request a full investigation into dual distribution by the
Department of Justice.
Now we would like to pass on to the statement of Mr. Thomas Mann, President
of the Automobile Manufacturers Association, a small exclusive organization
of only 10 members. We find many disagreements with Mr. Mann's statement and
we desire to comment most fully.
We have no doubt that the auto industry contributes greatly to the economic
well-being of this country. Mr. Mann points out all the financial contributions
the industry has made to our society. However, I believe the society has re-
warded this industry with great wealth. General Motors' profits, year after
year, are proof that his members, on the whole, cannot apply for any of our
National Poverty Programs. While on the subject of aflluence, the President
of the Automobile Manufacturers Association left an impression that the ma-
jority of car dealers are millionaires. This is false. The majority of dealers are
hard pressed to show decent returns, and they are far from the wealthy group
Mr. Mann's pronouncements painted. One of the reasons the manufacturers have
found dealers diflScult to obtain, is their own dictatorial attitudes, as made ap-
parent by the terms of our franchise agreement.
I wa'^ truly surprised to find Mr. Mann using the Consumer Price Index
(CPI) figures to illustrate the competitive nature of the auto industry. I
would not doubt that the AMA would be satisfied that the figures show them
not being contributors to the National inflationary trends. However, I really
did not believe that they would want these figures discussed in open forum.
What has the industry done to keep prices down, or rather to convince the
Bureau of Labor Statistics that they have? I am not completely aware of all
the factors, but I do know some which leave the figures open to suspicion :
A. The constant changing of model names, wheelbases and equipment de-
fies any logical comparison with the 1957 to 1959 base used by BIS in ar-
riving at the CPI on cars.
B. Dealer discounts have been lowered, and since dealers operate from
cost upward instead of list downward, this has tended to reduce the Manu-
93
facturer's suggested list prices while increasing dealer and consumer cost.
C. Quality improvements have also received credit by the Bureau of
Labor Statistics. A good sell to the statisticians could accomplish several
satisfactory results for the industry. Since most figures requested' by your
committee, and other committees of Congress, have been held confidential
competitive information by the auto manufacturers, what figures are being
given to the Bureau of Labor Statistics to show their true value?
I am sure that the consumers who have purchased cars over the past 12 years
might find these figures open to severe doubt. As a dealer, I would definitely
doubt the validity of these figures.
I believe it essential to make one clear statement on the role of those who
are responsible for arriving at the CPI figures. At no time am I doubting their
integrity or their qualifications. However, they can only work with figures made
available to them. Corporate secrecy is decreasing the likelihood of arriving at
the best possible figures.
I believe Mr. Mann's interpretation of all critics not questioning the pricing
performance of the manufacturers is not in agreement with mine. General
Motors could reduce prices tomorrow and still sustain their excellent profit
performance. But I believe this would eliminate at least two so called competi-
tors and possibly three. Mr. Mann further stated he really is not totally in-
formed. So why criticize others whose knowledge may be a little better?
On page 6, Mr. Mann illustrates how closely guarded product information is
from one manufacturer to the other. I have found styling over the past five
years to be alarmingly similar. So either the industry contains better "guesses"
than Mr. Mann estimates, or each manufacturer ha's its own agency similar
to the CIA.
On page 8 of Mr. Mann's statement, he makes reference to reductions of
American Motors in the pricing of their Rambler American. American Motors
did reduce the price, but not to the degree of their public pronouncement. The
dealer discount was reduced by half of the decrease announced. So dealers
stopped discounting prices on the model decreased and the consumer savings
were negligible.
On Chrysler's price decrease on Valiants, the practice was very similar.
Chrysler further removed all these models from dealer incentive programs.
These were nothing more than promotional programs.
On dealer incentives, they are not price decreases but promotional devices.
Since incentives have become a part of common yearly practice, I am sure that
corporate accountants have figured them in when costing out their cars.
On page 10, Mr. Mann makes reference to pricing practices on used cars acting
as competition to new cars. The used car purchaser is in a less advantageous
position than a new car purchaser. Comparison from car to car is most diflScult
since a new 1969 Dodge Coronet is the same car in every showroom. To the con-
sumer purchasing a used car, condition, mileage and warranty are substantially
different. The profit on used cars is substantially higher than on new cars. Many
dealers have been sustained and profited handsomely from their used car op-
erations, while carrying the new car department at marginal profits.
Mr. Mann's statements on dealer franchising systems raise some interesting
points. He gives some .statistics on dual franchising. Would the three major man-
ufacturer disclose how many of their products are dualed with their leading com-
petition? That is to say, how many Ford-Chevrolet duals are there? How about
Chrysler-Buick or Mercury-Oldsmobile agencies? Please do not misinterpret
my meaning. I am not proposing that there could be any benefit to the consumer
if there were. But I believe that the figures he has used might lead to some
misconception of the facts as they exist.
While discussing this subject, Mr. Mann speaks of "good dealers." What is
the definition of a good dealer? In recent hearings before Senator Hart's Sub-
committee on Antitrust and Monopoly. Dr. William Leonard made a most
interesting point. He had checked with the Better Business Bureau of Paramus,
New Jersey, and found one dealer had a very poor complaint file. These com-
plaints were for both selling and servicing practices. Yet with this in existence.
Dr. Leonard pointed out that the manufacturer granted this same dealer two
additional franchises. Why? Simple, he was a "good dealer;" he sold a high
volume of merchandise.
Further in the Federal Trade Commission Report on Automotive Warranty,
the FTC reports the companies' admitting the fact that they had not cancelled
94
dealers for poor service performance. To the contrary, their records show cancel-
lation for lack of sales performance.
So it can easily be seen that the use of the title "good dealer" means different
things to the manufacturer, dealer and consumer.
Mr. Mann speaks of dealer pressure. When last has he discussed this question
with a cross-section of franchised dealers? Pressure on the part of the manu-
facturer is sophisticated. A dealer who has to look to one manufacturer for
products has very little leverage. Why have dealers been protesting to this legis-
lative body? Why have State legislatures proposed legislation aimed at giving
more protection from pressure to the franchise holder? I must state that Mr.
Mann is not qualified by his position or direct knowledge to attempt to discuss
this point. Frankly his own admission of the limitations of his knowledge in
general lead me to doubt his qualifications to discuss these problems.
I was indeed pleased to see that Mr. Mann recognizes that there are now two
articulate National dealers associations. It was most distressing to me not be
joined by the National Automobile Dealers Association on this panel. They have
protested in the press about all these things we are discussing. The reason they
chose not to participate escapes me. Certainly they could not be serious about the
reasons they stated in the letter to this committee. For many of the subjects we
have discussed, they have taken public stands.
The president of the AMA states the reasons for the franchised auto dealer.
He further points out that .the American system has been adopted by the foreign
manufacturer. He might have pointed out that it has been copied by other in-
dustries such as the soft ice cream, hamburger, motel and other industries. In fact,
franchising has been adopted as the greatest system to merchandise. It assures
the franchisor captive customers. It allows him to fix his wholesale prices to as-
sure himself maximum profit. It gives him a customer without any other source
of supply, a captive to all the reasons for auto franchising which were not cov-
ered in Mr. Mann's statement.
Mr. Mann has made a feeble attempt to show that General Motors does not
dominate the industry. I call it feeble because it cannot hold up under careful
examination. The 38 percent figure in 194G took an unusual period after World
War II. All autos were in short supply, and there was not one single manufac-
turer who could not market any vehicle on four wheels. Once. the shortage was
over, smaller manufacturers could not keep pace with an integrated giant who
built facilities to manufacture most of its own parts. General Motors could begin
tomorrow to eliminate its remaining competitors. Our antiquated Antitrust laws
are the only thing standing in their path.
In statements by Lynn Townsend, Chairman of the Board of Chrysler Cor-
poration, we are constantly told that we must conform to the patterns set by
the leader. General Motors. This was part of the method used from 1963 to 1968
to increase Chrysler's share of the market. Our own true iimovative contribution
was our extended warranty. Now that it has been duplicated by all of Chrysler's
competitors, it appears to be in the process of being phased out.
On our foreign competitors, it has been the decision not to go after that market.
The domestic auto industry chose not to build a Volkswagen type car, as far as
size and styling goes. It has been the domestic manufacturer who has chosen to
change styles to keep an ever increasing demand for something new. This is not
stated as a criticism, but only as a fact, to point out that the success of the
foreign manufacturers has been partially due to the decision of the domestic
manufacturers not to compete. , . . .c t^ i
It will be interesting to see the effect the soon-to-be-marketed mini-cars of 1 orcl
and General Motors, and I am not making reference to the Ford Maverick, will
have on foreign-car sales. As a Chrysler Corporation dealer, I truly hope we will
again conform and introduce a mini-car. At that point we will be able to ascertain
iust how we will affect the foreign imports. .,, . . ^, . ^i
Competition can be fierce when there are only two entrants. But is this the
competition that benefits the greatest segment of society? I claim it is not. More
competitors makes more meaningful competition. , , .„ , ^^ ^
As far as artificial restructuring of the industry is concerned, I will leave that
up to those whose expertise lies in this area. But the need for new domestic entry
is urgent and some consideration and study is my whole-hearted recommendation.
Mr Mann makes an excellent point of "Macy's not telling Gimbel s, or vice
versa However, I pointed out that the manufacturer insists by contract on this
relationship with its dealers. We disclose our figures; however, we do not re-
ce ve like treatment from the manufacturer. The Justice Department should take
95
immediate action to eliminate the need for dealers to supply their manufacturers
with their operating statements. This committee should institute such a request.
In all, I am in agreement with Mr. Mann on one major point. He is not suffi-
ciently or personally informed to truly discuss the problems that are being dis-
cussed. Some of the representatives of the manufacturers, who sat in the audience
during the hearing, could have spoken from a first hand knowledge. I believe
Thomas Mann to be a man of ability and integrity. However, his position with
the AMA does not qualify him for the role in which he was cast before your
committee.
Senator Nelson. We will recess until 9 o'clock tomorrow morning.
(Whereupon, at 1 :05 p.m., the hearing was recessed, to reconvene
at 9 a.m., Thursday, July 10, 1969.)
THE ROLE OF GIANT CORPORATIONS IN THE
AMERICAN AND WORLD ECONOMIES: AUTOMOBILE
INDUSTRY— 1969
THURSDAY, JULY 10, 1969
U.S. Senate,
Subcommittee on Monopoly of the Select
Committee on Small Business,
Washington^ B.C.
The subcommittee met, pursuant to recess, at 9:10 a.m., in room
G-308, New Senate Office Building, Senator Gaylord Nelson (chair-
man of the subconmiittee) presiding.
Present : Senators Nelson, Dole, and Cook.
Also present : Chester H. Smith, staff director and general counsel ;
Raymond D. Watts, counsel ; and James P. Duffy III, minority counsel.
Senator Nelson. The subcommittee will resume its hearings. Mr.
Mann was interrupted midway through his statement yesterday, so,
Mr. Mann, we will be pleased to have you complete your statement.
If you find it possible to do any summarizing it may be helpful in
terms of our time.
STATEMENT OF THOMAS C. MANN^Resumed
Mr. Mann. Thank you, Mr. Chairman. I think we were down to
the part dealing with the confidentiality of divisional financial data
and product costs.
Senator Nelson. Yes.
Mr. Mann (reading).
THE confidentiality OF DIVISIONAL FINANCIAL DATA AND
PRODUCTION COSTS
The question is asked : Is there too much "secrecy" about internal
financial data of the automotive industry ?
I should first like to point out that there is nothing new about the
fact that "Gimbels doesn't tell Macy's." Automotive companies are
no more secretive about their internal data than other industries and
perhaps less so than most.
There is a great deal of information already available to the public.
Each automotive manufacturer provides annual and quarterly financial
reports and makes reports to the SEC and to the financial com-
munity. The information available to the public includes industry
or company data, or both, on production and sales, investment and
(97)
98
employment, product characteristics and features, and information on
research, engineering, and the production process. A wide variety of
information has been provided the Government over the years.
The question of whether there should be additional disclosure of
corporate financial information with respect to registration statements
is currently under intensive study by the Securities and Exchange
Commission. A large number of business firms, including many asso-
ciation members, have filed extensive comments with the SEC on this
issue. These comments are a matter of public record. In view of these
proceedings, it seems to me premature to debate the question of the
need for more data before we know what additional data, if any, will
be required by the SEC.^
I would be less than candid, however, if I did not question \Vhether
the public interest would be served by disclosing financial data which
traditionally has been considered confidential by all industries. As re-
flected in the comments to the SEC, this is a matter of concern to other
industries as well. I assume that this committee would consider that
all businesses should be subject to the same disclosure regulations.
The disclosure of detailed financial data by a company would enable
competitors to determine its points of weakness and strength. The
competitors could then avoid a competitor's strengths and exploit his
weaknesses. Detailed knowledge of a competitor's cost and profit data
would, for example, assist a manufacturer in making decisions about
his own production of a competitive unit. Accounting methods and
procedures themselves are considered important managerial tools and
proprietary in nature; release of detailed data through which these
methods and procedures could be revealed would be, in my opinion,
undesirable.
The release of confidential data would be especially burdensome for
the innovator. If advantages gained through research, the development
of better management techniques, better cost accounting methods, and
in other ways were revealed almost immediately through the require-
ment of disclosures of detailed data, there would be less incentive to
find ways to reduce costs, increase productivity, improve quality, or re-
duce prices.
It is important to underscore that the competitive position of U.S.
manufacturers would be prejudiced if U.S. companies were obliged to
disclose their costs while their foreign competitors were not. This does
not seem to me to be a prudent thing to do especiallv at a time when
the United States is having balance-of -payments difficulties. I do not
doubt for a minute that our foreign competitors would know how to
use this internal data to their advantage both at home and abroad.
As I understand it, some courts and officials of the Department of
Justice have, in the past, taken the view that, generally speaking, the
exchange or disclosure of cost as well as other internal information by
competitors can lead to less rather than more competition. I would
be surprised, for example, if the Department of Justice would not
attack as anticompetitive any exchange of cost and profit data between
the companies.
It seems to me, in sum, that the public interest in informing inves-
tors, or whatever other advantage might be gained by disclosure in
1 See Appendix VII in Part lA of this record.
99
detail of confidential information, should be balanced against the anti-
competitive effects of such action.
TRAFFIC SAFETY
Now I turn, Mr. Chairman, to the subject of traffic safety.
Last year about 100 million vehicles of all kinds traveled an esti-
mated 1 trillion miles in the United States. There were about 5.5 fatali-
ties for each hundred million miles traveled. Accordinjr to the data I
have seen, this rate is the lowest in the world and considerably lower
than it was in the United States some years ajro. In 1935, for example,
the rate was 15.9 per hundred million miles traveled. Nevertheless, the
rate is too high and there is general agreement that it should be re-
duced. The question is: How can this be done? The Department of
Transportation is, in my opinion, now moving in the right direction.
It has promulgated a number of vehicle safety standards. It has pro-
grams aimed at driver and pedestrian habits. The best available data,
for example, suggests that alcohol is involved in a very substantial per-
centage of fatal traffic accidents. There is evidence that consumption
of alcohol by pedestrians is a significant factor in the number of fatal
pedestrian accidents. The simple use of passenger restraints, which are
now standard equipment on all new vehicles, would probably save
more lives than any other single thing that could be done; yet
reports on the number of people who actually use them is not encour-
aging. Another example : There is a great deal of data which suggests
that a significant percentage of traffic fatalities involve violations of
traffic laws ; better driver education programs and better enforcement
of traffic laws would probably pay big dividends in terms of saving
lives.
There is a respectable evidence that an improvement in the way in-
jured motorists are treated at the scene of the accident and in hospitals
would save a signficant number of lives.
There are also programs designed to save lives by making roadways
safer. The fatality rate on the new Interstate System is, for example,
substantially lower than on roads and streets designed for the horse
and buggy days. Divided lanes, elimination of intersection crossings,
and control of ingress and egress to the roadway partially explain this.
Another example : Since a significant percentage of deaths is caused by
vehicles colliding with a fixed object after they leave the roadway, it is,
I believe, generally accepted that a signficant number of lives can be
saved simply by making roadway signs so that they will "break away"
from their base when struck and by installing safer, and where appro-
priate, energy absorbing, roadside barriers.
Finally, there are programs aimed at assuring the principal safety
features of vehicles in use (the average age of automobiles on the road
is 5 years and many are 10 or more years old) are regularly inspected
and properly maintained. Surely the value of these programs is
evident.
I do not mean to imply, Mr. Chairman, that it is possible to make
accurate quantitative estimates of the number of deaths that are at-
tributable to each of these component parts of an effective traffic safety
program. Much of today's data is suspect and we need, among other
things, to develop a better data collection methodology. There is also
32^93 O — 69 — pt. 1-
100
evidence that many accidents have several ratlier than a single cause.
Nor do I mean to imply that improving the safety feature of vehicles
is not an important part of traffic safety. It clearly is.
Rather, my point is that if we are to succeed in our aim of signifi-
cantly reducing the fatality rate (or the number of fatalities in ab-
solute terms) at a time when our human and car population, and the
hundreds of millions of miles traveled, continue rapidly to increase, it
will be necessary to attack the problem in all of its aspects — the vehicle,
the driver and passenger, the pedestrian, the roadway, the inspection
and maintenance of cars in use, and proper treatment of the injured. By
effectively dealing with one component of the traffic safety problem
we can hope to reduce the rate by, let us say, some 10 percent, by deal-
ing with another component, perhaps another 10 percent, and so on.
The cumulative effect of dealing with each component part of the
problem could, however, and presumably would, bring about a very
significant reduction in the rate.
I wish I could assure this committee that the fatality rate is likely
to be very significantly reduced by concentrating on the vehicle alone,
while ignoring the other important aspects of traffic safety. But it
would be irresponsible for me to do so. There is no evidence that
defects in vehicles — which are properly maintained and used for pur-
poses for which they were designed — cause a significant percentage
of fatal accidents.
Senator Nelson. What was that last statement ? I did not hear the
last statement.
Mr. Mann. There is no evidence that defects in vehicles — which are
properly maintained and used for the purposes for which they were
designed — cause a significant percentage of fatal accidents.
Senator Nelson. I am not sure I understand that. The National
Traffic Safety Council argues, for example, that the use of the seat-
belt substantially reduces injury and death.
Mr. Mann. Yes, sir.
Senator Nelson. Some statistics seem to indicate that about half the
people who are killed in an accident would survive if they wore a belt,
and about half who receive permanent injuries would not receive per-
manent injuries if they used a belt. Are you saying that these kinds
of devices are not an important factor in safety?
Mr. Mann. No, sir. Just a moment ago, I said just exactly what
the chairman has just gotten through saying.
Senator Nelson. Then I do not understand that last sentence.
Mr. Mann. May I explain it, sir. You take a car that is in good
shape and you drive it 70 miles an hour with tires inflated at one-half
of what they should be and you try to take a corner, you will not
have the kind of control that you should have. An automobile is a
very complex machine and it has got to be used in the way that it is
supposed to be used and for the ]^urposes for which it was designed.
Let me give you another example. If you take a station wagon, and
underinflate the tires, drive 80 miles an hour and load it down to twice
the capacity for which it was designed, then obviously you are not
going to have the same kind of control when you go around a very
sharp turn at very high speeds that you would if it weie not over-
loaded and if the tires were properly inflated.
Or take another example. Suppose you have a car that is 10 years
old and the brake linings are worn out and you have not bothered
101
to replace them — to maintain them — and you come to an intersection
where the light is red and you ought to stop but you are unable to stop
and you go through the light and you get hit. So what I am saying
is that excluding that type of thing, either due to failure to maintain
the principal safety features of the car, or failure by overloading or
underinflating tires or any of the other abuses to which cars are sub-
jected, if you eliminate those, that kind of thing, there is no substan-
tial evidence that defects in automobiles are the primary cause of any
significant number of fatal accidents.
Senator Nelson. I do not know what you mean by a defect but let
me give you an example. It has been proven, I guess beyond any
sliadow of doubt, that the automobile industry itself put on the orig-
inal equipment tires which in fact were inadequate to carry the car
and the normal passenger load. That case was proved, although the
automobile industry denied it, when we introduced the tire safety
legislation. The fact is that in the District Court of San Francisco the
expert witness for the defendant, for the defense, said that the tire
that was put on that car, as soon as they had four passengers, the four
passengers in it who were in it and who were injured, that if you drove
it all day long at a normal speed, that at some stage he would "expect
the tire to explode."
In other words, the industry was putting tires on automobiles then.
I think still is, that were inadequate for the purpose for which the car
was designed.
Now, how do you explain that ?
Mr. Mann. Well, Senator
Senator Nelson. In other words, that is a defect in the automobile.
Mr. Mann. Senator, you are telling me about a case that I do not
have any personal knowledge of. What I do know is that there are
standards on tires, there are standards on rims, and those standards
are judged by the Government, and I believe by most knowledgeable
people in the field, to be adequate. We comply with those standards.
Senator. I would like for you to come up and see some of our tire test-
ing facilities in Detroit if you would like to. We go to a great deal of
])ain to try to put the right tire on the right car and they are tested.
They are tested on dynamometers. They are tested under pressure.
Tliey are tested allowing for a reasonable margin of safety.
Now, it is true, and you have seen it and I have seen it, that you can
find station wagons that are loaded far beyond their capacity. A sta-
tion wagon is not a truck and if it is used as a truck, that is not the
purpose for which it is designed. It is not going to be as safe.
Senator Nelson. I am not talking about overloading the auto-
mobile. I am talking about tlie cases that were proved beyond, I
think, a doubt whatsoever, that automobiles — that is the reason this
legislation finally passed. The automobile industry opposed the safety
legislation. It opposed the tire safety legislation. I introduced that
legislation. They came to my office and argued it was not necessary,
but finally the proof came through that original equipment tires put
on according to the specifications required by the automobile manu-
facturers themselves were inadequate. Many of those automobiles were
overloaded the moment you put in the normal number of passengers
for which the automobile was built, and in some of them, without
putting in more than one passenger. That is just a fact that
102
Mr. Mann. Well, Senator, you are talking about a fact or an alleged
fact that you know about and that I do not know about, and let me
say this, that I think the standards, the safety standards, are sup-
ported by the automobile manufacturers. I think they are a good
thing, safety standards, for the reason that the competitive system
works best when it responds to the demand in the marketplace, and
let us face it : There was not any great demand for safety ; that is to
say, a manufacturer who added to the cost of his vehicle by putting
on features which his competitor did not have lost out. This really
is the economic justification for standards. I think that is the economic
justification for standards. I think standards are good.
Now, we have disagreements about cost -benefit problems. We have
disagreements about how you should design a car, perhaps, or what
load weight, and this kind of thing, and I simply do not know about
the particular lawsuit in California that you are talking about. I do
not have any knowledge of that and I cannot respond to that. But I
do know that the companies make a great effort to make these cars as
safe as they possibly can.
Senator Nelson. Well, you raise the question about the driver not
properly inflating his tire. There is no question that many drivers
do fail to maintain their tires properly. A good part of that is that it
is pretty hard to find out from the manufacturer how to do it. It is
lost in the book some place. The safety legislation now requires a
decal put on the dashboard which gives the weight of the automobile,
and so forth. But you raise a question and all I am saying is that the
industry, due to the competition, I assume, has tried to economize
on tires. If you produce 8 million automobiles, you are talking about
40 million tires, and if you put $5 of additional quality into a tire,
you are talking about $200 million, which is a lot of money. But the
facts are pretty clear and I will give them to you, since you represent
the automobile industry and know what the industry has been doing.
They have been putting on tires that were inadequate. After the tire
safety legislation, some standards that are totally inadequate were
established simply because there was a new law. The Department
of Transportation does not have the expertise, and neither have they
received very much cooperation from the industry in my judgment,
in establishing the standards.
But the fact that the public ought to know is that very cheap tires
were put on the automobiles by the industry, a good many cheap
tires that were inadequate, and 1 think the proof is as clear as a bell.
And the industry got by with this for years. It took legislation to
undertake to tackle the problem. When you talk about the driver being
at fault for not inflating his tire, that is correct, but the industry
has been a fault for putting on inadequate tires and in fact, I think
anybody who studied it would say the industry has not done very
much about building safety into the automobile and that is why Con-
gress passed legislation. The public was getting disgusted with the
failure of the industry to assume a responsibility for exactly the rea-
son that you state, that they felt that there was not any demand. In
fact, that is what the industry said repeatedly. There is no gi-eat de-
mand for safety features, and so forth. But they have gotten away
with a lot and I just want to put that in the record at this point. I
will submit that case for the record in which the issue was tried in a
103
lawsuit and proved beyond any doubt, plus some other material that
ought to go in the record at tliis stage on the question of the adequacy
of tires j^ut on by the manufacturers themselves.
(The chairman subsequently submitted the following memorandum
and judicial opinion :)
Exhibit 16A
(Subcommittee chairman's exhibit No. 4 (subsequently submitted) : Summary
of relevant facts and the opinion of the California Court of Appeal, First
District, Division 2, in the case of Barth v. B. F. Goodrich Tire Company et
al., 71 Cal. Rptr. 306 (1968) )
A. SUMMARY OF RELEVANT FACTS
On April 17, 1962, Shirley Barth was killed as the result of a blowout of the
left rear tire of the 1961 Chevrolet station wagon she was driving, with five
women passengers. The accident occurred in San Mateo County, California on a
flat, straight road. Mrs. Earth's husband and the surviving passengers sued
the manufacturer of the tire that failed for her wrongful death and their in-
juries. A jury trial resulted in verdicts and substantial money judgments against
the manufacturer. The defendant tire manufactux*er's expert witnesses, at the
trial, testified that rear tires specified by the automobile manufacturer for the
vehicle in question were 25 percent overloaded when the station wagon was
carrying six 150 pound passengers. The judgment against the tire manufacturer
was aflSrmed on appeal. The opinion of the appellate court follows.
B. OPINION OF THE COURT
(From Vol. 71, California Reporter)
Theodore H. Barth et al., Plaintiffs, Respondents and Appellants, v. B. F.
Goodrich Tire Company, a Corporation, Defendant and Appellant, Perry
& Whitelaw, Inc., Defendant and Respondent
Carole Clark et al.. Plaintiffs, Respondents and Appellants, v. B. F.
Goodrich Tire Company, a Corporation, Defendant and Appellant, Perry &
AVhitelaw, Inc., Defendant and Respondent
[Civ. 23891, Court of Appeal, First District, Division 2, Aug. 27, 1968, Hearing Denied,
Oct. 23, 1968.)
Action against tire manufacturer and supplier and installer for damages sus-
tained as a result of automobile accident that occurred after blowout. The
Superior Court, City and County of San Francisco, Edward Molkenbuhr, J.,
entered judgment against manufacturer but in favor of installer. The manu-
facturer appealed from judgments against it. Plaintiffs cross-appealed from
judgments in favor of installer. The Court of Appeal, Taylor, J., held that, inter
alia, doctrine of strict liability was applicable to installer of tire that blew out.
causing automobile accident, where installer, an authorized disitributor of tires
made by manufacturer, supplied and installed tire in question pursuant to agree-
ment with manufacturer to service manufacturers national accounts.
Judgments against manufacturer affirmed, judgments in favor of installer
reversed.
1. Pleading (3=:>245(4)
Permitting punitive damage amendment after defendant's experts had testi-
fied at trial was not improper in view of 12-day recess proffered to defendant to
meet amendment.
2. Damages <^;z:^215{2)
Showing that tire manufacturer knew of danger of overloading and deliber-
ately neglected, for business reasons, to caution customers and unknowing public,
justified punitive damage charge based on grounds of fraud, malice and oppres-
sion, in products liability action arising from automobile accident that occurred
after blowout.
104
3. Appeal and Error <Q::»1041i2)
While punitive damage amendment should have been limited to nonwrongful
death causes of action, the error was of no consequence since jury allowed no
punitive damages. West's Ann.Prob.Code. § 573 ; West's Ann.Code Civ.Proc. § 377.
4. Death <g=>60
Remarriage of a surviving spouse is not admissible on issue of damages in a
wrongful death case.
5. Torts <S=^lji.l
A manufacturer is strictly liable in tort when an article he places on the mar-
ket, knowing that it is to be used without inspection for defects, proves to have a
defect that causes injury to a human being.
6. AutomoMles 0=^i6
In view of overwhelming evidence that tire was being used as intended, and
had been driven carefully and at reasonable speed, trial court properly con-
cluded that plaintiffs had produced sufficient evidence on doctrine of strict liabil-
ity and properly instructed the jury thereon, in products liability action arising
from automobile accident that occurred after blowout.
7. Trial (^;=^261
The trial court is not compelled to redraft a proposed inaccurate instruction.
8. Trial (Sz^260{3)
General instructions on burden of proof were adequate and correct, in action
against tire manufacturer for damages sustained as result of automobile acci-
dent that occurred after blowout.
9. Automobiles <S;:^16
In view of fact that there was no evidence of any defect in tire known to
motorist, and in view of fact that there was also no evidence of any use of tire
not expressly sanctioned by tire manufacturer, jury was correctly instructed that
contributory negligence of motorist was not a defense to causes of action based
on strict liability, in action against tire manufacturer for damages sustained as
a result of automobile accident that occurred after blowout.
JO. AutomoMles G=>16
Evidence, in action against tire manufacturer for damages sustained as a
result of automobile accident that occurred after blowout, authorized instruction
that a manufacturer and seller are strictly liable when an article they place on
the market, knowing that it is to be used without inspection for defects, has
at that time a defect that causes injury to a human being.
11. AutomoMles c3=:?i6
In view of evidence of tire manufacturer's asserted knowledge that normal
use of vehicle with six passengers would result in an overload that would cause
tires to rupture and its admitted failure to issue any warnings concerning over-
loading of tires, it was proper to give instruction that if directions or warnings
as to use of a particular product are reasonably required in order to prevent
the use of such product from becoming unreasonably dangerous, the failure to
give such warnings or directions, if any, renders the product defective.
12. Sales <^;=^U6(2)
Evidence, in action against tire manufacturer for damages sustained as the
result of automobile accident that occurred after blowout, authorized instruction
on issue of breach of warranty of merchantability.
13. Sales <3=>273(5)
Under statute providing that in case of a contract to sell or a sale of a specified
article under its patent or other trade name there is no implied warranty as to
its fitness for any particular purpose, the mere description or ordering of an
article by its trade name is not conclusive if other conditions exist that would
raise an implied warranty of its character. AVest's Ann. Com. Code, § 231.1.
U. Sales G=^273i5)
In view of fact that purchase of tires was made by automobile owner pursuant
to its national arrangement with tire manufacturer to supply its fleets with
105
tires, implied warranty of fitness was not precluded by reason of fact that
automobile owner had ordered tires by trade name. West's Ann.Com.Code, § 2315.
15. Sales 0=^255
Manufacturer's warranty of tires, if any, extended to passengers wlio were
injured as a result of accident that occurred after blowout.
16. Negligence G:^68
To avoid contributory negligence, one need be only ordinarily careful and
prudent.
17. Automobiles G::::>16
Doctrine of strict liability was applicable to installer of tire that blew out,
causing automobile accident, where installer, an authorized distributor of tires
made by codefendant manufacturer, supplied and installed tire in question
pursuant to agreement with manufacturer to service manufacturer's national
accounts.
18. Torts 0=^14.1
A wholesale distributor who neither manufactures the product nor has posses-
sion of the goods can be held to doctrine of strict liability.
(Key-number headnotes copyrighted by the West Publishing Co.)
<> sN ^ H: 4: :(: *
Hoberg, Finger, Brown & Abramson. San Francisco, for Barth and Clark, and
others.
Sedgwick, Detert, Moran & Arnold, Scott Conley, Bacon, Mundhenk, Stone,
O'Brien & Hammond, AV. F. Stone, San Francisco, for B. F. Goodrich Co.
Low, Ball & Norton, San Francisco, for Perry & Whitelaw, Inc.
Taylor, Associate Justice.
The cross-appeals in this products liability litigation arose from an accident
that occurred after the left rear tire of a station wagon blew out and the car
went out of control, over an embankment and turned over. The husband (Theo-
dore H. Barth) and minor children (William Henry and Julie Lynne Barth, by
their father and guardian ad litem) of the deceased driver (Mrs. Shirley Sue
Barth), and three of the four surviving passengers (Carole Clark, Patrica
Ridgway and Elizabeth Gordon) tiled their respective actions for wrongful
death and personal injuries against the manufacturer of the tire, B. F. Goodrich
Tire Company (hereafter Goodrich), and the .supplier and installer, Perry &
Whitelaw, Inc. The actions were consolidated for a jury trial which resulted
in verdicts against Goodrich of $207,375 for Barth, $6,000 for Clark, et al..
and in favor of Perry & Whitelaw.
Goodrich appeals from the judgments in favor of Barth and Clark, et al.,
contending that the cumulative effect of the errors of the trial court during the
trial and in its instructions to the jury deprived it of a fair trial. Barth and
Clark cross-appeal from the judgments in favor of Perry & Whitelaw, contend-
ing that the trial court erroneously instructed the jury that the strict liability
of Perry & Whitelaw depended on its "sale" of the tire.
As there are no contentions concerning the suflBciency of the evidence, only
those facts i^ertinent to the issues raised are set forth. The facts relating to the
Goodrich appeal and the Barth and Clark cross-appeal are set forth separately.
I. THE GOODRICH APPEAL
TJio facts
Viewing the record most strongly in favor of the judgment, the following facts
appear: On the afternoon of April 17, 1962, Shirley Barth was driving a 1961
Chevrolet six to nine passenger station wagon northbound along the coast high-
way in San Mateo County with five passenger friends. At the scene of the acci-
dent, the coast highway is a flat and straight two-lane road, 32 feet wide. The
speed limit was 65 miles per hour. Just after Shirley Barth had passed the
Pigeon Point lighthouse, the passengers heard a loud bang from undemeith as
if something had exploded, a sound similar to a blowout. One of them said: "It
may have been a blowout. Maybe we should stop and check." Shirley was doing
her best to control the car and started to apply the brakes lightly. The car began
to fishtail across the center of the highway, swerved back and forth, then went
over the right embankment after striking a guardrail and turned over end-to-
end before coming to rest 30 feet off the highway. All of the surviving passen-
106
gers and some expert witnesses fixed the speed of ttie vehicle just before the
accident at between 0 and 60 miles an hour; Goodrich's expert at between 58
and 70 miles an hour.
The 1961 Chevrolet station wagon with a trailer hitch was owned by Service
Leasing Corporation and leased to American Floor Machine Company, Inc.
(hereafter American), a manufacturer and distributor of all types of floor main-
tenance equipment. In September 1961, American assigned the station wagon
to branch manager Barth as his own vehicle. Shirley Barth was permitted to
drive the vehicle. American had 35 factory-owned branches in each major city
of the country, all selling the same kind of equipment and followed the same
vehicle-leasing practice at all of its branches and generally using trailers owned
by American. American also had made arrangements with Goodrich on a na-
tional basis to furnish replacement tires for American's vehicles.
In October 1961, Barth had the brakes and wheels of the station wagon aligned
at the House of Brakes in San Francisco. A notation on the invoice at that time
noted "drums have hard spots." Barth concluded that the brake company wanted
to sell him a new set of drums but thought the price was out of line. Thereafter,
the brakes were fine and no other changes were made in the station wagon
except for the purchase of new tires, discussed below. When Barth took the
vehicle over from his predecessor, it had been equipped with Monroe load level-
ers to keep the car level when it was pulling the trailer. Barth did not know that
the load levelers would affect the load-carrying capacity of the trailer.
In November 1961, the station wagon needed new tires. Pursuant to company
procedure, Barth was informed by American's home oflBce in Ohio that two 800
X 14 black de luxe Goodrich Silvertown rayon tubeless tires for his car had been
ordered through the Biltmore Company of Chicago (a midwestern Goodrich dis-
tributor, hereafter Biltmore). Shortly thereafter, Barth received a purchase
order to pick up the tires in San Francisco at Perry & Whitelaw, a wholesale
and retail Goodrich distributor who sold tires to individuals and serviced na-
tional accounts. On November 9, 1961. an employee of American took the vehicle
to Perry & Whitelaw, who installed two tires from its stock on the rear wheels,
in accordance with a standard mechanical procedure, and provided a Goodrich
form warranty, including a warranty against blowouts, with its name and ad-
dress stamped on it. The guarantee period was 24 months. Barth checked the
serial numbers on the warranty against the tires but could not say whether he
had read any of the particular provisions of the warranty. In December, by the
same procedure, two other tires were obtained for the station wagon. The tires
that had been obtained in November were switched to the front wheels and the
two new tires put on the rear wheels. On March 7, 1962, the tires were again
rotated so that the tires that had been obtained in November 1961 were placed
on the rear wheels. These were the tires that were on the rear wheels at the
time of the accident on April 17, 1962.
Seventy-five percent of Barth's work involved trips once a week selling equip-
ment in northern California and Nevada. He normally carried in the station
wagon a sanding machine, a floor polisher and a vacuum cleaner. In addition,
about once a week he hauled an automatic floor scrubber weighing about 870
pounds for demonstration purposes in a two-wheel hydraulically operated Selma
IM 46 trailer with a capacity of 1,500 pounds. He never carried more than 300
pounds in the station wagon itself and 1,000 pounds in the trailer. Every two
weeks or so, he checked the tire pressure. He maintained 24 pounds of pressure
in the front and 28 pounds in the rear. He never found any substantial variance
in the pressure of the tires. There were no flats or punctures.
According to the tire industry approved "Tire Guide," an 800 x 14 tire was
recommended for use on all 1961 Chevrolet station wagons like the Barth ve-
hicle. The Barth vehicle was designated as either a six or nine passenger vehicle
designed for passengers and equipment or other property. The owners' manual
distributed with the vehicle in question indicated nothing about tire safety but
only (jave the recommended pressure for comfort of passengers and the life of
the tire.
A service bulletin issued by Goodrich to its dealers showed recommended pres-
sures of 24 to 28 pounds for the tires in question, but this bulletin was not fur-
nished to customers and included nothing about the weight that could be carried
by the tires on a station wagon. Neither this publication nor any other issued
by Goodrich informed the public of any tire weight limits.
The tire experts called by Goodrich testified that the maximum carrying ca-
pacity of a tire of the type in question, according to the standards then set by
107
the Tire and Rim Association, was 1.175 pounds and that increased tire pres-
sure would not increase the carrying capacity of the tire. They testified that
if a tire is overloaded and runs into a chuckhole or other road obstructions it
would be more vulnerable to a failure of the type found in the Barth tire, that
an overload of 2.1 to 50 percent would be severe, and that if the tire was loaded
25 percent over the tire and rim carrying capacity, it would be exi>ected to rup-
ture before the tread was gone.
The engineering .specifications for a 1961 Chevrolet station wagon indicated
that on a loaded nine passenger station wagon, for which tires of the type here
involved were specified, the rear wheels would carry 3.430 pounds. Thus' each of
the rear wheels would carry 1,715 pounds. Therefore, with six 150 pound pas-
sengers riding in the vehicle, each rear tire would be overloaded by 232 pounds
or about 25 percent. Accordingly, with six ladies averaging such weight in the
car, the rear tires would be overloaded and the overloaded condition would be
such that the tires could be expected to rupture before the tread wore out.
Goodrich knew that its tires were subject to overload and asked the car manu-
facturers to be more observant of recommended loads. But it never informed the
public or its individual customers of the problem. Goodrich supplied the tires to
the car manufacturer under these circumstances as the business was a highly
competitive one. It knew that a certain percentage of tires sold would be exposed
to overloading condition.s.
Goodrich's witness, Poole, after describing in great detail the steps involved in
the construction of a tire, testified that at the end of the process of tire manu-
facture and inspection. Goodrich ran into defective tires all the time. The final
inspection before the tires went to the market is made by a quality control man
who inspects 10 percent of the tires. This final inspection reveals both major and
minor defects apparetnly missed in the previous insi^ections in a number of tires.
The remaining 90 percent of the tires shipped out do not have the benefit of such
a final inspection but would be subjedt to the same defects as those discovered in
the 10 percent.
Goodrich's expert, Keltner, who had been with the organization for 391/2 years,
testified that if a tire carries more than 10 percent above the load authorized by
the Tire and Rim Association, it would be excessively overloaded, and that the
Tire and Rim Association manual states that no increase in the load is permitted
for higher inflations than those shown on the table. He also admitted that when
Goodrich sent its tires out to the automobile manufacturers, it did not know
what model car the tires would be used on as this was entirely up to the auto-
mobile manufacturer. Accordingly, if Goodrich received from General Motors
an order for a supply of the kind of tires here involved, the order would be
routinely filled and no inquiry made as to the use of the tire. He indicated that
General Motors had its own limited testing program to satisfy it that the tires
would not be overloaded to the extent that they believed harmful. Once Goodrich
became a supplier approved by General Motors, a very important factor. General
Motors had satisfied itself that the Goodrich tire would operate satisfactorily
on its automobiles. Neither General Motors nor any other automobile manufac-
turer made available to Goodrich or any tire supplier the weight of the vehicle
on which the tire would be used, and in 1961. Goodrich was unable to obtain this
kind of information from General Motors.
Robert L. Collins, who had been with General Motors for 17 years, primarily
working on body and chassis design, including tires, was called by Goodrich as
an expert and testified that General Motors had never attempted to make a secret
of the weights of their cars. Another Goodrich witness, Joseph B. Bidwell, the
head of the Engineering Mechanics Department at General Motors Research
Laboratories, stated that General Motors made no efforts to conceal from tire
manufacturers the make and model of vehicles for which the tires would be used ;
that if General Motors knew the weight of the vehicle, the information would be
made available to the tire manufacturers, if requested.
Bidwell and Collins stated that General Motors, in determining the tires to be
used on its vehicles, made no effort to fix the rated tire carrying capacity. The
only criterion u.sed was whether the tires were performing satisfactorily on the
car. There were no other tests to determine if the maximum capacity would be
•'rather difficult." Accordingly, the owners" manual did not say anything about
the weight that could be carried in station wagou.><.
As far as General Motors was concerned, "it would be all right, tire-wise" to
carry nine 200 pound persons and their luggage in a 1961 Chevrolet station
wagon. General Motors did not agree with the reliance of some of Goodrich's ex-
108
perts on Tire and Rim Association 1961 standards as a maximum. In fact, it ig-
nored the Tire and Rim Association's recommended load carrying capacity. In
the opinion of General Motors, 46 percent more weight than the maximum rec-
ommended by the Tire and Rim Association would not overload the tires. Gen-
eral Motors did not advise the purchasers of its vehicles that there was any less
danger in running over a chuckhole if the vehicle were empty than if there were
nine persons in it nor did it make recommendations about a trailer or the use
of load levelers. As far as General Motors was concerned, the load on the tire
could be doubled with complete safety if the tire pressure was increased. The only
effect would be a harsher ride. Goodrich never complained that its tires were
being overloaded by General Motors.
Tire manufacturers do not put out literature to the consumer relating to the
overloading of tires, nor ever inform the public or anyone else that there could
be any danger in overloading Goodrich tires. Furthermore, Goodrich never made
any recommendations that there were certain types of roads on which their tires
could or should not be driven. Customers were not warned that if they ran into
a chuckhole a tire failure might result. Goodrich never excluded the applica-
tion of its tire warranty to any conditions of overload or driving at sustained
high speeds over rough roads.
In fact, in 1961, Goodrich ran an advertisement in Newsweek, Reader's Digest
(and possibly Life Magazine), that was rerun in the Oakland Tribune six to ten
times, showing a tire with a sidewall comparable in strength to the one here,
being driven over sharp rocks and boulders. Goodrich paid 50 percent of the cost
of the rerun of this advertisement in the local paper. Goodrich's expert, Keltner,
had never seen or heard of such an advertisement and testified that such treat-
ment of a tire would constitute an abuse that could cause an incipient failure in
any tire in the world. He also stated, "* * * anybody that drives a car over one
mile an hour across that kind of condition would be foolish."
Keltner also testified as to the harm to the tire from the use of load levelers
on a vehicle, although the load leveler itself does not increase the stress on the
tires. However, a Goodrich-approved parts manual sent to its distributors, in-
cluding Perry & Whitelaw, included Monroe load levelers of the type here in-
volved, as a Goodrich-approved part. Some Goodrich dealers installed load level-
ers and Goodrich never put out anything recommending against the installation
of load levelers. Goodrich never advised that greater stress would be imposed
on the tires if load levelers were so used. Perry & Whitelaw installed Monroe
load levelers but never so advised its customers.
Goodrich also never put out any literature on the subject of towing trailers or
referred specifically to one of the size normally pulled by the Earth wagon.
Goodrich neither warned against pulling trailers nor recommended that a differ-
ent type of tire should be used on a vehicle that did. As a dealer. Perry & White-
law also never warned against this practice. Mr. Whitelaw testified that they
never issued any such warning, as he pulled one all around the United States.
Neither Goodrich nor Perry & Whitelaw ever indicated it would be improper to
haul a trailer loaded to its rated capacity of 1,500 pounds. Perry & Whitelaw
was never told by Goodrich and did not tell its own customers how a trailer
should be loaded or balanced.
The 4-ply rayon tubeless tire here involved was available for examination by
the various expert witnesses at the trial. The blowout or rupture on the tire
occurred on the side away from the road .so that the user would not have been
aware of any incipient damage unless he had been under the car a short time
before the tire failure occurred. There was a definite crack in the interliner
which allowed air to escape into the outerply. This created a bubble in the outer-
most ply that grew large and burst.
The experts disagreed as to the classification of the rupture. Goodrich and
Perry & Whitelaw's expert called it a "sidewall flex break" ;^ the Barth and
Clark expert Meyers indicated that the tire was broken above the "bead" toward
the tread, while a sidewall flex break is usually higher, near the shoulder of the
tire. Meyers saw no indication that the Barth tire had been overloaded or under-
' A tire consists of a rubber tread that is bound to nylon, or rayon cords impregnated
witli rubber and otlier materials that are called "plys" and which, laid perpendicular to
e.ich other, form the sidewalls. Attached to these "plys" are "beads" that are made up
of a number of turns of steel wires insulated with rubber compounds and repeated in
fabric. These "beads" hold tight and taut the finished tire along the circumference of the
sidewalls which come in contact with the rim of the wheel. Under conditions of heat, the
rubber loses its adhesive ability with the cords and allows the cords and plys to separate.
109
inflated or that anything in the driving had anything to do with the failure of
the tire. In addition to overloading, the cause of the tire failure could be attrib-
uted to a combination of structural characteristics typical of Goodrich tires
during the period of time in question.
According to Meyers, the defect in the Barth tire was recognized by the
industry as due to a defect in manufacture as distinguished from an "adjustable
condition" on the tire warranties, which would include road hazards. The Good-
rich "Adjustment Procedures" manual for retailers stated that tires with a flex
break in the lower sidewall or near the shoulder "may be adjusted on a service
rendered basis under the Road Hazard Warranty."
Goodrich's expert Poole testified that in his opinion, a rupture or failure of a
tire in the particular location here involved, starts from either overloading or
under-inflation. As a result of either, the cords will weaken, and the continued
flexing of the sidewalls while the tire is in motion will cause the tire to fail. He
further stated that the failure could also be started by a blow to the tire. How-
ever, if the tire had been overloaded or underinflated at the time of such a blow,
the blow might not necessarily rupture the cords but would weaken the cords.
In Poole's opinion, the ultimate failure of the Barth tire began with a blow of
some kind.
Goodrich's expert Hull stated that there was no sign of abuse or evidence
that the tire had failed because of any fault, but that the tire might have re-
ceivetl a blow from running over a chuckhole or as the rasult of an impact with
a curb. This blow could have occurred as little as 50 miles or as much as 1,000
miles before the tire ruptured. As far as wear was concerned, (50 percent of the
wear was left on the tire, which meant that the tire was in excellent condition
with no falling off beyond the outer ribs. Bull stated that the tire gave promise
of giving mileage up to 35,000 to 40,000 miles ; that GO percent of the tread was
left and uniforndy worn, without bruises or cuts, and that the tire would have
to have been carefully driven to be in this condition. According to Bull, the tire
was deflated a little more than standard or normal. Bull did not rule out the
possibility of a defect in the tire.
Mr. Whitelaw also testified that the evenness of the wear and deep tread re-
maining on the Barth tire after 1(>,7(M» miles was readily visible : in his opinion,
the particular tire did not appear to have l)een abused and was doing a good
job mileage-wise.
[1-3] Goodrich first asserts that the court erred in permitting a punitive dam-
age amendment to the Clark and Barth causes of action after the Goodrich ex-
perts had testified at the trial. We think, however, that the 12 day recess prof-
fered to Goodrich to meet this amendment was ample and that the uncontro-
verted evidence, showing that Goodrich knew of the danger of overloading and
deliberately neglected, for business reasons, to caution customers and the un-
knowing public, would clearly justify the punitive damage charge based on
grounds of fraud, malice and oppression) (Donnelly v. Soulthern Pac. Co., 18
Cal.2d 803. 118 P.2d 465; Morgan v. French, 70 Cal.App.2d 785, 161 P.2d 800;
Sturges V. Charles L. Harney, Inc., 165 Cal.App.2d 306, 331 P.2d 1072). While
the amendment should have been limited to the nonwrongful death causes of
action (Prob.Code, §573; Code Civ.Proc. §377; Doak v. Superior Court, 257
A.C.A. 943, 953, 65 Cal.Rptr. 193), the error was of no consequence since the jury
allowed no punitive damages.
It is doubtful whether the admission of evidence of Goodrich's financial condi-
tion under the punitive damages allegation affected the judgement in this ca.se
since Goodrich is universally recognized as a large and prosperous corporation.
But, in any event, such evidence was admissible since the punitive damage
amendment properly applied to the nonwrongful death causes of action (Parrott
V. Bank of America, 97 Cal.App.2d 14. 217 P.2d 89, 35 A.L. R.2d 263). Further-
more, although the judgment was large, we do not regard the damages as ex-
cessive as a matter of law.
[4] Goodrich contends that evidence of Barth's remarriage a year and a half
after Shirley's death should have been admitted to mitigate damages. It is the
well established rule in most states, including California, that the remarriage of
a surviving spouse is not admissible on the issue of damages in a wrongful death
case (Benwell v. Dean, 249 Cal.App.2d 345, 57 Cal. Rptr. 394; 87 A.L.R.2d 252)
and this court is neither inclined nor does it have the authority to change this
rule.
no
The instructions
We turn to the various alleged errors in the instructions to the jury on strict^
liability, breach of warranty and negligence.
1. Strict Liability.
Goodi-ich first argues that the jury should not have been instructed on the
doctrine of strict liability as Barth failed to plead and prove that the tire was
being used as intended. Goodrich concedes that the tire was not used for any
other purpose except as a tire but argues that because of misuse and abuse and
overloading or underinflation, Barth and Clark deprived themselves of the pro-
tection of the doctrine.
[5] As stated in Greenman v. Yuba Power Products, Inc., o9 Cal.2d 57, 27
Cal.Rptr. 697, 377 P.2d 897, 13 A.L.R.Sd 1049 : "A manufacturer is strictly liable
in tort when an article he places on the market, knowing that it is to be u.sed
without inspection for defects, proves to have a defect that causes injury to a
human being" (p. 62, 27 Cal.Rptr. p. 700, 377 P.2d p. 900) .
"To establish the manufacturer's liability it was .suflScient that plaintiff proved
that he was injured while using the Shopsmith in a way it was intended to be
used as a result of a defect in design and manufacture of which plaintiff was
not aware that made the Sliopsmith unsafe for its Intended use" (p. 64, 27 Cal.
Rptr. p. 701, 377 P.2d p. 901).
Here, the great perponderance of evidence indicates that Barth did not abuse
the product or used it for other than the intended purpose. There is no evidence
that the tires were at any time underinflated as Goodrich claims. Rather, the
uncontroverted evidence indicates that Barth checked the tires every two weeks
and that at all times, the pressure was between 24 and 28 pounds for the front
and rear tires, respectively, as recommended by the owners' manual.
Goodrich's own witnesses admitted that it had never informed the public of
any danger of overloading arising out of the normal use of a six passenger vehicle
as in this case, and General Motors' experts, called by Goodrich, testified that the
tires could have supported double their normal carrying weight and still not
have been overloaded.
Most of the evidence indicated that the vehicle was not being driven at an
excessive speed, but, in any event, there was no evidence that Goodrich ever
advised its dealers or customers as to the effect of such speeds on the tires. The
testimony of Goodrich's own experts indicated that since 60 percent of the tread
was left on the tire in question, it must have been carefully and well driven, and
that there was no evidence of abuse.
[6] In view of the overwhelming evidence that the tire was being used as in-
tended, and had been driven carefully and at reasonable speeds, the trial court
properly concluded that plaintiffs had produced suflScient evidence on the doctrine
of strict liability and properly instructed the jury thereon.
[7, 8] Goodrich next argues that the trial court erred in its instructions on the
burden of proof bv refusing to give its proposed Instruction No. 31 (set forth
below in the footnote).'' In Alvarez v. Felker Mfg. Co., 230 Cal.App.2d 987, 1003,
41 Cal.Rptr. 514, this court (Division One) held a substantially similar instruc-
tion to be a misstatement of the law insofar as the manufacturer's strict liability
in tort is concerned. The trial court is not compelled to redraft a proposed inac-
curate instruction (Hyde v. Avalon Air Transport, Inc., 243 Cal.App.2d 88, Cal.-
Rptr. 309). The record indicates that the general instructions on the burden of
proof were adequate and correct.
[9] There is no merit in Goodrich's contention that the court erred in in-
structing the jury that the contributory negligence of Shirley was not a defense
to the causes of action based on strict liability. As stated in the comment in
section 402 of the Restatement Second of Torts, since the doctrine of strict
liability is not based on the negligence of the seller, the contributory negligence
of the plaintiff is not a denfense when such negligence consists merely in a
failure to discover the defect in the product or to guard against the possibility
of its existence. The only form of plaintiff's negligence that is a defense to strict
liability is that which consists in voluntarily and unreasonably proceeding to
encounter a known danger, more commonly referred to as assumption of risk.
For such a defense to arise, the user or consumer must become aware of the
-Instruction No. ."?! : "If .vou should find that it is just as probable that the accident
in question was proximately cause<l by some misuse or abuse, If any, of the tire in question
while It was used on the Chevrolet automobile as it is that it resulted from some defect,
if any, in the tire itself, then. If you so find, your verdict should be for the defendant,
the B. F. Goodrich Company."
Ill
defect and danger and still proceed unreasonably to make use of the product.
This rule has been eonsi'Sftently followed and repeated by the courts of our
state ( Seely v. White Motor Company, 63 Cal.2d 9, 45 Cal.Rptr. 17, '403 P.2d
145 ; Canifax v. Hercules Powder Co., 237 Cal.App.2d 44, 40, 46 Cal.Rptr. 552 ;
see Prosser, Strict Liability to the Consumer in California, 18 Hastings L.J. 9,
48-50).
The record here contains no evidence on which any such defense could be
based as there is no evidence of any defect in the tire known to Barth of his
wife. Goodrich's expert testified that in order to discover the particular defect,
the user would have had to have looked at the tire from underneath the car.
There was also no evidence of any use of the tire not expressly sanctioned by
Goodrich. Accordingly. Goodrich's proposed Instruction No. 16 on contributory
negligence was properly refused and the jury correctly instructed that it was
not a defense to strict liability.^
[10] Goodrich argues that there was no evidence of any defect in the tire and
that the trial court erred in instructing the jury as follows : "You are instructed
that a manufacturer and seller are strictly liable when an article they place on
the market, knowing that it is to be used without inspection for defects, has at
that time a defect that causes injury to a human being."
Goodrich's contention overlooks the testimony of its expert Bull, who did
not rule out a defect, and the testimony of Barth and Clark's expert Meyers
concerning the existence of a defect in the tire and that such defects were
characteristic of certain Goodrich tires during the time in question.
Goodrich next argues that the court erretl further by also instructing the
jury as follows : "The word 'defect' as used in the previous instructions, refers
not only to the condition of the product itself, but may include as well the
failure to give directions or warnings as to the use of the product in order to
prevent it from being unreasonably dangerous. If directions or warnings as
to the use of a particular product are reasonably required in order to prevent
the use of such product from becoming unreasonably dangerous, the failure to
give such warnings or directions, if any, renders the product defective, as that
word is used in these instructions."
Goodrich urges that the failure to warn alone cannot constitute a defect
within the meaning of the strict liability doctrine and that the instruction was
based on an erroneous interpretation of Canifax v. Hercules, supra. However,
as we recently said in Gherna v. Ford Motor Co., 246 Cal. App.2d 639, at page
651. 55 Cal.Rptr. 94, at page 102, where, as in this case, there was evidence that
the defendants knew of the danger and did not include any warnings relating
thereto, "A manufacturer, as well as a dealer, must give adequate warning to
the ultimate users of the product of any dangerous propensity which it knows
or should have known would result in the type of accident that occurred [cita-
tion]. Nor can defendants be exonerated by the fact that the transmission fluid
was manufactured by another party as Ford was aware of its highly volatile
and flammable qualities and put its own label on it. As indicated by section
402 A of the Restatement Second of Torts, a product, although faultlessly made,
may nevertheless be deemed 'defective' if it is unreasonably dangerous to place
the product in the hands of a user without a suitable warning * * * "
[11] In view of the evidence of Goodrich's asserted knowledge that the nor-
mal use of the vehicle with six passengers would result in an overload that
would cause the tires to rupture and its admitted failure to issue any warnings
concerning the overloading of the tires, the Instruction was properly given.
2. Breach of Warranty.
[12] Goodrich argues that the court further erred in instructing on the issue
of the breach of warranty of merchantability as this was not an issue pleaded
in the case. This contention is without merit. The instructions complained of.
^Goodrich's proposed Instruction No. o8 was also properly refused as it invoked the
contributory negligence defense not only as to the causes of action based on negligence
but also as to the strict liability and imidied warranty causes of action to which con-
tributory negligence is no defense (Canifax v. Hercules Powder Co., supra; Vassallo v.
Sabatte"Land Co., 212 Cal.App.2d 11. 18, 27 Cal.Rptr. 814). The two New Jersey cases
cited by Goodrich, Cintrone v. Hertz Truck Leasing, etc., 45 N.J. 434, 212 A.2d 769,
and Mairino v. Weco Prods. Co., 45 N.J. 570, 214 A.2d IS, are not relevant as both in-
volved negligence on the part of the iniured party. Independent of the use of the defective
instrumentality. The record indicates that the court specifically instructed that Shirley s
contributory negligence, if found, would bar any recovery on behalf of her heirs in the
cause of action based on negligence, and that a manufacturer or seller of an article was
entitled to assume that its product will be put to normal use and is not subject to liability
where injuries or damages result from the misuse or abuse of the product.
set forth
and CI
112
th below/ were justified by the evidence and the allegations of the Barth j
,.. v.ark causes of action for implied warranty, likewise set forth below.
Goodrich further argues that since American had ordered 'two 8:W) x 14.
black de luxe Silvertown" tires by trade name, the implied warranty of fitness
was precluded and that the court erred in submitting the issue to the jury.
Cxoodrich relies on former section 173-5 of the Civil Code,* which then provided
so far as pertinent : "(4) In the case of a contract to sell or a sale of a specified
article under its patent or other trade name, there is no implied warranty as
to its fitness for any particular purpose." _ , . „
[131 However, even under this statute, the mere description or ordering of an
article by its trade name is not conclusive if other conditions exist that would
raise an "implied warranty of its character (Odell v. Frueh, 146 Cal App£d 504
304 P2d 4.5, 76 A.L.R.2d 345). As stated in Odell, supra, at page 510, 304 P.2d
at page 50, "If the requisites of an implied warranty for a particular purpose
are present— the vendor's knowledge of the special purpose and the vendees
leliance on his seller's judgment— the fact that the article sold is described by
its trade-name does not prevent the imposition of a warranty obligation. * * *
Subdivision 4 enacts only the truism that when a consumer purchases a branded I
item he is more likely to be relying upon his own judgment or the promotional
effects of the manufacturer than upon the skill and judgment of his seller."
[14] In the instant case, where the purchase was made by American pursuant
to its national arrangement with Goodrich to supply its fleets with tires, the
prerequisites of implied warranty were clearly met and the trade name was
used merely to identify the article (Drumar M. Co. v. Morris Ravine M. Co.,
33 Cal.App.2d 492, 92 P.2d 424 ) . Accordingly, the instructions given were correct
and Goodrich's proffered instruction No. 24 on inapplicability of the implied
warranty of fitness properly refused.
[15] Goodrich also argues that the trial court erroneously instructed the jury
that any warranty of the tires extended to the Clark plaintiffs. Goodrich contends
that as to the Clark plaintiffs, who were passengers in the Barth vehicle, lack
of privity of contract was an available defense of which it was erroneously de-
prived. As stated in the Restatement Second of Torts, page 354, under the doc-
trine of strict liability, it is not necessary that the ultimate user or consumer
have purchased the product at all. He may be a member of the family of the
final purchaser, or his employee or his guest. The liability is one in tort and does
not require any contractual relation or privity of contract. This approach was
adopted in Vandermark v. Ford Motor Co., 61 Cal.2d 256, 37 Cal.Rptr. 896, 391 P.
2d 168, where one of the plaintiffs who sued in breach of warranty was the sister
of the owner-driver, and Gutierrez v. Superior Court, 243 Cal.App.2d 710, 52 Cal.
Rptr. 592, where the plaintiff guest of an inn was injured by the breaking of a
glass door manufactured by the defendant. Furthermore, even prior to the adop-
tion of the strict liability doctrine in this state, California courts held that the
warranties would apply to the entire "industrial family" of an employer (Peter-
son V. Lamb Rubber Co., 54 Cal.2d 339, 5 Cal.Rptr. 863, 3.53 P.2d 575) and that
in cases involving instrumentalities dangerous because of latent defects, implied
warranties applv even in the absence of privity (Alvarez v. Felker Mfg. Co., 230
Cal.App.2d 987, "41 Cal.Rptr. 514).
We conclude that there were no errors in the warranty instructions given.
3. Negligence.
[16] Goodrich next argues that the trial court also erred in instructing the jury
that to avoid contributory negligence, one need be only ordinarily careful and
* "In a sale of goods such as the one which plaintiffs claim occurred in this case, there is
an implied warrant.v that the goods shall be of merchantable quality. By this we mean, that
the goods shall be of ordinary quality reasonably suitable for the ordinary uses and pur-
poses which goods of the general type described are manufactured or sold to meet.
"You are instructed that a party may recover for injuries proximately caused by a
breach of warranty before the defect or condition constituting the breach was discovered
or could have been discovered by him in the exercise of ordinary care."
""That at the time of the aforementioned sale of the aforementioned tire, defendants
impliedly warrantetl to the purchaser of said tire that said tire was fit for its intended use
and wa.s free of defects in workmanship and material : that in fact said tire was not fit for
its intended use and was not free of defects as aforesaid nor was it safe for use as a tire on
a passenger automobile in that said tire was dangerous, defective and unsafe and as a result
thereof failetl, causing said automobile to leave the highway as aforementioned."
'On Jan. 1, 1965, this statute was superseded by section 2.S15 of the Commercial Co<le,
which completely eliminated the trade name exception. The former statute, however,
applies here.
113
priulenn as set forth In footnote 7^ below. Goodrich cites no authority for Its
argument, and the instruction given was modeled on one approved verbatim in
face of similar contentions in BaiIlargtH)n v. Mevers, 180 Cal 504 jlG 18'> P 37
Finally, Goodrich argues that the court erroneously refused to instruct that the
violation of the Go mile per hour maximum speed limit created by section '>2349
of the A ehicle Code would create a rebuttable presumption of negligence on the
part of Shirley. The record indicates that the trial court, at the request of Good-
rich, read to the jury the basic speed law (Veh.Code. §22350) and specifically
indicated that a violation of the basic rule constituted negligence. Goodrich com-
plains that the court thereafter instructed the jury concerning the proper equip-
ment of motor vehicles on the basis of section 26300 of the Vehicle Code and then
stated that a violation of that section created a presumption of negligence, but
failed to again six^cifically mention the effect of violating section 22,349.
Rather than being prejudicial, we thnk the omission of the reference to section
22349 of the Vehicle Code was unduly favorable to Goodrich. The jury was told
that driving a vehicle at a speed greater than 65 miles per hour was negligent as
a matter of law and that under no circumstances could a speiHl in excess of 65
miles an hour be justified. If the jury had been instructed, as Goodrich suggests,
that the violation of the section only created a presumption of negligence that
could be overcome by other evidence showing that the conduct was excusable or
justified, Barth and Clark would have benefited and Goodrich clearly was not
prejudiced.
We conclude that in view of the overwhelming evidence of the liability of Good-
rich on the theory of strict liability alone, and the fact that there are no conten-
tions concerning the sufiiciency of the evidence. Goodrich has not met its burden
predicating reversible error on the rulings of the trial court during trial and the
instructions to the jury. We hold that the judgments in favor of Barth and Clark
against Goodrich must be afiirmed.
II. THE BARTH AND CLARK CROSS-APPEAL
Facts
In October 1961, shortly after taking over the station wagon, Barth was in-
formed by his predecessor that instead of following the former procedure of us-
ing credit cards for needed equipment on company cars, American had made ar-
rangements with Goodrich, on a national basis, to furnish replacement tires, etc.
for American's fleet of vehicles. On October 28. Barth wrote an interoffice memo
to American's home oflSce in Toledo, indicating that he needed two new tires and
in(iuiring whether he should continue to drive the vehicle which then had 33,000
miles on it. He received a reply dated November 3 indicating that he should con-
tinue to drive the station wagon until the 1963 models came out and that two
new tires had been ordered for him from Biltmore (a midwestern Goodrich dis-
tributor "who handless our tire business" ) .
Barth also received a copy of a latter dated November 3 from American's
Toledo office to Biltmore asking Biltmore to issue a draw number to B. F. Good-
rich in San Francisco, for two 800 x 14 black deluxe B. F. Goodrich Silvertown
ravon tubeless tires for the station wagon.
Shortly thereafter, Barth received a copy of Biltmore's draw order, dated No-
vember 6, indicating that the tires were to be picked up in San Francisco at Perry
& Whitelaw On November 9, 1961, an employee of American took the station
wagon to Perry & Whitelaw who installed two tires from its stock on the rear
wheels and provided a Goodrich form warranty, including a warranty against
blowouts, with its name and address stamped on it.
As a wholesale and retail Goodrich distributor, Perry & Whitelaw sold tires
to individuals and serviced Goodrich's national fleet accounts. Some of these
national accounts dealt directly with Perry & Whitelaw : others, like American,
dealt through an intermediary, such as Biltmore, a mid-western Goodrich dis-
tributor, similar to Perry & Whitelaw.
Perry & Whitelaw had received the Biltmore draw order, advising them to re-
lease the tires to American. Perry & Whitelaw's invoice indicated that the tires
were sold to Goodrich, were to be delivered to American, and charged to Bilt-
more Perry & Whitelaw sent this invoice to Goodrich, who, in turn, billed Bilt-
■'•You cannot find in this case that the decedent Shirley Sue Barth, or the plaintiff
Theodore H Barth Vere or either of them was RUilty of S,°"*"^utory negligence unless
vou believe from the evidence that said decedent or Theodore H. Barth dul something
Which an ordinarily careful and prudent person, acting under the same or s;milar cir-
cumstances would not have done, or failed to do something which an ordinarily careful
and prudent person would have done under those circumstances.
114
more, and allowed Perry & Whitelaw a service charge for handling the trans-
action, as well as a credit for the tires removed from its stock. On national
accounts, such as American, Perry & Whitelaw did not know the exact amount
of this credit until informed of it by Goodrich, as the amount depended on the
prices established by Goodrich with the home office of the national account. In
the instant case. Perry & AVhitelaw received $4.13 for mounting the tires and a
net credit of $40.08 for the tires. ,„,.., • , <- ».
For a national account like American, Perry & Whitelaw was required to ob-
tain a draw order from Biltmore in order to obtain a credit for the tires taken
from its stock. This procedure differed substantially from that followed in an
individual transaction, where Perry & Whitelaw would measure the remaining
tread, charge the customer for the tread used, give the customer a new tire, send
the old tire to Goodrich and receive a credit from Goodrich for the difference be-
tween what it collected from the customer and its basic cost of the tire.
The only question on the cross-appeal is whether the trial court erred in in-
structing the jury as follows, at the request of Perry & Whitelaw : "Before strict
liability in tort may be imposed against defendant Perry & Whitelaw, Inc., it
must be proved by a preponderance of the evidence * * * not only * * * [that]
the tire in question when placed on the market had a defect at that time, and
that the defect, if any, was a proximate cause of the accident, but, also, that
Perry & Whitelaw, Inc. sold the tire in question to the employer of Theodore
Barth.
"A sale is a transfer or an agreement to transfer goods to a buyer for a price.
In this case it is for you to determine whether the sale of the tire was made by
Perry & Whitelaw, Inc., as seller, to the employer of Theodore Barth, as buyer,
at the time and place alleged by the plaintiff."
Barth and Clark contend that these instructions constituted prejudicial error
as the jury was left to determine the question of whether the particular trans-
action was a sale, and was told that unless they found a sale from Perry &
Whitelaw, strict liability could not be imposed on Perry & Whitelaw.
The definition of a sale in the above quoted instruction is not in accord with
the definition of a seller for the purpose of the doctrine of strict liability,
adopted as the law of this state in Greenman v. Yuba City Products, Inc., supra,
and set forth in section 402A of the Restatement Second of Torts, as follows :
"(1) One who sells any product in a defective condition unreasonably dangerous
to the user or consumer or to his property is subject to liability for physical
harm thereby caused to the ultimate user or consumer, or to his property, if :
"(a) the seller is engaged in the business of selling such a product, and
"(b) it is expected to and does reach the user or consumer without substantial
change in the condition in which it is sold.
"(2) The rule stated in Sub.section (1) applies although
"(a) the seller has exercised all possible care in the preparation and sale
of his product, and
"(b) the user or consumer has not bought the product from or entered into any
contractual relation with the seller."
Comment f of the Restatement Second of Torts points out that as to the busi-
ness of selling, the doctrine of strict liability applies to any persmi engaged in the
business of selling products for use or consumption therefore including any
manufacturer, wholesaler or retail dealer or distributor as well as operators
of restaurants. It is not necessary that the seller be engaged solely in the business
of selling such products. The only group of persons exempted from the rule is
the occasional seller w^ho is not engaged in that activity as part of his business,
like a housewife who, on occasion, sells to her neighbor a jar of jam or a pound
of sugar. The Restatement comment further points out that the basis for the
8 The procedure is set forth as follows in the Goodrich Fleet Sales Manual issued to
distributors: "Fleet National Accoiintn. Under this plan, all deliveries are invoiced by
B. F. Goodrich Tire Company at prices established with the home office of the national
"B. F. Goodrich Stores and dealers are to bill their B. F. Goodrich Zone Office for all
tires, batteries, or highway tvpe retreads delivered to these Fleet National Accounts.
"Do not issue billinp: direct to the customer for merchandise delivered, and no charge is
to bo made for applying new tires or installing new batteries. However, solid tire press on
charges should be billed at the local rate as Industrial Solid tire prices to Fleet National
Accounts do not include application. The usual rate is ITi cents per cross section inch.
"B. F. Goodrich Stores and dealers receive a sales and servic«> commission for all new
tires, batteries, and highway type retreads delivered to Fleet National Accounts. This
sales and service commission" pays the store or dealer for the normal service of mounting
new tires and installing new batteries at the retailers premises."
115
rule is the ancient one of the special responsibility for the safety of the public
undertaken by one who enters into the business of supplying human beings with
products that may endanger the safety of their persons and property and the
forced reliance on that undertaking on the part of those who purchase such
goods. Clearly. Perry & Whitelaw was a distributor within the Restatement
definition of the term seller for the purpose of the application of the doctrine of
strict liability and the instructions were erroneous.
Although there have been no cases directly in point in California, our view is
in accord with the rationale for the doctrine of strict liability, set forth by our
Supreme Court in Vandemark v. Ford Motor Co., supra, 61 Cal.2d on pages 262
and 263, 37 Cal.Rptr. at page 899, 391 P.2d at page 171 : "Retailers like manu-
facturers are engaged in the biisincsH of distributing goods to the publie. They
are an integral part of the overall produeing and marketing enterprise that
.should bear the cost of injuries resulting from defective products. (See Green-
man v. Yuba Power Products, Inc., r.9 Cal.2d 57, 63, 27 Cal.Rptr. 697, 377 P.2d
897.) In some cases the retailer may be the only member of that enterprise
resonably available to the injured plaintiff. In other cases the retailer himself
may play a substantial part in insuring that the product is safe or may be in a
position to exert pressure on the manufacturer to that end; the retailer's strict
liability thus serves as an added incentive to safety. Strict liability on the manu-
facturer and retailer alike affords nw^imum protection to the injured plaintiff
and works no injustice to the defendants, for they can adjust the costs of such
protection between them in the course of their continuing business relationship."
(Italics supplied.)
Perry & Whitelaw argues that the instruction was proper as it was not a
"seller"' of the tire to American but only served as a conduit for the sale that
was made by Goodrich through Biltmore to American; that the situation is
analogous to" a transaction where Perry & Whitelaw merely installed a tire
ordered by a customer from another retailer or wholesaler. But neither the
transfer of title to the goods nor a sale is required. For example, in Greyhound
Corporation v. Brown (1959) 269 Ala. 520, 113 So.2d 916, and Gray Line Co.
V. Goodyear Tire & Rubber Company (9 Cir. 1960) 280 F.2d 294, the bus company
was allowed to recover damages from a tire supply company sustained as the
result of a blowout of a tire owned by the tire company and placed on the bus by
a tire supply company. In both of the above cases, the tires on the bus were
furnished by the tire company to the bus company under the terms of a national
agreement, "under which title to the tire so supplied remained in the tire com-
pany. And, in McKisson v. Sales Affiliates, Inc. (Tex.S.Ct.l967) 416 S.W.2d
787," the court said : "One who delivers an advertising sample to another with
the expectation of profiting therefrom through future sales is in the same position
as one who sells the product." ( P. 792. )
Perry & Whitelaw argues it merely installed the tires in question for the minor
fee of $4.13 and realized no profit on the transaction. The uncontroverted evi-
dence, however, indicates that its role was not that minor. As an authorized Good-
rich distributor. Perry & Whitelaw benefited from servicing Goodrich's national
accounts, like American, in addition to its other retail and wholesale business.
The tire in question was removed from Perry & Whitelaw's stock of tires, and
besides the installation fee. Perry & Whitelaw received a credit from Goodrich
for the cost to it of the tire. In addition. Perry & Whitelaw stamped its name on
the Goodrich form warranty.
The only significant difference between this transaction and the usual retail one,
was the fact that Perry & Whitelaw did not know the exact amount of its credit
at the time of the transaction, as this depended on the contractual agreement as to
price made between Goodrich and American. Clearly, Perry & Whitelaw was a
part of the overall marketing enterprise for Goodrich tires.
Furthermore, in the instant case, apart from Goodrich, Perry & Whitelaw was
the only other party who had any knowledge or expertise as to the proper weight
to be carried by the tires. It had access to the Tire and Rim Association manual
as well as to other "service" publications and service briefings provided by Good-
rich. However, Perry «& Whitelaw never communicated any information of this
kind to the public unless specifically asked.
[17] We think that the reasons set forth in Greenman, supra, for applying the
doctrine to the retailer apply to a distributor and supplier such as Perry & White-
law. As indicated in Greenman, the reasons for placing losses due to defective
products on the manufacturers and suppliers are to provide maximum protection
for the consumer and the fact that the overall producing and marketing enterprise
32-493 O — 69— pt. 1 9
116
is in a better position to insure against the liability and to distribute it to the
public by adding the cost thereof to the price of the product. As pointed out by one
eminentVommentator (Prosser, Strict Liability to the Consumer in California, 18
Hastings L.J. 0. 20) : "The rationale of risk spreading and compensating the vic-
tim has no special relevancy to cases involving injuries resulting from the use of
defective goods. The reasoning would seem to apply not only in cases involving
personal injuries arising from the sale of defective goods, but equally to any case
where an injury results from the risk creating conduct of the seller in any stage of
the production and distribution of goods" (italics partially supplied; fn. 62).
(See also, R. Steflfen, Enterprise Liability : Some Exploratory Comments, 17 Hast-
ings L.J. 165.)
[18] Our view that as a distributor and supplier, Perry & Whitelaw was strictly
liable to the consumer and ultimate user, is also supported by the decisions of
our Supreme Court, a pioneer in the development of the law of products liability.
It is established that a wholesaler distributor who neither manufactures the
product nor has possession of the goods can be held to the doctrine of strict
liability (Canifax v. Hercules Powder Co., supra). In Martinez v. Nichols Con-
veyor, etc. Co., 243 Cal.App.2d 795, 799, 52 Cal.Rptr. 842, a sister appellate court
assumed that the rule also applies to lessors and bailors, citing Cintrone v. Hertz
Truck Leasing, supra.''
Several recent decisions in other jurisdictions have also followed the sug-
gestion that all suppliers in the chain of getting goods from the manufacturer to
the consumer should be held (see Prosser, 50 Minn.L.Rev. 791). For example,
in McKisson v. Sales Affiliates, Inc., supra, the plaintiff's wife owned a beauty
shop and received from the salesman of the distributor a sample of its permanent
wave preparation. After she sustained injuries resulting from the use of the
preparation on her own hair, her husband filed an action against the distributor
of the product. The court held that the distributor was liable under the doctrine
of strict liability, citing section 402A of the Restatement Second of Torts. In
McKee v. Brunswick Corporation (7 cir. 1965) 354 F.2d 577, the seller of a boat,
as well as the designer and manufacturer thereof, and the manufacturer and
supplier of an ignition coil that subsequently proved defective, were all held liable
under the doctrine of strict liability to the passengers of the owner of the
private pleasure boat which exploded.
In Blitzstein v. Ford Motor Company (5 Cir. 1961) 288 F.2d 738, the plaintiff
purchased an English Ford automobile from a dealer in Birmingham, Alabama.
After an explosion that occurred when he turned on the ignition, he brought
suit against the English manufacturer and the American distributor in Dearborn.
The federal court, following Alabama law, had no jurisdiction over the English
manufacturer, but reversed a verdict in favor of Ford, the American distributor
in Dearborn, as the jury could reasonably have found that the American Ford
Company was negligent in marketing a product that was inherently dangerous.
The judgments in favor of Perry & Whitelaw against Barth and Clark are
reversed, and the judgments in favor of Barth and Clark against Goodrich are
affirmed. Plaintiffs to recover costs on appeal.
Shoemaker, P. J., and Agee, J., concur.
Mr. Mann. Senator, aside from the fact that I do not know about
this particular case, you have really said two things as I understand
it. One is that the standards which have been promulgated for tires —
^ After taking: judicial notice of the growth of tlie business of renting motor vehicles,
trucks and pleasure cars, the court pointed out that the nature of the U-drive enterprise
was such that a heavy burden of responsibility for the safety of lessees and for members
of the public had to be imposed on it. The court said 212 A. 2d at pages 777 and 778 :
"A bailor for hire, such as a person in the U-drive-it business, puts motor vehicles in the
stream of commerce in a fashion not unlike a manufacturer or retailer. In fact such a
bailor puts the vehicle he bu.vs and then rents to the public to more sustained use on
the highways than most ordinary car purchasers. The very nature of the business is such
that the bailee, his employees, passengers and the traveling public are exposed to a
greater quantum of potential danger of harm from defective vehicles than usuall,v arises
out of sales by the manufacturer. We held In Santor the liability of the manufacturer
might be exDressed in terms of strict llabilltv in tort. Santor v. A &" M Karagheusian, Inc.,
supra, 44 N.J. [52] at 66-67. 207 A. 2d 305 [16 A.L.R..Sd 670] ; see also. Restatement
(Second), Torts, 5 402A, comment M, pp. 9-10 (Ten. Draft No. 10. 1964). By analogy
the same rule should be made applicable to the U-drive-it bailor-bailee relationship. Such
a renUil must be regardetl as accompanied by a representation that the vehicle Is fit for
operation on the public highways."
117
we do not manufacture tires, you understand that. We buy tires and
put them on our cars.
Senator Nelson. Does the industry tell the manufacturer of the tire
what the specs should be ?
Mr. Mann. I do not really know.
Senator Nelson. I think that is correct. The industry tells the manu-
facturer of the tire what quality tire they want.
Mr. Mann. Well, I know it is true that they do require a tire which
meets their safety requirements. Let me say this, that there is a differ-
ence between saying that a manufacturer who adds a large number of
expensive items on the car and prices his product out of the market
camiot really do that if his competitors do not do likewise. I tried
to say that earlier. This is really the justification for standards. But
to go from that and say that the manufacturers were not working at
safety and interested in safety, I think is a big step. Senator, and I
hope you will think about that aspect of it.
Every major innovation in the automobile today was developed —
I am going to come to that a little later in my statement here — ^by
the automotive industry itself.
The various stages of developing safety glass, including the lami-
nated glass, the development of the energy absorbing steering column,
the research done 10 or 15 years ago by Cornell — financed in whole or
in part by the automobile industry, to determine how people were
killed in accidents, what happened to them — this w-as all done 10 or
15 years before this was discussed in any public forum. One company
developed an energy absorbing steering column on its own at a cost
of several million dollars and several years' efforts and this was avail-
able as optional equipment as nearly all of these safety features were
before the safety standards went into effect. What the safety stand-
ards did was not to develop any brand new ideas that the industry
hadn't thought of but it was to enable the manufacturers to move to-
gether without pricing their products out of the market by making
what were previously optional features standard equipment on the
automobiles.
Now, up to that point, I concede that safety standards are a very
good thing.
Now, if you say that a particular safety standard is inadequate —
this is something that has been debated by the experts. We have
experts and the Government has its experts. The tire industry has
its. I don't personally have any reason to believe that the standards
on tires are grossly inadequate at the present time, but I am not really
a tire engineer. I would be interested to know why you think that is
true.
Senator Nelson. Well, in the first place, the standards established —
I think the Transportation Department will concede — are not very
high standards and on the tests they made, admittedly not a sufficient
number, a substantial percentage of the tires tested flunked the very
minimum standards established by the Department of Transporta-
tion. That report was released a month ago, or thereabouts, I would
say. So what everybody who knows anything in the industry will say
is that the standards weren't very high and a substantial percentage
of the tires flunked those standards. I don't think there is any ques-
tion about the evidence on it. I will put that in the record at this
118
point also and send it to you. Safety standards on tires, adequate ones,
have not been established. But I think it is correct that it became
necessary to establish tire safety standards because the industry, be-
cause of competition, I assume, felt that they had to put in low quality
tires on many cars, and they did. And we had to have auto safety
standards because they thought for competition purposes they couldn't
install these safety features unless they Avere required to do so. But
that wasn't the reaction of either the tire or the auto industry at the
time it was proposed in the Congress. This was an interference with
free enterprise. I listened to the tire manufacturers in my office say-
ing it was absolutely unnecessary. They opposed it all the way. I
think it is just an important point to make.
(Senator Nelson subsequently submitted, for insertion at this point,
the following note and materials :)
Exhibit 16B
(Subcommittee chairman's exhibit No. 5 ( subsequenltly submitted) : Materials
related to tire safety : (lA) Introductory note. (B) .Test results (preliminary)
publisihed by the National Highway Safety Bureau, Department of Trans-
portation, Jan. 2, 1969. (C) Press release of Senator Gaylord Nelson concern-
ing the tire tests, May 11, 1969)
A. INTEODUOrOBY NOTE
Federal Motor Vehicle Safety Standard 109, effective January 1, 1968, es-
tablished minimum safety performance standards for passenger car tires. There
follows a preliminary report of the National Highway Safety Bureau on the
results of tests conducted to ascertain compliance with the standard. There next
follows a press release containing a synthesis of and comment on the Bureau's
data, prepared by the oflSce of Senator Gaylord Nelson.
B. TEST RESULTS (PRELIMINARY) PUBLISHED BY THE NATIONAL HIGHWAY
SAFETTT BUREIAU, DEPARTMENT OF TRANSPORTATION, JANUARY 2, 1969
Purpose of Tests
Federal Motor Vehicle Safety Standard 109, effective January 1, 1968, es-
tablished minimum safety performance standards for passenger car tires. To
ascertain compliance by domestic and foreign tire manufacturers with this
standard, the Bureau is conducting a series of tests on samples of a cross sec-
tion of makes, sizes, and market designation of tires. These tests are carried out
on special testing wheels by independent testing laboratories under contract.
Nature of Tests
Under this program tires are tested to determine whether they meet the
safety performance requirements of the standard with respect to the following :
Endurance. — freedom from failure for a prolonged period under load.
High Speed. — freedom from failure at high speed operation.
Strength. — ability to withstand penetration.
Bead Unseating. — ability to adhere to rim.
Dimensions. — freedom from distortions in shape.
Labeling. — verification of accuracy of information on tire.
HOW TO READ DATA
Manufacturers selling the tires included in the sample are listed alphabetically
The table should be read as follows :
END HI SPD STR BEAD (bead DIM LAB
Size-brand (endurance) (high-speed) (strength) unseating) (dimension) (labeling)
(Numericalsizeof tire)., failed/tested failed/tested failed/tested failed/tested failed/tested failed/tested
(Market designation of
tire.)
119
Note that the total at the end of each line gives the number of that type of
tire tested on one or more tests. This total is smaller than the sum of tires tested
on the individual tests because most tires are tested for labeling before being
separated into three groups for additional tests. The total at the bottom of each
vertical line gives the total failures among all tires subjected to that test. The
overall total gives, for the indicated manufacturer, the total tires that failed all
tests, among all tires tested.
Note also that wliere no tires of a listed size — brand designation are listed as
having been tested (a zero number of tires tested), such tires are pending Bureau
testing.
Size and brand
End HiSpd Str Bead Dim Lab
Total
ARMSTRONG RUBBER CO.
6.50-13/PT 100 0/1 0/1 0/1 0/1 0/1 0/3 0/3
6.50-13 PT 120/4 Ply/N... 0/2 0/2 0/2 0/2 0/2 1/6 0/6
6.00-13/PT 120 0/1 0/1 0/1 0/1 0/1 0/3 0/3
7.95-14/PT 120 _ .0/1 0/1 0/1 0/1 0/1 0/3 0/3
7.35-14/PT 100 0/0 0/0 0/0 0/0 0/0 0/0 0/0
7.35-14 Premium Coronet 0/1 1/1 0/1 0/1 0/1 0/3 0/3
7.75-14/PT 120 0/0 0/0 0/0 0/0 0/0 0/0 0/0
7.75-14 PT 100/4 Ply/N 0/1 0/1 0/1 0/1 0/1 0/3 0/3
7.75-14 5 Star/4/2/N/FG.... _... 0/1 0/1 0/1 0/1 0/1 0/3 0/3
8.25-14/Rhino 0/0 0/0 0/0 0/0 0/0 0/0 0/0
8.25-14 Premium Coronet. __ 0/1 0/1 0/1 0/1 0/1 0/3 0/3
8.25-14 PT 120/4 Ply/N 0/1 0/1 0/1 0/1 0/1 0/3 0/3
8.25-14 PT 100 4 Ply/N 0/1 0/1 0/1 0/1 0/1 0/3 0/3
8.25-14 5 Star/2/2/N/FG 0/1 0/1 0/1 0/1 0/1 0/3 0/3
8.55-14 Premium Coronet 0/0 0/1 0/0 0/0 0/0 0/0 0/0
8.85-14/PT 120 0/0 0/0 0/0 0/0 0/0 0/0 0/0
H70-14/SuperHPC 0/1 0/1 0/1 0/1 0/1 0/3 0/3
F70-14/Quick Tire .0/0 0/0 0/0 0/0 0/0 0/0 0/0
7.75-15/PT 120 0/0 0/0 0/0 0/0 0/0 0/0 0/0
8.15-15/Premium Coronet 0/1 0/1 0/1 0/1 0/1 0/3 0/3
8.15-15/PT120 0/0 0/0 0/0 0/0 0/0 0/0 0/0
8.15-15/PT 100 0/0 1/0 0/0 1/0 0/0 1/0 0/0
8.45-15 PT 120/4 Ply/N. 0/1 0/1 0/1 0/1 0/1 0/3 0/0
9.00-15 Premium Coronet 0/0 0/0 0/0 0/0 0/0 0/0 0/0
9.00-15 PT 100/4 Ply/N 0/1 0/1 0/1 0/1 0/1 0/3 0/3
9.00-15/PT 120 0/0 0/0 0/0 0/0 0/0 0/0 0/0
9.00-15/5Star 0/0 0/0 0/0 0/0 0/0 0/0 0/0
Total
Overall total
CONTINENTAL TIRE CO.
165SR14/2/6 Rayon Continental...
Total..
Overall total
COOPER TIRE & RUBBER CO.
6.50-13 Starfire .0/0 0/0 0/0 0/0 0/0 0/0 0/0
6.50/6.00-13 Starfire Imperial ..0/1 0/1 0/1 0/1 0/1 0/3 0/3
7.00-13 Starfire Imperial 0/0 0/0 0/0 0/0 0/0 0/0 0/0
7.35-14 Starfire 0/0 0/0 0/0 0/0 0/0 0/0 0/0
7.35-14/4 Ply/R Lifeliner ...0/1 0/1 0/1 0/1 0/1 0/3 0/3
7.75-14 Lifeliner Premium .0/0 0/0 0/0 0/0 0/0 0/0 0/0
7.75-14/4 Ply/R Starfire Imperial 0/1 0/1 0/1 0/1 0/1 0/3 0/3
8.25-14/4 Ply/R Lifeliner Premium 0/2 0/2 0/2 0/2 0/2 0/6 0/6
8.25-14 Starfire Imperial ...0/0 0/0 0/0 0/0 0/0 0/0 0/0
F70-14 Wide Runner 0/1 0/1 0/1 0/1 0/1 0/3 0/3
7.75-15 Starfire 0/0 0/0 0/0 0/0 0/0 0/0 0/0
8.15-15 Lifeliner.. 0/0 0/0 0/0 0/0 0/0 0/0 0/0
8.45-15/4 Ply/N Starfire Imperial.. .0/1 0/1 0/1 0/1 0/1 0/3 0/3
Total
Overall total
DENMAN RUBBER MANUFACTURING CO.
7.35-14/4 Ply/N Elegante Premium.
8.15-15/4 Ply/N Elegante Premium
Total
Overall total
. 0/16
1/16
0/16
0/16
0/16
0/48
1/48
- 0/1
0/1
0/1
0/1
0/1
0/3
0/3
- 0/1
0/1
0/1
0/1
0/1
0/3
0/3
- 0/7
0/7
0/7
0/7
0/7
0/21
. 0/21
- 0/1
- 0/1
0/1
0/1
0/1
0/1
0/1
0/1
0/1
0/1
0/3
0/3
0/3
0/3
. 0/2
0/2
0/2
0/2
0/2
0/6
- 0/6
. — ■ —
120
Size and brand End HiSpd Str Bead Dim Lab Total
DUNLOP TIRE & RUBBER CO.
6.50-13/4 Ply/R CT - 2/6 0/6 1/6 0/6 0/6 0/18 3/18
7.35-14 Gold Seal 0/0 0/0 0/0 0/0 0/0 0/0 0/0
7.75-14/4 Ply/R Gold Seal C60 0/4 1/4 0/4 0/4 0/4 0/12 1/12
8.25-14/4 Ply/N Gold Seal. _ 0/1 0/1 0/1 0/1 0/1 0/3 0/3
8.55-14/4 Ply/N Gold Seal 0/1 0/1 0/1 0/1 0/1 0/3 0/3
8.15-15/4 Ply/N Gold Seal C60 0/1 0/1 0/1 0/1 0/1 0/3 0/3
Total - - 2/13 1/13 1/13 0/13 0/13 0/39
Overall total -..- -. - 4/39
FIRESTONE TIRE & RUBBER CO.
6.50-13/4 Ply/N Champion 1/2 0/2 0/2 0/2 0/2 0/6 1/6
6.50-13/2 Ply/R Deluxe Champion 0/4 1/4 0/0 0/0 4/4 0/12 5/12
6.50-13/4 Ply/N N-500 0/1 0/1 0/1 0/1 0/1 0/3 0/3
6.50-13/4 Ply/N Safety Champion 0/1 0/1 0/1 0/1 0/1 0/3 0/3
7.00-13/4 Ply/N N-500 0/2 0/2 0/2 0/2 0/2 0/6 0/6
7.00-13 Deluxe Champion 0/0 0/0 0/0 0/0 0/0 0/0 0/0
7.00-13 Town and Country - 0/1 0/1 0/1 0/1 0/1 0/3 0/3
6.95-14 Champion 0/0 0/0 0/0 0/0 0/0 0/0 0/0
6.95-14 Deluxe Champion.... 0/3 0/3 0/2 0/2 1/3 0/9 1/9
7.35-14/4 Ply/N Safety Champion 0/3 0/3 0/2 0/2 1/3 0/9 1/9
7.35-14/2 Ply/R Deluxe Champion 0/1 0/1 0/1 0/1 0/1 0/3 0/3
7.35-14 Champion-. 0/2 0/2 0/2 0/2 0/2 0/6 0/6
7.75-14 Champion-. .-- -0/2 0/2 0/2 0/2 0/2 0/6 0/6
7.75-14 N 500 - 0/0 0/0 0/0 0/0 0/0 0/0 0/0
7.75-14/4 Ply/N Safety Champion 0/3 0/3 0/3 0/3 0/3 0/9 0/9
7.75-14/2 Ply/N Deluxe Champion --- 0/1 0/1 0/1 0/1 0/1 0/3 0/3
«i5-14 Town and Country 0/1 0/1 0/1 0/1 0/1 0/3 0/3
8.25-14/4 Ply/N Safety Champion 0/1 0/1 0/1 0/1 0/1 0/3 0/3
8.25-14/2 Ply/PY Deluxe Champion-.-- -..0/1 0/1 0/1 0/1 0/1 0/3 0/3
8.25-14/4 Ply/N 500 0/2 0/2 0/2 0/2 0/2 0/6 0/6
8.25-14/4 Ply/N 500 SS 0/1 0/1 0/1 0/1 0/1 0/3 0/3
8.55-14/2 Ply/R Deluxe Champion. - 0/2 0/2 0/2 0/2 0/2 1/6 1/6
8.55 Town and Country 0/0 0/0 0/0 0/0 0/0 0/0 0/0
8.55-14 500 ..0/0 0/0 0/0 0/0 0/0 0/0 0/0
8.55-14/4 Ply/N Safety Champion 0/1 0/1 0/1 0/1 0/1 0/3 0/3
8.55-14/4 Ply/N Champion. 0/1 0/1 0/1 0/1 0/1 0/3 0/3
8.85-14 Deluxe Champion -.0/2 0/2 0/2 0/2 0/2 0/6 0/6
8.85-14/4 Ply/N 500 0/1 0/1 0/1 0/1 0/1 0/3 0/3
E70-14 Wide Oval Deluxe Champion 0/2 0/2 0/2 0/2 0/2 0/6 0/6
F70-14 Wide Oval Sports 2 Ply/N -.- 0/1 0/1 0/0 0/0 1/1 0/3 1/3
215R14F-100 Rayon Radial Ply (Seconds).... 0/1 0/1 0/1 0/1 0/1 0/3 0/3
7.75-15 Deluxe Champion -- 0/0 0/0 0/0 0/0 0/0 0/0 0/0
7.75-15 Safety Champion 0/2 0/2 0/2 0/2 0/2 0/6 0/6
8.15-15 Champion -- 0/2 0/2 0/2 0/2 0/2 0/6 0/6
8.15-15/4 Ply/N Safety Champion . 0/1 0/1 0/1 0/1 0/1 0/3 0/3
8.15-15 4 Ply/N 500 1/3 0/3 0/3 0/3 0/3 0/9 1/9
8.45-15 Champion -- 0/2 0/2 0/2 0/2 0/2 0/6 0/6
8.85-15/4 Ply/N 500 -- 0/1 0/1 0/1 0/1 0/1 0/3 0/3
9.00-15/4 Ply N Safety 0/2 0/2 0/2 0/2 0/2 0/6 0/6
9.00-15500 - 0/0 0/0 0/0 0/0 0/0 0/0 0/0
H70-15 Wide OvaVSuper Sport 0/2 0/2 0/2 0/2 2/2 0/6 2/6
H70-15/4 Ply/R Town and Country Wide Oval 1/1 0/1 0/1 0/1 0/1 0/3 0/3
205R15F-100 6/2 Radial Ply Nylon 0/2 0/2 0/2 0/2 0/2 0/6 0/6
Total 2/61 1/61 0/54 0/54 9/61 1/183
Overall total - ---- - 13/183
GATES RUBBER CO.
6.50-13 Air Float 0/0 0/0 0/0 0/0 0/0 0/0 0/0
7.00-13 Air Float Deluxe -.-- 0/0 0/0 0/0 0/0 0/0 0/0 0/0
7.35-14 Air Float Supreme 0/0 0/0 0/0 0/0 0/0 0/0 00
7.75-14/4 Ply/N Air Float Supreme 0/1 0/1 0/1 0/1 0/1 0/3 0/3
8.25-14/Super Silent Safety 0/0 0/0 0/0 0/0 0/0 0/0 00
8.55-14/4 Ply/N Air Float Supreme 0/1 0/1 0/1 0/1 0/1 0/3 0/3
8.15-15 Air Float Deluxe- . 0/0 0/0 0/0 0/0 0/p 00 00
8.45-15/4 Ply/PY Super Silent Safety 0/1 0/1 0/1 0/1 0 1 03 03
G70-15/4 Ply/N Commando XT Special... -,--.0/1 0/1 0/1 0/1 0/1 0/3 0/3
Total .--- 0/4 0/4 0/4 0/4 0/4 0/12 -
Overall total - - 0/12
GENERAL TIRE & RUBBER CO.
6.50-13/4 Ply/N Safety Jet - 0/1 0/1 0/1 0/1 0/1 0/3 0/3
6.50-13/4 Ply/N Safety Jet -- 0/0 0/0 0/0 0/0 0/0 0/0 00
6.50-13 Jet Air 11 0/0 0/0 0/0 0/0 0/0 0/0 0/0
6.50-13 Winter Cleat.. .0/0 0/0 0/0 0/0 0/0 0/0 0 0
7.00-13/4 Ply/N Safety Jet 1/3 0/3 0/3 0/3 0/3 0 9 19
700-13JetAir 0/0 0/0 0/0 0/0 0/0 0/0 0/0
121
Size and brand End HiSpd Str Bead Dim Lab Total
6.95-14 Jet Air 1 1 0/0 0/0 0/0 0/0 0/0 0/0 0/0
6.95-14/4 Ply/N Safety Jet... 0/1 0/1 0 1 01 0 1 03 03
7.35-14/4 Ply/N Safety Jet 0/3 0/3 0/3 0/3 0/3 0/9 0/9
7.55-14 Jet Air 1 1.. 0/0 0/0 0/0 0/0 0/0 0/0 0/0
7.7S-14 Safety Jet ....0/0 0/0 0/0 0/0 0/0 0/0 0/0
7.75-14/4 Ply/N Jet Air II 0/1 0/1 0/1 0 1 O/l 0 3 0 3
8.25-14/4 Ply/N Jet Air 1 1 O/l 0/1 0 1 0 1 0 1 0 3 0 3
8.25-14/2 Ply/N Jet Air 1 1.. 0/1 0/1 0/1 0/1 0 1 0 3 0 3
8.25-14 General Jet 0/0 0/0 0/0 0/0 0/0 0/0 0/0
8.55-14 Jet Air II 0/0 0/0 0/0 0/0 0/0 0/0 0/0
7.75-15 Safety Jet 0/0 0/0 0/0 0/0 0/0 0/0 0/0
8.15-15/4 Ply/N Jet Air 1 1_._ 0/1 0/1 0/1 0/1 0/1 0/3 0/3
8.15-15/4 Ply/N General Jet.... 1/1 0/1 0/1 0/1 0/1 0/3 1/3
8.45-15 Safety Jet 0/0 0/0 0/0 0/0 0/0 0/0 0/0
8.45-15 Dual 90 0/1 0/1 0/1 0/1 0/1 0/3 0/3
9.00-15/4 Ply/N Safety Jet _. 7/10 0/6 1/6 0/6 0/6 0/18 8/11
9.00-15/4 Ply/N Jet Arr I L. 0/1 0/1 0/1 0/1 0/1 0/3 0/3
Total.. 9/24 0/21 1/21 0/21 0/21 0/63
Overall total 10/67
B. F. GOODRICH TIRE CO.
6.50-13/2 Ply/RSilvertown 660 ...0/4 1/4 2/4 0/4 0/4 0/12 3/12
6.50-13/Custom Long Miler 0/0 0/0 0/0 0/0 0/0 0/0 0/0
7.00/6.50-13 4 Ply/PYSilvertown 770 ..0/1 1/1 0/1 0/1 0/1 0/3 1/3
7.00/6.50 13 4 Ply/N Custom Long Miler 0/1 0/1 0/1 0/1 0/1 0/3 0/3
7.00-13/4 Ply/RSilvertown 660 0/1 0/1 0/1 0/1 0/1 0/3 0/3
6.95-14/2 Ply/RSilvertow/n 660 0/1 1/1 0/1 0/1 0/1 0/3 1/3
6.95-14/4 Ply/N Silvertown 770 0/1 0/1 0/1 0/1 0/1 0/3 0/3
6.95-14/4 Ply/N Custom Long Miler 0/1 0/1 0/1 0/1 0/1 0/3 0/3
7.35-14/2 Ply/R Silvertown 660 0/1 0/1 0/1 0/1 0/1 0/3 0/3
7.35-14/4 Ply/PY Silvertown 770 0/2 1/2 0/2 0/2 0/2 0/6 1/6
7.75-14/2 Ply/PY Silvertown 660 0/1 0/1 0/1 0/1 0/1 0/3 0/3
7.75-14/4 Ply/Py Silvertown 770 0/2 0/2 0/2 0/2 0/2 0/6 0/6
8.25-14/2 Ply/R Silvertown 660 .,0/1 I/l 0/1 0/1 0/1 1/3 1/3
8.25-14/4 Ply/PY Silvertown 770 .,0/2 0/2 0/2 0/2 0/2 0/6 0/6
8.55-14/2 Ply/R Silvertown 660 0/3 1/3 0/3 0/3 0/3 0/9 1/9
8.55-14/4 Ply/PY Silvertown 770 __.. 0/1 0/1 0/1 0/1 0/1 0/3 0/3
8.85-14/4 Ply/NHTSilvertown 770... 0/1 0/1 0/1 0/1 0/1 0/3 0/3
185R14/6 Ply/R Silvertown 990... .,0/1 . 0/1 0/1 0/1 0/1 0/3 0/3
195R14/6 Ply/R Silvertown 990 ..0/1 0/1 0/1 0/1 0/1 0/3 0/3
7.75-15/4 Ply/N Custom Long Miler. ...0/1 0/1 0/1 0/1 0/1 0/3 0/3
8.15/15 Silvertown 660 .,,. 0/1 0/1 0/1 0/1 0/1 0/3 0/3
8.15-15 Custom Long Miler.. 0/0 0/0 0/0 0/0 0/0 0/0 0/0
8.45-15/2 Ply/R Silvertown 660 0/1 0/0 0/1 0/1 0/1 0/3 0/3
8.45-15 Silvertown 770 0/1 0/1 0/1 0/1 0/1 0/3 0/3
8.85-15 Custom Long Miler... 0/0 0/0 0/0 0/0 0/0 0/0 0/0
8.85/9.00/9.15-15/4 Ply/PY TrailmakerSilvertown 0/0 0/0 0/0 0/0 0/0 0/0 0/0
9.00-15 Silvertown 770 ..0/0 0/0 0/0 0/0 0/0 0/0 0/0
H70-15 Wide Profile ..0/1 0/1 0/1 0/1 0/1 0/3 0/3
Total : 0/31 6/31 2/31 0/31 0/31 0/93
Overall total. 8/93
GOODYEAR TIRE & RUBBER CO.
6.50-13/2 ply/PY Power Cushion .1/5 1/5 1/5 0/5 0/5 0/15 3/15
6.50-13 Power Cushion 0/0 0/0 0/0 0/0 0/0 0/0 0/0
7.00-13 Power Cushion.. 0/9 0/9 4/9 0/9 0/9 0/27 4/27
6.45-14/2 Ply/PY Power Cushion 0/1 0/1 0/1 0/1 0/1 0/3 C/3
6.95-14/4 Ply/N All Weather 0/1 0/1 0/1 0/1 0/1 0/3 0/3
6.95-14/4 Ply/PY Custom Power Cushion 0/1 0/1 0/1 0/1 0/1 0/3 0/3
7.35-14/4 Ply/N Safety All Weather 0/3 0/3 0/3 0/3 0/3 0/9 0/9
7.35-14/4 Ply/PY Power Cushion 0/1 0/1 0/1 0/1 0/1 0/3 0/3
7.35-14/4 Ply/PY Custom Power Cushion 0/1 0/1 0/1 0/1 0/1 0/3 0/3
7.75-14/4 Ply/PY Custom Power Cushion .0/1 0/1 0/1 0/1 0/1 0/3 0/3
7.75-14/2 Ply/PY Power Cushion 0/5 0/5 0/15 0/5 0/5 0/15 1/15
7.75-14 All Weather.... .,, 0/0 0/0 0/0 0/0 0/0 0/0 0/0
7.75-14/4 Ply/N Safety All Weather .0/2 0/2 0/2 0/2 0/2 0/6 0/6
,7.75-14 Marathon 0/0 0/0 0/0 0/0 0/0 0/0 0/0
'7.35/7.75-14 Thunderbird 0/0 0/0 0/0 0/0 0/0 0/0 0/0
8.25-14/4 Ply/PY Custom Power Cushion ....0/0 0/0 0/0 0/0 0/0 0/0 0/0
8.25-14 All Weather ..,_ 0/0 0/0 0/0 0/0 0/0 0/0 0/0
18.25-14/2 Ply/PY Power Cushion 0/3 0/3 0/3 0/3 0/3 0/9 0/9
" 25-14/4 Ply/N Marathon 0/2 0/2 0/2 0/2 0/2 0/6 0/6
55-14/4 Ply/N Marathon 0/2 0/2 0/2 0/2 0/2 0/6 0/6
55-14/2 Ply/PY Power Cushion 0/2 0/2 0/2 0/2 0/2 0/6 0/6
8.55-14/4 Ply/PY Custom Power Cushion... 0/1 0/1 0/1 0/1 0/1 0/3 0/3
H70-14/4 Ply/PY Speedway Wide Tread 0/1 0/1 0/1 0/1 0/1 0/3 0/3
H78-14 2/2 Ply-PY/FG Belted Bias Power Cushion 0/1 0/1 0/1 0/1 0/1 0/3 0/3
185R14/6 Ply/R Radial Power Cushion ....0/1 0/1 0/1 0/1 0/1 0/3 0/3
F70-14/4 Ply/PG Custom Wide Tread 0/2 0/2 0/2 0/2 0/2 0/6 0/6
D70-1 4/4 Ply/PG Custom Wide Tread 0/1 0/1 0/1 0/1 0/1 0/3 0/3
E70-14 Custom Wide Tread 0/0 0/0 0/0 0/0 0/0 0/0 0/0
122
Size and brand End HiSpd Str Bead Dim Lab Total
F78-14 Power Cushion 0/0 0/0 0/0 0/0 0/0 0/0 0/0
mAl'^erl!!^!::.:::::"::::::".: -oo oo o/o o/o o/o o/o o/o
195R14/6/2 Ply/R Radial Power Cushion --0/1 0 1 0 1 0 1 0 1 0 3 0 3
225R14 Radial Power Cushion - 00 00 00 0 0 0/0 00 00
205R14 Radial Power Cushion.. Op 0 0 0 0 0 0 0 0 0 0 0 0
7.75-15/2 Ply/PY Power Cushion.. -- 1/1 0/1 0/1 0/ 0 0/3 1/3
7.7^15 All Weather Safety... 0/0 0/0 0/0 1/1 1/1 0/3 13
7.75-15 Custom Power Cushion --00 00 00 00 00 00 00
8.15-15/2 Ply/PY Power Cushion. -02 0 2 0 2 0 2 0 2 0/6 0/6
8 15-15 Marathon 0/0 0/0 0/0 0/0 0/0 0/0 0/0
s.-ilSmpoweVcushion::::::::::....-. o/o o/o 00/ 0/0 0/0 0/0 0/0
8.45-15/2 Ply/PY Power Cushion 0/3 1/3 0 0 0/0 1/3 0/9 2/9
8.45-15/4 PlJ/N Safety All Weather 0/2 0/2 0/2 0/2 0/2 0 6 0/6
8 45-15 Double Eaele 0/0 0/0 0/0 0/0 0/0 0/0 /OO
mU C stm PoVeVCushion\\-::::::.. -oo o/o o/o 0,0 0/0 0/0 0 0
9.00-15/4 Ply/N Marathon - - ---0 1 0 1 0 1 0 1 0 1 0 3 0/3
9.00-15 Power Cushion - -00 00 00 00 00 00 00
9.00-15 Custom Power Cushion 0 0 0 0 0 0 0 0 0 0 0/0 0 0
9.15-15/4 Ply/PY Custom Power Cushion -.-0 5 0 5 0 5 0 5 0 5 0 15 0/15
215R15/6 Ply/R Power Cushion.... v--- 9/,\ 9/,\ T, n'/\ ?//i Kn n'/7
H70-15 2/2 Polyglas Belted Bias Custom Wide Tread.. -.0 1 0 1 0 1 0 1 0 1 0 3 0 3
F70-15 Speedway Wide Tread 0/0 0/0 0/0 0/0 0/0 0/0 0/3
G70-15 2/2 Polyglas Belted Bias Custom Wide Tread..... 0 1 0 1 0 1 0 1 0 1 0 3 0 3
235R15 Power Cushion — - 0/0 0/0 0/0 0/0 0/0 0/0 0/0
205R15 Power Cushion 0/0 0/0 0/0 0/0 0/0 0/0 0/0
Total --- 2/64 2/64 6/61 6/61 2/65 0/195
Overall total - - - ..^2/195
LEE TIRE & RUBBER CO.
F78-14GT Belted Fiberglas2/2Ply-PY/FG Belted Bias... 0/1 0/1 0/1 0/1 0/1 0/3 0/3
Total 0/1 0/1 0/1 0/1 0/1 0/3 .
Overall total ^'^
MANSFIELD TIRE & RUBBER CO.
6 50-13/4 PIv/N Premium --- 0/0 0/0 0/0 0/0 0/0 0/0 0/0
6 40/6 50-13 4 Ply/N T^^^^^^^ - — 0/1 0/1 0/1 0/1 0/1 0/3 0/3
6 95^ 35- 4 4 Ply/N Premium 0/0 0 0 0/0 0/0 0/0 0/0 0/0
6 95^31 4 4 P^/N Turnpike Triomphe.... -00 0/0 0/0 0/0 0/0 0/0 0/0
7 35-14/4 Ply/N Safe Service - - -0/0 0/0 0/0 0/0 0/0 0/0 0 0
7 75-14/4 PIv/N Premium -- 0/1 1/1 0/1 0/1 0/1 0/3 1/3
8 2^4/4 Ply/N Premium — 00 0 0 0/0 0/0 0/0 0/0 0/0
8 2l4 6Ply/NSafeSmice"::::::- 0 0 0/0 0 0 0/0 0/0 0/0 0/0
85- 44 p|y> Turnpike Triomphe...- -.0/0 0/0 0/0 0/0 0/0 0 0 0 0
8.5^14 4 PlJ/N Premium...... 00 00 00 00 00 00 00
8.55-14/4Ply/N Ultra Premium.. 0/1 0/1 0/1 0/1 0/1 0/3 0 3
8 85/9 35-14 4 PIv/N Premium 0/1 0/1 0/1 0/1 0/1 0/3 0/3
7 75^5/4 PlvVpemium 0 0 0 0 0 0 0/0 0/0 0/0 0/0
7 75^5/4 PIv/N Safe SeTvice"''" 0/0 0/0 0/0 0/0 0/0 0/0 0/0
8ll5 4Py/NpSm^^^ -" -00 0/0 0/0 0/0 0/0 0/0 0/0
sit 5/4 PIWNsKrvice" 0 0 0/0 0/0 0/0 0/0 0/0 0/0
sfellipiBuu'apYemiV 0 0 0/0 0/0 0/0 0/0 0/0 /
R 95/9 00-15 4 PIv/N Premium -. 1/1 0/1 0/1 0/1 0/1 0/3 1/3
roSi5-i5TurnyTr?om^he::::;:::::::::-..:.-.o/o o/o o/o o/o o/o o/o o/o
Total ...-- - -- 1/5 1/5 0/5 0/5 0/5 0/15 .
Overall total - -- ^/"
MC CREARY TIRE & RUBBER CO.
7 75-14/4 PIv/N Scott - 0/0 0/0 0/0 0/0 0/0 0/0 0/0
825^44Pv/NSco 01 01 0/1 0/1 0/1 0/3 0/3
9:oluSffiSTSe service--:::::::-". oi o/i o/i o/i o/i 0/3 0/3
E78-14/4 PIv/PY Scot Hawk 0/1 0/1 0/1 0/1 0/1 0/3 0/3
lu/4plpY Scot Hawk:::::::::::::..-- o/o o/o o/o o/o o/o o/o o/o
8.15-15/4 Ply/N scot Major.. 0 0 0 0 0 0 3 0 3
9 15-15/4 PIv/N Scot Maior ...0/1 0/1 0/1 0/1 0/1 0/3 U/3
F78-15/4 piyVpY Scot Hawkv:: :::::::::::::::: .:: . - . .0/0 0/0 0/0 0/0 0/0 0/0 0/0
Total 0/5 0/5 0/5 0/5 0/5 0/15 ..
Overall total -- .....--O/IS
123
Size and brand End HiSpd Str Bead Dim Lab Total
MOHAWK TIRE & RUBBER CO.
7.35-14/4 Ply/N Airflo 16/36 0/5 0/5 0/5 0/5 0/15 16/46
7.35-14/4 Ply/N Bonanza...- O/l 0/1 0/1 0/1 0/1 0/3 0/3
7.75-14/4 Ply/N Bonanza 0/1 0/1 0/1 0/1 0/1 0/3 0/3
8.25-14/4 Ply/N Airflo -. 0/1 0/1 0/1 0/1 0/1 0/3 0/3
8.55-14/4 Ply/N Bonanza I 1/5 0/5 0/5 0/5 0/5 0/15 1/15
E70~14/XR70 Wide Track 2/2 N/FG Belted Bias 0/1 0/1 0/1 0/1 0/1 0/3 0/3
G70-14/XR70 Wide Track 2/2 N/FG Belted Bias.... 0/1 0/1 0/1 0/1 0/1 0/3 0/3
7.75-15/4 Ply/N Airflo 0/1 0/1 0/1 0/1 0/1 0/3 0/3
Total 17/472 o/16 0/16 0/16 0/16 0/483
Overall total 17/79
UNIROYAL, INC.
6.50-13/4 Ply/N Super Safety 800 0/1 0/1 0/1 0/1 0/1 0/3 0/3
6.50-13/2 Ply/R Laredo 0/2 1/2 0/2 0/2 0/2 0/6 1/6
6.50-13/4 Ply/N Safety Air Ride 0/1 0/1 0/1 0/1 0/1 0/3 0/3
6.50-13/4 Ply/N Tiger Paw 0/2 0/2 0/2 0/2 0/2 0/6 0/6
7.00-13/2 Ply/R Laredo _ 0/4 0/4 0/4 0/4 0/4 0/12 0/12
6.95-14/4 Ply/N Tiger Paw.. _ _... 0/1 0/1 0/1 0/1 0/1 0/3 0/3
6.95-14/2 Ply/R Laredo 0/3 0/3 0/3 0/3 0/3 0/9 0/9
7.35-14/4 Ply/N Laredo 0/0 0/0 0/0 0/0 0/0 0/0 0/0
7.35-14/2 Ply/R Laredo 0/2 1/2 0/0 0/0 2/2 0/6 2/6
7.35-14/4 Ply/N Super Safety 0/0 0/0 0/0 0/0 0/0 0/0 0/0
7.75-14/4 Ply/N Laredo 0/3 0/3 0/3 0/3 1/3 0/9 0/9
7.75-14/2~ Ply/R Laredo 0/1 0/1 0/1 0/1 0/1 0/3 0/3
8.25-14/4 Ply/N Laredo.. _ _ 0/4 0/4 0/4 0/4 0/4 0/12 0/12
8.25-14/4 Ply/N Super Safety 800... ._.. 0/0 0/0 0/0 0/0 0/0 0/0 0/0
8.25-14/4 Ply/N Tiger Paw.. _... 0/1 0/1 0/1 0/1 0/1 0/3 0/3
8.55-14/4 Ply/N Laredo ...0/1 0/1 0/1 0/1 0/1 0/3 0/3
8.55-14/4 Ply/N Tiger Paw... _ 2/5 0/5 0/5 0/5 0/5 0/15 2/15
8.85-14/4 Ply/N Winter Patrol... 0/0 0/0 0/0 0/0 0/0 0/0 0/0
8.85-14/4 Ply/N Tiger Paw 0/1 0/1 0/1 0/1 0/1 0/3 0/3
E70-14/2 Ply/R Tiger Paw Wide Oval ..0/0 0/0 0/0 0/0 0/0 0/0 0/0
F70-14/2 Ply/R Tiger Paw Wide Oval 0/0 0/0 0/0 0/0 0/0 0/0 0/0
7.75-15/2 Ply/R Laredo 0/1 0/1 0/1 0/1 0/1 0/3 0/3
8.15-15/4 Ply/R Laredo 0/1 0/1 0/1 0/1 O/l 0/3 0/3
8.15-15/4 Ply/N Tiger Paw .0/2 0/2 0/2 0/2 0/2 0/6 0/6
8.45-15/4 Ply/N Laredo 0/0 0/0 0/0 0/0 0/0 0/0 0/0
8.45-15/4 Ply/N Master Royalty Steel Rein, tread ..0/0 0/0 0/0 0/0 0/0 0/0 0/0
8.85-15/4 Ply/N Laredo 0/0 0/0 0/0 0/0 0/0 0/0 0/0
9.00-15/4 Ply/N Tiger Paw ....0/1 0/1 0/1 0/1 0/1 0/3 0/3
205R15/6/3 Rayon Radial Ply Max 0/0 0/0 0/0 0/0 0/0 0/0 0/0
215R15/6/3 R/N Radial Ply Max 0/1 0/1 0/1 0/1 0/1 0/3 0/3
Total 2/38 1/38 0/36 0/36 2/38 0/114
Overall total... _ 5/114
> Manufactured by Uniroyal for Mohawk.
2 Includes 1 tire manufactured by Uniroyal for Mofiawk.
3 Includes 15 tires manufactured by Uniroyal for Mohawk.
C. PRESS RELEASE OF SENATOR GAYLORD NELSON CONCERNING THE TIRE TESTS,
MAY 11, 1969
Washington, D.C. — Senator Gaylord Nelson of Wisconsin Sunday released
test data from the National Highway Safety Bureau which shows that 18 per cent
of the tires tested for compliance with the federal tire safety standard failed
one or more tests.
"Although the test sampling represents only a small fraction of the total num-
ber of tires on the market, the results show a shockingly high failure rate,"
Nelson said.
"This information is vitally important to every American motorist. A concerted
effort should be made to assure that it reaches as much of the public as possible,"
he said.
The tests were run on 176 different sizes and brands of tires. Of these, 33
failed one or more tests. Nelson noted that there were over 100,000 different
brands and sizes of tires on the market.
Tires from all 15 major U.S. tire manufacturers were tested. Two-thirds of the
companies had one or more tires which failed the tests.
"This is obviously an industry-wide problem," Nelson said. "It is conclusive
evidence that the federal tire standards which are essentially the same as the
industry's own standards — are totally inadequate and should be updated — a fact
that has been known for a long time."
124
The Department of Transportation has recently taken the following action in
regard to the tire failures :
Persuaded two tire companies (Mohawk and General Tire) to institute
recall campaigns on three of their tires which failed the tests. No action has
been taken on the other 30 tires, however.
Announced an additional testing program of 1900 tires, begun in January,
to reconfirm the results of the initial tests. No results have been released at
this date.
Instituted legal action against the two tire companies who are recalling
tires.
"Although the Department's action is meaningful as a first step, it simply
doesn't go far enough," Nelson said.
"The Department ought to pour all available resources into the retesting pro-
gram and make the results, with all pertinent safety information, known to the
public as soon as each test is completed. Every day that this information is
withheld could threaten the safety of millions of American motorists," he said.
The retesting program is scheduled for completion at the end of June.
Tire test results
Follovping is information released by the National Highway Safety Bureau on
tires which have been tested for compliance with the minimum federal safety
standards for tires, under authority of the National Traffic and Motor Vehicle
Safety Act of 1966.
Of the 176 tires tested, 33 individual sizes and brands — or 18 percent — failed
one or more tests.
Fifteen US tire manufacturers were involved in the testing. Two-thirds of
these, including the 4 major manufacturers who produce about 75 per cent of all
tires, experienced one or more failures.
The number of tires chosen for the tests from each tire company was deter-
mined by that company's share of the total tire market. The actual selection was
done on a random basis.
The tests involved only replacement tires. No testing of original equipment
tires — which account for % of all tires produced — is being done by the Safety
Bureau.
The tests were conducted on special testing wheels by independent testing
laboratories under contract to the National Highway Safety Bureau. They were
performed between June and November, 1968.
Endurance. — Freedom from failui'e for a prolonged period under load.
High Speed. — Freedom from failure at high speed operation.
Strength. — Ability to withstand penetration
Bead Unseating. — Ability to adhere to rim
Dimensions. — Freedom from distortions in shape
Labeling. — Verification of accuracy of information on tires
A summary of the data shows the tire manufacturer, the number of tires
which were tested and the number which failed the tests :
Number
Number
Number
Number
Manufacturer
tested
failed
Manufacturer
tested
failed
Armstrong
15
1
B. F. Goodrich
23
6
Continental
1
0
Goodyear
Lee Tire
33
6
Cooper -
6
0
1
0
Denman
2
0
Mansfield.
5
2
Dunlop
5
2
McCreary
5
0
Firestone
36
8
Mohawk
8
2
Gates
4
0
Uniroyal
20
3
General
12
3
Attached is a complete listing of all failures by manufacturer, brand name,
size ; the tests they failed and the number of tires tested and failed. Following
that is a list of the tires which passed all the tests.
125
TIRE TEST FAILURES
Manufacturer
Brand name and size
Tests failed
Number of tires
Failed Tested
Armstrong
Dunlop---
Flrestone..
General Tire.
B. F. Goodrich.
Goodyear.
Mansfield
Mohawk.
UniroyaL
Premium Coronet, 7.35-14 High speed..
6.50-13/4 ply/R CT _ Endurance..
Strength...
Gold Seal 060, 7.75-14/4 ply/R High Speed.
Champion, 6.50-13/4 ply/N Endurance..
Deluxe Champion, 6.50-13/2 ply/R High speed-
Dimension..
Deluxe Champion, 6.95-14. ..do
Safety Champion, 7.35-14/4 ply/N do
Deluxe Champion, 8.55-14/2 ply/R Labeling....
Sports 2 ply/N, F70-14 wide oval Dimension..
"500" 8.15-15/4 ply/N Endurance..
Super Sport wide oval H70-15 Dimension..
Safety Jet 7.00-13/4 ply/N Endurance..
General Jet 8.15-15/4 ply/N 1 do
Safety Jet 9.00-15/4ply/N'.... Endurance..
Strength...
Silvertown,660 6.5O-13/2ply/R Highspeed.
Strength...
PY/Silvertown, 770, 7.00/6.50-13/4ply Highspeed.
Silvertown, 660, 6.95-14/2ply/R ..do
Silvertown, 7.35-14/4ply/PY..- do
Silvertown, 660, 8.25-14/2ply/R.. do
Silvertown, 660, 8.55-14/2ply/R .do
Power Cushion, 6.50-13/2ply/PY Endurance..
High speed.
Strength...
Power Cushion 7.00-13 Strength....
Power Cushion 7.75-14/2 ply/PY .do
Power Cushion 7.75-15/2ply/PY.. Endurance..
All Weather Safety, 7.75-15 Dimension. .
Power Cushion, 8.45-15/2ply/PY High speed.
Dimension..
Premium, 7.75-14/4ply/N High speed.
Premium, 8.95/9.00-15 4ply/N Endurance. .
Airflo, 7.35-14/4ply/N I ....do
Bonanza, 8.55-14/4ply/N 2 .do
Laredo, 6.50-13/2ply/R High speed.
Laredo, 7.35-14/2ply/R Dimension..
Tiger Paw, 8.55-14/4ply/N Endurance..
High speed.
1
6
6
4
2
4
4
3
3
6
1
3
2
3
1
18
6
4
4
1
1
2
1
3
5
5
5
9
5
1
1
3
3
1
1
34
5
2
2
6
7
I Recall campaigns for these tires have been instituted by the tire companies. The figures on failures represent addi-
tional testing. Initial tests involved on the average 3 tires for each brand and size.
- The Bonanza tire is manufactured for Mohawk by Uniroyal.
Note: The initials R, N, and PY following some of the tires refer to tire fabric, rayon, nylon, and polyester, respectively.
126
TIRES WHICH PASSED TESTS
ARMSTRONG
6,50-13/PT 100
6.50-13/PT 120/4ply/N
7.00-13/Pt 120
6.95-lVPT 120
7.75-lVPT 100/4ply/N
7.75-lV5Star/V2/N/FG
8.25-lVPremium Coronet
8.25-lVPT 120/4ply/N
8.25-lVPT 100/4ply/N
8.25-IV5 Star/2/2/N/FG
H70-lVSuper/HPC
8. 15-15/Premium Coronet
8.45-15/PT 120/4ply/N
9.00-15/PT lOOAply/N
CONTINENTAL TIRE COMPANY
165SRIV2/6 Rayon Continental
COOPER TIRE & RUBBER COMPANY
6.50/6.00-13 Starflre Imperial
7.35-lV4ply/R/Lifeliner
7.75-lV4ply/R, Starflre Imperial
8.25-l4Aply/R/Lifellner Premium
F70-lVWide Runner
8.45-15/4ply/N/Starfire Imperial
DENMAN RUBBER MFG. COMPANY
■7-35-lV^ply/N/Elegante Premium
8.15-15/4ply/N/Elegante Premium
DUNLOP TIRE & RUBBER COMPANY
8.25-l4Aply/N/Gold Seal
B.55-lV4ply/N/Golci Seal
8.15-15/4ply/N/Gold Seal c6o
FIRESTONE TIRE & RUBBER COMPANY
6.50-13/4ply/N/N-500
6.50-13/4ply/N/Safety Champion
7.00-13/4ply/N/N-500
7.00-13/Town & Country
7.35-1V2d1v/P/ Deluxe Champion
7.35-lVChampion
7.75-lVChampion
7. 75-lV4ply/N/Safety Champion
7.75-lV2ply/N/Deluxe Chamaion
8,25-lVTown & Country
8.25-l4Aply/N/Safety Champion
8.25-lV2ply/PY/Deluxe Champion
8.25-l4Aply/N/500
8.25-i4Aply/N/500 ss
8.55-lV^ply/N/Safety Champion
8. SS-lV+ply/N/Champion
8.85-lVDeluxe Champion
8.85-lV4ply/N/500
E70-14 Wide Oval Deluxe Champion
215R14 F-100/Rayon Ra-llal Ply
(Seconds)
8.15-15/4ply/N/Safety Champion
8.45-15/Champion
8.85-15/4ply/N/500
9.00-15/4ply/N/Safety
H70-15Aply/R/Town & Country
Wide Oval
205R15 F-lOO
6/2 Radial Ply Nylon
GATES RUBBER COMPANY
7.75~lV^ply/N/Alr Float Supreme
8.55-lV4ply/N/Air Float Supreme
8.45-15/4ply/PY/Super Silent
Safety
G70-15/4ply/N/Commando XT Special
GENERAL TIRE & RUBBER COMPANY
o.50-13/4oly/N/ Safety Jet
6.95-lV4ply/N/Safety Jet
7.35-lV4ply/N/Safety Jet
7.75-lV4ply/N/Jet Air II
8.25-lV4ply/N/Jet Air II
8.25-lV2ply/N/Jet Air II
8.15-15/4ply/N/Jet Air II
8.45-15/Dual 90
9.00-15/4ply/N/Jet Air II
B. F, GOODRICH
7.00/6. 50-13/4ply/N/Custom Long
Miler
7.00-13/4ply/R/Silvertown 660
6.95-lV4ply/N Silvertown 770
6.95-lV4ply/N/Custom Long Miler
7.35-lV2ply/R/ Silvertown 65o
7.75-lV2ply/PY/Silvertown 660
7.75-lV4ply/PY/Silvertown 770
8.25-lV''+ply/PY/Silvertown 770
8.55-lV4ply/PY/Silvertown 770
8.85-lV^Dly/N/HT Silvertown 7/0
l85RlV6piy/R/Silvevtown 990
195RlV6ply/R/ Silvertown 990
7.75-15/'J-ply/N/Custom Long Miler
8.15/15/Silvertown 660
8.i;5-15/2ply/R/Sllvertown 660
8.45-15/Silvertown 770
H70-15/Wide Profile
GOODYEAR
6.45-lV2ply/PY/Power Cushion
6.95-lV4ply/N/All Weather
6,g5-lV4ply/PY/Custom Power
Cushion
7.35-lV4ply/N/Safety All Weather
7.35-lV4ply/PY/Power Cushion
7.35-lV4ply/PY Custom Power
Cushion
7.75-lV4ply/PY/Custom Power
Cushion
7.75-lV4ply/N/Safety All Weathe.-
8.25-lV2ply/PY/Power Cushion
8 . 25-1 V4ply/N/Marathon
8. 55-lV4ply/N/Marathon
8. 55-lV2ply/PY/PowerCushlon
8.55-lV4ply/PY/Custom Power
Cushion
H70-l4,4ply/PY/Speedway Wide
Tread
H78-lV2/2ply-PY/FG, Belted Bias
Power Cushion
l85RlV6ply/R/Radial Power
Cushion
F70-lV4ply/PG/Custom Wide Tread
D70-lV4ply/PG/Custom Wide Tread
195RlV6/2ply/R/Radial Power
Cushion
8.15-15/2ply/PY/Power Cushion
8.45-15/4ply/N/Safety All Weathe-
127
GOODYEAR
9.00-1 5/4ply/N/Marathon
9.15-15Aply/PY/Custom Power
Cushion
215R15/6ply/R/Power Cushion
H70-15 2/2Polyglas/Beltea Bias
Custom Wide Tread
P70-15/Speedway Wide Tread
G70-15 2/2Polyglas/Belted Bias
Custom Wide Tread
LEE TIRE & RUBBER COMPANY
F78-14 GT Belted Fiberglas,
2/2ply-PY/FG Belted Bias
MANSFIELD TIRE & RUBBER CO.
6.40/6.50-13
4ply/N/Turnpik.e 100
8.55-lV4ply/N Ultra Premium
8.85/9. 35-W 4ply/N Premium
MCCREARY TIRE & RUBBER COMPANY
8.25-lV4ply/N/Scott
9.00-lV^ply/N/Triple Service
E78-lV^ply/PY/Scot Hawk
8.15-15/4ply/N/Scot Major
9. 15-15/4ply/N/Scot Major
MOHAWK TIRE & RUBBKR riOMPANY
"7. 35-l^^/4ply/N/Bonanza
7 . 75-1 V^ply/N/Bonanza
8.25-lV4ply/N/Airflo
E70-lVXR70,Wide Track 2/2 N/FG
Belted Bias
G70-1VXR70. Wide Track 2/2 N/FG
Belted Bias
7. 75-15/^ply/N/Airf lo
UNIROYAL, INC.
6.50-13/4ply/N/SuDer Safety 8OO
6.50-13/4ply/N/Safety Air Ride
6.50-13/4ply/N/Tiger Paw
7.00-13/2ply/R/Laredo
6.95-lV^ply/N/Tiger Paw
6 . 95-1 V2ply/R/Laredo
7. 75-lV'''piy/I'f/Laredo
7.75 lV2ply/R/Laredo
8.25-lV''+ply/N/Laredo
8.25-lV^ply/N/Tiger Paw
8. 55-lV^ply/NAaredo
8.85-lV^ply/N/Tlger Paw
7. 75-15/2ply/R/Laredo
8.15-15/^ply/R/Laredo
8.15-15/4ply/N/Tiger Paw
9.00-15/4ply/N/Tiger Paw
215R1 5/6/3 R/N Radial Ply Max
128
Mr. Mann. That was before my
Senator Nelson. It became necessary for regulations to be estab-
lished by the Congress to require the industry to meet some standards,
all the industry, which I guess is a point you concede. ^
Mr. Mann. Yes, sir. I think that is sound economics. Senator, and I
think you would agree, too, that it is sound economics that the whole
purpose of the competitive system is to produce a product of the high-
est possible quality at the lowest possible cost. And in order to stay in
business you have got to take into account what your competitors'
prices are. This is the real justification of the standards. One company
gets way out ahead of all the others and puts on features that cost an
extra $200, his sales are going to decline very sharply because the re-
cord is very clear that, to give you an example, the single most ef-
fective safety feature on a car is the seatbelts and those seatbelts were
offered as optional equipment years before the standards.
If my memory is correct, and I would like to correct this in the rec-
ord after looking it up, I think less than 3 percent of the people
bought them, and now that they are obliged to buy them, because they
are standard equipment. The tragedy is that very, very few people
use them, and as you yourself were saying, the mere use of the fea-
tures in the car that are available would reduce fatality rates maybe
by — I don't think any of us know exactly what the percentage would
be, but it might be as high as 50 percent. This is all I am saying here.
I am saying that people are talking about bringing the fatality rate
down and there are many, many aspects to traffic safety besides the
vehicle. "What I am trying to say is that there are limits in physics
to the amount of energy that a car can absorb and the amounts of g.
forces that the human body can safely withstand. So if we are serious
about really bringing down the fatalities we have got to attack this
problem on a wide front. I have spent a great deal of my time working
at this and I am just as much in favor of bringing this down, maybe
more than most, because I am conscious of it.
Senator Nelson. I think the best studies indicate that if you can
hold the passenger in his position in the car, when the space within
the car isn't compressed so much that there is no room for the passenger,
the passenger is going to survive. And our efforts should be aimed at
producing an automobile that will protect and conserve the space
within that automobile and hold the passengers within that space.
And if that is accomplished, you can save most drivers in accidents,
according to every study that has been made. I don't want to get off
into a safety argument here with you. I personally don't feel that
the industry has done adequate work in providing a vehicle that will
protect the passenger in that space. Crash bars could be in the auto-
mobile in order to protect it when it rolls or turns or crashes. But that
is another
Mr. Mann. Senator, if you are really interested in this subject,
and I am sure you are, I would invite you and your staff, anybody
else who wants to come, to come with me to Detroit. We will get
you back in a very few hours. We would like to take you through our
research centers, show you what we are doing, take you out on the
proving grounds to show you the enormous efforts that is being made.
We would like to talk to you about the technical problems, and believe
me, they are very complex. And I think you would come away with
129
the idea — with the conviction and proof — that the industry has been
workinjy hard at safety for many, many years and that they have
done a great many things to improve the safety of the automobile.
The automobile today is far safer than it was a decade ago.
Senator Nelson. We had an interesting example of that I thought
about 10 years ago in Wisconsin where an old model T Ford ran into
a new Cadillac and the Ford went away without a dent and there was
about $700 worth of damage to the Cadillac. Ford had steel in the
fender that folded up the Cadillac. But nobody was hurt.
Well, go ahead. It is my fault for getting diverted here.
Mr. Mann. Senator, you are not really saying that the model T
Ford — I used to drive one, I have driven cars for 40-odd years — you
are not saying a model T Ford with those two mechanical rear brakes
and the steering uncertainty, where you had to manage the windshield
wiper by hand, and so forth, you are not saying that is a safer car than
a Cadillac today, are you ?
Senator Nelson. All I said is they ran into each other and that the
Cadillac barely walked away.
Go ahead.
Mr. Mann. There is no evidence that defects in vehicles which are
properly maintained and used for the purposes for which they were
designed cause a signficant percentage of fatal accidents. There are
limits to the amount of energy which the vehicle itself can absorb as
well as limits to tlie forces which the human being can withstand. I
repeat, we should and wdll continue to search for every feasible way to
make the vehicle safer but we must, if we are to be effective, support
a balanced comprehensive program embracing all important aspects
of traffic safety.
There is no credible evidence I am aware of that innovation in safety
would be increased by increasing the number of firms in the industry.
There is abundant evidence that automotive manufacturers have been
the principal innovators in vehicle safety. Automotive supplier com-
panies have also been active in designing and selling safety related
automotive components.
Manufacturing companies continue individually to conduct large-
scale safety research and development programs. As illustrative of the
scope and quality of the work being done by individual companies, the
committee might be interested in reading the printed report of an auto-
motive safety seminar which one of the companies sponsored about a
year ago. This is only illustrative. Senator, because this is a report of
papers by automotive safety technicians in one seminar held a year
ago.
Senator Nelson. Who sponsored it ?
Mr. Mann. You have a copy up there, I am sure, but if not, I will
be happy to hand this to you.
Senator Nelson. We will be glad to have it for the committee files.
(Note. — A determination was subsequently made to include in the
printed record excerpts from the document referred to. They follow:)
130
Exhibit 17
(Automobile Manufacturers Association's exhibit No. 7 (excerpts*): "Pro-
ceedings, General Motors Corporation Automotive Safety Seminar, GM Safety
Research & Development Laboratory ,'General Motors Proving Ground, Milford,
Mich., July 11-12, 1968.")
mm
GENERAL MOTORS CORPORATION
AUTOMOTIVE SAFETY SEMINAR
GM
SAFETY RESEARCH & DEVELOPMENT LABORATORY
General Motors Proving Ground, Milford, Mich., July 11-12, 1968
•The exhibit consists of 32 technical papers and introductory addresses by two General Motors execu-
tives. Because of its length and specialized nature, only the following excerpts are being included. The
complete exhibit is retained in the committee's files.
131
PREFACE
The papers which were presented at the General Motors Safety Seminar
and are published in this volume are intended primarily to describe some
of the work being done by General Motors as part of its continuing effort to
acquire more knowledge of the broad and complex field of automotive safety.
While we are proud of what has already been accomplished, emphasis must
be placed on progress to be made in the future. In the interest of motor
vehicle safety, it is hoped that this contribution to the literature will be of
some assistance to other researchers in this field.
Some of the papers present particular vehicle characteristics in terms of
goals which are ideals. It is realized that some of these goals may never
be reached.
Many papers discuss laboratory testing. These tests are important to
improvement of motor vehicle safety, yet have significant restrictions.
Correlation between laboratory tests and actual road conditions is elusive,
taking considerable time to develop and sometimes never fully attainable.
Similarly, the functioning of prototype systems under laboratory conditions
does not assure that such a system can immediately be incorporated into
production vehicles. There almost always are problems of proving reli-
ability of design and of materials, developing mass production machinery,
and accomplishing integration with other components of the vehicle. In
addition, after production feasibility is satisfactorily established, there is
the normal lead time for tooling and tool tryout.
To have set forth in individual papers the various practical limitations
indicated above, already well known to automotive engineers, would have
unduly lengthened these papers and detracted from the interest of their
subject matter. But to avoid misunderstanding the significance of these
papers, each must be read in the context of all such applicable practical
limitations.
32-493 O— 69— pt. 1 10
132
Highway safety has been the subject of continuing
research and development by General Motors since
its founding almost 60 years ago. Our studies have
been primarily directed tow/ard improvements in the
vehicle itself, but also have included important work
in highway design and human factors related to high-
way safety.
Through thesestudies.GM has continuously broadened
its knowledge in this complex field, knowledge which
has been translated into substantial year-after-year
improvements in the built-in safety characteristics
of our cars and trucks. Among the more important
recent GM safety innovations have been the energy-
absorbing steering column and a new development
incorporating steel beam guardrails inside of door
panels for added occupant protection in side collisions.
Further improvements can and will be made in the
safety of motor vehicles. Progress toward this ob-
jective can be enhanced by a continuing exchange of
meaningful research and engineering information in
the safety field.
This was the purpose of the GM Automotive Safety
Seminar. We tjelieve it is most appropriate that this
Seminar was held in conjunction with the dedication
of the industry's most extensive new automotive
safety facilities — the Safety Research and Develop-
ment Laboratory and the Vehicle Dynamics Test
Area at the General Motors Proving Ground at
Milford, Michigan. We hope the GM Automotive
Safety Seminar will provide useful information which
will contribute to continuing progress in highway and
motor vehicle safety improvements on all fronts.
Vice President
In charge of Engineering Staff
frrmmi
133
CONTENTS
MANAGEMENT OF THE GENERAL MOTORS SAFETY PROGRAM"
H. F. Barr, Vice President in charge of Engineering Staff
GENERAL MOTORS AUTOMOTIVE SAFETY POLICIES"
H. G. Warner, Executive Vice President
1. "A SECOND GENERATION IMPACT SLED FACILITY"
by Robert L. LeFevre, Thomas R. Kolhoff, and William G. Cichowski
I. "COLLECTING IMPACT TEST DATA"
by David T. Siems and Richard A. Wilson
}. "A TECHNIQUE FOR MEASURING LOCAL IMPACT PRESSURES"
by William K. Miller and Seymour Katz
1. "PROCESSING IMPACT TEST DATA"
by Robert A. Rogers and John A. VanHaaften
5. "RELIABILITY TESTING - DYNAMIC SAFETY"
by William S. Freas, Alonzo H. Kelly, Jr., and Charles J. Elder
3. "THE APPLICATION OF ANTHROPOMETRY TO AUTOMOTIVE DESIGN"
by Ronald W. Roe and Peter Kyropoulos
1. "A THIRD GENERATION TEST DUMMY -- SOPHISTICATED SAM"
by William G. Cichowski
3. "TRAMASAF" - "THE DEVELOPMENT OF A LABORATORY INSTRUMENT FOR TRAUMA
INDICATION - A PROGRESS REPORT"
by Harry G. Holcombe and Donald M. Herod
}. "A STUDY OF HEAD AND FACL\L BONE IMPACT TOLERANCES" "*
by Charles W. Gadd, Alan M. Nahum, M.D., James Gatts, M.D., and John P. Danforth
3. "EVALUATION OF DRIVER VISION"
by Anthony J. Gioia and Clarence E. Morphew
1. "FIELD ACCIDENT RESEARCH"
by Wilton D. Nelson and Richard A. Wilson
2. "STATUS OF ENERGY ABSORPTION IN STEERING COLUMNS"
by Donald P. Marquis and Thomas Rasmussen
3. "SIDE IMPACT STRUCTURES"
by Carl E. Hedeen and David D. Campbell
4. "ROOF AND WINDSHIELD HEADER CONSTRUCTION"
by Edwin H. Klove, Jr. and Gerald W. Ropers
5. "PROVIDING INCREASED SURVIVABILITY IN PASSENGER CAR INSTRUMENT PANELS"
by Vernon D. Halliday, Harry G. Holcombe, Ben C. Parr, and Donald R. Hoover
6. "RESTRAINT SYSTEMS - DESIGN AND PERFORMANCE PARAMETERS"
by James C. Louton, Jr. and Thomas Ruster
7. "FRONT STRUCTURAL STRENGTH AS IT AFFECTS OCCUPANT INJURY- REDUCTION
AND SURVIVAL"
by Paul R. Johnson and William E. Wiltse
"A 67-ACRE VEHICLE HANDLING LABORATORY"
by Richard G. Hoffman and Donald L. Nordeen
134
19. "MEASUREMENT OF VEHICLE DIRECTIONAL CONTROL PROPERTIES"
by R. Thomas Bundorf and Richard C. Moore
20. "GENERAL MOTORS PROVING GROUND TIRE TEST FACIUTIES AND EQUIPMENT"
by David D. Anderson, Alonzo H. Kelly, Jr., Eraser D. Smithson, and Jack J. Krauss
21. "ANTI-LOCK BRAKES"
by John L. Harned and Laird E. Johnston
22. "TIRE PROPERTIES AFFECTING VEfflCLE RIDE AND HANDLING"
by Donald L. Nordeen, Joseph B. Bidwell, and Richard E. Rasmussen
23. "THE DRINKING DRIVER PROBLEM"
by David R. McLellan and Charles J. Brady
24. "DRIVING SIMULATOR"
by Randall E. Beinke and Jerry K. Williams
25. "TRAINING DRIVERS FOR EMERGENCIES"
by Richard G. Hoffman, David R. McLellan, and Alonzo H. Kelly, Jr.
26. "TRAFFIC CONFLICT CHARACTERISTICS"
by Joseph I. Harris and Stuart R. Perkins
27. "THE DETROIT CITIZENS BAND RADIO DRIVER AID NETWORK"
by Herbert J. Bauer and Clark E. Quinn
28. "VEHICLE LIGHTING"
by Rex W. Oyler, Harry C. Dumville, and Joe W. Murphy
29. "THE NEED FOR UNIFORM INTERNATIONAL SAFETY STANDARDS"
by Robert E. Woolcott and Timothy A. Hunter
30. "GM MEETS THE CHALLENGE OF WORLD WIDE MOTOR VEHICLE SAFETY"
by Donald G. Hedeen, Eberhard Heyne, Manfred L. Wolf, and Jack A. Waller
31. "TRUCK AND BUS SAFETY"
by Wallace E. Whitmer and William E. vonKampen
32. "A STUDY OF AUTOMOBILE FUEL TANKS"
by Jack B. Ridenour, Robert C. Stempel, R. James Benner, and C. Alan Crawford
List of "Safety Seminar" participants
135.
MANAGEMENT OF THE GENERAL MOTORS SAFETY PROGRAM
by
H. F. Barr — Vice President in Charge, Engineering St ff
is indeed a pleasure for me to participate
this program today. The dedication of these
/ safety facilities represents another im-
tant step in the advancement of vehicle
ety programs at General Motors. The new
ilities which you will see and hear about
morning are like the tip of an iceberg -
re is a lot more beneath the surface in past
elopment that you cannot see.
fact, virtually every facility or piece of
ipment added through the years at the Prov-
Ground has contributed to a safer, more
able General Motors product. Our con-
ling vehicle safety efforts over the
rs have involved three major objectives.
!se are reliability, controllability and
shworthiness.
Figure 2
Cars of today are designed to help drivers see
where they are going; to communicate their
intentions to each other; and to let them
react naturally and easily to changing traffic
situations.
Figure 1
)duct reliability is based on years of ex-
ience in engineering, testing and production,
in terms of the safety, performance and
vice of these cars in the hands of owners,
linst the background of proven performance
endeavor to increase the safety of the com-
e vehicle system year after year.
itrollability of motor vehicles, our second
3ctive, is fundamental to safety. Avoiding
accident in the first place is the most
ctive way we know of reducing the level
raffic deaths and injuries.
le of our most important achievements in
past have been directed toward making the
an extension of the driver's own reflexes.
Figure 3
Virtually all the roads you will see here
are designed to develop and evaluate the con-
trollability built into our vehicles.
As a matter of fact, the original concept for
this Proving Ground grew out of a need to
decide whether General Motors should equip
its cars with four-wheel brakes, a question
directly related to controllability and safety.
This was in the early twenties.
In addition to the work done at the Prov-
ing Ground, controllability is under continuous
evaluation by the Engineering Staff, as shown
in this laboratory roll- rate test, the car and
136
Figure 4
truck divisions and many of our automotive
component divisions. Controllability is a basic
engineering assignment and continues to have
a top priority.
Figure 5
This brings us to our third major objective --
crashworthiness, which is not a new field of
endeavor for General Motors. The term crash-
worthiness includes the means to protect the
occupant in the car as well as the structural
integrity of the vehicle itself. We can't stop
drivers from having some accidents, but we
Figure 6
do want to make our vehicles as safe
technology will permit in the event an acci
does occur. The four occupants of this
Oldsmobile F-85, for example, did survi
rollover accident, with the worst injury t
a minor concussion. The car went throu
guardrail and down an embankment at a
60 MPH. You will see it among other;
display during the laboratory tour.
a?**^*
Figure 7
Rollover tests and barrier crash tests
conducted here at the Proving Groimd as '
as 1934. One rollover test of that time
sisted of tipping a car on its side and all(
it to roll over down a hill. While roUove)
procedures have been greatly improved
that time, current test practices lean
toward imposing a force on the structu
the body by dynamic procedures and
test devices.
Barrier tests also have progressed thro' i
number of stages. In 1934 a test driver • r
bring the car up to the designated speei i
jump out just before the car reached a. n t'
shift barrier. Then, for a number of y f
we would direct unmanned cars down
Figure 9
ard a barrier made up of portable concrete
cks. Later, remote driving systems were
eloped. Today we use a cable tow system
a permanent, fully instrumented barrier
t side.
Figure II
safety test facilities, equipment and programs
indicates the pioneer role played by GM in
vehicle safety. The new facilities you will
visit today represent further tangible evidence
of GM's continuing leadership in seeking to
extend the parameters of knowledge in this
important field.
NEW
PROVING GROUNDS
SAFETY FACILITIES
SAFETY RESEARCH & DEVELOPMENT LABORATORY
TIRE TEST LABORATORY
VEHICLE DYNAMICS EVALUATION PAD
Figure 10
ectly related to our efforts to improve
rior occupant protection was the develop-
it of a hydraulic snubber device in 1955.
Uowed us to stop a car with a force equal
that achieved in a barrier crash without
troying the vehicle. With this snubber de-
, we were able to study occupant motions
the impact performance of various interior
iponents.
in turn led to the development of the first
scale indoor impact sled in 1962. Today
will see two improved versions of this
1 which are now installed in this new Safety
earch and Development Laboratory. Data
eloped through the constantly improving
inology of crash testing have contributed
stantially to the high level of crashworthi-
s that GM cars have today.
thumbnail history of Proving Ground
Figure 12
There are limitations, however, imposed by
the current level of technology and by certain
physical laws of nature which restrict advances
in automobile safety.
Practical considerations also are a factor. For
example, we like to take advantage of the front
end crush distance in our vehicles to help dis-
sipate impact forces. However, there is a point
at which increased crush distance becomes
impractical. If two feet of front end crush
helps enable a restrained occupant to survive
the forces of a 30 mile-per-hour impact, it
would take 8 feet of front end crush to limit
these forces to the same level in a 60 MPH
impact, or 18 feet at 90 MPH. Eighteen feet is
equivalent to the entire length of a Pontiac
Grand Prix. Thus although added crush dis-
tance in varying degrees presents a techni-
cally feasible solution to increasing front-end
138
more capable of coping with such critical c
ing situations?
Figure 16
The tolerance of the human body to im
of all sizes, directions and velocities n
sents another factor. Consider the vasi
ferences between the physiological mal
of a plump, two-year old child, an adult i
maturity, a woman in the latter stagf
pregnancy, or a person made fragile by a
all of whom ride in cars and must be prot
from accidental injury.
Figure 14
crashworthiness, it has practical limits of
application. Therefore, we need to balance
performance and look for alternative workable
solutions. Our new facilities will accelerate
the answers to this quest to solve the complex
problems in vehicle safety design.
t^S^*^
Figure 15
We also need to know more about the people
who drive and ride in our cars. How do aver-
age drivers respond to emergency situations
such as a high-speed skid or sharp turn or bad
weather? Would special training make them
And our designs for occupant protectioi
must take into account all tj-pes of autom^
involved in any form of impact whethei
a front, rear, side or rollover coUisior
secure necessary facts about the i
phenomena, GM is demolishing 400 ve
per year, and we are running over
simulated crashes a year on our impact
I hope this gives you a better understj
of the magnitude and complexity of the
ables in the task of improving vehicle s
139
leet this challenge, we have assembled
at the Proving Ground and at the Tech-
Center in Warren, shown here, a pool of
inding scientists, engineers and other
Leal experts. The new facilities being ded-
today will provide them with more
STAFF OPERATIONS
Proving Grounds / ^
Safety R&D Lab. -
Engineering Staff CONCEPTS
AND
Research Laboratories DATA
Styling Staff
Outside Consultants
Figure 19
ive tools with which to develop an ex-
d flow of information so vital to continu-
•ogress.
how do we use this information? The
Proving Grounds, the new safety laboratory and
all the safety work under way at staff level:
Engineering, Styling and Research -- with out-
side inputs as well -- must be coordinated and
directed to the needs of our car and truck
divisions. Only the car and truck divisions are
equipped to convert these concepts into pro-
duction realities.
The process includes an exhaustive program
of design, prototype build, testing and develop-
ment within the divisional engineering de-
partments, followed by the manufacturing
operations of tooling, production and assembly.
Figure 20
Figure 2)
The new facilities you will see today are vital
tools for the divisions throughout the various
stages of hardware development. They also
provide information which will help determine
areas of greatest safety potential in future
development programs.
Now let me tell you a little about these new
facilities.
The Safety Research and Development Labora-
tory has 120,000 square feet of floor space
dedicated completely to safety work at the
proving ground. This most modern facUity
allows us to concentrate all of our indoor
safety test equipment in a central area, and
to improve our capabilities for collecting and
analyzing test data.
In a few moments we will begin a tour of the
laboratory. One of the first stops will be a
brief visit with our film analyzer. A typical
impact is over within a half a second. This
device allows us to study high-speed motion
pictures of the test in stop action, frame-by-
frame sequence. The analyzer can lock on a
certain physical reference point in each frame,
feed this information to a computer which, in
140
Figure 22
turn can then produce a chart referencing this
point against milliseconds of time.
We will visit the instrumentation laboratory
where we develop specialized test equip-
ment as well as repair, assemble and cali-
brate such instruments as strain gauges and
accelerometers.
Figure 23
Then you will see three test devices set up on
test beds.
The most prominent of these is a torso impact
of a steering control system. In this devic|«;
propel a dummy torso down a mini- sled
a steering wheel assembly. There will
head impact test in which a headform, moi
on a lever, is triggered down onto an in;
ment panel. And we will also demonstr:
knee impact test in which a simulated
form is accelerated into an instrument p
All three devices were specially develop
General Motors.
Figure 25
We will inspect the interior of a reco
van which transports recording instrur
to the site of any impact test. The
eqmpment can give us read- outs on
20 different impact phenomena rec(
simultaneously.
Of great interest to most of you, I am
will be the two impact sleds, one of whicl
be fired in a demonstration.
Figure 24
Figure 26
These sleds are improved versions c
original model shown earlier. For exa
they have 50% longer rails which enable
conduct a complete test before applying br j
141
n; longer, movable light banks provide
complete photographic coverage; and im-
d sequencers check the "ready" status
greater number of items before a sled
iMrA
Figure 27
/ill also demonstrate a drop test in our
hree-story silo, and show you our dummy
r shop and "head factory."
Figure 28
ly, we will take a look at some results
e accident investigation team. Thus far
ave compiled records of about 600 real-
raffic accidents involving the GM energy
•bing steering column -- data indicating
this system is saving lives and reducing
,es.
dll then visit our Tire Performance Lab-
ry, where we have assembled a wide
of test equipment. We will inspect sev-
dynamometers which test tires under high
high load and other simulated severe
ig conditions. The dynamometers can run
snded around the clock. Their fully auto-
1 controls can change and record tire
Figure 29
Figure 30
inflation pressure, load, speed, and other test
factors. Also, you will see X-ray equipment
that can look through a tire and check its
construction.
Our braking traction vehicle and drive traction
vehicle used to measure the gripping ability of
tires and road surfaces will be demonstrated.
Figure 31
We will then return to the lobby and board
buses to go to our Vehicle Dynamics Test Area,
the second facility we are dedicating today.
142
Figure 32
On the way we will stop for a brief explanation
of the outdoor impact test facility and a review
of several hundred vehicles that have been
crash tested.
Figure 33
The major feature of the Vehicle Dynamics
Test Area is an immense 67-acre blacktop
surface which we use for high-speed vehicle
control tests of extreme severity, and for
driver training in emergency situations. The
Area can be entered from either end from
large paved loops that allow the test driver to
build up his speed before testing.
At the Vehicle Dynamics Test Area you will
observe various demonstrations designed to
safely test both vehicle and driver responses.
The size and construction of this area allows
us to run a wide variety of such tests and at
higher speeds than has been possible in the
past.
Alongside the large, paved area to your right,
is a narrow, straight, 3/4 mile stretch of
blacktop used for vehicle evasive maneuvers.
Here we test both vehicle and driver response
Figure 35
Your visit today and tomorrow is a preli
what we hope will be the first of many te
cal seminars on safety, during which Ge
Motors can distribute information that
accelerate safety improvements on the b;
est possible front.
Before commencing the tour, I should adi
we have other facilities here at the Pr
Ground which, to a greater or lesser de
are related to safety. They work in such ;
as vision, shown here, brakes, lighting
handling. The Test Engineering group
thousands of specific evaluations on our
and competitive products. An annual higl
is the 40,000-mile accelerated durability
which audits GM and other vehicles. W«
here a display of disassembled cars after
a test.
143
Figure 37
■s safety our industry has another vital
it area and that is the control of auto-
air pollution. To aid the tremendous
Figure 38 '
ering effort reqmred in this field, the
ig Ground operates several emission
1 laboratories, and performs General
3 emission control certification and du-
y evaluations for the car divisions.
il Motors also has many other safety
Figure 39
activities not located at the proving ground.
These include facilities at the Research
Laboratories, Engineering Staff, Fisher Body
and Ternstedt Divisions -- all at the Technical
Center. Many General Motors supplier divi-
sions and each car and truck division also have
their own specific safety- oriented product de-
velopment test facilities.
Figure 40
The General Motors Reserach Laboratories at
the Technical Center in Warren, Mich., has
conducted important research in biomechanics
related activities, and works closely with out-
side agencies such as Wayne State University
in these studies. Their work influences the
shape and construction of instrument panels,
windshield glass, and other areas where vehi-
cle design must be predicated on forces that
can be sustained by the human body.
Our Styling Staff at the Technical Center plays
an important part in human engineering. It is
responsible for developing package sizes and
future packaging concepts, with active projects
covering such areas as vision, reach of con-
trols, and occupant space relationships.
144
Figure 41
ENGINEERING STAFF
DEVELOPMENT ENGINEERJNG
Engines
Transmissions
Chassis
Figure 42
Engineering Staff has a Development Engineer-
ing Group responsible for new products and
components two-to-five years ahead of pro-
duction. Some of its specific safety- related
projects are vehicle handling, advanced vehicle
braking, and occupant restraint concepts.
AUTOMOTIVE SAFETY ENGINEERING
Corporation Safety Activities
• SAFETY RESEARCH &
. DEVELOPMENT LABORATORY
• SAFETY PROGRAM COORDINATION
• STANDARDS DEVELOPMENT
• COMPLIANCE & SERVICE
• RESEARCH CONTRACT
Figure 43
Also at Enginerring Staff, the Automotive
Safety Engineering department, under Mr.
Lundstrom's direction, coordinates all safety
activities withing the corporation includi
work of the Safety Research and Develo
Laboratory as well as the safety proj
throughout the corporation.
This is the engineering group that repn
General Motors to the National Highway
Bureau in matters involving standards]
velopment, compliance and service
research contracts. Standards developmel
quires extensive work with the Autorl
Manufacturers Association, General M
Legal Staff, and Public Relations Staff.
Figure 44
In addition to the broad spectrum of tale
technology represented by the staffs ai
visions, we make use of consultants wh
specialists in many areas. Examples art
cialists in human tolerance to injury,
accident investigation and medicine, wh(
us their objective views of our developr
Their findings are continually brought
attention of our safety development engi
and worked in their programs. We also i
available data from many other r
sources -- both inside and outside ourind
Safety developments from any area are as
of prompt attention and constant review th
all levels of the corporation by a strear
communications system.
These proposed improvements first are :
duced to the General Motors Automotive ;
Subcommittee consisting of a safety r
sentative of each vehicle and body div
Recommendations are then forwarded t
chief engineers of the automotive and
divisions plus central office staff execu
who form the General Technical Comm
145
■NERAL MOTORS SAFETY IMPROVEMENTS
GENERAL MOTORS SAFETY IMPROVEMENTS
ENGINEERING POLICY GROUP
GENERAL TECHNICAL COMMITTEE
AUTOMOTIVE SAFETY SUBCOMMITTEE
AUTOMOTIVE SAFETY SUBCOMMITTEE
Figure 45
Figure 48
General Technical Committee. Final approvals
are made by the Engineering Policy Group that
includes our chairman, our president, and all
the executive vice presidents.
The many minds in this total organizational
structure assure the corporation of a broad,
vehicle safety program.
GENERAL TECHNICAL COMMITTEE
AUTOMOTIVE SAFETY SUBCOMMITTEE
Figure 46
Figure 47
technical approval these proposals are
rded to the Safety Review Board. This
is a small committee of GM officers
'eview safety programs submitted by the
Everyone within the corporation, from Mr.
Roche to the man on the drawing board, is
conscious of the responsible roles they play
to improve the safety of our transportation
system.
The material you will see presented here
during the next two days represents a total
participation of all divisions and staffs, as well
as Proving Ground personnel.
They have worked hard, with the expectation
that this may become the first of many future
successful seminars on highway safety, during
which General Motors can continue to share its
acquired knowledge in this field. It is our hope
that in doing so, safety improvements may be
accelerated on the broadest possible front.
If a seminar of this scope can stimulate the
accumulation of new knowledge on accident
avoidance and occupant protection, it will
represent another contribution to the advauice-
ment of highway safety.
It is a goal that General Motors feels is worth
pursuing vigorously.
146
General Motors Automotive Safety. Policies
(By H. G. Warner, Executive Vice President, General Motors Corporation)
It is a pleasure to be here and to see such a fine turnout for our first Aut
motive Safety Seminar.
We hope you enjoyed your tour of our facilities this morning. We are rathi
proud of them. They indicate, I believe, the importance which General Moto
attaches to the safety of its products. This is not a new concern of ours by ai
means. Safety has been a prime objective in both the design and production
our cars and trucks throughout the Corporation's 60-year history.
These Proving Ground facilities and our new Safety Research and Develo
ment Laboratory are the culmination of long-standing policies. Our basic safe
policies are really quite simple.
First, we try to improve the structural strength of our cars each year. \
design and build safety into our automobiles rather than add it on. Virtual
every engineering advance has made our products safer to drive. We have, f
example, continuously improved the durability and reliability of every maj
component — body, engine, transmission, steering and electrical systems.
Our second objective is to develop new safety features and incorporate the
in our cars after exhaustive testing has proven them to be practical. Only wh
a new product or component has been thoroughly proven do we over it to t
public.
This takes time. We call it "lead time.". Four major stages of developme
are involved before a new product or component is ready for final producti(
First comes the new design ; then the tests, then production engineering, f
lowed by pilot production to be sure all the pieces fit together properly and fui
tions as they should.
There are a lot of pieces. Today's automobile is a highly complex mechanis
It has more than 14,000 parts and comes in a wide variety of models. Genei
Motors is currently offering 187 different passenger car models. When you a
to this figure the many choices of engines, transmissions, trim options a
equipment, it becomes apparent that the buyer has an almost infinite variety
products from which to choose.
It is the manufacturer's responsibility to see that each of these products me-
the most rigid standards of quality, reliability, performance and, above ;
safety. I am referring to self-imposed standards which the automobile indusi
has developed through the years and upon which its greatness depends. Th<
self-imposed standards allow for adequate lead time.
Today, however, with new i-tandards imposed from outside the industry, th
is some concern that lead time requirements will not always be given suffici*
attention. We feel that a better understanding of our time problems is devel
ing in Washington, and we are hopeful that new standards now under conside
tion will take into account the fact that we are now working on 1{>71 cars fl
have even later models in the planning stage. We must have sufiicient time
test and prove these products.
Here at the Proving Ground, the new ideas and concepts which our engine
and researchers have been developing are put through their final paces. In '
past 44 years since this facility was established, we have driven almost 425 n
lion test miles — the equivalent of about 17,000 trips around the world. T
total includes test mileage here at Milford, at our other Proving Grounds
Arizona and Colorado and some on the public highways.
Here at Milford, more than 20 million miles of test driving is done each ye
yet there has not l)een a fatality .s»ince 1942 and the accident/injury frequei
is only one-twenty-fifth as high as on rural highways. Tliis safety record
attributable in large measure to the impoved safety engineering of our vehicl
but it also represents the advances we have made in highway design and i
knowledge we have acquired here of driver capabilities. In other wortLs, we w<
on all three major asi^ects of traflic safety — the ear, the highway and the driv
In the field of highway design we have experimented with new types of guj
rails, slip bases for sign posts, break-away light poles, and the elimination
roadside hazards. We also have incorporated new traffic control concepts i
improved commiuiications into our Proving Ground road sy.stem. We have m;
these developments available to puldie road officials and are gratified that so
have been put into use in various parts of the country.
At our Vehicle Dynamics Test Area you saw some of the work we are dot
to improve driver capabilities under various emergency situations, such as ski
147
blowouts and other surprise conditions that severely test a driver's skills. We
have been active in driver training and education for more than 40 years and
have been assisting our dealers financially in making cars available for high
school driver training classes. Much, however, remains to be done in this field
to improve training courses — to help the student in emergency driving situations
and in night driving experience.
The highway safety legislation passed by Congress in 1966 recognized the need
for a balanced approach to the traflic problem, involving the road and the driver
as well as the car. The National Highway Safety Act sets 13 standards dealing
with roads and drivers as goals for state programs. However, the greatest atten-
tion by far has been directed toward the automobile.
There are now 23 Federal Motor Vehicle Safety Standards in effect. Five new
standards and three revisions to existing standards have been issued for future
models. More than 40 other proposed new standards or revisions to existing
standards are now being considered by the National Highway Safety Bureau.
The industry will submit comments on all these proposals this month.
General Motors is meeting all of the existing safety standards. We also are
pioneering new safety advances beyond the standard requirements. We are proud
of the fact that some of our recent innovations demonstrate General Motors' solid
leadership in the improvement of vehicle safety.
The energy-absorbing steering column — a GM innovation made standard equip-
ment on our 1967 models — has been called one of the most significant safety ad-
vances in modern times. Our engineers have studied more than 600 accidents in
which energy-absorbing columns saved lives and reduced injuries to an even
greater degree than we had anticipated.
Dr. William Haddon, Director of the National Highway Safety Bureau, who is
with us today, has said that preliminary research indicates that this steering
column plus a thicker laminated wundshield glass which the industry introduced
on 1966 models "can reduce chances of death or serious injury by 70 or 80 percent
in a crash".
Development work on these two safety advancements was started more than
four years before the enactment of Federal safety legislation, and they were
introduced on GM automobiles well before they were required by Federal safety
standards.
On some of our 1969 models we will introduce another major safety improve-
ment which will provide additional protection for car occupants in the event of
a side impact collision. This new safety feature involves a steel beam which
forms a guard rail inside the door panels. The door pillar sections and hinges
also will be strengthened. As major body changes are made, these improvements
will be incorporated in other GM models.
Most of our 1969 models also will have a new antitheft locking system. The
ignition key will lock the transmission shift lever and steering shaft. Since many
stolen cars are involved in accidents, this device has safety as well as theft-
prevention advantages.
Other safety improvements will emerge from our continuing research into the
causes of accidents and the protection of passengers. As I have indicated, we
have long been deeply involved in analyzing the human as well as the mechanical
factors involved. We have made intensive studies of the effects of alcohol on
driving ability, since drinking appears to play an important part in more than
half the fatal accidents. Based upon years of research, we have compiled critical
data on human body tolerances. This information is of vital importance in design-
ing car interiors to improve occupant impact protection.
Our impact sleds, which you saw this morning, have greatly increased our
knowledge of what happens to the occupants of an automobile during many
tyi>es of accidents. More than 1,100 tests will be conducted on those sleds this
year. In addition, we expect to complete 400 full-scale impact tests in 1968 by
crashing vehicles into stationary barriers and into other automobiles.
I hope your tour of our facilities here gave you some indication of the amount
of money as well as time and effort which we are — and have been for many
years — devoting to this extremely important and complex problem of highway
safety. Last year. General Motors spent almost $270 million for engineering
development, insi>ection, testing and reliaibility improvements in the interest of
greater safety. In addition, capital expenditures and special tools relating to
safety totaled more than .$100 million during 1967.
Through the years General Motors has also been a strong supporter and active
participant in working for more and safer highways through the Automobile
32-^93 O — 69— pt. 1—11
148
Manufacturers Association. Numerous excellent transportation studies hav
been made under AMA sponsorship. An important AMA project was its $1
million contribution for the establishment of a Highway Research Institute a
the University of Michigan.
Urban transportation problems have been receiving special attention by Gei
eral Motors for many years. Of particular interest have been studies seekin
increased capacity and safety on urban freeways and more effective use of buset
We recently completed a special study in collaboration with the Southeaster
Wisconsin Regional Planning Commission. The project, entitled "Metro-Mode,
covered seven counties, with Milwaukee as the center of the arc'a. It den
onstrated that a well-planned system of bus transportation could provide man
advantages including convenience, short trip time, route flexibility, high capacit
and low cost Among its basic features are more door-to-door service con
bined with exclusive, high-speed bus lanes on major expressways or throng
streets.
Numerous state and local transportation studies are receiving Federal ai
through the Department of Housing and Urban Development and the Depar
ment of Transportation. In fact, to qualify for Federal funds for urban highwa
development, every city must demonstrate that it has a comprehensive plan t
meet its future transportation needs.
The National Highway Safety Bureau has launched a vast research prograi
in many areas of safety relating to vehicle design, highway design, driver pe
formance and law enforcement. Eventually, all these programs — supplementin
the extensive research, development and testing activities of the automobil
industry — will provide a greatly increased volume of useful information.
There is complete agreement between our industry and the government on tt
need for improved highway safety and for more expeditious movement of traff
in our cities and throughout the country. We may differ at times on the moi
effective means of achieving these results, but we are working hard toward tl
same goals.
We firmly believe that a cooperative, understanding relationship between tl
Federal Government, the automobile and related industries and the universiti<
and scientific organizations is e.ssential to our continued progress toward saf«
and more eflScient transportation. This Automotive Safety Seminar is anotht
step in that direction.
With the increasingly sophisticated technology today, the task of the scienti
and engineer is becoming much more complex. We in the auto industry have bet
working \A'ith the problem of highway safety for many years, but we are st
learning, and we welcome new ideas and suggestions from specialists in oth
fields.
We in General Motors are willing to share our accumulated knowledge an
experience in the safety field with the rest of the industry and with the educ
tional community. We also want to keep an open line of communication betwe*'
our industry and the Federal Government.
However, we do not intend to let Federal safety standards become our ma
imum standards. We are exceeding government requirements substantially
many areas and we plan to continue this policy. General Motors has establishi
a leadernhip position in the safety field, and we are determined to niainta
it. AVe will not be satisfied until our vehicles provide the greatest possible pi
tection for occupants — up to the limits of our technology and the physical la\
of nature.
We believe this seminar will help to demonstrate our capabilities in the safe
field. We hope these sessions will improve our mutual understanding and th
they will lead to future exchanges of information to our mutual benefit.
I appreciate this opportunity to visit with you and hope you find the rest
our program stimulating and informative. Thank you for coming.
[Abstract]
A Second Generation Impact Sled Facility
(By R. L. LeFevre, T. R. Kolhoff, W. G. Cichowski)
The new Impact Sled facility at the General Motors Proving Ground Resear<
and Development Laboratory consists of two sled installations. The.se are ust
149
to simulate vehicle impacts under controlled and repeatable conditions using
forces in excess of 250,000 lbs. The system is largely a highly refined version
5f the original facility installed at the Proving Ground in 1962.
The paper includes discussions on the provisions for impact simulation, data
icquisition, control systems, and personnel safety. The material is divided
into two parts. The first considers the subject areas in terms of what capabil-
ties have been provided and why they were specified. The second reviews the
techniques and systems which have been provided to meet these goals.
[Abstract]
Collecting Impact Test Data
(By D. T. Siems and R. A. Wilson)
Instrumentation used in automotive impact testing has several unique require-
nents. Often the test vehicle is a hand-built prototype that cannot be duplicated.
The test is usually less than 200 milliseconds long, and may involve dozens of
hannels of data. Because there is no second chance, the equipment must be reli-
ible. Accuracy must be documentefl to comply with the Federal Motor Vehicle
Safety Standards. Rapid analysis of many channels of high frequency data is
ssential to satisfy engineering time schedules.
This paper discusses the evolutionary changes in transducers, signal condition-
ng, photographic, and processing techniques that have occurred in the Safety
nstrumentation field to help satisfy these requirements.
[Abstract]
A Technique for Measuring Local Impact Pressures
(By William K. Miller and Seymour Katz)
The measurement of the magnitude and distribution of pressures occurring in
in impact is increasingly becoming a concern to tho.se engaged in automotive
afety testing and design. A method to obtain this information is presently under
tevelopinent which employs a thin sheet of pressure sensitive, high porosity metal
oam (MetNet) which is placed between the colliding objects. This material
esponds to an impact by locally crushing to a depth that is related to the maxi-
uum pressure exerted on it. This pressure measuring technique is being investi-
gated as an aid in the analysis, design and testing of automotive components,
ind it is also being used to obtain pressure-related human tolerance data.
[Abstract]
Processing Impact Test Data
(By R. A. Rogers and J. A. VanHaaften)
This paper describes the data reduction facilities and techniques presently in
ise at the General Motors Proving Ground in the automotive safety impact
ield. The increased complexity and sophistication of the impact test meas-
irements being made and the continuing need to meet General Motors and Fed-
>ral standards demand that the Proving Ground data processing capability be
'ast, accurate and reliable. Magnetic tape recorders, analog-to-digital conversion
'quipment and an on-site computer facility make it possible to quickly and ac-
curately record and process electronic data on a system basis, without the time
md accuracy penalties of manual intervention. In addition, reduction of high
;peed photographic data is presently being done on two semiautomated film
eaders. These machines generate a punched card input to the central computer
"acility which processes and graphically plots the data in finished form.
150
[Abstract]
Reliabiuty Testing — Dynamic Safety
(Prepared by A. H. Kelly, C. J. Elder and W. S. Freas)
This paper describes some of the techniques, special equipment, and enviroi
ments, used to evaluate the reliability and performance of General Motors vt
hides and their components. Laboratory tests requiring use of photostrej
technique, dynamometers, shakers, pressure cycling devices and controlled ei
vironments to evaluate the durability and reliability of suspension, structun
members, driveline components and windshield wipers and washers are sun
marized. Brief descriptions of road tests and facilities which are used to evalual
brake systems, differentials, transmissions, suspension assemblies, and body co
rosion, are also provided. The Proving Ground annual car durability test is als
described.
[Abstract]
The Application of Anthropometry to Automotive Design
(by Peter Kyropoulos and Ronald W. Roe)
Anthropometry, the Measure of Man, is an old and well established branch ■
Anthropology. The present report deals with the identification and applicatif
of the pertinent dimension of the driving population and the use of these da
in the design of the driver's workspace. The statistical nature of the informati(
is emphasized.
The devices used to gather data (anthropometers) and their statistical eval
ation and analysis are discussed and illustrated. The concept and applicatic
of the SAE manikins and the driver's eye ellipses are presented.
[Abstract]
A Third Genesiation Test Dummy — '"Sophisticated Sam"
(by W. G. Cichowski)
Various anthropomorphis dummies have been substituted for human beings
help evaluate the safety results of motor vehicle crash testing. This paper def
with the development of "Sophisticated Sam," the most advanced test dumi
available today.
During its creation, in depth studies evaluated what literature was availal
in regard to biomechanics. Bone strengths, limb articulation, weight distril
tion, and all other factors had to be considered. Test data from different ;
searchers were analyzed to ascertain why discrepancies in information exist«
Several original techniques were created to better duplicate portions of the 1
man body. Recognizing that the body could not be exactly duplicated with "i
phisticated Sam." compromises in the design of the dummy had to be made.
The planning and scheduling of this test device is presented to show how t
complex system was developed. "Sophisticated Sam," created by Sierra En
neering Co. under the sponsorship of General Motors, represents a signifies
advance in the state of the art. This working simulator will lead to the deveh
ment of even more realistic and sophisticated test devices which will further r
vance motor vehicle safety.
[Abstract]
"Tramasaf" the Development of a Laboratory Instrument for Trauma
Indication
(By H. G. Holcombe and D. M. Herod)
The development of a useful device to measure trauma to the human forehe
and lacerative damage to the soft tissue during impact tests of automotive co:
ponents has been guided by interim goals based upon the most current kno^
II
151
edge of the various types of trauma which can be experienced. As a result, we
tiave developed an experimental instrument capable of making comparisons of
lacerative damage and simulating frontal bone tolerance during small area im-
pacts. All models of human tolerance are not necessarily reproduced due to in-
omplete biomechanics data. The development goals, their present status of
ichievement, the materials used, and some evaluation procedures for the device
ire described.
[Abstract]
A Study of Head and Facial Bone Impact Tolerances
;By Charles W. Gadd, Alan M. Nahum, James Gatts, and John P. Danforth)
This report outlines progress on a continuing study at the University of Cali-
brnia-Los Angeles Center for the Health Sciences of fracture thresholds and
lynamic response for a number of typical impact sites on the head. Particular
'eatures of the program include direct recording of force-time profiles at the
dte of the blow, inclusion of the original soft tissues overlying the bone in the
ests, and comparison of fresh with embalmed subjects. Special attention is
;iven to possible significance of waveform and duration of the applied impulse,
xtent of the fracture, and variation between test subjects. Tests have thus far
itilized an impractor with a contact area of one square inch, fitted with a load
■ell and with provision for use of a progressively dilating tube to obtain the
onger pulse durations.
In addition to studies in the frontal, zygomatic, and other facial areas, the
)rogram has included impact to the side of the head over the ear (at the parietal-
emporal suture) where very little previous work has been done. The frontal por-
ion of the cranium, that part usually struck in the (more common) frontal
iccidents, has been found to have higher fracture tolerance than the side of the
lead. Time dependency of fracture thresholds in this study has been found to
e small in comparison with that for elosed-skuU cerebral injury.
A distinction is made between localized fracture hazard as treated in this
•aper, which is not normally dangerous to life, and closed-skull or concussive
train injury which results from sudden head acceleration and for which criteria
ire now in use.
[Abstract]
Evaluation of Driver Vision
(By Anthony J. Gioia and Clarence E. Morphew)
Vision accounts for more than 90% of the information a driver receives. Driver
ision is influenced by the driver himself — physiological and psychological limita-
ions ; the design of the vehicle — what it allows the driver to see or not see ; the
esign of the roadway — differences imposed by Interstate, rural and urban roads :
nd the environment — nighttime, dusk, dawn, or daylight, rain, snow, fog, haze,
to. The wide variability of these factors and their comnlex interactions have
lade the study of driver vision requirements extremely diflBcult and subject to
ndless debate.
This paper describes vehicle design factors and tests affecting driver vision,
forward and rear vision design con.siderations are discussed along with test
acilities and techniques used in determining how much the design of the vehicle
ids or hinders driver vision. Design examples and future rear vision considera-
ions are given ; and test procedures for determining rearview systems' fields of
iew, obstruction to vision caused by body architecture, and seeing distances are
escribed. Instrumentation, commercial and Proving Ground developed, used to
valuate glare producing properties of materials are also described.
152
[Abstract]
Field Accident Reselmich
(By W. D. Nelson and R. A. Wilson)
General Motors has a need to know how its products perform in the hands o
owners; this includes crashworthiness. Existing information sources on vehich
impact performance were lacking in the quantity of in-depth data, representee
only some local areas of the U.S., and included primarily rural and injury pro
ducing accidents. Consequently, GM began a program of accident research au(
analysis which gathered information from many sources. This introduced an
other area of concern — the lack of common language and reporting uniformit;
of accident data. A bi-level reporting form structure was developed for interna
use and has been released to the public in an effort to consolidate the rapidl:
expanding accident data collection field.
Also presented are some of the findings of the GM nationwide study base(
on 2500 1968 model vehicles damaged in collisions. In these new data the pre
viously recognized information deficiencies have been corrected and a more repre
seutative injury exposure has resulted.
[Abstract]
Status of Energy Absorption in Steering Columns
(By D. P. Marquis and T. Rasmussen)
This presentation updates the knowledge and describes the hardware of th
General Motors energy absorbing steering column.
Following a brief distroy, it discusses the inter-relationship of driver restraini
and energy absorbing columns.
It introduces a new energy absorbing column jacket called the "ball energ
absorber" for the 1969 automobiles and describes the reasons for its use. Tt
energy is absorbed by rows of balls which form grooves in the surface of th
column jacket tube during absorption.
It dissects the elements of dynamic energy curves based on accelerator test;
Finally, the authors project the direction the pattern of change may folio
when certain biomechanical indications are confirmed.
[Abstract]
Side Impact Structures
(By C. E. Hedeen and D. D. Campbell)
New side safety structural changes have been developed for some 1969 mod
General Motors cars. The research covered two years during which time eras
situations were simulated and analyzed, field data were studied, and various a
proaches to side protection were investigated.
A low-weight, high-strength steel beam was developed and positioned hoi
zontally in the door. In addition, the supporting body structures were reinforce
The resultant structure reduced penetration into the passenger compartmei
during side collision tests by causing a deflecting action between the two cai
and by preventing ride-over of the striking vehicle into the struck car.
Fisher Body has recently developed the basis for a static laboratory techniqi
of testing that measures the strength of side impact structure in such a way ,■
to allow tryouts of designs early in the program. Because of the number of G^
cars designed each year, this will curtail the extensive time and cost facto
previously involved in dynamic testing.
[Abstract]
Rook and Windshield Header Construction
(By E. H. Klove and G. W. Ropers)
It has been difficult in the past to evaluate roof structures and to define the
performance level because of the lack of an adequate test method. This pap
153
>riefly discusses the history and the problems of dynamic testing procedures
elative to roof structure. A new Static Laboratory testing technique and its
dvantages are discussed.
The second part of this presentation outlines the subject of the windshield
leader design, the development of testing procedures, and the evolution of a
I'indshield header design which provides a skidding action.
Tests conducted on the -new design windshield header indicate that there is a
efinite reduction in iK)tential header injury as a result of impact as compared
D the conventional header construction. The new header surface minimizes
he rearward head rotation and the abrupt change in head movement which
ccurs when contact is made with the rear wall of the header surface.
[Abstract]
Providing Increased Survivability in Passenger Car Instrument Panels
By Vernon D. Halliday, Harry G. Holcombe, Donald R. Hoover, Ben C. Parr)
The authors discuss the problem of instrument panel ride down and examine
he engineering requirements of a passenger car instrument panel having im-
roved ability to reduce occupant injury. In the development of materials and
heir geometric configuration, the pad and its underlying structure receive
rimary coiisideration.
A prototype instrument panel is described, and data are presented on approxi-
lately 40 different materials and combinations of materials evaluating their
bility to absorb occupant energy.
[Abstract]
Restraint Systems, Design and Performanck Parameters
(By J. C. Louton and T. W. Ruster)
For many years General Motors has recognized and attempted to reduce auto-
lotive accident injury potential through continuing efforts in accident reduction
rograms. These programs are aimed at improvement of the driver, the road
nd the automobile itself. This paper deals with the research and development
f occupant restraint systems.
Primary objective of an automotive restraint system is to reduce injury poten-
ial of car occupants. This is partially accomplished by attaching the occupant
3 the vehicle passenger compartment. Test results have shown that performance
t the lap belt, one of the most common components of a restraining sy.stem, is
ffected by the angle and belt loop length. In addition, belt performance, as meas-
red experimentally, is significantly affected by the crash test dummy or test
evice used to evaluate restraint systems. Information from evaluating current
ystenis has intlueni'ed design of future systems. Using this information, in addi-
on to available human tolerance information, restraint system development
ill contribute toward further reduction of vehicle accident injury potential.
[Abstract]
Ro.vT Structural Strength as it Affects Occupant Injury-Reduction and
Survival
(By P. R. Johnson and W. E. Wiltse)
This paper examines analytically the effect of front structural strength in
elation to occupant survival or injury reduction during frontal impact. The
ynamics of impact are explained mathematically. Variation in vehicle decelera-
on level and vehicle deceleration-time cbariacteristics (pulse shape) are analyzed
•om an occupant benefit standpoint.
154
[Abstract]
A 67-AcRE Vehicle Handling Labobatoby
(By Richard G. Hoffman and Donald L. Nordeen)
This paper contains a summary of historical facts pertaining to the plannin
and construction of the facility, including an outline of some proposed desig
configurations. Some interesting problems had to be solved during the coi
struction stages and later during operation of the facility ; these are reviewe(
Operational procedures and a number of vehicle tests normally conducted o
the facility are discussed.
[Abstract]
Measurement of Vehicle Directional Control Properties
(By R. Thomas Bundorf and Richard C. Moore)
The directional control properties of the automobile are an essential elemei
in the driver-vehicle-highway system. They have been investigated since tl
inception of the automobile and, at present, advanced vehicle dynamics theor
is under study in many areas.
The measurement of such properties as understeer/oversteer, gain, and r
sponse time is an important part of both the research aspects of vehicle dire
tional control and the design and development technology.
Instrumentation systems and test techniques for quantitative measuremei
of directional control properties are presented in this paper. Typical test dai
for a passenger car are presented.
These data eliminate much subjectivity in the description of vehicle dynam
behavior, aid in the identification of desirable directional control properties ai
assist in the development of production vehicles.
[Abstract]
General Motors Proving Ground Tire Test Facilities and Equipment
(By D. D. Anderson, A. H. Kelly, J. J. Krauss, F. D. Smithson)
General Motors recently completed construction of a 22,000 square foot cox
prehensive Tire Performance Evaluation Facility at its Milford, Michiga
Proving Ground. The laboratory, located in a new Safety Research and Develo
ment Laboratory, provides indoor facilities and equii>ment to complement tl
extensive road testing of tires at GM's Desert Proving Ground at Mesa, Arizon
on public highways, and on the Milford installation's road system. This pap
describes the major facilities and equipment employed by the Proving Groui
for the laboratory and road testing of tires.
[Abstract]
Anti-Lock Brakes
(By John L. Harned and Laird E. Johnston)
Objectives of anti-lock systems are defined. The external control principle
explained and four prototype anti-lock systems, based on this principle, th;
are currently being developed are described. Panic stopping distance performam
of 4-wheel and rear anti-lock systems on dry, wet and icy roads is compare
Data significance is defined in terms of variabilities of the experimental measur
ments. Effects of water cover depth, road construction and tire design and we;
on anti-lock performance are shown. Difficulties of obtaining satisfactory contr
on gravel and snow covered roads are examined. The ability of anti-lock systen
to improve vehicle directional control is discussed. Directional control tests th;
measure 4-wheel and rear anti-lock systems capabilities are described. A te
program to be used in determining system performance acceptability is presente
165
[Abstract]
Tire Properties Affecting Vehicle Ride and Handling
(By D. L. Nordeen, R. E. Rasmussen, J. B. Bidwell)
Vehicle dynamic performance is dependent upon botli the vehicle properties
nd the tire characteristics. Interactions between the tire and the vehicle are
lumerous. Vehicle dynamics problems are sufficiently complex that it is difficult
o attribute good or poor performance of the vehicle to particular vehicle
iroperties or tire characteristics without measuring component performance,
'urther, a validated theory is frequently required to explain the vehicle results
ven when component properties are known.
This paper discusses many of the tire factors which affect vehicle ride and
landling. The significance of certain tire properties to vehicle behavior is
escribed. The paper also discusses other tire properties which influence vehicle
ynamic performance, but for which a quantitative .relationship between com-
onent characteristics and vehicle performance has not been established. The
tate of the art with respect to the capability and utility of laboratory measure-
lents of the tire properties is indicated.
A quantitative understanding of the relationship between the force and
lonient properties and vehicle handling exists. A degree of correlation between
ire vertical rolling spring rate and subjective ride performance has been estab-
ished. Vehicle shake response, due to tire non-unifoxmities, has been correlated
;ith the amplitude of the fundamental harmonic of the tire force variation,
'orce, moment, and spring rate data for a typical tire are presented.
[Abstract]
The Drinking Driver Problem
(By D. R. McLellan and C. J. Brady)
Highway accident research data indicates that the drinking driver accounts for
lore than half of the nation's 50,000 annual traffic deaths. General Motors'
)ng-standing interest in traffic safety, coupled with this growing documenta-
on of the toll exacted by the drinking driver, prompted this study of the effect
f alcoholic on driving ability.
General Motors engineers designed two driving tests to evaluate some of the
ffects alcohol has on driving skills. These were an evasive maneuver which
Lmulated an emergency situation which could be encountered on the highway
nd a cone course which forced drivers to following a winding path through
dree turns and one straightaway. By conducting these tests on a driving
ourse using real cars, many of the cues of normal driving were retained
rhile the hazards of normal driving were considerably reduced.
Many of the 7 volunteer drivers at their highest blood alcohol levels (to 0.18%)
ere still willing to continue the test, but appeared dazed and uncertain of
beir assignment. Their driving became erratic and uncoordinated where it had
nee been smoothly controlled.
The GM test was conducted in the hope that it will make a small contribution
Dward putting the drinking driver problem in perspective. By showing what
appened to a group of drivers trying their best to succeed in a driving experi-
lent, it is hoped that people will be made more aware that they are not as
apable or as safe drivers after they have been drinking.
[Abstract]
Driving Simulator
(By Randall E. Beinke and Jerry K. Williams)
A good understanding of driver behavior and reactions in emergency and panic
tuations is needed to help in optimization of the Car-Driver-Road system. A
'rogram of testing average drivers in emergency situations pointed up the need
>r a driving simulator in which studies of driver behavior in realistic identical
156
emergency or panic situations could be conducted without risk to ttie subjf
The Driving Simulator program began as a feasibility study and has progress
to the completion of a Phase I study simulator. The Phase I study simulator a
prototype simulator, now in process of design, are discussed.
[Abstract]
Training Drivesis for Emergencies
(By Richard G. Hoffman, David R. McLellan, and Alonzo H. Kelly, Jr.)
The General Motors Proving Ground has developed and tested a driver-retra
ing program to teach drivers defensive driving techniques for accident avo
ance. Approximately 150 Proving Ground employes have successfully complei
the 8-hour training course, consisting of classroom and behind-the-wheel instr
tion. This paper includes a discussion of both the subject material and the tea
ing methods used by PG driving instructors. The driver-retraining course
referred to as the Proving Ground Advanced Driver Training Course.
!e
[Abstract]
Teaffic Conflict Characteristics
(By Joseph I. Harris and Stuart R. Perkins)
TraflSc Conflict Characteristics are measures of traflSc accident potentials,
traffic conflict is any potential accident situation. Over twenty objective crite
for traffic conflicts (or impending accident situations) have been defined
specific accident patterns at intersections ; essentially these traffic conflicts ;
deflned by the occurrence of evasive actions, such as braking or weaving, wh
are forced on a driver by an impending accident situation or a traffic violati
A method of systematically observing an intersection for traffic conflicts 1
been devised. In two 12-hr observation sessions, it is possible to evaluate c(
pletely an intersection ; the information obtained is much more comprehens
than that normally available from accident histories. Further, the initial cau
of the incidents, which accident records often fail to reveal, are uncover
Traffic conflict studies use objective criteria to obtain significant quantities
data in short observation periods.
[Abstract]
The Detroit Citizens Band Radio Driver Aid Network
(By Herbert J. Bauer and Clark E. Quinn)
This paper describes the Driver Aid Network operating under Citizens Ba
radio license KUY 3173. The system is sponsored and was installed by the G
eral Motors Research Laboratories for the Detroit Department of Streets a
Traffic.
Signals from vehicles on Detroit roadways are picked by ten receivers a
relayed to a master control. Five transmitters are employed for answer:
calls. All remote units are connected to a master control by Michigan Bell Te
phone lines.
An operator at the master control downtown Detroit receives the radi(
reports. These pertain essentially to unsafe conditions on the city's roadwa
Typical incidents are concerned with vehicular accidents, stalled cars, inope
tive signal lights, etc.
A Detroit police department telephone line provides direct contact with 1;
enforcement and other city services.
The activities of the base station— reports received, actions taken, etc. — t
recorded on specially prepared computer cards. Many varieties of data analy
may be undertaken for traffic engineering purposes, special events analysis a
research in order to facilitate safe and efficient vehicle flow.
157
[Abstract]
Vehiole Lighting
(By Rex W. Oyler, Harry C. Dumville, J. W. Murphy)
Examination is made of lighting devices and principles which have potential
nefit to automotive safety. A brief description is given of the current state
the art and mention made of work yet to be done. Included are (1) alternate
>thod of headlamp aiming, (2) headlighting for Interstate Route driving,
) high mounted auxiliary stop and turn signals, (4) the dual intensity princi-
3, (5) use of colors other than red for rear end lighting, (6) side turn signals,
d (7) controls for all-condition lighting.
[Abstract]
The Need fob Unifokm International Safety Standards
(By R. E. Woolcott, T. A. Hunter)
The growing concern for highway safety is not limited to one country or one
ntinent, but is as world wide as the use of vehicles. This paper discusses some
the activity taking place throughout the world today, the effects of prolifera-
»n and the confusion created for the driver. The needs for uniform standards
e specified and some considerations for construction of international standards
e defined.
[Abstract]
GM Meets the Challenge of Worldwide Motor Vehicle Safety
ly Donald G. Hedeen, Eberhard Heyne, Jack A. Waller, Manfred L. Wolf)
This report describes the program which General Motors Corporation has
tablished to provide to its customers around the world safety features which
e consistent with local regulations and market conditions. Particular emphasis
placed on testing facilities and equipment available and planned for installa-
•n overseas, as well as, the communication network established to provide a
ordinated GM approach to automotive safety.
[Abstract]
Tbuck and Bus Safety
(By Wallace E. Whitmer and William E. vonKampen)
This paper discusses some of the broad aspects of truck and bus safety as
lated to various sizes and types of these vehicles. Special problems posed by
e many configurations of vehicles are presented. The results of certain barrier
Uision tests are related and their similarities to and differences from pas-
nger cars are discussed. Additionally, studies on the concept of a vehicle under-
ie protection device are included.
[Abstract]
A Study of Automobile Fuel Tanks
(By J. B. Ridenour, R. C. Stempel, R. J. Benner, C. A. Crawford)
The authors find that foam filling has little effect on the static leak rate of
el through different size and shape holes. A "squash" test is used to compare
e burst resistance of various fuel tank materials and combinations of materials,
•eduction terne plate tanks, foam filled tanks, bladder tanks, urethane coated
nks and increased gauge steel tanks are evaluated.
158
Pabticepants
Anderson, D. D., Section Engr. Test Eng., GM Proving Ground.
Barr, H. F., Vice President in charge of Eng. Staff, GM Corporation.
Bauer H J Sr Res. Psychologist, Transportation Res., GM Research Lab
Beink4, R. E., Staff Proj. Engr., Dev. Eng., GM Engineering Staff.
Benner, R. J., Motor Dev. Engr., Oldsmobile Division, GMC.
*Bidwell, J. B., Eng. in Charge, Chassis Dev., GM Engineering Staff.
Brady, C. J., Director, GM Proving Ground. . c,^ «.
Bundorf, T. R., Staff Proj. Engr., Chassis Dev., GM Engineering Staff
Campbell, D. D., Asst. Director, Res. & Dev., Fisher Body Division, GMC.
Cichowski, W. G., Staff Engr., Safety Res. & Dev. Lab., GM Proving Ground.
Crawford C A., Sr. Proj. Engr., Motor Group, Oldsmobile Division, GMC.
Danforth,' J. P., Sr. Res. Engr., Electro-Mechanics, GM Research Lab.
Dumville, H. C, Exec. Engr., Automotive Safety Eng., GM Engineering Staff.
Elder, C. J., Staff Engr, Test Eng, GM Proving Ground.
*Fisher, T. M., Administrative Assistant, Automotive Safety Engineering, (
Engineering Staff.
Freas, W. S., Section Engr., Test Eng., GM Proving Ground.
Gadd, C. W., Supv. Res. Engr., Electro-Mechanics, GM Research Lab.
Gatts, J., M.D., Vehicle Trauma Res. Group, School of Medicine, U.C.L.A.
Gioia, A. J., Section Engr., Test Eng., GM Proving Ground.
Halliday, V. D., Body Design Engr., Buick Division, GMC.
Harned, J. L., Staff Proj. Engr., Chassis Dev., GM Engineering Staff.
Harris, J. I., Sr. Res. Physicist, Electro-Mechanics, GM Research Lab.
Hedeen, C. E., General Director, Prod. Eng., Fisher Body Division, GMC.
Hedeen, D. G., Vehicle Safety Engr., GM Overseas Operations Division.
Herod, D. M., Proj. Engr., Instr. Cluster Eng., AC Spark Plug Division, GMC.
Heyne, E., Body Dev. Engr., Opel, GM Overseas Operations Division.
Hoffman, R. G., Proj. Engr., Eng. Mechanics, GM Proving Ground.
Holcombe, H. G., Sr. Proj. Engr., Seats & Soft Trim, Inland Manufacturing D;
sion, GMC. _ . , ^,,^
Hoover, D. R., Staff Engr., Body Desien & Dev., Buick Division, GMC.
Hunter, T. A., Vehicle Safety Coordinator, GM of Canada.
Johnson, P. R., Asst. Staff Engr., Vehicle Safety, Chevrolet Division, GMC.
Johnston, L. E., Sr. Proj. Engr., Chassis Dev., GM Engineering Staff.
Katz, S., Sr. Res. Chemist, Metallurgical Eng.. GM Research Lab.
Kelly, A. H., Engr. in Charge, Test Eng., GM Proving Ground.
Klove, E. H., Jr., Engr. in Charge, Safety Analysis, Fisher Body Division, GJ
Kolhoff, T. R., Sr. Proj. Engr., Test Eng., GM Proving Ground.
Krauss, J. J.. Sr. Proj. Engr., Test Eng., GM Proving Ground.
Kvropoulos, P., Technical Director, GM Styling Staff.
LeFevre, R. L., Engr. Supvr., Safety Res. & Dev. Lab., GM Proving Ground.
Louton, J. C, Engr. in Charge, Mechanical Trim & Dev.. Fisher Body Divis;
GMC.
Lundstrom, L. C, Director, Automotive Safety Eng., GM Engineering Staf
Marquis, D. P., Asst. Chief Engr., Chassis Group, Saginaw Steering Gear D
sion, GMC.
*Martin, D. E., Asst. Head, Electro Mechanics, GM Research Lab.
McLellan. D. R.. Staff Proj. Bnsr.. Eng. Me<->ianic«. Gat Proving Ground.
Miller, W. K., Res. Engr., Metallurgical Eng., GM Research Lab.
Moore, R. C Sr. Proi. Engr.. Ene Merhanirs. GM Provinar Ground.
Morphew, C. E.. Director. Styling Coordination. Cadillac Division, GMC.
Murphy, J. W., Staff Proj. Engr., Optics, Guide Lamp Division, GMC.
Nahum, A. M., M.D., Asst. Prof, of Surgery. School of Medicine, U.C.L.A.
Nelson, W. D., Sr. Proj. Engr., Safety Res. & Dev. Lab., GM Proving Ground.
Nordeen, D. L., Staff Engr., Eng. Mechanics, GM Proving Ground.
Oyler. R. W., Chief Engr.. Guide Lamp Division. GMC.
*Parr. B. C, Staff Engr., Automotive Safety Eng., GM Engineering Staff.
Perkins. S. R.. Sr. Res. Engr., Electro-Mechanics, GM Research Lab.
Quinn, C. E.. Sr. Res. Engr., Electronics & Instrumentation. GM Research L
Rasmussen, T., Steering Systems Engr.. Oldsmobile Division, GMC.
Rasmussen. R. B., Staff Proj. EnPT.. Ens: Mecbanic«. GAT Provins: Ground.
Ridenour. J. B., Automotive Safety Encr., Oldsmobile Division. GMC.
Roe, R. W., Staff Proj. Engr., Safety & Human Perf. Group, GM Styling St
♦Session Chairman.
lis:
fal
159
ogers, R. A., Section Engr., Safety Res. & Dev. Lab., GM Proving Ground,
opers, G. W., Sr. Design Engr., Safety Analysis, Fislier Body Division, GMG.
uster, T., Proj. Engr., Safety Res. & Dev. Lab., GM Proving Ground.
iems, D. T., Sr. Proj. Engr., Safety Res. & Dev. Lab., GM Proving Ground.
3keels, P. €., Engr. in Cliarge, Safety Res. & Dev. I^b., GM Proving Ground,
iiiithson, F. D., Sr. Proj. Engr.. Test Eng., GM Proving Ground,
enipel, R. C., Asst. Motor Engr., Oldsmobile Division, GMC.
3tonex, K. A., Exec. Engr., Automotive Safety Eng., GM Engineering Staff,
an Haaften, J. A., Supvr., Data Processing, Safety Res. & Rev. Lab., GM Proving
Ground.
onKampen, W. E., Asst. Staff Engr., Vehicle Safety, Chevrolet Division, GMC.
'aller, J. A., Vehicle Safety Engr., Vauxhall, GM Overseas Operations, GMC.
'arner. H. G., Exec. Vice President, GM Corporation,
hitnier, W. E., Vehicle Safety Engr., GMC Truck & Coach Division,
'illiams. J. K., Proj. Engr., Dev. Eng., GM Engineering Staff,
'ilson, R. A., Staff Engr., Safety Res. & Dev. Lab., GM Proving Ground,
^iltse, W. E., Sr. Res. Engr., Vehicle Safety, Chevrolet Division, GINIC.
"olf, M. L., Vehicle Safety Engr., Opel, GM Overseas Operations Division,
'oolcott, R. E., Sr. Exp. Engr., GM of Canada.
Senator Nelsox. Who is the sponsor of the safety report ?
Mr. Mann. That happens to be by General Motors :
Proceedings, General Motors Corp., Automotive Safety Seminar, Safety Re-
arch and Development Lab, General Motors Proving Grounds, Milford, Mich.,
ily 11-12, 1968.
It is very technical but nevertheless very interesting and deals with
lany of the problems you are talking about, Senator.
Other examples of safety research by individual companies include
le "sure-track" braking system, to prevent brake lock-up which is a
lajor cause of skidding; and "automatic headway control," an elec-
onic system to eliminate "tailgating" through speed control devices
ith computer backing.
There happens to be — again it is illustrative — this happens to be two
f Ford's most recent innovations in safety and both of them are based
I the use of the most advanced technology in computers and I think
])rosent a forward step.
Papers describing these in more detail are available for inclusion
1 the record if the committee wishes.
Senator Nelson. They will be received and inserted at this point.
(The papers referred to follow :)
♦Session Chairman.
160
Exhibit 18
(Automobile Manufacturers Association's exhibit No. 8: article, "A Braki
System That Thinks for Itself: Sure-Track," Ford Science Front, Nov. 196
SCIENCE FRON
Volume 5, Number 4, November
coNinoi tax ^^^^^
^--c--.
©ACTUATOR jL,^Sd[W^
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'^"-'^S^l
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SENSOIS
v,^^.-'
Suie-Track's components are shown in this cutaway drawing of a
Continental Mark III Wheel sensors (1) transmit wheel velocity
information to the control module (2) which gives operating instruc-
tions to the brake actuator (3).
A braking system
that thinks for itself:
Sure-Track
In October, the elegant Con-
tinental Mark III introduced to
the .American automotive scene
an optional braking system that
takes some of the panic out of
panic stops.
Trade-named "Sure -Track."
it's a system of sensors, valves,
actuator and a liny computer
working togetherto help keep the
rear end tracking the front by
controlling rear-wheel brake
locking.
After initial research by
Engineering Staff, skid control
became a team effort at Ford.
The system was developed by
Car Systems Research with as-
sistance from the Car Chassis
Design and Chassis Systems
Engineering offices.
Bob Madison, supervisor of
the Brakes. WheeU and Tires
Section of the Advance Chassis
Research and Engineering De-
partment, recalls a Ford engi-
neering study of skid control
devices as far back as 1954. They
were known to Americans then,
if at all. only on heavy aircraft.
"We tried various approaches
over a period of several years."
he says. "But neither the tech-
nology nor the hardware was
there until a couple of years ago.
Thai's when we went to work
in earnest to build a production
system. The fact that it's elec-
tronic indicates that it's a recent
achievement."
The situation facing the
world's first "thinking" brake
system is this:
The rate of deceleration of a
rotating wheel is measured in
terms of "slip" relative to the
vehicle speed. If the car is going
50 miles per hour and the wheel,
with brakes applied, is going 40.
there is a 20 per cent slip, which
is near the ideal for braking-
For it is in the IO-to-20 per cent
slip range that maximum brak-
ing is accomplished - — just
short of skidding.
Ideally, the 10-20 per cent
relationship of wheel slip to
vehicle velocity should be main-
tained throughout the descending
scale of values as the car slows
down.
But this relationship can he
difficuli to hold. In panic situa-
tions or on extremely slick sur-
faces the frictional force avail-
able between the tire and the
road surface is not sufficient to
sustain traction, and the wheels
skid, i.e.. stop rotating.
The role of "Sure - Track."
then, is to maintain the desired
slip average electronically. It
does this by ranging above and
below the optimum setting,
which means the brakes "pump"
themselves in cycles which can
be as rapid as four per second
on dry concrete. This pumping
IS much faster than the driver
could manage.
The hardware which accom-
plishes this consists of sensors
attached to the rear axle shafts
and housing. They detect the
velocity of the rear wheels and
transmit it to the control module.
a computer the size of a paper-
back book that's hidden under
the car's glove compartment-
The computer determines
the optimum braking cycle and
signals the vacuum - powered
brake actuator in the engine
compartment. The actuator's
valves regulate the pressure of
brake fluid to the rear wheels.
The rapid pumping takes place
only when the driver's foot ap-
plies full pressure to the pedal.
Differences in driving sur-
faces produce coefficients of
friction ranging from almost 1.0
on dry concrete down to about
.05 on wet ice. The computer is
sophisticated enough to control
the braking action for optimum
results on this wide range of
road conditions.
"Sure-Track." Madison points
out. was not necessarily designed
to make a car stop shorter but
rather straighter. However, in
extensive tests, stopping has
averaged somewhat shorter than
with a four-wheel lockup.
"We think it's significant loo."
he continues, "that the skid
control unit won't degrade the
effectiveness of any other ve-
hicle system.
"Our Car Chassis Research
engineers ran an extensive failure
mode analysis on all parts, piece
by piece, to see what would
happen if a bolt came loose, a
plunger ^tuck and so on. We
introduced features to r
that even if the syst'
working, the regular bi
function as always,
brake warning light wi
driver that there's trout
system."
One reason
braking is not being o
all car lines is the tre
demand on available
required to tailor and
the system for each dist
Another reason is cost,
lem is expensive at thr
its development, more i
than purchasers of lo\
cars would be likely to
"We decided when
selected a supplier t'
ago that the system ■
offered only in relati
volume, higher-priced
first." Madison says. "
Mark III now and will
Thunderbird after the t
year. Both are built ai tl
(Mich.) assembly plant
On high friction roai
"Sure-Track " is for pan
only, A stop that wouK
enough to throw loo
off the seat would be (
to a deceleration of o
10 feet per second pt
The skid control sysd
even be activated.
The deceleration
panic slop, with alt
locked and skidding
mately 26 to 2R feet p
per second. This a
I "g" of retarding forci
Madison believes
next step will be a f
system which, althougl
have some disadvanta
ably would be an addi
vance. I( would shortei
distance even more, a
steering during a p:
since the front wheels
be locked.
"But this represent
phase in the developnii
control." he says. "R
it would mean dou
number of compon
adding to the cost and C'
of the system. We be
keeping those reai
rolling marks a big ste
in the technology of bi
161
Exhibit 19
'(Automotive Manufacturers Association's exhibit No. 9: article by Jim Dunne,
'I lew Electronic System to Eliminate Tailgating," Popular Science, Dec. 1968.)
New Electronic System to
ELIMINATE TAILGATING
Automatic Headway Control, an ingenious radar computer
system now being tested by Ford engineers, could be the
answer to clogged highways and rear-end collisions
By JIM AUNNE / PS Detroit Editor
Freeway driving without pedals is com-
ing your way. And you'll love it!
Inside a guarded test track just outside
Detroit, a small clique of electronic wiz-
ards is brazing the final circuits on a
spanking-new control system that will
make your driving job much less demand-
ing, and measurably more safe.
64 I POPULAR SCIENCE
Put yourself behind the wheel of the
car they are working on for a moment:
You are driving along the highway, your
automatic speed set for, say, 70 m.p.h.
You steer the car to stay in your lane or
to change lanes when you want to pass.
That's all. You have nothing else to do.
Your pedals are now controlled by Auto-
162
MUlfl
HOW IT WORKS:
1. IR beam from following car radiates forward, illuminates rear of lead car.
2. Reflector in lead-car tail lamp reflects some of intercepted IR energy to re-
ceiver in rear car.
3. Receiver interprets phase of returned beam to determine distance between
cars and sends to computer.
4. Computer uses data to determine relative velocity and computes safe
tieadway.
5. If headway is greater than necessary, the throttle is actuated and car accel-
erates either to preset maximum or until headway is proper for speed.
6. If headway is less than safe distance, car is decelerated, either by coasting
or braking, to achieve safe distance.
^
matic Headway Control, an electronic
system both simple and sophisticated that
may be the long-awaited first step toward
completely automatic highway driving.
Okay, so you've heard of the automatic
highway for a long time. What makes
AHC so special?
Two things. Unlike most proposed au-
tomatic highway devices, AHC is already
working in a test car— I drove a modi-
fied T-bird on a public road in Dearborn
back in October. Even more important,
one car carries all parts needed to make
the system work— no highway or other-
car components are necessary.
Contiiuied
DECEMBER 1968 65
Infrared broadcaster (darklensed headlight) and re-
ceiver are lab versions of radar sender-receiver set.
The AHC system takes 100 watts of electricity.
Small size of brake and throttle controls makes
them easy to install. Operation of the throttle is
similar to that of a standard speed-control system.
You get the urge to touch the brakes . . . but the AHC car slows
Basically, AH(; is a driver aid. It
takes over all direction of the car except
steering while the car is in light or mod-
erate traffic.
Key components in AHC are a minia-
ture radar sending-and-receiving unit,
plus a computer. These provide sjjeed-
of-Iight reactions to changing highway
conditions, capable of snubbing the brakes
or depre.s.sing the accelerator split sec-
ond.s faster than the human brain can
signal leg muscles to react.
Two cars were used in the evaluation
run, the AHC-equipped 1968 Thunder-
bird and a 1969 Ford control car. The
new Ford happens to be well suited for
this test since it has a car-wide strip of
light reflectors just below the trunk.
Driving with AHC. With the Ford run-
ning at a steady 30 m.p.h. far ahead on the
roadway, I set the T-bird to nm at 40
m.p.h., took my feet awaj' from the pedals,
and waited. AHC took over at this point
and worked just as predicted. The T-bird
came up behind the Ford to a preset
distance. Then the engine backed off
and the brakes were momentarily ap-
plied to slow the car down.
As the distimce between the cars
widened, the T-bird engine speeded up
imtil the ideal interval was reached. Then
the T-bird followed the Ford with little
apparent change in speed, keeping a safe
distance at all times.
Except for some surge in acceleration,
and one hard braking maneuver, the sys-
tem worked exactly as planned. When
the Ford speeded up, the AHC T-bird
followed. When the lead car pulled off
the road, the T-bird speeded up to its
preset maximum speed as I steered it
down the roadway.
While driving, you get the urge to
touch the brakes when AHC first brings
Ford Engineer Gerald Scott shows relative position of AHC out-
side components. Reflector poses as tail-light reflector of lead
car with sender-receiver in relative position of AHC car.
Sender and receiver, seen ahead of radi
ator in Thunderbird test car, will tie hid-
den behind grille in production version.
32-493 O— 69— pt. 1-
-12
Testing components shown above include computer
box, extra battery, and transformer fitted into trunk
of Tbird equipped for Automatic Headway Control
system. With microelectronics, the computer and the
transformer will shrink to the size of a jewelry box.
The extra battery will not be used in this version.
down a split second before you feel you must slam them on
your car up behind another. But the
AHC car slows down automatically a
split second before you feel you must
slam on the brakes. Other than thc.t,
AHC takes no more getting used to than
a standard speed-control system.
Only four major parts. R. H. Lesser,
Ford Motor Co. electronics researcher
who developed the system, says there are
four major components in AHC: two
new, and two modifications of existing
parts. The new parts are an infrared ra-
dar set and a computer. The modulation
scheme within the radar uses sending and
receiving information to measure the dis-
tance between two vehicles. This infor-
mation is sent to a computer where it is
combined with the data on the speed of
the AHC vehicle.
The computer determines whether the
AHC car is closing on the car in front,
whether it is dropping behind, or whether
it is maintaining a fixed distance. The
computer then calculates a safe distance
that should be maintained between the
cars. If the actual distance differs, it
signals the accelerator or brake to estab-
lish the proper distance. If the car in
front moves off the road, the AHC car
will accelerate to its preset maximum
speed. Then it will act like a car with a
standard speed-control system, until an-
other car in front activates the radar.
The two modified parts are a standard
brake and throttle hooked up for electri-
cal control.
AHC is a noncooperative system. This
term means that only the parts on the
system-equipped car are needed to make
the device work.
The maximum speed of AHC can be
set by the driver, usually the speed limit
of the roadway. However, an over-ride
is provided on both the accelerator and
brake so the driver can take control of
the car at any time.
Coming soon. Out at Ford's labora-
tories. Lesser explains that all parts nec-
essary to build an AHC system are
available now, but not as a unit. The
computer in an accompanying photo-
graph is many times larger than a final
design would be. Other parts can be
combined and miniaturized, too. A pro-
duction version of an AHC system would
weigh about 20 pounds, and cost a new-
car buyer between $200 and $300.
Lesser says that a high-production ver-
sion of AHC can be ready for public use
by the middle '70s, and probably be sold
as optional equipment. Other controls,
such as "slippery-pavement" and "dry-
pavement" settings, and antiskid braking
systems, could be built in.
Summing up, AHC promises three de-
sirable benefits:
• It adds driving pleasure, relieving
the driver of much of the nuisance of
pedals.
• It increases driving safety, practical-
ly eliminating rear-end collisions.
• It aids traffic flow by keeping cars
moving at a uniform speed and distance.
As a first step to completely automatic
highway driving, it promises to be an
easy one. * IE
DECEMBER 1968 I 67
165
Mr. Mann. The manufacturers have also long supported vehicle
safety research programs in various universities and independent re-
search organizations, I want to mention to the Senator, maybe you
don't know this, but since I have been with the association we have
for example, contributed $10 million, tlie industry has, to the Uni-
versity of Michigan to set up a new traffic safety institute. This insti-
tute is now functioning. I think the new buildings are going to be
inaugurated very soon. They have recruited a fine staff, But long
before that we were working with Cornell, UCLA, Wayne State, and
a number of other universities and independent research organiza-
tions in this field that you are talking about.
Senator Nelson. Is this research on driver training, driver habits,
liighways, or does it also involve research on devices?
Mr. Mann. It involves everything. Are you talking about the Uni-
versity of Michigan program ?
Senator Nelson. Yes.
Mr. Mann. It involves everything. It involves traffiic safety in all of
its features.
Senator Nelson. Does it involve research on devices for safety ?
Mr. Mann. Well, Senator, this is something the university would
have to tell you about. They liave a large staff and they are working
on all phases of traffic safety. I have talked to them about many phases
of it. I don't know what you mean by "devices."
Senator Nelson. Well, I mean energy-absorbing instruments for
the front end of the car, seatbelts, I am talking about devices. Most
of the programs I have seen
Mr. Mann. What we call in the trade hardware you are talking
about.
Senator Nelson. Yes.
Mr. Mann. Yes. I don't know that the university is particularly
trying to redesign the energy-absorbing steering column. That is now
in its second generation. I don't know that anybody has suggested that
there is a great deal of room for improvement in that.
Senator Nelson. I just wonder if the research is in the field of
hardware or just in the field of ^
Mr. Mann. Certainly they get into tires, inflation, the things you
were talking about that effect the vehicle, swerving, control, brak-
ing, what happens to the car when you have locked wheels and things
of this kind.
Senator Nelson. OK. I understand.
Mr. Mann. The manufacturers were among the first to support other
organizations having as their principal purpose the development of
effective programs to cope with the nonvehicular aspects of traffic
safety.
vehicle emissions
The next section is on vehicle emissions which was included in your
questions.
Today's new cars emit, on the average, about 63 percent less hydro-
carbons than earlier models ; under more stringent standards proposed
for California in 1970 and nationwide in 1971 the decrease will exceed
80 percent. Similarly, carbon monoxide emissions have been reduced
about 63 percent. In no other area, and I want to underscore this, of
166
the total clean air program has there been a comparable record of
achievement.
In this area, too, member companies are engaged in intensive in-
house research oriented toward finding ways to bring automotive
emissions still lower. In addition, the industry has joined with HEW
and the oil industry in financing a $13 million program in basic re-
search, including the effect of certain pollutants on health. This again
is through my association and I am very familiar with it for that
reason.
An example of expanded basic research effort on the vehicle emis-
sion problem is the "Inter-Industry Emission Control Program,"
initiated by Ford in 1967; participants include, besides Ford, six oil
companies and four foreign automotive manufacturers. The research
efforts of this group, funded entirely by the participants, are designed
to test several basic approaches toward improved emission perform-
ance through such techniques as thermo-reactors, catalytic converters,
new fuel properties and systems. A copy of the most recent report of
the IIECP is available, also, for the record. This is this book here.
Another example is the emissions research program of Chrysler and
Esso in the areas of cleaner air systems, reductions of evaporative
losses, catalytic reactor systems and other fields. A copy of a report
briefly describing this program is also available. Other material de-
scribing cleaner air system for exhaust emissions control developed by
Chrysler is available for inspection and, if the committee desires, for
inclusion in the record.
Senator, I have all of this here and I cite them only because they
describe — it would take me a long time to do it in a very brief fash-
ion— what the companies have done in this field of emissions, in con-
trol, in terms of research.
Senator Nelson. They will be accepted for the record.
(The pamphlets referred to follow :)
167
Exhibit 20
(Automobile Manufacturers Association's exhibit No. 10: paper by the Inter-
Industry Emission Control Program, "Clean Air Research.")
i J
168
Clean Air
Research
and NEC
Air pollution is recognized as a serious problem both in the United States and abroad. It
is caused by smoke, dust, fumes and gases produced from many sources. A particular
type of pollution occurs with variable frequency in the Los Angeles Basin, where hydro-
carbons and oxides of nitrogen react in sunlight to form photochemical smog.
The automobile is the principal contributor to hydrocarbon emissions and, to a much
lesser extent, to emissions of oxides of nitrogen. As a result, the automobile and petroleum
industries have been actively engaged for years in research aimed at reducing undesir-
able emissions.
Convinced that a virtually smog-free automobile powered by an internal combustion
engine could be developed. Ford Motor Company and Mobil Oil Corporation combined
forces in April, 1967, to form the Inter-Industry Emission Control program. These two
companies were quickly joined by five other U.S. firms-American Oil Company, Atlantic
Richfield Company, Marathon Oil Company, the Standard Oil Company (Ohio) and Sun
Oil Company. In July of 1968 three Japanese car and truck manufacturers-Mitsubishi
Heavy Industries, Ltd.; Nissan Motor Company, Ltd., and Toyo Kogyo Company, Ltd.-
and the Italian company. Fiat S.p.A., joined IIEC.
These companies are conducting an all-out research program to eliminate objectionable
levels of automotive emissions. Oil company members utilize their fuel and lubricant
know-how, while Ford and other vehicle manufacturers concentrate on development of
new "hardware." This coordinated attack on a problem common to both industries is in
addition to the extensive in-house programs that each of the participating companies
continues to maintain.
The
Problem
Every automobile emits relatively small amounts of contaminants. The principal contami-
nant by weight is carbon monoxide; two others, emitted in substantially smaller quantities,
are hydrocarbons and oxides of nitrogen.
The amount of emissions from a single car is small. But there are more than 96 million
motor vehicles currently in use in the United States alone— many of them concentrated
in urban areas. In combination, they contribute to the pollution problems experienced in
crowded cities.
Most automotive emissions— about 85 per cent— come from the combustion process (vapors
from evaporating fuel account for the other 15 per cent). Carbon monoxide and small
amounts of unburned hydrocarbons are given off because combustion of the air-fuel mix
in the engine is not complete. If all our driving were at steady speeds on open highways,
exhaust emissions would be no problem. The difficulty is that the mixture of air and fuel
most conducive to complete combustion is not rich enough to prevent a car from stalling
when an engine is idling or to produce maximum power for acceleration. So, for smooth
engine performance, the mixture must change to meet the needs of different driving
conditions. As it changes, pollutants are emitted from the tailpipe in varying quantities.
Obviously, overall emission quantity increases in crowded city traffic.
172
The
Goal
One source of hydrocarbon emissions— crankcase blowby— already has been brought under
complete control by the automobile industry. Gases from gasoline combustion which
escape from the cylinders and pass through the crankcase were once vented through a
road draft tube. Since 1963, new American automobiles have been equipped with positive
crankcase ventilation systems that recycle these escaping gases back through the combus-
tion chamber, where they are burned. This accomplishment resulted in a 15 to 20 per cent
reduction in hydrocarbon emissions.
All 1968 models were equipped with additional, more sophisticated systems which further
reduced exhaust hydrocarbons by about two-thirds and carbon monoxide by more than
one-half of the levels of cars with no controls. This level was established by surveys in
California in 1963 and applied to most of the 1966-model passenger cars sold in California.
Federal emission standards calling for still further reductions have been promulgated
for 1970.
Although, by any objective standard, the accomplishments of the automobile industry
have been outstanding, the participants in the IIEC program seek to improve upon them.
The goal of the IIEC program is to fmd a way to achieve even lower levels than those called
for by the 1970 standards— thus hastening the realization of a virtually smog-free car
173
iti
1963 Levels 1968 Stnds. 1970 Stnds. NEC
(U.S.) (U.S.) Goals
Hydrocarbons— Parts per million
900
275
180
65
Carbon monoxide— Percentage by volume 3.5
1.5
1.0
0.3
For oxides of nitrogen, the goal of the IIEC is a reduction of 85 to 90 per cent, with a target
of 175 parts per million.
Achieving these goals, even in the laboratory, will not be easy. Changing one part of a
well-engineered fuel-engine system could easily reduce the efficiency of other parts of
the same system. (And if carbon monoxide emissions alone were controlled, nitrogen-
oxide emissions actually would go up above the present levels.)
The task is further complicated by the fact that a smog-free automobile is not enough.
The car of the future also must meet customer criteria for performance, cost, comfort
and convenience. This is the goal of the Inter-Industry Emission Control program. When
this goal is achieved, it will remain for the automotive industry to overcome the formidable
but, it is believed, not insurmountable task of adapting the concepts developed by the
IIEC group to the practical realities of mass production.
The
Program
To meet this formidable challenge, the NEC group has launched a three-year, multi-million-
dollar program— one of the largest private research ventures ever undertaken. It is using a
systems-engineering approach in which the solution to each part of the problem will be
evaluated on the basis of interaction with all the other parts. Final judgment as to the most
effective solution— or combination of solutions— will be based on an evaluation of all the
factors mentioned above.
One suggestion for reducing emissions of hydrocarbons and carbon monoxide has been
to pass engine exhaust through a "catalyst" or "reagent" that will convert the pollutants
into harmless materials. The difficulty is that effective catalysts are quickly "deactivated"
by the lead in gasoline and are expensive to replace.
Two NEC projects may provide answers. One is aimed at development of a disposable cat-
alyst for use with leaded gasoline. (The catalyst would be a low-cost item which could be
replaced in service stations when motor oil is changed.) The second involves the study of
low-cost catalysts with a much longer life for use with unleaded gasolines. In addition,
NEC researchers are using a mathematical model on a computer to try to improve the
efficiency of catalytic converter systems for both leaded and unleaded gasolines.
Thermal afterburners also offer strong promise. These non-catalytic devices would burn
the hydrocarbons and the carbon monoxide (without affecting nitrogen-oxide levels) as
they pass through the exhaust system. If afterburners could be made to function efficiently
over long periods of time without unduly increasing fuel consumption, they could prove
effective even with fuels containing tetraethyl lead, which is used in almost all gasolines
to meet the high octane requirements of modern automobiles.
Whether catalysts or afterburners or both prove to be the best answer remains to be seen.
The NEC group is testing such systems with equal thoroughness to provide motorists with
the most efficient devices for controlling exhaust emissions of hydrocarbons and carbon
monoxide.
Nitrogen oxides are not being neglected, either. Catalysts might solve this problem also,
and are being tested with rich and lean carburetion in engines burning both leaded and
unleaded gasolines. Another possible approach is to recirculate a portion of the exhaust
gas back through the intake manifold so that temperature is reduced in the combustion
chamber and fewer nitrogen oxides are produced. The NEC group also is working to
perfect this method.
Participants in the IIEC program have not neglected the possibility that changes in the
design of autonnotive systems or the composition of fuels might prove beneficial. The car-
buretor, induction system and combustion chamber all are being studied to see whether
they can be made to use leaner fuel mixtures without producing more pollutants.
Methods of reducing evaporation losses in the fuel system also are being studied. Similarly,
the NEC group is investigating fuel volatility and additives in the hope that certain char-
acteristics of gasoline might be altered sufficiently to reduce evaporation and improve
carburetion and combustion. Ten test cars will be used to evaluate equipment and fuels
developed in the program.
Altogether, the IIEC program consists of 15 separate projects scheduled to be completed
by the spring of 1970 (although it may be several years after completion of the program
before the full benefits of IIEC achievements can be fully realized in vehicles and fuels).
Its doors still are open to other companies eager to participate and able to contribute
research efforts.
A portion of the IIEC program already has moved out of the research phase into the develop-
mental and test-work phase. Early activities were to organize and staff the program, set
out basic objectives, delegate project assignments and conduct extensive research and
development work. Now, more and more, the test track is replacing the test tube. Hardware
is being evaluated, data compiled and projects added or de-emphasized. Research-
developed hardware is being installed into specially built test vehicles. Separate research
efforts on fuels and emission-control hardware, such as catalytic converters, high-efficiency
reactors and exhaust recirculating systems, are being brought together in a number of
concept emission-test vehicles for systems evaluation.
Eleven major companies have pooled their resources— money, modern facilities and
brainpower— to help solve a major problem. Whatever the ultimate solutions may
prove to be, motorists can be certain that automobiles of the future will be virtually pollu-
tion-free, and will perform as well as or better than current models at a reasonable cost.
American Oil Company
Atlantic Richfield Company
Fiat S.p.A.
Ford Motor Company
Marathon Oil Company
Mitsubishi Heavy Industries, Ltd.
Mobil Oil Corporation
Nissan Motor Company, Ltd. (Datsun)
Standard Oil Company (Ohio)
Sun Oil Company
Toyo Kogyo Company, Ltd.
Inter-Industry Emission Control Program
178
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Exhibit 22
(Automobile Manufacturers Association's exhibit No. 12: paper by the Engi-
eering Office, Chrysler Corporation, "Chrysler's 'Cleaner Air System' for
xhaust Emission Control.")
CHRYSLER'S
"CLEANER AIR SYSTEM "
FOR
EXHAUST EMISSION CONTROL
ENGINEERING OFFICE C.© PJHBY^i^^
CORPORATION
W
32-493 O— 69— pt. 1 14
196
CHRYSLER'S "CLEANER AIR SYSTEM'
FOR EXHAUST EMISSION CONTROL
CONTENTS
Page
Introduction 1
The Cleaner Air System- -A Glance At Its Background 1
How Does The Cleaner Air System Work? 2
To Limit Exhaust Emissions at Idle and Acceleration 2
To Limit Exhaust Emissions During Deceleration 4
Operation of the Distributor Vacuum Control Valve 6
Other Cleaner Air System Modifications 6
The Cleaner Air System Includes Closed Crankcase Ventilation 8
The Cleaner Air System- -A System, Not a Device 8
Prepared by
Technical Information
ENGINEERING OFFICE
CHRYSLER CORPORATION
July, 1967
197
CHRYSLER'S "CLEANER AIR SYSTEM"
FOR EXHAUST EMISSION CONTROL
itroduction
Ihrysler's Cleaner Air System for exhaust emission control consists of a number of
ngine modifications that lead to more complete burning of the fuel/air mixture in the
ngine. As a result, concentrations of unburned hydrocarbons (HC) and carbon mon-
xide (CO) that contribute to air pollution are considerably reduced.
"he Cleaner Air System is made up primarily of the following: leaner fuel/air mix-
ares at all engine speeds, adjusted ignition timing, higher idle speed and air flow,
pecial choke calibration, and other more-subtle modifications that are peculiar to
ach engine. These include revised combustion chambers, improved manifold heat
alves, and new design carburetor metering systems for better carburetion and
ylinder distribution. It is this combination that provides cleaner exhaust gasses.
)riginally developed to help reduce photochemical smog in California, the Cleaner
Lir System (formerly called Cleaner Air Package or CAP) now enables all Chrysler-
uilt engines to meet nation-wide Federal requirements that limit hydrocarbon
missions to 275 parts per million and carbon monoxide to 1.5%. And it will continue
3 do so as long as it is properly maintained.
Tie Cleaner Air System- -A Glance At Its Background
Tie Cleaner Air System stems from long investigation at Chrysler laboratories into
tie problems of undesirable exhaust emissions. This research revealed that the con-
entional automobile engine gave relatively low emissions of hydrocarbons and carbon
nonoxide when accelerating or cruising, but very high emissions when decelerating,
r operating at low and idle speeds. It further was found that more complete combus-
ion of the fuel/air mixture during periods of high exhaust emissions would lower such
missions, not only while decelerating and idling, but also during acceleration and
ruise. CAP thus came into being--as a system of engine modifications for burning
uel more completely under all operating conditions. The present Cleaner Air System
as evolved from CAP.
198
How Does The Cleaner Air System Work?
The Cleaner Air System utilizes changes to the conventional carburetor, choke, and
distributor, plus other internal modifications determined by specific engine needs, t
implement exhaust emission control. Most of these are directed toward certain part
of the engine operating cycle --idle, acceleration, and deceleration. These ranges
contribute the bulk of air pollution from the gasoline engine, and it is upon them that
the Cleaner Air System concentrates. The following pages describe how the Cleaner
Air System operates during idle, acceleration, and deceleration ... to provide the
optimum combination of fuel/air mixture and timing for all driving conditions.
SPECIAL CHOKE
CALIBRATION
SENSING VALVE
(Manual Transmission
Only)
VACUUM
LINES
NEW CARBURETOR
METERING SYSTEM
CLOSED
OIL FILLER
CAP
CLOSED CRANKCAS
VENTILATION SYSTE
CRANKCASE
VENTILATOR
VALVE
IMPROVED MANIFOLD
HEAT VALVE
VACUUM
ADVANCE UNI
MODIFIED
COMBUSTION
CHAMBERS
ALTERED
DISTRIBUTOR
CHRYSLER'S CLEANER AIR SYSTEM
(V-8 With Manual Transmission Shown)
To Limit Exhaust Emissions at Idle and Acceleration: In order that the engine reduce
its exhaust emissions at idle, it must, in a sense, simulate the more-efficient com-
bustion conditions that exist when it would be cruising. In the Cleaner Air System thi
is done by increasing idle speed (and the air flow necessary to maintain it), providing
199
- 3 -
I leaner fuel/air mixture, and retarding spark timing. The result is that the engine
eceives the type of charge it would get if it were cruising, and burns it much more
;ompletely.
arburetor changes play a key role. The carburetor is set to deliver as lean a mixture
IS the engine will tolerate without affecting performance. It is assisted by a new feature
ailed the idle mixture limiter that makes certain the idle mixture will stay within ac-
:eptable emission limits no matter how the idle mixture screw is adjusted; the maximum
-ange of lean-to-rich adjustment is less than half that of the conventional engine.
3ne of the most important of the Cleaner Air System factors at idle is retarded spark
iming; that is, the spark plugs are timed to fire later than normal in the compression
stroke. Retarded timing provides two favorable conditions leading to a more complete
ombustion: first, to compensate for the power reduction resulting from retarded spark,
ilr and fuel flows become higher, creating a charge density (how close the molecules of
uel are packed together) that more closely resembles that existing at cruise; second,
he retarded spark also increases exhaust gas temperatures, thereby causing additional
)urning of hydrocarbons and carbon monoxide in the exhaust manifold.
THROTTLE
OPEN WIDER
RETARDED
SPARK
(^
HIGHER EXHAUST
TEMPERATURE
HOW CLEANER AIR SYSTEM LIMITS EMISSIONS
AT IDLE
200
- 4 -
During acceleration, with lean Cleaner Air System mixtures, combustion also is
satisfactory and emissions are correspondingly low.
Another modification applies to cold starting and warm-up operations, when a rich
fuel mixture is necessary for the engine to fire and reach a smooth operating con-
dition. The choke valve is closed when the engine starts, but opens gradually as the
engine warms up.
In an engine equipped with the Cleaner Air System, improved manifold heat valves,
carburetor metering, and cylinder distribution permit the choke to be calibrated to
open sooner than in previous engines. This, of course, reduces the total fuel con-
sumed at warm-up.
As a result of these modifications--high idle speed, leaner mixtures, and retarded
spark timing- -there is a very substantial decrease, well over 50%, in hydrocarbon
and carbon monoxide emissions at idle and acceleration.
To Limit Exhaust Emissions During Deceleration: Deceleration or coasting formerly
was a third potential contributor of relatively high exhaust emissions in the engine
operating cycle. Emissions in this speed range consist primarily of hydrocarbons;
that is, of partially burned or unburned fuel vapors. Two combustion factors--low
air/fuel flow and a relatively high dilution of the fuel mixture by exhaust gasses--
contribute primarily to this emission problem.
Low air /fuel flow occurs as soon as the driver eases up on the accelerator. Ordinari
the throttle blade inside the carburetor is nearly closed just as it would be during idl^
severely restricting air flow from the carburetor to the combustion chambers.
Engine speed at this time is high, depending on how fast the car was cruising at the
time deceleration began.
The low air flow and high engine speed previously would combine to create strong vacu:
in the intake manifold so that as the intake valve opened, exhaust gasses from the pre^
charge, which were still escaping through the closing exhaust valves, were pulled bac
toward the intake side. They mixed with the incoming charge, weakening it further.
The end result was a charge that burned very poorly, and often left pockets of unburne
fuel to escape out of the exhaust, raising hydrocarbon emission.
201
engines equipped with the Cleaner Air System, modifications that are made for idle
)ntribute in great part to the reduction of emissions during deceleration. The main
ctor is the position of the throttle blade, which at idle is opened wider tiian normal,
icreasing air flow. Under deceleration, this greater air flow lowers the intake mani-
ild vacuum. Consequently there is much less of a tendency for ttie exhaust gasses to
lix with the incoming fuel mixture.
nother factor improving combustion during deceleration is advanced timing, which
rovides more complete combustion under conditions of very high manifold vacuum,
hese very high manifold vacuum conditions occur only during deceleration, and pri-
larily in vehicles with manual transmissions.
THROTTLE
OPEN
LESS MIXTURE DILUTION
BY EXHAUST GAS
INCREASED FLOW
IN MANIFOLD
HOW CLEANER AIR SYSTEM LIMITS 'EMISSIONS
ON DECELERATION
n a car with an automatic transmission, the slip characteristics of the torque con-
verter in the automatic transmission allow its engine to slow down much more rapidly
IS the vehicle is decelerating, thereby quickly reducing the high manifold vacuum.
202
6 -
On vehicles equipped with manual transmissions, engine slow-down is not as rapid
during deceleration, high manifold vacuum exists longer; therefore, spark is
advanced at this time. This is accomplished by a special distributor vacuum contro
valve. It reacts to manifold pressure during deceleration to advance timing until th'
engine reaches the low-speed range. (The control valve is used on the Hemi-426
engine regardless of the type of transmission.)
Operation of the Distributor Vacuum
Control Valve
FROM MANIFOLD VAC
FROM
CARBURET
TO DISTRIBUTOR
CLEANER AIR SYSTEM SENSING VALVE
The distributor vacuum control valve
is nothing more than a switching de-
vice placed in the vacuum hose circuit
between the carburetor and the dis-
tributor vacuum spark advance unit,
thus dividing the circuit in two. It
also adds a third vacuum hose leading
to the intake manifold. When the
engine is accelerating at part throttle
or cruising, vacuum is present at the
spark port in the carburetor throttle
body. The control valve shuts off the
opening to the manifold, and routes
carburetor vacuum directly to the vacuum spark advance unit for early sparking. W
the engine is decelerating, carburetor vacuum is low, but intake manifold vacuum if
very high. The control valve then shuts off the circuit leading to the carburetor, an
relays manifold vacuum to the spark advance unit. Thus in all engine operating ranj
the necessary spark advance is provided automatically.
Other Cleaner Air System Modifications
A number of additional internal refinements aid in lowering emissions. These re-
finements stem from a close laboratory scrutiny of the design and performance of
each engine in order to determine just what specific additional measures should be
taken for better fuel metering and more complete fuel combustion. Among the more
noticeable of such improvements are:
A New Heat Valve and Gasket- -Both lead to a better distribution of hot exhaust
gasses against the underside of the intake manifold so that engine warm-up is
quicker, allowing earlier leaning out of the fuel mixture (six-cylinder engines).
203
jicreased Quench Height--The quench space in the combustion chamber is raised
o a point where any gradual build-up of carbon deposits in this area will not un-
luly restrict complete combustion (most V-8 engines). This increase also prevents
he metal walls of the combustion chamber from dampening the flame as it travels
ejutward from the spark plug.
increased
''quench height
PREVIOUS
QUENCH HEIGHT
INCREASED QUENCH HEIGHT
Single Idle Mixture Screw --It is no longer necessary to balance the fuel mixture
between barrels of the MU, 383, 4-bbl, and 440 CID V-8's when adjusting idle.
Balance is preset and sealed by the manufacturer. A single idle mixture screw
raises or lowers the level of mixture simultaneously in both barrels without
affecting balance. This feature was developed by Chrysler engineers to eliminate
maladjustment of mixture balance.
Adjustable Idle Air Bleed- -Some carburetors (340, 383, 4-bbl, 440 V-8's) incorpo-
rate a secondary air bleed that can be adjusted to smooth out engine operation in
the transfer range, between idle and acceleration.
By-Pass Air Slot--Some carburetors (340 and 383, 4-bbl V-8's) have an air passage
built into the carburetor side wall adjacent to the tiirottle valve. During closed
throttle at idle, it carries air to a key spot below the dirottle valve best suited to
break up concentrations of raw fuel .
204
The Cleaner Air System Includes Closed Crankcase Ventilation
The Cleaner Air System is designed to control crankcase emissions as well as exha
emissions. In this sense it serves as an extension of the positive crankcase ventila
system introduced on Chrysler Corporation engines in 1963.
Positive crankcase ventilation on engines not equipped for the Cleaner Air System h
a ventilated oil filler cap. Manifold vacuum pulled fresh air through the cap into th
crankcase where it was used to sweep blow -by (unburned and partially burned fuel)
vapors out of the crankcase into the carburetor via a special ventilator valve. Froi 1)(
the carburetor the vapors were carried into the combustion chambers for burning. '^
With the Cleaner Air System, the filler cap is not vented. Instead, it is connected
a hose directly to the carburetor air cleaner so that if an extensive amount of blow-
vapors are coming from the crankcase, or the vent valve should become stuck, the
extra blow -by gasses will be routed right back through the engine (via the air cleane
rather than being allowed to escape.
The Cleaner Air System- -A System, Not a Device
Obviously the Cleaner Air System is not any single device or group of devices that c
be bought at an automotive supply store. It is a highly developed, sophisticated, an
sometimes complex system of engine modifications that has one purpose- -to reduce
emissions to an acceptable level. The Cleaner Air System does just that, and it dof
it very economically. It requires practically no additional maintenance beyond the
normal recommendations made for engine care. This, in itself, is an achievement.
,11
205
!^r. Mann. As in the case of traffic safety, and I think I can say this
:h some objectivity, there is no basis for assuming that innovation
reducing emissions would be promoted merely by mcreasmg the
mber of firms in the industry.
DEVELOPING ALTERNATE KINDS OF PRIVATE TRANSPORTATION
An agrument can be made that the ability of large companies to in-
5t in extensive research and development staff and facilities enhances
i likelihood of innovation. Certainly much of our technological prog-
;s in recent years is the product of large-scale, organized research
ograms On the other hand, many important innovations m the past
ve been the product of the ideas developed in small companies,
me of the most significant advances have been made m one-man
ooratories operating on a shoestring. Probably the only conclusion
e can draw from this is that no individual or firm or industry has a
mopoly on the capability of finding new and better ways of doing
ings— and that all should be encouraged to contribute to the total
^nd of knowledge.
'The automobile manufacturers have often said they are m the trans-
rtation business. If an economically feasible machine can be devel-
ed which can do everything that the internal combustion engine
is, there is no reason to believe that people would not want to buy
And in our open, competitive economic society there are none who
ve a greater incentive to develop, produce, and market such a product
an the automobile manufacturers. The firm which did so first would
ve an advantage over his competitiors. Only those firms oblivious to
eir own self-interest would want to stand pat with an obsolete plant
oducing an obsolete product while more competitive companies
jSsed them bv.
This explains why the automobile manufacturers have spent a great
al of time and money in developing and testing diesel engines, tur-
ne engines, electric powerplants, steam engines, and hybrid engines.
3cently one of the manufacturers showed to the public some 15 or 20
)w powerplants on which it is currently working.
Senator Nelson. Is that the General Motors display?
Mr. Mann. Yes, sir. I have that now, and my statement says a
Ider which is all we had then, but we now have this in printed form.
Senator Nelson. That was their showing here about 2 months ago?
Mr. Mann. Yes, sir; and it is complete with the drawings, technical
awings, the kind of steam engines and electric cars they are working
I, and simply demonstrates that they probably have done more work
a greater variety of fields in this area than any other company I
10^ of— except, of course, some of the other member companies who
e also working very hard at this. Chrysler, for example, is, I think,
the fifth generation of the turbine engine. They have been working
it for many years. Ford has done a great deal of work in this area,
I also have here a short history of Chrysler's development of gas
irbine engines which the committee may wish to look at. I understand
is one thing to perfect a single engine to desirable design character-
tics but an entirely different matter to perfect an engine which meets
)nsumer demand and can be mass produced.
iWr
206
What the automobile manufacturers have individually said is,
essence, that despite their best efforts none has as yet been able to
velop a powerplant which they believe would be competitive with iW
day's gasoline engine in price, performance, reliability and durabili '
This raises the question: What social or other legitimate purp(
would be served if a manufacturer were to design, develop, and mi
produce a different kind of powerplant, if consumers would not b
it in large quantities ? Governments may be able to invest great sui
of money in research on a program and then abandon it. And I do:
think I need mention the program, Senator, that I had in mind bui
think we are all familiar with it. But in the private sector, cost a
the ability to market products are important considerations. The co
pany which makes too many costly errors would probably not cc
tinue to exist. Certainly the shareholders would quite properly be^
to think about whether management should not be changed.
I see no basis at all for the insinuation that automobile manuff
turers could, if only they tried harder, quickly make a dramatic tec
nological breakthrough in developing a steam or an electric or soi
other kind of automobile which the consumer will consider superi
to the products currently available to him. I say this because I kn(
of no way to command scientists to invent. Most technological pro
ress comes gradually as the result of trial and error and the expenc
ture of time and effort.
While the automobile manufacturers seem likely, because of th(
knowledge, experience, and because of their self-interest, to contin
to lead the way in automotive innovations, they are by no means — a
I want to underscore this — the only industry with knowledge in t
areas which present the greatest technological problems. The pub
is not wholly dependent on them. There are efficient industries, bo
at home and abroad, whose business it is to make batteries and fi
cells. There are other industries whose business it is to make stea
Eowerplants. There are individual inventors and entrepreneurs w"
elieve they have found solutions to technological problems which
present are barriers to new kinds of automobiles. I do not suggest th
any good purpose would be served by commanding these groups to i
vent a better powerplant, but I do suggest that all of them have :
automatic incentive to invent. And I have no doubt that even
someone else is the inventor, the automobile manufacturers will 1
eager to adopt it and to compete in finding ways to improve on it.
Senator Nelson. We will accept your three exhibits for inclusi(
in the record at this point.
(The exhibits referred to follow :)
207
Exhibit 23
Automobile Manufacturers Association's exhibit No. 13: paper by General
tors Corporation, "GM Progress of Power Background Information" (1969).)
BACKGROUND
INFORMATION
208
GM
rogress
5)of
ower
BACKGROUND
INFORMATION
GENERAL MOTORS scientists and engineers are
engaged in a continuing investigation of various
possible power sources for vehicles of the future.
On May 7 and 8, 1969, the nation's press and rep-
resentatives from government and colleges were
invited to see the latest results of this work at
the GM Technical Center.
This "state of the art" report --called "Progress
of Power" --featured some 44 exhibits and 26 spe-
cial vehicles, many shown for the first time. Pow-
ering the vehicles were a wide array of uncon-
ventional systems --turbine, steam, electric, Stir-
ling, and hybrid systems, as well as experimental
piston engines that sharply reduce emissions of
air pollutants.
The following pages contain background information
on the experimental power systems and vehicles
displayed and demonstrated at the GM "Progress
of Power" show. We hope you find this informa-
tion of interest.
209
BACKGROUND INFORMATION SHEETS
OWci
The Air Pollution Problem and Its Control .(Green)
The Air Pollution Problem
Fundamentals of Emission Control; A Decade of Progress
Catalytic Converter Plus AIR
Low Emission Engine Design
Experimental Exhaust Manifold Reactors
Exhaust Manifold Reactor with CCS (Controlled Combustion System)
Experimental Nitric Oxide Control System — NOC
Unconventional Engines and Fuels • (Tan)
The CM SE-101 Steam Car
The GM SE-124 Steam Car with Besler Engine
GM Progress in Gas Turbines for Vehicles
Liquefied Petroleum Gas (LPG) Engine
Quiet Engines — Stirling Cycle, Vapor Cycle
Energy Storage Systems Complement the Stirling Engine
Intake Valve Throttled Engine
RamAire Supercharger System
Free Piston Engine
Direct-Cylinder Air-Injection Supercharged Engine
Ammonia-Fueled Automotive Engine
Toric Transmission ©(Tan)
Special Purpose Urban Cars •(Blue)
The 511 Gasoline Commuter Car
The 512 Series Urban Cars
XP-883 Gasoline-Electric Hybrid Car
Batteries and Electrically Powered Vehicles • (veiiow)
Electric Vehicle Powerplant Technology
Electrochemical Energy Converters
GM Stir-Lee II: A Stirling-Electric Hybrid Car
GM High Performance Electric Drive Systems
Delco-Remy Electric-Wheel Vehicle Propulsion
Electrovair II
Electrovan
Other Direct Conversion and Nuclear Power Systems • (Gray)
Thermoelectric Power
Thermionic Power
Electrogasdynamics
Radioisotope Heat Sources and Nuclear Reactor Systems
210
General Motors
THE AIR POLLUTION PROBLEM
How serious is the air pollution problem?
What are the specific effects of individual pol-
lutants, and which ones are most significant in
the quest for cleaner air?
Such vital questions, often charged with emotion,
are being discussed at virtually all levels of
government and industry. But one point remains
clear among much controversy: air pollution
is becoming more serious with increasing ur-
banization and population. Concentrations of
pollutants are heaviest in highly urbanized and
industrialized centers. About 120 million
Americans -- nearly two-thirds of the nation
-- live in such areas.
The Automobile and Other Sources. The pol-
lutants released into the atmosphere come from
many sources -- automobiles, industry, homes,
even nature itself (e.g., marsh gas --a hydro-
carbon -- is formed at the rate of 1.6 billion
tons per year). Principal automotive air pol-
lutants are carbon monoxide (CO), hydrocarbons
(HO. and oxides of nitrogen (NO ). The auto
exhaust is a minor source of particulates.
Sulfur dioxide (SO2) in the automobile exhaust
is insignificant. In fact, more than 95% of the
exhaust is composed of innocuous substances
-- nitrogen, carbon dioxide, and water vapor.
Non-automotive sources of air pollution ini
pulp and lumber mills, iron and steel indu
petroleum refineries, chemical manufactur'
and powerplants using fossil fuels to prodv
electricity. The same fuels also heat hom
plants, and offices. Pollutants emitted in :
nificant amounts from non -automotive sour
include SOo; NO ; particulates, such as du
and soot; and to a lesser extent, CO.
Figure 1, based on data from the U.S. Put
Health Service, shows specific pollutants fj
the automobile and other sources.
Two Forms of Air Pollution. General air
lution results directly from excessive emi
of undesirable substances to the atmospher
These include smoke, dust, mists, various
such as SOn, and other industrial and man
made pollutants.
Photochemical smog, on the other hand, is
erated in the atmosphere by a complex sei
of chemical reactions. The raw materials
HC, NOjj, and sunlight. Hydrocarbons by t
selves are not noxious at atmospheric cone
trations. But in the presence of bright sur
and trace amounts of NO , atmospheric HC
concentrations react to form smog.
oih., [7^
JZL
n
m
Sulfur Oioilde Carbon Mor\o«lde Parlicula
SO, CO
H,d,o.o.boni 0.,d = . »f N,,
HC NO,
Source: U. S. Public Heolth Servic
Figure 1 - Air pollution sources in the United States.
211
air pollution problems vary widely with
late, weather, topography, and emission
-ces (see Figure 2). Chicago, for example,
considerable general air pollution but very
e photochemical smog. Los Angeles has
e general air pollution -- but due to the
graphy of the Los Angeles basin, photo-
mical smog appears about one day in three.
;cts of Today's Concentrations. Both in the
iratory and in the field, scientists in the
Research Fuels and Lubricants Department
studied air pollution problems for many
rs. They cite these areas of concern for
iting urban concentrations of specific poi-
nts:
Sulfur Dioxide -- Present levels in some
in areas may be of concern with regard to
iiological effects and plant damage. Most
rly established health effects, however,
; resulted from concentrations considerably
ler than those normally found in urban at-
pheres.
I Carbon Monoxide -- Present levels in
le urban areas may occasionally be of con-
1 with respect to physiological effects.
• Particulates -- May cause physiological
effects. Particulates contribute to reduced
visibility and atmospheric discoloration, and
soiling and corrosion of exposed objects.
• Hydrocarbons -- Major contributor to Los
Angeles photochemical smog. Symptoms of
smog are plant damage and reduced visibility;
eye irritation is a physiological effect.
• Oxides of Nitrogen -- Present urban levels
are well below those injurious to health. Oxides
of nitrogen are the other major photochemical
smog reactant. Steps short of complete elim-
ination in the atmosphere, however, will not
reduce smog formation -- and may cause in-
creases. NO may also contribute to atmo-
spheric discoloration independent of smog.
Controlling Automotive Emissions. Today's
control technology has already reduced auto-
motive HC emissions by about two thirds.
Total exhaust pollution control will become
increasingly effective each year as new model
cars enter the market.
LOS ANGELES
PHILADELPHIA
ST. LOUIS
^VASHINGTON
CHICAGO
34.1%
0.0%
^1.0%
1.5%
]0.6%
PHOTOCHEMICAL SMOG
Percent of days oxidant
exceeds 0.15 ppm for 1 fiour
{general air POLLUTION
Percent of days sulfur dioxide
exceeds 0.30 ppm for 1 hour
34.4%
Figure 2 - Air pollution problem different in various cities (1965-1966).
Prepored by TECHNICAL INFORMATION DEPARTMENT
GM Research Lafaorotoriej, Worren, Michigan 48090
82-493 O— 69— pt. 1 15
212
M
General Motors
FUNDAMENTALS OF EMISSION CONTROL
A DECADE OF PROGRESS
GM's 1970 automobiles in California will emit
81% fewer hydrocarbons than their 1960 counter-
parts, representing a decade of significant prog-
ress in automotive air pollution research.
Greatly reduced crankcase, exhaust, and evap-
orative emissions (see bar graph) are the re-
sult of more than 15 years of intensive air pol-
lution studies. This three -pronged program at
General Motors is aimed at
• First, understanding the nature of atmo-
spheric effects. Researchers are measuring
the levels and distribution of automotive pol-
lutants in urban atmospheres and trying to
understand the interactions of different pol-
lutants .
• Second, understanding the nature of ve-
hicle emissions. Sophisticated measurements
of emissions under all possible conditions are
revealing the effects of different operating,
ambient, and design factors.
• Third, developing new control concepts.
This includes determining the ultimate control
levels attainable and developing suitable com-
mercial designs.
Significant progress began in the early 1950's
when instruments for measuring total hydro-
carbons were developed. In the mid-1960's it
first became possible to separate and analyze
exhaust gas components at the parts-per-mil-
lion level. The various types of automotive
emissions could now be measured quantita-
tively -- and engineers could determine which
control devices would be most effective.
Positive Crankcase Ventilation
Gases which leak past the piston rings during
compression (blowby gases) are largely un-
burned fuel and air. Until this major source
of hydrocarbon emissions was discovered by
GM researchers in 1959, blowby gases were
vented through the crankcase breather tube to
the atmosphere. Positive crankcase ventilation,
which General Motors and other manufacturers
voluntarily installed on cars beginning with the
1961 models in California, eliminated crank-
case emissions by routing the blowby gases
along with the crankcase ventilation air into
the engine intake. "" ■ ' " '
Exhaust Control
Engine Modification. This successful approach
is currently used for controlling exhaust emis
sions. Carburetion changes greatly affect hy-
drocarbon (HC), carbon monoxide (CO), and
oxides of nitrogen (NOjj) emissions. Retarded
spark timing reduces HC and NO. Designing
the combustion chamber with a low surface-
to-volume ratio reduces HC because there is
less wall area to quench the flame. Careful
attention to combustion chamber design and
adjustment of air-fuel ratio and spark timing
at specific driving conditions -- along with
extremely tight production tolerances -- has
resulted in the Controlled Combustion System
(CCS) which brings today's General Motors
vehicles within the federal emission require-
ments. However, this approach may have lim-
ited potential for further reductions -- since
pressing beyond present levels involves seri-
ous compromises in vehicle performance.
Air Injection Reactor (AIR). AIR is another
production system successfully used to reduce
exhaust emissions on today's General Motors
cars. An engine driven pump injects air into
the exhaust stream near the exhaust valves,
where gas temperatures are still very high.
HC and CO are thermally oxidized to CO2 anc
H2O.
EFFECT OF CONTROLS
ON AVG. HYDROCARBON EMISSIONS
FROM CALIFORNIA CARS
213
perimental Exhaust Reactors. Experimental
•sions of the AIR system use enlarged, in-
ated exhaust manifolds which increase both
temperature and residence time of the ex-
ist oxidation process. Very low HC levels
1 be achieved with these experimental sys-
is. However, most reactor materials de-
iorate rapidly at the high operating temper -
res.
haust Gas Recirculation. It appears that
ontrol regulations are in the offing. Re-
culation is one method currently being tested
reducing NO^ in exhaust gas. In some ex-
imental systems designed by the GM Re-
irch Fuels and Lubricants Department, ex-
ist gas is withdrawn from the exhaust cross-
r passage, passed through tubes, and re-
culated through the carburetor base to the
ine intake. This lowers the peak combus-
n temperatures responsible for NOj^ forma-
n.
iveability with current experimental recir-
ation systems probably would not be accept-
e to the motoring public. In addition, con-
1 effectiveness decreases rapidly due to
Idup of exhaust gas deposits in the recycle
es.
alytic Converters. Testing of catalytic con-
fers has been conducted throughout GM's
issions program, and these devices are still
ng studied. HC and CO can be oxidized by
alysts in the exhaust system if additional
air is furnished. NO^ also may be destroyed
catalytically, but the absence of oxygen is nor-
mally required.
Lack of durability, among other factors, has
limited use of catalysts to experimental ve-
hicles. Most currently available catalysts
lose their effectiveness rapidly when used with
leaded fuels.
Evaporative Control
Evaporative HC emissions can be controlled
effectively by activated carbon storage. Evap-
orative losses from the carburetor and fuel
tank are vented into a canister and adsorbed
on carbon. Later, during engine operation, the
fuel vapors are desorbed and burned in the
engine. This system requires precise tailor-
ing to avoid upsetting carburetion and increas-
ing exhaust emissions when the vapors are
purged from the canister.
Evaporative losses also can be vented to the
crankcase, stored, and recovered later for
burning in the engine. Problems with this
system involve increased exhaust emissions,
oil dilution, and starting and driveability.
Fuel composition is a third method of con-
trolling evaporative emissions. Less volatile
fuels would reduce evaporative losses from
both new and used cars. Local area control
would be entirely feasible and could be limited
to the warm months when fuel evaporation is
highest.
EFFECT OF CONTROLS ON MOTOR
VEHICLE HYDROCARBON EMISSIONS
LOS ANGELES BASIN
4000
No Co
^
>C!^— ..
^
\
\
\y
Wilh Controls "■■ —
SO 60 70
Year End
Prepared by TECHNICAL INFORMATION DEPARTMENT
GM Research Laboratories, Worren, Michigan 48090
214
General Motors
Engineering Staff
CATALYTIC CONVERTER PLUS AIR
In this Engineering Staff vehicle the overall
system is designed around a 1969 Chevrolet
427 -cubic -inch V-8 engine equipped with the
Air Injection Reactor (AIR) system. The ex-
haust pipe is insulated to maintain higher ex-
haust temperatures and hence improve cata-
lytic converter effectiveness. The catalytic
converter is placed in the normal muffler
location on this car.
The converter is an Arvin model, similar to
an experimental catalytic converter developed
in 1961 by Engineering Staff. The approximate
dimensions are 23 inches long. 10 inches wide
and 5-5/8 inches high. The catalyst is made
by Universal Oil Products and contains the
noble metal platinum.
Both unburned hydrocarbons and carbon mon-
oxide are oxidized in the catalytic converter.
Oxides of nitrogen are not reduced by this
Air Pump
system although other known means of NOjj
control are compatible with the converter.
Fuel economy and vehicle performance are
not affected by the converter.
Using non-leaded gasoline, two cars equipped
with this catalytic converter system have bee
run 50,000 and 68.000 miles with good low
emission performance on Proving Ground
durability evaluations.
A major drawback of such a system is the
restricted use of the catalyst due to the lim-
ited supply of platinum, plus its intolerance
of leaded fuels. Such a system, however, is
very effective with non-leaded fuels. The in-
centive is to develop a catalyst that does not
require a rare metal and tolerates leaded
fuels. Another problem is likely to be dura-
bility, because of the higher exhaust temper-
atures.
Catalyst
This particular converter contains a precious metal catal/st and has
been run on nonleaded fuel.
215
General Motors
Engineering Staff
LOW EMISSION ENGINE DESIGN
engine design approach to low emissions
lemplified in a specially designed 354-
-inch powerplant in a 1969 Pontiac. It
res a low surface-to-volume ratio which,
reduces the quench area that produces
icted hydrocarbons in the combustion pro-
The four-barrel Q-Jet carburetor oper-
at its lean limit and carburetor intake air
eheated.
- design subtleties are exploited to reduce
sions to levels as low as possible, includ-
reduced compression ratio (8.5-to-l), in-
creased stroke -bore ratio and reduced valve
overlap, reduced crevice volume (thin piston
rings closer to top of piston), a temperature
modulated choke, and a high velocity -smaller
intake manifold.
All of these design features are being incor-
porated in present production engines as they
become developed. This engine illustrates that
these approaches can be used to reduce ex-
haust emissions to fairly low levels, but not
as low as can be achieved with catalytic con-
verters or exhaust manifold reactors.
LOW EMISSION 354 ENGINE (LE 354)
Modified Carburetor
Inlet Air
Preheat
spark advonco
b. Dual diaphragm d
Surlao.lo.Volu
216
General Motors
Research Laboratories
EXPERIMENTAL EXHAUST MANIFOLD REACTORS
One approach to emission control for the inter-
nal combustion engine being investigated at the
General Motors Research Laboratories is the
use of high temperature exhaust manifold re-
actors.
This approach is the outgrowth of basic engi-
neering research begun a number of years ago.
In 1962, for example, GM engineers described
to the Society of Automotive Engineers a tech-
nique for injecting air into an engine's exhaust
manifold and "afterburning" exhaust hydrocar-
bons (HO and carbon monoxide (CO). Three
years later, GM researchers published results
of studies showing that air injection reaction
in enlarged and insulated manifolds further re-
duced HC and CO emissions.
These techniques are incorporated in GMR's
present experimental reactor systems, which
are being evaluated in two GM cars chosen
for their weight. One is a 1969 Chevrolet Im-
pala equipped with a 327 -cubic -inch V-8 engine.
The other is a heavier 1969 Cadillac with a
47 2 -cubic -Inch V-8.
To date, the experimental reactor systems
Indicate this approach appreciably reduces
HC. CO, and nitrogen oxide (NO^^) emissions
in comparison with uncontrolled engines. But
reactor effectiveness is offset by a number of
Major features of GMR's experimental manifold
reoctor system shown here on '69 Cadillac.
problems that make the systems not commer
cially feasible at the present time--such prol
lems as poor durability, increased fuel con-
sumption, materials cost, and engine service
ability.
How Reactors Work
The GMR manifold reactor systems reduce e
haust emissions through three principal mod
ifications to the engine:
# Enriched carburetor mixture;
9 Retarded spark timing;
# Extra large insulated exhaust manifolds
into which air is injected and in which
exhaust gases burn.
To reduce NO formation in the engine, the
carburetor air-fuel mixture is adjusted to a
richer (more fuel) setting. This adjustment
does two things: first, it lowers peak com-
bustion temperatures in the engine, and secoi
it lowers the oxygen concentration in the en-
gine's combustion chamber. Both effects low
NOx concentrations, but the richer carbureti.
increases HC and CO production as well as
fuel consumption.
To reduce HC and CO, exhaust gases leavinj
the engine cylinders are burned at high tem-
peratures in large stainless steel exhaust ma
ifolds that have about four times the volume
conventional manifolds. The effectiveness of
these manifolds depends on heat generated ai
retained by increasing "residence" time of e
haust gases in the enlarged reactor volume.
In the experimental Cadillac system, two en-
gine-driven air injector pumps supply air to
the manifolds for combustion. In the Chevro
one high-capacity air injection pump is used.
Other Modifications Necessary
High temperatures -- 1000°F and over -- art
necessary to insure complete burning of the
HC and CO. At these temperatures the oxida
tion is luminous. Several modifications have
been required to shorten warm-up time and
217
maintain these high temperatures in the re-
ars. Both are prerequisites for effective
ration of the reactors.
; change was to retard spark timing. This
sts exhaust gas temperature (as distinguished
m peak combustion temperature) during en-
e warm-up, idling, low speed conditions and
eleration. Another change was to use en-
e water (rather than exhaust heat, as in a
ventional engine) to transfer heat to the
-fuel mixture in the intake manifold. Also,
exhaust manifold is well insulated with
amies to prevent heat loss.
; two experimental cars also carry special
ipment to reduce fuel evaporation loss, an-
?r source of automotive emissions. A char-
1 canister traps fuel vapors from the fuel
< and the carburetor bowl. Another char-
1 element in the air cleaner prevents evap-
tion losses at that point.
;olved Problems
manifold reactor systems illustrate an en-
ter's difficulty in having his cake and eat-
it, too. The high temperatures essential
he systems' success in burning exhaust
es also pose major problems. Operating at
peratures that could go as high as 2300°F,
ch is above the melting point of most met-
als, the reactors require high alloy stainless
steels, ceramic, and other expensive high tem-
perature materials. Running the system hot
enough to minimize emissions may shorten the
manifold's useful life to only hours; cooling
the system to prolong its life increases the
unwanted emissions.
The rich carburetion and retarded spark tim-
ing increase fuel consumption as well as caus-
ing such problems as delayed restart and
"stumble" of the engine after it has operated
long enough to reach high temperatures. On
the experimental Cadillac, fuel consumption is
23% higher than today's standard Cadillac en-
gine. The experimental reactor system on the
Chevrolet increases fuel consumption about
16%.
In addition, the exhaust manifold reactors gen-
erally raise tailpipe temperatures from 500° to
1300°F as well as raising temperatures in the
engine compartment enough to require pre-
cautions regarding overheating surrounding
automotive equipment.
Engineers at the Research Laboratories are
working to improve the performance and dura-
bility--and to lower the cost--of the manifold
reactor approach so that the roadblocks that
now stand in the way of this emission control
development will be overcome in the future.
h temperature manifold reactor approach to emis-
control is being tested at GM Research Labora-
es on '69 Chevrolet, foreground, and '69 Cadillac-
Experimental exhaust manifold reactor system on '69
Chevrolet showing three principal components.
Prepared by TECHNICAL INFORMATION DEPARTMENT
GM Research Laborotories, Worren, Michigan 48090
218
PI
General Motors
Engineering Staff
EXHAUST MANIFOLD REACTOR WITH CCS
(CONTROLLED COMBUSTION SYSTEM)
This Engineering Staff low emission experi-
mental vehicle is a 1969 Oldsmobile with a
455-cubic-inch engine. It features lean carbu-
retion, an insulated large volume exhaust man-
ifold and pipe, insulated exhaust ports in the
cylinder head, and an external exhaust cross-
over. It has transmission controlled spark
advance and a dual diaphragm distributor.
The theory of this low-emissions approach is
based on the leanness of the fuel-air mixture.
No secondary air is pumped to the exhaust
ports, since oxygen is present in the exhaust
when lean fuel-air mixtures are used. There-
fore, no air pump is required. Heat from the
combustion process is retained as much as
possible through the use of the large insulated
exhaust manifolds.
Hydrocarbons in the exhaust are burned as a
result of high exhaust temperature and the
presence of oxygen. Spark advance control
further reduces hydrocarbon emissions. Car-
bon monoxide concentrations in the exhaust are
low whenever lean fuel -air mixtures are used.
Oxides of nitrogen are reduced by retarded
ignition timing and operating with very lean
fuel-air mixtures.
Fuel economy is reduced basically as a result
of retarded spark timing. The challenge with
this system is to operate with very lean fuel-
air mixtures and still maintain normal vehicle
driveability functions. Lack of throttle re-
sponse, stalls, and unsteady vehicle forward
progress can result from very lean operation.
New fuel metering systems are required to
make this system useable.
Lean Carburetion
Retarded
Ignition Timing
Air Preheater
External Exhaust
Crossover for
Carburetor Heat
Enlarged Insulated
Exhaust Manifold
Enlarged Insulated
Exhaust Pipes
219
General Motors
Research Laboratories
EXPERIMENTAL
NITRIC OXIDE CONTROL SYSTEM
NOC
iratory studies at GM Research and else-
e indicate that reasonable reductions in
(oxides of nitrogen) will not decrease
Dchemical smog in Los Angeles. In fact,
3 short of complete elimination of NO^^
isions could actually increase smog for-
Nevertheless, California recently
ed a law to require reduction of automo-
NOv emissions in 1971.
NOC System. NO is formed by the chem-
reaction of nitrogen and oxygen at high
leratures during combustion processes,
rally, reducing the oxygen or nitrogen
entrations in an engine cylinder during
Dustion --or lowering the peak cycle
lerature -- will lower the NO^^ concentra-
in exhaust gas.
engineers are investigating exhaust gas
rculation for NO control -- an approach
that appears to offer promise, although with
some sacrifices in vehicle performance.
An experimental nitric oxide control (NOC)
system based on recirculation has been in-
stalled on a 1969 Buick by the GM Research
Fuels and Lubricants Department. This NOC
system consists primarily of modifications to
the carburetor and intake manifold (see illus-
tration). Exhaust gas is withdrawn from the
cross -over passage of the exhaust manifold,
passed through tubes, and recirculated through
the carburetor base to the engine intake. This
lowers the peak combustion temperature as-
sociated with NO formation by diluting the
air-fuel mixture. The quantity of exhaust re-
circulated is determined by the tube size and
varies with throttle position, depending on the
pressure differential between intake vacuum
and exhaust back pressure. Recirculation av-
erages about 2.0% on the NOC experimental
car.
Recycle
Tube Elbow
Engine'
Exhaust
Cross-Over
Two-Barrel Carburetor
With the NOC system, about 2.0% of the exhaust gas is withdrawn
from the cross-over passage and recirculated through tfie carburetor
base to the engine intake. This lowers the peak combustion temper-
atures responsible for NO formation.
220
The car is also equipped with a controlled
combustion system (CCS) which enables it
to meet 1970 federal standards for hydro-
carbon and carbon monoxide emissions.
Unsolved Problems. Driveability with the
present experimental system probably would
be unacceptable to the motoring public. Prob-
lems include:
9 Surge during cold operation
(cyclic fluctuations in power).
W Stumble during acceleration after
cold start (short, sharp reductions
in acceleration rate).
• Poor part-throttle response.
In addition, system effectiveness deteriorates
rapidly with use, due to buildup of deposits
which reduce the inside diameter of the re-
cycle tubes. Carburetor deposits also are
formed.
The NOC system represents only a prelim-
inary look at NO^ control, and a number of
open questions remain. These include per-
formance on different car models, effective-
ness at still lower hydrocarbon and carbon
monoxide control levels, operation in extreme
weather, and effects on engine durability.
Praporad by TECHNICAL INFOItMATION DEPARTMENT
GM Research Loboratoriet, Warren, Michigan 48090
221
3
General Motors
Research Laboratories
THE GM SE-101 STEAM CAR
St is high in low emission automotive
plants, and steam power is being re-
ned in the light of today's advanced
ering materials and technology.
M SE-101 steam car, developed by GM
rch Laboratories, was designed to eval-
vapor cycle engine in an automobile
reasonable degree of passenger com-
■eliability, performance, and economy,
he world's first steam car with com-
power accessories, including air condi-
ntire steam powerplant -- including the
ier, combustion chamber, steam genera-
nd condenser -- is housed under the
>f a 1969 Pontiac Grand Prix. Starting
3ns are automatic. The operator turns
the key, waits 30 to 45 seconds for a light
signaling adequate steam pressure, and drives
away.
Starting Sequence
Several automatic operations are underway
while the driver waits for a full head of steam.
First, an electric pump fills the steam gener-
ator (boiler) with water. When the proper level
is reached, a sensor energizes an electric mo-
tor which powers the combustion blower and
fuel pump during startup. Fuel is sprayed in-
to the combustion chamber, where it is ignited
by a spark plug. When the steam generator
reaches operating temperature and pressure a
conventional automobile starter engages the
expander; steam is introduced and the expander
accelerates to idle. Further acceleration is
AUXILIARY STARTER
FEEDWATER PUMP
OMBUSTION
AIR BLOWER
TRANSMISSION
ilGHT-HAND BURNER
AIR CONDITIONING
COMPRESSOR
ONDENSER
FANS
STEAM CYLINDER
LUBRICATOR
AIR CONDITIONING-
CONDENSER AND FAN
222
accomplished by the foot pedal in the usual
way; the pedal operates a throttle valve which
controls the amount of steam admitted to the
expander.
Basically, here's what happens during steam
engine operation. Heat from the burner
converts the boiler water to a high pressure
vapor. The expansion of this high pressure
vapor, or steam, drives the pistons in the
expander. Steam exhausted from the expand-
er is piped to a condenser for water recov-
ery.
Components
Expander. The four-cylinder expander is
similar to an in-line internal combustion
engine. It has a 101-cubic-inch displace-
ment and develops about 160 maximum
horsepower. Steam enters through poppet
valves at the top of each cylinder, forces
the piston downward, then exits through cyl-
inder ports at the bottom and is piped to
the condenser.
Steam Generator. The steam generator con-
sists of several sets of small carbon steel
and stainless steel tubes (total tube length
is about 430 feet) arranged in a staggered
array. This increases the turbulence of the
combustion gases flowing over the tubes.
Wherever possible, the tubes are finned to
increase the heat transfer from the gases.
These factors, plus the low water inventory
(a few pints), facilitate rapid start-up from
a cold boiler to a full head of steam -- 800
psi and 700°F.
Combustion System. A continuous spray of
atomized fuel (diesel fuel, kerosine, gasoline,
etc.) is supplied to two turbine-type combus-
tion chambers. In the chambers, fuel is mixed
with air from an engine-driven blower and ig-
nited by a spark plug. Blower and fuel pump
output vary directly with expander speed.
Preliminary tests with the combustion system
indicate very low exhaust concentrations of
hydrocarbons, carbon monoxide, and oxides
of nitrogen.
Condenser. The condenser uses a plate- fin
arrangement and is externally similar to a
standard car radiator. However, it is about
three times as large (22 x 40 x 5 inches)
and its special brazed aluminum construction,
with extended heat transfer surfaces on both
the inside and outside of the tubes, will with-
stand both vacuum and pressure. The con-
denser will handle all of the steam required
for normal highway operation. Extended op-
eration at higher loads will result in some
water loss in the form of steam vented from
the system.
Controls. Operation is controlled automati-
cally by sensors for steam temperature and
pressure, boiler water level, expander speed,
and blower airflow. These sensors send
electrical pulses to a logic circuit which
operates the appropriate solenoids. The ac-
celerator pedal and the throttle valve which
controls expander speed are linked mechan-
ically.
Transmission. An experimental toric trans-
mission developed at GM Research, the 250-
TT, is used with the SE-101. Its advantages
include automatic transmission performance
without step shifts and operation of all ac-
cessories, including air conditioning, when
the vehicle is stationary.
The 250-TT provides a wide torque range to
cover all operating conditions. Without the
transmission, an additional expander would
be needed to drive the accessories.
Problem Areas
Problems with the experimental SE-101 are
much the same as for any steam powered
automobile at today's state of the art. They
include:
Powerplant Size and Weight. Added com-
ponents (combustion system, steam genera-
tor, larger condenser) make a steam power-
plant bigger and heavier than a comparable
internal combustion engine. The SE-101
system is 450 pounds heavier than the power-
plant it replaced in the Grand Prix -- at less
than half the horsepower. Installation re-
quired a seven- inch extension of the engine
compartment.
Cost. No cost data is yet available for
steam powerplants.
Water Consumption. The engine compart-
ment poses severe restrictions on condens-
er size. In the SE-101, full water recov-
ery cannot be achieved under adverse oper-
ating conditions, such as full- load operation
or hot weather.
Freezing. Water has the best overall com-
bination of properties of any vapor engine
working fluid known. However, freezing is
a serious problem. An automatic startup
control, designed to prevent freezing when
the car is parked, is being investigated for
the SE-101. It would activate the combus-
Researchers lower the expander and transmission (top photo) into the
engine compartment of GM's SE-101 Steam Car. The next step is
installing the combustion system - steam generator, which fits snugly
over the expander and transmission.
224
SE-101 Expander wifh accessory components. Duol fans ore needed
for adequate condenser cooling.
tion system whenever temperatures approach
the freezing point.
Lubrication. Adequate steam engine lubri-
cation is difficult, since the lubricant must
be mixed with steam at high temperatures
and pressures. In addition, the oil must be
removed before the condensed water is re-
turned to the boiler; otherwise, carbon de-
posits would reduce boiler efficiency.
Acknowledgement
In addition to GM Research, several GM di-
visions £Lnd staffs cooperated on the SE-101
project. Included were:
9 Harrison Radiator Division - steam gener-
ator, condenser and air conditioning systems.
0 Delco-Remy Division - special electric
system components.
9 Engineering Staff - vehicle modifications.
0 Pontiac Motor Division - test vehicle.
9 Diesel Equipment Division - fuel system
components.
0 Packard Electric Division - wiring har-
nesses and fiber optics.
Future Uncertain
Whether a practical steam engine vehicle is
in the motorist's future is still a widely de-
bated and unanswered question. The experi-
mental SE-101 points to some of the prob-
lems which must be solved and is serving
as a test bed for further steam power re-
search.
Prepared by TECHNICAL INFORMATION DEPARTMENT
GM Research Laboratories, Worren, Michigan 48090
225
General Motors
THE GM SE-124 STEAM CAR
WITH BESLER ENGINE
ooks like a standard 1969 four- door Chev-
- until you raise the hood. The engine
npartment is packed with an expander,
nbustion chamber, steam generator, con-
iser, and a number of other non-standard
nponents.
• powerplant was designed and installed
Besler Developments, Inc., a California
[ineering firm with more than four de-
les of steam engine experience. Besler
built steam engines for road, rail, and
[er transportation -- in addition to the
rld's first and only steam- drive airplane,
cessfully flown in 1933.
; engine for the SE-124 was developed
ier contract to General Motors Research
ooratories. The car, one of several low-
ission vehicles under study by GM, can
easily driven by a layman after a brief
octrination.
iving Away
en the driver turns the key, an electric
-np charges the boiler with water. The
Tibustion blower and the burner are en-
ized. When the boiler reaches operating
nperature and pressure (about half a min-
), steam is valved to the expander and it
Jins to idle. The next step is driving
ay, the amount of steam introduced to the
sander is controlled by the accelerator ped-
sically, here's what happens during steam
gine operation. Heat from the burner
erts the boiler water to a high pressure
por. The expansion of this high pressure
por, or steam, drives the pistons in the
pander. Steam exhausted from the expand-
is piped to a condenser for water recov-
mponents
pander. The reciprocating V-2 expander
further expansion. The expander is "double
acting" -- steam is valved alternately to the
top and bottom of each cylinder.
Steam Generator. A continuous steel and
stainless steel tube (total length is about
275 feet) is arranged in spiral pancake pat-
terns stacked atop one another. Hot gas
from the combustion chamber flows over
the coils. Low water inventory (a few pints)
and high tube surface area contribute to
rapid pressure buildup. Maximum steam
temperature is 700°F and maximum pressure
is 600 psig. Steam is piped directly from the
boiler to the throttle valve which controls
expander ■ I
CM SE-124 Steam Car with Besler engine.
s a displacement of 124 cubic inches and
velops about 50 horsepower. Steam from
! boiler is expanded twice to increase ef-
iency, it is first valved to a smaller high
essure cylinder (2.5-inch bore), then to a
N pressure cylinder (4.25- inch bore) for
Researcher G. J. Schimelfening checks out the Besler
powerplant in the GM SE-124 Steom Car. The large
cylindrical object is the combustion chamber orxJ steam
generator, with the combustion air blower attached to
its side. The feedwoter tank is mounted on the fire
wall.
226
Combustion System. Fuel (diesel fuel, kerosine,
gasoline, etc.) is sprayed into a vortex -type
combustion chamber, where it is mixed with
air supplied by an electrically powered blower.
The mixture is initially ignited with a spark
plug. Combustion is continuous but the over-
all system operates on an "off-on" basis simi-
lar to a home furnace, running only when the
boiler needs heat.
Combustion is virtually complete and exhaust
emissions therefore are very low.
Condenser. The plate-fin condenser is ex-
ternally similar to a standard automobUe ra-
diator. However, it is over twice as large
as a conventional radiator and its special
brazed aluminum construction is designed
for either vacuum or pressure operation. It
processes most of the steam exhausted from
the expander for reuse.
Controls. Solenoids for controlling steam
temperature and pressure, along with the
electric motors for the air blower and fuel
pump, are activated automatically by tem-
perature and pressure sensors in the boiler.
Transmission. The Chevelle's standard
three-speed transmission is retained. Use
of a transmission permits operation of ac-
cessories when the car is stationary and
provides the wide range of torque required
for acceleration, grade ability, and road- load
operation.
Accessories. The GM SE-124 is equipped
with power steering.
Problem Areas
In general, limitations of the SE-124 typify
the problems encountered with steam engine
automobiles at today's state of the art. They
include :
Powerplant Size and Weight. Due to added
components (combustion system, steam gen-
erator, larger condenser), the Chevelle en-
gine compartment is extremely crowded. The
lower horsepower steam powerplant is about
125 pounds heavier than the internal combus-
tion system it replaced.
Cost. No cost data is yet available for
steam power plants.
Water Consumption. The condenser, although
more than twice the size of the radiator it
replaced, is not designed to handle the full
steam capacity of the expander under all op-
erating conditions. At full load or on a hot
day, a portion of the steam is vented from
the system and must be replaced from the re-
serve tank.
Freezing. Water has the best overall com-
bination of properties of any vapor engine
working fluid known. However, freezing is
a serious problem.
Lubrication. Lubricants deteriorate rapidly
at the high steam temperatures needed for
reasonable efficiency, and it is difficult to
obtain adequate lubricant coverage. In ad-
dition, if oil is not filtered from the recov-
ery water, it causes carbon deposits which
reduce boiler efficiency.
The Future
Whether a practical steam engine automobile
can be realized in the future is still an un-
answered question. However, new engineer-
ing materials and technology, along with the
possibility of new fluids replacing water as
the working medium in the cycle, make the
steam engine a contender among proposed
low emission powerplants. The GM SE-124
is serving as a test bed for further develop-
ment.
1
El<
Ai
ctnc
Coir
1
pr«i
-
Exhou
{Fu
• ISy
t.R.)
S..L
Gcnarolo
PreporxJ by TECHNICAL INFORMATION DEPARTMENT
GM Raworch Labaralori«>, Warren, Mlchigon 48090
227
3
General Motors
^ PROGRESS IN GAS TURBINES FOR VEHICLES
ral Motors' Detroit Diesel Engine Division
itly signified its intention to be the first on
larket with a commercial turbine engine
avy duty vehicles. Detroit Diesel's engine
heduled for initial production in mid -1971.
loping the heavy duty gas turbine engine
an interesting but impractical concept in-
commercial reality --a process spanning
than 20 years -- is a joint accomplish-
of the GM Research Laboratories and
)it Diesel. The Laboratories brought the
e to the point of technical feasibility and
64 turned it over to Detroit Diesel. In
nsuing years, Detroit Diesel has met the
enge of maJcing the turbine engine eco-
cally practicable.
Laboratories' experimental vehicle series
1 with Firebird I (vintage 1953), the United
first gas turbine -powered automobile,
n-regenerative 370-horsepower engine pro-
d the sleek mobile laboratory -- which to-
museum piece.
■ovements Followed
in 1953 the Laboratories introduced Turbo-
er I, a turbine -powered bus. The GM
Ly of experimental turbine vehicles bur-
ed with the arrival of Firebird II, a family
with a regenerative engine, in 1955; Turbo-
1 I, a heavy-duty truck, in 1956; Firebird
vith a more powerful GT-305 engine, in
and Turbo -Titan II the following year.
ment experiments and some in association with
Allison Division involved gas turbine engines
in military vehicles, industrial off-road equip-
ment, generators and marine applications.
The fifth generation GT-309 engine, boasting
rugged and simple design, debuted at the New
York World's Fair in 1964. It was field tested
in several heavy-duty vehicles including Chev-
rolet's Turbo-Titan III truck and GMC's Turbo-
Cruiser II bus.
The Turbine's Advantages
The turbine engine has a number of inherent
characteristics attractive to men who engineer
trucks, buses and other large vehicles. Among
them are:
• Good torque characteristics. Compared to
other engines, the gas turbine produces higher
torque at low engine speeds.
9 Multi-fuel operation. Detroit Diesel's om-
nivorous turbine engine will run well on any
diesel fuel, jet engine fuels, kerosene and un-
leaded gasoline. In a pinch it will accept lead-
ed gasoline for short periods. In experiments,
an early version of the GT-309 ran well on
selected crude oils.
• Light weight. The Detroit Diesel version
of the GT-309 will be rated at 280 horsepower
on an 80°F day and will weigh about half as
much as a diesel of equal power.
r GMR Engineer
ng
Development Depart-
• Qu
et.
smooth
operation. Rot
iry.
ins
ead
..m.
%
ilQ^.
.-?-
^
jr^
^0f
fUk
"ms^
^
m
m
1
i
-
Firebirds I, II and III — experim
at GM Arizona Proving Ground.
nfol gas turbine cars -- cruise around test track
32-493 O— 69— pt. 1-
-16
228
of reciprocating, engine motion minimizes vi-
bration.
• All weather operation. The engine starts
and warms up quickly even in the most frigid
winter temperatures.
Low Exhaust Emissions
Detroit Diesel's production prototype has a
hydrocarbon emission of 3 parts per million
(ppm); carbon monoxide concentration 0.05 per-
cent, and nitrogen oxide emissions, 800 ppm.
These values are weighted in accordance with
the California nine-mode cycle for gasoline-
powered trucks and buses. While indicative of
the gas turbine's low emission potential, these
numbers are not directly comparable to car
emission data obtained using the standard fed-
eral procedure.
In one series of early GM Research Labora-
tories tests, the hydrocarbon concentration in
the turbine engine's exhaust actually was lower
than the concentration in the air breathed in-
to the engine!
How GT-309 Is Different
Two features in particular distinguish GM's
latest gas turbine engine design: the regener
ative system and Power Transfer.
The regenerator recovers energy from hot e>
haust gases. Instead of being exhausted direc
ly to the atmosphere, the gases pass through
the rotating regenerators, discs which recove
more than 90 percent of the recoverable ex-
haust heat. The discs, as they rotate, transf
heat to the relatively cool air flowing to the
burner.
Regeneration pays three principal dividends.
First, it cuts fuel usage. A regenerative en-
gine will use only 50% of the fuel of a non-
regenerative engine in a comparable applica-
tion. Second, it cools the exhaust gases. The
exhaust is in the 200° to 500°F range, depend
ing on load -- far cooler than the exhaust ga
of a typical automobile engine. Third, thanks
to the regenerator, a muffler is unnecessary.
Compressed Air
Healed /
Compressed
Regenerator
Cooled ExhousI
Compress
Impelle
}»Load
280 HP TURBINE SPECIFICATIONS
Rated Power
Rated Torque
Max. Torque
Max. Speed
Rated Turbine Inlet Temp.
260 hp
575 lb. ft at 2560 rpm
1150 lb. ft at 0 rpm
(stalled output)
2850 rpm
1700»F
Rated Gasifier Speed
Rated Airflow
Rated Compressor
Pressure Rotio
Engine Weight
Engine Dimensions (LxWxH)
36,000 rpm
3.9 lb/sec
3.8:1
1425 lb. (approx.)
45 X 26 X 40"
Schematic diagram shows major components of Detroit
Diesel prototype engine.
Turbo-Cruiser 1 was powered by a simple cycle
jrbine engine.
1956: A regenerative 200-horsepower turbine engine
powered this experimental truck, Turbo-Titan I.
': This M-56 gun carrier was an experimentol tur-
vehicle built for the U.S. Army.
1964: Turbo-Cruiser II used on improved regenerative
turbine engine.
14: GMC highway tractor had tilting cab for oc-
|.5 to fifth generation experimental gas turbine from
''A Research.
1965: Turbo-Titan III by Chevrolet continued trend of
testing GT-309 turbine engines in heovy duty vehicles.
CMC's RTX (for Rapid Tronsit Experimental) is latest The Astro 95 highway tractor by CMC is powered by
turbine-powered bus. experimental Detroit Diesel turbine engine.
Generator set applications take full advantage of GM's
Power Transfer feature.
Power Transfer
While some earlier engines used regenerators,
the GT-309's claim to uniqueness is Power
Transfer, a GM-patented development of the
Research Laboratories and Allison Division.
Power Transfer transmits a scheduled amount
of power from the gasifier turbine to the out-
put shaft, thus stabilizing the turbine inlet
temperature over much of the engine operating
range, A direct result is improved fuel econ-
omy at part -throttle, where the engine operates
much of the time.
When the vehicle decelerates. Power Transfer
couples the driving wheels to the compressor,
providing engine braking two to three times
greater than that of a comparably powered
Power Transfer system of 280-hp turbine engine in this
crawler provides over 1000 lb. ft. of torque at stalled
output rpm.
piston engine. If the vehicle can climb a hill
Power Transfer insures that it can descend
safely.
Another function of Power Transfer is to pre
vent turbine overspeed if the load suddenly is
disconnected from the engine.
The turbine engine is not without some prob-
lems -- its fuel economy still is not quite sc
good as a diesel's, for example. However, th
problems seem overshadowed by the turbine's
growth potential. Detroit Diesel's plans for
future off-the-road applications range from
construction equipment to ships and generator
Some other ideas mentioned seriously include
using the turbine engine in alfalfa drying plan
(capitalizing on exhaust gas heat) and bulk un-
loading of truck trailers (using compressed ai
bled from the turbine).
Prepored by TECHNICAL INFORMATION DEPARTMENT
GM Research Laboratories, Warren, Michigan 48090
231
3
General Motors
LIQUEFIED PETROLEUM GAS (LPG) ENGINE
8 Oldsmobile fueled with liquefied pe-
rn gas (LPG) is one of several exper-
al low emission vehicles being evalua-
r General Motors.
ar, a Delmont 88 with a 350-cubic-inch
>, was converted to LPG by Oldsmobile
.on. It has shown good driveability and
O and HC exhaust emissions in tests
IsmobUe and the GM Research Labora-
operation does involve some special
;ms, such as the requirement for a
i, high-pressure fuel system. However,
iber of vehicular fleets throughout the
ry now use LPG fuel. Some GM en-
are offered with an LPG conversion
, intended primarily for commercial
lersion to LPG
components of a sealed LPG fuel sys-
ire a heavy, pressurized fuel tank, a
ihutoff valve, a vaporizer-pressure reg-
and an LPG carburetor (see diagram).
Fuel tank pressure runs as high as 250 psi,
depending on ambient temperature. This
pressure serves the same function as a fuel
pump, pushing the liquid fuel through the
line to the fuel shutoff, which opens when
the ignition key is on. Fuel then flows to
the vaporizer-pressure regulator. Pressure
is reduced to 5-8 psi as the liquid fuel ex-
pands in the vaporizer. To counteract the
temperature drop caused by this rapid ex-
pansion, engine coolant is circulated through
heat-exchange passages in the vaporizer.
LPG vapor is maintained at a regulated low
pressure and supplied to the carburetor on
demand.
In addition to the fuel system, several other
modifications were required for operation of
the Oldsmobile on LPG. These included:
• Blocking the exhaust heat passages to
eliminate intake manifold heating.
• Revising the spark curve.
• Changing the exhaust valves.
LPG FUEL SYSTEM
VaporlzcrPro
Rtgulolor
Fuel Shuloif |T>*d ta ignilion) -^
• Regulotor Volv
LPG at pressures up to 250 psi is forced to vaporizer-
pressure regulotor.
LPG enters voporizer- pressure regulator, vaporizing
OS it expands. Pressure reduced to 5-8 psi. Circulating
engine coolant counteracts temperature drop caused
by rapid expansion.
Low pressure vapor supplied to LPG carburetor on
demand.
232
LPG Advantages . . .
Hydrocarbon and carbon monoxide emissions
with this LPG fueled engine are lower than
the emissions with a standard fuel system.
Exhaust gas reactivity is slightly lower, and
evaporative emissions are eliminated with
the sealed system. Exhaust emissions of
oxides of nitrogen, however, are about the
same.
The experimental LPG car gives good drive-
abUity with lean carburetion, whether the en-
gine is cold or hot. Since LPG contains no
lead additives, combustion results in fewer
combustion chamber deposits and reduced
spark plug fouling. Exhaust emissions tend
not to increase with increased mileage.
. . . And Problems
The pressurized LPG fuel system is heavier
and costlier than a standard system and re-
quires more careful maintenance.
Fuel leakage can create safety hazards
associated with both distribution and use.
Current marketing facilities for LPG are
limited -- and maintaining a stable and read-
ily available supply for widespread use may
not be feasible.
It seems doubtful that LPG will be widely
used for passenger cars. However, this
fuel shows potential for well maintained ve-
hicular fleets in areas where good quality
LPG is available and low HC and CO ex-
haust emissions are desired.
f
233
General Motors
Research Laboratories
QUIET ENGINES -
STIRLING CYCLE, VAPOR CYCLE
le late 1940's, engineers at the General
>rs Research Laboratories began a study
mall quiet engines. Over the years this
evolved into an extensive research and
lopment program on Stirling external com-
ion engines. Along the way, GM Research
peers also have looked critically at organic
r cycle engines. While the steam engine
is a vapor engine, water was not an ap-
riate working fluid for the applications
r consideration in this program, and or-
fluids -- fluorinated hydrocarbons, such
•"reon, for example -- were investigated,
ddition to avoiding freezing problems, some
jiic fluids have the advantage of providing
e engine lubrication.
rnal Combustion Engines
oth the Stirling and vapor cycle engines,
from an external source is transmitted to
working fluid sealed in the engine, expand-
the fluid to drive the pistons and develop
r. (In the Stirling engine, the working
usually is hydrogen or helium.)
no combustion in the cylinder, these en-
s operate very quietly. Heat can be pro-
d by solar energy, nuclear energy, or any
r high-temperature heat source. For many
he GM Research engines, an external burner
g diesel fuel supplies the heat. Here the
is burned so that there is virtually com-
plete combustion and very little emission of
hydrocarbons, carbon monoxide, or oxides of
nitrogen.
How It Began
Invented in 1816, the Stirling engine served for
a time as a safe substitute for steam engines
in a variety of applications. But its true po-
tential was not realized, and it became a vic-
tim of competition. Then in the late 1930's
the Philips Co. of The Netherlands (N. V.
Philips' Gloeilampenfabrieken) revived the Stir-
ling, with the help of modern technology, and
continued independent development over the
next 20 years.
Meanwhile, GM Research had begun an exten-
sive study of external combustion engines, in-
cluding both vapor and gas cycles. In 1958
General Motors made a formal agreement with
Philips for a cooperative Stirling engine re-
search and development program, A "new"
Stirling evolved - from the application of mod-
ern thermodynamics and heat transfer prin-
ciples and a new understanding of how the en-
gine really works, along with improvements in
materials, bearings, lubricants, and seals, to
increase output, efficiency, and durability.
Like any heat engine, the Stirling produces
power by compressing the working gas when
it is cold and letting it expand -- do work --
Stirling engine drives an alternator to charge
the batteries of Stir-Lee experimental cars.
234
when it is hot. A metal mesh regenerator is
the key to the modern engine's efficiency. The
heat it recovers would otherwise be dumped
into the cooling system and lost. Years of ex-
perience in heat transfer and regenerator de-
sign were behind this development. Efficien-
cies now are equal to or better than those of
the best internal combustion engines. The
Stirling generally has about twice the thermo-
dynamic efficiency of steam or organic vapor
engines.
Current Status
The much lower efficiency and greater bulk of
the vapor engine make the Stirling the more
attractive powerplant. However, it is not yet
practical for vehicle application. At the pres-
ent time GMR is continuing basic Stirling en-
gine and component research and investigating
potential engine products.
GM Research recently built a small Stir-
ling engine (above) and a small vapor
engine (right) for comparison of these sys-
tems in the two-horsepower range.
GM engineers have now accumulated more than
22,000 hours of operating time on experimental
Stirling powerplants ranging from 2 hp to 400
hp. These tests have demonstrated that the
Stirling engine has high efficiency and output,
quiet operation, and clean exhaust. With heat I
provided by a burner using diesel fuel, the
Stirling engine has exhaust emissions well be-
low the limits set by federal vehicle standards.
Stored heat, radioisotope heat, or other non-
burning sources can operate the engine with no
exhaust emissions at all and keep it indepen-
dent of conventional fuel supplies (for space or
underwater application, for example).
Small Engine Comparison
Recently, GM Research engineers built a very
small Stirling engine for special lightweight
applications. This engine is a two-cylinder
vee, with the power piston in one cylinder and
the displacer piston in the other, to provide
the compact lightweight package. It develops
about two horsepower. For test purposes, a
burner using diesel fuel supplies the heat. In
some applications, solar or nuclear heat might
also be used.
For comparison, GMR also has built an organic
vapor cycle engine of about the same horse-
power. This is a two-cylinder in-line engine
using a Freon gas as the working fluid. It also
uses heat from a diesel-fueled burner.
At rated power, Stirling engine systems are
about three times as efficient as vapor sys-
tems. Therefore the vapor engine must reject j
considerably more heat, and thus it requires
a much larger cooling system and radiator or
condenser.
Prepored by TECHNICAL INFORMATION DEPARTMENT
GM Research Laboratories, Warren, Mlchlgon 48090
235
General Motors
Research Laboratories
ENERGY STORAGE SYSTEMS COMPLEMENT
THE STIRLING ENGINE
:al energy storage systems such as
le and air contain large amounts of
-- especially if the air need not be
d along with the fuel, but is available
rer the energy is required. However,
ent years, applications where air is not
>le -- such as under the sea or in out-
,ce -- or where combustion of fuel may
allowed for pollution reasons, have
ted the investigation of other energy
Electric, thermal, and mechanical,
11 as other chemical systems, have been
i.
r
i|.tirling Engine . , .
aEnergy Converter
- number of years the GM Research Lab-
t ies has studied heat or thermal energy
re systems for possible propulsion appli-
i . Since the stored energy must be con-
verted into work, the conversion system is an
important consideration in choosing an overall
system. The Stirling engine, an external com-
bustion engine, can run from any external heat
source. It also has higher conversion efficien-
cy than other external combustion engines
(steam or organic vapor engines). Therefore
the Stirling engine is a particularly attractive
energy converter for stored heat or for stored
chemical energy that can produce heat.
The table below shows the energy storage
capacity of various sources and the output
available when a complete conversion system
is considered. This comparison emphasizes
that the chemical and thermal systems hold a
distinct advantage over the mechanical and
electric systems, even though the high con-
version efficiency of the Stirling engine is
still far below the assumed mechanical and
electrical efficiencies.
ENERGY
STORAGE SYSTEMS
Watt-Hou
rs per Pound Woft-Hours pe
r Cubic Inch
Stored Energy
Energy Output Stored Ertergy
Energy Output
- Cor
version Efficiency 40% (using Stirling engine
-
Lirtiium + Freon lU
chemical reaction
1345
540 46.5
18.6
Lithium Fluoride
with phase change
SOO-F - 1700«F
240
96 15.2
6.1
Aluminum Oxide
sensible heat
800«F - 2100"'F
117
47 16.7
— Conversion Efficiency 90% ~
6.7
Silver Zinc Battery
45
40.5 2.6
2.4
Leod Acid Battery
10
9 0.75
0.68
Flywheel
8.3
7.5 1.66
1.5
Compressed Gas
7.8
7.0 0.335
0.30
236
GM Research engineers have investigated
several possible applications of Stirling en-
gines using thermal or chemical energy
storage. These have included "Heat Battery"
systems, using a molten salt which slowly
cools as it feeds heat to the engine, and sys-
tems where heat is generated by a chemical
reaction. Primarily, nonautomotive applica-
tions have been investigated. Several years ago,
a powerplant using molten lithium fluoride salt
was proposed to the Navy by GMR; other sys-
tems have also been considered for marine use.
"Calvair" Car
Heated alumina (aluminum oxide) is a reason-
ably good storage medium that is easy to con-
tain. In 1964, GMR modified a Corvair and
installed an alumina- Stirling powerplant to
demonstrate a "heat battery" system. In this
"Calvair" installation, nitrogen was circulatec
through a tank of hot alumina pellets and
heated, then circulated on to the Stirling whei
it heated the engine to about 1200°F. The
tank was "recharged" by combustion of naturi
gas to reheat the alumina. The "Calvair" ca
was successfully tested, but the system is toi
heavy and too expensive for a practical auto-
motive vehicle installation.
GMR's continuing research on energy storage
systems centers on studies of lithium fluoridi
systems and further investigations of heat-
producing reactions between alkali metals and
halogen gases.
!
"CALVAIR" Car under test at the GM Technical Center.
Prepored by TECHNICAL INFORMATION DEPARTMENT
GM Rsuorch Labaratorlas, Worran, Michigan 48090
237
^
General Motors
Research Laboratories
INTAKE VALVE THROTTLED ENGINE
'I, operation of a conventional spark ignition
t,ae at very lean air-fuel (a/f) ratios usu-
1 results in cyclic variations of cylinder
r sure or torque.
I cyclic variations can cause an irregular
3 ard motion of the vehicle called surge.
\ ;e often makes drivability unacceptable
ri a customer's standpoint.
I Tal years ago. Engineering Development
I neers at GM's Research Laboratories be-
I work on an engine concept for operating
l3an a/f ratios without causing vehicle
• IVT Works...
concept called for controlling the amount
uel-air mixture supplied to the cylinders
;ontrolling the lift of their intake valves.
J intake valve throttling, researchers theo-
d, would allow use of the full pressure
) across the smallest possible opening. And
would result in a sonic velocity of gases
the combustion chamber.
y further theorized that the small valve
nings associated with this throttling at part-
load would reduce the scale of the turbulence
of the combustion charge. At the same time,
they would increase turbulence intensity. Liq-
uid fuel passing through such small orifices
would undergo almost explosive atomization
due to the large shear forces acting on it.
These conditions, they believed, would result
in a "fast burn" immediately after ignition --
a fast burn essential to good, extremely lean
part-load operation.
Benefits. . .
Development work included trying out the IVT
concept -- first on a single cylinder engine
and then on a multicylinder one. In testing
covering many thousands of miles, the IVT
engines demonstrated stable operation at air-
fuel ratios as lean as 20:1. Conventional de-
signs usually are not stable at ratios leaner
than about 17:1.
In multicylinder operation, exhaust emissions
of hydrocarbons and nitric oxide were about
equal to those of similarly operated conven-
tional engines. However, operation at leaner
than normal air-fuel ratios resulted in much
lower emissions of carbon monoxide. At a/f
the IVT engine, the conventional camshaft,
ower and push rod articulate a special rocker
and standard intake valve. A movable ful-
m position determines the valve lift — and
s the degree of throttling.
Return Spring
Pushrod Guide
Valve
Throttling Lever
Hydraulic
Lash Adjuster
Movable Fulcrum
Rocker Lever
Intake Valve
238
ratios above 17:1, for example, carbon mon-
oxide emissions totaled only about 0.2% of ex-
haust. (Under 1969 federal regulations, carbon
monoxide can't exceed 1.5% of total exhaust.)
Despite the potential advantages, the experi-
mental program also defined several areas
needing improvement.
Three Major Challenges. . .
Before the IVT engine can be satisfactory from
a customer standpoint, a better fuel metering
system must be developed. To meet this need,
a new concept in fuel injection control is cur-
rently being implemented.
Also desirable would be an improved valve
opening control mechanism. The presently
used mechanism requires use of servo poweil
which takes away from IVT's potential in thel
area of fuel economy. The goals in this are;
are improved efficiency, greater simplicity
and lower cost.
Finally, researchers seek a means of achiev i
ing reductions in nitric oxides and hydrocar-
bons. Possible approaches include exhaust rii
circulation, heat conservation (including a lea
exhaust reactor), and optimizing valve timing
events to match the unique characteristics of ^
intake valve throttling.
Pressure Development
IVT
Conventional
LAJUUUUUUUUUULJUUUUULAAiU
The IVT engine's turbulent, fast burning mixture minimizes
cyclic variotion in cylinder pressure and engine output power.
Prepared by TECHNICAL INFORMATION DEPARTMENT
GM Research Laborarories, Warren, Michigan 48090
239
General Motors
Research Laboratories
RAMAIRE SUPERCHARGER SYSTEM
lelamAire supercharger is a product of
g continuous search for methods to im-
0 automotive engine performance and to
iiise fuel economy.
tjgh it has worked well in extended tests,
u.ire appears unlikely to be developed in-
Droduction car option because of its cost
i ther problems.
•I ally automobile engines are called on to
c ce maximum power less than two per-
il 3f the time. RamAire boosts an engine's
1 rmance during these short periods of top
1 rmance without sacrificing economy dur-
garmal operation. In tests conducted by
Ktesearch engineers in the 1950's, a Ram-
I equipped six -cylinder engine performed
I arably to an unmodified eight -cylinder en-
a RamAire reduced the O-to-60 mph ac-
1 ation time of test cars about 30 percent.
lAire Operation
I Ure, on the driver's command, increases
the engine's maximum power by supercharging
--that is, increasing the pressure of--the air-
fuel mixture flowing into the engine.
The RamAire system consists of an air com-
pressor, a storage tank, a valve, a pressure
regulator and an ejector (a device to induce
the flow of outside air into the system). Few
engine modifications are required to install
RamAire.
With the vehicle engine running, a belt-driven
compressor delivers high pressure air to the
storage tank. When the driver floors the ac-
celerator, the throttle linkage trips a switch
which opens the valve. This allows air to
flow from the tank, where it is stored at 1500
pounds per square inch (psi) pressure, to the
regulator. Air pressure is reduced to about
150 psi by the regulator. Next, the air moves
to the ejector where it draws in outside air
and continues toward the carburetor. Then,
mixed with gasoline, it is channeled into the
intake manifold.
Pressure gegulotor^ Solenoid Volve
low Pr«siur« ' ' V-r High Pom
Air Reservoir
Air Compressor
Schematic diagram shows route of air through RamAire supercharger system.
240
Because compressed air from the tanks "en-
trains," or induces the flow of, cool outside
air into the system, storage tanks can be con-
siderably smaller than if the system used only
stored air. The mixture ratio of stored air
to outside air varies, but generally is about
one to three.
RamAire is quick reacting because the ejector
has no moving parts. By comparison, an engine-
driven supercharger moves relatively slowly as
acceleration begins, and supercharger pressure
is low just when it needs to be highest.
No Harmful Effects
After one RamAire -equipped test car had under-
gone 600 supercharger cycles, the engine and
transmission were disassembled and thoroughly
examined for damage. None was found.
Testing did reveal, however, that slightly highi
octane fuel was required to prevent engine knoi
ing during supercharged operation. On the oi
hand, RamAire does offer some opportunity I
better fuel economy. Because it operates on
at full throttle and because it shortens accel
ation time, RamAire permits the driver to rea(
a desired speed and shift to a cruise throttli
setting while an unmodified car would still b
accelerating at full throttle.
Although most GMR tests have focused on usiij
RamAire on passenger cars, the system alsc|
appears suitable for use on heavy off-the-roi
equipment as well as on diesel-powered vehiclt
In spite of this, the system's cost, and bulk-
iness and weight of its components have con-
tributed to low market interest in the concep .
RomAire system's ejector, a hom-shaped device which Induces the
flow of outside air into the system, is clearly visible in photo of test
car installation. Ejector is attached to carburetor, ot right center of
photo.
Prepared by TECHNICAL INFORMATION DEPARTMENT
GM Rasearch Laborotoriet, Warren, Michigan 48090
241
General Motors
Research Laboratories
FREE PISTON ENGINE
iontinuing assignment of the General
.8 Research Laboratories is to evaluate
ising new concepts and developments that
r anywhere in the power and energy con-
on spectrum.
such concept is the free piston engine --
npound engine with a crankless diesel gas-
B and gas turbine expander. Being devel-
li in Europe after World War n, this engine
!i number of features which intrigued GM
eers. Three of these features:
The free piston engine's ability to run on
iiie variety of low cost fuels, including re-
:|1 and crude oU. This is due in part to
lienerous supply of excess air for combus-
I as well as its two- stage compression ra-
if up to 28:1, compared to a typical diesel' s
and an automobile's 10:1 or so.
The engine's overall thermal efficiency, in
i;2-36 percent range, making it competitive
IS respect with conventional diesels.
The powerplant's capacity to operate with
ral gasifiers supplying one turbine, thus
ijasing the overall reliability.
: It Works
!• piston engine design varies. In a typical
rtruction (see Ulustration), the two opposed
I synchronized pistons in each power cylin-
! compress air to as much as 50 times at-
, pheric pressure. As the power pistons
1= toward the center of the cylinder, fuel is
i;ted into the space between them. It ig-
ii and burns, just as in a conventional diesel
ne. Forced to move outward, the pistons
•iver exhaust ports and intake ports in the
iider wall. Exhaust ports allow burned gases
p.ow to the turbine. Then fresh air enters
I cylinder through the intake ports.
1 of the two pistons discussed so far is
ictly attached to a larger air compressor
i3n which also is fitted into a cylinder. The
; compressor pistons, traveling outward with
'power pistons, push against air trapped in
("bounce space" at the outer end of each
ipipressor cylinder. This air arrests the
:on8' travel and bounces them back toward
the center to begin another compression stroke.
Compressed air from the compressor cylinder
is compressed even more when it is channeled
into the power cylinder. Engine speed is varied
by regulating the amount of air in the "bounce
spaces."
World's First Free Piston Car
Although some experimental free piston engines
had been installed in minesweepers of the French
Navy and free piston air compressors were avail-
able for sale in Europe, little was known in the
U.S. about their performance, life, or desirabil-
ity over more conventional diesel engines. En-
gineers at the GM Research Laboratories set
to work to find out.
Throughout the 1950's, GM Research engineers
developed, installed, and began evaluating free
pistons of different configurations and sizes for
vehicular, marine, rail, and power generating
applications.
In 1956, GM unveiled the low slung XP-500 ex-
perimental automobile, which was powered by a
free piston engine especially developed for auto-
motive use. Called the Hyprex 4-4, the 250-
horsepower engine built by GMR had two power
cylinders instead of the usual one. The cylin-
ders were out of phase so that one delivered
Inlok* Pom ExSauil Po
Ai, Inlok. Vol». \ f-l / Ai' in'ok. Volv_
Scavenging / \ i / \ .
ScKematic diagram of free piston engine shows
principal features.
242
gas to the turbine while the other was compres-
sing. One of the engine's notable features was
its insensitivity to fuel quality. But it had its
liabilities as well as its assets. For example,
the engine was much more complex and had a
higher noise level than conventional automotive
engines. Tests of the XP-500 indicated the
free piston engine was more suitable for other
applications than for automobile use.
Other Test Applications
One such successful test application was a free-
piston powered ship, the William Patterson.
Under contract with the U.S. Maritime Admin-
istration, GM fitted six free piston gasifiers
totaling 6000 shaft horsepower in the converted
Liberty ship, which carried military cargo to
overseas bases. The Patterson sailed several
years, visiting ports around the world. Although
its free piston propulsion proved to be efficient
and economical, a significant commercial mar-
ket did not develop and the ship was decommis-
sioned.
Other encouraging applications of the free pis-
ton engine involve stationary powerplants. As
of this date, two California oil companies sti
operate free piston engines to supply some o:
their power requirements for oil field opera-
tions. The original two gasifiers came from
General Motors over nine years ago. Their
fuel is crude oil virtually as it comes from t
ground. Ordinary diesels are not able to bur
crude oil reliably and thus must depend on
higher cost fuels.
Some experiments focused on railroad uses o
free piston engines. An evaluation program
indicated the engine was not sufficiently supe-
rior to conventional diesel propulsion to justi
fy higher production costs.
In fact, that was the general shortcoming of
the free piston engine. While it was an engi-
neering success, the engine did not appear to
have enough competitive edge to make a real
dent in the commercial market. The GM Re-
search Laboratories has therefore elected to
concentrate its research and development ef-
forts on other advanced powerplants and ener,
converters.
The XP-500's powerplant
pisfon engine.
o 250-horsepower free
The William Potterson was powered by six free piston
gasifiers.
Prepared by TECHNICAL INFORMATION DEPARTMENT
GM Research Laboratoriei, Warren, Michigan 48090
243
1
General Motors
Research Laboratories
DIRECT-CYLINDER AIR-INJECTION
SUPERCHARGED ENGINE
SMALL ENGINE ECONOMY — LARGE ENGINE PERFORMANCE
Iways of interest to General Motors are prac-
cal ways to combine the inherent fuel economy
: small engines with the performance capa-
lities of large engines. Supercharging a
nail engine offers one way, at least in prin-
ple, of achieving this end.
ut conventional supercharging is not the an-
ver. Its power-boosting capacity is limited
f combustion knock, and its initial cost is
Lgh. Pursuing an alternate approach, engi-
sers in the GM Research Laboratories En-
ineering Development Department designed a
/stem that all but eliminated knock as a re-
liction to the power increases attainable
'irough supercharging.
he concept originated during an early study
' supercharging possibilities. At the time
!mR engineers wondered. Could a system be
!?signed to operate in a way that suppresses
licck' To appreciate the problem they posed,
le has to know what promotes knock in a super-
larged engine. Three factors are of major
inportance here: the density of the air-fuel
'lixture at the time of ignition, the tempera-
ire of the mixture, and the turbulence in the
ylinder. To put these factors into perspective.
knock tendency increases as density and tem-
perature go up and as turbulence goes down.
Drawbacks of Old Systems
Conventional supercharging does nothing to re-
verse the direction of these knock -inducing
trends. It increases the density of the air-fuel
mixture (which, of course, is the purpose of
supercharging). It raises the temperature by
adding energy from the compressors. And it
has no beneficial effect on cylinder turbulence.
For a supercharging system to produce higher
engine outputs without knock then, it must
avoid warming the air -fuel mixture, and it
must increase the swirling of this mixture in
the cylinder. The system conceived by GM
Research engineers does both.
Main Features of New System
GMR's system uses pre-pressurized air. The
air is stored, initially at 3000 psi, in special
tanks located in the trunk of the car. Small
engine -driven compressors equipped with Inter-
coolers and aftercoolers supply makeup air to
Boost-Fuel ^Aonifold7
Boost-Air Pressure
Regulator and
-Boost-Fuel Proportioner
Seporator
Boost-Air Manifold
ligh-Com press! on
Six-Cylinder Engine
162 Cubic Inch Displacement
Vehicle Installation
(1959 Oldsmobile)
32-493 O— 69— pt. 1-
-17
244
the tanks. Since tank air is only slightly above
ambient temperature, it is much cooler than
the air supplied to an engine by a conventional
supercharger. Thus, one of the three knock-
inducing trends is reversed.
Also in the GMR system, the high pressure air
is injected directly into the combustion cham-
ber. The air enters the chamber during the
compression stroke through a third, separately
activated poppet valve. This arrangement
creates a considerable increase in turbulence,
reversing another unfavorable trend.
The equipment required to operate the GMR
supercharging system includes:
• Two multicylinder compressors to
recharge the air tanks in the trunk.
• A control device to regulate the air
and additional fuel injected into the
combustion chamber when performance
bursts are called for.
Operation, Gains, Status
Using information based on single -cylinder en-
gine tests, GMR engineers modified a 162-
cubic-inch six-cylinder engine to utilize direct-
cylinder air-injection supercharging. They then
installed this engine along with system acces-
sories in a 4 100 -pound sedan normally housing
a V-8 engine having over twice the displace-
ment.
For cruising and moderate accelerations, the
engine operates in the usuad way (without
supercharging). Meanwhile the compressors
charge the air tanks, if necessary, until they
are fully pressurized.
For hill climbing and passing, performance
demands are met by further depression of the
"gas" pedal. This controls the opening of the
third valves, the flow of compressed air from
the tanks, and the amount of additional fuel
injected into the intake manifold.
Although dynamometer tests showed power in-
creases of up to 250% and road tests demon-
strated good vehicle acceleration, fuel savings
were somewhat disappointing, being significant
only when the compressors were not operated:
• 15-257i> at steady 60 mph (compressors
not operating).
• 18% in simulated country driving (com-
pressors not operating).
• 9% in simulated city driving (compres-
sors operating 7 5% of the time).
As a result, these minimal savings were not
considered sufficient to justify the initial cost
of the supercharging system. Equally impor-
tant, low system capacity limited the duration
of supercharged operation, which could present '
safety problems.
Comihoft For
Third Vaivs
Piaporcd by TECHNICAL INFORMATION DEPARTMENT
GM RuMTch LaboraloriM, Worrm, Michigan 48090
245
General Motors
Research Laboratories
AMMONIA-FUELED AUTOMOTIVE ENGINE
Ammonia a fuel? It isn't particularly outstand-
ing in this respect. In fact if the conditions
aren't right, it won't burn at all.
TVhy, then, did General Motors engineers pick
ammonia as a fuel for spark-ignition engines?
The reason relates to a military proposal orig-
inated several years ago by GM's Allison Di-
vision.
Known as the Energy Depot Concept, the Al-
lison plan called for the field generation of
ammonia from air and water via a mobile nu-
'clear power source. The objective was to en-
able the convenient production of an alternate
engine fuel from readily available materials
iand thus free the armed forces from total re-
liance on hydrocarbon fuels.
Of the fuels that could be produced from air
and water, anhydrous ammonia {NH3) seemed
ito offer the most advantages for the type of
:application envisaged. But even so, ammonia
■falls far short of gasoline in energy content.
JAnd conventional, unmodified, gasoline engines
performed poorly using this substitute fuel.
Consequently, engineers at the CM Research
4-^ni
Laboratories were asked to develop a system
that would permit an automotive engine to op-
erate acceptably on ammonia fuel.
Single-Cylinder Engine
An early evaluation of the problem suggested
that sustaining the combustion of an ammonia-
air mixture over a wide speed range might be
difficult. Trials with a single-cylinder engine,
however, eventually revealed that satisfactory
operation was possible with certain engine
modifications and the addition of a small
amount of hydrogen to promote combustion at
part-load conditions.
The modifications included:
• Boosting the ignition voltage and spark-
plug gap.
• Increasing compression ratio.
• Supercharging the engine..
Basically, without supercharging, the single -
cylinder ammonia engine operated like a com-
Ai. ln.ckei^rag^/^>
Set-up for single-cylinder ammonia engine tests.
246
1600 2400 3200
Engine Speed- RPM
Effect of supercharging and ignition modifications on
multlcylinder ommonia engine.
mon LPG, or liquefied petroleum gas, engine
(see schematic diagram). Liquefied ammonia
stored under pressure is vaporized, blended
with air in a mixing chamber, then admitted
to the engine.
Multicylinder Engine
Having succeeded in operating a one -cylinder
ammonia engine, GMR engineers now focused
their attention on a 215-cubic-inch V-8 power-
plant. They incorporated all the improvements
devised for the smaller engine, made additional
changes . . . and met with similar success.
Engine power developed over the entire speed
range when burning ammonia and using a tur-
bosupercharger was comparable to that deliv-
ered by the nonsupercharged V-8 burning gas-
oline (SAE paper #650052, January 1965).
Vehicle Application Drawbacks
The successful demonstration of a multicylinde
ammonia engine, of course, took place in a tes
cell. No penalties were incurred for the size,
weight, and complexity of accessory equipment
An ammonia engine in a vehicle, however, pos
problems that questioned the practicality of sut
an application except for special military pur-
poses.
In a vehicle, for example, the pressurized am-
monia fuel supply and elaborate control systen
would be rather bulky and heavy. One of the
reasons is that a vehicle would need three
times as much ammonia as gasoline to travel
the same distance.
Also, since hydrogen must be used for adequal
combustion at part-load operating conditions,
an on-board catalytic dissociator would be re-
quired to extract hydrogen from the ammonia.
Other deterring considerations concerned am-
monia's odor and toxicity. Even a relatively
small amount of ammonia in the engine ex-
haust produces an irritating odor. And at '
combustion efficiencies as high as 97.57o,
enough ammonia remains in the exhaust to
be lethal. '
In view of all these drawbacks, a vehicle in-
stallation was deemed inadvisable, and further
work on the project was suspended.
Multicylinder engine prepared for
operation on ammonia fuel.
Prepored by TECHNICAL INFORMATION DEPARTMENT
GM Research Laborotoriei, Warren, Michigan 48090
247
General Motors
Research Laboratories
TORIC TRANSMISSION
ngineers at the General Motors Research
aboratories are evaluating a new type of
utomatic transmission in two experimental
ehicles, the SE-101 steam car and the RTX
irbine-powered bus. It is called a toric
ransmission because of the geometry of its
■ey component, the toric section.
se of the toric section produces several novel
matures which distinguish the toric transmission
rom conventional units. Among these features
• Traction drive. The toric section trans -
lits force from one rolling body to another
y friction of the lubricated contact, rather
lan by gearing or fluid.
• Continuously variable ratio. Instead of
hanging ratio in several distinct steps, as in
conventional transmission, the toric trans -
iiission varies the ratio in a smooth, contin-
ous progression -- similar to a rheostat con-
rolling an electrical current.
<• Quiet operation. Transferring power with-
ut interruption from one rolling contact to an-
ther is inherently quieter than a conventional
ransmission in which gear teeth mesh and
reduce a definite sound pattern.
• Servo control operation. The toric section
s applicable to many uses requiring controlled
ower systems because it responds quickly to
a demand for a very small ratio change.
Principle of Operation
The toric transmission consists of a contin-
uously variable toric section which controls the
input speed and load of a fluid torque convert-
er. This arrangement provides for a smooth,
shift-free and efficient drive line that utilizes
the full potential of an engine for best vehicle
performance. In addition, a much higher en-
gine-driven accessory load is possible without
excessive vehicle creep at idle. A gear set
and clutches provide for forward, neutral and
reverse operation.
The toric section itself consists of two discs,
or "races," machined to form a toroidal space.
Three rollers interposed between the races are
movably mounted on carriers which are fixed
to the case (see photo). The rollers can be
tilted with respect to the axis of the races and
thereby change the speed ratio -- that is, the
speed of the output race compared to the speed
of the input race. Power is transferred from
one race to the other by traction at the roller-
race contacts when the races are squeezed
against the rollers.
How Ratio Changes
An automatic control system varies the speed
ratio. This hydraulic system "senses" the
driver's demand for an acceleration change
Model of toric section, which changes
speed rafio in toric transmission.
248
800-TT toric tronsmission was designed especially for RTX bus.
REVERSE FORWARD
CLUTCH CLUTCH
FLUID TORQUE CONVERTER
Cross secHon of 250-TT toric fronsmission used
In SE-101 steam cor showing power flow.
and adjusts the ratio by instantly repositioning
the rollers in the toric section.
Some of the earliest versions of the toric
transmission, which GM research engineers
developed and tested as far back as the '20's
and '30's, were not considered competitive be-
cause of their size, weight and durability. For
this reason, GM elected to produce planetary
gear type automatic transmissions, which are
smaller than toric transmissions. Since the
1950's, however, GM engineers and scientists
have made important advances in metallurgy,
lubricating fluids and analytical techniques that
have paid off in improved size-to-weight ratio
and thus have encouraged the application of the
toric transmission.
GM production divisions and the Laboratories'
Engineering Development Department are eval-
uating the feasibility and experimental installa-
tions of the toric transmission.
Prepored by TECHNICAL INFORMATION DEPARTMENT
GM Research Laboratories, Warren, Michigar> 48090
249
General Motors
Engineering Staff
THE 511 GASOLINE COMMUTER CAR
Dne of several experiments by General Motors
o define the requirements of a special-purpose
vehicle for limited transportation use is the
'511 commuter.
irhis car features a three -wheel suspension -
'he third wheel being up front - and a con-
/entional four-cylinder gasoline engine. It was
iesigned to transport two people efficiently
rom suburbs to downtown and back at freeway
speeds. Directing the project was GM's En-
gineering Staff In collaboration with the Styling
Staff.
Vehicle Characteristics
Because of its three -wheel design and low cen-
er of gravity, only 13^ inches off the ground,
he 511 has excellent stability, maneuverability,
md cornering properties. This design also
iiUows for an uncomplicated "backbone" type of
I'rame, which makes possible the car's stream-
line shape. In addition, the design keeps car
jveight relatively low, 1300 pounds.
Two steering systems were tested in the 511,
one a simple handle bar with 2 to 1 ratio and
the other a more conventional steering wheel
system with 9 to 1 ratio.
The rear-mounted engine is a 4 -cylinder, 66-
cubic-inch Opel capable of 67 hp at 6000 rpm.
The transmission is a three -speed automatic
torque -converter type unit. The commuter can
accelerate from 0 to 60 mph in 16.5 seconds
and has an 80 mph top speed. In city driving
it averages about 30 miles per gallon.
Body and Chassis
The 511 consists of two major sub-assemblies:
a fiberglass body and a steel chassis. It has
a single -hinged, counterbalanced canopy for
easy exit and entry. Its contoured bucket seats
are semi -reclining and built into the body, to-
gether with head restraints. Because the seats
are fixed, control pedals are electrically ad-
justable.
250
The chassis consists of a steel Y frame, three
wheels, and power train. The engine, trans-
mission, and rear wheels are mounted solidly
to the frame so that the drive axles are simple
one-piece shafts and the entire mass is essen-
tially unsprung. The frame backbone passes
through a tunnel in the body to support the
single front wheel.
Other 511 specifications: Overall length 149
inches, wheelbase 86 inches, overall width 63
inches, rear tread 54 inches, height 40 inches,
ground clearance 4.5 inches.
511 COMMUTER
251
General Motors
Engineering Staff
THE 512 SERIES URBAN CARS
le three experimental, two -passenger, 512
ries vehicles represent engineering studies
basic transportation. Utilizing essentially
,e same four-wheel configuration, the 512
ries features a gasoline, an electric, and a
;brid gasoline-electric powered version of a
jecial-purpose vehicle for limited urban
ansportation use.
esign and development was directed by Gen-
-al Motors Engineering Staff in collaboration
lith GM Styling Staff and Delco-Remy Divi-
on. The three cars with their 30 to 40 mph
ip speed and limited acceleration would op-
i-ate either on a paved road system of their
vn or in reserved lanes of existing roads,
?cause they could not mix safely with today's
eeway or boulevard traffic.
hey were intended for short trips in central
ty areas, for errands, school transportation,
run to the golf course or a nearby theater.
ngineers and stylists on the 512 project were
sked to create efficient vehicles to perform
jDecific transportation jobs with minimum
'eight, low operating expense, and low emis-
|.on levels. Body configurations were de-
signed to provide adequate space and comfort
for the type of travel intended. The same
bodies could be used with different types of
motive power. All three vehicles are front
entry; and their ride, steering, and handling
qualities are comfortable and responsive to
their specialized type of service.
512 Hybrid Gasoline-Electric Vehicle
This vehicle is a first- generation test bed for
Engineering Staff's 512 series. It was initially
built with an electric powerplant; now it is
being used to evaluate a hybrid concept. It
has a 50-inch wheelbase, 66-inch length, 56-
inch height, and 52 -inch width. Curb weight is
1250 pounds.
Construction is a combination of aluminum
panels and tubular steel frame. For easy ac-
cess it has a front canopy door and two-pas-
senger bench seat. A small luggage compart-
ment is accessible either by way of the fold-
down right seat back or lift-up backlight.
The hybrid's power system consists of a 12-
cubic-inch gasoline engine coupled with a dc
series electric motor through an electromag-
The experimental 512 series urban cars by General Motors Engineer-
ing Staff. From left to right: the 512 Hybrid, 512 Electric, and 512
Gasoline. Similorly: Engineering Staff's Dan Frank, Kent Kelly, Jim
Gumbleton, Al Lucas, and Howard Earnest.
252
512 HYBRID
BAHERIES
ELECTRIC MOTOR
GEAR REDUCTION
& DIFFERENTIAL
512 ELECTRIC
SOLID STATE
MOTOR CONTROL
BATTERIES
PLANETARY GEAR
& DIFFERENTIAL
COAXIAL DC MOTOR
253
512 GASOLINE
letic clutch. With the clutch energized, the
jasoline engine and electric motor both oper-
jite at the same speed and are coupled to the
lifferential and axle through reduction gears,
electrical energy is supplied by a 72 -volt
bower battery pack with an additional 12-volt
■iccessory battery.
The car operates in either an all-electric or
[lybrid mode. In either mode it is accelerated
rom standstill by the electric motor. In the
jiybrid mode the gasoline engine is engaged at
lO mph, and the gasoline engine alone drives
fhe car at steady speeds. Acceleration power
is provided automatically by the electric mo-
or together with the gasoline engine.
lAThen operating on gasoline power, a 90 -volt
^electron recharges the batteries. As a driv-
3r option, when the car is at a standstill, the
jasoline unit may continue running to charge
:he batteries. In addition, the hybrid has an
jn-board charging unit that can be connected
;o a 11 5 -volt household outlet.
The 12-volt accessory battery supplies power
;:"or the low -level electronic system, cooling
blowers, and brake lights.
In the hybrid mode, the peak horsepower is
,13,8, top speed is 35 mph, and the car accel-
ENGINE
TRANSMISSION
CATALYTIC CONVERTER
erates from 0 to 30 mph in 16 seconds. Its
range is 5.2 miles at 30 mph in the electric
mode, and approximately 150 miles with three
gallons of gasoline in the hybrid mode.
512 Electric Vehicle
The fresh, attractive design that can be
achieved with a two-passenger urban vehicle
is dramatized in this electric version of the
512 series. The exterior body is fiberglass
with a steel chassis floorpan and roUbar. The
car can be driven in fair weather with the
canopy front raised and backlight retracted,
giving it a unique convertible appearance. Or
it can be driven as a roadster with canopy
removed.
The side-pivoted single front door allows easy
access to the bench type seat. Luggage or
package space is accessible through the back-
light or the fold-down right seat.
Wheelbase is 52 inches, overall length 86.3
inches, and width 56 inches. Curb weight is
1250 pounds with an 84-volt power battery
pack. The powerplant is a dc series Delco-
Remy motor with solid state controls. It uti-
lizes special Delco-Remy lightweight lead-acid
batteries that represent a forward technological
254
step and contribute to the vehicle's range and
performance.
The coaxial drive motor, integrally mounted on
the rear axle, makes possible a compact plan-
etary gear drive that passes one axle shaft
through the center of the drive motor.
The car's accessories — heater-defroster, head
and tail lamps, turn signals, windshield wiper,
horn, and cooling blower - are powered by a
separate 12 -volt battery, supplemented when
necessary by the main power pack. Heating
and defrosting are combined with motor and
control cooling. If heat is not needed, the
system circulates incoming fresh air for pas-
senger compartment ventilation.
A built-in battery charger simultaneously re-
charges both the main powerplant and acces-
sory battery. Complete recharge from a 115-
volt household outlet requires seven hours.
The car's range at 25 mph is 58 miles. At
30 mph, the range is 47 miles. As more ad-
vanced batteries become available, these range
mileages will increase. Acceleration from
0 to 30 is 12 seconds.
appearance. It is a roadster with integral pig
tic construction, 52 -inch wheelbase, 86.3-inch
overall length, 55-inch width, and 51.9-inch
height. It weighs 950 pounds.
It has a side -hinged front door, and the belt
line sweeps up behind the passengers to pro-
vide rollover protection. Because of its open
styling, it contains a minimum of accessories
The power source is a 19.6-cubic-inch, two-
cylinder, 12-hp aluminum engine with an 11 t
1 compression ratio. It is adaptable to futurt
emission controls and is equipped with an ex-
perimental catalytic converter and air injectic
system.
A distinguishing feature of the power train is
an automatic transmission operating on the
variable ratio V-belt principle with a centri-
fugal clutch.
Top speed is 4 5 mph, and the car will accel-
erate from 0 to 30 mph in 18 seconds. With
a four -gallon fuel tank, its range is approxi- i
mately 280 miles.
512 Gasoline Vehicle
Of the three-car experimental 512 series, the
gasoline engine version emphasizes the sporty
255
General Motors
XP-883 GASOLINE-ELECTRIC HYBRID CAR
'art of an overall General Motors study to
letermine today's limited transportation needs,
[he XP-883 is a special- purpose commuter ve-
jiicle. It was designed to accommodate a hy-
brid gasoline -electric powerplant with front
ivheel drive. At its present stage of develop-
nent, the car is in mockup condition.
The XP-883 has a two-door fiberglass body
ind will seat four occupants - the driver and
me adult passenger in front and two children
lacing the rear in a back seat. The backs of
he passenger seats fold down to provide a
;:argo space 84 inches in length. Access to
i:he rear seat area is provided by an upswing -
ling backlight at the rear of the car.
The Powerplant
The basic concept for the XP-883 originated
it the GM Styling Staff. Designers developed
Ithe vehicle as a small commuter car capable
iof receiving any of several kinds of power -
Iplants. GM Engineering Staff conducted com-
Iputer analyses of several powerplants - in-
cluding internal combustion, electric, and hy-
brid gasoline-electric - to evaluate their po-
tential in meeting the car's design purpose.
Although all these powerplants were found ac-
ceptable, the first selected for further study
was the hybrid. Engineers designed the two-
cylinder-engine electric -motor combination
specifically for the XP-883. The design ob-
jectives for the car include a weight of ap-
proximately 2100 pounds, maximum speed of
60 mph, and an acceleration of 0 to 60 mph in
28 seconds and 0 to 40 mph in 12 seconds.
The hybrid powerplant — also in the mockup
stage - consists of the following:
• A two-cylinder, opposed, water-
cooled engine of 3 5 -cubic -inch
displacement.
• A dc series-wound electric motor.
• A flywheel alternator for recharging
the batteries.
256
• Six 12 -volt batteries to provide a
7 2 -volt system.
• An electronic control system.
• An on-board charger that can be
connected to an external 115-volt
ac source.
Propulsion
The transmission system contains two gear-
reduction units, both providing a 5 to 1 re-
duction to axle speed. A planetary system
transmits power directly from the co-axial
electric motor to the drive shafts on the
front wheels. Power from the gasoline engine
is transmitted through the second gear -reduc-
tion unit - a worm gear arrangement.
The XP-883 operates in either an all-electric
or hybrid mode. In either it is accelerated
from 0 to 10 mph by the electric motor. At
that speed in the hybrid mode, the gasoline
engine starts and provides the power function
for steady speed operation as well as power
to recharge the car's batteries. Both power-
plants are automatically combined for acceler-
ation.
General Specifications
XP-883 has a 68-inch wheelbase with an over-
all length of 122.2 inches. It is 57.3 inches
wide and 46.3 inches high. Both front and resuy
tread are 49 inches; front overhang is 27.5
inches and rear overhang 26.7 inches.
The vehicle has an independent rear suspen-
sion, and the battery system is located in a
box beneath the rear passenger seat and be-
tween the rear wheels.
A single heat-exchanger core provides pas-
senger compartment heating and low -speed
engine cooling. For high-speed engine cooling,^
this core is supplemented by a ram core lo-
cated in the front of the engine compartment.
XP-883 HYBRID
-ELECTRONIC CONTROLLER
GASOLINE
ENGINE
GEAR REDUCTION
& DIFFERENTIAL
ELKTRIC MOTOR
257
m
General Motors
^^ Research Laboratories
ELECTRIC VEHICLE POWERPLANT TECHNOLOGY
Vithout reservation, a battery or fuel cell will
lave to possess two capabilities to quality for
icceptance as a powerplant in general-purpose
vehicles: It must have a high power density,
)r power-to-weight ratio, to meet vehicle ac-
;eleration and performance requirements. It
nust have a high energy density, or energy-
o-weight ratio, to give the vehicle a reason-
ible traveling range.
The only single battery or fuel cell powerplants
;hat appear to offer any hope of someday meet-
ng these requirements are the silver -zinc and
:he high-temperature alkali-metal batteries such
IB lithium -chlorine and sodium-sulfur (see
graph). Economics rules out the costly silver-
zinc battery. The high-temperature alkali -
metal batteries are presently in the research
phase and are not expected to reach practical
maturity for several years or a decade, if at
111.
Through the use of modern electronic systems,
however, it may be feasible in the interim to
combine one powerplant having high power den-
sity with another powerplant having high energy
density. Such an arrangement permits many
possible combinations that could be considered
for special -purpose vehicles. The arrangement
thus constitutes a logical evolutionary step,
which current technology can now implement,
toward the end goal of a general-purpose all-
electric car.
Electric Vehicle Systems
Electric vehicle system concepts now being
studied by the GM Research Laboratories fall
into three basic categories (see block dia-
grams). They include the
• Single battery all-electric system
(such as used in GM's battery-
powered Electrovair and fuel-cell
powered Electrovan vehicles).
• Electrically coupled hybrid system
(such as used in GM's Stirling-engine
battery-powered Stir-Lee vehicles).
9 Mechanically coupled hybrid system
(similar to that used in GM's 512
gasoline-electric vehicle).
Because an adequate single battery does not
"1 — r
PROJECTED CAPABILITIES
258
exist, the hybrid systems have been receiving
attention for possible use in vehicles within
the next decade.
Electric Coupling. In the electrically coupled
hybrid system, two powerplants are used in
parallel. One, the power battery, provides the
intermittent pesJc power for acceleration. The
other powerplant — which can be another bat-
tery, a fuel cell, or a heat engine and gener-
ator set — supplies the energy for extended
road-load operation and for charging the power
battery.
With this theoretical approach, the lead-acid
and nickel-zinc batteries (with their good power
density auid limited energy density) might serve
as the power battery; and the fuel cell, zinc-
air, or organic electrolyte battery as the energy
reservoir. Technically, the nickel-cadmium
battery also qualifies as a power source. But,
while less expensive than the silver-zinc bat-
tery, its economics are unfavorable.
Mechanical Coupling. In the mechanically cou-
pled hybrid system, the power battery supplies
an electric motor whose output is coupled
through a differential with that of an internal
or external combustion heat engine. Here, the
battery — for example, lead -acid or nickel -
zinc — provides both power and energy for
all-electric operation under limited performance
and range conditions. The heat engine aug-
ments the performance when needed, extends
the range, and drives a generator to charge
the battery during operation of the engine at
less than its full power.
Powerplant Requirements
High Performance Vehicles. Powerplant re-
quirements for a general-purpose vehicle —
that is, the family car — are the most dif- '
ficult to meet. This situation is somewhat
discouraging since the family car accounts for
the major portion of today's vehicle population.
Although a mechanically coupled hybrid with a
nickel-zinc power battery might begin to satis^
the family car requirements, only the high-
temperature alkali-metal batteries appear to
offer a much preferred solution. And the tech-
nology needed to develop these batteries is stiU
in the research stages.
Special Purpose Vehicles. In this class of ve-
hicles — which includes the commuter car,
bus, and delivery van — the powerplant re-
quirements are considerably less severe. The
nickel-zinc and zinc -air batteries, especially
the latter, make good candidates for propelling
such vehicles. In fact, if successfully developed,
the electrically rechargeable zinc -air battery
(whose progress lags far behind the less-than-
ideal mechanically rechargeable zinc -air bat-
tery) would give tremendous impetus to the
evolution of special-purpose electric vehicles.
Low -Performance Vehicles. For the short-
range, low-speed urban shopper or utility car,
the lead-acid battery can be used as a power-
plant, particularly as the power battery in a
hybrid system. However, a practical nickel-
zinc or zinc -air battery would provide a more
attractive approach to a single -powerplant
electric system.
ELECTRIC VEHICIE SYSTEMS UNDER STUDY
: BATTEBY - ELKTIIC
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Preporwl by TECHNICAL INFORMATION DEPARTMENT
GM RaMorch Labora»orls>, Warren, Michigan 46090
259
General Motors
Research Laboratories
ELECTROCHEMICAL ENERGY CONVERTERS
lany elements can be reacted electrochemically
;) produce electric power. Some element com-
inations naturally result in a high power den-
ity, or power-to-weight ratio; others a high
nergy density, or energy-to-weight ratio. But
one provide both at the same time ... at
;ast not in any practical electrochemical en-
rgy converter that exists today.
"o qualify for possible automotive application,
n electrochemical energy converter — that is,
battery — has to possess
• High power density, to give the
vehicle acceptable speed and ac-
celeration.
• High energy density, to give the
vehicle an adequate use period be-
tween recharges (or refueling as
with the fuel cell).
Also, such a battery must satisfy several other
requirements covering volume, safety, opera-
tional characteristics, cost, reliability, and
durability.
Working toward these goals. General Motors
Research Laboratories and other GM groups
have been investigating a variety of electro-
chemical energy converters (see table). Two
of these have indicated considerable promise:
the zinc-air battery and the lithium-chlorine
cell.
SEVERAL ELECTROCHEMICAL ENERGY CONVERTERS UNDER INVESTIGATION
Converter
Major Interest
Attractive Feotures
Problem Areas
Lead -Ac id
Power
characteristics
Excellent power density
Compoctness
Economics and durability
Poor energy density
Rechorge time
Poor power ot port charge
Nickel-Zinc
Excellent power density
Good energy density
Promises good rechorgeability
Limited cycle life
Rechargeable zinc electrode
Nickel -Cadmium
Excellent power density
Fair energy density
Good cycle life
Good rechargeobility
High cost materials
Zinc-Air
Energy
charocteristics
Good power density
Good energy density
Low cost materials
Very limited cycle life
Rechargeable zinc electrode
Organic
Electrolyte
Excellent energy density
Promising economics
Poor power density
Durability unknown
Rechargeobility
Fuel Cell
Excellent energy density
Rapid refueling
Use of current fuels
Poor power density
High cost materials
Size and complexity
Sodium-Sulfur
Power ond
energy char-
acteristics
Excellent power density
Good energy density
Promises good rechargeobility
High-temperature operotion
Materials compatibility
Durobility unknown
Lithium-Chlorine
Excellent power density
Excellent energy density
Promises excellent
rechargeobility
High-temperature operation
Materials compatibility
Durability unkrwwn
32-493 O— 69— pt. 1-
-18
260
Zinc-Air Battery
This battery has features that make it attrac-
tive for use in intermediate -range vehicles:
• It employs low-cost reactant
materials.
• It has good energy density and power
density capabilities.
• It operates at ambient temperatures.
For several years GM Research scientists
and engineers have been developing two ver-
sions of the zinc-air battery. One is a sec-
ondary battery, which means it can be elec-
trically recharged; the other is a primary
battery, which means it cannot.
Mechanical Recharge Concept. Although not
rechargeable in the usual sense, the primary
zinc -air battery can be mechanically re-
charged. In other words, it can be brought
back to full power immediately upon replacing
the zinc electrodes and electrolyte.
Thus far, three 1-kw mechanically rechargeable
zinc -air batteries have been designed and built.
Each contains 20 cells in series, providing an
open-circuit voltage of about 28 volts per bat-
tery.
In a demonstration of capability, two batteries
(connected in series) along with a 25-hp elec-
tric motor and solid state control system were
installed in a golf cart In place of its regular
10 -hp gasoline engine. The cart attained a
maximum speed of 12 mph and proved it could
maintain this speed for almost three hours.
For equivalent performance, the cart would
require about 300 pounds of lead-acid batteries,
compared with 110 pounds for the two-unit
zinc -air pack.
Electrical Recharge Concept. Clearly, the
electrically rechargeable zinc -air battery would
make a more desirable choice for powering a
vehicle. However this battery has not pro-
gressed as far as its primary counterpart. Its
problems are more formidable, technical fall-
out from the primary battery program being
only partly applicable.
To date, several experimental cells and bat-
teries have been built including a 15-cell bat-
tery of 180 watts. However, this particular
design is good for only a few recharges.
Operation. Both versions of the zinc -air bat-
tery use aqueous potassium hydroxide (KOH)
as an electrolyte. In a closed circuit, each
generates electricity by combining zinc and
hydroxyl ions from the electrolyte to form
zinc hydroxide, which releases electrons. At
the zinc electrode the reaction is:
Zn + 2(OH) ► Zn(OH) + 2e"
•— ZnO + HO
Concurrently at the air electrode — which con
sists of carbon. Teflon, and a catalyst suppor
on a porous nickel matrix — incoming electror
from the circuit combine with water and oxyg
(from the air) to release hydroxyl ions from 1
electrolyte:
+ H„0 + 2e
2(OH)
For the electrically rechargeable battery, the
above equations reverse at recharge. A third
electrode temporarily substitutes for the air
electrode while the charging current is appliec
Status. In the development of the three me-
chanically rechargeable batteries, progressive
gains have been made In power density, energ
density, and cathode life. This system appears
capable of going from the present power den-
sity of 30 watts per pound to 80 watts per
pound, and from the present energy density of
45 watt-hours per pound to about 70 watt-hour
per pound. But before the mechanically re-
chargeable zinc -air battery can be considered
a practical contender for propelling inter-
mediate-size electric vehicles, considerable
improvements will have to be made in elec-
trode economics and cathode life.
For the electrically rechargeable battery, sim- U
ilar improvements are necessary (to a much
greater degree) along with better cathodes for (
recharging.
Lithium-Chlorine Cell
General Motors has long recognized the enor-
mous improvements theoretically possible in
batteries by combining highly energetic react-
ants with a molten salt electrolyte. Such a
system is capable of storing a large amount
of electrical energy and operating at high pow-
er. Transforming this technical promise into
practical hardware has been a subject of re-
search and development at GM for over a de-
cade.
Among molten salt batteries, the most attrac-
tive comprises cells using lithium and chlorine
reactants along with fused lithium chloride as
the electrolyte. The lithium -chlorine (Li-Clj)
cell operates at 1200°F and possesses outstand-
ing energy density and power density capabil-
ities.
But although the performance potential of the
lithium-chlorine system is great, much re-
search and development remains to be done.
Answers are still needed to such vitally im-
portant questions as: Can the Li-Clj cell be
261
ICHANICALLY RECHARGEABLE ZINC-AIR CELL
Discharge^
Potassium
Hydroxide
'' porous structure that allows oir to enter the cell
[iit prevents the electrolyte from seeping outt
In this golf cart, the GM Research Laboratories zinc-
air battery pack at 110 pounds performs as well as a
lead-acid battery pack at 300 pounds. (Her name?
Elsie Goetzinger.)
FULLY CHARGED LITHIUM-CHLORINE CELL (Discharging)
Insulating
Seol
Uthlun
"Wick
lithium
Electrode
,Elecli
2k
'ilt in a thermally self-sufficient configura-
)n? How long can a Li-Cl2 battery last?
')w reliable is it ?
)eration. One Li-Cl2 cell concept being in-
,stigated by GM Research Laboratories sci-
tists and engineers is illustrated above. In
e center of the cell stands a cylindrical po-
rous-graphite chlorine electrode. The lithium
electrode surrounds it, and lithium chloride
fills the void in between. With the cell ready
to use, liquid lithium floats on molten lithium
chloride suid saturates the wick leading to the
lithium electrode. Chlorine gas from a storage
tEink occupies the volume within the porous
chlorine electrode.
262
Measuring fhe electrical output of a variety of
experimental fuel cells on durability runs.
Discharging: When the externEil circuit
switch is closed, lithium enters the electrolyte
as positive ions. The electron that each atom
loses by ionizing is left at the lithium elec-
trode:
Li
■Li + e
Simultaneously at the chlorine electrode, a bal-
ancing reaction occurs in which two electrons
combine with each chlorine molecule to form
negative chloride ions:
Cl„ + 2e
The net result is that
2 CI
• Electrons flow through the external
circuit (driving an electric motor
in this instance).
• Lithium and chlorine have combined
electrochemically to form lithium
chloride:
creases. Full power can be drawn from the
cell until either the lithium or chlorine is
depleted.
Charging: Since the lithium -chlorine elec-
trocheir.ical reaction is reversible, feeding
electrons back into the cell in the opposite
direction will decompose the lithium chloride.
At the lithium electrode, lithium ions pick up
electrons from the charging current and thus
become atoms. This action replenishes the
lithium supply. At the porous chlorine elec-
trode, the negative chloride ions give up elec-
trons to the charging current and thus become
chlorine gas molecules. The gas can be made
to penetrate the porous electrode and be re-
turned to the storage tank.
Meanwhile, the volume of lithium chloride elec-
trolyte diminishes to its original mass.
Status. Although the technology required to
construct practical, usable cells has not yet
been developed, significant progress has been
made with laboratory cells. In the past two
years the lifetime of these cells has been ex-
tended to over 2000 hours. More importantly,
a greater understanding has been gained of the
effects of variables that determine performance
and durability ... to the point where cell ef-
ficiency and operating characteristics are quite
predictable.
Having demonstrated in the laboratory the per-
formance and life potentials of the lithium -
chlorine cell, the Research Laboratories is
continuing its R&D program, with emphasis on
cell and component development. The imme-
diate goal is a thermally self-sufficient cell
suitable for incorporation into battery modules.
2 Li + Cl„
2 LiCl
As the cell delivers power, the volumes of
lithium and chlorine decrease while the vol-
ume of lithium chloride, the electrolyte, in-
If and when such a cell is developed and prac-
tical lithium-chlorine batteries become a re-
ality, engineers will still have major problems
to resolve before a marketable Li-Cl, battery
powered vehicle can be achieved.
Prepared by TECHNICAL INFORMATION DEPARTMENT
GM ReMorch Laboratories, Warren, Michigon 48090
263
m
General Motors
Research Laboratories
GM STIR-LEC II
A STIRLING-ELECTRIC HYBRID CAR
itir-Lec II is a second-generation hybrid auto-
lobile combining a Stirling external combustion
ngine with an electric drive system. It was
eveloped by General Motors Research Labora-
jries as a test vehicle to explore the use of
lew emission engine and an electric drive
ystera in a small car.
"he hybrid arrangement allows the use of a
ery small engine (eight horsepower) to pro-
ide electrical power for moderate constant-
peed driving, with reserve power stored in a
ank of batteries.
lenerai Features
irhe first experimental vehicle of this family,
Itir-Lec I, was introduced to the public in
Aay 1968. The second, Stir-Lee II, features
i more efficient electric drive system which
)rovides the same power with simpler, more
:ompact electronics. It is the latest result of
m extensive development program on high-
oerformance electric drive systems, coupled
vith over a decade of Stirling engine develop-
nent,
i
iFeatures of the Stirling engine include low ex-
'naust emissions (considerably below both pres-
snt and proposed government limits), quiet op-
eration, and high efficiency. The electric sys-
tem provides high peak power for rapid vehicle
acceleration, the flexibility and performance
characteristics of an electrical transmission,
and zero exhaust emissions when the vehicle
operates on batteries alone.
In Stir-Lee II, the small Stirling engine drives
an alternator to charge the batteries. The bat-
tery output is electronically modulated to pro-
vide the necessary power variations for motor
speed control. A 20-hp dc motor drives the
vehicle through a GMR-developed roller friction
speed reducer and the standard differential.
This differs from Stir-Lee I which used an ac
motor and speed reduction gears. In this small
vehicle (a modified Opel Kadett) the advantages
of simpler, less bulky dc system electronics
outweigh the advantages of a smaller, lighter
ac motor. In larger vehicles -- where a pow-
erplant of more than 30-40 hp is required --
the large size and weight of the dc motor make
the ac system more desirable. The GMR Elec-
tric Propulsion Department continues develop-
ment of both systems for a variety of applica-
tions.
Low Emissions
In the Stir-Lee installations, the eight horse-
power single -cylinder Stirling engine runs at
constant speed. Although its main function is
aATTBIr CHARGINO CONtlOl
HYDSOGCN RESEBV04S'
STIRUNO
RADIATOt'
MOOULATOI
STAKm MOTOt
COMWtnON AM uown
264
charging the batteries, it also provides hot
water for the car's heater. A diesel fuel
burner supplies the required heat to the Stir-
ling external combustion engine. Combustion
characteristics are excellent. The engine
package emits virtually no odor and very low
amounts of carbon monoxide and smog-forming
hydrocarbons. Carbon monoxide is typically
about 0.3 grams per mile (gpm); proposed 1970
federal standards limit such emission to 23
gpm. Exhaust hydrocarbons are typically about
0.006 gpm; the proposed federal hydrocarbon
limit is 2.3 gpm. The emission of oxides of
nitrogen is about one gpm. The Stirling engine
also is significantly quieter than conventional
engines. This engine is a modified version of
the Stirling developed by the GMR Mechanical
Development Department for use in a silent
portable Army generator (Ground Power Unit).
R&D
Test Results
The Stir-Lee cars were designed to explore
the characteristics of this type of powerplant
Stir-Lee II features compact solid state chopper and
logic controls for dc drive system.
and drive system in a small standard car.
The space required by the system (it uses all
the engine compartment and trunk space), the
added weight, and high cost all make this hy-
brid design commercially impractical at this
time. However, Stir-Lee n does serve as a
valuable test bed for continuing research and
development.
Stir-Lee n has a top speed capability of about
60 mph, however the nominal operating speed
is 30 mph. At 30, on a level road, the elec-
tric drive system draws energy from the bat- i
teries at about the same rate that the Stirlingi
engine charges them. Thus the batteries es-
sentially "float" on the system, and the Stir-
ling supplies the required energy. At higher^
speeds, or for other temporary additional po
er needs (such as acceleration or hill climb-^
ing), the motor draws some of the stored en-
ergy from the batteries. The batteries can
then be recharged during lighter -load opera-
tion.
The car also can operate with no emissions,!
with the Stirling engine shut down and the vea
hide running only on the batteries. The emif
sion-free range is about 30 miles.
Initial performance data for Stir-Lee 11 looks •
like this:
Acceleration 0 to 30 mph, in 8.5 seconds.
Top speed, 60 mph.
Range, 25 miles at 30 mph on batteries
alone.
150 miles at 30 mph with the
charging system running (limited
only by capacity of 5 gal. fuel
tank).
The weight of the vehicle, including two oc-
cupants, is about 3250 pounds.
STIR-LEC II SYSTEM
BAIIERT CHABGING SYSTEM
ELECTDIC DRIVE SYSTEM
Prepared by TECHNICAL INFORMATION DEPARTMENT
GM Research Laboratoriei, Warren, Michigan 48090
265
General Motors
'^ Research Laboratories
GM HIGH PERFORMANCE
ELECTRIC DRIVE SYSTEMS
sw concepts of electric motor control are
hind the modern electric drive systems being
hveloped by the Electric Propulsion Depart-
ent of the General Motors Research Labora-
ries. In a variety of applications, the high
■rformance, lightweight drives offer high ef-
riency and reliability.
these systems the drive is usually provided
' a three-phase brushless induction motor --
1 alternating-current machine. The system
in be designed for either an alternating or
rect-current (ac or dc) input. This is fed
irough electronic circuitry and control sys-
■ms that can vary the motor speed and the
iDwer, Semiconductor control devices provide
■; to ac conversion or ac frequency conver-
ion, controlling large voltages and currents
lith small lightweight components.
|or their power, the motors and controls are
lir lighter aind smaller than those available
l)r dc systems in the same power range. An
ic motor --an induction motor --is simpler,
mailer, and lighter than a dc motor. It does
ot require a commutator and brushes, heavy
Tsulated rotor windings, or the heavier struc-
jre of a dc machine. New designs have fur-
her improved on the basic advantages of the
c motor. In sizes under 30-40 horsepower,
lowever, a dc motor system is more efficient
n some applications.
Jecause high power semiconductors are costly,
•lectric drive systems are not presently com-
>etitive for many applications. However, the
)rice of semiconductors is decreasing. For
lome industrial and heavy vehicle installations.
Test vehicle with ac electric drive ot each wheel —
built to evaluate this concept for an articulated lunar
vehicle.
the new systems appear attractive now. Though
the automobile presents additional problems
(weight and space, as well as cost), concern
over air pollution has stimulated tremendous
interest in electric vehicle development.
Eledrovair, Electrovan, Stir-Lee I
When the GM Electrovair-Electrovan electric
vehicle program was initiated several years
ago, an electric drive system that could use
the direct-current output from either batteries
or fuel cells was already under laboratory test
in Santa Barbara. California, by the group that
is now the GMR Electric Propulsion Depart-
ment.
This dc-ac system was further developed by
the group and installed in Electrovair n (bat-
tery powered) and Electrovan (fuel-cell pow-
Eioctric
Pow«r
Source
Solid-Stale
Frequency
Converter
, /
/ AC \
Induction \
Motor ~r~
(Brushless) /
\
-* y
Control
Electronics
Speed
Pickup
GMR electric drive system.
266
ered). The ac drive motors were built espe-
cially for these vehicles by Delco Products
Division and were installed in the vehicles by
the GM Engineering Staff for public demonstra-
tion in October 1966.
Since then, GM Research has considerably re-
duced the weight and size of the control system
-- from 250 pounds for Electrovair II to 170
pounds for a similar system now. This general
type of system also was used in Stir -Lee I,
demonstrated to the public in May 1968. (The
Stir-Lee hybrid car uses a small Stirling ex-
ternal combustion engine to charge the batteries
that power an electric drive.)
Other Applications
This same dc-ac electric drive system was
also used in a six -wheel articulated lunar ve-
hicle, built by GM in 1966, and in the propul-
sion units for a two-man research submarine.
In another marine application, the same basic
system was built experimentally, under Navy
contract, to power a 190-horsepower torpedo.
GM Research also has developed a high per-
formance, variable speed ac drive that is being
evaluated for industrial applications. It can use
a dc input, rectified from the commercial 460-
volt lines, and an inverter, to vary the speed
of an induction motor continuously with good
efficiency over the whole speed range.
In large power applications an ac-ac system
holds promise. Here the electrical source is
a high-frequency alternator. In a large vehicle,
the alternator may be driven by a diesel en-
gine, gas turbine, Stirling engine, or other
prime mover running at a speed giving mini-
mum fuel consumption for the horsepower re-
quired. The alternator output is fed through
cycloconverters to provide the frequency vari-
ation required for changing the speed of the
induction motors — and the vehicle. Thus the
electric drive system serve's as an electrical
transmission, replacing the mechanical trans-
mission.
For small power applications, such as in small
cars, a dc motor system offers advantages.
Stir-Lee n, first shown in May 1969, is an ex-
perimental test bed for a modern dc drive
featuring solid state electronic control. Al-
though the dc motor is larger and heavier than
the ac motor used in Stir-Lee I, and the over-
all system weight is about 25 pounds greater,
the simpler, more compact electronic controls
and higher overall efficiency of Stir-Lee II
are attractive features.
Solid State Switches
The key component in the GMR electric drive
systems is the silicon controlled rectifier
(SCR) -- a solid state switch. A cousin to the
transistor, the SCR is a semiconductor device
that uses a small electrical impulse to switch
on a large current. Commercially available
from several manufacturers, SCR's make it
feasible to break up ac or dc into pulses to
control the speed and power of either ac or
dc motors. However, SCR's are still expensivf
For the past decade, three GM activities have
been involved in the development of variable
speed electric drive , systems. The group at
the GM Research Laboratories has developed
the high performance ac induction motor drive
system. Delco Products Division has developed
special motors for this system. Delco-Remy,
taking a slightly different approach, developed
a system using ac synchronous motors -- such
a system was installed in an Army six-by-six
truck in 1967 and is currently undergoing ex-
tensive durability and performance tests.
Two-man research submorine developed by General
Motors for exploring the ocean floor. Electric pro-
pulsion is provided by four outboard units.
Prepored by TECHNICAL INFORMATION DEPARTMENT
GM Research Laborotories, Worren, Michigan 46090
267
General Motors
DELCO-REMY ELECTRIC-WHEEL
VEHICLE PROPULSION
I electric propulsion system for heavy duty
viicles has been developed by Delco-Remy
I'ision of General Motors. Using a synchro-
ris (ac) motor to drive each wheel separate-
] this system offers improved mobility, ve-
l le design flexibility, and the ability to op-
(ite the engine at the most desirable speed
( the load -- without regard to vehicle
i;ed.
; this system a gasoline engine, or other
jime mover, drives a high-speed alternator,
'e alternator output is fed through control
lictronics to the motors at the wheels. In a
'Oject funded by the Army Tank Automotive
< mmand, a system of this type has been in-
lUed in an M-35 six-by-six army truck for
,aluation of performance and durability.
dividually Powered Wheels
ice each of the six wheels in this truck is
wered by a separate motor, the number of
driving wheels can be changed with changing
needs. On a level road the truck may need
only one powered wheel. When more rugged
terrain with steeper grades is encountered, or
when greater loads are carried, more wheels
may be powered. The 13,500-pound test ve-
hicle has climbed a 60% grade with two tons
of cargo.
The electric drive system also has been dem-
onstrated to have automatic wheel slip control
and good dynamic braking. The vehicle has
so far logged over 2500 miles in performance
and durability tests.
First designs for this electric propulsion con-
cept were begun by Delco-Remy engineers in
the early 1960's. Supporting developmental
work on vehicle systems adaptation was pro-
vided by the General Motors Research Lab-
oratories, at Warren, Michigan, and the high-
speed main power alternator was developed by
Delco Products Division, at Dayton, Ohio.
Test vehicle with electric drive at each wheel.
268
Heavy Vehicle Applications
While the first vehicle testing has been done
with a military truck, the system also has
great potential for civilian applications, par-
ticularly in the off-road equipment field.
Delco-Remy engineers point out that cost
factors preclude any possibility of the syst
being competitive in the passenger car witt
the forseeable future; however, it has signi
icant advantages for other commercial appl
cations and certain military vehicles.
To Other Motors
Propulsion
Alternator
Motor
■Electrical Pov/er Flow
■Electronic Commutation Signals
Delco-Remy electric drive system.
Prepored by TECHNICAL INFORMATION DEPARTMENT
GM Reworch Loborarorlai, W<in'en, Michigan 48090
269
General Motors
Engineering Staff
ELECTROVAIR II
li.lt by the General Motors Engineering Staff
ill publicly unveiled in October 1966, the bat-
ty powered Electrovair n has been a test
II for motor £ind control developments. Its
tver source is a silver-zinc battery pack in
1 front and rear compartments of a 1966
(rvair chassis. It is a second generation
(-, successor to an earlier version that was
(ferational in November 1964.
ineral Characteristics
jSctrovair It's performance is virtually the
me as a conventional gasoline -powered Cor-
ir, except tor its limited range of 40-80
les between recharges. A tankful of gaso-
le will propel a Corvair 250-300 miles.
)tal weight of the Electrovair is approxi-
ately 800 pounds more than a Corvair, even
th the comparatively light and compact sil-
r-zinc battery pack. If the vehicle were to
propelled by regular lead-acid batteries,
e batteries alone would weigh more than
100 pounds, about the weight of a standard
prvair.
lain Features
, the design of Electrovair n, all of its com-
bnents - batteries, motors, and controls -
ere integrated. The overall system that
evolved into this second-generation vehicle
consisted of the following:
Battery Pack. Silver -zinc batteries were cho-
sen since this type of battery gives the highest
energy storage and peak power output per unit
weight of any available battery. However, they
are costly and wear out after some 100 re-
charges.
Electrovair n uses 286 silver-zinc batteries,
which weigh about 680 pounds. Four of these
units supply the same energy as a lead-acid
battery in a conventional car and weigh only
about ten pounds.
Motor. An ac induction motor propels the car.
The induction motor is a very rugged machine
that can be operated at high speeds. This one
delivers about 100 hp, runs up to 13,000 rpm,
and weighs only 1,3 pounds per horsepower.
Inverter-Modulator (High Power Equipment).
The direct-current power available from the
battery pack must be changed into alternating-
current power for the induction motor. Per-
forming this function is the solid state in-
verter-modulator. This unit contains 18 sil-
icon-controlled rectifiers and supplies both
the variable voltage and frequency required
for flexible motor operation.
270
Trigger Box. To provide signals to activate
the high power switches in the inverter-mod-
ulator, low power trigger controls are required.
The control unit produces a pulse of energy
that, for each silicon-controlled rectifier, must
peak in less than one microsecond, or else the
rectifier will burn itself up.
Logic Box. The electronic logic box translates
the driver's commands - through the ignition
switch, gear selector, and accelerator pedal -
into signals that control motor power and di-
rection. This box also contains the electronic
safety circuits.
Oil Cooling System. The motor and electronic
controls are quite compact and handle very
high currents. They thus generate a consider-
able amount of heat and must be cooled. Heat
is removed by circulating oil through the parts
and then through a fan-cooled radiator.
Looking Ahead
Basically, General Motors business is power
conversion. Thus one of the major assign-
ments of GM engineers is to keep manage-
ment informed of the latest developments in
this broad field. The responsibility encom-
passes all forms of heat engines in addition
to electrochemical, thermionic, thermoelec-
tric, nuclear, and radioisotope powerplants.
This progressive engineering philosophy covers
design, development, testing, and analysis - not
necessarily with specific future products in
mind. The objective is to determine what is
technically feasible, regardless of whether a
project ever will become economically pos-
sible. The idea is to be ready for the future.
Electrovair II
Corv'air
Weight
3400 lbs.
2600 lbs.
Performance 0-60 mph
16 sees.
16 sees.
Top Speed
80 mph
86 mph
Range
40-80 miles
250-300 ml
Power Train Weight
1230 lbs.
610 lbs.
CUTAWAY VIEW OF GENERAL MOTORS ELECTROVAIR II
271
General Motors
Engineering Staff
ELECTROVAN
GM Electrovan
First fuel cell powered
aufomotlve vehicle.
'e General Motors Electrovan demonstrates
It electric propulsion with fuel cells is tech-
I ally feasible. Studies leading up to the Elec-
•ivan date back more than ten years and have
olved not only GM's central staff organiza-
n but also several GM accessory divisions.
: addition, major assistance was received
irn Union Carbide Corporation in developing
' Electrovan the largest hydrogen -oxygen
'1 cell system of its kind in the world.
l.ted as a major technical achievement, the
lectrovan was first publicly disclosed in
(tober 1966 and was considered the most
ivanced electric vehicle ever built.
pneral Specifications
)tal weight of the Electrovan is 7100 pounds
which 3930 pounds represents the fuel cell
iwerplant and electric drive system. The
hide has a top spee^ of ,70 mph. It can ac-
■lerate from 0 to 60 mph in 30 seconds. And
|.th its liquid hydrogen and oxygen fuel tanks,
can travel approximately 150 miles.
ie Powerplant
lectrovan' s fuel cell powerplant supplies a
mtinuous output of about 32 kilowatts and a
!ak output of 160 kilowatts. It consists of 32
in-electrode fuel cell modules connected in
;ries. Each Union Carbide thin -electrode
:odule is approximately one-fourth the size of
s predecessor, the baked carbon module (see
lotograph).
The fuel cell van program started when it be-
came apparent that modules would be available
with a power density high enough to make an
experimental vehicle possible. The intent was
to design a vehicle that could match a stand-
ard delivery van in acceleration, performance,
amd driving range.
Sub-Systems
The motor and control system on the Electro-
van are mounted between and under the front
two seats. Located beneath the floor are the
32 fuel cell modules interconnected by some
550 feet of plastic piping. Also part of the
installation are cryogenic hydrogen and oxygen
tanks and an electrolyte reservoir mounted be-
hind the middle bench seat. About 45 gallons
of potassium hydroxide are required to fill the
Baked Carbon
Module
Thin Electrode
Module
272
Liquid hydrogen ond oxygen supply tanks (left, right
respectively). In the same order: Dr. Craig Marks of
the General Motors Engineering Staff and Dr. Charles
Winters of the Union Carbide Corporation
modules, the piping, and the reservoir. This
electrolyte alone weighs 550 pounds.
Besides being expensive, the hydrogen and ox-
ygen for the van required high pressure equip-
ment and unique gas regulation for both steady
state and transient operation. Engineers on the
project had to consider a whole new set of
safety questions - not safety in the highway
accident sense, but in minimizing the hazards
associated with hydrogen, oxygen, and concen-
trated potassium hydroxide. In fact GM built
a special outdoor test area so that the liquid
hydrogen-oxygen fuel system and van could be
tested away from permanent buildings.
Fuel Cell Principle
A fuel cell is a device in which the chemic
energy of the reaction of fuel and air (oxyg
is converted directly into useful electricity,
fuel cell differs from a conventional batter;
two major respects: It can operate continu ]j
as long as fuel and air are available. It u!
hydrocarbons (or some derivative such as 1
drogen) for fuel.
The hydrogen-oxygen fuel cell reverses the
well-known process of electrolysis. Insteac
separating water into its components by pai
ing an electric current through it, water is
created in a controlled reaction, which liber;
energy in the form of electricity.
GM Philosophy
In the process of getting ready for the futu
General Motors engineers are continually ii
vestigating new ideas in power conversion !
terns. This includes not only all forms of
ventional engines but also advances in the (
rect conversion of energy. The objective ii
determine what is technically feasible, rega
less of whether a project ever will become
economically practical.
General Motors is aggressively supporting
electric propulsion development because of
ultimate potential - driving flexibility, smoi
ness, quiet operation, and theoretically high
efficiency. Research indicates, however, th
major programs lie ahead if such power sj
terns are ever to become practical. Com-
plexity, size, weight, cost, and operating ha
ards are among the obvious handicaps.
273
General Motors
Research Laboratories
THERMOELECTRIC POWER
DIRECT CONVERSION OF HEAT TO ELECTRICITY
^leteenth century scientists T. J. Seebeck and
jb. A. Peltier laid the foundation for nnuch
cwhat we know today about thermoelectricity.
11821, Seebeck discovered that an electric
c rent would flow in a loop composed of two
rials -- when the two junctions were at dit-
fent temperatures. The current is due to the
cerence in opposing voltages generated at the
jctions, with the junction voltages being pro-
j-tional to temperature. About 13 years later,
Input Heat
-9- ■«- -9- Metal
Hot Junction (T]) Connector
ectrlc
jrrent
L
T/
A
(N)
unction
■»■
ected H
B
(P)
/
1 -
Co
J
d J
W
Rej
L
(T
ea
2)
t
— ► + 1
a thermoelectric device, a number of semiconductor
-■rmocouples (such as the one diagrammed above) are
nnected electrically in series anchor parallel ar-
igements. Each one contains on n-type element, a
type element, and a suitable arrangement for sup-
zing and extracting heat at the junctions.
lis lead-tellurium thermocouple includes (1) copper
ids; (2) n-type lead-tellurium; (3) p-type lead-tel-
irlum; (4) low carbon steel rods; (5) flexible steel
snnecting straps, and (6) nickel -plated junctions.
Peltier discovered a complementary effect:
when a current is passed through a loop of two
metals, one junction will tend to heat and the
other, to cool.
Semiconductors Change Picture
In pre-World War n days, thermoelectric de-
vices were used primarily to measure temper-
ature. The major stumbling block to broader
usage was low efficiency -- less than 1% in
metallic systems.
Fast development of semiconductors after the
war increased interest in thermoelectric ef-
fects. Because of their improved efficiency,
semiconductor thermoelectric systems found
several uses. As a result, thermoelectric re-
frigeration is now used in microtomes, hydrom-
eters and small, limited market refrigerators.
Low capacity thermoelectric generators are
employed in arctic weather stations, naviga-
tional buoys, and satellites. Efficiencies are
generally less than 5%.
From the mid-'50's to the early '60's, the GM
Research Laboratories and several cooperating
GM divisions explored the feasibility of using
thermoelectricity for automotive accessory
power generation and for refrigeration.
Their primary incentives were the possibility
of eliminating moving parts, and the potential
of greater design flexibility. Eliminating mov-
ing parts might add considerably to a unit's
life and reliability, while design freedom could
lead to such products as refrigeration units
built into kitchen walls.
Maximum Efficiency
Since the major problem was low efficiency,
considerable effort was directed toward anal-
yzing efficiency -limiting factors. When a ther-
moelectric device operates within amy given
junction temperature difference, efficiency is
limited by the effectiveness of the thermoelec-
tric materials. This effectiveness, in turn,
depends on the electron transport properties
and the lattice thermal conductivity of the ma-
terials.
274
GM investigators confirmed that the electronic
figure of merit -- which depends on the charge
carrier (electron) density -- has no maximum
(see figure below). It varies inversely with
charge carrier concentration, and its magni-
tude at a given concentration depends on the
details of electron-lattice interaction.
■ Electronic Figure
of Merit
Est. Max. Material
Figure of Merit
Material Figure of Merit
for Best Current Material
Chorge Corrier Density
A conductivity ratio which modifies the elec-
tronic figure of merit to yield the total effec-
tiveness (figure of merit), on the other hand,
increases from zero at low carrier concen-
trations to unity at high concentrations. A
maximum material figure of merit occurs
at some intermediate carrier density.
Using this straightforward approach, researt
ers established the following:
If the lowest possible lattice thermal conduo
tivity of a thermoelectric material could be'
estimated, then a reasonable estimate of the
maximum effectiveness attainable with them
terial could be made.
The lattice conductivity could not be calcula
satisfactorily on purely theoretical grounds,
hurdle this problem, researchers assumed f
this value the lowest thermal conductivity oi
served with a good insulator (the lowest rec
ognized value in the literature). Subsequent
calculations showed that the maximum possil
figure of merit was only about twice that of
the best known materials. Further, no guidi
lines exist for obtaining such a material in
practice.
To determine the potential of thermoelectric
in automotive accessory generator and air cc
ditioning applications, researchers assumed
that material processing costs could be reduc
enough to cut thermoelectric material costs '
a factor of ten.
Using these cost assumptions and the calcu-
lated maximum estimated figure of merit, th
costs and efficiencies for various thermoelec
trie devices were computed. (For compariS(
with costs of existing devices, see table below
Results show that thermoelectric devices
would not be able to compete with existing
units on the bases of cost and efficiency --
even if materials with the maximum esti-
mated figure of merit were to become avail-
able.
Product Feasibility Results
(Assumptions: ten-fold decrease in ther-
moelectric — TE — materiel cost; ma-
terial figure of merit = 1.7, twice best
current materiol.)
Device
Relative
Efficiency
Relative
Cost
Present
T.E.
Present
T.E.
Car
Air Conditioner
7
2.3
20
46
1 Ton Room
Air Conditioner
5
1
10
37
Cor Generator
5
1
1
20
Prepared by TECHNICAL INFORMATION DEPARTMENT
GM Research Lobororories, Warren, Michigan 48090
275
General Motors
Research Laboratories
THERMIONIC POWER
DIRECT CONVERSION OF HEAT TO ELECTRICITY
883, Thomas Edison detected an electrical
rent between the hot filament of one of his
ly lamps and a relatively "cool" plate near
filament. Today, the "Edison Effect" can
seen at work in the electron vacuum tube.
iJrecent years, GM researchers and others
he sought a practical means of using this
e?ct in the generation of thermionic power --
i the direct conversion of heat to electricity.
/ ong their major objectives: a quiet-operat-
i thermionic converter offering high power
cisity.
Ithis quest. General Motors and other firms
)ie generated thermionic power in the labo-
1 ory with both nuclear and fossil fuels. But
(ipite noteworthy efforts, practical implemen-
lion of this direct conversion process appears
\ ikely in the near future. The major stum-
lag blocks: the projected high cost of these
stems -- and their low (5-12%) efficiency.
Iv Electrical Power is Generated. . .
e thermionic converters developed by GM
i other firms operate on the same general
nciple:
e or more thermionic diodes are used to
invert high temperature heat to electricity.
jch diode must contain a hot emitter of elec-
ons and a cold collector. In addition, a plas-
1 must be introduced between these elec-
Ddes to conduct electrons. The plasma, an
jiized gas, provides a path of high electrical
t low thermal conductivity.
a common type of converter, cesium is used
the plasma material. During the conversion
ocess, cesium atoms from t^e plasma coat
e electrodfe surfaces and influence surface
itentials. When the emitter reaches 2552°F,
ectrons boil off, pass through the plasma
id "condense" on the collector operating at
'I2»F.
hen cesium pressure is about 10 torr (1/75
the normal pressure of the atmosphere) and
,e electrodes are spaced at 0.010 inch, a sig-
ificant output voltage and current can be gen-
;-ated. Power provided by the thermionic di-
ie then cEin be used to run a low voltage dc
otor.
GM researchers test their ideo for a nuclear thermionic
converter at the University of Michigan's research re-
actor.
Thermionic Diode
Heot Pipe
Pinch. Off Sealing Cop
This fossil-fuel heated diode generates 130 amperes
at 0.4 volts when Its emitter is at 2552°F and the
collector at 932°F. A silicon carbide coating protects
the emitter from the flame. Approximately 0.010 Inch
separates emitter and collector. Excess heat is con-
ducted from the collector via a heat pipe to convec-
tion cooled fins. (This diode was designed and built
by Thermo Electron Corp., Waltham, Mass.)
32-493 O— 69— pt. 1-
-19
276
Nuclear-Fed Converters . . .
In the late '50's, GM Research physicists began
a basic study of thermionics. Their study was
supported in part by the Office of Naval Re-
search. A long-range objective was to deter-
mine the feasibility of advanced naval nuclear
reactor power plants.
This study soon resulted in an idea for a nu-
clear thermionic converter. The GM converter
used a plasma generated by fission fragment
ionization of a noble gas such as neon or ar-
gon. GM then started experiments with this
plasma, using the University of Michigan's re-
search reactor for nuclear radiation.
The method of operation was as follows: When
bombarded by neutrons from a nuclear reactor,
the material in the emitter underwent fission.
As a result, the high energy fragments heated
the emitter and also produced a plasma by
ionizing the gas in the interelectrode space.
This operation caused electrons to flow more
readily from emitter to collector. What's more,
the nuclear-generated plasma -- unlike previ-
ously used ones -- was noncorrosive.
From these experiments, researchers gained a
good understanding of this plasma. For exam-
ple, they confirmed that plasma generated by
fission fragment ionization could conduct a very
high current. They also learned that a nuclear-
fueled thermionic emitter -- when built from a
specific alloy -- could operate at the very high
temperatures required for thermionic direct
conversion.
But researchers found, too, that it would be very
difficult to achieve long life for the emitter
material in a nuclear radiation environment.
GM received a patent on its nuclear thermionic
converter in 1963. Because practical imple-
mentation of a nuclear system (for naval or any
other use) seemed many years away. General
Motors work in this sphere ended in 1968.
Fossil Fuel Thermionics . . .
Researchers have long known that a diode can
be operated on gas heat -- provided the therm-
ionic emitter is properly shielded from the high
temperature flame. In 1967, therefore, GM
physicists investigated the possibility of apply-
ing these diodes as emergency power sources
for a small electric car.
In one concept (Figure at right) a one kilowatt
electric source was envisioned as the emer-
gency power unit in the event the battery failed.
This car could operate for up to three hours
and reach a maximum speed of six miles an
hour, assuming two gallons of gasoline were
available for use with the system.
Such a system, researchers determined, woul
require development of a very efficient, hi^|
temperature (2732°F) gasoline-air burner -■
plus improved long-term protection of the
thermionic emitter from the flame.
Because of these needs, and the high cost in'
volved, GM has ended its study of fossil-fuel
converters. Nonetheless, it continues to men
itor the efforts of others in this area.
Voltage diagram for thermionic converter
A propane-ox/gen flame heats a thermionic diode. TM
diode powers a special Deico Products do motor whidM
drives a squirrel cage fan.
The thermionic power source for this small electric
car would contain 20 diodes — eoch generating 50
wotts of electricity at an assumed 5% over-all effi-
ciency. In an emergency situation, the source would
supply enough power to operate the vehicle for ap-
proximately three hours.
Prcporsd by TECHNICAL INFORMATION DEPARTMENT
GM Reiaarch LaboraforiM, Warr«n, Mich loon 48090
277
ill
mm
General Motors
Research Laboratories
ELECTROGASDYNAMICS
DIRECT CONVERSION OF KINETIC ENERGY TO ELECTRICITY
recent years. General Motors researchers
|ve explored the possibility of converting the
letic energy of gas to electricity through
ectrogasdynamics (EGD). In this approach,
EGD converter generates high voltage from
electrically charged gas.
ectricity has been generated in this way by
embers of the Physics Department at the
meral Motors Research Laboratories. Their
periments were undertaken to determine the
'issibility of converting engine exhaust kinetic
cergy into electricity.
this application were feasible, such power
Collecto
Electrode
might be used to charge a battery, run the
ignition system, or precipitate out particles
from the exhaust.
However, while this principle is attractive,
major technical problems must be solved to
achieve a practical, useful device. Efficiencies
attained to date are low and the electric power
is available only at high voltage --50 kilovolts
-- making it difficult to utilize.
EGD: In Principle
Here's the principle of the electrogasdynamics
converter:
High Voltage
O'^iNeutrol
Figure 1- This diagram shows whot happens in an EGD converter. High velocity gas flows
through a high voltage discharge. The discharge causes many of the neutral atoms
in the gas to ionize (i.e., lose electrons). Subsequent separation of positive ions
at collector electrode and negative electrons at corona electrode leads to the di-
rect conversion of gas kinetic energy to electricity.
Insulator Channels
Figure 2- This figure shows major components of a self-sustaining converter which generates
high voltage (40 kv) from an electrically charged gas once the converter has been
triggered.
278 .
Gas at high pressure enters the generator and
flows at high velocity through a corona dis-
charge created by a high voltage wire (see
Figure 1). The gas is ionized and the neg-
atively charged electrons are attracted to the
high voltage wire. The positive ions head for
an attractor electrode, but the high velocity
gas blows many of them downstream. These
ions collect on a smooth collector electrode.
The separation of the positive ions from the
electrons builds up ^ high electric field and a
high positive voltage on the collector electrode.
Subsequent charges moving against this field
lose kinetic energy and interfere with the flow
of neutral atoms. This builds up a back pres-
sure, enabling power to be extracted from the
high velocity gas stream. The converted en-
ergy appears as an electrical voltage between
the collector electrode and the ground.
The charge on the collector is then bled off
through a load -- such as a motor --to
ground. Very high voltages can be generated.
But current is very low.
EGD: In The Laboratory
In the self-sustaining converter studied by GM
physicists, there are two generators with two
collectors. A piezoelectric transducer triggea
the corona discharge in the upper half of the
converter (see Figure 2), generating a high
voltage pulse on the upper attractor electrodei
Part of the generated high voltage on the upp^
collector is tapped off to activate the corona
discharge in the lower generator. Then, in
turn, part of the generated voltage on the bot<
torn collector is tapped off to maintain the co
rona in the upper generator.
Once triggered, the self-sustaining converter
generates 1.4 watts of power at 40 kilovolts
(+20 kv on the upper generator and -20 kv cm
the bottom) and 35 microamperes. The air
entering the converter at a pressure of 50
pounds per square inch has a calculated input i
kinetic energy of 6600 watts. Overall efficien
cy -- the ratio of electrical power (1.4 watts)
divided by kinetic air power input (6600 watts)
-- is 0.02%. This very low efficiency charac-
terizes only this crude equipment; higher ef-
ficiency -- perhaps a few percent -- may be ■
achievable in a fully engineered system. !
The next step is to determine the performanc'
that can be achieved in an engine exhaust sys
tem.
GM researcher operates EGD converter.
This arcing to o load electrode illustrates the high
electrostatic voltage generated on a collector electrode.
Preporsd by TECHNICAL INFORMATION DEPARTMENT
GM Research laboratories, Wofren, Michigan 48090
279
General Motors
Research Laboratories
RADIOISOTOPE HEAT SOURCES
AND NUCLEAR REACTOR SYSTEMS
studies dating back to the mid-50's. General
otors scientists have appraised both radio-
otope heat sources and nuclear reactor sys-
ms as possible means of powering vehicles.
Dth forms of nuclear energy offer two distinct
Ivantages: zero atmospheric pollution (assum-
g safe containment) and fuel which doesn't
ive to be replaced for many years.
onetheless, the GM studies show that radio-
otope heat sources would have to be ruled
it for automotive application on the basis of
3st and availability factors. Nuclear reactor
/stems based on the latest technology were
idged infeasible for commercial vehicles be-
luse of cost, weight, ^nd safety drawbacks.
adioisotopes Evaluated
jhe first GM feasibility study on radioisotopes
')r automotive power was conducted by the Nu-
ilear Power Engineering Department at GM's
lesearch Laboratories. Researchers concluded
jiat polonium -2 10 was the best available isotope
or the purpose and that a 100 kilowatt polo-
ium heat source would be required for "mod-
irate performance." A polonium-fed system,
fey theorized, would offer a half-life of al-
ost five months.
follow-up study by GMR's Physics Depart-
nent in the late '60's involved the evaluation
>f possible heat sources for a hybrid vehicle.
3y this time, many new radioisotopes had be-
:ome available. Research physicists began
heir study by establishing criteria for the
jossible heat sources. The desired character-
sties were:
--a half life greater than one year.
-- a power density greater than 0.1
kilowatt per kilogram.
--a heat output of five kilowatts
(about 6.7 horsepower, compared to
the 135 hp considered in the '50's.)
Of the more than 1000 radioisotopes considered,
.Dnly five could meet the half life and power
density requirements: plutonium, curium, thal-
lium, promethium, and waste fission products.
Even these, however, were judged impractical.
Depending on the radioisotope chosen, the cost
of a heat source for a single vehicle could
range from $100,000 to $2.7 million!
Availability of the "most available" of these
radioisotopes -- waste fission products -- is
such that even by 1980 only 500 of the five
kilowatt vehicles could be built in a year.
Heat Engin* and Gensralor
Schematic of a hybrid vehicle with a radioactive
heat source.
Rodioiiotop.
Producll
PlulOKiun
C.,i-»
Tholiium
Profn.thium
Hall.lil.
ly.art)
30
89
18
'
3
Tolol W.ighl
ol H.ot D.Vic.
Ilbl
2.400
50
500
300
300
Coil/Cor
Imillion. ol SI
0.1
2.7
03
0.5
1.0
u s Suppir
in 1980
|h. p.> r.o'l
2.500
100
•
100
100
Selected Radioisotope Heat Sources
Life Characteristics of Rodioisotope Heat Sources
280
Further, a heat source using gross fission
products would be pi'ohibitively heavy -- 2,400
pounds per device. This would be due to the
large amount of shielding needed to protect
against the high level of gamma radiation which
would be emitted by the fission products.
Reactors Expensive Too
GM feasibility studies of nuclear reactor sys-
tems have covered a number of possible land
and marine applications.
During the 1956-60 period, the GM Research
Laboratories evaluated gas -cooled reactor pow-
er plants for ships; Electro-Motive Division
investigated nuclear -powered snow train con-
cepts, and Allison Division looked into the
possibility of mobile compact reactors.
From these studies and from concepts devel-
oped by others for space power application,
GM physicists drew these conclusions:
• The weight of nuclear power systems for
cars and trucks would be prohibitive. For ex-
ample, the system for a car would weigh about
20,000 pounds and would include a minimum of
three feet of concrete shielding on all sides of
the fissionable material.
• The weight of a locomotive, about 600,000
pounds, would be "marginal."
• Car and truck applications would be ex-
tremely dangerous; locomotive applications
were judged questionable from a safety stand-
point. Currently, trains are involved in about
4,000 accidents yearly -- a formidable prob-
lem for nuclear power engineers developing
locomotive systems.
• The cost to develop prototypes in all
cases would be in the millions of dollars.
True, radioisotopes and nuclear power have
many real and potentisil peacetime applications.
GM scientists and engineers, for example, use
radioisotopes routinely in applications varying I
from basic research to production line quality
control. Nonetheless, until new scientific
breakthroughs occur, the use of nuclear energ
in commercial and consumer vehicles appears!
most unlikely.
This schematic shows some of the major components
required in a nuclear reactor power system for vehicles.
Heat supplied by the reactor would be converted to
moveable power by a turbine. This system would have
to provide 200-300 kilowatts of power for a conven-
tional size car, about 2000 kw for a locomotive.
SNAP-8*
SNAP-50*
ML-1*'
Heat Engine
Ronkine
Ronkine
Brayton
Application
Space
Space
Land
Power (kw)
100
1,000
300
Weight lib)
17,000
300,000
60,000
•SNAP - Space Nuclear Auxiliory Power
**ML - Mobile Land
This table identities typical reactor power systems now
available for other than car and locomotive applica-
tions. Extrapolating from this data, GM research phys-
icists determined that the weight of a nuclear-powered
car would be around 20,000 pounds, while the weight
of a like powered locomotive would be 600,000 pounds.
Prepared by TECHNICAL INFORMATION DEPARTMENT
GM Research Laboratories, Warren, Michigan 48090
281
Exhibit 24
(Automobile Manufacturers Association's exhibit No. 14: paper by General
otors Corporation, "GM Progress of Power— A General Motors Report on
ehicular Power Systems, Presented at the General Motors Technical Center,
arren, Michigan, May 7, 8, 1969.")
A General Motors Report on Vehicular Power Systems
Presented at the General Motors Technical Center, Warren, Michigan
May 7, 8, 1969
282
Jrogress
On May 7 and 8, 1969, General Motors showed to the news media,
governmental officials and educators at its Technical Center in Warren,
Michigan, a comprehensive display and demonstration of various pos-
sible forms of automotive power.
This presentation, called "Progress of Power," included 26 special
vehicles, many of which were exhibited or demonstrated for the first
time. Among the variety of unconventional powerplants shown were
Turbine, steam, electric and hybrid systems, along with experimental
piston engines with reduced air pollutant characteristics.
The purpose of "Progress of Power" was to illustrate current technologi-
cal progress by General Motors scientists and engineers and by GM con-
sultants in various fields. The cars and power systems were working
experimental models developed by General Motors as part of its con-
stant exploration into all areas of vehicle propulsion.
We have reproduced in this publication the news releases, remarks and
photographs prepared for "Progress of Power."
We hope you will find this material of interest.
tIwrt»«»K4^
Oc Jd-U.*^^
Anthony De Lorenzo
Vice President
283
CONTENTS
NEWS RELEASES
General Release 2
Experimental Steam Cars 5
Experimental Special Purpose Vehicles 8
Experimental Limited Emission Vehicles 12
REMARKS
H. G. Warner 14
L. R. Hafstad 17
H. F. Barr 38
E. N. Cole 54
284
NEWS RELEASES
GENERAL RELEASE
Warren, Mich.— General Motors unveiled for the
nation's press today, in the most comprehensive dis-
play and demonstration of its kind ever undertaken
by GM, the latest results of its continuing investiga-
tion of various possible forms of automotive power.
The "state of the art" show at the GM Technical
Center here— called "Progress of Power"— included
26 special vehicles which were exhibited or demon-
strated, many for the first time. These had a variety
of unconventional power plants, including turbine,
steam, electric and hybrid systems along with experi-
mental piston engines with reduced air pollutant
characteristics.
Outlining the purpose of the special showing.
General Motors President Edward N. Cole said:
"The cars and power systems you see here today
are working experimental models developed by
General Motors. They are designed to illustrate cur-
rent technological progress by General Motors scien-
tists and engineers and by our consultants in various
fields.
"We do not claim breakthroughs for any of these
projects and obviously considerable additional de-
velopment is necessary before any of the vehicles on
display could be available for production. We be-
lieve, however, that through constant exploration
into all areas of vehicle propulsion— including the
actual operation of new systems in automobiles such
as those exhibited today— more meaningful progress
can be made.
"General Motors will continue to aggressively
press its research efforts in all areas of motive power
in an attempt to reach solutions which will best serve
the needs of society with respect to both air pollu-
tion and overall transportation requirements."
Other special vehicles in the show ranged from a
giant military truck with Delco-Remy electric wheel
propulsion and a GMC Truck & Coach Division
turbine-powered coach to a golf cart powered by a
zinc-air battery.
In addition, a new vehicle emissions and safety
laboratory was opened for inspection by GM Re-
search Laboratories.
The experimental car display included the fol-
lowing:
STEAM CARS
• A 1969 Pontiac Grand Prix was modified t
steam as a means of propulsion. Developed by t| :
Research Laboratories, the car is called the i|
SE-101 steam car. All components, such as the |.
denser, expander, combustion system and s j
generator, are housed under its hood. The 4-< j.
der, in-line engine is rated at 160 horsepowei d
uses fuel oil. Features include all power access( ;
air conditioning and an automatic transmission.
• Another car, called the GM SE-124 steam:,
was equipped with a steam engine built by Ea
Developments, Inc., of Oakland, California, v j
contract to GM Research Laboratories. The s d
power plant— a 2-cylinder, double-acting, V-cc ;.
uration— is installed in a 1969 Chevelle M u
sedan, and operates on fuel oil. All component e
located under the hood. The vehicle has power s ■-
ing, power brakes and a manual transmission. B x
has more than four decades of steam engine ex -
ence, having acquired the patents and technolo] i
the Doble Steam Motor Company when that i
ceased operation.
"Both steam-powered vehicles were designed 1
built as experimental units to investigate the :
bility and practicality of steam power, as well
obtain first hand information on exhaust emiss
Continuing problem areas common to both vel
include power plant size, water consumption, f
ing, cost, and startup time," Dr. Lawrence R.
stad, GM vice president in charge of Rese
Laboratories, said.
LIMITED EMISSION VEHICLES
To demonstrate some of the investigations -
ducted by the Corporation toward the reductic f
air pollution, as well as the great potential of th •
temal combustion engine, six experimental polli t
control systems were installed in GM automol .
The systems included the use of unusual equipi t
such as platinum coated catalysts and oven I
stainless steel exhaust manifolds, as well as en it
modifications. The installation of these system; •
suited in a significant reduction in automc :
emissions.
285
•. Hafstad noted that while the one-of-a-kind
ly ms were excellent from the emissions stand-
xt, each of the systems currently pose different,
jr Ived problems. They include materials availabil-
i^ ;erviceability, durability, performance, fuel con-
5U ition and cost.
EXPERIMENTAL URBAN VEHICLES
512 SERIES
hree experimental special purpose vehicles de-
siiid for operation on a road system of their own
al were exhibited. These vehicles— called the 512
ses-have basically the same two-passenger body
gii and configuration. One is gasoline powered, an-
oir is electric and the third is a hybrid gasoline-
eiftric. Their design and development were directed
bl^ngineering Staff in collaboration with GM Styl-
iflStaff and Delco-Reray Division.
I arry F. Barr, GM vice president in charge of
Bineering Staff, explained that vehicles of this type,
biiuse of their small size and comparatively low-
sji^d performance, would have to operate on a road
S"i5m of their own in an urban area or in a reserve
]S on existing roadways in the interest of safety.
heir wheelbase ranges from 50 to 52 inches,
bjht from 52 to 56 inches and length from 66 to a
h; more than 86 inches. All have front entry. The
hi rid and electric cars have canopy-like top-and-
adshield combinations, while the gasoline 512 is
ajpen roadster.
iThe 512 hybrid power system consists of a 12-
dic inch gasoline engine coupled with a series
<i;ct current electric motor through an electro-
1 gnetic clutch. With the clutch energized, the gaso-
1 : and electric motor operate at the same speed.
' e electrical energy is produced by a 72-volt power
Itery pack. An additional 12-volt accessory bat-
ty powers accessories. The car operates either in
■electric or hybrid mode, and battery recharge is
'ae with a built-in charging unit connected with a
indard 115-volt household electrical outlet,
iln the hybrid mode, top speed is 35 miles per
lur. Its range in the electric mode at 30 miles per
lur is 5.2 miles. In the hybrid mode with three
illons of gasoline it is approximately 150 miles.
' The 512 electric car contains an 84-volt power
ttery pack coimected with a DC series Delco-
;my motor featuring solid state controls. It utilizes
special Delco-Remy lightweight lead-acid batteries
as its main power source. A 12-volt battery powers
the car's heater-defroster, head and tail lamps, turn
signals, windshield wiper, horn and cooling blower.
The car also has a built-in battery charger and com-
plete recharge of the battery pack from a 115-volt
household outlet requires 7 hours.
The car's range at 25 miles an hour is 58 miles.
At 30 miles an hour, which is approximately top
speed, the range is 47 miles.
• The 512 gasoline driven car features a more
sporty appearance than either the hybrid or electric.
It is propelled by a 19.6 cubic inch 2-cylinder 12
horsepower aluminum engine with 11-1 compres-
sion ratio. A special feature of its drive train is an
automatic transmission operating on a variable ratio
V-belt principle with a centrifugal clutch. Its top
speed is 45 miles per hour, and its range with a four-
gallon fuel tank is approximately 280 miles.
EXPERIMENTAL COMMUTER VEHICLES
Two other experimental GM Engineering Staff
vehicles are classed as possible commuter cars, with
high enough performance to mingle with urban traf-
fic although some construction features would have
to be carefully examined from a safety standpoint.
• The 511 features a three-wheel suspension. Its
purpose would be to transport two people from
suburbs to downtown offices at freeway speeds.
The 5 1 1 is powered by a rear-mounted 4-cylinder
66 cubic inch Opel engine capable of 67 horsepower
at 6,000 r.p.m. It has a three-speed automatic torque
converter type of transmission and an 80 mile-per-
hour top speed.
The Sll's overall length is 149 inches, its wheel-
base 86 inches and rear tread 54 inches.
It stands 40 inches high and has a ground clear-
ance of 4.5 inches, which restricts the vehicle to
paved surfaces. Its center of gravity only 13'/i
inches above the ground provides exceptional lateral
stability and cornering ability.
• The XP-883 is the other version of a commuter
vehicle still under development. It features a fully
styled and operable chassis and body components.
Its p)ower train, now in mockup, will be a gasoline-
electric hybrid. It is more of a conventional vehicle
than the 5 1 2 series or the three-wheel 511.
Its basic concept originated with GM Styling Staff.
Special Purpose Vehicles: (from left to right) 511 commuter; 512 hybrid gasoline-electric: 512 electric: and 512 gaso
It has a two-door fiberglass body on a steel frame
and will seat two adults in front, and two children
in the rearward facing back seat.
Among the other experimental vehicles and hard-
ware exhibited during the Progress of Power show
were:
• Toric Transmission— A new type of automatic
transmission shown publicly for the first time and
presently being evaluated in two experimental ve-
hicles-the SE-101 steam car and the RTX turbine-
powered bus. The toric transmission features a
traction drive, which ^transmits force from one roll-
ing body to another by friction of the lubricated
contact, rather than by gearing or fluid. The advan-
tages of the new transmission include varying the
ratio in a smooth, continuous progression instead of
in distinct steps as in conventional transmission;
quiet operation, a result of the absence of gears; and
quick response to demands for very small ratio
changes, making the transmission applicable to many
uses requiring controlled power systems.
• Stirling Engine-Powered Cars-Two automobiles
powered by Stirling engines were displayed: Stir-Lee
II, a second generation hybrid automobile, and the
Calvair, exhibited publicly for the first time. The
Calvair operates by supplying the heat energy to the
engine from a tank of heated ceramic pellets.
The advantages of the Stirling engine include low
emission and low noise characteristics; it also can
use a wide variety of fuels. The Stir-Lee cars were
built primarily to demonstrate how a low-emission
Stirling engine might be used in conjunction with an
automotive electric drive system. Stir-Lee II is serv-
ing as a test bed for further development.
• Electric Vehicle Power Plant Technology-Four
exhibits described various types of batteries and
possible methods of combining batteries and 1
engines to propel automobiles. Special emphasis
given two electrochemical power plants under
velopment by the GM Research Laboratories. T
include the zinc-air battery, which was demonstrs
in a golf cart, and the high temperature llthii
chlorine battery.
Problem areas for the zinc-air battery incl
limited rechargeability; indeterminate life of the
cathode; and cost. For the lithium-chlorine batti
problems include the high operating temperati
the incompatibility of materials; and durability.
• Automotive Gas Turbine Technology— Inclu
first gas turbine automobile built and tested in
United States, GM's Firebird I, as well as GM
experimental RTX coach and Astro 95 truck, b
powered by the new Detroit Diesel Engine Divis
GT-309 power plants.
• Radioisotope Heat Sources and Nuclear Reai
Systems- An evaluation by GM scientists of rac
isotopes heat sources and nuclear reactor system;
possible means of powering vehicles.
In GM Research Laboratories' glass-waUed lol
was an historical display of nine landmark engi
and transmissions, plus two antique vehicles fr
Flint's Alfred P. Sloan, Jr. Museum. Other con
butions came from private collectors of automot '
memorabilia and the Earl A. Thompson Manuf
turing Co., Femdale, Mich.
For the most part, Progress of Power emphasii
projects at various experimental stages in both C
Research Laboratories and GM Engineering Sts
with major contributions from GM's five automot
divisions, Detroit Diesel Engine, Delco-Remy, Dei
Products, GMC Truck & Coach, Harrison Radial
and GM Styling.
287
eIperimental steam cars
, 'arren, Mich. -Two General Motors automo-
^] powered by steam were demonstrated to news-
n today as part of an extensive progress report
gi jM's continuous investigation of various forms
Blutomotive power.
he occasion for the preview of the steam-powered
Vi cles was a "state of the art" show called Progress
o'ower. The steamers were among 26 special ve-
il :s and a variety of unconventional power plants
oJisplay.
«ne of the steam-powered automobiles, the SE-101 ,
E modified 1969 Pontiac Grand Prix. Its steam
61 ne was designed and built by GM Research
L oratories' engineers, with the assistance of a
niber of other GM units. The second vehicle
:;;d the SE-124, is a 1969 Chevelle sedan with
a )wer plant designed and built by Besler Develop-
nits Inc., of Oakland, California, under contract
tiieneral Motors.
The vehicles you see today are experimental
niels that will enable us to evaluate vapor cycle
eines in passenger cars under actual operating
c ditions," explained Edward N. Cole, president of
(leral Motors. "This type of practical experience
f vides the feedback we need to make more mean-
i ul progress in our investigation of alternate
f /er sources."
GM SE-101
I 'he GM SE-101 is the world's first steam car
\|n complete power accessories, including air con-
( oning. It was designed to evaluate a vapor cycle
tine in a passenger car with a reasonable degree
(.passenger comfort, reliability, performance and
( inomy.
rhe entire power plant — including the expander,
inbustion chamber, steam generator, and conden-
! — is housed under the hood. Starting functions
automatic and the SE-101 can be operated easily
a layman after a brief instruction period. To op-
1 te the vehicle, the driver turns the key, waits 30
45 seconds for adequate steam pressure, then
ves away.
While the driver of the SE-101 is waiting for a
1 head of steam, several automatic operations are
:ing place. First, an electric pump fills the boiler
th water. When the proper level is reached, a
sensor energizes the electric motor which powers the
combustion blower and fuel pump only during start-
up. Fuel is sprayed into the combustion chamber
where it is ignited by a spark plug. When the steam
generator reaches operating temperature and pres-
sure, a conventional automobile starter engages the
expander; steam is introduced and it accelerates to
idle. Further acceleration is accomplished by the foot
pedal in the usual way; the pedal operates the throt-
tle valve which controls the amount of steam admitted
to the expander.
COMPONENTS
Expander. The four-cylinder expander is similar
to an in-line internal combustion engine. It has a 101
cubic inch displacement and develops about 160
maximum horsepower. Steam enters through poppet
valves at the top of each cylinder, forces the piston
downward, then exits through cylinder ports at the
bottom and is piped to the condenser.
Steam Generator. The steam generator consists of
several sets of small steel and stainless steel tubes
(total tube length is about 430 feet) arranged in a
staggered array. This increases the turbulence of the
combustion gases flowing over the tubes. Wherever
possible, the tubes are finned to increase the heat
transfer from the gases. These factors, plus the low
water inventory (a few pints), facilitate rapid startup
from a cold boiler to a full head of steam — 800 psi
and 700 °F.
Combustion System. A continuous spray of atom-
ized fuel is supplied to the two turbine-type combus-
tion chambers where it is mixed with air supplied by
the engine-driven blower and the mixture is ignited
by a spark plug. Blower and fuel pump output vary
directly with expander r.p.m.
Preliminary tests of the combustion system indi-
cate low concentrations of hydrocarbons, carbon
monoxide and oxides of nitrogen in the exhaust
products.
Condenser. The condenser is a plate-fin construc-
tion which is externally similar to a standard car
radiator. However, it is about three times as large
(22 X 40 x 5 inches) and its special brazed aluminum
construction, with extended heat-transfer surfaces on
both the inside and outside of the tubes, will with-
stand both vacuum and pressure. It has sufficient
capacity to handle all of the steam required for
I
288
normal highway operation. Extended operation at
higher loads will result in some loss of water in the
form of steam.
Transmission. An experimental toric transmission
developed at GM Research, the 250-TT, is used
with the SE-101. Its advantages include automatic
transmission operation without step shifts and oper-
ation of all accessories such as air conditioning and
power steering when the vehicle is stationary. (With-
out a transmission, an additional power source would
be required to drive the accessories.) In addition, the
toric transmission provides the wide range of torque
required to cover all operating conditions.
In addition to GM Research, several GM divi-
sions cooperated on the SE-101 project. They in-
clude:
Harrison Radiator Division— steam generator, con-
denser and air conditioning systems
Delco-Remy Division — special electric-system
components
General Motors Engineering Staff— vehicle modi-
fications
Pontiac Motor Division — test vehicle
Diesel Equipment Division — fuel-system com-
ponents
Packard Electric Division — wiring harnesses and
fiber optics
GM SE-124 STEAM CAR
The Besler power plant for the SE-124 steam car
was designed and installed by an engineering firm
with more than four decades of steam engine ex-
perience.
As in the GM SE-101 steam car, the driver of
the Besler-powered steam car turns the key, then
waits for about 30 seconds for a fuU head of steam.
Under the hood, an electric pump fills the boiler.
A sensor energizes the combustion blower and the
burner is ignited by a spark plug. When the boiler
reaches operating temperature and pressure, steam
is valved to the expander and it begins to idle. The
driver now can operate the car, with the amount of
steam introduced to the expander controlled by the
accelerator pedal.
COMPONENTS
Expander. The reciprocating V-2 expander has a
displacement of 124 cubic inches and develc^
maximum horsepower. Steam from the boiler is
panded twice to increase efficiency; it is first va
to a smaller high pressure cylinder (2.5-inch b«
then to a low pressure cylinder (4.25-inch b
for further expansion. The expander is "doublet
ing" — steam is valved alternately to the topi
bottom of each cylinder.
Steam Generator. A continuous steel and st
less steel tube (total length is about 275 fee|
arranged in spiral pancake patterns stacked
one another. Hot gas from the combustion chai^
flows over the coils. Low water inventory (a|
pints) and high tube surface area contribute to i
pressure buildup. Maximum steam temperatul
700 °F and maximum pressure is 600 psig. S4
is piped directiy from the boiler to the throttle i
which controls expander speed.
Combustion System. Fuel is sprayed intOii
vortex-type combustion chamber where it is ml
with air supplied by an electrically powered blc
the mixture is ignited with a spark plug. The sys
operates on an "off-on" basis similar to a hi
furnace, running only when the boiler needs he
Combustion of the fuel is virtually complete
exhaust emissions are very low.
Condenser. The plate-fin condenser is exten
similar to a standard automobile radiator. Howe
it is over twice as large as a conventional radi
and its special brazed aluminum construction is
signed to handle either vacuum or pressure operat
It recovers most of the water exhausted from
expander for reuse.
Transmission. The Chevelle's standard three-sf
transmission is retained. Use of a transmission '
a steam vehicle permits operation of accessories i
ing engine idle and provides the wide range of toi
required for acceleration, gradeability and road-1
operation.
Accessories. The GM SE-124 steam ca
equipped with power steering. 1
ADVANTAGES OF GM SE-101 AND "
GM SE-124 STEAM-POWERED VEHICLES
1. Low air pollutant characteristics
2. Low noise level
3. Good torque characteristics, that may minin
transmission requirements
289
IROBLEM AREAS
1. Power plant size and weight — Added compo-
ents (combustion system, steam generator, larger
condenser) make a steam power plant bigger and
tieavier than a comparable internal combustion en-
gine. For example, the SE-101 system is 450 pounds
heavier than the power plant it replaced in the
'pontiac Grand Prix - at less than half the horse-
power.
' 2. Cost - No cost comparisons are yet available
for steam and standard internal combustion engines.
3. Water Consumption —The engine compartment
iposes severe restrictions on condenser size, thereby
preventing complete recovery of water under adverse
operating conditions (full load or hot weather).
4. Freezing— Water has the best overall combina-
tion of properties of any vapor engine working fluid
known. However, freezing is a serious problem. An
'automatic startup control, designed to prevent freez-
ing when the car is parked, is being investigated for
the SE-101. It would activate the combustion system
whenever temperatures approach the freezing point.
5. Lubrication— Adequate lubrication is difficult,
since the lubricant must be mixed with steam at high
temperatures and pressures. In addition, the oil must
be removed before the condensed water is returned
to the boiler; otherwise, carbon deposits would re-
duce boiler efficiency.
"Whether a practical steam engine automobile
can be realized in the future remains an unanswered
question," Dr. Lawrence R. Hafstad, GM vice presi-
dent in charge of General Motors Research Labora-
tories pointed out, adding,
"New engineering materials and technology, along
with the possibility of new fluids replacing water as
the working medium in the cycle, make the steam
engine a contender that must be evaluated among
proposed low emission power plants. The SE-101
Grand Prix and the SE-124 Chevelle are serving as
test beds for continuing development in this field."
Installation of combustion system— steam
generator in GM SE-101, first modern steam
car developed by the automobile industry.
Cutaway View of GM SE-101 steam car
TODIC TDANSMISSION.
RIGHT-HAND BURNER'
.=?; CONDENSER
290
EXPERIMENTAL SPECIAL PURPOSE
VEHICLES
Warren, Mich.— Five experimental special pur-
pose vehicles for limited urban transportation were
demonstrated here today as part of the General
Motors Progress of Power presentation.
Two of the small sized cars were gasoline powered,
one electric powered and a fourth was driven by a
hybrid gasoline-electric system. The fifth was a
mockup body and chassis with a hybrid system power
plant. Four of the vehicles were built for two pas-
sengers only and the fifth was a two plus two con-
figuration — two adults in the front and two children
in the back seat facing the rear.
Harry F. Barr, vice president in charge of GM
Engineering Staff, described the cars as "engineer-
ing studies with actual vehicles of many shapes and
sizes and various forms of power."
"In such studies," he said, "we gain proficiency
and experience in a highly specialized field of ve-
hicle engineering. All of these special purpose cars
represent an engineering philosophy that differs from
contemporary automotive practice wherein we de-
sign and build larger or general purpose cars."
Design and development of the four operational
vehicles was directed by GM Engineering Staff in
collaboration with GM Styling Staff and Delco-Remy
Division. The fifth, XP-883, was initiated by GM
Styling Staff.
Mr. Barr explained that the five cars were in-
cluded in three separate projects. One was the three-
car 512 series powered by gasoline, electric and
hybrid units. The other, the 5 1 1 car, featured a
three-wheel suspension — single wheel in front and
two in the rear — with a conventional four-cylinder
engine. The fifth, XP-883, is designed as a special
purpose two plus two passenger commuter vehicle to
accommodate a hybrid gasoline-electric power sys-
tem with front wheel drive.
"In fact," he added, "the 512 series with its 30
to 40 miles per hour top speed and limited accelera-
tion would need either a paved road system of its
own or it could operate only in reserve lanes of ex-
isting roads. The small cars could not mix safely
with today's freeway or boulevard traffic. The 512s
were designed for short trips in central city areas,
for errands or school transportation. They could be
called basic transportation."
The three-wheel 51 1 car and the XP-883, on the
other hand, were designed to be commuter ca
capable of travel from suburbs to downtown at urbl
freeway speeds.
The assigimient for engineers and stylists worki)
on these cars was to create efficient small vehicl
to perform their specific transportation job wi
minimum weight, low operating expense, and
emission levels. Body configurations were design
to provide adequate space and comfort for the tyj
of travel intended. The same car bodies could
used with many different types of motive power,
illustrated by the 512 series. All three 512 cars a
front entry, while the 5 1 1 has a unique canopy opa
ing for easy entrance. Their riding, steering a|
handling qualities are comfortable and responsil
for their specialized type of service.
Following is a summary description of each
the 512 series, the 511, and XP-883.
512 HYBRID GASOLINE-ELECTRIC
This vehicle is a first generation concept for Ge
eral Motors Engineering Staff's 512 series. Original!
it was built with an electric power plant and is nc
being used to evaluate a hybrid concept. It has
50-inch wheelbase, 66-inch length, 56-inch heig
and 52-inch width. Curb weight is 1,250 pounds.
Construction is a combination of aluminum pam
and tubular steel frame. For easy access it has
front canopy door and two-passenger bench seat. •
small luggage compartment is accessible either 1 '
way of the fold-down right front seat back or lift-i
back light.
The hybrid's power system consists of a 12 cub
inch gasoline engine coupled with a series d-c ele
trie motor through an electro-magnetic clutch. Wi
the clutch energized, the gasoline engine and ele
trie motor both operate at the same speed and a
coupled to the differential and axle through redu
tion gears. Electrical energy is supplied by a 72-v(
power battery pack with an additional 12-volt a
cessory battery.
The car operates in either an all-electric or h
brid mode. In either it is accelerated from standst
by the electric motor. In the hybrid mode the gasolii <^
engine is engaged at 10 miles per hour, and the gas( 1
line engine alone drives the car at steady speeds. Aii
celeration power is provided automatically by the elei I
trie motor operating together with the gasoline engine
291
Ivhe
r
len. operating on the gasoline power, a 90- volt
I Icotron recharges the batteries. As a driver option,
\ ;n the car is at a standstill, the gasoline unit may
( itinue running to charge the batteries. In addition,
1 hybrid has an onboard charging unit that can be
(inected to a 115-volt household outiet.
The 12-volt accessory battery supplies power for
I low-level electronic system, cooling blowers and
Ike lights.
in the hybrid mode, the peak horsepower is 13.8,
I' speed is 35 miles per hour, and the car accel-
(tes from 0 to 30 miles per hour in 16 seconds.
I range at 30 miles per hour in the electric mode
i5.2 miles. It is approximately 150 miles in the
brid mode with three gallons of gasoline.
512 ELECTRIC
The fresh, attractive design that can be achieved
'h a two-passenger urban vehicle is dramatized
this electric version of the 512 series. The exterior
'ly is fiberglass with a steel chassis floorpan and
Ibar. The car can be driven in fair weather with
canopy front raised and back light retracted, giv-
it a unique convertible appearance. Or it can
driven as a roadster with canopy removed.
rhe side pivoted single front door allows easy
:ess to the bench type seat. Luggage or package
ice is accessible through the back light or the fold
wn right seat.
Wheelbase is 52 inches, overall length is 86.3
hes and width 56 inches. Curb weight is 1,250
unds with an 84-volt power battery pack. The
wer plant is a d-c series Delco-Remy motor with
iiid state controls. It utilizes special Delco-Remy
ihtweight lead-acid batteries that represent a for-
ird technological step and contribute to the ve-
;le's range and performance.
The coaxial drive motor, integrally mounted on
i rear axle, makes possible a compact planetary
ar drive that passes one axle shaft through the
nter of the drive motor.
The car's accessories — heater-defroster, head and
il lamps, turn signals, windshield wiper, horn and
loling blower — are powered by a separate 12-volt
ittery, supplemented when necessary by the main
)wer pack. Heating and defrosting are combined
ith motor and control cooling. If heat is not needed,
e system circulates incoming fresh air for passen-
ger compartment ventilation.
A built-in battery charger simultaneously recharges
both the main power plant and accessory battery.
Complete recharge from a 1 1 5-volt household outlet
requires 7 hours. The car's range at 25 miles an
hour is 58 miles. At 30 miles an hour, the range is
47 miles. As more advanced batteries become avail-
able, these range mileages will incrccise. Acceleration
from 0 to 30 is 12 seconds.
512 GASOLINE VEHICLE
Of the three-car experimental 512 series, the
gasoline engine version emphasizes the sporty appear-
ance. It is a roadster with integral plastic construc-
tion, 52-inch wheelbase, 86.3-inch overall length,
55-inch width and 51.9-inch height. It weighs 950
pounds.
It has a side-hinged front door and the belt line
sweeps up behind the passengers to provide rollover
protection. It has minimum accessories because of
its open styling.
The power source is a 19.6 cubic inch two-
cylinder 12-horsepower aluminum engine with 11-1
compression ratio. It is adaptable to future emission
controls, and is equipped with an experimental cata-
lytic converter and air injection system.
A distinguishing feature of the power train is an
automatic transmission operating on the variable
ratio V-belt principle with a centrifugal clutch.
Top speed is 45 miles per hour and the car will
accelerate from 0 to 30 miles per hour in 18 seconds.
With a four-gallon fuel tank, its range is approxi-
mately 280 miles.
511 COMMUTER
The 511 commuter vehicle with its three-wheel
suspension is a departure from conventional auto-
motive practice. A special purpose car, it is designed
to transport two people from suburbs to downtown
offices at freeway speeds.
The three-wheel design — one in front, two in
rear — provides excellent stability and maneuvera-
bility. It reduces weight, simplifies steering and
allows for an uncomplicated "backbone" type of
frame and makes possible a streamline shape. The
low center of gravity, only 13V^ inches off the
ground, offers exceptional lateral stability and comer-
32-493 O— 69— pt. 1-
-20
292
This is General Motors Engineering Staff !
experimental Series 51 2 electric car (above
center). Built on a 62-inch wheelbase. i'
IS 86 3 inches- long. The 1.250-pound
is operated by a 84-volt power batte
pact< with a 12-vort battery for accessor!
-EieCTRONlC CONTBOILER
ling
node
of Ge
Motors Styling s experimental XP-883
commuter car (above and right) is de-
signed to carry two adults in front and
two children facing the rear. The ve-
hicle could utilize gasoline, electric or
hybrid gasoline-electric power systems.
293
ii ability.
wo steering systems have been tested in the 511,
0 a simple handle bar with 2-1 ratio and the
opr a more conventional steering wheel system
»ji 9-1 ratio.
Tie rear-mounted engine is a four-cylinder 66
cjic inch Opel capable of 67 horsepower at 6,000
r.'n. The transmission is a three-speed automatic
t( ue converter type unit. The commuter can ac-
c rate from 0 to 60 ra.p.h. in 16 seconds and has
aBO m.p.h. top speed. In city driving it averages
3 to 35 miles per gallon.
)ther 5 1 1 specifications : Overall length 1 49
iiies, wheelbase 86 inches, rear tread 54 inches,
orall width 63 inches, height 40 inches, ground
cjrance 4.5 inches, weight 1,300 pounds.
'he 511 chassis consists basically of two major
s assemblies, a fiberglass body and a steel chassis,
liias a single hinged and counterbalanced canopy
fi easy exit and entry. Its contoured bucket seats
a semi-reclining and built into the body, together
fli head restraints. Because the seats are fixed,
ctrol pedals are electrically adjustable.
"he chassis consists of a steel Y frame, the three
v:els and rear power train. The power train and
I • wheels are mounted solidly to the frame so that
tj drive axles are simple one-piece shafts, and the
£ re mass is essentially unsprung. The frame back-
1 e passes through the tuimel in the body to support
t single front wheel in the tapered front section.
XP-883 CAR
\ special purpose commuter vehicle, the XP-883
i designed to accommodate a hybrid gasoline-
i;tric power plant with front wheel drive. At its
sent stage of development, the car is in mockup
I idition.
The XP-883 has a two-door fiberglass body and
1 seat four occupants — the driver and one adult
isenger in front and two children facing the rear
a back seat. The backs of the passenger seats
d down to provide a cargo space 84 inches in
gth. Access to the rear seat area is provided by
upswinging door at the rear of the car.
XP-883 has a 68 -inch wheelbase with an overall
igth of 122.2 inches. It is 57.3 inches wide and
.3 inches high. Both front and rear tread are 49
inches; front overhang is 27.5 inches and rear over-
hang 26.7.
The basic concept for the XP-883 originated at
the GM Styling Staff. Designers developed the ve-
hicle as a small, commuter car capable of receiving
any of several kinds of power plants, including in-
ternal combustion engine, electric propulsion, and
hybrid gasoline-electric, to evaluate their potential
in meeting the car's design purpose.
Although all these power plants were found ac-
ceptable, the first selected for further study was the
hybrid power plant. Engineers designed the two-
cylinder engine-electric motor combination specifi-
cally for the XP-883. The design objectives for the
car include a weight of approximately 2,100 pounds;
maximum speed of 60 miles per hour acceleration of
0 to 60 miles per hour in 28 seconds and 0 to 40
in 12 seconds.
The hybrid power plant — now in the mockup
stage — consists of two-cylinder, opposed, water-
cooled engine of 35 cubic inch displacement; a d-c,
series wound electric motor; a flywheel alternator for
recharging batteries; six 12-volt batteries to provide
a 72-volt system; an electronic control system; and
an onboard charger that can be connected to an ex-
ternal 1 15-volt a-c source.
The transmission system consists of two gear re-
duction units, both providing a 5-1 reduction to axle
speed. A planetary system transmits power directly
from the coaxial electric motor to the drive shafts
on the front wheels. Power from the gasoline engine
is transmitted through the second gear reduction
unit — a worm gear arrangement.
The XP-883 operates in either an all-electric or
hybrid mode. In either it is accelerated from 0 to 10
miles per hour by the electric motor. At that speed
in the hybrid mode, the gasoline engine starts and
provides the power function for steady speed opera-
tion as well as power to recharge the car's batteries.
Both power plants are automatically combined for
acceleration.
The vehicle has an independent rear suspension,
and the battery system is located in a box beneath
the rear passenger seat and between the rear wheels.
An integrated heating and engine cooling system
uses a combined core for low-speed operation. For
high-speed engine cooling, a ram core radiator is
provided in the front of the engine compartment.
11
294
EXPERIMENTAL LIMITED
EMISSION VEHICLES
Warren, Mich.— The solved and unsolved prob-
lems of five experimental automotive air pollution
control systems were detailed here today by General
Motors in its Progress of Power presentation.
Designed to lower hydrocarbon, carbon monoxide
and nitrogen oxide levels in exhaust emissions, the
systems are under evaluation by GM Research Labo-
ratories and GM Engineering Staff. They involve
such techniques as (1) high temperature exhaust
manifolding, (2) catalytic conversion and (3) exhaust
recirculation.
"All these techniques appreciably reduce pollu-
tants and these experimental systems confirm that
the internal combustion engine can harmonize with
its environment," said GM President Edward N.
Cole. "But at this point in time these systems also
pose fundamental problems that preclude their use
in production vehicles — such problems as materials
availability, serviceability, durability and perform-
ance, fuel consumption and cost.
"Nonetheless," Mr. Cole added, "we are opti-
mistic enough to believe that many of the roadblocks
that now stand in the way of pollutant control de-
velopments will be overcome in the future. Right
now we cannot prophesy when, where or how, so
we continue our research and engineering investiga-
tions of all conceivable control techniques."
Noting that the experimental systems achieved
hydrocarbon, carbon monoxide and nitrogen oxide
reductions beyond emission levels of 1969 standard
vehicles with present control systems, Mr. Cole sug-
gested that his audience of newspaper, radio and TV
reporters not ignore gains already projected by the
industry.
"Beginning in the 1970 model year in California
our cars will be producing 81 per cent less hydro-
carbons and 63 per cent less carbon monoxide than
an uncontrolled car," Mr. Cole said. "And beginning
with the 1971 model year these same gains will
apply nationally with the addition of evaporative
controls on carburetors and fuel tank vents."
Three 1969 vehicles in the GM Progress of Power
display — Cadillac, Oldsmobile and Chevrolet —
featured experimental exhaust manifold reactors.
Basically these are large volume insulated exhaust
manifolds two to four times the size of conventional
manifolds. Their effectiveness depends on heat gener-
12
ated and retained by increasing "residence" time
exhaust gases with additional air in the enlarj,
reactor volume to promote oxidation. This is sor
times described as an "afterburning" technique :
it reduces hydrocarbons, carbon monoxide and nit
gen oxide emissions to very low levels, in compari;
with uncontrolled engines. But reactor effectiven
is offset by a number of problems, including:
1 . Operating at temperatures that may go as h
as 2300 degrees (F), which melts ordinary materi;
reactors require high alloy stainless steels, cerai
or other expensive high temperature materia.
Otherwise, durability is severely limited by temp,
ature extremes.
2. At least in two instances their effectiven
involves enrichment of the air-fuel mixture, rais i
fuel consumption from 16 to 23 per cent. Even j
one system utilizing lean carburetion, consumpd
is 8 per cent higher than with a comparable stand:
engine.
3. Retarded spark timing increases fuel consun
tion and engine heat and the systems generally ra
tailpipe temperatures from 500 to 1 300 degrees C
The experimental system in the Cadillac utili:
engine coolant to heat the intake manifold. It 1
a high capacity system for injecting air to the i
haust manifold, requiring two air pumps. It
quires rich carburetion that adds to fuel consumpti
23 per cent in comparison with today's stand:
Cadillac engine.
The reactor system in the Chevrolet also u
engine coolant to heat the intake manifold and c
erates best with a carburetor which has an overri
calibration. A high capacity air injection pump a
is included to sustain "luminous" oxidation of hydi
carbons and carbon monoxide.
The experimental system on the Oldsmobile f(
tured lean carburetion with a smaller reactor tb ^
the other two cars and did not require an air pun i
With a lean air-fuel mixture, oxidation of pollutai |
is achieved by oxygen in the exhaust stream. Cart
retor heat comes from an external exhaust crosso\
and the air intake is preheated from the exhai
manifold. Ignition timing was retarded.
Whereas the fuel consumption was only 8 f
cent higher than a standard Oldsmobile engine, t
experimental system imposed poor part throttle i
sponse on the engine. A much improved fuel mete
ing system is needed to overcome this.
295
atalytic control of exhaust emissions was installed
,^ 1969 Chevrolet with a 427 cubic inch V-8
jine equipped with a GM Air Injection Reactor
VR) emissions control system, which includes an
i pump to supply air at a point near the engine
jiust ports.
ii addition, the special Chevrolet had a catalytic
jverter and its exhaust pipe was insulated to main-
lit high exhaust temperatures. The converter itself
jii similar in dimensions to a converter developed
.^rimentally in 1961 by GM Engineering Staff,
li'as approximately 23 inches long, 10 inches wide
a a little more than 5 inches high. Its catalyst was
51 plied by Universal Oil Products.
Vhereas this precious metal catalyst was very
t ctive with unleaded fuel in reducing hydrocarbons
B carbon monoxide, its development at this time
ii arapered by three unsolved problems:
The system requires either non-leaded fuel or
ajadproof catalyst. Non-leaded fuel suitable for
tiay's engines would require more expensive refin-
i processes than the use of tetraethyl additives at
t same octane rating, and as yet no leadproof
dlyst has been developed.
;. Use of a precious metal catalyst precludes a
l!;e enough supply to meet the automotive demand
M reasonable cost.
H. Possible high temperature damage to the cata-
1' and the catalyst loss from attrition.
'Meanwhile," Mr. Cole said, "not only in General
I tors but also in chemical companies the search
]"s on for an inexpensive, durable catalyst that
'uld be both plentiful and leadproof."
The fifth vehicle in the low emission display group
lltured an experimental oxides of nitrogen control
item, designed in a modified 1969 Buick engine.
■ e system recycles about 2 per cent of die exhaust
:!;es through the engine intake at the base of the
.buretor. This lowers engine peak combustion tem-
ratures, resulting in less oxides of nitrogen forma-
tion in the combustion process.
Although recycling reduced oxides of nitrogen, it
had little effect on the reduction of either carbon
monoxide or hydrocarbons, and it posed several
unsolved problems:
1. Control system effectiveness deteriorated rap-
idly.
2. Vehicle driveability was reduced because of
unsatisfactory part throttle response, and cold en-
gine idle.
3. Excessive carburetor deposits accumulation.
In the display was a sixth exhibit illustrating emis-
sions control through comprehensive engine modifi-
cation in a 1969 Pontiac. In effect a number of the
modifications in this display were already incor-
porated in GM production engines.
The 354 cubic inch V-8 was designed with what
engineers call low surface-to-volume ratio. In essence,
this meant that the combustion chamber is shaped
so that when the air-fuel charge is ignited in it, the
hot gases fanning out toward the chamber walls
encounter the minimum cooling or quench area.
Thus, less unreacted or unburned hydrocarbons pass
out through the exhaust system.
Other design changes included reduced crevice
volume in the combustion chamber and piston top,
reduced valve overlap, lean carburetion, high idle
speed and modified choke.
Another important modification is TCS (transmis-
sion controlled spark) which retards spark timing
except when the transmission is in high gear, a fea-
ture scheduled for most 1970 GM passenger cars.
The retarded spark timing when the transmission is
in idle or lower gears reduces hydrocarbon emissions.
Overall, the engine design or modification tech-
nique reduces hydrocarbons, carbon monoxide and
nitrogen oxide output, but its potential for future
gains is limited. Moreover, as soon as practicable,
these gains are being designed into our engines.
13
296
Remarks by H. G. WARNER, Executive Vice President
Good morning, gentlemen. It is a pleasure to have
you at the dedication of our Research Vehicle Emis-
sions and Safety Laboratory and at the GM Progress
of Power Show.
In one sense, we have been preparing for this show
for nearly a year. The exhibits, displays, experi-
mental vehicles and presentations are visible evidence
of that fact. Our objective has been to show you not
only the current state of the art, but some things
with more than just a touch of tomorrow in it. We
believe that we have succeeded. In several important
areas the limits of automotive knowledge have been
extended.
In another sense, this is not a show made for you.
It is a part of our continuing research and develop-
ment program, and represents a bit of "stop action"
in the fast-flow of developments at GM and our
efforts to provide transportation that meets the
changing needs of our society.
The show is intended to give you a comparison
between the currently considered forms of autom
tive power plants — internal combustion, electr
steam and Stirling engines. At the same time •
would like to give you the perspective of progn
that has been made in power . . from the origir
"otto" engines at the turn of the century to t
highly developed power plants of today . . . t
major progress in reducing automotive emissic
during the last decade and a glimpse of the potenti;
of the future.
To help you understand what you are going
see, and experience today, I would like to comme
on three important points — the research and devi
opment philosophy of General Motors, the develo
ment of ideas in GM and the acceptance of ideas 1
the customer.
Research and development in any company sti
with the philosophy and attitude of its top manag
ment. What is the attitude toward change . . . towa
progress . . . toward social and public interests .
toward competition . . . and toward the custome
In General Motors much of our corporate philc
ophy dates back to Alfred P. Sloan, Jr., who f
many years was the chief executive officer. He oni
said: "It is always sound philosophy to recogni
that the most effective attack is the determination
facts without prejudice and with an open mind."
Another chief executive officer (Curtice) sai
"The inquiring mind is never satisfied with things
they are. It assumes that anything and everythii
can be improved."
A GM research executive put it this way: One
management's greatest challenges is to recognize tl
forces producing change, anticipate the probable r
suits and be prepared with products, processes ai
people to meet the opportunities and requiremet
of industrial history on schedule.
With this attitude you might expect Gener ,
Motors to have scores of engineering and researi i
firsts — and it does. You might expect it to be fii ',
with a Proving Ground, a major Technical Cent (
and automotive styling — and it was — and you migl
also expect General Motors to make other contribi
tions to the well-being of people and the quality i
life — and it has — such things as a mechanic;
heart, an electronic heart-sound detector, a centr
filmer for sterilizing blood plasma, a remotely cot
14
297
tred heart catheter, an electric pacer for city
tr ic and many others.
esearch and development falls into two classifi-
Ci)ns — aggressive, pioneering in areas obviously
ciiected with GM — power, metal shaping, paint
a] other materials — and, second, a kind of DEW
li: a distant early warning system, that will keep
u'ln the frontiers of any knowledge that might be
a iluable breakthrough for General Motors.
ngineering combines scientific principles with
edomic reality. One might think that engineers
c<d design a perfect mechanism if they gave it
Biigh study and research, but they can't. People
ai their wants and needs change. Materials change.
P;esses change.
his is quite apparent in a classic advertisement
tf appeared back in 1912. In a bylined ad R. E.
Cs said of his Reo automobile: "I do not believe
tJ a car materially better will ever be built." He
« t on; "I test my gears with a crushing machine
- ot a hammer. I know to exactness what each gear
n stand. I put the magneto to a radical test. The
c juretor is doubly heated, for low-grade gasoline.
Sin every part. The best that any man knows for
6 7 part has been adopted here. The margin of
s;ity is always extreme. I regard it impossible at
a price, to build a car any better." His price was
5 355 — without top and windshield — without self-
s ter . . . and of course without automatic trans-
r sion, radio, four-wheel brakes, air conditioning,
t wheel, electric windows and many other features
-)ut still he felt that it was impossible to build a
( any better.
Ve do not have the same attitude. Fine as our
1)9 models are, we believe that everything and
J thing can be improved. We should be dissatisfied
1 h things as they exist . . . and we are. We intend
(do better.
•^Jew developments come in spurts. They may be
curring in several places almost simultaneously,
'ese scientific breakthroughs are followed by engi-
i:ring applications. For progress, the Research and
Jgineering Staffs must be generating many more
i as than can be readily absorbed . . . forced feed-
i; of ideas to give operating divisions an opportu-
•y to evaluate, set priorities and avoid "idea gaps."
Many of the big breakthroughs were not recog-
;ed as such. One of these was the pneumatic tire.
wasn't even developed for the automobile. Ad
Englishman, Robert Thomson, patented it in 1845.
More than four decades later an Irishman, John
Dunlop, came up with a similar idea. His son rode
to school over a piece of rough pavement on a solid
rubber-tired bicycle, and he complained about the
bumps. His father, who was a veterinarian, said, "I
think I can fix it." He made a wooden wheel and
tacked a canvas loop on the edges of the wheel.
Inside of that he put a rubber tube, which he pumped
up with a football pump. That was the first success-
ful pneumatic tire, conceived not as a scientific in-
vention, but as something to please a small boy.
Another breakthrough that was underestimated
for years was the electric self-starter, first put on
Cadillacs in 1911. It doubled the number of drivers
and prevented thousands of broken thumbs and
arms.
Ideas must be considered in the context of their
time. They may be born too soon . . . rejected . . .
and then resurrected as advanced engineering, mate-
rials, plastics, manufacturing techniques, mass pro-
duction and market acceptance make them possible.
In our approach to R and D we never tluow out an
idea permanently. It may be a good idea but the
wrong time.
For instance, front-wheel drive was pioneered in
the 1904 Christie and subsequently re-appeared in
the 1937 Cord, but it took power steering to make
it popular in the 1966 Toronado and 1967 Eldorado.
All-steel bodies date back to 1897 when Wilson
Haynes built a steel body for the Eastman Electric,
but the idea didn't really catch on until 1935 when
Fisher Body perfected the deep-draw techniques and
produced a closed body with a one piece steel top.
If an idea saves money and increases value, it
can be accepted quickly. This was true of General
Motors' two-cycle Diesel engine developed in the
early '30's, It was lightweight, high speed and de-
pendable. Within a few years it was widely used for
large trucks and buses on the highway and locomo-
tives on the railroads.
But some other good ideas come in at a premium
price and meet with less than customer enthusiasm.
Both Dr. Hafstad and Harry Barr will discuss the
cost comparisons of the power plants we are show-
ing you today. Although price does affect customer
acceptance, we continually strive to provide power
plants that best meet community and social needs
as well as customer preferences.
15
298
Allow me to digress for a moment. Today we are
concentrating on automotive exhaust emission —
and this is a big problem — but it is not our only
interest in the pollution area.
In General Motors we have been greatly concerned
with all forms of industrial pollution and have been
making massive efforts to combat them. Our ap-
proach has been to reduce the pollutants or, better
yet, to develop new processes that will not create
pollution in the first place. For instance, on some
foundry cupolas we have been installing high energy
Venturi scrubbers. About three months ago Pontiac
turned on its first electric arc furnaces used in con-
junction with bag houses tor high efficiency control.
In other cases Central Foundry has gone to electric
furnaces in Defiance, Ohio, and Saginaw, Michigan,
so as not to create pollution. At Chevrolet-Buffalo
we recently opened a multi-million dollar industrial
waste treatment plaijt. Across the river at our Wind-
sor plant, facilities were dedicated a year ago that
provide controls that meet and exceed newly en-
acted ordinances.
We have been using the most advanced pollution
control equipment on the market but have not been
waiting for suppliers to come up with new solutions
to our pollution problems. In our Manufacturing
Development section we are developing special tech-
nology to fit our own industry — the use of sonics
to reduce cupola emissions, new techniques for the
destruction of cyanide in plating rinse water and
other projects.
Some years ago in cooperation with the pollution
control authorities in California we installed a new
paint process in our South Gate assembly planti
combines electro-painting of sheet metal with
water-based primer. Similar installations are in i
eration or approved for installation in Michig
Ohio, Missouri and Wisconsin — whether local re
lations require it or not.
These are very large non-revenue producing
vestments. The dollars don't go into the prods
but they return substantial dividends in better >
vironmental and social benefits. We recognize ma
responsibility to control the polluting of his envir«
ment. This is particularly important because thi
are large quantities of pollutants from many natm
sources over which he has no control — the terpei
of the pine forests, gases from the volcanoes a
swamps and dust from the deserts.
In March Dr. Gallup released the results oJ
survey on air and water pollution, soil erosion a
the destruction of wildlife. Perhaps you saw
Three out of four people interviewed backed up tb
concern by stating they would be willing to p
additional taxes to improve natural surroimdini
This attitude is encouraging.
In summary, behind the Progress of Power Sh
is a great deal of GM philosophy. We believe
show reflects our concern and awareness for cur
environmental problems . . . and provides an obji"
tive basis for evaluation and comparison of pov
plants.
Again, we are pleased to have you with us a
hope that you find the day stimulating and pro '
able.
16
299
I
j^iiarks by L. R. HAFSTAD, Vice President in charge of Research Laboratories
totype is quite another matter. The researcher makes
apparatus which can work. The production engineer
must make devices which won't fail. When volume
production is involved, not only must his products
operate properly, but they must continue to function
over a long period of time even when used under
adverse conditions by careless or inexpert operators.
Development of a production prototype is a long,
tedious and expensive process. Compared to de-
velopment, research is a relatively inexpensive proc-
ess. This is one reason why researchers and inventors
are forever pushing pet solutions to problems which
somehow never get into production and use. For
those of us who have been through the development
process the reason for this is quite clear. We have
learned that all conceivable adverse contingencies
must be foreseen and guarded against. In produc-
tion and in use, if any thing can go wrong, it will go
wrong. In our business this is known as Murphy's
Law.
Let me give you an example of the gap between
an idea and a product which I think is instructive.
A couple of decades ago the electric blanket came
on the market. Now here was an extremely simple
idea. All that was needed was to sew an insulated
resistance wire into a blanket and plug it into a
110 V socket. What could be simpler? Yet turning
this simple, twenty dollar item into a safe, reliable
product took 30-40 man years of engineering de-
velopment time and a development expenditure of
IVi million dollars. Perhafw now you see why in-
ventors often have a little trouble selling their bright
ideas. You may also have a better feel for the effort
and expense involved in proving out a new engine
concept or modification.
In our presentation today, we are going to show
you work underway in the research state bearing
directly or indirectly on the air pollution problem.
This latter problem is only one facet, though cur-
rently the most important one, of the more general
power plant problem, which has been with the in-
dustry since its very beginning.
Early combustion studies were focused mainly on
efficiency and fuel economy since these are the items
of most concern to the customer, and very real prog-
ress was made. The high compression engine with
antiknock fuel was a major contribution to our
[r. Warner has indicated the general nature of
tl pollution problem and some of the positive steps
C eral Motors has been taking to reduce it. I now
« t to tell you how we in the research end of the
b ness are attacking the problem and to report
i'l progress as we are making. We will be showing
i itions which work in the laboratory, but may not
t adequately developed for use in the field.
Research— the word "Research"— means different
tigs to different people. I want to spend a few
tiutes telling you what it means to those of us in
t business of industrial research,
^.esearch is to manufacturing as prospecting is to
I ling. In research it is our business to explore, to
hw and to understand. Design for production
;Qes later and is a different matter entirely. In
learch we construct apparatus to prove that there
I no laws of nature against us— that is why a re-
!rch prototype can be a success even if it requires
PhD's as nursemaids. Making a production pro-
17
300
economy. It is now estimated that to produce lead-
free fuel of today's octane quality would cost an
additional 2 cents per gallon. If we take this figure
to make a rough estimate of the savings to our
economy through the use of tetraethyl lead in the
1500 billion gallons of gasoline consumed since
1920, we come up with 30 billion dollars. This
would be about Wi billion dollars for 1968— which
is certainly worth saving. If we remove lead from
the fuel to make our antipollution problem simpler,
this annual saving goes down the drain. This is the
kind of money that is involved in the decisions now
being made in regard to fuel composition.
While we are on the subject of fuel, let's take a
look at a premise sometimes advanced by electric
car proponents— that electric cars are inevitable be-
cause we are going to run out of petroleum.
The automotive industry has lived with such dire
warnings throughout its lifetime. And like any
rapidly expanding technology, it has been concerned
with the question of raw material supply, particu-
larly petroleum.
CHART 1 shows a record of the official govern-
ment predictions that we were about to run out of
petroleum. Note that viewing with alarm goes back
to the 1860's, even before internal combustion en-
gines were using petroleum fuel. CHART 2 shows
the actual buildup of proven reserves compared to
production. The story is about the same for most
other raw materials, such as iron for example, basic
to our technological society. On the raw material
supply side, we, as engineers, have been foresighted
and have done well.
However, in our preoccupation with these ques-
tions, we missed the equally important question
which is, "How does our kind of society efficienfly
dispose of the accumulating waste?" There is every
indication that it will be this waste disposal problem,
rather than raw material supply, which will set the
limits on our technological and, therefore, on our
population expansion. If you stop and think a
minute, it is not technology which produces pollu-
tion, it is people. The pollution problem would dis-
appear promptly if the population were reduced by
a factor of ten. The pollution problem could also
be made to disappear if economics could be ignored.
In CHART 3 1 show the problem as it looks to
a student using an operations research approach.
Emissions can be reduced to any level specified, but
the cost of each additional increment removed lij
increasing the lower one goes.
I would now like to show you some charts wl
touch on several aspects of our air pollution
search.
In CHART 4 note tiiat tiie relative contribut
of different pollutants from automobiles and o
sources differ widely. Automobiles contribute p
tically nothing in the sulphur dioxide area, but
mainly responsible for carbon monoxide. In the «
troversial oxides of nitrogen area, note that a
mobiles produce less than one half of the total.
CHART 5 shows the areas of concern createa
the several major air pollutants. Again note
variety of reactions. This shows why different c;
worry most about different pollutants thus mal
an overall solution more diflBcult.
CHART 6 shows that whereas Los Angeles
a very serious specific photochemical smog prob
related to the automobile, Philadelphia and Chici
for example, must be concerned with a more gen
air pollution problem which is largely unrelatec
automobiles.
CHART 7 shows the principal sources of
lutants from an automobile with no pollution con
devices.
In CHART 8 note that oxides of nitrogen a.
only from the exhaust. Hydrocarbons come ma
from the exhaust but also from the carburetor
fuel tank, and from these latter sources even w
the car engine is not running.
To measure these evaporation sources precL j
we have found it necessary to enclose the entire
in a carefully sealed plastic "tent" and then
measure in parts per million the hydrocarbon c
tent of the air inside the tent (CHART 9). "?
measurement method is more accurate and m
flexible than any previous technique.
To learn about the nature of the pollutant!
the exhaust stream, an even more elaborate ins'i
mentation approach is needed. In CHART 10
show a view of a smog chamber we refer to as Li :
Los Angeles. Exhaust from a car in the back ro
is suitably diluted and the mixture introduced
the closed smog chamber on the right. Here i
radiated with high intensity light adjusted to
exactiy equivalent to the sunlight acting on th
pollutants in the Los Angeles atmosphere. 1
complicated instrumentation on the left is necess
18
301
I
ir;ntrol and analysis.
(1ART 11 shows a long path infrared cell with
ttied spectroscopic instrumentation of the type
•c>ary to make analyses in the parts-per-million-
i-j -ts-per-billion range.
(s chromatography is another analytical tech-
Iql which our people use in exploring this parts
■r illion chemistry. CHART 12 shows the com-
ley of the products of combustion with which
e e concerned.
(IIART 13 shows the 100 to 150 separate and
set hydrocarbons ii> the exhaust gas depicted
I ; form of a tree. The large branches separate
jihe parafins, olefins, aromatics, etc., and the
n show the individual molecular types. Qearly
le is plenty of first-class organic chemistry in-
)ld here.
' th all this background work underway it has
tt possible to make considerable progress on the
5 tion problem in the Los Angeles area as shown
1 TART 14. Note that the upward trend of emis-
0 has been stopped and that with planned con-
0 even with expanding car population, it should
• )ssible to get the total automotive contribution
0 to the 1940 level.
:ides of nitrogen present a special problem, as
K n in CHART 15. Here note that to bring down
K lydrocarbons and carbon monoxide in the ex-
i it is desirable to operate engines with a lean
ii lel ratio. However, as these pollutants decrease,
i()roduction of the oxides of nitrogen imavoid-
b; tends to increase. The chemical reason for this
'it to eliminate the hydrocarbon and carbon mon-
s ■ it is essential to provide an oxidizing atmos-
h;-i.e., one rich in oxygen. This is the atmos-
1 e we have a lean air-fuel ratio. But this oxidizing
t isphere is precisely the one which permits ele-
ii:al nitrogen in the air to be oxidized into the
t:tionable oxides of nitrogen. Since we cannot
e;e an atmosphere which is simultaneously oxi-
iig and reducing, this problem will remain with
SI any combustion process using air, and there-
3 nitrogen, as one of the reactants.
) far we have considered only combustion prod-
c as they are formed in the engine. Now we must
c ider as well the additional reactions which occur
■ii these products are exposed to intense sunlight
lie atmosphere.
'ith much further research it has been possible
to rank many hydrocarbon components of the ex-
haust gas in terms of a quantity called reactivity. The
greater the reactivity the more likely it is that this
particular chemical will result in a constituent of
the atmosphere damaging to our health or our econ-
omy in some manner. In CHART 16 the exhaust
products are shown on a logarithmic scale. Note that
the olefins at the top of the chart are five hundred
times as reactive as methane at the bottom.
In CHART 17 we show the best available informa-
tion on the tolerance level of people to exposure to
carbon monoxide. Note that for long exposure any-
thing above about fifty parts per million is undesir-
able. More data of this kind for other components
of the atmosphere is urgently required.
CHART 18 shows progress to date with respect
to the several sources of pollutants from our con-
ventional automobile mentioned in the beginning of
this talk. Further progress depends on minimums for
ambient levels set by government and economic facts
of life.
As has been shown, much work has been done
to reduce the emissions from the internal combus-
tion engine. Note (CHART 19) that substantial
progress has been made to date at relatively low
economic penalty, but that further improvements
will be proportionately more costly. Mr. Barr will
discuss this briefly in his remarks. Other engines,
such as the continuous combustion engines shown,
have inherently lower levels of pollutants but higher
base cost.
CHART 20 shows the situation as we see it for
carbon monoxide.
CHART 21 shows the story for oxides of nitrogen.
Note that for the otherwise good continuous com-
bustion engines, oxides of nitrogen tend to be high.
If the standards ultimately set for tolerance levels,
turn out to be too low to be attained by the internal
combustion engines as modified, then alternative
power plants— even at high cost— must be considered
(CHART 22). At the moment steam powered cars
seem to be most favored in congressional circles and
certain other parts of the Washington community.
We at General Motors have been fortunate in this
area in having as our laboratory manager Mr. Arthur
Underwood. Mr. Underwood, who had early per-
sonal experience with steam cars, initiated work on
external combustion Stirling-cycle engines here at
the Laboratories more than two decades ago, and on
19
302
vapor-cycle engines a few years later.
General Motors' first-hand steam engine experi-
ence includes a 1929 program in which the Truck &
Coach Division tested a steam powered Delling
Coach and this GM Yellow Coach equipped with a
Doble engine (CHART 23). Through personal con-
tacts we have had the good fortune of being able to
turn to the Besler organization (Besler Develop-
ments, Inc.) of Oakland, California, who acquired
the famous Doble steam car residual patents and
technology, for advice and consultation on current
steam engine technology. Besler, incidentally, was the
last company to be producing steam cars commer-
cially and continued this work throughout the 1930's,
selling steam automobiles and rail cars, among other
products, both in this country and abroad.
CHART 24 shows a classic Doble steam car from
the Besler stable which will be on display here today.
CHART 25 shows a 1933 steam powered airplane
produced and flown by the Besler brothers.
CHART 26 shows the GM SE-124 Chevelle
powered with the Besler steam engine built for
General Motors by Besler's enthusiastic and dedi-
cated staff of old time steam experts. We at the
Research Laboratories are most appreciative of the
hard work of the Besler organization.
The GM SE-101 Grand Prix is powered by a
GMR-built steam engine (CHART 27). This engine,
built with modern materials and fabrication tech-
niques, incorporates technology from our gas turbine
and other research experience as well as suggestions
based on the long experience of the Besler org
tion. The GM SE-101 is the first steam powere<
with modem air conditioning and other powa
manding accessories currently taken for grants
the average customer. It is also, to the best ol
knowledge, the first steam powered car with a b
made to the standards of the modern ASME b
code. These accomplishments and experiences
some of the General Motors credentials for exp
ing opinions in regard to steam engine techno
and costs.
The final CHART 28 shows our present as"
ment of the relative advantages and disadvantag f
the various power plants which might be consic ]
for automobiles. Note that there is good agreei t
on the relative cost estimates between GM anc ;
Morse Committee* report except in the case o ;
steam engine. Here the Morse panel was cli /
more optimistic than GM as to the potential for t
reduction. We think this is because while the s i
engine itself— the expander— is indeed simple, ou
perience indicates that the steam generator I
burner controls, and the condenser and water
trols seem not to fall in such a category. For
reason we feel that unless some really major i
reducing breakthrough occurs, the Otto cycle s
ignition engine still remains the most probable wi •
in the current antipollution sweepstakes.
* * *
* Panel on Electrically Powered Vehicles, De] ■
ment of Commerce.
20
303
GOVERNMENT
PROPHECIES
AND REALITIES
U.S. OIL PRODUCTION
1859-1952
BILLION BARRELS PER YEAR
304
U. S. 1 35 1.74 2 17
PRODUCTioisr ^^^ ■■■■ ^^m
2.74 2.90 3.24
u. s.
RESERVES
=19401 119451 119501 119551 119601 11965=
BILLIONS ^m ^m ^m
OF 29.54 ^^^ ^^^
BARRELS ^H ^m
OF CRUDE AND 35 ^^ ^^=
NATURAL GAS 38.43
LIQUIDS
Source: Petroleum Facts & Figures, API. 1959 & 1967 Editions.
39.38
\
9
/
V| POLLUTION COST ^ /
\ /
GRAMS
^^ #^
PER
^V /
MILE
N. „--'"'
iK««
..--^'^
DOLLARS
TIME^
305
LU
<
a
O
<
u.
O
UJ
U
o
o -5
Z 4!
-SP
joax ->ad suox uojUjyy ui suojssjujg
306
CO 2
O^ UJ
§§
— u
I—
H o
o
a.
<
CO
<
LU
<
\r— _ "D
\\ ^ '^ o
^^^
^
At— — ^ o) o
^^^^B
^^^^H
\\ ''"■' \ iz o
^^^
^
I 1 o u
^ i lO
-0 c
c o
-D O • -
a □
u >- "
3 .~ O
'^H
^^^^H
"S51
^^
^^^^v
^^^^
Qt '^ irt
> i^
i A,^^, * f CT>
^
e
^~ S3
-1 ^
a.
V
Plant
Damag
•
■
■
0
.^
•
•
•
■
X '"
a.
c
4>
0)
0>
^
Wl
O)
"O
><
*A
c
o
O
0)
O
O ,N
■qO
3
SI
^ O
i_ *"
u
O X
o Z
3
c
o
O
a.
-D
3
CO
o
X
0)
T3
K
O
£ ^
£~ .9
0 0
^•1
307
AIR POLLUTION PROBLEM
DIFFERENT IN VARIOUS CITIES
1965 - 1966
LOS ANGELES
PHILADELPHIA
ST. LOUIS
WASHINGTON
CHICAGO
34.1%
IPHOTOCHEMICAI SMOG
Percent of days oxidant
exceeds 0.15 ppm for 1 hour
IGENERAL AIR POLLUTION
Percent of days sulfur dioxide
exceeds 0.30 ppm for 1 fiour
34.4%
RELATIVE HYDROCARBON EMISSIONS
WITH NO CONTROLS
FUEL TANK EMISSION 9%
CARBURETOR-
EMISSIONS 9%
EXHAUST EMISSION 62%
CRANKCASE EMISSION 20%
32-493 O— 69— pt. 1 21
308
AVERAGE HYDROCARBON AND
NITROGEN OXIDE EMISSIONS FROM
UNCONTROLLED VEHICLES IN LOS ANGELES
Hydrocarbons
Nit
'ogen Oxides
g/doy
g/day
Crankcase
113
0
Exhaust
354
200
Carburetor
50
0
Fuel Tank
Total
50
0
200
8
567
309
JO
11
310
12
n-Decane
t;Butyl benzene
l-Methyl-4-ethyl benzene
n; Octane
— 2,2,5-Trimethyl hexane
3-Methyl heptane
JS2QQ
2.3 4-Trlmethyl pentane
2,4 (2,'5i- Dimethyl hexane
.rrr?.?.3-Trimethyl pentane
iMethyl (yclohexane
— n-Heptane - , ,
2,2,4-Trimethyl
pentane
xlOOO^^^ethyl hexane 2.^^,,.^, ,,,3,^
12 .r=- 3,3- Dimethyl pentane Cyclohexane
*^ ?4-nimethvl Dentane
m-Xylene p-Xylene
2,3-Dimethyl pentane
-Benzene
= — Methyl 2
cyclopentane
I,4-D|meth
'Cyclopentane
2,2-Dimethyl butane
jT-Hexane
3-Methyl pentane
— 2-Wethyl pentane
2,3-Oimetnyl Butane
n- Pentane
^ Cyclopentene
W=°— 2-Methvl -2-butene
cr^-lsopreng 2- Pentene
Q-Pentene
Ti-fiT I 1 u .„„„ — n- Pentane
Methyl-1-butene -
- i- Pentane
>3-Methyl-l-Butene
1x500
cis-2-Butene
>trans-2-Butene
-s^iliButadiene O-Butane
•i-Butene 1-Butene
.Propyne Propadiene
Ethane
-Propylene
-Ethylene
x200
SWITCH VALVE
Methane
0*
311
13
EXHAUST GAS
312
14
o
o
EFFECT OF CONTROLS ON MOTOR
VEHICLE HYDROCARBON EMISSIONS
LOS ANGELES BASIN
4000
3200
2400
o 1600
800
^
No Control^^
-<«!!^*""\
^
'*',
\
\J
With Controls'""
1940
50 60 70
Year End
1980
15
AIR FUEL RATIO
313
100.0
50.0
I
DISUB. INTERNAL OLEFINS
I CYCLOPENTENES
10.0
^ 5.0
I
MONOSUB. INTERNAL OLEFINS
BuNSUB. INTERNAL OLEFINS
I I CYCLOHEXENES
TRI- & TETRAALKYLBENZENES
■ DIOLEFINS
DIALKYLBENZENES
TERMINAL OLEFINS
16
o 1.0
C^+ PARAFFINS
MONO-
ALKYL-
BENZENES
0.5 -
PROPANE •
2,2-DIIV\ETHYLPROPANE t BENZENE
ETHANE •
METHANE
0.1
314
17
DEATH
COMA
|'v'om'i't"collapse
throbbing headache
HOURS EXPOSURE
18
EFFECT OF CONTROLS ON TOTAL HYDROCARBON
EMISSION FROM PASSENGER CARS CALIFORNIA DATA
600
§500
LU
Q. 400
>-
Q 300
°- 200
< 100
o
CRANKCASE
113
0 0 0
EXHAUST
354 354
108 106'
EVAPORATION
100 100 100
12
567
TOTAL
454
208
118
'60 '61 '66 '70 '60 61 '66 '70 '60 '61 '66 '70 60 '61 66 '70
YEARS
Includes eight groms for inleracllon effect of evoporative control system (20 PPM overage)
315
HYDROCARBON REDUCTION ECONOMICS
California Vehicles
(I960 - No Controls
• 1961 - Crankcase
• 1966 - Exhaust + C.C.
-1970 - Imp. Exhaust + C.C. + Evap.
-1972 - Tentative Calif. Std.
r
f
197X - Exhaust Reactors
X/y////////yy/////////A
Stirling,
Gas Turbine,
Steam, etc
^w///)(m'//'-
RELATIVE POWERPLANT COST
19
CARBON MONOXIDE REDUCTION ECONOMICS
California Vehicles
■I960 - No Controls
20
• 1966 - Exhaust
I >^1970 - Imp. Exhaust
^'il970 - Calif. Std.
/197X - Exhaust Reactors
J////////////////////, .
Stirling,
Gas Turbine,
Steam, etc. -7
jm^//////////A
RELATIVE POWERPLANT COST
316
21
NITROGEN OXIDES REDUCTION ECONOMICS
California Vehicles
6«-1960 - No Controls
= 5 -
B 4
Q ->
X
o
z: 2
O
o
a:
I—
E 1
0
k
1971 - Tentative Calif. Std.
197X - Exhaust Recirculation ?
1972 - Tentative Calif. Std.
#1974 - Tentative Calif. Std.
y-197X - Exhaust Reactors
■W/////////W//////////-
RELATIVE POWERPLANT COST
22
COmOTTEB ]
THE SEARCH FOR A
LOW-EMISSION VEHICLE
STAFF REPORT
COMMITTEE ON COMMERCE
UNITED STATES SENATE
of the Committee o
317
24
318
25
The Besler Steam Airplane and Author
26
319
27
COMPARISON OF VARIOUS VEHICULAR POWERPLANTS
28
EMISSIONS
Grams/Mile
California
Driving Cycle
EMIS-
SION
INDEX
NOISE
INDEX
FUEL
CONSUMP-
TION
Lbs/HP-Hr
RELATIVE
WEIGHT
RELATIVE
COST
Morse
Estimate
RELATIVE
COST
GM
Estimate
HC
CO
NOx
GASOLINE ENGINE
1960
11.0
80
6
HIGH
MEDIUM
.45
1
1
1
GASOLINE
ENGINE
1970
2.2
23
6?
MEDIUM
MEDIUM
.50
1-1.5
...
1-1.5
197x
LOWER
LOW
DIESEL
3.5
5
4
MEDIUM
HIGH
.40
2.5
1.85
2-2.5
REGENERATIVE
GAS TURBINE
0.22
2.4
1.0
LOW
MEDIUM
.45
2
3.75
3
STIRLING
0.1
1.0
2.6
LOW
LOW
.40
2.5
2.5
3
STEAM
0.62
2.8
1.0
LOW
LOW
.70+
3.0
1.5
3
ELECTRIC BAHERY
AND MOTOR
....
....
LOW
LOW
7
4?
...
6?
PROPOSED 1970 FEDERAL STANDARDS: Hydrocarbons: 2.2 Grams per Mile
Cartwn Monoxide: 23 Grams per Mile
320
Remarks by H. F. BARR, Vice President in charge of Engineering Staff
Dr. Hafstad has explained the experimental na-
ture of the work at Research Laboratories. Perhaps
it is an oversimplification to say that we in GM
Engineering Staff move in at a specific point where
Dr. Hafstad and his associates leave off, although
basically this is true. In most of the enterprises en-
gaging his organization and ours, we usually can
stake out where a research effort ended and engi-
neering development began.
The mission of the Research Laboratories is to
establish whether an idea, a concept or a system is
technically feasible. Technical feasibility is similar
to scientific feasibility in this context. Essentially, as
Dr. Hafstad has explained, this is a one-of-a-kind
proposition. Our assigimient at Engineering Staff is
to determine whether an idea that is technically feasi-
ble may eventually become technologically feasible.
Here technology and commercial feasibility are
synonymous. To become technologically feasible, an
idea or a concept must be practicable, reproducible.
serviceable and acceptable in the market because of
its inherent value to the customer.
I can explain this technical-to-technological se-
quence with an example which is related to our
Progress of Power presentation here today.
You may recall that in 1958 when some of the
early work on air pollution control was under way,
the question was raised as to whether a catalytic
converter could effectively reduce hydrocarbons and
carbon monoxide in the exhaust stream. The idea
appeared promising and the Research Laboratories
went to work on it.
As a result of this work. Research Laboratories
demonstrated technical feasibility of catalytic con-
version, but the research prototype understandably
had problems (CHART 1). It was large, cumber-
some, expensive, pretty hot and somewhat short
lived. But it established technical feasibility.
So the project moved to Engineering Staff. We
soon learned that while we had expertise in exhaust
system hardware, a number of chemical companies
outside General Motors had the necessary knowledge
of catalysts. A contract was arranged with catalyst
suppliers and the working sample of an exhaust
system was designed to use it.
We came up with this system (CHART 2) which
occupied a little more space beneath a car than a
muffler. We also uncovered some new difficulties,
not completely unexpected. Under certain driving
conditions it could overheat and burn out the cata-
lyst. The system needed temperature sensors and a
reliable bypass valve. We also demonstrated the need
for another air source, so an air pump was designed
for this function.
The result was a smaller system with improved
reliability (CHART 3). Economically, it seemed
within reasonable range. But it fell short of techno-
logical feasibility because of the short life of the
catalyst.
Although we have in the meantime developed en-
gine modification systems for reducing hydrocarbons
and carbon monoxide emissions to both California
and federal standards, work continues on catalytic
techniques to reduce catalyst deterioration.
You'll see an example in the exhibits today of
such a converter (CHART 4). It utilizes a precious
metal and produces excellent results, providing
321
unleaded fuels are used. In other words, the idea is still
technically feasible. Technologically, it has two major
drawbacks: Precious metal is not abundant enough
to supply the entire industry and unleaded fuels are
in short supply. Nonetheless, we along with the
chemical companies are looking for a substitute cata-
lyst that is both inexpensive and resistant to lead.
I would like to mention one more example of the
typical research-to-engineering sequence. It involves
the air injection reactor system we introduced in our
1966 models in California. In the early 1960's after
some not too hopeful experiments, engineers at Re-
search Laboratories and AC Spark Plug Division
began to log some promising results with an experi-
mental system of air injection (CHART 5). By intro-
ducing fresh air into the exhaust manifold, they were
able to sustain oxidation of unreacted hydrocarbons
and at the same time reduce CO levels. This verified
technical feasibility.
The next step, of course, was to find out whether
a laboratory version of this system could be de-
signed into a vehicle. It could. Then came the mul-
tiple complexities of making such a system operate
effectively on some 23 engines in our five automotive
divisions— the high volume engines for which we re-
quested certification in California.
The heart of such an air injection technique was
a well designed reliable pump (CHARTS 6, 7) that
would get the right amount of air to a point near
the engine exhaust valves. Too much air would
smother the reaction. Too little would permit it to
expire. You had to have just the proper quantity to
sustain it.
Time doesn't permit details of the crash program
preceding the 1966 certification of the Air Injection
Reactor system in California — the intensive field
testing, the modifications, the fine tuning of the sys-
tem in the entire product lines of the five passenger
car and two truck divisions. This had to be done to
determine technological feasibility of an idea that
had been proved technically feasible earlier.
It involved an unusually large outpouring of en-
gineering talent, experience and effort, with impor-
tant contributions from GM's own component divi-
sions. It also involved another relationship that we
in recent years have become familiar with— the rela-
tionship between our industry and government.
Indeed, one of our reasons for meeting with you
here today is to discuss what this government-indus-
try relationship involves.
In the process of regulation in the emission field,
we believe the first step for regulatory agencies is to
establish acceptable pollutant limits or air standards
for individual pollutants in the atmosphere. What is
the atmospheric carbon monoxide level at which
effects can be noted? How much exposure is likely
to be injurious to health? What are the acceptable
limits for sulphuric effluents? What hydrocarbon
limits are permissible, keeping in mind a region's
prevailing climate? What are the limits for nitrogen
dioxide concentrations?
With such atmospheric pollution limits confirmed
and clearly defined, the regulatory agencies' next
undertaking is to identify individual pollution sources
—mobile and stationary— for each of the pollutants,
such as sulphur, hydrocarbons, oxides of nitrogen
and carbon monoxide. Once this is done, then regu-
lation of the individual polluters— the industries,
processors, utilities and individual vehicles can be
approached on a rational basis.
This was the overall procedural sequence initially
followed by California regulators. The first order of
regulation was to determine what public health limits
were acceptable for atmospheric standards. Then fol-
lowed a comprehensive inventory of sources, quali-
tative and quantative. Then a regulatory pattern was
established to moderate the sources, and from it
evolved the California automotive test cycle and
standards. These gave our industry certain emission
targets to design to.
The federal department of Health, Education and
Welfare is now beginning to determine ambient air
quality criteria and to survey and inventory air pol-
lution sources in various regions or airsheds. The
ultimate goal is a balanced, meaningful enforcement
program on pollutant sources to attain air quality
levels based on clearly defined needs.
In the light of all these developments, what do we
consider the obligation of our industry? It is to de-
velop the technologically feasible control systems
to meet the emission standards for our vehicles that
are truly needed in the public interest.
Before discussing the future, what has the auto-
motive industry accomplished up to now in reducing
emissions from our vehicles and what is the cost to
our customer in relation to such a reduction?
I would like to take a moment or two here to offer
some interesting figures and projections. In 1960 a
322
car without any emission control equipment emitted
567 grams of hydrocarbons per day to the atmos-
phere, as shown on this simple bar chart.
With the 1970 models in California and 1971
models nationally, this total will be reduced from
567 grams of hydrocarbons per car per day to 108
grams (CHART 8). As you see, this is over an 80 per
cent reduction.
In addition to this reduction in HC, carbon mon-
oxide emissions will be reduced by 63 per cent.
In a little while you will be seeing some displays
in our Progress of Power presentation here this
morning. Three of these displays indicate that— in-
deed—additional reductions in emissions are techni-
cally possible. You'll see three experimental exhaust
manifold reactors or afterburners that can do this.
For instance, a 50 per cent reduction, in hydrocar-
bons would result in total hydrocarbon emissions of
54 grams per day (CHART 9).
Now, what are the relative costs involved in these
reductions? On the right side of CHART 10 we have
added a scale showing the relative cost factor. We
have placed the cost of the 459 gram reduction of
hydrocarbons that is already programmed at a rela-
tive cost factor of one.
On CHART 11 I call your attention to the
short bar representing hydrocarbon emissions for a
future 50 per cent reduction beside the tall pile of
coins representing the relative cost required to do
that job. This shows that if an additional 54 gram
reduction in hydrocarbons is needed, the relative
cost factor based on cost estimates of anticipated
hardware requirements would be 8.5. This means
an additional reduction of 54 grains will cost 8.5
times as much per gram reduction as the cost of all
of the reductions made in the last decade.
Stated another way, the cost to get an additional
reduction of 54 grams would be almost equal to the
cost of getting the original 459 gram reduction.
That is why we say it is important now that gov-
ernment agencies should be sure their ambient air
quality standards are based on proven need. After
all, the customer pays for whatever air pollution
control is mandated into his vehicle, regardless of
his personal preference. So we believe he should
benefit from well reasoned and balanced regulation.
At this point I would like to discuss with you
briefly another environmental stimulus— metropolitan
traffic congestion— a problem that has been with us
some time (CHART 12). Even today it is still with us
(CHART 13) and we are responding to it with some
interesting experimental engineering. As you go
through our exhibits here today you will see at least
five special purpose vehicles. Four are operable and
you will have a chance to drive or ride in them.
Three are known as our 512 series. One is the 511,
with a three-wheel suspension system.
There are environmental overtones in these spe-
cial purpose car experiments. Among the ground
rules observed by their designers were: Minimum
emissions, small size, convenience, reliability, fuel
economy, ease of handling or operation. These
would represent basic transportation for special pur-
poses, as distinguished from the general purpose
vehicles most of us drive today.
In the 512 series we have included designs with
gasoline, gasoline-electric and electric power plants.
Obviously, you can see these vehicles would require
a separate road system or exclusive lanes on today's
roads for safety reasons. These cars are for short trip
service. They are comparatively low speed performers
and wouldn't mix in freeway or boulevard traffic. They
would be handy in your immediate vicinity for a run to
the supermarket, to the nearby school, the library, the
drugstore or perhaps the golf club.
The other operating vehicle in our presentation is
the 511, an interesting three-wheel design. The 511
would be a commuter car, designed to carry two
people into the city and back. The basic difference
between this vehicle and the 512 series— other than
the three and four-wheel running gear— is perform-
ance. The 51 1 would be able to mix with freeway or
street traffic, with its four-cylinder gasoline power
plant. It might be the type of car you would drive
to your office in the morning and back home in the
evening. Its speed and range makes it attractive for
metropolitan area driving— but it is doubtful if you
ever would make a vacation trip with your family in it.
You may be interested to know that the three
5 1 2 cars and the 5 1 1 car have been shown to a
number of federal officials from Housing and Urban
Development and the Department of Transportation.
The cars themselves, however, were not involved in
any government funded studies, projects or contracts.
We have been working on them for about three
years.
I must emphasize that in their present state these
four vehicles are experimental test beds to develop
323
mechanical details of respective engineering pro-
posals. They are not designed for styling or esthetic
reasons.
We have a fifth experimental vehicle with us
today. It is called the XP-883 and it is a complete
design concept proposal with styling balance and
appearance. This is a full-size mockup and, overall,
it is a larger vehicle than the 512 series. For in-
stance, it has room for two adults in the forward
facing seats and two children in seats facing rear-
ward. When the two rear seats are not in use, addi-
tional luggage space is provided— more than in the
512 series.
From a performance standpoint, however, this car
would be able to mix with today's traffic. There-
fore, you would call it a commuter car, similar in
purpose to the 511.
The car was designed by GM Styling and we in
Engineering Staff are considering proposals for its
power plant. Computer studies indicate a hybrid
gasoline-electric arrangement, a new design of the
hybrid version in the 512 car you saw in an earlier
slide. However, the XP-883 also can be powered
with either gasoline or electric systems.
Again, I return to my original thesis. These ve-
hicles are examples of technical feasibility— one of a
kind. They are experiments to give us experience in
a highly specialized field of vehicle engineering.
Experimentation, to look back a bit, is not new
to General Motors. . . .
I don't believe too many of you in this room have
personal recollections of the 1939-40 New York
World's Fair in which General Motors presented its
Highways and Horizons— a tour of future America
(CHART 14). This dramatized a transcontinental
flight over America in 1960, as imagined back in
1939.
Then we had the more contemporary Futurama
of the 1964-65 New York World's Fair (CHART
15). I know many of you here today saw some
of these scenes.
These were serious, carefully thought out pan-
oramas (CHART 16). In between those two New
York presentations we have had a number of GM
Styling studies involving the future possibilities of
special purpose vehicles. We have had the Metro-
Mobility concept of mass transit and the continuing
studies of the Research Laboratories Transportation
Research department.
One more point about the Progress of Power
event here this morning. When you entered this
building you walked through an exhibit dramatizing
historical eras and certain landmark engines and
transmissions. I hope you looked at our displays
depicting not only engines and transmissions but also
key developments in other technologies contributing
to our industry.
Obviously, the Otto cycle engine marked the be-
ginning of a great transportation evolution in which
General Motors has participated to the fullest.
Thanks to the generosity of the Smithsonian Insti-
tute, the Alfred P. Sloan Museum of Flint and a
number of private collectors, we have assembled
what we believe to be an imposing array of auto-
motive engineering achievements. Among them in
the engine group is the first V-8 L Head production
engine from a 1914 Cadillac (CHART 17). And be-
fore that, of course we have the 1912 Cadillac with
the first electric starter. The in-hne 1929 Chevrolet
six (CHART 18) was a major achievement of its day,
giving the owner of the low price vehicle a consid-
erable increase in product value in comparison with
the previous four-cylinder standard Chevrolet.
A 1947 in-line six (CHART 19) designed by Re-
search Laboratories indicated the potential of high
compression engine designs. You may recall it was
tested with the superfuel, .Triptane. Later, in 1948,
of course, came the Cadillac overhead valve high
compression short stroke V-8 (CHART 20), which
was the forerunner of all modern V-8 engines in our
industry today.
Naturally, the success of the internal combustion
engine is closely allied with transmission develop-
ments, and our historical collection in the Progress
of Power contains a number of very important speci-
mens. We have the 1928 Cadillac three-speed syn-
chromesh, again a GM development adapted from
the design of the late Earl Thompson. And he later
formed the GM product study group that developed
the first automatic transmission with a fluid coupling
for 1941 models of Oldsmobile and Cadillac
(CHART 21). We know it today as the Hydra-Matic.
Then came the 1948 torque converter, another first
in its field, introduced by Buick (CHART 22). By
1950 Chevrolet had the first torque converter in the
low price field, just as in 1929 it introduced the first
six cylinder engine in the low price field.
If you didn't get time to see this historical presen-
32-193 O— 69— pt. 1-
-22
324
tation, 1 hope you can find time to examine it tbis
afternoon.
In summarj-. this Progress of Power presentation
\erifies that General Motors is working on many
advanced concepts of the interna! combustion engine
and alternate power plants as well, with such en-
vironmental realities m mind as reduction in emis-
sions, improvement in urban congestion, and vehicle
safely. Our objective is to meet the new social needs
while still providing our customers maximum value
m fast, economical, persona] transportation.
325
326
'?*,*
i.
327
328
MOTOR VEHICLE HYDROCARBON EMISSIONS
500 -
567
567
1
400 -
300 -
81%
REDUCTION
GRAMS/CAR/DAY
200 ■
100 -
f 108
0
I960
1970
MOTOR VEHICLE HYDROCARBON EMISSIONS
567 567
500 -
300
GRAMS CAR/DAY
200 ■
100 -
^m^mm^^
81%
REDUCTION
1960
108
t 108
50%
REDUCTION 54
f UTURt
329
MOTOR VEHICLE HYDROCARBON EMISSIONS
400 ■
3, MS/CAR DAY
300
y 459
ILl
54
l^
n'
RELATIVE
- S cost fACIOR
Y 2
MOTOR VEHICLE HYDROCARBON EMISSIONS
567
1
400 ■
CAMS/CAR/DAY
m
300
^459
ill
FUTURE
8
RELATIVE
COST FACTOR
10
11
12.
13
332
17
333
1^ "^r^^^^s-n
J » (^ *~iTiir-r"- „J|J
J8
19
334
20.
21
335
S
22
336
Remarks by E. N. COLE, President
Good afternoon, gentlemen. I want to add my
welcome and thank you for taking time to be with
us today. What you saw and heard this morning
represents the latest studies and developments by
General Motors' scientists and engineers in the field
of energy conversion for automobiles.
But energy conversion research is only one of the
areas in which General Motors is committed to a
leadership role, both in awareness and competence.
There are many others which are vital not only to
the future of our business but also to the continued
growth and general well-being of our nation.
We operate in a highly volatile and competitive
business environment spurred by increasing consumer
demands, rising costs and other pressures of our
business and of society. Our basic requirement is to
provide automotive vehicles which are safe, reliable,
durable and which represent a high level of trans-
portation value for the consumer against competition
from all other types of goods and services. Meeting
this challenge requires continued emphasis on
proving the efficiency of our operations through!
novations both in technology and management. 1
we must do if we are to serve our customers m
effectively and also earn satisfactory dividends
our shareholders and protect the stability of
own business and of the nation's economy.
But society today expects more from the busiiu
man than just doing a good job of running his bi
ness. It looks to him for leadership in seeking sc
tions to the major challenges of our times.
We in the automobile industry are particulii
concerned with those social and environmental issi
related to the use of our products and the operat*
of our facilities— traffic safety, air and water po;
tion, and urban transportation. We also are all
with others in the business community in helping
meet many other complex challenges of our mod
society— such as the crisis in our cities, education i
the problems of the disadvantaged. In all of th
areas, both technical and non-technical, we are cc
mitted to constructive action.
In the technical areas of research and devel
ment, air pollution and automotive safety are
two major problems facing us today.
The automobile industry has made tremend"
progress in improving the safety of its vehicles o
the years. This includes advances both in the ca)
bility for avoiding accidents and protecting the
cupants in the event of an accident. And we >
make even further progress in years to come.
But we are concerned that similar attention is !
being given by state and federal authorities to i
provements in both roads and driver performani
Regardless of the continuing advances in automot'
safety design, we cannot expect a significant red
tion in traffic deaths and injuries unless there
strong nationwide efforts to upgrade the quality
our highways and drivers.
From the vehicle viewpoint, the passive saf)
features— those which require little or no particif
tion on the part of the driver or occupants— are 1
most desirable. We have assigned high priority to ti
development of features which will improve t
capabilities of the driver to avoid an accident. Es<
of handling and rapid response characteristics
basic. Power steering, brakes and the automa'
54
337
Lpiissic
ision also represent important features which
[ e driver effort and allow him to concentrate on
ll driving tasks.
t the tire is perhaps the best example of a
ii/e safety feature in helping the driver avoid
cents. The tire is the car's only contact with the
i-the medium through which all control is exer-
; by the driver.
e latest development in tire technology is the
J My, glass fiber belted tire currently available as
nal equipment on some industry models but
j;ted to gain wider usage during the next year.
1 new tire offers improved traction, particularly
I'et roads. It has greater resistance to damage
: road hazards and significantly longer tread life,
addition to improved crash avoidance capabili-
ithe car of the future, in my opinion, also will
many new built-in features which will help to
b the tremendous amount of kinetic energy in-
:d in a severe accident. These energy-absorbing
res for increased occupant protection might in-
;; instrument panels of different shapes, materials
location, and devices which would provide a
on for occupants in the event of an accident
ind a certain level of severity. Other new con-
of energy-absorption— both on the outside and
e of the car— are under study,
the area of air pollution control, we have made
:antial progress toward cleaner air.
\i pointed out earlier this morning, our current
;-ol systems have reduced the amount of both
ocarbon and carbon monoxide emissions more
60 per cent compared with non-equipped cars.
1970 model passenger cars will have modified
sion control systems that will further reduce
.ust hydrocarbon and carbon monoxide emissions
.n estimated 10 per cent. In CaUfornia, we will
a system on 1970 models to control evaporative
s from the carburetor and fuel tank which will
ce total hydrocarbon emissions by over 80 per
compared with an uncontrolled car.
he matter of controlling oxides of nitrogen is
•A frequently by air pollution authorities, particu-
r in California. On the basis of limited testing
xperimental cars to date, General Motors is op-
stic that oxides of nitrogen emissions from most
ts 1970 model passenger cars will approach the
I required in the 1971 California standards,
vever, the value of oxides of nitrogen control has
been questioned because available data indicate that
a reduction in oxides of nitrogen could actually in-
crease smog instead of reduce it due to the p>eculiar
chemistry of the photochemical reaction.
We have turned the comer in controlling automo-
tive emissions, but we are continuing to devote ex-
tensive efforts toward even further improvements.
Our show today spotlights a variety of advance
power concepts, most of which in their basic opera-
tions have relatively low pollutant emissions. The
purpose of this program is to demonstrate the magni-
tude of General Motors research and development
activities in all types of power plants and control
systems and to discuss the potential of these con-
cepts for reducing vehicular air pollution in the
future.
The historical exhibit of automotive power de-
velopment you saw in the lobby of this building
traces nearly four centuries of progress. There were
two aspects of this display which impressed me.
First, the compression of time in the five eras
depicted by our engineers demonstrates dramatically
the acceleration of automotive development. The
first era- from crude, gunpowder engine experiments
to the four-stroke engine developed by N. A. Otto in
1876— spaimed 200 years. The second era— a period
of experimentation and growth— took 25 years. The
next two periods involved stabilization, mass produc-
tion and refinement, and lasted 20 and 15 years,
respectively. The fifth and current era began only
nine years ago, and is characterized by power train
optimization.
Clearly more progress is being made in shorter
time frames, and it is equally clear that greater
expenditures of time and effort are required to
develop new concepts today to meet the more spe-
cialized and demanding requirements of the Ameri-
can motorist.
The second major impression I received from the
exhibit was the highly competitive nature of early
power plant development from which the internal
combustion engine successfully emerged. In 1900,
for example, when 4,192 vehicles were manufactured
in this country, 1,681 of them were powered by
steam, 1,575 by electricity, and only 939 by gasoline
engines.
Why then did the gasoline engine achieve the
position it holds today?
The answer is that under the refining pressures of
55
I
338
research and development, the internal combustion
engine was proven to be the most feasible, the most
practical, and the best suited to the job of powering
a car. That task, incidentally, places a variety of
severe demands on a power plant— much more so
today than at any time in the past.
Starting from an inferior position, the inherent
technical and economic advantages of the gasoline
engine were developed more readily and to a higher
state of art than the competing steam and electric
imits. Research on steam and electric vehicles, how-
ever, continued over the years. Floyd Clymer's auto-
motive history records more than 1 1 0 nameplates of
steam powered cars in this country.
Some of the same disadvantages of steam and
electric power plants which caused them to lose out
in the early competition with the gasoline engine
remain today as significant obstacles to their broad
automotive application. The only valid reason for
the support of electric and steam power plants today
is their promise of relatively low levels of pollutants.
However, the trade-offs necessary to use of these
power plants in their present stages of development
are severe.
Even though we are firm in our belief in the su-
periority of the internal combustion engine, we are
similarly firm in our commitment to thoroughly in-
vestigate all possible alternative power plants for
automobiles.
The industry, during the past 40 years, has ex-
plored just about every type and configuration of
power plant that could possibly comf)ete with the
gasoline internal combustion engine. This includes
various forms of electric power plants, the steam en-
gine, the Stirling external combustion engine, free
piston engine, Diesel and gas turbine power plants,
and hybrid power plants.
All of these advance power concepts have ad-
vantages—real or potential— over the internal com-
bustion engine, with lower pollutant emissions being
a major plus in virtually every case. But each of them
also has major disadvantages which reduce its prac-
tical value as an all-round competitor to the internal
combustion engine, as you have seen and heard this
morning. If any new power plants are to achieve
broad usage— with no reductions in safety, economy
and convenience— major technological breakthroughs
will be required.
We do not claim breakthroughs for any of these
I
projects you have seen today. And obviously
siderable additional development is necessar ^
fore any of the vehicles on display could be
available for production.
General Motors, however, will continue to aj
sively press its research efforts in all areas of ir^
power in an attempt to reach solutions whicl ju
best serve the needs of society with respect to fli
air pollution and overall transportation requiren s.
The time and effort required to develop a t
kind of automotive power plant is not gen ly
recognized by those outside of the power-ori xl
industries. I believe the history of the gas tu le
engine illustrates the magnitude of this task.
The GM Research Laboratories has been s |.
ing gas turbine engines and their possible applic ,0
to vehicles for more than 20 years. An experiir a]
gas turbine engine was constructed and tested i le
late 1940's. The first gas turbine powered pass ;r
car built in this country— the Firebird I— was >
duced by GM in 1954.
Subsequent development work led to other en s
not only at our Research Laboratories but al it
our Allison and Electro-Motive Divisions. Res h
units were installed in Firebirds II and III, i h
were built in the late 1950's. In addition, thes :-
perimental engines were installed in trucks d
coaches to investigate their potential in these ; i-
cations.
Turbine work continued here at the Tecl il
Center and in some of our divisions, and addi; j!
engineering effort led to such developments a x
regenerative gas turbine engine and GM's f a
transfer— both of which helped to solve some < ii
power plant's problems regarding automotive : i
cations.
The latest development came recently in th i
nouncement by our Detroit Diesel Engine Di' i
that production of gas turbine engines for 1
applications would begin in 1971. I
Thus, after years of extensive and intensiv j
search and development— including the constn; I
of special laboratories and other facilities— thi u
turbine engine has been developed from initia :■
periments to a production model for special pui i
applications.
This power plant, however, still cannot con (
with the internal combustion engine as a passi )
car power plant. A major reason is that becaus' i
56
339
riturbine engine inherently operates at continuous,
1 1 temperature levels, the present materials technol-
)' requires the tise of expensive materials. In addi-
j;, the transient response characteristics of the gas
I'line cannot match the internal combustion engine.
Me it is competitive with other truck and bus
ncs which operate over longer periods at rela-
jly steady speeds and loads, the gas turbine en-
nters difficulty in competing with the internal
ibustion engine in stop and go traffic, rapid
ijleration, and other typical city driving modes.
nteresting parallels can be drawn between the
; turbine and current discussions about steam
ines. You saw two GM steam engines today, and
e heard their advantages and disadvantages dis-
ced. While steam engines certainly are not new,
r stage of development as modern automobile
,er plants approximates the early days of gas
()ine engines.
Compared to the internal combustion engine, the
im engine is inefficient. Its size, weight, and cost
Imajor components also are serious handicaps.
!lhermore, the freezing problem is critical unless a
I working fluid can be developed.
I n its basic design, the steam engine is simple. But
lilso is very poorly suited to provide the power
ded and demanded by the American motorist,
en modifications are made to help the steam
ine meet these complex automotive requirements
)r example, to reduce size or provide accessory
ver— then the complexity and cost of the steam
;ine rises rapidly. To be truly competitive with
sent engines, any alternative power plant must
isfy all automotive requirements, not just provide
lie power. And it must be economically feasible—
nust be able to be manufactured inexpensively on
nass production basis using ordinary materials as
II as be inexpensive to operate and maintain.
With respect to the steam cars you saw this morn-
ing, it was pointed out that one has an engine built
by Besler Developments, Inc., and the other an
engine built by GM Research Laboratories. We
claim no great scientific breakthroughs on these de-
velopments, but General Motors is willing to share
the steam technology represented in these two
vehicles through the grant of licenses on any features
for which we obtain patents.
An accurate perspective of engine development
effort is essential for decisions affecting automotive
power plants. If we expect to develop a truly com-
petitive alternative power plant, I cannot emphasize
too strongly the need for technological break-
throughs. And these require considerable develop-
ment effort.
At the present state of technology, the internal
combustion engine is the best all-round power source
for the automobile. We recognize that its emissions
do contribute to air pollution and we share the
nation's concern over this important and complex
problem. However, we believe that clean air quality
objectives in the foreseeable future can be achieved
most quickly and at a lower cost through further de-
velopment and refinement of the conventional in-
ternal combustion engine, along with improvement in
emission control systems and fuels.
As our times change and our technological knowl-
edge increases, so do the ways people live and
travel. We in General Motors are committed to re-
search and development programs which will give
us the technological competence not only to meet
the increasing requirements of our business but also
to provide leadership in insuring the continuing
progress and well-being of our nation and its people.
We are meeting this responsibility today— and we
will continue to meet it in the future.
Thank you.
57
32-493 O— 69— pt. 1-
-23
340
341
342
Exhibit 25
(Automobile Manufacturers Association's exhibit No. 15: paper by the E ^
neering Office, Chrysler Corporation, "History of Chrysler Corporation G
Turbine Vehicles" (Jan. 1964, revised Aug. 1966).)
History o
Chrysler Corporatioi
GAS T U R B I N I
VEHICLE
BfGINEERING OFFICE
w
CHRYSLER
CORPORATION
343
HISTORY
of
CHRYSLER CORPORATION
GAS TURBINE VEHICLES
MARCH 1954 - JUNE 1966
A review of gas turbine -powered vehicles
shown publicly by Chrysler Corporation.
CHRYSLER CORPORATION
ENGINEERING OFFICE
Technical Information
January, 1964
Revised: August 1966
Pai
344
CONTENTS
EARLY INVESTIGATIONS AND RESEARCH 1
Survey before World War U
Navy contract for aircraft engine
Automotive turbine development
Problems to be solved with the turbine
Advantages of today's turbine
THE FIRST TURBINE CAR
1954 Plymouth Turbine
Display at Waldorf-Astoria in New York City
Demonstration at the Chrysler Proving Grounds
The first engine and its important features
Installation in a 1955 Plymouth
-niE 1956 CROSS-COUNTRY ENDURANCE TEST 6
1956 Plymouth test from New York City to Los Angeles
Improvements in the engine
THE SECOND GENERATION TURBINE 8
1959 Plymouth test from Detroit to New York
The engine and its major improvements (efficiency and materials)
A TRIO OF GAS TURBINE VEHICLES 10
The Turboflite
1960 Plymouth Turbine car
Two-and-a-haLf ton Dodge truck with a turbine engine
Gas Tkrbine Power Conference in March 1961
AN IMPORTANT PHASE OF RESEARCH AND DEVELOPMENT L
A coast-to-coast engineering evaluation
1962 Dodge Turbo Dart
The third generation turbine (CR2A) and its specifications
345
CONTENTS (cont'd)
Page
(■)NSUMER REACTION TOURS 16
1962 Dodge Turbo Dart and Plymouth Turbo Fury
Arrangements for the tours
Consumer reactions
Announcement to build 50 to 75 turbine cars
Dodge Turbo Truck
Chicago Automobile Show
Engineering award received by Mr. G.J. Huebner, Jr.
.TURBINE CAR FOR PUBLIC EVALUATION 20
Chrysler Corporation Turbine Car
TTie Fourth generation turbine engine and its specifications
Driving the car
Production facilities
Consumer Research Program
Selection of users
First consumer delivery
Summary of Consumer Delivery Program
ESULTS OF CONSUMER EVALUATION PROGRAM 32
Users' Reactions
Engineering gains from the users' program
The Service Aspect
THER EXPOSURES OF THE TURBINE CAR 38
Shopping Center Exhibit
World Tour
The Turbine Car at the World's Fair
Tour of Colleges
Remarks
i
i LOOK TO THE FUTURE 42
346
HISTORY of
CHRYSLER CORPORATION GAS TURBINE VEHICLES
MARCH 1954 - JUNE 1966 ,.^
EARLY INVESTIGATIONS AND RESEARCH
At Chrysler Corporation, the earliest work on gas turbine engines dates back to before
World War Il.when an exploratory engineering survey was conducted. These studies
showed that, although the gas turbine engine had strong possibilities of being an ideal
automobile engine, neither materials nor techniques had advanced to the point where th
cost and time of intensive research would be warranted.
At the close of World War II, studies of completely new concepts in gas turbine design-j
were started. As a result of this work, Chrysler was awarded, in the fall of 1945, »<<
research and development contract by the Bureau of Aeronautics of the U. S. Navy to'ij^'i
create a turboprop engine for aircraft. This program- -although terminated in 1949--
resulted in the development of a turboprop engine which achieved fuel economy ap-
proaching that of aircraft piston engines.
Chrysler research scientists and engineers then returned to their original objective- -
the automotive gas turbine engine. In the early 1950's, experimental gas turbine poweii
plants were operated on dynamometers and in test vehicles . Active component developi
ment programs were carried out to improve compressors, regenerators, turbine
sections, burner controls, gears, and accessories.
Here they faced many challenges: fuel consumption had to be competitive with conven-
tional engines; components had to be small and highly efficient; noise had to be in the
tolerable range; engine braking was a necessity, and the acceleration time-lag had to
be reasonable.
In addition, readily available and non- strategic high temperature materials had to be
developed, exhaust gas temperatures had to be low, and development work had to meet<
the requirements of building an engine which would be light, compact, reliable, easy tc
maintain and, from the cost aspect, competitive with the conventional automobile engin
In spite of these difficult requirements, Chrysler research engineers were convinced
that the potentialities of the automotive gas turbine engine were more than sufficient to
warrant intensive research and a full-scale design and development program.
347
day, it is obvious that the advantages of the gas turbine over the conventional engine
indeed, real. Some of these advantages are:
. Maintenance is reduced considerably
. Engine life-expectancy is much longer
. Development potential is remarkable
. The number of parts is reduced 80%
. Tuning-up is almost eliminated
. Low-temperature starting difficulties are eliminated
. No warm-up period is necessary
, Antifreeze is not needed
. Instant heat is available in the winter
. The engine will not stall with sudden overloading
. Engine operation is vibration-free
. Operates on wide variety of fuels
. Oil consumption is negligible
. Engine weight is reduced
. Exhaust gases are cool and clean
348
3 -
THE FIRST TURBINE CAR
March 25, 1954 was a very important date in automotive gas turbine history: Chryi
Corporation disclosed the development and successful road testing of a 1954 product!
model Plymouth sport coupe which was powered by a turbine engine. The same car
on display from April 7 through 11 at the Waldorf-Astoria Hotel in New York City,
on June 16, 1954, it was demonstrated publicly at the dedication of the Chrysler Engj
neering Proving Grounds near Chelsea, Michigan.
1954 PLYMOUTH TURBINE GETS A PROVING GROUNDS WORKOUT
This car marked the first attempt by an American automotive firm to install a gas tuj
bine engine in a production automobile .
The engine was rated at 100 shaft horsepower. Although built essentially as a
laboratory development tool, it was considered to be "a milestone in automotive powe
engineering" because it embodied solutions to two of the major problems long associa J
with vehicular gas turbines --high fuel consumption and scorching exhaust gas.
The key feature which contributed to removing these technical barriers was the revo-
lutionary new heat exchanger, or regenerator. It extracted heat from the hot exhaust
gases, transferred this energy to the incoming air, and thus lightened the burner's jo
of raising the gas temperature. The result was conservation of fuel as well as lower
exhaust temperatures.
349
- 4 -
TURBINE ENGINE FITS NEATLY INTO 1954 PLYMOUTH
Igas turbine engine without a regenerator would have required several times the amount
fuel normally used in a regenerator-equipped engine. The extra fuel would be re-
tired to heat the gases to operating levels .
)e regenerator also performed another important function. It reduced the exhaust gas
mperature from about 1200 degrees F at full engine power to a safe level of less than
)0 degrees F. Even more important, at idle the temperature was reduced to 170
,;grees F. By the time the gases pass through the exhaust ducts to the atmosphere, the
mperature was reduced even further.
ven with these breakthroughs, a great deal of work and many development problems
iiU remained. On the date of the original turbine disclosure (March 24, 1954),
"hrysler Corporation stated: "Whether we ultimately shall see commercial production
: gas turbines for passenger cars depends on the long-range solution of many complex
letallurgical and manufacturing problems. There is no telling at this time how long it
ill take to solve these problems . "
350
- 5
Almost a year later, the same basic engine was installed in a 1955 Plymouth. Thisc
although never displayed at public exhibits, was used for driving evaluation tests on
Detroit area streets.
DETROIT TRAFFIC TEST FOR 1955 PLYMOUTH TURBINE
351
THE 1956 CROSS-COUNTRY ENDURANCE TEST
1 March, 1956, another historic event took place- -the first transcontinental journey
f an automobile powered by a gas turbine engine.
1956 TURBINE SPECIAL EN ROUTE CROSS-COUNTRY
I
The turbine car- -a four-door 1956 Plymouth sedan, a standard production model in
every respect except for the revolutionary Chrysler-developed power plant- -departed
from the Chrysler Building in New York City on March 26. On March 30, four days
and 3,020 miles later, it completed the cross-country endurance lest when it arrived
at the City Hall in Los Angeles, California. The purpose of the run was to test the
turbine's durability, acceleration, fuel economy, control in traffic, action on steep
grades, and operation under various climatic conditions. It marked another Chrysler
Corporation "first" in the automotive record books and was considered a successful
test.
Over the entire trip, fuel economy averaged approximately 13 miles per gallon using
mostly "white" (unleaded) gasoline and some diesel fuel. The run was interrupted
only twice for minor repairs which did not involve the turbine engine (a faulty bearing
in the reduction gear and an intake casting were replaced). The engine itself and its
basic components performed very well and without faUures of any kind.
352
I
The experimental turbine engine was essentially the same as the one tested previous!
in the 1954 Plymouth. However, it reflected progress in the following major poi
engine friction was greatly reduced; considerable work had been done with plain bearii
instead of more expensive types of antifriction bearings; the combustion system was inl
proved, and engine controls were developed further. Automatic controls allowed dl
driver to operate the turbine car just as he would a conventional automobile .
MAIN COMPONENTS OF THE FIRST GENERATION GAS TURBINE ENGINE were:
(A) Accessory Drive Gears; (B) Compressor Impeller; (C) Regenerator; (D) Combus-
tion Chamber; (E) First-Stage Turbine, which drives the compressor impjeller and
accessories; (F) Second-Stage Turbine, which supplies power to the transmission;
and (G) Double -Stage Reduction Gearing to the transmission.
353
THE SECOND GENERATION TURBINE
Biing their calculations on extensive test data and performance results of the 1956
-ss-country trip, Chrysler engineers designed and developed a second engine. After
e3;nsive laboratory tests, it was installed in a standard production 1959 Plymouthfour-
iiT hardtop.
1959 PLYMOUTH TURBINE SPECIAL READY FOR ROAD EVALUATION
December, 1958, this latest Turbine Special made a 576-mile test run from Detroit
New York. The results showed significant improvements in fuel economy.
lis second generation turbine (also a laboratory development tool) operated in the 200
)rsepower range; and, although it was improved in almost every respect, two areas
,sre particularly outstanding- -efficiency and materials.
hree major engine components (compressor, regenerator and burner) showed signifi-
int improvements in operating efficiency. The compressor efficiency was brought up
354
9 -
to 80 per cent, a 10 per cent increase. The regenerator or heat exchanger unit re-
claimed almost 90 per cent of the heat energy in the exhaust gas whereas peakefficie
in the 1956 cross-country run was around 86 per cent. Burner efficiency also was in?
proved so that it was approaching the point of ideal combustion.
Less apparent, but fully as important as the engine design advances, was the progre
in turbine metallurgy. Prior to this time, automotive turbine metals were similar t<
those used in aircraft jet engines. Although these existing materials certainly were
adequate for test engines, they would not be suitable for automotive production for
key reasons: cost, and the simple fact that neither production capacity nor the avail
world supply of the required alloying materials could support such a program.
Through Chrysler metallurgical research, new materials were developed which: con
tained plentiful and relatively inexpensive elements; could be fabricated by conventioi
means; and had excellent resistance to heat and oxidation at elevated temperatures.
Applications for these new materials were combustion chamber liners, turbine wheel
and blades, etc.
The accompanying illustration
shows a three-inch disc of the
new material (left), with a
disc of high-grade stainless
steel (right). Both samples
were exposed in air to tem-
peratures above 2, 000 degrees
F in an electric furnace for 150
hours , At the end of that time,
the new Chrysler -developed ma-
terial showed no distortion or
disintegration, while the effect
on the stainless steel sample is
apparent.
METALLURGICAL BREAKTHROUGH
355
10 -
A TRIO OF GAS TURBINE VEHICLES
incouraged by previous progress, Chrysler engineers designed the third generation
)f the turbine and introduced it in tliree different vehicles. The initial showing was to
lewsmen on February 28, 1961. The vehicles were displayed publicly in Washington,
D. C, March 5-9, 1961, in conjunction with the Turbine Power Conference of the
American Society of Mechanical Engineers, co-sponsored by the Department of Defense .
TURBOFLITE--ADVANCED POWER, ADVANCED STYLING
The first of these gas turbine vehicles was an experimental sports car called the
"Turboflite" (shown above). In addition to the engine, other advanced ideas of the car
were the retractable headlights, a deceleration air-flap suspended between the two
stability struts, and an automatic canopied roof. This "idea" car received wide public
interest and was shown at auto shows in New York City, Chicago, London, Paris, etc.
I960 TURBINE -POWERED PLYMOUTH
32-493 O— 69— pt, 1 24
356
- 11
The second of the vehicles was a 1960 Plymouth (shown on the previous page) which
was standard in every respect except for the engine and minor exterior styling modi-
fications .
The final member of this trio was a two-and-a-half-ton Dodge truck which was a stand-
ard production vehicle- -except for its gas turbine engine. This application demon-
strated the turbine's versatility and adaptability because the engine in this truck was
basically the same as those in the passenger cars.
TURBINE POWER FOR I960 DODGE TRUCK
357
- 12
AN IMPORTANT PHASE OF RESEARCH AND DEVELOPMENT
After months of test and development work, a CR2A gas turbine engine was installed
in a modified 1962 Dodge.
Called the Dodge Turbo Dart, styling modifications to the car were adapted to reflect
its radically different power plant. The bladed wheel motif of the grille and wheel
covers reflected the appearance of the vital components of the gas turbine.
COAST-TO-COAST TEST VEHICLE— 1962 DODGE TURBO DART
The car left New York City on December 27, 1961 , to begin a coast-to-coast engineer-
ing evaluation . After traveling 3, 100 miles through snowstorms, freezing rain, sub-
zero temperatures and 25 to 40 mile per hour head winds, it arrived in Los Angeles
on December 31.
The turbine had not only lived up to all expectations but had exceeded them! An inspec-
tion showed every part of the engine in excellent condition. Fuel economy was consist-
ently better than a conventional car which traveled with the turbine car and was exposed
to the same conditions.
358
- 13
MAIN COMPONENTS OF THE CR2A gas turbine are: (A) the starter-generator;
(B) fuel pump; (C) regenerator; (D) compressor impeller; (E) combustion chamber;
(F) first-stage turbine, which drives the compressor impeller and accessories; (G)
variable second-stage nozzle; (H) second-stage turbine which supplies power to the
driveshaft; (I) one of two exhaust outlets; 0) single-stage helical reduction gear of
8.53-to-l ratio which reduces power turbine rpm of 39,000 to 45, 730, to a rated out-
put speed of 4, 570 to 5, 360 rpm.
359
14
SPECIFICATIONS OF CHRYSLER CORPORATION'S
MODEL CR2A GAS TURBINE ENGINE
GENERAL
Type: Regenerative gas turbine
* Rated Output: Power - 140 bhp @ 4, 570 rpm output shaft speed
Torque - 375 Ib-ft @ zero rpm output shaft speed
Weight: 450 lbs
Basic Engine Dimensions (without accessories)
Length
Width
Height
With automotive accessories in place, the over-all length is:
Fuels: Unleaded gasoline, diesel fuel, kerosene, JP-4, etc.
27 inches
35 inches
27 inches
36 inches
COMPONENTS
Compressor: Type
• Stages
Pressure Ratio
Centrifugal
One
4:1
Efficiency
80%
First Stage Turbine: Type
Stages
Efficiency
- Axial
- One
- 87%
Second Stage Turbine: Type - Axial
Stages - One
Efficiency - 84%
Regenerator:
Type - Single rotating disk
Effectiveness - 90%
Burner: Type - Single can, reverse flow
Efficiency - 95%
* DESIGN POINT CHARACTERISTICS
Maximum Gas Generator Speed - 44, 600 rpm
Maximum Second Stage Turbine Speed - 45, 700 rpm
Maximum Output Speed (after reduction gears) - 5, 360 rpm
Maximum Regenerator Speed - 17 rpm
Compressor Air Flow - 2.2 lb/sec ^
First Stage Turbine Inlet Temperature -^ 1700 F
Exhaust Temperature (full power) - 500 F
* Ambient conditions: Temperature - 85°F; Barometric Pressure - 29.92 in. Hg
360
15
The key to the excellent performance and economy of the third generation gas turbine
(called the CR2A) was its new variable turbine nozzle mechanism.
THE VARIABLE NOZZLE MECHANISM is installed by a research engineer in the rea»
of the CR2A-turbine engine housing (left). The nozzle mechanism (right) acts in
shutter fashion to provide engine braking, improve acceleration and increase fuel ec(
nomy by controlling and directing the angle of the jet stream to the power turbin&
blades.
The automatic second stage turbine nozzles provided optimum results throughout the
entire operating range of the engine. Thus, economy, performance, or engine brakii
could be maximized as required by the driver. For example, one area of performan*
is what is termed acceleration lag- -the time it takes the compressor section to reach
operating speed after the accelerator pedal is depressed. The first turbine engine ha
an acceleration lag of seven seconds from idle to full -rate output; the second engine
required three seconds to achieve maximum vehicle acceleration, while this new engi
required less than one and one-half seconds to accomplish the same performance.
361
16
CONSUMER REACTION TOURS
\nother experimental turbine-powered car--the Plymouth Turbo Fury — joined the
.Dodge Turbo Dart, and the two turbine-powered cars began extensive consumer reac-
|;ion tours at dealerships throughout the country in cities such as Los Angeles, San
Francisco, Kansas City, St. Louis, Cleveland, Detroit, Chicago, etc. Two other
airbine cars, a second Dodge and a second Plymouth, were added during the month of
April in order to expand coverage of the tours. AU four cars were powered by ver-
sions of the CR2A turbine engine.
1962 TURBINE TWINS
The tour schedule was similar in each area. When the cars arrived in a given city
they were first displayed to members of the local press. The press events involved
explaining the turbine and answering questions, giving each newsman a ride in one of
the cars, and, in some cases, staging special tests. After menibers of the press had
viewed the cars, they were then displayed at various dealerships.
362
- 17
One of the key reasons for these tours and exhibits was to elicit and evaluate consumei
reactions to the turbine. The cars were shown at Plymouth and Dodge dealerships in
approximately 90 major cities in the United States and Canada.
STOPOVER POINTS ON CONSUMER REACTION TOUR
During this time hundreds of thousands of people came to see the turbine vehicles, and(
public interest was intense and serious. When asked, "if this car were offered forsal«
to the motoring pijblic, do you think you would buy one?" 30 per cent of the turbine
viewers said "yes" they would definitely buy one and 54 per cent answered they would
think seriously of buying one.
363
18
i a result, on February 14, 1962, Chrysler Corporation announced that it would build
to 75 turbine -powered passenger cars which would be available to selected users by
e end of 1963. Typical motorists would be offered an opportunity to evaluate turbine
irs under a variety of driving conditions.
February 14, 1962, in Chicago, Chrysler Corporation exhibited another gas turbine
'hide- -the Dodge Turbo Truck. This medium-duty truck (also equipped with the
12A experimental engine) had just completed a 290-mile test run from Detroit to
licago .
TURBINE PULLING POWER TESTED IN 1962 DODGE TURBO TRUCK
Irom February 17 through 25, three gas turbine-powered vehicles (the Plymouth.
)odge, and Dodge Truck) were exhibited at the Chicago Automobile Show.
In March 7, 1962, George J. Huebner, Jr., Executive Engineer of Research for
Zhrysler Corporation, received an award from the Power Division of the American
364
19
GEORGE J. HUEBNER, JR. RECEIVES AWARD FOR
GAS TURBINE LEADERSHIP
Society of Mechanical Engineers "for his leadership in the development of the first
automotive gas turbine suitable for mass-produced passenger automobiles." It was
the first such award ever given to an automotive engineer.
365
20
A TURBINE CAR FOR PUBLIC EVALUATION
toy 14, 1963, was an eventful day in t±ie history of automotive design--tlie Chrysler
lorporation Turbine Car was unveiled to newsmen at the Essex House in New York City.
)n the same day, a ride-drive program for the press was held on a two and one-half
lile course at the Roosevelt Raceway on Long Island. On May 15, the car was viewed
t the Waldorf-Astoria Hotel in New York City by Chrysler's Metropolitan New York
ealers .
rhese events signalled the public launching of Chrysler Corporation's program of build-
ng 50 turbine -powered test cars and placing them in the hands of typical drivers for
■valuation in everyday use.
i
rhis program was an outstanding point in the history of turbine vehicles for two reasons:
t was the first time any company had committed itself to build a substantial number of
!ras turbine automobiles; and it was the first time turbine -powered automobiles would
ye driven and evaluated by private individuals outside the corporation.
The Turbine Car was a completely new automobile. Since the sole purpose was to
determine the reaction of typical American drivers to turbine -powered vehicles, the
engine was placed in a family-type car designed for everyday use. This formed a
familiar evaluation background for the driver. The styling theme provided an exciting
setting for the vehicle itself, creating an over-all impression of fresh styling appeal
with strong emphasis on a contemporary and luxurious appearance. Ornamentation was
A COMPLETELY NEW CAR
366
21
REAR VIEW EMPHASIZES AERODYNAMIC STYLING
based on the bladed turbine motif which is characteristic of the engine. The interi
featured a full-length center console and extensive use of leather.
I :.^-,---^_jj<jw..~,^-^jiiLi3sHtta.jj..,i!.'*a-..».ar!'
LUXURIOUS INTERIOR APPOINTMENTS
OF THE TURBINE CAR
The limited-production Turbine Car was built in one body style only--a 4-passenge
2-door hardtop. The exterior and interior color was Turbine Bronze. Power steerin
power brakes, power window lifts, automatic transmission, and all other availab
equipment were standard.
367
22
MAIN COMPONENTS OF THE TWIN-REGENERATOR GAS TURBINE:
(A) accessory drive; (B) compressor; (C) right regenerator
(D) variable nozzle unit; (E) power turbine; (F) reduction
gear; (G) left regenerator; (H) compressor turbine;
(I) burner; (J) fuel nozzle; (K) igniter; (L) starter-
generator; (M) regenerator drive shaft; (N) ignition unit.
"he turbine power plant for the car was an entirely new design, more advanced in con-
ept than the previous Chrysler turbines, and more adaptable to production techniques.
was Chrysler Corporation's fourth generation turbine power plant design. Its most
bvious feature was a new configuration with two regenerators rotating in vertical planes
)ne on each side) and a centrally located burner. Compared with the previous model
R2A, the new engine was more lively, lighter, more compact, and quieter.
368
- 23 -
SPECIFICATIONS OF CHRYSLER CORPORATION'S
GAS TURBINE ENGINE
GENERAL
Type: Regenerative gas turbine
* Rated Output: Power - 130 bhp @ 3,600 rpm output shaft speed
Torque - 425 Ib-ft @ zero rpm output shaft speed
Weight: 410 lbs
Basic Engine Dimensions (without accessories):
Length -
25 inches
Width -
25.5 inches
Height -
27.5 inches
With current accessories in place, the over-all length is: 35 inches
Fuels: Unleaded gasoline, diesel fuel, kerosene, JP-4, etc.
COMPONENTS
Compressor: Type - Centrifugal
Stages - One
Pressure Ratio - 4:1
Efficiency - 80%
First Stage Turbine: Type - Axial
Stages - One
Efficiency - 87%
Second Stage Turbine: Type - Axial
Stages - One
Efficiency - 84%
Regenerator: Type - Two rotating disks
Effectiveness - 90%+
Burner: Type - Single can, reverse flow
Efficiency - 95%
♦DESIGN POINT CHARACTERISTICS
Maximum Gas Generator Speed - 44, 600 rpm
Maximum Second Stage Turbine Speed - 45, 700 rpm
Maximum Output Speed (after reduction gears) - 4, 680 rpm
Maximum Regenerator Speed - 22 rpm
Compressor Air Flow - 2.2 lb/sec
First Stage Turbine Inlet Temperature -^ 1, 700 F
Exhaust Temperature (full power)^- 525 F
Exhaust Temperature (idle) - 180 F
♦Ambient conditions: Temperature - 85°F; Barometric Pressure - 29.92 in. Hg
369
- 24
INSTRUMENTATION AND CONTROLS
^he operation of the Turbine Car is much the same as that of a car with a piston engine
nd an automatic transmission.
To
Start - Place the transmission shift lever in the "Idle" location and push down to
;ngage the "Park/Start" position. Turn the ignition key to the right and release it.
Starting is automatic. Within a few seconds, the inlet temperature and tachometer
rauges on the instrument panel will read about 1200°F and 22,000 rpm, respectively,
ndicating that the engine is started.
to Drive - Place the transmission in "Low", "Drive", or "Reverse" (as with a con-
ventional car), release the parking brake, and the car is ready to drive. Push the
accelerator pedal to go, release it to reduce speed, and press the brake pedal to stop.
To Park - Bring the car to a complete stop, place the transmission lever in the "Idle"
location and push it down to engage the "Park/Start" position, apply the parking brake,
and turn the ignition key to the "off" position.
370
- 25
Performance and economy of t±ie TurMne as demonstrated in proving grounds and hig,
way tests were comparable to a conventional car with a standard V-8 engine. T.
engine operated satisfactorily on diesel fuel, kerosene, unleaded gasoline, JP-4 (j
fuel), and mixtures thereof. And, even more interesting, it was possible to chanj
from one of these fuels to another without any changes or adjustments to the engin
The turbine engine has many other advantages, too (see summary list on page 2), a;
one of the objectives of the user evaluation program was to see just how much the
advantages mean to the average motorist.
The Chrysler Corporation Turbine Cars were built at a rate of one per week until ti
last of the 50 cars was completed in October, 1964, The special facilities for buildi:
these limited production test cars were located at Chrysler Corporation's Engineeri:i
Research Laboratories in Detroit. At the assembly area, the Chrysler-designed c,
bodies, which were built by Ghia of Italy, were lowered onto the new engines and chass
components. The turbine engines were built and tested at Chrysler's Research Lab*
ratories.
CHRYSLER PRESIDENT TOWNSEND VIEWS
THE FIRST TURBINE CAR ASSEMBLY LINE
371
26 -
jTHE CONSUMER RESEARCH PROGRAM
The objective of the program was to test consumer and market reaction to turbine power
md to obtain service data and driver experience with the turbine cars under a wide
Variety of conditions. Each selected user drove one of the cars for a period up to three
Tionths under a no-charge agreement. The cars then were reassigned to other users
:o provide a broad consumer sampling base. In total, the cars were distributed to 203
notorists on a rotating system over a two-year period, from October 29, 1963, to
Dctot)er 28, 1965. The last user completed her three-month use period on January 28,
1966.
3y retaining ownership of the cars, Chrysler kept in close touch with their performance
ind with the service experience on the engines; also Chrysler engineers were able to
ncorporate advances and modifications resulting from Chrysler's continuing research
urogram. A period of three months was selected because it was felt this would give
;ach driver ample time to try out turbine power under a variety of conditions. Limiting
;ach driver to this period made it possible to obtain the reactions of over 200 users in
i short space of time.
[Users of the turbine -powered passenger cars were selected by the accounting firm of
Touche, Ross, Bailey, and Smart. Under the user selection procedure, Chrysler gave
the accounting firm the date and metropolitan area location of each planned delivery,
which was geared to the turbine production schedule. Random selection of user candi-
dates for each location was then made by the accounting firm according to the selection
and distribution criteria specified by Chrysler to meet market test objectives.
The basic qualifying requirements were that a candidate must own a car (or, be a
member of a household in which a car is owned by the head of the household) and must
have a valid driver's license.
Turbine candidates were picked as follows:
1 - From Chrysler's letter inquiry file of 30,000 names. These applications were in
the form of unsolicited letters from people in hundreds of cities in all 50 states (and
15 countries). Requests ranged from that of a 12-year-old boy asking thathis father
I be given a car to that of an 83-year-old retiree.
32-493 O— 69— pt. 1 25
372
-21 -
2 - From 128 major population centers of the 48 continental states. Chrysler specified
this to assure a high degree of market exposure to turbine -powered vehicles and to
test the cars in a variety of geographical areas and in all kinds of weather and
terrain. The number of trials in each population center was apportioned according
to the number of cars owned in each area.
3 - In accordance with the make, price category, and age of the new and used cars owned
by candidates at the time they wrote their letters to Chrysler. In this respect, the
program intent was to select users whose car ownership pattern reflected the greats
variety of the types and ages of cars on the road today.
In return for the use of the turbine car, each user was asked to furnish Chrysler with
information needed for the market evaluation program. Chrysler handled the service,
insurance, and other costs involved in the use of the turbine car. Each user bought thei
fuel for driving it. The user also was expected to maintain the physical appearance of'
the car, exercise reasonable care to protect it from damage, and supervise its use by I
others.
The world's first consumer delivery of a turbine car took place October 29, 1963, im
Chicago. Mr. Lynn A. Townsend, president of Chrysler Corporation, presented thCi
keys of the turbine car to Mr. and Mrs. Richard E. Vlaha of Broadview, a suburb of
Chicago .
FIRST CONSUMER DELIVERY OF
A TURBINE CAR
373
28 -
SUMMARY OF CHRYSLER CORPORATION
rURBINE CONSUMER DELIVERY PROGRAM
OCTOBER 29, 1963-JANUARY 28, 1966
Number of turbine cars built for program 50
I Number of selected users who drove turbine cars 203
, Number of cities included in delivery program 133
Number of states included in delivery program 48 plus D.C.
Mileage collectively driven by turbine motorists 1,111,330
Average mileage driven by users during three-month period 5,474
Highest mileage driven by a user during three-month use period 14,046
Lowest mileage driven by a user during a three-month use period 1,025
Number of cars with no 3-month use period 4^
Number of cars with one 3-month use period 1
Number of cars with two 3-month use periods 2
Number of cars with three 3-month use periods 6
Number of cars with four 3-month use periods 11
Number of cars with five 3-month use periods 20
Number of cars with six 3-month use periods 6
Of the 203 turbine motorists, 90% (180) were men and 10% (23) were women. Their
, ages ranged from 21 to 70 years.
' 60% of these motorists had Chrysler products as personal cars at the time they applied
for a turbine. The rest (40%) owned competitive makes.
There were over 30,000 applicants for participation in the test program. Each selected
user drove a turbine for a three month period under a no-charge use agreement.
iCars Assigned to national dealership Tour and World's Fair.
7. :h
ftngeles,
Francist
ago. III.
B, -oulsuille, Ky,
9, ian Diego. Cali»
0 Toledo. Ohio
1 Houston. Texas
2 Pittsburgh, Pa.
3 New York, N.Y.
4 Ml:
. FJa.
7 South Bend. Ind.
8 Washington. D. C.
9 Philadelphia. Pa.
0 Denver, Colo.
;1 Albuquerque, N. M.
2 Lo« Angeles, Calif.
4 Buffalo, N. Y.
5 Sacramento, Calif.
!6 Portland. Me.
7 Pittsburgh. Pa.
8 San Diego. Calif.
9 Peoria, rn.
iG Cleveland. Ohio
il' Dallas. Texas
:m Beaumont. Texas
13 Milwaukee. Wis.
14 Akron. Ohio
15 Uuiswille. Ky.
16 New York. N. Y.
10/29/63-
11/13/63-
12/ 4/63-
12/11/63-
1/ 7/64-
1/29/64-
2/ 4/64-
2/ 5/64-
2/14/64-
2/19/64-
2/25/64-
2/26/64-
3/ 4/64-
3/12/64-
3/17/64-
3/18/64-
3/20/64-
3/26/64-
4/ 3/64-
4/ 8/64-
4/15/64-
4/22/64-
4/24/64-
1/29/64
2/13/64
3/ 4/64
3/11/64
3/28/64
4/30/64
5/ 4/64
5/ 5/64
5/14/64
5/19/64
5/25/64
5/26/64
6/20/64
6/26/64
7/ 3/64
7/ 8/64
7/15/64
7/22/64
7/24/64
3635
2198
7028
4063
4990
6669
4975
1814
5735
5288
5128
5/14/64-
5/20/64-
5/21/64-
5/26/64-
5/27/64-
5/28/64-
6/ 4/64-
6/ 9/64-
6/10/64-
6/11/64-
8/21/64
8/26/64
8/27/64
8/28/64
9/ 4/64
9/ 9/64
9/10/64
9/U/64
9/16/64
9/18/64
6488
8441
9430
5650
7468
3988
9396
Dodge
Chevrolet
Valiant
Chevrolet
Cadillac
Oldsmobile
Chrysler
Chevrolet
Valiant
Plymouth
Chrysler
Chrysler
Chevrolet
Ford
Ford
Plymouth
Chevrolet
Pontlac
Plymouth
5/12/64- 8/12/64 8489 Chrysler
i4 8147 Chrysler
Plymouth
Dodge
Chrysler
1951
1957
1958
Charles Goebel
Henry Johnson
Charles Kendall
Edgar Hills
George Rjes
Robert Bonasch
Edmond Satterwhite
Lawrence Young
Walter Mllovich
Raymond Hunter
Benjamin Kaplan
George Goodwin
1957 Robert Dumont
1962 Edward Fornes
1963 Horace Tully
1962 Harold Alward
1957 Jo Ann DIener (Mr
1959 Sander Garrle
1957 Walter Brunlnga
1953 Betty Emmetl (fvlri
1960 R. James Gambrel
1951 William Knobia
25 Systems Engine
36 Housewife
38 Banker
51 College Coach
Office Manager, Chemical Co.
Steelworker
Electrician-Mechanic
Telephone Repairman
Sen
!CO.
President. Tool and Die Firm
Retired Rear Admiral
Junior High School Principal
Fabrics Salesman
Service Station Operator
Housewife
Medical Service
Representative
Exec. Vice Pres.
Construction Firm
Service Station Operator
Interstate Bus Driver
Housewife
Surgeon
32 Manufactun
Representative
38 Sales Engineer
46 Public Relations Man
1960 Beatrice McLean (Mrs.) 38
Retired Businessma
Partner— Industrial
Design Firm
374
- 29 -
Total
Ummft
No.
M>lro Aru
Uu Parted
Mllaag*
Personal Car'
Utar
Aga>
Occupation
37.
MinneaDOlis. Minn.
Miami. Fla.
6/18/64-
9/18/64
9339
Ford
1954
Wallace Danson
32
Reliability Engineer
38.
6/24/64-
9/24/64
4769
Plymouth
1961
James Shively
29
Employee Benefit
Consultant
Business Mactline
Salesman
Auditor
39.
Portland. Ore.
6/29/64-
9/29/64
10024
Chevrolet
1961
Andrew Corn
44
40.
Kansas City. Mo.
7/ 1/64-
10/ 1/64
5487
Plymouth
1960
Don Suttles
47
41.
Detroit. Mich.
7/ 1/64-
10/ 1/64
7487
Chevrolet
1956
Leo Rahal
58
Barber
42.
Atlanta. Ga.
7/ 1/64-
10/ 1/64
4380
Pontiac
1963
Herbert Kirschner
49
43.
Washington. D. C.
7/ 8/64-
10/ 8/64
4461
Dodge
1961
Margaret Vance (Miss)
54
Dietitian
44.
Indianapolis. Ind.
7/ 8/64-
10/ 8/64
5815
Volkswagen
1959
William Montgomery
52
Surgeon
45.
St. Louis. Mo.
7/ 9/64-
10/ 9/64
10502
Chevrolet
1963
Malcolm Stevens
48
Railroad Switchman
46.
New Haven, Conn.
7/15/64-
10/15/64
2617
Plymouth
1959
Maurice Libson
45
Industrial Designer
College Student
47.
Philadelphia. Pa.
7/17/64-
10/17/64
2784
Ford
1962
Stephen Marks
21
48.
Denver. Colo.
7/22/64-
10/22/64
5492
Valiant
1963
Robert Ellingboe
24
College Student
Fire Department Ueuteni
Steam Fitter
49.
Cincinnati. Ohio
7/23/64-
10/23/64
4287
Plymouth
1957
Jack Phelps
Harold Adams
36
50.
Des Moines, lov/a
7/29/64-
10/29/64
4201
Plymouth
1957
47
51.
Seattle. Wash.
7/30/64-
10/30/64
8407
Buick
1948
William Potter
52
Bank Trust Officer
52.
Raleigh. N. C.
8/ 5/64-
11/ 5/64
5108
Plymouth
1959
Ferdinand Lemus
47
Operations Research Ant
Interior Decorator
53.
Los Angeles. Calif.
8/ 6/64-
11/ 6/54
4613
Dodge
1958
Robert Hall
46
54.
Boston. Mass.
8/ 7/64-
11/ 7/64
2488
Plymouth
1958
Thomas Lawn
47
Telephone Repairman
55.
El Paso. Texas
8/12/64-
11/12/64
2514
Dodge
1962
Alice Schult2<Mrs.)
40
Housewife
56.
Rochester. N. Y.
8/25/64-
11/25/64
5602
DeSoto
1959
Elmer Youngjohn
61
Tech. Asst. to Gen. Mgr.-
Button Co.
Manufacturer's Represe*
57.
San Jose. Calif.
8/27/64-
11/27/64
7101
Chevrolet
1961
Bruce Stern
69
Paper Products
SB.
Albany. N. Y.
9/ 3/64-
12/ 3/64
3739
Buick
1961
Arthur Rossdeutscher
44
Staff Accountant
59.
Pittsburgh. Pa.
Har1(or<r Conn.
9/ 8/64-
12/ 8/64
4465
Pontiac
1961
Donald Slusser
66
Plastics Manufacturer
60.
9/10/64-
12/10/64
6474
Ford
1958
Edward Golden
52
Postman
61.
E. St. Louis. III.
9/10/64-
12/10/64
3494
Ford
1957
Kilhan Schuell
54
Ra Iroad Electrician
62.
San Diego. Calif.
9/10/64-
12/10/64
2342
Cadillac
1963
Stuart Bicknell
45
Dentist
63.
Providence, R. 1.
9/17/64-
12/17/64
5949
Dodge
1960
William Grunden
37
Minister
64.
9/17/64-
12/17/64
7980
Chevrolet
1961
Connie Loyd
33
Employment Interviewer
6S.
DaMas. fexas '
9/17/64-
12/17/64
4082
Volkswagen
1958
Joseph Foster, Jr.
28
Mortgage Loan Officer
66.
Allcntown. Pa.
9/23/64-
12/23/64
5041
Imperial
DeSoto
1954
Ray Fenstermacher
32
Machinist
67.
Canton. Ohio
9/23/64-
12/23/64
11082
1954
Jack White
46
Minister
68.
Milwaukee. Wise.
9/24/64-
12/24/64
9913
Dodge
1963
Robert Jahnke
30
Sales Engineer
69.
Houston. Texas
9/24/64-
12/24/64
11467
Plymouth
1963
Kenneth Froehner
51
Sales Representative. C»
70.
Baltimore. Md.
9/29/64-.1 2/29/64
3431
Chevrolet
1958
Edwin YakubowskI
37
Computer Systems Operj
71.
New York. N. Y.
9/30/64-
12/30/64
3865
Dodge
1962
Albert Worth
60
Chief Enginecr-U. S. i
Public Health Hosp.
Q. C. Specialist-USAF
0. S. Savings Bond Oftic
College Professor i
72.
Mobile. Ala.
9/30/64-
12/30/64
2903
Plymouth
1963
Charles Brunson, Jr.
39
73.
Fargo. N. 0.
9/30/64-
12/30/64
9549
Buick
1962
Horace Whitman
68
74.
Charleston. W. Va.
10/ 1/64-
1/ 1/65
7743
DeSoto
1956
Vivian Steahly (Mrs.)
49
75.
Ft. Lauderdale. Fla.
10/ 6/64-
1/ 6/65
3800
DeSoto
1956
Blanche Metko (Mrs.)
63
Homemaker
76.
Richmond. Va.
10/ 8/64-
1/ 8/65
9658
Ford
1951
Keith Smith
39
Resident Manager Aspfl4
77.
Charleston. S. C.
10/12/64-
1/12/65
8244
Ford
1956
Norman Gilbert
39
Mechanical Engineer
78.
Flint, Mich.
10/14/64-
1/14/65
5219
Pontiac
1956
Louise Hensley (Mrs.)
33
Secretary
Electrical Engineer
79.
Newark. N. J.
10/15/64-
1/15/65
5261
Chrysler
1953
Murray Holdman
42
80.
Nashville, Tenn.
10/20/64-
1/20/65
7184
Lanier
1962
W. Arch Biatton
47
U. S. Commerce Dept. C
81.
Paterson, N. J.
10/21/64-
1/21/65
2892
DeSoto
1955
Rose Dashow
—
Homemaker
82.
Ft. Wayne. Ind.
10/21/64-
1/21/65
3798
Plymouth
1954
Edwin P. Fox
24
Receiving Clerk
83.
New York, N. Y.
10/22/64-
1/22/65
2321
DeSoto
1955
Ralph Lewis. Jr.
35
Dept. Mgr. — Departmen i
84.
St. Louis, Mo.
10/22/64-
1/22/65
3304
Plymouth
1961
Otis Stringer
38
Cost Accountant 1
85.
Cleveland, Ohio
10/28/64-
1/28/65
4803
Plymouth
1963
Elmer A. Kish
61
Consulting Engineer
86.
Philadelphia, Pa.
10/29/64-
1/29/65
2968
Valiant
1964
Angelo Perna
27
Mailer
87.
Wichita, Kan.
10/29/64-
1/29/65
5580
Renault
1959
James Lyle. Jr.
George (ioodwin
28
Electrical Engineer
88.
Tampa, Fla.
Salt Lake City. Utah
Sioux Falls. S. D.
11/ 6/64-
2/ 6/65
3490
Buick
1955
42
Civil En_gineer 1
Safety Engineer
89.
11/ 9/64-
2/ 9/65
4799
Chrysler
1961
42
90.
11/11/64-
2/11/65
4816
Ford
1930
Jack Kidder
38
Engineer — Telephone Cc
91.
Dayton. Ohio
11/12/64-
2/12/65
5721
Plymouth
1961
William Powe. Jr.
51
Logistics Support Office*
(Defense Dept)
College Professor
92.
Winston Salem. N. C.
11/18/64-
2/18/65
2358
Plymouth
1954
John Parker. Jr.
44
93.
Worcester. Mass.
11/19/64-
2/19/65
9043
Plymouth
1959
Morgan Potter
52
Oil Company Salesman .
94.
Newark, N. J.
12/ 3/64-
3/ 3/65
2823
Plymouth
1949
Walter Weberbauer ■
43
Shipping-Receiving Sup|
Manufacturers' RepreJ
95.
Columt}us. Ga.
12/ 3/64-
3/ 3/65
7877
Studebaker
1961
Robert Gorman
43
Foot Wear
96.
San Bernardino. Calif
12/ 3/64-
3/ 3/65
9828
Dart
1963
Filon Beadle
37
Company Pilot
97.
Oakland, Calif,
12/ 3/64-
3/ 3/65
6436
Oldsmobile
1962
Robert Chnstoffersen
23
Dental Student I
98.
Erie, Pa.
12/ 8/64-
3/ 8/65
4742
Chevrolet
1958
Marlin Milliron
31
Post Office Clerk
99.
Dallas. Texas
12/15/64-
3/15/65
4439
Pontiac
1963
Charles Rahn
39
Petroleum Technician 1
100.
Syracuse. N. Y.
Pittsburgh. Pa.
12/16/64-
3/16/65
3547
Dodge
1963
Leo Fisselbrand
60
Organist Choir Director l
101.
12/17/64-
3/17/65
3639
Volvo
1961
Ernest Vyrostek
55
Journeyman Steel Fittei
102.
Spokane. Wash.
12/17/64-
3/17/65
2133
Dodge
1949
Cecil Innis
45
Food Brokerage Salesn-
103.
Davenport. Iowa
1/ 6/65-
4/ 6/65
3353
Chevrolet
1969
Lester Litscher
38
Machine Shop Foremar
104.
Phoenix. Ariz.
1/ 6/65-
4/ 6/65
7423
Chrysler
Dodge
For<r
1962
Walter Miller
56
Bevprii-e Salesman
105.
Manchester. N, H.
1/ 7/65-
4/ 7/65
4118
1961
Ethan Howard, Jr,
43
PhySi'ian (
106.
Fort Worth. Texas
1/7/65-
4/ 7/65
4953
1963
Byron Kress
44
Project Mgr, Missiles 1
& Soace Firm
Manulflcturers' Repres
Real Estate Salesman
107.
Los Angeles. Calif.
1/ 7/65-
4/ 7/65
6050
Plymouth
1951
James Link
38
108.
Dayton. Ohio
1/12/65-
4/12/65
2802
Dodge
Forrf
1963
Howard Lubow
37
109.
Houston. Texas
1/12/65-
4/12/65
7131
1960
George Evans
Ethelbert Carnngton
58
Vice President Enginee
110.
New York, N, Y.
1/13/65-
4/13/65
3035
Lincoln
1956
49
Physician
111.
Huntington. W. Va.
San Antonio. Texas
1/14/65-
4/14/65
7178
Volkswagen
1963
Howard McEachern
32
Minister
112.
1/14/65-
4/14/65
6195
Dodge
1957
Christine E.
58
Telephone Operator
Blundell(Mrs.)
113.
Harrisburg, Pa.
1/21/65-
4/21/65
3098
Dodge
1961
Robert Young
31
Supervisor— Power & U
114.
Milwaukee, Wis.
1/21/65-
4/21/65
6504
Dodge
1960
Clair Mueller
40
StaffSuoerlisor-
Chainbelt Company
115.
New Orleans, La.
1/26/65-
4/21/65
4912
Plymouth
1955
Wilbert Waits
46
Pharmacist
116.
Camden, N. J.
1/28/65-
4/28/65
3400
Comet
1962
Robert Baker
33
Engineennp Draftsman
117.
Atlanta, Ga.
1/28/65-
4/28/65
3702
Chrysler
1961
Thomas Gissy
45
Scheduling Coordinator
118.
Lansing, Mich.
1/28/65-
4/28/65
6521
Chrysler
1956
Arthur Churchill
59
Control Board Operator
& Light Company
119.
Minneapolis, Minn.
1/28/65-
4/28/65
7765
Chrysler
1961
Ronald Erhart
36
Product Engineer-
375
30 -
ri
Total
Usar's
U Metro Ana
Uta Period
Mllsaga
Parsonal Car'
Usar
5 -lev» York, N. Y.
2/ 2/65-
- 5/ 2/65
3098
Dodge
1950
Robert Gueydan
Alfred Hedge
1 Jethesda, Md.
2/ 4/65-
- 5/ 4/65
3620
Oldsmobile
1960
> 3ary, Indiana
2/ 4/65-
- 5/ 4/65
6361
Lincoln
1957
Walberta Herndon (Mr
{ resno, Calit.
2/ 9/65-
- 5/ 9/65
7532
Chevrolet
1963
Eugene Winter
,m,lolk, Va.
2/10/65-
- 5/10/65
5583
Chrysler
1956
Robert Adkisson
'■ ■mladPlphia, Pa.
2/11/65-
- 5/11/65
1734
Plymouth
1951
Niles Jaquay
i' Jrlindo, Fla.
2/16/65-
- 5/16/65
2866
Chrysler
1962
Seth Moorhead, Jr.
t -ale'Son. N. J.
2/18/65-
- 5/18/65
6640
Plymouth
1962
Irving Koetting
Bill Krielemeyer
, \,','y> 1 Kansas
2/18/65-
■ 5/18/65
10324
Dodge
1961
2/18/65-
• 5/! 8/65
11935
Dart
1963
Thomas Sheehan
III, Ohio
2/23/65-
■ 5/23/65
5492
Chevrolet
1962
Newton Cross
( )wn. Ohio
2/25/65-
• 5/25/65
2604
Ford
1963
Emanuel Catsoules
3/ 3/65-
- 6/ 3/65
5528
Chrysler
1964
Roland Whitman
= ■. Wis.
3/ 4/65-
■ 6/ 4/65
7831
Chrysler
1957
Raymond Penn
Lht. Petersburg. Fla.
HacKsonvitle. Fla.
3/ 5/65-
■ 6/ 5/65
5680
Buick
1958
Frances Willy (Mrs,)
3/ 9/65-
• 6/ 9/65
5438
Ford
1960
Martha Linton (Mrs,)
Kan Bernardino, Calif.
3/11/65-
■ 6/11/65
5286
Chevrolet
1962
Frank Pyle
KolUfnbia, S. C.
3/17/65-
• 6/17/65
4514
Plymouth
1958
Joseph Byrd
ihharloHe, N. C.
3/18/65-
- 6/18/65
4580
Chrysler
Dodge
1963
James Downing
UiuHalo. N. Y.
3/18/65-
- 6/18/65
3795
1962
Stuart Kestee, Jr,
llucson. Ariz.
3/18/65-
6/18/65
6842
Ford
1960
Duane Doane
: lirmingham. Ala.
3/24/65-
6/24/65
4361
Chevrolet
1962
William Russell
)akland. Calif.
3/25/65-
6/25/65
2732
DeSoto
1960
Glen Coberly
■ demphis, Tenn.
4/ 1/65-
7/ 1/65
5123
Plymouth
1959
Hugh Perkins
ittte Rock. Ark.
4/ 1/65-
7/ 1/65
4801
Plymouth
1958
Paul Carlton
acoma. Wash.
4/ 1/65-
7/ 1/65
8098
Plymouth
1962
Mane Hinderv (Mrs,)
' iM^hnma City. Okla.
4/14/65-
7/14/65
6126
Plymouth
1959
Arthur Forrester
' n, Vt.
4/15/65-
7/15/65
3114
Ford
1963
Raymond Baldwin
<, Texas
4/22/65-
7/22 '65
3775
Buick
1961
James Irion
,s, Nev.
4/22/65-
7/22/65
3874
Plymouth
1962
Thomas Schofield
ij, Ohio
4/28/65-
7/28/65
10192
Plymouth
1957
Harold Buscher
„ . „,,,.. 11. Pa.
4/29/65-
7/29/65
6387
Imperial
1955
Raymond Baracaia
,jn A'ltonio. Texas
4/29/65-
7/29/65
2698
Thunderbird
1958
Lawrence Pawkett
'New Brunswick. N.J.
5/ 4/65-
8/ 4/65
4548
Plymouth
1963
John Moore
: ;o«ini1on. Ky.
5/ 4/65-
8/ 4/65
7332
Plymouth
1957
Mary DeMaria (Mrs.)
. ."hicago. III.
5/ 6/65-
8/ 6/65
5062
DeSoto
1960
Arthur Karnstedt
. ihreveport. La.
5/ 6/65-
8/ 6/65
4993
Chevrolet
1959
Ray Kelly
. Jaltimore. Md.
5/11/65-
8/11/65
2555
Plymouth
1962
Gerald Herman
. :olumbus, Ohio
5/12/65-
8/12/65
5032
Falcon
1961
Garrell Spires
^'lewoort News. Va.
5/13/65-
8/13/65
4043
Valiant
1962
James Langston
Ijuluth, Minn.
5/13/65-
8/13/65
12242
DeSoto
1958
Alden Olson
.'•lagstaft. Ariz.
5/14/65-
■ 8/14/65
6464
Chrysler
1963
Charles Ryriel
.ISary. Ind.
5/18/65-
8/18/65
7146
Plymouth
1960
Arvella Miner (Mrs,)
::hattanoo8a. Tenn.
^aterson. N. J.
5/20/65-
8/20/65
6930
Chrysler
1958
Wade Hampton
5/25/65-
8/25/65
14046
Chrysler
1963
Edwin Schuiz
Mew York, N. Y.
5/27/65-
8/27/65
8122
Plymouth
1963
David Poucher
Arlington. Va.
5/27/65-
9/27/65
4302
Pontiac
1963
Elmer Hobbs, Jr,
<ansas City. Mo.
Uitockton. Calif.
6/ 3/65-
9/ 3/65
4196
Triumph
1962
Charles Cleverdon
6/ 3/65-
9/ 3/65
5084
Valiant
1960
Daniel Halliday
jsorfolk, Va.
6/ 8/65-
. 9/ 8/65
5548
Rambler
1964
Charles Hodges
(JVilmington. Dela.
6/10/65-
9/10/65
3923
Plymouth
1957
Newton Hunsberger
.3ndgepor1. Conn.
6/17/65-
9/17/65
3112
Mercury
1959
Stephen Ondeka
Dmaha Neb.
6/17/65-
9/17/65
9223
Dodge
1961
Helen Saunders (Mrs.)
Miami Fla.
6/24/65-
9/24/65
7158
Dodge
BuicTi
1964
Marion Gray
Knoxville, Tenn.
6/24/65-
9/24/65
6366
1961
Leroy Gerard
Cheyenne. Wyoming
6/24/65-
9/24/65
12546
Chrysler
1941
Charles Kline
(San Jose, Calif.
6/30/65-
9/30/65
1797
Plymouth
1963
James Gutffre
Greensboro. N. C.
7/ 8/65-
10/ 8/65
4392
Dodge
Fortf
1961
Mary Parker (Mrs.)
Rockford. III.
7/ 8/65-
10/ 8/65
10961
1963
DuWayne Winters
Us Angeles. Calif.
7/ 8/65-
10/ 8/65
2147
Dodge
1964
Alfred Kramer
/ Birmingham'.
' Alabama
Great Falls. Mont.
7/14/65-
10/14/65
3867
Plymouth
1962
Ross Green
7/15/65-
10/15/65
8160
Rambler
1959
David Friedrick
iSan Francisco. Calif.
7/15/65-
10/15/65
5984
Plymouth
1960
Oscar Watson
Memphis. Tenn.
7/22/65-
10/22/65
6213
Volkswagen
Plymouth
1963
John Ourschlag
Buffalo. N. Y.
8/12/65-
11/12/65
3172
1963
Louis Rohrdanz
Los Angeles, Calif,
8/12/65-
9/15/65
1149
Rambler
1962
Walter Strikeleather
Brockton, Mass.
8/24/65-
11/24/65
4612
Dodge
1963
Joyce Young (Mrs.)
Baltimore. Md.
8/26/65-
11/26/65
3200
Dodge
1960
Cline Oley
Hartford. Conn.
8/31/65-
11/31/65
4963
Plymouth
1964
Gerald Revnolds
Tulsa. Okla.
9/ 2/65-
12/ 2/65
4989
Chevrolet
1950
Homer Williams
Minneaootis. Minn.
9/ 8/65-
12/ 8/65
2830
Chrysler
Dodge
1962
William Varner
Chicago. 111.
9/ 9/65-
12/ 9/65
8294
1960
Donald Pearcy
Baton Rouge. La.
9/ 9/65-
12/ 9/65
8949
Buick
1963
William Oliver
Newark, N. J.
9/14/65-
■12/14/65
2809
Chevrolet
1961
Harold Helies, Jr,
Reading. Pa.
9/16/65-
12/16/65
4950
Morns Minor
1959
Curtis Hoyt
Los Angeles, Calif,
9/23/65-
12/23/65
2818
Chevrolet
1960
Neil Diess
St, Louis. Mo.
9/30/65-
12/30/66
3109
Hudson
1951
Charles Marsau
Sprin(>field, Mass,
10/ 7/65-
1/ 7/66
10076
Mercury
1958
Richard Remillard
Portland. Ore.
10/ 7/65-
1/ 7/66
4992
Dodge
1963
Robert Ford
New Orleans, La,
10/12/65-
1/12/66
1025
Buick
1955
Hazel Mabrv(Mrs.)
Rochester, N. Y,
10/13/65-
1/13/66
5100
Chrysler
1963
John Ferranti
Cedar Raoids. Iowa
10/14/65-
1/14/66
8675
Plymouth
1957
Thomas Reilly, Jr.
W, Palm Beach, Fla.
10/26/65-
1/26/66
2767
Thunderbird
1960
Maximilhan Crispin
Chicago, III,
10/28/65-
1/28/66
2641
Corvair
1960
Patricia Anderson (Mr!
58 Marke-ing Speci.ilist
30 School Teaclier
64 Insurance Broker
53 Prof, of Agricultural Econonr
' Covering Sale
Raiiro
ad Condui
-tor
Appliance Sales
Pharn
naceutical
Salesmi
Interv
Newer, Bui
eau 01 (
Cabin
et Maker
Petrol
leum Distr
Attorr
Busin
Engin
eenng Supervisor
President, Air Condition
36 Store Manager, Furnituri
Real Estate Appraiser
Welding Foreman
Service Station Owner
Hous»wile
Hospital Supply Salesman
Real Estate Broker & Builde
Beverage Salesman
Hair Stylist
Bank President
Utility Company Employee
nvestigator-rlaval
Supply Center
47 Investigator
Production Foreman
Secretary
Aircraft Mechanic
T
rade & Educ.
Director
State of Wyo
uditor-u. S.
Govt,
A
H
F
xecutive. Tool
and Die 1
(1
wner and Ope
rator-
Auto Electric
S
ecretarial Sta
ff— Press
arole Officer— SlateofCalifon
;eal Estate Builler
le^lth & Safety Supervisor-
Chemical Company
tant Siilety Supervisor
Telephone Company
47 Textboo
-General Practitic
52 Paint Sa
38 Custom Hon
35 Accountant
33 Pharmaceutical Salesrr
50 Physician-Surgeon
.) 47 Executive Secretary
rjtten to Chrysrer requesting use of turbine car.
376
31 -
RESULTS OF CONSUMER EVALUATION PROGRAM
The experience of the user program indicates that the idea of turbine -powered passenger
cars is capable of earning widespread consumer acceptance.
Users' Reactions
Each user was interviewed within two weeks of the conclusion of his use period. Usersi
generally were enthusiastic about the turbine car. Although it was expected that anyonei
who had free use of a new and unique automobile would have a favorable attitude toward
it, interviewers were satisfied, after sufficient questioning, that it was the performance
of the turbine engine itself that caused favorable reaction among users.
Many people expressed the conviction that gas turbine power plants would eventually
replace conventional piston engines. Others, while enthusiastic about the car, said
they thought that acceleration and fuel economy would have to be improved before turbine*
cars could be marketed successfully.
Three out of four singled out the smooth, vibrationless operation of the engine as its
principal advantage. They were impressed by this aspect of the turbine engine, and
talked about a "gliding sensation" which was felt at all speeds, especially on long trips.
The second most important advantage was reduced maintenance. Although the users
recognized that a three-month test consisting of normal driving would not prove that ani(
engine is exceptionally durable or maintenance-free, they generally assumed that thei
sm.aller number of moving parts would naturally lead to less need for periodic mainte-
nance.
Another strong point of turbine engines, according to users, was starting ability.
Regardless of the make and model year of the car each owned, users consistently con-
sidered the turbine car superior to others in providing fast, sure ignition. This wasi
especially noticeable in the colder climates where as soon as it was started, the turbine^
provided heat. Users appreciated getting instant heat in the passenger compartment!
on a cold winter day- -and not having to think of antifreeze.
377
32
'\W
i^~im
THE TURBINE CARS WERE EXPOSED TO A
WIDE VARIETY OF CLIMATE IN THE PROGRAM
Turbine users mentioned other advantages like good engine power, quietness of oper-
ation, and non-stalling characteristics. Mainly, though, vibrationless engine operation
and the prospect of reduced maintenance were uppermost in their minds.
In commenting on disadvantages, about one person in three expressed some dissatis-
faction with acceleration lag, primarily, when starting from standstill. It was not as
noticeable when cruising. In fact, most people felt that the car had exceptional acceler-
ation at expressway speeds.
About one person in four expressed disappointment with fuel economy. Most of the
users had been driving lighter cars with less performance and relatively good fuel
economy. They generally spent much time demonstrating the turbine car to friends,
making frequent starts and stops, or simply idling the engine while people gathered to
look at the car. Consequently their over-all fuel consumption could not be considered
atrue measurement of the car's fuel mileage capability. In this area, Chrysler regards
its own proving grounds and road test experience as a more valid measure of the
turbine's actual fuel consumption.
378
- 33 -
In reacting to the sound of the turbine engine, users tended to contradict each other.
For every person who complained about the noise level of the engine, there were three
or four who liked the sound of turbine power. The car was described as immensely
more quiet, especially at high speeds, than the conventional piston-powered automobile.
Lack of fuel availability and lack of service facilities were cited by turbine car users
as disadvantages at the present time. Users sometimes found it inconvenient to locate
diesel fuel or unleaded gasoline, especially on long trips. However, they knew that this
situation would be alleviated if turbines came into more common use.
Engineering Gains from the Users' Program
From an engineering standpoint, the program afforded an opportunity to observe and to
judge the behavior of turbine engines under actual customer driving conditions --the
first time that automobile turbine engines were tested to such a wide extent under such
circumstances. The turbine car user program provided an engineering record of over
one million miles by 203 different drivers, men and women, old and young, in 48 states.
^"^Wii
ONE OF THE 22 WOMEN SELECTED IN THE
USER'S PROGRAM
379
34
;hrysler was primarily interested in the life of engine parts and components, their
lerformance and reliability, the degree and nature of maintenance required, and the
mount of training desirable for service people. The program also made it possible
or engineers to field test and compare different concepts and designs. This was im-
)ortant because not all of the 50 turbine engines were exactly the same. As a car was
)uilt and put into service, it sometimes incorporated a more advanced turbine engine
:omponent or fabrication technique that engineers wanted to test under field conditions.
)ften these more advanced parts were installed when an engine was brought in for
iervice.
ingineers were especially watching for problems that had not shown up in laboratory
)r proving grounds tests. For example, regular inspections showed that some engines
lad been subjected to temperatures much higher than normally would be allowed by the
'uel control. The fuel control itself was found to be working properly, but finally it was
lioticed that some drivers by-passed the automatic starting system by shifting the gear
selector quickly before the engine had reached idle speed. The trouble was cured by
Tiodifying the automatic starting system so that the driver could not override it.
(Each engine in the 50 test cars had a combined starter -generator which had performed
iwell in previous testing. But during the user program it was found that the starter-
generator brushes would not stand up to a combination of high altitude and low humidity,
lit was concluded that until further progress occurs in brush design or materials, the
best solution is to have separate starter and alternator units.
Early igniters showed rapid electrical erosion and oxidation of the electrodes. Modifi-
cations were made to the electrodes and the flow of air that cools them to improve
igniter life to more than 20, 000 miles during the program. However, this was not con-
sidered adequate and further improvement is sought. It is hoped that redesigned
igniters will more than double this life.
The test proved-out one of the features of a turbine engine--that power loss over a
period of time is small. Moreover, it was found that the turbine engine can be brought
back to its original power rating by simply introducing cleaning compound into the
engine intake.
380
- 35 -
The material used in compressor turbine wheels of all but three of the 50 cars was
cast CRM-6D, one of the family of high-strength, high-temperature, low-cost turbin«
wheel alloys developed by Chrysler Research. Operating experience with this materiaj
was highly satisfactory. Other versions of the CRM-6D material proved adequate foi
the variable nozzle vanes of the second stage, and for the first-stage nozzle, which U
subjected to metal temperatures in excess of 1800 F during vehicle acceleration.
In addition to these materials tests, the 50-car program was used as a means of testinj
progressive design modifications and exploring various turbine wheel fabricatioi
techniques.
As viewed by Chrysler engineers, vehicle response and acceleration were surprisingl;
good during the program--when it is considered that the engine was rated at only 13(
horsepower and the car weighed about 4100 pounds. Acceleration time from 0 to 60 mpl
was generally around 12 seconds with an outside temperature of 85 F, and better oi
cooler days. Chrysler engineers have since improved acceleration response by mean,
of a faster-acting variable nozzle actuator. The nozzle blades snap into their acceler
ation position about three times faster.
Engine braking action of the variable nozzle also has been improved by causing thij
blades to switch to their braking position faster and by making it possible for them t
go a little farther, also, without an increase in temperature that could cause damage
1
I
Vehicle response and acceleration are related to the responsiveness of the gas generate:!
(first-stage turbine and compressor) which must speed up whenever additional powe: I
is called for. (The maximum "response time" is the time it takes the gas generator ti|
accelerate from idle speed to full power.) In the engines of the 50 test cars, the re
sponse time was from 1-1/2 to 2 seconds--a substantial improvement over earliei
engines. The many miles and hours of engine operation in the program showed thaj
acceleration temperature could be increased without damaging the engine. This, plusi
a reduction in the inertia of the gas generator rotor, resulted in eliminating anothej
half second in the time it takes the gas generator to reach full speed. Thus acceleratioi
"lag" was diminished and performance improved.
Located all over the nation, the turbine cars were exposed to wide ranges of starting
temperatures. Some very cold areas required the use of a 24-volt battery system, as
a temporary expedient. Since then, the accessory load and bearing losses in the gas
381
36 -
nerator have been reduced so that dependable starting is achieved in all climates witli
12-volt system.
5 an outgrowth of the test program, noise is being reduced by modifying accessory
ive gears, reducing the speed at which the accessories run at idle, and improving
e intake filter -silencers.
le 1.1 million miles accumulated during the 50-car program have been a valuable,
rect source of information on the daily, over-the-road behavior of gas turbine engines
id components. The program was useful in judging the potential value and acceptance
the gas turbine as an automobile power plant, and the lessons learned will be useful
helping Chrysler engineers improve performance, reliability, life, and manufacturing
*
etliods.
lie Service Aspect
n extremely beneficial aspect of the program was the experience gained in turbine
igine maintenance and in the training of service personnel. For this program, Chrys-
r had five field service men and two supervisors who were charged with providing
FIELD SERVICE WAS PERFORMED ACROSS
THE NATION BY FIVE TECHNICIANS
I
382
37
engine service and keeping track of the time during which engines could not be operate
because of malfunction. The service required on 50 cars, scattered the length afl
breadth of the nation, was performed essentially by these five men.
During the early weeks of the program, operating time lost because of engine malfuno
tion amounted to about 4 per cent. Eventually this was reduced to slightly more tha
1 per cent. Considering that many of the lost days included travel time for service me
and shipping time for parts --a situation that would not exist with a vehicle that is pro
duced and sold in volume --this was a remarkable record for an experimental engini
out on its own for the first time.
The experience of the 50-car program indicated that training of mechanics in th
maintenance and repair of gas turbines would not present unusual problems. Mechanii
cally, the turbine power plant is less complex than most piston engines and some othe
current automobile components, so that the trained mechanic would have no troubB
performing any maintenance or repair operation thatwould normally be done in the fielo'
383
- 38
OTHER EXPOSURES OF THE TURBINE CAR
MODEL OF SHOPPING CENTER TURBINE EXHIBIT
iBHOPPING CENTER EXHIBIT
1^ traveling exhibit began visiting large shopping centers across the United States in
January, 1964. The exhibits included a turbine car, turbine engine displays, and regular
Iproduction Chrysler Corporation products. Each stop-over lasted several days or
TYPICAL SCENE AT SHOPPING CENTER EXHIBIT
384
39
weeks. Chrysler representatives accompanied the exhibits and explained the turbin
and Chrysler's program to interested visitors.
WORLD TOUR
A turbine car also was taken on a world tour. From September 12, 1963, throug
January 8, 1964, the car was shown in 23 cities in 21 countries. The 47,000-mil
journey by a chartered aircraft included stop-overs in Geneva, Paris, London, Turir
Bombay, Singapore, Tokyo, Sydney, Cape Town, Buenos Aires, and Mexico City.
/
^
CHRYSLER
INTEIIMATIONAl h.k.
WORLD TOUR OF TURBINE CAR
THE TURBINE CAR AT THE WORLD'S FAIR
The Turbine Car was one of the popular attractions of the Chrysler Exhibit at the 1964-
1965 New York World's Fair. One Turbine Car was shown in a static display anc
another was used for rides to Fair visitors who were selected on a random basis.
385
-40 -
l)ver 350, 000 enthusiastic people were given demonstration rides in the Turbine Car
.uring the Fair's two-year existence. They rode on a small circular track fashioned
in the five-acre site. The static display of the Turbine Car also included a separate
utaway version of the turbine engine.
\long with the other Chrysler attractions at the Fair site, the Turbine Cars were
'iewed by over 18,500,000 people.
GIVING RIDES AT THE
CHRYSLER FAIR EXHIBIT
TOUR OF COLLEGES
After completion of the user evaluation program in January 1966, several turbine cars
toured college campuses. University lectures, classroom presentations and seminars
were conducted by turbine research engineers who discussed pioneering development of
the turbine engine.
386
- 41 -
THE TURBINE DREW CROWDS AT EVERY COLLEGE
CAMPUS SHOWING
REMARKS
Tnroughout all aspects of the consumer evaluation, shopping center exhibit, world tour
and college tour programs, Chrysler has been obtaining reactions from the genera
public — from those who have driven or ridden in this new kind of car and from thi
millions who have viewed it. These programs have served as a continuing stud;
concerning the size and characteristics of the potential market for this new kind o
automobile .
387
- 42 -
A LOOK TO THE FUTURE
Now that Chrysler Corporation has completed its successful gas turbine car consumer
evaluation program, the turbine has established itself as worthy of further serious
jconsideration.
In the space of a dozen years, Chrysler Corporation research and engineering has been
able to develop a power plant that can compete with and, in some respects, perform
better than the piston engine which has been in automotive use nearly three-quarters of
a century.
Moreover, although the progress of the gas turbine and its advantages are impressive,
Chrysler Corporation engineers have by no means reached the full design potential of
this engine. Additional progress in improved component efficiencies, particularly in
the compressor, and the future possibility inherent in increased operating temperatures,
are extremely promising. For example, a 400-degree increase in nozzle inlet temper-
ature would mean a 40 per cent increase in specific output for a given-size power plant
or, conversely, a corresponding reduction in size for a fixed horsepower. The same
400 degrees increase would improve fuel economy over 20 per cent without needing to
take advantage of any further increase in component efficiency. Chrysler Research
scientists, who are working with materials that may make this possible, consider the
problems associatedwith these higher temperatures no more difficult than those already
solved.
Based on the encouraging technical progress made thus far, as well as the enthusiastic
response of 203 turbine car drivers, Chrysler Corporation is going ahead with the de-
velopment of a new, fifth generation, turbine engine for possible use in future passenger
cars. As with any new engine, it is impossible to predict how long the development
process will take.
When Chrysler Corporation is satisfied it has a turbine design that is capable of being
mass-produced at a suitable economic level, as well as being at least the equal of the
piston engine in performance, fuel economy, and reliability, the design can be frozen
and the complex process of developing the tools and facilities necessary for mass pro-
ducing the engines can begin.
It must be recognized that truly major decisions still lie ahead. The adoption of a new
type of power plant like the turbine for motor vehicles is a serious decision- -with
implications of great magnitude and far-reaching effects.
The determining factor in this decision will be an objective assessment of what benefit
turbine power canbeto the motorist and to the general public, coupled with an appraisal
of the public's probable response if given an opportunity to buy turbine-powered auto-
mobiles. It is likely that initial reaction would be highly favorable. Yet, this does not
obviate the fact that there must be some solid advantages to enable the turbme engme
to compete on a purely functional and economic basis with other types of power plants.
Many people already are convinced that the gas turbine has great promise for propelling
automobiles smoothly, economically, and dependably . Fulfillment of that promise rests
on success in continuing turbine engine development progress.
What will be the outcome? What role will the automotive gas turbine play in the future?
These are the central questions that still await a final answer.
32-493 O— 69— pt. 1 26
388
Mr. Mann. Now, Senator, with apologies for the length of my
statement, the last of the seven topics that you gave us to comment
on — the effect of large corporations on life in America.
The question has been asked what effect large corporations have
on the values of American society.
Many of us, I believe, have nostalgic memories about "the good old
days" when virtually all of our institutions, both public and private,
were smaller and life was a good deal simpler. Having come from a
small town in the Southwest I especially appreciate those sentiments.
However, I also believe that the good old days seem better in retro-
spect than they actually were. I doubt that many of us would actually
choose to go back to those days. One reason why life was simpler is
that people were poorer and spent most of their time doing the things
they had to do to provide for themselves and their families. The num-
ber of options and opportunities available to them were rather limited.
We have changed from a rural to an urban nation and from a funda-
mentally agricultural to a highly industrialized society. Our popula-
tion is larger and more concentrated. It is no longer possible for each
individual to provide for most of his own basic needs, much less tliose
things he feels are required for his well-being. All of us are increas-
ingly dependent on the activities of greater numbers of people. I be-
lieve it is fair to assume that the size of many modern day enter-
prises and institutions is, in part, an outgrowth of these developments.
This is not to say, however, that there is no role for small institu-
tions or businesses. In the automobile industry, for example, the emer-
gence of large manufacturers has been accompanied by the creation of
a great many new small business enterprises. Each one of the auto-
mobile manufacturing companies buys products and services from
thousands of firms located in every State of the Union, As the record
of these hearings already shows, one of the manufacturers buys from
about 37,000 suppliers around the country. Another has some 25,000
suppliers. A third buys from approximately 20,000 different suppliers.
Also, the distribution system of the automobile industry creates op-
portunities for many more thousands of small businesses engaged iv
retail sales and service.
It seems to me that individual freedom and opportunity can best
be preserved by assuring that no single element of our society has con-
trolling power over all others. Our economic as well as our political
system has been one of checks and balances. There are today a great
number of disciplines which limit the power of the private sector. The
regulatory powers of government is one of the most important of
these disciplines. Labor unions also play a significant role in this re-
gard. Perhaps the most important is the discipline of an open, free
and competitive economic system. The retention of this system is of
major importance to individual freedom and individual opportunity.
In my opinion the greatest single threat to the importance of the
individual in our society resides in the potential misuse of the regula-
tory and other powers of government. Many countries in the world
today regulate business to a degree reminiscent of earlier days when
mercantilist economic theories were in vogue. Others own and operate
Ibusiness enterprises on the theory that Government officials and
theoreticians are better business planners and managers than the
owners of business establishments or those selected by oAvners to man-
389
age. In all of these societies competitive striving is the exception.
And after 24 years abroad, Senator, this is a conviction that I have
very deep within me, in all of these societies, competitive striving is
the exception rather than the rule and monopoly is the rule rather
than the exception.
In all of these societies the living standards of people are Ipwer
than ours. One may conclude after observing these societies in action
that where the individual has little economic freedom he is likely to
have little political freedom as well — and that the more pervasive
the regulatory powers of government, the less important the individ-
ual becomes in the scheme of things.
As our society has evolved, there has been more, rather than less
individual opportunity and freedom. The ranges of choice in where
a person chooses to live, how he chooses to earn a living, the manner
in which he chooses to spend his increased leisure time are rnuch
trreater today in this country than ever before or in any other society.
I might suggest here that the automobile has enhanced opportunity
and freedom. It gives the individual a mobility never before available
to him. It expands his choice for places to live and work and it per-
mits him to enjoy the kind of travel for pleasure formerly reserved
to the wealthy. The average American can see more of his country on
a vacation -trip than his great grandparents may have seen m a
^ Airprogress is accompanied by new problems. Our cities suffer
from continued growth in population and the movement from the
rural areas. The problem of the pollution of our environment is a
Dressing one. And along with the new problems, we still have some
of the old ones. But as a Nation we have done well, I think, m finding
solutions for problems without impairing our concept of the worth ot
the individual. There may be some argument about thefectsol af-
fluence on society but that argument has more to do with the nature
of mankind tha/with the process by which we achieved our affluence.
Andlt is good to keep in mind that the great economic abundance,
which basiLly has be\provided by the P-^ate sect-;* our econ^
omy, is responsible for the opportunity ^^^.l^^^^^^^^J^'^L^s X^^^
more of our time and energies to the correction of the problems wlucn
""TThe complete prepared statement of Mr. Mann follows :)
STATEMENT BY THOMAS C. MaNN, PEESIDENT, AUTOMOBILE MANtTFACTUBEBS
Association
Mr. Chairman, thank you for this opportuni^ to vre^-^^^,,^-t of view
concerning some of the Questions bemg consider^ by this Comm^^^^^
Perhaps I should begin by saying a few ^^/^f ,,^P^^„"„^ _7%e ten member corn-
sent. Because of the competitive nature and tradit^ns of the ten^i^^^^ ^^^^ ^^^
panies, and because of the ^eq^^^^^^^^^s of o^^^^^^ areas of competition
concern itself with what may be^ broadly described as t^^ ^^^^^.^.^i^^ ij, ^any
between the companies. Thus, ^he Association has no res^^^^^ relationships,
areas such as service, costs and P"^f^^; ,^/XdS and ^^
warranties of product, advertising, product development ana o^ ^^^.^
interest in these areas is «t"<^«y limited to hose ^^^^^^^ .^^ ^^ ^H of
knowledge and which in no way affect .^^o^^.P^t^^ion. My m j^
these subjects is limited to that ^'bieh^^ J^J^.f ^ Ji^.^uarmember companies
In the areas in which the Association ^^orkslndl^^ualm .^.^^
often have conflicting interests and different Pf;°.tXstrv and in my opinion,
reflects the intensely competitive nature of the industry ana is.
390
desirable. I mention tliis diversity of interest and opinion liere so that every-
one will understand that the views I express here are my own and do not
necessarily represent the opinions of individual member companies. This applies
not only to my written statement but to answers to questions put to me and
opinions which I may volunteer during the discussion periods.
Since several witnesses have described what they consider to be wrong with
the industry, perhaps it would lend some perspective to the discussion if, before
considering several of the questions posed in this hearing, I were briefly to list
some of the things that the industry does well — specifically, the ways in which
it contributes to the strength and dynamism of our economy.
The ten companies are taxpayers rather than subsidy "receivers. Last year
they paid around $4 billion in direct local, state and federal taxes. Similarly,
in 1968 motor vehicle owners paid $14.3 billion in special state and federal motor
vehicle taxes, one-third of which were taxes on trucks.
More than 13 million people are employed in the manufacture, distribution,
maintenance and commercial use of motor vehicles. In one way or another, one
out of seven American workers is dependent on the motor vehicle industry for
his employment.*
An estimated 819,000 U.S. businesses, one in every six, depend on the manu-
facture, distribution, service and use of motor vehicles.
The number of people who, through the direct purchase of stocks, share in the
ownership of the industry now stands at about 3 million and millions more
participate through mutual funds, insurance company investment portfolios
and the like.
While Michigan, Missouri, California, Ohio and Wisconsin lead in automotive
assembly, the industry is important to the economy of every state in the union.
The Association I represent is in the process of compiling data on the contribu-
tion which the industry makes to the economy of each state. We have completed
some 48 of these studies which I have with me and which the Committee or its
staff may be interested in looking at. I have no objection to their inclusion in the
record if that is the Committee's wish.
The industry plays a key role in transporting people and goods from one place
to another. Eight-six percent of travelers* use automobiles. Eighty-two percent
of commuting workers use f nfomob'les ns a mpans of transport. Ninety i)ercent
of all livestock and 65% of all fruits and vegetables are delivered to major mark-
ets by trucks. Trucks haul 52% of all inter-city tonnage of manufactured prod-
ucts excluding petroleum and coal products.
These figures convey, I hope, not only some idea of the importance of the auto-
motive industry to our economic well being but also the magnitude of the eco-
nomic job done by this industry. More than any other industry, it has promoted
mass consumption and prosperity through mass production.
PRICE COMPETITION
Ultimately, competition in price or in anything else is of value because of what
it does for the consumer. As you know, the Consumer Price Index considers the
average price level in 1957-1959 to be 100. The Index for May, 1969 shows that
the level for all included items has risen to 126.8 while the index of new cars
has risen to only 101.8. The index for public transportation, for example, has
risen to 148.0, home ownership to 138.0, food to 123.7, medical care to 154.5 The
price index for new cars is among the lowest of the major components of the
index.
In contra.st with the 1.8 percentage increase in the car price index since the
1957-59 base period, oflScial indexes show the following increases in some impor-
tant elements entering into the cost of manufacturing an automobile : Iron and
steel, up 10 percent ; non-ferrous metals, up 34 percent ; glass, up 15 percent ;
metalworking machinery, up 32 percent : commercial and factory buildings up 45
percent ; average hourly wages in motor vehicle manufacturing, up 55 percent.
Another way of looking at performance would be to compare the average price
actually paid for a new car. Based on Survey Research Center data, average ex-
penditures for new cars have increased by only 1.2% per year between 1959 and
1968. This increase does not take into account infiation or the general improve-
ment in the quality of cars (e.g., a better laminated windshield) or the increase
•Defined as trips to and from an out-of-town place for overnight or longer or to and
from a place at least 100 miles awa.v.
391
in equipment features on the car (e.g., the rate of installation of air conditioning
in new cars has risen from 6.2 percent in 1959 to 43.3 percent in 1968) .
As I understand the record of these hearings, the critics have not contended
that the industry has a poor price performance record. Rather they speculate
that it could have been better. And they seem to be saying that automotive
prices are not ultimately determined in the marketplace but are contrived in
advance by manufacturers. One suspects that this thesis is, in part at least, the
result of a lack of understanding how the industry actually operates in the
real world. While I have no firsthand knowledge about individual company prod-
uct development or pricing procedures, it is common knowledge that it takes two
to four years to design, develop and produce a new model automobile.
In considering whether a new model should be produced any manufacturer
obviously must consider a number of factors. He must consider whether the
proposed new model offers something to the public which his prior offerings and
his competitors' products do not have. He must estimate the level of customer
demand for the new product. And because of the "lead time" involved, he must
attempt to anticipate what changes there will be in customer preferences in
this interval. He must guess what his competitors will be offering when he
offers his new product. He must determine whether new technological develop-
ments can be relied upon to reduce costs. He must attempt to estimate the
future levels of personal income and take into account -general economic trends
which may affect sales.
(Obviously, many of these estimates involve subjective judgments which can
neither be proved nor disproved in advance. These and the size of the capital
required to bring out a new model help to explain why this is a high-risk indus-
try. Even more important, the manufacturer knows that most of his potential
customers now have cars and do not have to buy any new car — that they will
not buy unless they are offered a superior product at an attractive price. There
are no pat formulas for success as the failure of many automotive manufacturers
and the shifting fortunes of those who have survived (which I shall refer to
later) attest.
At any point during this process, a company may well conclude that its hoped
for new model will not sell or will not sell at a price which makes it production
worthwhile. Under these circumstances, the model may well have to be dropped.
All of the time, effort and money expended upon it may be lost However, let
us assume that a manufacturer has surmounted these difficulties, developed a
new model and initiated production. The next step is to make a decision as to
the price which will be asked for this new product. This is not a "fixed" price.
It is an initial offering price arrived at after considering all of the factors
which are important in the marketplace.
No manufacturer can price his product much above comparable models of his
competitors without diminishing his own volume of gales. Likewise there are
limits to a manufacturer's ability to reduce prices to meet competition and still,
risks considered, make a profit adequate to attract investors.
I have tried to describe some of the factors which must be considered by a
manufacturer in arriving at the initial offering price. It may happen that this
price is not competitive. Mistakes in judgment may have been made. Or condi-
tions may have changed.
In 1958 imported cars demonstrated a demand for smaller cars. American
Motors responded with its Rambler, the first American compact. Other domestic
producers followed with their compacts. In 1967, in response to a resurgence of
foreign car sales American Motors sharply reduced the price of the Rambler
American to a position midway between domestic compacts and imports.
The recent introduction by Ford of the Mustang and then the Maverick are
other examples of changed conditions. The Mustang forced other manufaetiirers
to react — e.g., GM brought out the Camaro and the Firebird and American Motors
brought out the .Javelin. The Maverick wa.s, in part, a response by Ford to foreign
comi>etition to which all U.S. manufacturers are subjected. Chrysiler, responding
to the Maverick, recently substantially reduced the price of its Valiant in order
to improve its competitive iK>sition. For similar rea.sons, GM reduced the price of
its Nova relative to other cars at the beginning of the 1969 model run.
Another example of competition in offering price : In 1968 GM's list prices for
its 1969 models were lower than those announced earlier by Chrysler for its
1969 models. Shortly thereafter Chrysler reduced its prices.
In addition to this kind of price competition, manufacturers engage in price
competition with each other during the model year through incentive programs
3&2
to salesmen and dealers. Many of these, by in effect reducing manufacturers'
prices to dealers, enable dealers to sell to the customer at a lower price. As the
records of these hearings show, these incentives vary from small amounts per
unit up to $400 or more. Programs of this kind are frequently reported in the
trade press. I have here a number of press clippings describing them which the
Committee may wish to see. I have no objection to the inclusion of these in the
record if the Committee so desires.
To sum up what I have said about price competition at the manufacturer's
level : Prices are not static. The effective price to the dealer changes in response
to changing conditions in the marketplace and the efforts of each manufacturer
to increase his sales and share of the market. These changes benefit the consumer
and partially explain the excellent price performance of the automotive industry.
There are other aspects of price competition that I would like briefly to refer
to:
There is also intensive price competition at the retail level. I do not think there
is any need to describe this in detail. It is a matter of common knowledge that
dealers compete vigorously with others handling the same make as well as with
dealers handling different makes. This competition at the dealer level is, of
course, reflected back to the manufacturer. It is a major element leading to the
previously described price competition at the manufacturing level.
There is price competition not only between different makes of new cars but
between new cars and used cars. The fact that there is a very strong used car
market in this country which provides direct competition for new car sales is of
considerable importance.
There is also competition between new cars and other forms of transportation
and between new cars and non-automotive products and services. A prospective
buyer of a new car has a wide range of options. He may elect to keep the car
he has for awhile longer. He may decide to buy a used car. He may decide to do
without a car and use other forms of transportation. He may decide to invest
his savings, buy a house or to take a trip or to do a number of other things.
The result of all this is that each manufacturer is forced to improve his product
and keep his prices down.
At this point, I should say a few words about alleged price "dominance" of
the industry by a single company.
It would be wrong to say that the pricing decisions of any one of the four
major domestic passenger car manufacturers has no effect on the others. In a
competitive economic system something would be wrong if any manufacturer
could ignore his competitor's prices and charged whatever he wished. No one
in the auto industry can do this. However, domestic manufacturers and foreign
firms able to ship a substantial volume of cars into the U.S., can each influence
prices in a downward direction. In this sense, they all have "dominance".
If, on the other hand, "dominance" is meant to imply the ability to raise prices
by restricting overall supply, the evidence I have seen leads me to conclude that
no automotive manufacturer has this capability. Should any producer attempt
to raise prices by restricting output it seems clear to me that it would be acting
against its own interests because its competitors, having the ability to increase
their production, could quickly fill the vacuum and, in the process, increase their
sales and shares of the market. Self-interest in this competitive setting is the best
price protection the consumer can have.
THE DEALER DISTRIBUTION SYSTEM
I know of no "artificial" barriers to entry of new companies into the auto-
mobile industry. There are a number of natural ones in this industry just as
there are in others. The most obvious of these is the existence of eflScient com-
petitive firms which produce superior products. Another is the substantial in-
vestment required for large-scale production of a complex machine. Another is
the technical, managerial and other skills which a large organization requires
to be efficient. Another is the need for an effective system for sales and servicing.
If we think of these so-called barriers in terms of producing and selling an
automobile which is inferior in performance and quality at the price of products
now being offered the consumer, they can be formidable. If, on the other hand,
someone comes up with a better mousetrap — with a better or lower priced auto-
mobile than those now available — these "barriers" disappear. This appears to
me to be entirely compatible with the basic principles of our economic system.
One question posed in this hearing is whether newcomers can market their
products on their merits.
393
The answer to this question is, I think, in the aflarmative. Manufacturer-
dealer agreements are nonexclusive : Dealers may and do sell competitive cars,
joth within the framework of single business at the same location and within the
"ramework of multiple outlets operated by the same owner as separate and
iistinct operations. One company has stated in these hearings that of its more
than 14,000 dealers, more thn 1,000 handle at the s;ime locations new vehicles
produced by domestic or foreign competitors. Another has estimated that of
lits approximately 7,000 dealers, around 440 sell cars made by other manufac-
turers. Another manufacturer has estimated of its more than 6,300 dealers about
1,000 sell cars made by other manufacturer.s. I understand that more than one-
fourth of the dealers of the fourth domestic pa.ssenger car manufacturer sell the
products of competitors.
These figures might well be higher were it not for the belief on the part of some
dealers that they can sell more efficiently and effectively by concentrating on
one car line ; and by the belief on the part of others that the substantial addi-
tional investment required to sell and service more than one line would not be
justified by the increase in sales that might result from selling other products.
However this may be, dealers do sell and service competitors' products and also
switch from one manufacturer to another.
Good dealers, like other good businessmen, are hard to come by. There is com-
petition among manufacturers for dealers able to sell cars and to keep their
customers satisfied by providing good service. Manufacturers give careful con-
sideration to the advice and counsel of such dealers.
The contention seems to be that notwithstanding the freedom of dealers to sell
a competitor's product their wills are forced by "pressures" of manufacturers.
Perhaps what is needed is a generally accepted definition of the word "pressures."
What one person may consider the exercise of his legitimate right to stress the
merits of his product and to promote its sale may be regarded by another as a
campaign to force the will of dealers.
Nothing that I have seen and read in the press in my two and half years with
the Association leads me to believe that dealers are timid about pressing their
own independent points of view or defending in various forums what they can-
sider to be their own individual rights and interests. They have what appears
to me to be a very active, articulate and effective national organization.
The dealer system is not based simply on an abstract idea about how to market
cars. Other methods have been tried. The present system evolved to meet a num-
ber of legitimate needs :
The need for dependable local businessmen capable of marketing in their
communities a complicated, expensive machine under intensely competitive
conditions.
The need for dependable local businessmen capable of providing the facili-
ties, equipment and mechanical skills necessary to service a product which
is not only complex but highly mobile.
The need for local businessmen capable of providing information concern-
ing current and probable future demand for automotive products to manu-
facturers engaged in high risk, large-scale production operations.
It is not an accident that the dealer system has been adopted throughout the
world by major automotive manufacturers, both foreign and domestic.
The distribution system does not, of course, guarantee success for either the
manufacturer or the dealers. Efficient systems did not prevent the discontinu-
ance of the DeSoto, the Edsel or the Corvair. A distribution system will not make
up for a product which consumers are unwilling to buy. It is rather a system
which, up to this point in time, automobile manufacturers have found to be the
most efficient and effective way to distribute and .service their products.
A newcomer to the manufacturing industry is, however, not obliged to use the
existing dealer network. He is free to market and service his cars in any way he
chooses. He could decide, for example, to distribute and service his product
through a large retail chain enterprise which sells a variety of products. He
could decide to establish his own independent dealer network as German and
Japanese manufacturers have recently demonstrated can be done in a relatively
short span of time. He is free to convince franchise dealers handling his com-
petitors' products that they should also distribute his product — or to convince
them that they should handle only his product. He could sell directly to retail
buyers or distribute only through factory-owned retail outlets.
394
NUMBER OF COMPETITORS
M
Prior to the mid-20's, the high profits made in those years by a few successful
automobile manufacturers attracted a large number of entrepreneurs. Hundreds
of companies failed and in doing so, demonstrated that the industry was not
only potentially high profit but also high risk. Those who survived the intense
competition presumably did so because they were more eflBcient and because^
consumers chose to buy their products.
The passenger car companies which survived continued to compete with each
other. There are several ways to judge the quality of the competition amongi
them :
One is the price performance of the industry. As pointed out earlier, this per-
formance record is excellent.
Another way to judge quality of competition is by looking at the areas of
competition between the companies. It would be theoretically possible for oa
company to concentrate its efforts in producing small economy cars. Anothe;
might produce a slightly larger "compact" car, another an "intermediate" sizi
car and another, large luxury cars. But instead the companies traditionally havi
met each other in head-on competition in a wide range of automotive products
It should be noted that different companies lead in different product groups,
the record of these hearings show, for example, in 1967 Chrysler led in sales oi
domestic compacts. Ford led in domestic specialty cars and General Motors led
in domestic intermediates.
Another way to judge the quality of competition is by the variety of choio
which is offered the public. The more than 360 different model cars produce
by domestic manufacturers offer the consumer a wide range of choice in produci
price, in size, functional characteristics, style and other features. In addition,
the options available to the consumer provide him with an almost unlimited
number of vehicle combinations to choose from. It is much more difiicult for
manufacturers to offer a great variety of models and options than it is to offer
a few. The fact they offer such a great variety is solid evidence of competition,
Another way of judging the quality of competition is by looking at the in-
dustry's record of change and innovation. All anyone has to do is to compare
the automobile of today with those of yesteryear to see the many improvements
that have been made in handling and stability (e.g., lowering the center of grav-
ity and improving cornering characteristics), in passenger comfort and con-
venience (e.g., power steering, power brakes, air conditioning, reduction of noise
levels), in materials (e.g., high strength fibers, new alloys) and in many other!
areas. This record of continuous innovation is also solid evidence of competition.
In the post AVorld AVar II period General Motors' share of new car sales has
varied from 38% in 1946 up to 51% in 1954, down to 42% in 1959, up to 52% in
1962, down to 47% in 1968. Ford's sales, which reached a peak of some 60% in •
the early 1920's, were under 19% in 1948, up to over 307o in 1954. down to 24%
in 1968. Chrysler's share was almost 26% in 1946, down to less than 10% in
1962 and up to over 16% in 1968. American Motors' share was about 2% in the
mid-1950's (prior to its introduction of the compact), up to about 7% in 1960
and down to about 3% in 1968. Every company must earn its place in the market
each model year by competing for customer preference. These changes in the
fortunes of particular companies are solid evidence of competitive striving.
A great deal has been said about the niunber of domestic manufacturers of
passenger cars. The correct picture is not of a single giant towering over three
snoall, weak, defenseless firms. The correct picture shows four aggressive, ex-
perienced domestic producers that, in the process of competitive striving over
the years, have grown into efficient, innovative corporations. Each is large by al-
most any standard. Each believes it has a superior product. Each has confidence
in its future.
The correct picture would also show more than a dozen foreign competitors
each of which is striving to increase its sales in the United States and other
markets. The United States market is especially attractive to foreign automobile
manufacturers. They are highly efiicient producers with a high degree of tech-
nology. They have an advantage over domestic manufacturers in wage rates. They
have an advantage in tariff barriers.
Our tariffs on automotive products, which were among the lowest in the world,
were further reduced in the recent Kennedy Round ; yet our automobile manu-
facturers have never asked for protection against foreign competition. By con-
trast, many foreign countries maintain, in addition to higher tariffs, formidable
non-tariff barriers against our automotive exports.
395
It is worthwhile noting, in this connection, that foreign manufacturers cite
iperior technology, managerial skills and competitive efficiency of American
auufacturers in justification of this lack of reciprocity— a thesis which is
tactly the opposite of a point of view which has been expressed in these hear-
gs. Partly because of larger markets created by regional trading arrange-
ents— thereby creating markets more comparable to ours in size — it is also in-
{resting to note that the trend abroad is towards larger and fewer, not smaller
id more numerous, automotive manufacturing enterprises (e.g., Leyland-British
otors).
The passenger car manufacturing industry is in a very real sense a world in-
astry. Foreign passenger car manufacturers compete with American manu-
icturers in all countries which have liberal policies towards automotive im-
[)rts. Our domestic market is truly an international market.
That there is real and effective competition here at home between foreign and
jmestic manufacturers is evident from the fact that foreign manufacturers
chieved about 10.2 per cent of sales in 1959, declined to about 4.9 per cent in
)62 because of vigorous price and product competition from the U.S. companies
nd fought their way back to about 10.5 per cent of the domestic market in 1968.
a sum, the American consumer may choose not only from the products of the
)ur domestic automobile manufacturers but from the products of a dozen or
lore foreign manufacturers as well.
I do not mean to imply by all of this that I believe the quality of competition
i determined by numbers. At most numbers is only a single criterion and not a
ery reliable one at that. Contrary to what some have said, I believe competition
an be just as vigorous between a relatively small number of firms as between
larger number. To the extent, however, that numbers of competitors have
elevance to the quality of competition, the number in the United States market
3 closer to 14 than to 4.
I do not think there is a great deal to be gained by debating theoretical con-
epts about optimum size of manufacturing establishments. I doubt that anyone
nows what the answer is. I especially doubt whether general theories, intended
0 apply to all industries, are necessarily applicable to the automobile industry
s it actually functions. The process of designing, testing, mass producing,
iiarketing and servicing a highly mobile machine consisting of 15,000 parts is
mique in many respects. The capital required is large. Risks are high. Man-
igerial, engineering, marketing and many other skills are required in depth.
i]fficient automobile producers are, I believe, likely to be large in any case.
We can be sure, however, that the risk to our national economic strength and
veil-being would be very considerable if the government should attempt artifi-
'ially to reconstruct the automobile industry according to theoretical concepts,
uet us suppose, for the sake of argument, that government should artificially
IX limits on the share in our market which any manufacturer could have. Would
lot the most efficient few slacken their competitive efforts when they approached
the limits of their allotted share? What would the incentive be to improve the
product or reduce price to the consumer if companies had no hope of substantially
increasing sales and profits? What assurance would there be that price to the
consumer would not increase?
Or let us suppose, for the sake of argument, that having created a large num-
ber of small companies, they were all left free to compete with each other. What
reason would there be to believe that some would not become more efficient than
others *> What reason is there to believe that the less efficient producers would not
gradually be eliminated as they were in the past? And what reason do we have
for believing that the companies who survived and enlarged their share of the
market would not again be made targets of attack simply because they had
succeeded in producing a better or a cheaper product for the consumer i
THE CONFIDENTIALITY OF DIVISIONAL FINANCIAL DATA AND PRODUCT COSTS
The question is asked : Is there too much "secrecy" about internal financial
data of the automotive industry? ^ ^v, * i. 4.i,„4.
I should first like to point out that there is nothing new about the fact that
•'Gimbels doesn't tell Macy's." Automotive companies are no more secretive about
their internal data than other industries and perhaps less so than most.
There is a great deal of information already available to the public. iJacn
automotive manufacturer provides annual and quarterly financial reports and
makes reports to the SEC and to the financial community. The information
available to the public includes industry or company data, or both, on produc-
396
tion and sales, investment and employment, product characteristics and features
and information on research, engineering and the production process. A wide
variety of information has been provided the government over the years.
The question of whether there should be additional disclosure of corporate
financial information with respect to registration statements is currently undel
intensive study by the Securities and Exchange Commission. A large number ol
business firms, including many Association members, have filed extensive comi
raents with the SEC on this issue. These comments are a matter of public recon
In view of these proceedings, it seems to me premature to debate the questioi
of the need for more information before we know what additional data, if any!
will be required by the SEC.
I would be less than candid, however, if I did not question whether thi
public interest would be served by disclosing financial data which traditional
has been considered confidential by all industries. As reflected in the commen
to the SEC, this is a matter of concern to other industries as well. I assu
that this committee would consider that all businesses should be subject to t
same disclosure regulations.
The disclosure of detailed financial data by a company would enable competi
tors to determine its points of weakness and strength. The competitors coul
then avoid a competitor's strengths and exploit his weaknesses. Detailed knowl
edge of a competitor's cost and profit data would, for example, assist a manu-
facturer in making decisions about his own production of a competitive unit. Ac
counting methods and procedures themselves are considered important mana
gerial tools and proprietary in nature ; release of detailed data through whic
these methods and procedures could be revealed would be, in my opinion,
undesirable.
The release of confidential data would be especially burdensome for the in
novator. If advantages gained through research, the development of better man
agement techniques, better cost accounting methods and in other ways were reni
vealed almost immediately through the requirement of disclosure of detailed"
data, there would be less incentive to find ways to reduce costs, increase pro-
ductivity, improve quality or reduce prices.
It is important to underscore that the competitive position of United States
manufacturers would be prejudiced if U.S. companies were obliged to disclose
their costs while their foreign competitors were not. This does not seem to me
to be a prudent thing to do especially at a time when the United States is hav-
ing balance of payments diflSculties. I do not doubt for a minute that our foreign
competitors would know how to use this internal data to their advantage botli
at home and abroad.
As I understand it, some courts and oflScials of the Department of Justice
have, in the past, taken the view that generally speaking the exchange or disclo-
sure of cost as well as other internal information by competitors can lead to less
rather than more competition. I would be surprised, for example, if the Depart-
ment of Justice would not attack as anti-competitive any exchange of cost and
profit data between the companies.
It seems to me. in sum, that the public interest in informing investors, or
whatever other advantage might be gained by disclosure in detail of confidential '
information, should be balanced against the anti-competitive effects of such
action.
TRAFFIC SAFETY
Last year about 100 million vehicles of all kinds traveled an estimated 1 tril-
lion miles in the United States. There were about ~t.~) fatalities for each hundred
million miles traveled. According to the data I have seen, this rate is the lowest
in the world and considerably lower than it was in the United States some years
ago. In 1935, for example, the rate was 15.9 per hundred million miles traveled.
Nevertheless, the rate is too high and there is general agreement that it should
be reduced. The question is: How can this be done? The Department of Trans-
portation is now moving in the right direction.
It has promulgated a number of vehicle safety standards. It has programs
aimed at driver and pedestrian habits. The best available data, for example,
suggests that alcohol is involved in a very substantial percentage of fatal traffic
accidents. There is evidence that consumption of alcohol by pedestrians is a
significant factor in the number of fatal pedestrian accidents." The simple use of
passenger restraints, which are now standard equipment on all new vehicles,
would probably save more lives than any other single thing that could be done;
397
it reports on the number of people who actually use them is not encouraging,
aother example : There is a great deal of data which suggests that a significant
Tcentage of traffic fatalities involve violations of traflSc laws; better driver
lucation programs and better enforcement of traffic laws would probably pay
g dividends in terms of saving lives.
There is a respectable evidence that an improvement in the way injured
otorists are treated at the scene of the accident and in hospitals would save
significant number of lives.
There are also programs designed to save lives by making roadways safer,
tie fatality rate on the new Inter-state system is, for example, substantially
wer than on roads and streets designed for the horse and buggy days. Divided
nes, elimination of intersection crossings and control of ingress and egress
i the roadway partially explain this. Another example : Since a significant per-
■ntage of deaths are caused by vehicles colliding with a fixed object after it
aves the roadway, it is, I believe, generally accepted that a significant number
' lives can be saved simply by making roadway signs so that they will "break
,vay" from their base when struck and by installing safer, and where appropri-
;e, energy absorbing, roadside barriers.
Finally, there are programs aimed at assuring the principal safety features
' vehicles in use (the average age of automobiles on the road is five years
id many are ten or more years old) are regularly inspected and properly
aintained. Surely the value of these programs is evident.
I do not mean to imply that it is possible to make accurate quantitative
5timates of the number of deaths that are attributable to each of these compo-
mt parts of an effective traffic safety program. Much of today's data is
ispect and we need, among other things, to develop a better data collection
Methodology. There is also evidence that many accidents have several rather
lan a single cause. Nor do I mean to imply that improving the safety features
f vehicles is not an important part of traffic safety. It clearly is.
Rather, my point is that if we are to succeed in our aim of significantly
iducing the fatality rate (or the number of fatalities in absolute terms) at
time when our human and car population, and the hundreds of millions of
dies traveled, continue rapidly to increase, it will be necessary to attack the
roblem in all of its aspects— the vehicle, the driver and passenger, the pedes-
rian, the roadway, the inspection and maintenance of cars in use, and proper
[•eatment of the injured. By effectively dealing with one component of the
raffle safety problem we can hope to reduce the rate by, let us say, some 10%,
y dealing with another component, perhaps another 10%, and so on. The
umulative effect of dealing with each component part of the problem could, how-
ver, and presumably would, bring about a very significant reduction in the
I wish I could assure this Committee that the fatality rate is likely to be
ery significantly reduced by concentrating on the vehicle alone, while ignoring
he other important aspects of traffic safety. But it w^ould be irresponsible for
Qe to do so. There is no evidence that defects in vehicles— which are properly
Qaintained and used for purposes for which they were designed— cause a
lignificant percentage of fatal accidents. There are limits to the amount of
•nergy which the vehicle itself can absorb as well as limits to the forces which
he human being can withstand. I repeat: We should and will continue to
search for every feasible way to make the vehicle safer. But we must, if we
ire to be effective, support a balanced, comprehensive program embracing all
mportant aspects of traffic safety. .
There is no credible evidence I am aware of that innovation in safety would
le increased by increasing the number of firms in the industry. There is abun-
lant evidence that automotive manufacturers have been the principal inno-
►'ators in vehicle safety. Automotive supplier companies have also been active
n designing and selling safety related automotive components.
Manufacturing companies continue individually to conduct large-scale safety
research and development programs. As illustrative of the scope and quality of
the work being done by individual companies, the Committee might be inter-
ested in reading the printed report of an Automotive Safety Seminar which one
3f the companies sponsored about a year ago. I have no objection to including
this report in the record of this hearing if that is the Committee s wish
Other examples of safety research by individual companies include the sure
track-' brakin? system. toVevent brake lock-up which is n^^Jo^^.^atf ''taU-
ding; and "automatic headway control", an electronic system to eliminate tail-
398
ft
gaiting" through speed control devices with computer backing. Papers describin
these in more detail are available for inclusion in the record if the Committe
wishes.
The manufacturers have also long supported vehicle safety research program
in various universities and independent research organizations. They wei
among the first to support other organizations having as their principal purpos
the developemnt of effective programs to cope with the non-vehicular aspects c
traflSc safety.
VEHICI.E EMISSIONS
Today's new cars emit, on the average, about 63% less hydrocarbons thaj
earlier models ; under more stringent standards proposed for California in 197l
and nationwide in 1971 the decrease will exceed 80%. Similarly, carbon monoL
ide emissions have been reduced about 63%. In no other area of the total cleai
air program has there been a comparable record of achievement.
In this area, too, member companies are" engaged in intensive in-house researe
oriented towards finding ways to bring automotive emissions still lower. ]
addition, the industry has joined with HEW and the oil industry in financing
$13 million program in basic research, including the effect of certain pollutant
on health.
An example of expanded basic research effort on the vehicle emission problei)
is the "inter-industry emission control program", initiated by Ford in 196'
participants include, besides Ford, 6 oil companies and 4 foreign automoti
manufacturers. The research efforts of this group, funded entirely by the p
ticipants, are designed to test several basic approaches toward improved em
sion performance through such techniques as thermo-reactors, catalytic e
verters, new fuel properties and systems. A copy of the most recent report of
IIECP is available for the record.
Another example is the emissions research program of Chrysler and E
in the areas of cleaner air systems, reductions of evaporative losses, catalyi
reactor systems and other fields. A copy of a report briefly describing this pr]
gram is also available. Other material describing Cleaner Air System For E;
haust Emissions Control developed by Chrysler is available for inspection an
if the Committee desires, for inclusion in the record.
As in the case of traflSc safety, there is no basis for assuming that innovatioi
in reducing emissions would be promoted merely by increasing the number (
firms in the industry.
DEVELOPING ALTEKNATIVE KINDS OF PRIVATE TRANSPORTATION
An argument can be made that the ability of large companies to invest i
extensive research and development staff and facilities enhances the likelihoo'
of innovation. Certainly much of our technological progress in recent years
the product of large-scale, organized research programs. On the other hand, mai
important innovations in the past have been the product of the ideas develop*
in small companies. Some of the most significant advances have been made
one-man laboratories operating on a shoestring. Probably the only conclusion or
can draw from this is that no individual or firm or industry has a monopoly o
the capability of finding new and better ways of doing things — and that a)
should be encouraged to contribute to the total fund of knowledge.
The automobile manufacturers have often said they are in the transportati(
business. If an economically feasible machine can be developed which can
everything that the internal combustion engine does, there is no reason to belie'
that people would not want to buy it. And in our open, competitive econor
society there are none who have a greater incentive than to develop, produce ai
market such a product than the automobile manufacturers. The firm which di
so first would have an advantage over his competitors. Only tJiose firms obliviou
to their own self-interest would want to stand pat with an obsolete plant pro
ducing an obsolete product while more competitive companies passed them by
This explains why the automobile manufacturers have spent a great deal Oj
time and money in developing and testing diesel engines, turbine engines, electri*
power plants, steam engines and hybrid engines. Recently one of the manufaci
turers showed to the public some 15 or 20 new power plants on which it is cur
rently working. I have here a folder which describes these in words and in pio
tures which the Cxwnmittee may wish to look at; and, if it should be the Com'
mittee's wish, I have no objection to including the contents of the folder in th«
record of this bearing.
399
t also have here a short history of Chrysler's development of gas turbine
'ffines which the Committee may wish to look at. I understand it is one thing
nerfect a single engine to desirable design characteristics but an entirely
fferent matter to perfect an engine which meets consumer demand and can be
^hat the^automobile manufacturers have individually said is, in essence, that
■sDite their best efforts none has as yet been able to develop a power plant
'hich thev believe would be competitive with today's gasoline engine in price,
>rformance, reliability and durability. This raises the question : What social or
her legitimate purpose would be served if a manufacturer were to design, de-
■lop and mass produce a different kind of power plant, if consumers would not
IV it in large quantities? Governments may be able to invest great sums of
onev in research on a program and then abandon it. But in the pnvate sector
•st and the ability to market products are important considerations. The coni-
mv which makes' too many costly errors would probably not continue to exist,
ertainly the shareholders would quite properly begin to think about whether
anagement should not be changed. „„„i^
I see no basis at all for the insinuation that automobile manufacturers could
only they tried harder, quickly make a dramatic technological breakthrough
^ developing a steam or an electric or some other kind of automobile which the
,nsumer will consider superior to the products currently available to him. I say
lis because I know of no way to command scientists to invent Most technologi-
il progress comes gradually as the result of trial and error and the expenditure
wSle^Sie^automobile manufacturers seem likely, because of their knowledge,
cperience, and because of their self-interest, to continue to lead the way m auto-
otive innovations, they are by no means the only industry with knowledge in the
reas which present the greatest technological problems. The public is not wholly
ependent on them. There are efficient industries, both at home and abroad, whose
asiness it is to make batteries and fuel cells. There are other industries whose
asiness it is to make steam power plants. There are individual inventors and
?tJepreneurs who believe they have found solutions to technological Problems
ihich at present are barriers to new kinds of automobiles. I do not suggest that
Inv good purpose would be served by commanding these groups to invent a better
lower plant, but I do suggest that all of them have an automatic incentive to
iivent And I have no doubt that even if someone else is the inventor the auto-
iiobile manufacturers will be eager to adopt it and to compete in finding ways
5 improve on it.
THE EFFECT OF LARGE CORPORATIONS ON LIFE IN AMERICA
The question has been asked what effect large corporations have on the values
^M^ny of us!"? be&eve, have nostalgic memories about "the good old days'' when
irtually all of our institutions both public and private were smaller and life was
good deal simpler. Having come from a small town in the Southwest I especial-
y appreciate those sentiments. However. I also believe that the good old days
Lm betSr in retrospect than they actually were. I doubt that many of us wouW
Lctually choose to go back to those days. One reason why life was sampler is that
eoDle were poorer and spent most of their time doing the things they had to do
oprovTde for themselves and their families. The number of options and oppor-
unities available to them were rather limited. f„n^nmpntflllv
We have changed from a rural to an urban nation and from a fundamentally
igricultural to a highly industrialized society. Our population is larger and more
fncentrated. It is no longer possible for each individual to provide for mo^t^^
lis own basic needs, much less those things he feels are required for his well-
i einjAll of us are increasingly dependent on the activities of greater numbers
!)f people. I believe it is fair to assume that the size of many modem day enter-
prises and institutions is, in part, an outgrowth of these developments
This is not to say, however, that there is no role for small institutions or busi-
aesTes In the aXmobile industry, for example, the emergence of large manu-
facturers has been accompanied by the creation of a great many new small busi-
aess enterprlserEa'ch one of th'e automobile -^r^'l^J^'Z'J.frT^^rofTe
products and services from thousands of firms located in ^very state of the
Snion. As the record of this hearing already shows, one of the manufacturers
ouys from about 27,000 suppliers around the country. Another has some 25,000
SpUers X thfrd buys from approximately 20,000 different suppliers. Also, the
400
distribution system of the automobile industry creates opportunities for mam
more thousands of small businesses engaged in retail sales and service.
It seems to me that individual freedom and opportunity can best be preserve
by assuring that no single element of our society has controlling power over a".
others. Our economic as vs^ell as political system has been one of checks am
balances. There are today a great number of disciplines which limit the power oi
the private sector. The regulatory powers of government is one of the most im
portant of these disciplines. Labor unions also play a significant role in thi
regard. Perhaps the most important is the discipline of an open, free and con)
petitive economic system. The retention of this system is of major importanc
to individual freedom and individual opportunity.
In my opinion the greatest single threat to the importance of the individua
in our society resides in the potential misuse of the regulatory and other power
of government. Many countries in the world today regulate business to a degre
reminiscent of earlier days when mercantilist economic theories were in voguj
Others own and operate business enterprises on the theory that governmeq
oflScials and theoreticians are better business planners and managers than thI
owners of business establishments or those selected by owner to manage. In al
of these societies competitive striving is the exception rather than the rule, ami
monopoly is the rule rather than the exception. In all of these societies thi
living standards of people are lower than ours. One may conclude after observim
these societies in action that where the individual has little economic freedon
he is likely to have little political freedom as well — and that the more pervasiTi
the regulatory powers of government the less important the individual become
in the scheme of things.
As our society has evolved, there has been more, rather than less individui
opportunity and freedom. The ranges of choice in where a person chooses t<
live, how he chooses to earn a living, the manner in which he chooses to spem
his increased leisure time are much greater today in this country than eve
before or in any other society. I might suggest here that the automobile ha
enhanced opportunity and freedom. It gives the individual a mobility neve
before available to him. It expands his choice for places to live and work an* .
it permits him to enjoy the kind of travel for pleasure formerly reserved tc
the wealthy. The average American can see more of his country on a vacatioi
trip than his great grandparents may have seen in a lifetime.
All progress is accompanied by new problems. Our cities suffer from coi
tinned growth in population and the movement from the rural areas. The pro
lem of the pollution of our environment is a pressing one. And along with th
new problems, we still have some of the old ones. But as a nation we have dom
well, I think, in finding solutions for problems without impairing our concep
of the worth of the individual. There may be some argument about the effect.'
of affluence on society but that argument has more to do with the nature o.
mankind than with the process by which we achieved our affluence. And it ii
good to keep in mind that the great economic abundance, which basically ha
been provided by the private sector or our economy, is responsible for the oi
portunity we have to be free to devote more of our time and energies to th(
correction of the problems which remain.
Senator Nelson. Thank you, Mr. Mann, for your statement. I think
we will move to the other witnesses and allow them to get in theii
statements and withhold any questions of you at this time.
Our next witness is Mr. Yura Arkus-Duntov, executive vice presi-
dent, Equity Funding Corp., New York. Mr. Arkus-Duntov, we are
very pleased to have you appear here today. Your statement will be
printed in full in the record and you may present it in any way you
desire.
(A biographical note on Mr. Arkus-Duntov follows :)
Biographical Note
Yura Arkus-Duntov, 11 East 44th Street, New York, N.Y. 10017, from April
1966 to the present has been president and a director of EFC Management Cor-
poration and president and a director of three mutual funds. Since January
1969 he has also been executive vice president and a director of Equity Funding
Corporation of America. From September 1959 until April 1966 he was with
ndll
e
a
e
li.
Oil
m
in
401
Ge Dreyfus Fund, Inc. as technical advisor and investment officer and, from
(tober 1965, as vice president-research. From 1941 through 1959 he vv^as em-
jiyed in a wide variety of engineering and management functions with, suc-
cisively, Ardun Mechanical Corp. (1941-45), Automotive & Aircraft Hydraulics,
12. (1946-49), Wright Aeronautical Corp. (1952-55), Curtiss-Wright Research
1 vision (1955-58) and Curtiss-Wright Corp. (1958-59). He served in the French
j'r Force in 1939^0. Mr. Arkus-Duntov attended elementary school in Petro-
§id, Russia ; the Goethe Oberreal Schule in Berlin, Germany ; the Lycee Janson
c Sally in Paris, France (Bachelier de I'Enseignement Secondaire, 1935) ; the
liiversity of Paris — Faculte des Science Licencie es Science (Fluid-mechanics
8 a Technical Aeronautics, 1935-38) ; and the Institute Aerotechnique of St.
(r (graduate work tow-ards Ph. D. ; thesis on helicopter rotors, 1938-39). He is
finember of the American Institute of Aeronautics and Astronautics, the Society
(French Civil Engineers (U.S. Section), and The Wings Club, Inc. He serves as
siting lecturer on high speed internal combustion engines at the Stevens In-
ftute of Technology Graduate School and is also a consultant to that institute
( unconventional power plants. Other clients he serves as consultant include
'le Dreyfus Corporation, NSU Motorenwerke (Neckarsulm, Germany), and
loneer Aerodynamic Systems, Inc. Mr. Arkus-Duntov has twice been a witness
} the "economic concentration" hearings before the Senate Judiciary Sub-
cmmittee on Antitrust and Monopoly, his testimony appearing in part 4 (1965)
i d part 6 (1967) of the printed record of those hearings.
i'ATEMENT OF YURA ARKUS-DUNTOV, EXECUTIVE VICE PRESI-
DENT, EQUITY FUNDING CORP. OF AMERICA, NEW YORK, N.Y.
Mr. Aekus-Duntov. Thank you verj^ much, Senator Nelson.
Mr. Chairman and members of the subcommittee, it is an honor
id a pleasure to appear before this distinguished committee and
j participate in the panel discussions on the role of giant automobile
Irporations in the American and world economies.
' May I first give you a brief outline of my background ? I am now
le executive officer of a gi'oup of mutual funds, with assets in excess
f $200 million. Prior to that, for some 6 years, I was vice president
If research and adviser on technological matters to the Dreyfus Fund,
le of the largest mutual funds in this country. The balance of niy
rofessional career, some 25 years of it, has been spent mostly m
igineering, primarily in powerplant design and development.
I am testifying here on my own behalf, based on certain opinions
have formed on the problems of economic concentration and tech-
ological changes. They are based on the considerable amount of ex-
erience I have had with the practical problems connected with the
itroduction of new inventions into industry. I have also participated
1 the development of the Wankel engine, a radical invention m the
rt of design of internal combustion engines for automotive use, and
ave assisted the makers of this engine in their efforts to introduce
I to the automotive industry. I would like to point out that I do not
^ow have any financial interests in the Wankel engine, although 1
id have an interest in its promotion in the past. Hopefully, my views
n the use of the Wankel engine in the automotive industry are rea-
onably free of bias, except for a possible residue of frustration lett
ver from my promotional activities.
Senator Nelson's report on hearings held last year on the automo-
ive industry summarized seven principal questions which last year s
learings raised and left unresolved. I would like to direct my testi-
Qony to two of the questions, namely, (1) does the concentrated struc-
ure of the industry impede or hasten the development of better auto-
nobiles and alternative modes of transportation and (2) what con-
402
nection is there, if any, between the concentrated industry structur
and the automobile's annual toll in human lives and limbs and the ir
ternal combustion engine's damage to the atmosphere?
I have previously testified before the Senate Subcommittee on Ant
trust and Monopoly in their hearings on "Economic Concentration
and "New Technologies and Concentration," where I i)resented cei
tain opinions which were contrary to the widely held view that con
centration of industry is conducive to technological developmen
Therefore, I am very i)leased to present my views before this con
mittee on the very specific subject of technological stagnation in th
automotive industry.
The record of technological stagnation in the automotive industr
is probably unparalleled. The last significant innovation was the ir
troduction of automatic transmission in the late thirties, the impoi
tant component of which was invented by Fottinger in 1904, and use
by London buses as early as 1926.
Senator Nelson. Would you hold up a moment? Did you revij
your draft of your statement ?
Mr. Arkus-Duntov. I have slightly revised it.
Senator Nelson. Do we have a copy of it ?
Mr. Arkus-Duntov. Yes.
Senator Nelson. I do not have that.
Did you want to start at the top of page 3 again ?
Mr. Arkus-Duntov. Yes. ,
Generally speaking, the list of automotive "firsts" is pretty sFiii
and those of any significance, such as automatic transmission, hav
usually been contributed by outsiders. It is not surprising that, whei
the industry was faced with problems such as air pollution and safet;
in the last 2 decades, it was incapable of responding to them. I am con
vinced that this inability to respond was caused by the high degree o
concentration in the industry, which impeded needed technological in
novations. Eadical technological changes are always something of
gamble and there is no reason for firms, which control their market
to embark on such gambles. They prefer to devote themselve
exclusively to the task of manufacturing, nianaging consumer want
through large-scale promotions, and selling known products a
efficiently as possible.
A big manufacturing complex, such as the automotive industry, v\
able to exercise substantial power over the prices, costs, wages, capitff*
supply and consumer demands for its products. It is normal that thel
research and development departments concentrate their effort
toward product improvement, where expenditures and results ai
predictable and can be budgeted and where existing manufacturin
and testing facilities can be utilized. They certainly do not use the!
engineeering staffs to effect major technological changes; that tech-
nological changes are the product of large firms, staffed with scienH
tists and engineers, is no more than a pleasant fiction.
When problems such as safety and air pollution arise, no attempts
are made to solve them through innovations but, rather, through
"fixes" which do not require major changes in existing manufactur-
ing facilities and usually do not achieve the desired results. This, ol
course, is to be expected, as the primary goal of the corporation iS
profit and changeovers to new designs, which obsolete existing equip-
403
!nent, carried on the books at considerable value, are very major
indertakings. They are not likely to occur without strongs competitive
■easons or strictly enforced governmental regulations. If one adds to
his the additional problems of distribution and servicing of a radical
lew product, the reluctance and resistance to change becomes
insurmountable.
' To summarize, economic concentration of the automotive mdustry
las put some large obstacles in the way of creating better products
md solving the problems caused by it, such as air pollution and safety.
There is clearly a major divergency here between public interest and
corporate goals.
To illustrate the technological inertia of automotive companies, I
.vould like to review briefly the history of the reciprocating internal
combustion engine, the universal powerplant of the automotive
ndustry. The basic piston and cylinder arrangements were invented
n 1673. In 1786, James Watt connected the piston to the crankshaft,
which converted reciprocating motion into circular motion. This basic
configuration is still in use today. The first operational internal com-
Dustion engine, as we know it today, was introduced in 1876,
The function of the reciprocating engine is very simple. It converts
chemical energy into mechanical energy. Its design and construction
ire, however, very complicated. Keciprocating motion causes major
imbalances and requires a multicylinder design. The metering and
3upplying of air-fuel mixtures to individual cylinders is accomplished
in a very crude fashion. The crudity of this arrangement is such that,
in order to make it reasonably workable, considerably more fuel must
be supplied to the engine than theoretically required. Some of it
passes right through the engine without being oxidized and then ex-
hausted to the atmosphere, causing air pollution. This shortcoming has
existed since the first internal combustion engine became operational
and, almost a century later, still prevails today.
The technological causes for the damage done by the automotive
engine to the atmosphere are quite straightforward. One is that it
burns fuel and rejects the products of combustion into the atmosphere.
The other is its mechanical design, as explained earlier, which causes
incomplete combustion and requires a heavy and complex powerplant.
The first reason is endemic. The second cause is correctable, and many
possible solutions were available to the industry, such as fuel injection,
stratified combustion chamber design and others. However, none of
these solutions were pursued vigorously, possibly because of heavy
investments of automotive companies in the carburetor manufacturing
T fl Oil li"lPS
From the point of view of the consumer, the weight, and complexity
of the powerplant have always been a major cost item. It determined
the size and weight of the car, suspension, brakes, and tires, as well as
the maintenance costs. Consequently, improvements in the powerplant
were always of major interest to the consumer, and should have been
to the manufacturer if, indeed, the automotive companies were sub-
ject to the classic market disciplines of the buyer. In fact, the buyer
IS quite unequipped to evaluate the design of so complex a mechanism
as the passenger car. He relies upon the reputation of the manufac-
turer which, once properly promoted and established, relieves the
manufacturer of the necessity to introduce major technological
improvements.
32^93 O — 69— pt. 1 27
404
In the late fifties, a radical breakthrough in the art of design of
internal combustion engines occurred. A German engmeer, Felix W an-
kel, was successful in designing and testing a rotating combushon
chamber engine, that is, an engine without reciprocating parts. Ihe
advantages of this type of design were known for many years, but th
technical problems involved appeared to be insolvable by commo]
consent. As is frequently the case, an individual with small outsid
financial assistance tackled and solved a problem deemed to be reserve
strictly for the engineering staffs of the major automotive compamei
The advantages of the Wankel engine, as it evolved, were a ma]o
saving in weight, size, complexity, and cost. This saving m the powei
plant's weight and size resulted in an overall reduction m the weigh
and size of the automobile. The potential weight reduction of th
Wankel engine, with the same output as a conventional engine, wa
approximately 40 percent, and the estimated reduction in the overa
weight of the car was approximately 20 percent. Assuming direc
relationship between cost and weight, a very major saving would b
passed on to the consumer. In addition, the simplicity of the W^nk^
engine would also decrease the maintenance costs, and would indue
accessorv manufacturers to improve their designs to bring them i
line with the smaller powerplant. The Wankel engine had anothe
favorable characteristic, that is, its ability to operate on lower octan
fuel than a conventional engine with identical compression ratios. Thi
could lower fuel costs, by eliminating the use of leaded fuels, am
reduce air pollution as well.
In less than 10 years, the Wankel engine was developed from a con
cept to an operational powerplant. This development was accoir
plished with very negligible resources, an infinitesimal fraction o:
what is spent every year by the automotive industry for fendei
changes. Once the mechanical development of the Wankel engine was
completed, which was sometime in 1965-66, work was started on thi
exhaust emission. Because of the simplicity of the engine, and becausi
of its hiffh exhaust temperature, Curtiss-Wrisht, Toyo Kogyo, NSI
and Daimler-Benz have all been able to achieve very low exhausi
emission, using an exhaust reactor, and are now developing low-oosi
production models of this reactor. In addition, the basic configura
tion of the Wankel engine makes it suitable for stratified charge de
sign, which would further lower the exhaust emission and improvi
fuel consumption.
One would have expected the ariant U.S. automotive companies t
be in the market to buy this invention and to reduce it to practice. This
however, was not the case. In 1958, Wankel licensed his engine t<
NSU, a small German manufacturer of motorcycles and cars, whicl
took over its mechanical development. Shortly thereafter, Curtiss
Wright Corp. was licensed by NSTT and Wankel to develop this engim
in the United States. Thus, a small German automotive manufacture
and a U.S. aircraft engine manufacturer jointly conducted the de
velonment work on the first radical innovation in the automotivi
engine field since 1876. In the sixties, smaller automotive companiei
throughout the world, such as Citroen, Toyo Kogo, Daimler-Benz
Alfa Romeo. Rolls-Royce and Porsche, obtained licensing aarreementi
for the Wankel engine and continued its development. NSU intro
duced the RO-80, the first production Wankel engine car, in Septembe
405
!967 and is now producing them at the rate of over 2,000 a month.
Hoyo Kogyo introduced the Mazda-lOOS in May 1967, and is now
eaching a production rate of 3,000 a month. Daimler-Benz is reported
eady to introduce a Wankel-powered sports car late in 1969, and
<'ichtel & Sachs is producing several thousand small air-cooled en-
jfines a year for a variety of nonautomotive uses. NSU has recently
»een acquired by the Volkswagon people. This acquisition could pos-
ibly mean that the Wankel engine is now considered a safe invest-
nent for a major automotive company.
Here is the case of a highly desirable innovation in the automotive
ield, which promises a reduction in price, maintenance, and operating
■osts. This major innovation has not received any support from the
lutomotive companies in the United States. Their attitude seems to
)e based on the fact that, as long as the entrance barrier for com-
)anies with new products is sufficiently high, they have no competitive
•easons for speculative changes. Some day, they may decide to acquire
I license for the Wankel engine when they believe it to be a safe in-
'^estment. It should be clear that such cautious policy cannot hasten
he development of better automobiles or alternative modes of trans-
portation. It is interesting to note that the aircraft industry, which
iiherited the reciprocating engine as its prime mover for many years,
vas forced to change over to the gas turbine engine under the pres-
jures of World War II. It was invented, developed, and put into opera-
ion in less than 5 years. The automobile companies, both here and
ibroad, have installed from time to time the gas turbine engine in their
•ars. This, apparently, was done for display purposes only since, more
han a quarter of a century after the introduction of the gas turbine
'ngine, it has not been put to practical use by the automotive indus-
i;ry. It is true that the basic cost of a gas turbine will always exceed
by many magnitudes the cost of an equivalent reciprocating engine,
fiowever, from the point of view of maintenance, there would surely
36 some major savings. It might be interesting to prepare estimated
cepair and maintenance costs for a gas turbine to be compared with
:hose of a conventional engine.
A great amount of material has been presented to this committee on
the safety and air pollution aspects of the automotive industry. It
would serve no purpose for me to expand on these testimonies. The ac-
cident rate on the highways continues and the smog problem, which
was identified in the early fifties, still exists today. Because timely ac-
tion was not taken, the smog problem will continue for a long time as
some 100 million air-polluting cars have been produced and are in use
today. There is little doubt in my mind that the smog problem could
have been reduced drastically and the safety advanced if the industry
would have been willing to put their engineering manpower to use to
initiate major technological changes and innovations. It is my conten-
tion that, because of the concentrated structure of the industry, and
its control over markets, this has not been the case.
If my contention that economic concentration in the automotive in-
dustry impedes technological changes is correct, then there is little hope
that the automotive industry will solve the problems it has created.
Regulations, although useful, will not be able to accomplish this either
because, subject to political pressures, they will be based on existing
technology. It is possible that major antitrust action with respect to
406
the automotive industry could create a competitive environment coii
ducive for the introduction of new ideas. However, testimonies ol
highly qualified witnesses in previous hearings before this committeej
make this possibility unlikely.
In order to solve this fundamental problem of divergency betweer
corporate goals of the automotive industry and public interest, we
should turn to small businesses and individual inventors for new idea^
on public transportation. Fresh ideas require creative thinking, and
this is unlikely to be forthcoming from the automotive establishment)
However, ideas on transportation to be put into practice require yenn
ture capital in excess of what is normally available for technological
ventures. It has been estimated that an economically feasible level ol
automotive production is around 500,000 units a year, requiring ar
investment of close to a billion dollars. One should not be too dismayed
by these figures, as they are based on existing technologj^ and ne^
technology may require substantially smaller investments. Investors
have channeled major amounts of venture capital into oil explorations
because of favorable tax treatment. There is no reason why similai
amounts of money could not be channeled into the development of neT«
and different modes of transportation.
In this connection, considerable help would be required from the
Securities and Exchange Commission in establishing new procedureJi
for raising money through public issues. The traditional function oi
the Commission, namely, the protection of the investors, would havt
to be subordinated to promote the channeling of venture capital t(
radical new inventions in the transportation field. Since World Wai
II, many new products and technologies have been brought to th<
market through small and medium-sized companies, financed by ven
ture capital and the stock market. This trend, hopefully, will con
tinue. Properly designed tax legislation and SEC regulations coulc
help small companies to challenge the automotive giants through thei
introduction of new technology. Indeed, it may prove that the high
concentration of the automotive industry and resulting commitment
to existing technology and its inability to react effectively to changinp^
social forces will make this challenge easier.
Senator Nelson. Thank you very much, Mr. Arkus-Duntov. I have
some questions but I thinki will withhold them until we have an op-
portunity for the other two witnesses to present their testimony. Andi
then the committee would be very pleased to have any one of you
comment on the testimony of any other witness and discuss any ol
the issues raised.
Our next witness is Mr. David Housman, president. Automatic
Kadio Manufacturing Co., Inc., of Melrose, Mass. Mr. Housman, the
committee is very pleased to have you here today. Your statement will
be printed in the record. You may present it as you desire.
(A biographical note on Mr. Housman follows:)
BlOGBAPHICAL NOTE
David Housman, Chairmaii, Automatic Radio Mfg. Co., Inc., Melrose, Mass.
02176, was the founder and until recently the president of his company, a pio-i
neer in the automotive radio field. Born in Boston in 1897, he was graduated!
from Boston English High School in 1915, served in the U.S. Navy 1917-19 andl
in the U.S. Naval Reserve 1919-21.. During the latter period he began his presentl
business, to which he has devoted his entire career.
407
TATEMENT OF DAVID HOUSMAN, CHAIRMAN, AUTOMATIC RADIO
MFG. CO., INC., MELROSE, MASS.
Mr. HousMAN. Thank you, Mr. Chairman.
I Mr. Chairman and members of the subcommittee, my name is David
jlousman, chairman of the board following 50 years as president of
he Automatic Radio Manufacturing Co., a Massachusetts corpora-
ion having its principal office in Melrose, Mass.
Automatic Radio is principally engaged in the business of manu-
■acturing and marketing automobile radios, stereos and air condition-
Irs. I genuinely appreciate the privilege of participating in these
Hearings on the topic of "Planning, Regulation and Competition" in
he automobile industry. I come here as a biased witness to plead our
ase and for the continuance of my company's life and the lives of
ens of thousands of independent auto accessory manufacturers, all
>f us victims of OEM's ^ one lust for domination and extermination.
On behalf of Automatic Radio and for the purpose of preserving
he competitive existence of it and thousands of other existing or
)otential accessory-market suppliers, I will direct my remarks to the
ubject of the automobile franchise system, the anticompetitive muscle
if the automobile industry. Three and one half years ago I appeared
lefore the Antitrust and Monopoly Subcommittee of the Senate Com-
nittee on the Judiciary to challenge the practical and structural abuses
d the automobile franchise system under our antitrust laws, but to no
.vail. The jeremiad I am about to deliver is the consequence of my
Ixperiences as a witness and victim of the insufferable monopoly power
!>f the automobile manufacturers during the past decade and the last
;i^ years in greater particular. My company's experience of nearly 50
j/ears as the leading pioneer of the custom radio market sufficiently
liualifies me for this task.
Free and unencumbered access to this unique sector of the American
iconomy, that is, the f ranchised automobile dealer, is essential to acces-
ory suppliers, consumers, and the economy of this great Nation. I
iharge here and now that this freedom and its concomitant benefits to
he American public have been denied by means of a conspiracy evi-
ienced by the criminal and monopolistic acts of the automobile manu-
facturers, left unchallenged by the ostrichlike Antitrust Division of
he previous administration.
Automatic Radio and its principal competitors sell their product,
radios custom designed to fit particular automobile models, to the
franchised automobile dealers. My company has produced and sold
automobile radios since 1924, when we designed the first automobile
radio. We have led the automobile radio industry as the originator of
kich. items as the first universal car radio, the first transistorized car
radio, and the first AM-FM car radio. We are large enough to realize
^he economies of mass production and quantity purchasing, yet small
enough to adapt quickly to change. A portion of our products, includ-
ing radios, stereo sets, and air conditioners, are sold in this tightly con-
trolled automobile dealer franchise market, in competition with similar
products sold by the major automobile companies. It is an arduous
task, indeed, to compete for the business of one over whom your com-
petitor is omnipotent.
^ Original Equipment Manufacturers.
408
In the late fifties and early sixties there was a highly perceptible
increase in the market activities of the independent automobile radic
manufacturers. Automatic Radio and its prmcipal independent com-
petitors, including Peptone, Soundex, and Tenna, fluorished. I might
also include here the names of Bendix and Motorola to a certain ex^
tent. Being suppliers of OEM, that is. Ford and Chrysler, they were
not permitted to compete with Ford and Chrysler by selling direct to
their franchised automobile dealers. However, they did manufacture
and market to automobile dealers a complete line or radios for the GM
list of automobiles, wherein they competed with General Motors.
This independent radio activity did not go unnoticed by the manm
facturers. Shortly thereafter they began to flex their monopolistic
muscle ; today all of the independents except my company have been
completely eliminated from this market, and my company's business
on custom automobile radios has been very seriously reduced. To illus
trate, by 1968, over 90 percent of all new cars were equipped with fac
tory installed radios. Adding dealer installations of OEM radios, ]
estimate that 99 percent of this market of $500 million in annual sales
was supplied by the three giant automobile companies.
(Mr. Housman submitted the following exhibit in support of the
foregoing statement:)
409
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410
Mr. HousMAN. All of our independent competitors have perished in
succession. Peptone is out of business; Soundex was bankrupted in
the fall of 1966; and just this year the last remaining independent
competitor, Tenna, closed out business on the following acrid note
As you know Tenna has discontinued production of domestic custom auto
radios for many reasons well known to you all.
And I might add here that Bendix has folded its tent and has
stopped manufacturing radios for the after-car markets.
Our own survival in this market is in jeopardy unless we obtain
relief.
I submit to this subcommittee a proposition I have urged before
the enforcement agencies for many long years : it is a naked violation
of the Sherman Act for the automobile manufacturers to thrust their
power into the distribution market through the use of the franchise"
system. That system has enabled the "Big Three" to eliminate and
bury independent suppliers and jobbers. The custom radio market!
bears witness to that fact. As Mr. Nader has observed :
I think if you ask yourself what is a principal barrier of entry to auto
manufacturing by any new entrepreneur, it is this single franchise system. That
he has to in effect duplicate a national network of distributors in order to have
an opportunity to sell nationally.^
The word "franchise" is a derivation of the French word "f rancher'
which means to free. We have lost much of that meaning in the*
translation: for over 400,000 franchisees it may mean the freedom tc
engage in business; for automobile dealers, however, it means a
capitalistic form of economic serfdom. With only a minimal invest
ment, the automobile manufacturer has retained a working day-to
day control over the distribution channels through which his products
are marketed. Moreover, the automobile manufacturer has the assur-
ance that because of the exclusive nature of the franchise relation-
ship, the dealer must abide by the manufacturer's wishes, knowin
always that if he refuses his franchise can be terminated at will, o:
short notice. In addition, the manufacturer avoids the higher corporate
tax rates, minimum pay legislation, and a host of similar burdens thai
would otherwise fall upon company-owned outlets.
I testified in 1966 that my lawyers had advised me that existing
law, if honestly adhered to and firmly enforced, is adequate to remedj
this situation, by outlawing the manufacturer dominated automobile
dealer franchise system.^ They still tell me that any of the big three
automobile manufacturers which utilizes the dealer franchise systemi
to exclude a qualified supplier from marketing through its franchisee!
does so in violation of the Sherman Act and Federal Trade Commis
sion Act.
Nevertheless, I then recognized that private law enforcement isi
difficult ; "a private suit is expensive, long drawn out, and disruptive!
to our day-to-day business. We do not have the resources of the U.S.(
Government. * * * They should be used, not merely for us, but fori
our competitors as well, and for the benefit of the public generally " '
iJuly 23, 1968, hearing before U.S. Senate, Select Committee on Small Business on
"Planning, Regulation, and Competition : Automobile Industry— 1968. p. 569.
2 January 26, 1966, hearing before U.S. Senate, Subcommittee on Antitrust and Monopol^^
of the Committee on the Judiciary on "Distribution Problems Affecting Small Business,
hearing record, pt. 2, p. 623.
8 July 26, 1966, hearing, siupra, at p. 623.
411
also cautioned, however, that "Neither the Antitrust Division nor
le Federal Trade Commission is dealing effectively or aggressively
dth any of them. These public enforcement authorities will, I hope,
the light of the information this hearing is bringing out, promptly
^egin to discharge the responsibilities Congress has entrusted to them,
nd thus secure for the benefit of the public fair competition in the
utomobile market." ^
I know, only too well, the validity of Mr. Nader's observation that
The Justice Department, more than anyone, knows the case against
reneral Motors. ^ At substantial expense in time and money I have
aken the case of the independent radio producers to the enforcement
uthorities, starting more than 10 years ago. Particularly, since 1965,
ly lawyers, at my instruction, have spent many hours preparing
)resentations of memorandum and statistics for the Department. On
lumerous occasions my Washington attorney has met with and dis-
ussed various aspects of this problem with Government attorneys
t the Antitrust Division, including the two preceding Assistant At-
orneys General. Much documentary material has been submitted. All
>f this data has been well-received by the Antitrust Division staff,
s^evertheless, action has not been forthcoming. I would like to read
o you testimony given at another meeting of this committee, I believe
^Thursday, April 6, 1967, at which time Donald Turner, then Assist-
mt Attorney General, appeared before the committee. On page 711
)f the printed transcript of that hearing. Senator Nelson, you in-
\m red of Mr. Turner as follows : ^
If the allegations of Automatic Radio Manufacturing Company are correct,
ihis looks like a clear cut case to eliminate from competition a business, a
business that has been running for some time. What is the view of the Antitrust
Division in this kind of a case? And in this case, if the facts are alleged by the
'onipany, why is not the Antitrust Division moving on Its own in this area?
Mr. Turner replied as follows :
If the facts or allegations that have been made in that case are correct and
Ford has no possible production or other business justification for refusing to
supply the dashboards, that would state a good cause of action. That is answer
aumber 1. Second, this matter has been under study by the Antitrust Division
and is currently under investigation to see if the factual allegations can be
supported.
It is my understanding, gentlemen, that Mr. Turner promised to
investigate. He promised to come back to the subcommittee with
a report and some answer from the Antitrust Division of the Depart-
ment of Justice. Nothing ever came forward. Mr. Turner has left
the office of the Assistant Attorney Generalship and the matter still
rests with the Antitrust Division of the Department of Justice, and
■from my best knowledge, no answer has forthcoming yet.
i I cannot but conclude that the Assistant Attorneys General under
|the previous administration have betrayed the trust that has been re-
posed in them by the laws of the Ignited States as enacted by the Con-
gress. I am deeply concerned and troubled by Mr. Nader's suggestions
that the relationship between the Antitrust Division and GM had de-
* .Tuly 26, 1966. hearing, sufyva.. at p. 624w c^ ■, ^ n< •**-.„ ^„ c,«q11 -Rnolnosa
" Julv 10, 1968. hearing, before the U.S. Senate, Select Committee on, Small Business
on "Planning. Regulation, and Competition : Automobile Industr^y— 1968, p. ^.i9.
"Editor's NOTE.— The reference of the witness is to hearings befoje the Select Com
mittee on Small Business, U.S. Senate, 90th Congress, 1st sess on the status and future
of small business in the American economy, pt. 2, p. 711 (l»b7).
412
terred the effective enforcement of our laws. I wholeheartedly sub
scribe to Mr. Nader's conclusion that "The history and attainment o:
GM's market power made it a classic candidate for antitrust enforce
ment under Sherman 1 and 2 and Clayton 7." ^
Why, then, in the light of the abundance of information gathered bj
this distinguished Committee and by the Senate Antitrust and Monop
oly Subcommittee, has there not been a comprehensive investigation
of the dealer franchise system by the enforcement officials ? Why havi
they not even issued a single civil investigative demand ? Once agaii
Mr. Nader has supplied you with the answer : "* * * The capacity tc
act is not tested by the failure to act. Until the law is applied and f aill
to perform, we cannot fault it, however much we can fault the political
pressures that devastate its legitimate potential." ^ The fault must
placed where it belongs, namely on those who had the responsibility t(
act and did not, those who had the resources to act but frittered theiri
away on trivia, and those who obviously lacked the courage of thei
convictions, if not the convictions themselves.
I am greatly encouraged that the present antitrust chief who ha
already accepted the challenge of opening new frontiers admirably an
has demonstrated that he is not a slave to skepticism, will perforni
with no less courage in the area of the automobile industry. His con
victions have already achieved results not imagined by his immediate
predecessors. I am hopeful Mr. McLaren will recognize that the auto
mobile franchise system presents problems as far reaching in theii
effects upon the American economy as the conglomerate merger move
ment, and that he will act effectively to control the monopoly power o1
the automobile manufacturers. Of this Committee I ask only that i1^
provide the encouragement and assistance that the Antitrust DivisiorH
will need if it is to perform this task. For my own part I have already
instructed my attorneys to renew their efforts in this direction. And .
stand ready personally to take whatever steps are necessary, barring
none, to see to it that the present automobile franchise system is de
clared unlawful.
At this point I would like to submit for the record my answers t
the seven questions which the subcommittee has propounded, whicl
answers we will submit to the committee here and I will not take up
the time of the committee.
(Mr. Housman's written answers to the questions raised by Senaton
Nelson follow:)
Answers of David Housman to Subcommittee's Questions
Question 1. Should giant corporations continue to practice the degree of secrecy^
a1)(mt production cost and divisional profits and losses which they now claim a»
a "right" and competitive necessity?
Answer. No. The market power of a giant corporation comes in part from thei
ease with which it can bury true costs in consolidated figures that give no insight
into its operations. For example, if it should use profits from lines on which it
has monopoly power to subsidize unfair and discriminatory price cutting in lines
on which it has competition, the consolidated fiscal figures would conceal this
practice.
I think that the big company's fiscal reports should be made to reveal as much
of its operations as the fiscal reports required of smaller companies reveal of
theirs. The data my company is required by federal regulation to disclose publicly
T July 10, 1968, hearing, supra, at p. 213.
• July 10, 1968, hearing, supra, p. 253.
413
ives my company's competitors detailed insights into the character and proAt-
bility of our activities. No less should be required of larger companies. Indeed,
ecause of the power they wield, large companies should in my view be required
) make comprehensive and detailed public disclosures of their operations.
Anticompetitive pricing by the giant company is a terrible problem for its small
ompetitor I am convinced that General Motors, for instance, uses its monopoly
roflts to subsidize anticompetitive pricing in the custom car radio fiel^. As I
ave already pointed out to this distinguished Subcommittee (July 10, lUbH
rearing Record at page 61), General Motors has cut its price on custom radios
ompetitive with those produced by Automatic by nearly one half, all the while
etaining its high arbitrary and unreasonable price of $153.50 for custom radio
lodels on which Automatic does not compete.
Detailed divisional accounting would tend to discourage such anomalous and
mproper price behavior. . , , , ^ « *•
Question 2. Is price competition in the automobile industry real and effectwe,
r greatly tempered by the concentrated structure of the industry and the dom-
nance of General Motors?
Answer My own experience relates only to the accessory segment of the auto-
iiobile industry and the marketing of accessory item such as automobile radios
0 the market represented by franchised automobile dealers. From this viewpoint
.rice competition seems to be the last recourse of the automobile manufacturer.
le will use the leverage of his marketing position, instead of price competition,
0 get a preferred position in selling his product. To cite two instances in which
ay company is not involved I refer you to the testimony of Kendall Refining
Company and Pennzoil Company officials, given January 18, 1966, before the Sen-
te Subcommittee on Antirust and Monopoly (Hearing transcript, pages 498
hru 510) describing the results of Ford's effectuation of a plan to rebrand and
aarket a 'motor oil that would be offered to the almost 10,000 Ford, Mercury
ind Lincoln dealerships. Previously Kendall and Pennzoil had supplied motor oil
0 these dealers on a competitive basis, but they testified that Kendall and Penn-
;oU products had been displaced to a large extent in that market— not as a result
tf fair and open price competition or quality and service factors, but because of
he inherent in Ford's relationship to its franchised dealers. Incidentally, this
lituation was referred, I understand, to the Justice Department for investigation
ind prosecutive action. To date, I have seen no case or any other action by the
i Question 3. Is the present small number of manufacturers the result of natural
md fair competition— and industrial evolution— or of excessive and anticom-
petitive power? , ,
Answer. Again from the viewpoint of an automobile accessory manufacturer
ind marketer, I find no natural and fair competition in the industry. It is
characterized by the automobile dealer franchise system which given the auto-
mobile manufacturer effective market control. This system, coupled with the
manufacturers' dealer development programs, give the automobile manufac-
turers disproportionate market power of an order not to be encountered in any
other sphere of our economic life.
Question 4. Can manufacturers of competing cars, parts and accessories mar-
ket their products on their merits to and through the franchised dealers of the
auto manufacturers or do strong pressures impede their competition?
Answer. In practice automobile dealer franchises are exclusive. That means
in effect that a given franchised dealer is precluded from marketing a second,
competitive line of automobiles the way, for example, an appliance retailer is
free to sell competing brands. , . , , , i ^ <» „
An accessory manufacturer can sell into the franchised dealer market effec-
tively and profitably when he is not in direct competition with the franchisor
automobile manufacturer. However, he cannot compete directly with the auto-
mobile manufacturer in any substantial or effective way. Automobile company
competition is lethal to the independent. For example, in the custom automo-
bile radio field no independent radio manufacturer other than Automatic sur-
vives. A few years ago there were at least four of us. In the interim, Peptone
has gone out of business, Soundex has been bankrupt and Tenna has left the
field. Even a company the six of Bendix has thrown in the towel, so far as mar-
keting custom radios to franchised automobile dealers is concerned. Automatic
remains a competitor in the custom automobile radio field only by subsidizing
its continued presence therein on the basis of profits made in its other lines.
Today and for some time Automatic has been marketing its custom automobile
414
radios at a loss. This loss is in my view directly attributable to the unlawfi
market power wielded by the automobile manufacturers over the franchise
automobile dealer. We cannot market our product to the automobile dealer unles
it is both better and cheaper than the merchandise offered him by the automobil
manufacturer and even then we have difliculties in achieving fair marke
penetration.
Access to the market place is not hampered merely by the automobile mam
facturer's control over his franchised dealer. It is also hampered by the autc
mobile manufacturer's control over the design of his products and the use b
makes of that control.
You will recall that by letter dated June 17, 1968 I called this particula
problem to the attention of the chairman of General Motors Corporation. Ml
letter is reprinted in the Committee's transcript for July 10, 1968, beginnini
at page 44. In the letter I said :
In order for Automatic Radio to produce and market a custom automobil
radio for a particular model of automobile, we must have certain dimensioi
specifications and other design data so that our radios can be made to fl
into and harmonize with the automobile dashboard, as u'o the custom radi
offered by the automobile manufacutrer. Lack of such specifications and da:
in advance of the model season places us at a serious competitive handicai'
We cannot produce a custom radio for a particular car until we have su^
specifications and data, and if it is withheld from us until the car is plai
on public sale by the franchised dealer, as the automobile companies ha
persistently attempted to do, we are thereby effectively debarred from th
market throughout a critical part of the model year.
During this period each of the automobile manufacturers enjoys a complet
monopoly in the custom automobile radio business. More and more t.
monopoly has tended to impress buying patterns upon the manufacturer
franchised dealers, causing them to rely on a year-round basis upon tl
source on which they are forced to rely during the early part of the mod(
year. Because the specifications and data are withheld from us, we are kei
from competing during part of the model year, and limited in our compet
tion during the remainder of the model year.
As you know, General Motors declined to furnish my company with th)
dimensional specifications and other technological data I requested.
In an effort to resolve the impasse, I thereafter attempted to purchase froi
General Motors such automotive parts supplied by it in connection with it
own custom radios as would enable my company to adapt its radios for custoi
installation in General Motors cars. As might be expected, this effort also prove
fruitless. I herewith submit for the Committee's consideration a copy of tih
January 22, 1969 letter from Marcus H. HoUabaugh, Esq., General Motors coun
to my counsel declining to supply my company with any of the parts
question.
General Motors continues to be resolute in its intention to maintain its monoi
oly control of custom automobile radios.
(The exhibit referred to follows : )
Exhibit 28
(David Housman's exhibit No. 3: Letter dated Jan. 22, 1969, from Marcus Al
HoUabaugh, attorney for General Motors Corporation, to Worth Rowley, attornej
for Automatic Radio Mfg. Co., Inc. )
HoiiABAUGH & Jacobs,
Washington, D.C., January 22, 1969.
Worth Rowley, Esq.
Washington, D.C.
Dear Mr. Rowley : As counsel for Automatic Radio, you approached me ii
October, 1968, with a general inquiry as to whether General Motors would selffl
some radio parts to Automatic Radio. When that inquiry was referred to General
Motors, I was asked to find out what radio parts were involved, and I so informe<3
you.
Early in November you advised that your client had provided you with samples
of 1968 radio parts tagged by part number which would enable General Motors
to identify the parts which Automatic Radio wished to purchase. I came to your
office and prepared a list of those part numbers which I transmitted to General
Motors. It turned out that, contrary to your stated understanding, these were
415
>t General Motors part numbers, and Greneral Motors had no way of identifying
ie parts your client wanted.
In order to permit your client to specify the GM radio parts which it was
iterested in buying, General Motors supplied its 1969 edition of its Radio Serv-
•e Manual. On December 2, I gave you that volume. On December 13, 1968, I
jceived an envelope from your office containing a four-page listing of part nimi-
ers with brief descriptions. Essentially, the list consists of escutcheon assem-
ies, backplates with, pointers, dial glass, push buttons, control knobs, retainer
lips' and speaker brackets. Except for the retainer clips and speaker brackets,
lose parts comprise that portion of General Motors car radios which, after
istallation, is visible to the vehicle occupants. In the case of each model of
adio for Chevrolet and for most other General Motors cars, a General Motors
rademark is imprinted on the back plate or dial glass and is conspicuously
isplayed. . . v, ^ ^
While General Motors has declared certain automotive parts to be end prod-
cts and sells those items to other manufacturers, including domestic and foreign
ompetitors, there are many items which General Motors manufactures for use
nly as components in its own products and does not offer them for sale except
or service of its own products. These radio parts are among the items not sold
s end products. ^ . ^^ i..
Furthermore, appearance and styling items, which make a product attractive
nd distinctive, generally are not sold as end products. With the exception of
tie retainer clips and speaker bracket, the parts listed by Automatic are ap-
earance items. General Motors is not interested in selling exterior appearance
ems since such sales could confuse customers into mistaking other makes of
roducts for those of General Motors.
After carefully considering the request of Automatic Radio to purchase the
isted radio parts. General Motors has asked me to advise you that it cannot
ccept orders for such parts.
Very truly yours, _
Maeous a. Hollabaugh.
Question 5. What connection is there, if any, between the concentrated in-
'Mstry structure and the automoMle's annual toll of human lives and liml)S and
he internal combustion engine's damage to the atmosphere?
I Answer. Mr. Nader has made this point, and as a consequence all America is
ileeply in his debt. . ^ , .
Question 6. Does the concentrated structure of the industry impede or hasten
he development of better automoUles and alternative modes of transportation?
Answer. It is my observation that technological progress is fostered by com-
)etition and stultified by concentration. It may be of interest for the Subcom-
nittee to note that in the automobile radio business none of the innovations
lave come from the automobile companies. Virtually all of them originated with
ny company. We made the first universal radio to be used in a car. In the early
950's we brought out the first car radio using transistors. We were the first to
ntroduce the all-transistor car radio. We were the first to introduce the AM-FM
lutomobile radio. Our radio circuitry design has become the industry standard.
Of course it could be argued that the concentrated structure of the industry
aas accounted for the technological innovations made by Automatic Radio. With-
out them we could not have survived. We can survive only on the basis of offer-
ng a better product at a lower price. We have not had any experience in market-
ng custom automobile radios on the basis of free and open competition and have
oeen obliged to countervail monopoly power with lower prices and better
;iierchandise. However, I think that given conditions of free and open competi-
tion we would continue to be innovative and would operate on a low margin
)asis. More significantly, the history of automobile radio development I have
just related demonstrates that, unless some sort of independent competition with
the automobile manufacturer is preserved, there will be no further innovation or
improvement in car radios. ^, , . ,•*
Question 7. What is the effect of the giant corporation on the American life
style? To what extent do corporations of vast size shape the nation s values and
priorities to suit their oivn needs? .... «• 4.
Answer. The monopoly power of a giant corporation has a distorting effect on
all institutions which may challenge it, whether they be small competitors or
large suppliers. I do not subscribe to the view that what is good for General
»ri
416
Motors is good for the U.S.A. I do subscribe to the view that what is good fc
the U.S.A. is ultimately good for General Motors.
To be a little less cryptic, I think it is significant that although monopoly an
monopoly power have characterized the automobile industry for years, no serioi
effort has been made to extirpate them. My counsel advises me that no meaninj
ful monopoly case has ever been brought against the automobile manufacturer pr
Indeed the principal case of this type that was brought was directed agains
the smallest member of the industry, Checker Motors ( U.S. v. Yellow Cab Go
332 U.S. 218 (1947), 338 U.S. (1949) ). For years a proposal for an antimonopol
case directed against General Motors has, according to press reports, been undfl
review at the Department of Justice. I interpret these phenomena as showin
that the monopoly power of the automobile industry is so great as to distort eve
the processes of justice itself. For I remember that only a few years back Genera
Motors was implicated in a boycotting activity which the Supreme Court) ^^
opinion labeled a "classic conspiracy" {U.S. v. General Motors Corp., 384 U.8
127, 140 (1966) ) — a "classic conspiracy" arising directly out of, and in effectuji
tion of, the dealer franchise system. When the world's largest industrial con
pany, controlling some 55% of the domestic automotive automobile market an
all of the channels of distribution through which that preponderant market pei
centage flows to the ultimate consumer is implicated in an anticompetitive con
spiracy one would think that the time for drastic and significant antitrus
enforcement action had already been too long delayed.
Mr. HousMAN. However, I would like to comment here on questio:
No. 1, Should giant corporations continue to practice the degree o
secrecy about production costs and divisional profits and losses whic
they now claim as a "right" and competitive necessity?
In this connection, gentlemen, I would like to call to your attentio;
a service manual of Bendix Radio showing all radios manufacture
by Bendix for the Ford Motor Co.^ There are five models shown o:
this front page here : a model for the Mercury, a model for the Galaxii
a model for the Thunderbird, a model for the Comet, and a model foi
the Continental.
Under the subject "Type," it says "These 1964 Bendix Fo-Mo-C
All-Transistor Eadios are combination FM and AM receivers. Thi
radio is switched from FM to AM or from AM to FM by the six-pol
double-throw switch (SI) which is actuated solely by the push
buttons." And this I would like to emphasize: "Except for mine
deviations noted on the schematic diagram, all of these radios hay i
the same electrical circuit which uses a total of 10 transistors and si;
diodes."
Gentlemen, these five radios have been installed by OEM in fivi
different makes of cars. On the Galaxie and the Comet, and I belie
the Mercury also, the AM radio sold to the dealer, installed, fo
$48.52, and was purchased by the consumer at a price of $61.40. How
ever, this same radio installed in the Continental sold to the deale
for $126.07 and the poor consumer paid $161.40, or $100 more for thi
same radio as in the lower priced cars.
Senator Nelson. That is a point I want to get clear. Are you saying
it is the same quality radio ?
Mr. HousMAN. The same radio.
Senator Nelson. It is the same radio ?
Mr. HousMAN. That is correct, sir.
Senator Nelson. And this ?
Mr. HousMAN. You have the picture there, sir. You study those
pictures. You read the specifications and you will find that it is thi
same radio going into the four different or five different automobiles.
iSee Exhibit 27 (Mr. Housman's Exhibit 2), p. 463, infra.
417
I Senator Nelson. On the picture they have a slightly different ap-
jaring front, don't they ? The face. Or don't they ?
Mr. HousMAN. No, sir. You will find the Continental has a small
icutcheon there but other than that, take the escutcheon away and
le radio without its escutcheon is definitely the same.
j Senator Nelson. This is a factory installed radio ?
Mr. HousMAN. That is correct.
Senator Nelson. And the radios were bought from Bendix ?
Mr. HousMAN. Evidently from Bendix and I believe that Ford
aid, within a limitation of a few pennies plus or minus, the same
mounts of money, same cost.
Senator Nelson. So you are saying that Bendix sold a radio to
'ord Motor Co. What was that first price for which Bendix sold it
) Ford?
Mr. HousMAN. I don't know what they sold it for to Ford. I don t
ave Ford's costs but I have Ford's selling price.
Senator Nelson. But you gave a — what did you give, a price to
le dealer?
Mr. HousMAN. I gave an installed price to the dealer and an in-
:alled price to the consumer.
Senator Nelson. Now, the installed price to the dealer is the price
harged the dealer by the Ford Motor Co. ?
Mr. HousMAN. That is correct.
Senator Nelson. And what were those figures again ?
Mr. HousMAN. On the Comet, Galaxie, and I believe the Mercury,
he price to the dealer was $48.52.
Senator Nelson. That is from the manufacturer.
Mr. HousMAN. From Ford to the car dealer.
Senator Nelson. Forty what ?
t Mr. HousMAN. $48.52. 1 will make a correction over here, sir. These
>rices I am reading you today are 1969 prices but I am of the opinion
hat the same prices prevailed in 1964. There has been very little if
Lny changes on the lineup of prices to the dealer from Ford.
Senator Nelson. Then with the same radio in the Continental, the
lealer paid
Mr. HousMAN. $126.07, and the consumer paid $161.40.
Senator Nelson. At some stage I would like to ask Mr. Mann to
comment on that but I don't want to interrupt you.
Mr. HousMAN. Now, it is my
Mr. Duffy. May I ask one question at this point? Mr. Housman, so
:hat I can understand this a little more correctly, you say these are
installed prices ?
• Mr. HousMAN. That is correct. . • i. u
■ Mr. Duffy. Is there anything in addition to the radio that might be
included within this price. ... n j • -i,
Mr. Housman. No, nothing at all. The radio is installed m the car,
sold to the dealer and resold to the consumer.
Mr. Duffy. There are no antennas or no wiring.
Mr. Housman. Antennas go with the radio.
Mr. Duffy. And you are saying for all practical purposes, these are
absolutely identical units. , ^
Mr. Housman. The escutcheon plate, I will mention on the Con-
tinental there was a power antenna instead of a regular antenna which
418
might have cost Ford another $2. I made that variation of a feyi
pennies plus or minus between the Galaxie and Comet.
Mr. Duffy. And you say you are not able to supply us with Ford's
costs for this equipment.
Mr. HousMAN. I am sure I can't. Ford would not divulge that
knowledge to us.
Mr. Duffy. Thank you.
Mr. HousMAN. Now, it is my contention and my charge, gentlemen,
that this overcharge on radios that went into the Continental wag
used for illegal purposes to lower the price on the radios in which"'
Ford was in competition with independent radio manufacturers.
Now, I mention Ford here but I put General Motors and I put
Chrysler in the same category because they have the same lineup ol
prices on their low-priced cars in the same category and then you take
the General Motors Cadillac, you take Chrysler's Imperial, and you
will find the same differential of about 40 odd dollars on the Plymouth
and on the small Dodge against $160 or $170 on the Cadillac and or^
the pardon me, I am sorry. I misclassiiied them.
Senator Nelson. It would be 60-some dollars.
Mr. HousMAN. No, no. I will take General Motors. You take tha
same radio going into the Chevrolet and into the Chevelle at the same
price of approximately $48.
Senator Nelson. To the dealer.
Mr. Houseman. General Motors.
Senator Nelson. To the dealer.
Mr. HousMAN. To the dealer, which carried the same retail prio
as was brought out yesterday by Mr. Cohn and by Mr. Hammond he
that the prices are uniform across the board whether it comes fron
General Motors or whether it comes from Ford or whether it come
from Chrysler. So you will find on the lower priced cars across thi
board the Comet and Galaxie or the Fairlane, and you take the Chevr
let and the Chevelle, you take the Plymouth and the small Dod
and the Valiant, they will all have the same, approximately the sam<
price. Now, you take practically the same radios going into the Con
tinental of the Ford line, going into the Cadillac of the General Motors
line, and going into the Imperial on the Chrysler line, they will al
carry the same level of around $155 to $179.
Senator Nelson. Price to the dealer?
Mr. HousMAN. To the consumer.
Senator Nelson. The first price.
Mr. HousMAN. The dealership, the dealer will pay approximately!
$48 or in that vicinity for the low priced cars whereas* he will pay $126
or $125 or somewhere in that vicinity for the same radio in the highej
priced cars.
Senator Nelson. And you are saying it is the same radio in both the
high-priced car and the low-priced car?
Mr. HousMAN. Yes, sir. I am using this as a shining example oven
here on which I base these statements.
Senator Nelson. Now, you are saying that the higher price charged
to the dealer for the same radio in the expensive car is being used as
a competitive device against independent radio manufacturers selling
directly ?
Mr. HousMAN. In the lower priced field. General Motors, Ford, and
Chrysler only have competition on the lower end of their line. There
419
is no competition on the Thimderbird. That is standard equipment.
Here they pay a price in between the Galaxie and the Continental.
There is no competition on the Thunderbird. There is no competition
on the Continental. There is no competition on the Imperial. There is
no competition on the Cadillac. General Motors, Ford, and Chrysler
have a captive market there and
Senator Nelson. Why is there no competition there if there is com-
petition elsewhere?
Mr. HousMAN. Because the volume of cars manufactured does not
warrant the independent to compete with them and then again, 100
percent, practically 100 percent, of these three upper graded cars
come through with radio.
Senator Nelson. But some competition does occur, you say. How
does the independent get into the competition of supplying radios for
the smaller, low-priced cars? Does the dealer ask for a car without
a radio and then the independent sells a radio to the dealer? How
does it work?
Mr. HousMAN. We manufacturers sell to distributors. These distri-
butors in turn sell to car dealers. They approach the car dealer and
show the car dealer where they can get at least as good a radio if not
a better radio, at a lower price, in which case the dealer will buy from
the independent and will install on his premises. Now, here we have
competition also from OEM because in addition to supplying 80 odd
percent, and I am going back a couple of years now, in addition to 80
percent of the cars coming out of the factory with radio, leaving a
slight 15 or 20 percent of cars being purchased by the dealer without
radio, we independents sold to the car dealer in competition with
OEM. OEM also sold to the dealer and here is where OEM applied
i all their pressures.
Mr. Duffy. Senator Nelson, may I ask a further question at this
point?
Mr. Housman, something still confuses me. You mention the same
radio several times but apparently, if I understood you correctly he-
fore, really what is being sold here is the same radio plus a quantity of
additional parts, is that right?
Mr. HousMAN. No, sir. No, sir. No other parts. A radio comes with
an antenna. The low end radio comes with a telescopic antenna. Your
Continentals, your Cadillacs, and your Imperials, I believe, come with
a power antenna. You press a button on the dashboard and your an-
tenna either rises or falls automatically.
Mr. Duffy. Do they come with speakers and different wiring for
different automobiles ?
Mr. Housman. All complete.
Mr. Duffy. Pardon?
Mr. Housman. Everything is complete with the radio. Antenna
Mr. Duffy. Everything is complete ?
Mr. Housman. Antenna, speaker.
Mr. Duffy. The package for a Lincoln, let us say, may include a
power antenna.
Mr. Housman. It is not a package for the Lincoln. The dealer does
not buy a radio to install at his place. The Lincoln comes through
complete with radio the same as your Cadillac, Fairlane, Continental.
32-493 O — 69— pt. 1 28
420
Mr. Duffy. What I am trying to understa.nd, is this the radio that
you pay $126.07 for?
Mr. HousMAN. The dealer.
Mr. Dtjffy. The dealer pays.
Mr. HousMAN. That is correct.
Mr. Duffy. And you say that the radio that he is buying, the only
difference between the radio he is buying and the radio that the Comet
buyer is buying is power antenna ?
Mr. HousMAN. Practically.
Mr. Duffy. Practically.
Mr. HousMAN. Yes, sir.
Mr. Duffy. Well, you see, this is my problem. You say the same
radio but now you are telling me there is a difference in power antenna
and you say this is practically the only difference. Are there other
differences ?
Mr. HousMAN. I do not know of any difference — any difference
there may be is so minuscule it would not be considered. There would
not be 50 cents or a dollar difference in any differential. In fact, today
it costs more for a Mercury radio than for a Continental radio. It
costs Ford more. And I will show you in a very few minutes why.
Mr. Duffy. I would be happy if you would provide us with some
supporting data for this.
Mr. HouSMAN. In this connection I will call to your attention that
up to 1965 all cars, and that goes across the line. General Motors, Ford,
and Chrysler, all cars came through from the factory either with a
radio installed in the dashboard or when the dealer purchased the car
without a radio, either to be sold without the radio or for the dealer
to install a radio, the dashboard or instrument panel of the car came
through with a cutout for the radio and over this cutout there was
placed a small metal panel of a 5 or 10 cent panel, secured to the instru-
ment panel with two little screws. When the dealer purchased the car
without a radio, all he had to do was to unfasten those two little screws
which took him a minute, a minute and a half, which exposed the
opening for the radio, then he would take either our radio, the inde-
pendent's radio, or even Ford's radio which he purchased directly
from Ford, and he would install it in a matter of a few minutes. Now,
there was an advantage for the dealer to do this because he could buy
his radios from the Ford warehouse at a varied list of prices, and
here this might interest the committee also, if the dealer purchased
one radio he would pay approximately $42. If he purchased six radios,
he would pay approximately $39. If he purchased 50 radios he would
pay approximately $35.
Mr. Watts. Excuse me, Mr. Housman. I do not like to break in
but I would like to suggest that we leave this line of discussion at this
point because, as most of us are aware, you are now getting into the
subject matter of pending litigation. This subject also has been dis-
cussed in previous Senate committee hearing records and I would
prefer that you leave the subject of your problems with the Ford
Motor Co. out of this record because it is before the courts.
Mr. HousMAN. For your information, sir, we have — we are in liti-
gation with Ford but we have similar gripes and we are being harassed
by General Motors and by Chrysler.
Mr. Watts. Yes, sir, but your discussion up to now has been about
Ford.
421
Mr. HouSMAN. No, sir. I tried to round the thing out there. I say
all three. Ford is no more guilty than General Motors and no more
guilty than Chrysler.
Mr. Duffy. Mr. Housman, if I may, I have the reported decisions
of some early injunction motions made by your attorneys in your
behalf and I think it is interesting to note that one assumption that
you made in that case was that it did require more time under the
new procedures, and the court below, which was the U.S. District
Court for the District of Massachusetts, could not agree with you.
That was sustained on appeal by the First Circuit Court of Appeals.
I must agree with Mr. Watts that this is an area that is pending in
terms of litigation. There are substantial questions of fact that are
open between you and Ford Motor Co. and perhaps a number of other
motor companies. You note in a recent prospectus that you indicate
intentions to sue other motor companies as well. These substantial is-
sues of fact are widely disputed. Apparently, a large number of people
do not agree with you on your interpretations of the facts, and I
think that Senators Dole and Cook made it quite clear yesterday,
that they were concerned that it was the intention of certain parties
appearing before this committee, to prove matters using this com-
mittee as a forum that they could not otherwise or were unable to
prove in a court of law.
Senator Nelson. May I interrupt ? I do not think anything in Mr.
Hammond's testimony yesterday in any way involved the situation
you have just described.
Mr. Duffy. No. I am just concurring, Senator, with the comments
that were made previously, that I think we would be well advised
to leave this area.
Senator Nelson. Even though I am not familiar with the litigation,
if it is something that is specifically a point in litigation, the com-
mittee would prefer it not be discussed.
(Mr. Duffy subsequently submitted the prospectus to which he re-
ferred above and requested that it be inserted in the record at this
point. The document follows:)
422
Exhibit 26 A
(Senate Sixiall Business Committee's Minority Counsel's Exhibit No. 1: Pros-
pectus and Registration Statement of Automatic Radio Mfg. Co., Inc. dated
February 4, 1969.)
- 380,100 Shares
Automatic Radio Mfg. Co., Iac»
Common Stock
($1 par value)
Of the above shares 200,000 are being purchased by the Underwriters from the Company ano
♦he remainder from certain Selling Stockholders (see "Principal and Selling Stockholders"). Th<
Company will receive no part of the proceeds from tlie sale of the shares being sold by the Seilin)!
Stockholders.
The Company's Common Stock is listed on the American Stock Exchange. The last reported sain
on such Exchange on February 3, 1969 was at a price of $24.50.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURiTIEJ
AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON lllE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
PerShtre
Prietto
PabDc
$24.50
UodtrwHting
DbcouDi
$1.50
Proccidf to
« Compuyd)
$23.00
Frocceds lo
Sellln:
SiMkfaolderad)
$23.00
Total
^
$9,312,450
$570,150
$4,600,000
$4,142,300
(I) Beror« deducting expenses estimated at ilOfiOO payable by the Company and ,S47.t)00 payable by ceruin of llM
Mling Stockboldera.
The shares of Common Stock are ofTered by the Underwriters named herein subject to prior sale^
to withdrawal, cancellation or modification of the offer without notice, to the approval of Englandei
Englandcr & Englander, counsel for the Company and the Selling Stockholders, of Browa, Wood, Fullei
Caldwell & Ivey. special counsel for the Company, and of Carter, Ledyard & MUburn. counsel for l^
Underwriten, and to certain further conditions.
Francis I. duPont, A. C. Allyn, Inc.
The dau of this ProipectDS k Ftbnniy 4, 1M9
423
Until March 17, 1969 (40 days after tlie dntc of this prospectus) all dealers effecting transnctions in
lb registered securities, wlictlier or not participating in tliis distribution, may be required to deliver a
n pectus. This is in addition to the obligation of dealers to deliver ■ prospectus when acting as onder-
m at and with respect to their unsold aliotmcnts or subscriptions.
TABLE OF CONTENTS
The Company 3
Application of Proceeds 3
Capitalization 4
Price Range of Conunon Stock and Dividend Policy 5
Statement of Consolidated Income 5
Business 8
Property 11
Management 12
Stock Options 13
Principal and Selling Stoclcholden 14
Description of Stock 14
Underwriting 15
Litigation 17
Legal Opinions 18
Experts • 18
Financial Statements 19
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT
(; EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARI^ET PRICE OF
IE COMMON STOCK OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT
niERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED
<I THE AMERICAN STOCK EXCHANGE OR OTHERWISE. SUCH STABILIZING, IF COM-
JiNCED, IWAY BE DISCONTINUED AT ANY TIME.
424
THE COMPANY
Automatic Radio was founded as a pioneer maker of radios for automobiles nearly half a ccnt«
ago by David Housman (still an active major oflBcer) and his brother. It has been continuously cngag
in that and related activities since 1920.
In the late 1950's and during the 1960's, certain automobile manufacturers increased their activiti
to obtain a greater share of the automobile radio market for themselves and their subsidiaries and frai
cbisees which made existence more difficult for successful independents like the Company.
Following a bitter struggle for survival during which some losses were experienced, the Compai
made a comeback by creating new products which returned it to profitable operations in 1965.
The new products consisted principally of a line of stereo sound systems including 4 and 8 trai
stereo tape players and AM/FM and FM Multiplex tuner cartridges and related items, primarily I
automobiles. These products now account for about 50% of the Company's sales.
As part of this effort the Company also established an air-conditioning and refrigeration busim
for transportation use which now provides about 10% of sales. It is striving for further penetration i
this market with a number of products, some of them still in the experimental stage. Automobile rad)
now provide about a quarter of total sales, more than one-half of them being "after-market" sales i
retailers.
Additionally the Company manufactures and distributes tractor and marine radios and antennt
Wallfrin Industries, Inc., a recent acquisition, markets ornamental automotive accessories which amow
to 7% of consolidated sales.
As used in this Prospectus, the "Company" refers to Automatic Radio Mfg. Co., Inc., its predi
cessor and subsidiaries, unless the context indicates otherwise. Automatic Radio Mfg. Co., Inc. w
incorporated in 1924 in the Commonwealth of Massachusetts and has its principal executive offices
Melrose, Massachusetts, a suburb of Boston. After giving effect to this offering and the acquisitj
of Wallfrin Industries, Inc. (hereinafter described), David Housman, members of his family as a gro
and trusts for their benefit will own approximately 54% of the outstanding Common Stock of t
Company. Sec "Principal and Selling Stockholders".
APPLICATION OF PROCEEDS
Of the net proceeds from the 200,000 shares of Common Stock being sold by the Company (estimati
at approximately 54,530,000), a portion thereof will be used to pay in full the $2,500,000 short-term ba
loans of the Company, and approximately $400,000 will be used for enlargement of the Compan;
main manufacturing plant and principal executive offices. Such short-term bank borrowings hs
been incurred from time to time for general corporate purposes, including the financing of inventoi
and the financing of accounts receivable. Additional borrowings, either long-term or short-term, may
incurred from time to time as required by the Company's business. The balance will be added to
general funds of the Company and will be available for additions to working capital and other corpOTi
needs, including the financing of inventories and accounts receivable as referred to above.
"Business".
425
CAPITALIZATION
The capitalization of the Company at December 31, 1968, and as adjusted to give eflecl to (1)
atndmcnts to the Company's Articles of Organization authorizing 100,000 shares of Preferred Stock,
$ 0 par value, issuable in series, and increasing the authorized Common Stock, $1 par value, from
3,10,000 shares to 6,000,000 shares; (2) the creation by the Board of Directors of a series of 11,000
$he$ of 2% Cumulative Convertible -Voting Preferred Stock; (3) the issuance of 200,000 shares of
Cimon Slock offered hereby; and (4) the issuance of 71,000 shares of Common Stock and the 11,000
ties of 2% Cumulative Convertible Voting Preferred Stock in exchange for the outstanding capital
itk of Wallfrin Industries, Inc., is as follows:
Amount
Outslnndloe at
Amount December 31, As
Authorized 1968 Adjusted
D't:
Notes payable to Banks due on
demand'" — $2,500,000 ' • —
6Vi -7 % real estate mortgages due
1969-1977''' $2,171,600 2,171,600 $2,171,600
' 6Vi-7'/i% mortgages on invest-
ment property under construc-
Uon due 1987-1988<'> 383,400 383,400 383,400
Real estate 1st mortjyge, 5%%
— payable in quarterly instal-
ments of $1,437 with a final
payment due May 1971 171,000 171,000 171,000
Real estate 2nd mortgage, 6% —
' payable in monthly instalments
of $833 with a final payment
due May 1971 78,000 78,000 78,000
Real estate 3rd mortgage, 6% —
payable in monthly instalments
of $1,840 through May 1974 101,000 101.000 101,000
( >ital Stock:
Preferred Stock, $100 par value,
100,000 shares authorized, bsu-
able in series —
Series 2% Cumulative Con-
vertible Voting Preferred
Stock'" 11,000 shs. — 11,000 shs.
Common Stock, $1 par value 6,000,000 shs.<«' 2,106,773 shs. "» 2,437.750 shs.
Ol Bearing interest at rates varying from V4% to W% tbove the current prime rate. These borrowings have been
iirnd from time to time for general corporate purposes.
(») Includes payments due within one year. See Note 6 to Financial Statements for payment requirements and
(er details.
"> Convertible at any time after the date of issue at the rate of four shares of Common Stock for each share
the 2% Series, subject to adjustment in the event of a Common Stock split or slock dividends.
•♦) Includes 40,164 shares of Common Stock (subject to adjustment upon certain events) reserved for the Com-
liy's slock option program (see "Stock Options"); 40.000 shares subject to issuance under an agreement for a joint
Mure (see Note 7 to Financial StalemenU); 44,000 shares initially reserved for conversion of the 2% series o(
iferred stock; and a maximum of 53,000 shares of Common Stock contingently issuable in connection with the
iuisilion of Wallfrin Industries. Inc. (see "Business — Recent Developments").
'•> Does not include 39,977 shares held in the Company's treasury.
Sec Note 7 to Financial Statements for information concerning the extent of the Company's obliga-
0$ under leases on real property.
4
426
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The following table sets forth the reported high and low sales prices of the Common Stock of t
Company on the American Stock Exchange, as reported by Standard & Poor** Corporation:
High Low
1965 8% 2W
1966 7% 2%
1967 25% 3V4
1968
First Quarter 25% 15%
Second Quarter 24% 15%
Third Quarter 22% 16V4
Fourth Quarter 26% 17
The reported closing price of the Common Stock on January 27, 1969 was 25 V4 per share.
The Company has followed a policy of retaining its earnings for operating capital and expansia
and has never declared or paid any cash dividends on its Common Stock. In 1961 and 1963, 4% Cornim
Stock dividends were paid.
While the payment of dividends will be at the discretion of the Board of Directors and will depen
among other things, upon earnings, capital requirements and financial condition, the Company presenk
expects to continue its policy of using all funds available from earnings to finance the development
hs business. This policy of retaining earnings will be continued for so long as it is deemed by the Boai
of Directors to be in the best interests of the Company.
AUTOMATIC RADIO MFG. CO., INC. AND CONSOLIDATED SUBSIDIARIES
STATEMENT OF CONSOLIDATED INCOME
The following statement of consolidated income of Automatic Radio Mfg. Co., Inc. (Compari
and its consolidated subsidiaries has been prepared to include Wallfrin Industries, Inc. (Wallfri
from October 1, 1963 on a pooling of interests basis (see Note (a)). This statement for the three ye
ended September 30, 1968 has been examined by Haskins & Sells, independent certified pul
accountants, to the extent stated in their opinion which appears elsewhere in this Prospectus. S|
opinion is based in part on the reports of other accountants. The statement of consolidated income
the three months ended December 31, 1967 and 1968 is unaudited but, in the opinion of the Compai
all adjustments (which comprise only normal recurring accruals) necessary for a fair presentation
the results of operations for such periods have been included.
427
Ytnr Ended Srpttmbtr 30(a)
Three Months Ended
December 31
1964
(Uonudiled)
1965
Unaudiled)
1966
1967
1962
1967
(Unaudllcd)
1968
(Unaudited)
$17,497,500
15,439,600
2,057.900
$16,933,200
14,104,500
2.828.700
$20,808,700
16.577.900
4.230,800
$24,91>,:00
19.375.100
5.538.100
$33,655,200
25.111.100
8.544.100
$ 6.885,200
5.369.400
1.515,800
$11,355,000
7,786.900
3.568.100
2.323,800
(265,900)
2.429.900
398,800
2,853,200
1.377.600
3.602.600
1.935.500
5,005,600
3.538.500
990.500
525,300
1.539.500
2.028.600
(36,700)
(53,400)
(42,800)
35,000
(108,400)
(30,000)
(236,600)
(26.300)
(444,000)
22,200
(117.600)
(1.800)
(112.700)
(44.300)
(90.100)
(7,800)
391,000
(138.400)
1.239.200
(262.900)
1.672.600
(421,800)
(119.400)
405.900
(157,000)
(356.000)
3,116.700
1,871,600
(340,900)
326.500 1.064.000
This Statement of consolidated income should be read in conjunction with its notes and
atements and their related notes appearing elsewhere in this Prospectus
It Sales
Hi of Goods Sold (b)
•OSS Profit on Sales
lling, General, and Administra-
tive Expenses
ofit (Loss) from Operations
her Income (Expense):
Interest expense — net
MiKellaneous
Total other Income (ex-
pease)
come (Loss) Before Income
Taxes
rovisioo (Credit) for Income
Taxes (c):
Federal:
Current
Amount equivalent to
reduction la taxes re-
sulting from loss
carryforwards
Slate
Canadian
Total provision (credit)
for income taxes
icome (Loss) Before Extraor-
dinary Items
itrtordinary Items — C r e d i 1 1
(Charges):
Reduction in Federal income
taxes resulting from toss
carryforwards
Loss on Investment in two
50% owned companies
(net of applicable income
tax credit of $18,000)
Oain on sale of real estate
(net of applicable income
taxes of $10,500)
Unamortized cost of sub-
sidiary (d)
(et Income (Loss)
ocome (Loss) Per Share of
Common Slock (e):
Income (loss) before ex-
traordinary items
Extraordinary items .
Net Income (Loss)
with the other financial
80.800
87,500
98,100
55.600
113,000
48,700
71.300
101.000
170.200
92.300
170.000
105.200
194.000
181.700
26,300
28,100
27,900
130.000
59,500
(155.300)
225.400
638.100
759.000
1,544.900
163.100
1,019.600
(200.700)
165,600
601.100
913.600
U71.80O
242.800
852.000
170,200
105,200
26,300
(19,500)
(104.300)
i (220.200) $ — 22TJ00 $ 545,500 $ 1,083.800 $ 1,677.000 $ 269,100 $ 852,000
$(.09)
(.01)
Amounts are rounded to nearest hundred doll.irs.
See notes to slatcment of consolidated income.
The increase in net sales and net income for the three months ended December 3 , 1968 as cotyparcd vah he
three months ended December 31, 1967 renccts a general ovcr-nl! .ncrcasc m the volume of p oduc ts o,d by the
Company The first quarter of fiscal 1969 also renccts results from the addition of several multiplc-storc retailers,
from the opening of two additional distribution centers during the 1968 fiscal year, and from '"greased sales in th.
stereo home entertainment market; these factors also contributed significantly, in the second half "'he fiscal yea
ended September 30, 1968, to the results of operations for that year. The results of operations for he <hree mon hs
ended December 31, 1968 are not necessarUy indicative of the results of operations to be expected for any suD
lequent period.
428
AUTOMATIC RADIO MFG. CO., INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO STATEMENT OF CONSOLIDATED INCO^fE
(i) Basis of Consolidation
On November li, 1968 the Company acquired, as of September 27, 1968. in a transaction treated as a pooling of inlereiU,
the entire outstanding capital stock of Wallfrin Industries, Inc. in exchange for an agreement to issue 71,000 shares of previously
unissued common stock and 11,000 sh.ires of 2% cumulative, voting, convertible preferred stock which are yet to be authorized
(see Note 8 to the Financial Statements). The Company also agreed to issue a maximum of 53,000 additional shares of previously
unissued common stock contingent on annual net income of Wallfrin Industries, Inc. for each of the five years ending September
30, 1973.
The statement of consolidated income includes the results of operations of the Company and consolidated subsidiaries for the
five years ended September 30, 1968, and the results of operations of Wallfrin for the four years ended November 30, 1967 udi
the year ended September 30, 1968. Wallfrin's net sales of $236,300 and net income of $33,300 ($.02 per share) for the tw«i
months ended November 30, 1967 have been included in the above statement for both of the years ended September 30, 1967
■od 1968.
Net Mka and net income as shown in (he statement of consolidated income are reconciled to amounts originally reported
fonowa:
Year Ended September 30
1964 1965 1966 1967 1968
(Unandiled) (Unnudlled)
Net tales:
As previously reported $16,873,200 $16,007,000 $19,296,100 $23,521,400 $31,500.-t00
Applicable to Wallfrin ac-
quired in pooling of In-
terests 624.300 926,200 1,512,600 1,391,800 2,154,800
Total $17,497,500 $16,933.200 $20,808.700 $24.913.200 $33,655,200
Net Income (loss):
As previously reported S (235,600) $ 164,700 I 345,000 S 800,500 $ 1,363,100
Restatement equivalent to re-
duction in Federal income
taxes arising from Dtiliza-
tion of net operating loss
carryforwards — — 48,700 170,200 105,200
Applicable to Wallfrin ac-
quired in pooling of lo-
teresU 15,400 57,000 151,800 113,100 208,700
Total $ (220.200) $ 221.700 $ 545,500 $ 1.083.800 $ 1.677.000
(b) Cost of Goods Solo
Cost of goods sold includes an additional provision for depreciation of $109,000 in 1965 for loss of useful life of machinery
and equipment and writedowns of obsolete and slow moving inventories in 1964 and 1965 of $1,147,000, and $225,300. respectively,
(e) Income Taxis
The provision for Federal, state and Canadian income taxes represents the combined provisions of the Company and its C0!»-
aolidated subsidiaries each of which files separate income tax returns. The Federal income tax provision includes investment credits,
which are not material, applicable to property purchased or leased. The credit in 1964 for Federal income taxes represents the •
refund of taxes of the Company due to a net operating loss carryback less the provisions for taxes of the consolidated subsidiaries. '
(d) Sale of Realty Subsidl^y
During the year ended September 30. 1966 the Company sold the capital stock of one of its wholly-owned realty subsidiaries.
At the time of the sale, an unamortized excess cost of $104,300. which for consolidated financial statement purposes was included 4
in property, plant, and equipment, was written off. This amount is shown in the statement of consolidated income as an extra- 1
ordinary charge. The tax effect of the transaction was not material
(e) Income per SrtARE Data
Income per share is based on the weighted average number of shares outstanding during each period with retroactive adjust-
ment for common and convertible preferred shares to be issued in the pooling of interests transaction with Wallfrin. The 11.000
convertible preferred shares to be issued have been treated as residual securities and as a result are included as the equivalent '
of 44,000 common shares in the compulation of income per share. Since no dilution will result from the issuance of additional i
contingent common shares, such contingent shares have been excluded from the computation of income per share.
No dividends have been declared or paid during the five years ended September 30, 1968 or three months ended December <
31, 1968.
Tbe exercise of ilock options outstanding would not have a material effect on the computation of income per tbare.
429
' BUSINESS
The Company pioneered in the design, development and manufacture of automobile radios, and as
tiitly as 1963, 90 per cent of the Company's sales volume was derived from this basic product.
Jeuse of certain competitive practices adopted by major automobile manufacturers (sec "Litigation,"
bixample) a drastic decline in Company sales of custom automobile radios took place beginning in
[91. Following an intensive engineering and research effort, the Company significantly broadened its
in of sound equipment, and now produces a wide variety of AM, FM and citizens band radios and
X) cartridge and cassette-type stereo tape players, all for the home, automobile and marine markets;
«;ular air conditioning and refrigeration systems; and antennas for use with automobile, citizens band
lomarine radios.
Through a recent acquisition (see "Business — Recent Developments") the Company now offers a
ra ty of automotive accessories.
Approximately 50% of the Company's 1968 sales volume was in stereo sound equipment; 16% in
ifi-markct automobile radios, AM, AM/FM and FM Multiplex; 12% in custom automobile radios
le;ned for the original equipment market; 10% in air conditioning and refrigeration; 7% in Wallfrin
h stries. Inc. products; and 5% in AM and citizens band tractor radios, marine radios and miscelfaneous
(f ucts. Excluding custom automobile radios, the above products contribute to profits approximately
D e proportion they contribute to sales; the custom automobile radio business is not currently profitable.
The Company is also engaged in the research and development of an electronic scanning device and
tgeration systems that have not yet been readied for market (see "Business — Recent Developments").
The scope of the Company's manufacturing function varies widely from product to product. In
(CE instances the Company combines fabrication work with complete assembly of basic parts or com-
p«;nts; in others the Company's manufacturing operation is substantially limited to testing products
iimbled to the Company's specifications by others. In most cases, however, the Company's role is
iijrtant in the production of the completed product. A substantial portion of the Company's 1968
iil sales of stereo sound systems is manufactured abroad, principally in Japan, pursuant to orders
imitted by the Company from time to time, and not pursuant to any long term contractual
iingemcnts. Products which arc manufactured in Japan are supervised as to engineering and quality
X rol by an on-location staff of Company employees.
Mucts
Stereo Sound Systems— Tht Company makes a variety of stereo and tape cartridge products
iptable for use in the automobile, home and boat. At the upper end of the price range, these models
»ie equipped to accept 4 and 8 track stereo tape cartridges or "cassettes", an AM or FM tuner
t ridge, or an FM stereo multiplex tuner cartridge. These features enable the owner to operate
y system to play magnetic tapes or, by removing the tape cartridge and inserting one of the radio
cridges, to operate the system as a stereo or monaural FM tuner or an AM tuner. The system also
c be removed from the owner's automobile and used in the home. Several other models, which are
1 1 at lower prices, incorporate some of these features.
The Company also produces a line of stereo tape players for home use exclusively which utilizes all
ohe above-mentioned features.
Additional features of the home stereos include monaural and stereo recording, as well as built-in
/I/FM and FM Multiplex radios with complementing speaker lystems.
8
430
The Company also manufactures a stereo accessory called "Gidget" which permits 8 track t
players to accept 4 track tape cartridges.
Radios — The Company designs and manufactures after-market and custom AM, AM/FM,
FM Multiplex radios for automobiles; citizens band radios for tractors and boats; and reverberai
systems for enrichment of the audio output of either radios or tape players.
The Company presently makes many models of after-market radios including certain models I
can be removed from the vehicle and used as portables, as well as a variety of adapters and anteti'
for trucks and service vehicles.
Tractor radios combine AM receivers with citizens band transmitters and receivers.
Several types of reverberators are made for auto or marine installations.
Air Conditioning and Rcjrigeraiion Equipment — The Company entered this phase of its busines;:
1960. Air Conditioning units, manufactured by the Vornado division, arc manufactured for usei
various types of automobiles including several foreign import models. Refrigeration systems
manufactured for trucks^ engaged in hauling frozen and perishable products, although sales to date ■
this purpose have not been significant. This division of the Company is currently developing air coi
tioning units for bus-coach application.
Customers nnd Sales
Customers include distributors of automobile parts and accessories, distributors of electronic s
plies, mail order and catalog houses, chain stores and other retail establishments. Sales are carried
through both Company salesmen and manufacturers representatives. Approximately 90% of all s:
is made under Company names, the balance being private label for major retail chains. The Compij
estimates that it has almost 5,000 separate customers, the largest one of which accounted for about i
of total sales in fiscal 1968. The Company gives extended billing terms (from three to nine months)
accounts which are secured either under the Uniform Commercial Code, by bank letters of credit, b
deposit of or lien on assets, or by other collateral acceptable to the Company. Approximately 21
of the accounts receivable outstanding at September 30, 1968 was represented by such accounts. 1
largest of such accounts was with a customer which recently filed a petition for voluntary reorganizati
In the opinion of the management of the Company the account with such customer is adequately secun
The remaining 79% of the accounts receivnble at September 30, 1968 carries! terms normal in the indui
(60 days). In the past five years, the Company in any one year has not experienced bad debt lo!
exceeding $265,000 in the aggregate, and in none of the last three years has any such loss exceei
$46,500 in the aggregate. (See allowance for doubtful accounts in the consolidated balance sheet as
September 30, 1968 and December 31, 1968.) Sales to customers in foreign countries for fiscal I*
were approximately 15% of total sales, with about 9% being in Canada.
Recent Developments
Acquisition of Wallfrin Industries, Inc. — The Company, under agreements dated September
and November 15, 1968, acquired all of the outstanding capital stock of Wallfrin Industries, Inc.,
Brooklyn, New York ("Wallfrin"), a manufacturer of automobile accessories.
In connection with its acquisition of Wallfrin the Company in January 1969 issued 71,000 shai
of its Common Stock and 11,000 shares of a n:w 2% Cumulative Convertible Voting Preferred Sto
to the four stockholders of Wallfrin. In addition, a maximum of 53,000 shares of Common Stockl
issuable to the former Wallfrin shareholders on a contingent basis if, in any year following the acqui
tlon, commencing with the fiscal year ending in 1969, Wallfrin earns more than $200,000 after taxes.
431
111 case. 300 shares of Common Stock will be issued for each $10,000 of earnings above $200,000.
Iiddition, in any year Wallfrin earns $350,000 or more after taxes, 6,100 shares of Common Stock
,», be issued, plus an additional 6,100 shares for each prior year (if any) in which Wallfrin earns
$(3,000, but less than $350,000. The obligation of the Company to issue any of the 53,000 shares
C(es five years following the date of acquisition. The Company has agreed that under certain
ci,jmstances it would repurchase the common shares to be issued to the Wallfrin shareholders at the
tf^i existing market price less a discount of 7%. The obligation to repurchase expires ten years fol-
ic ing the acquisition.
Wallfrin is a manufacturer and distributor of over 250 automotive accessories, primarily of an
oamental nature. Selling to many of the same customers, the Company believes that Wallfrin will
Oiplement the Company's operations and expand its product mix.
, In a separate agreement with two of the four Wallfrin shareholders the Company purchased the
bding used by Wallfrin for $250,000, plus the assumption of outstanding liabilities amounting to
troximately $350,000. Following the acquisition of Wallfrin the Company has agreed to employ
tl;C of the four shareholders of Wallfrin for ten years at aggregate annual salaries of $135,000. In
I ition, once Wallfrin's aggregate after-tax earnings, following the acquisition, and within such ten-
jr period, amount to $1,750,000, the foregoing three individuals will receive cash bonuses amount-
i m the aggregate to 25% of that portion of Wallfrin's after-tax earnings which exceed $350,000 in
ff fiscal year.
tiduct Developments
The Company also has recently developed and is currently undertaking market surveys for a new
'licular refrigeration system incorporating the Company's proprietary hydraulic control unit. In the
).t, local delivery vehicles, requiring refrigeration, have traditionally been equipped with systems
utrolled by engine take-offs, and maintenance of constant temperature levels has been a problem,
hides equipped with the Vornado control system can be accurately temperature controlled. In
iijunction with this development, the Company is in the process of developing a containerized
:rigeration unit. The concept involves various sized modules that can be loaded with produce, meat,
k other products requiring refrigeration at the main supply point. The modules are delivered directly
the point of use and off-loaded by a lift system integral to a flat bed carrier vehicle.
j The Company entered into an agreement on October 21, 1967 with International Scanning Devices,
d., (an unaffiliated concern) for the development of a scanning device, one primary application of
lich is intended to provide a low voltage flat surface (approximately 'A inch thick) for television viewing
ther than the conventional picture tube. It is not possible at this time to assess whether any com-
:rcially acceptable product will result from these activities. Under the terms of the agreement, the
impany will issue to that company 40,000 shares of Common Stock at such time as a prototype of the
vice has been developed and has agreed to advance to a joint venture to be equally owned by the
irtics up to $500,000 for development and research. Advances by the Company are being made to
e joint venture as its needs require, but with minimum payments of $1,500 a week. Asof December 31,
'68, approximately $160,000 had been advanced by the Company.
I
10
432
Compelilion
There is active competition in each of the fields in which the Company does business. There s
a number of well established companies, some larger than the Company, which manufacture and
similar radios and stereo products.
The competition in automobile air conditioners is among companies which sell factory-instB|
units as well as after-market units comparable to those manufactured and sold by the Company.
Employees
The Company now employs approximately 1,000 persons. Except for the employees at
factory in Cleveland, Ohio, none of these employees is covered by collective bargaining agreemt .
The Company at its own expense maintains a profit sharing plan and life insurance program :
employees, and contributes toward the cost of hospitalization and medical expense insurance foi i
employees.
PROPERTY
The Company's main manufacturing plant and principal executive offices are locatied at 2 \ i
Street, in Melrose, Massachusetts, a Boston surburb. The building is a one-story modern structure, ow I
by a wholly-owned subsidiary and occupied by the Company since 1963, containing about 250, I
square feet of floor space. The building has efficient shipping and receiving facilities.
The Company also owns the following single story modem facilities: ^
Area
Locallon (In sq. ft.) Purpose
Cleveland, Ohio 60,000 Antenna manufacturing
Brooklyn, N. Y 45,000 Automobile accessory manufacturing
Boston, Massachusetts 40,000 Warehousing
In addition to the foregoing, the Company leases the following facilities:
Annual
Area Lease
Locatton (In sq. ft.) Payment Purpose
Canton, Massachusetts 27,500 $31,000 Radio and stereo manufacturing
Toronto, Canada* 22,000 33,000 Radio and stereo manufacturing
Chicago (Hillside), Illinois . 9,000 12,150 Mid-Western regional distribution fact
Los Angeles (Burbank), Cal-
ifornia 6,000 7,200 Western regional distribution facility
•The Toronto property Is leased from a corporation. 100% of the stock of which Is owned by Edward*
Herbert E., Fr.ink M. and Ch.irlcs J. Housman. The Company believes the rent paid for such property is no n
than rents prevailing for similar properties in the area.
The Company is now constructing five two-story apartment buildings at a cost of approxiraai
$700,000 on land owned by the Company and adjacent to its executive offices. The apartment houi
which have been substantially completed, were built to utilize land not presently needed for Comp)
facilities. Approximately 60% of the cost is being financed with real estate mortgages.
"Capitalization".
Substantially all production machinery and equipment is owned by the Company or its subsidia
and is maintained and repaired continually on a basis consistent with sound operation. The Compi
fully utilizes the properties presently owned and leased by it
11
433
' MANAGEMENT
' The directors and principal executive officers of the Company are:
Name Omce
David Housman* Chairman of the Board of Directors
Edward L. Housman* President and Director
Charles J. Housman Treasurer and Director
Elliot J. Englander** Director
Gen. James F. McManmoa Director
John S. DeMetrick Vice President
David I. Nagcr Vice President
Walter P. Semonoff Vice President
Randall W. Johnson Vice President
Michael E. Perpall* Clerk
• David Housman, formerly President, was elected Chnirman of the Board,
Edward L. Housman, formerly Executive Vice President, was elected President
•nd Michael E. PerpaU was elected Clerk on January 30, 1969.
•• Elliot J. Ehglander, a member of the firm of Englander, Englander
& Englander, counsel for the Company, was elected a director on January
30, 1969 to fill the vacancy caused by the death of John J. Grady on January
29, 1969. As of January 1, 1969, Mr. Englander became an employee of the
Company. In the fiscal year ended September 30, 1968, Englander. Englander
& Englander received from the Company approximately $40,000 for its services
u counsel.
Each of the above officers have been associated with the Company for more than 20 years, except
[ Messrs Nager, Semonoff, Johnson and Perpall. Mr. Nager was employed by the Company in 1965;
I Semonoff in 1964; Mr. Johnson in 1967; and Mr. Perpall in 1967. For more than ten years prior to
I employment with the Company, Mr. Nager was a manufacturers' representative of automobUe
lessories; for more than ten years prior to his employment, Mr. Semonoff was engaged in international
res for a'national electronics manufacturer; Mr. Johnson for more than 20 years prior to his employ-
1 nt worked for air conditioning and refrigeration manufacturers; and Mr. Perpall for eight years prior
' his employment was engaged in public and industrial accounting.
Imuneration
1 The foUowing is a table of all direct remuneration paid by the Company and its subsidiaries during
' fiscal year ended September 30, 1968 to each director and each of the three highest paid officers of the
impany whose aggregate direct remuneration exceeded $30,000 and to the directors and officers of
i Company as a group.
BttlftmentPlan(l)
Name of Lidlrldual or
Identity ot Croup
Capacity In frhlch
Rerauneratlon was
RcccWed
avid Housman President
dward L. Housman Executive Vice President
'harks J. Housman Treasurer
11 officers and directors as
a group (9 persons)
(IFsee "Profit Shtxioi Retirement Plan" below.
12
Ac?reg3»e
DIrecl
Remuocralion
i 75,000
50,000
40,000
295,300
Accrued during
flscal year
ended
September 30,
1968
(EstJoiatcd)
$ 7,500
5,000
4.000
29,500
Accrued
from 1944 to
September 30,
1967
$246,700
67,500
57,200
518,200
434
I
Profit Sharing Retirement Plan
The Company has a profit sharing plan under which an amount up to the lesser of 10% of
income before federal income taxes or 15% of wages and salaries of persons under the plan maj
contributed, at the discretion of the Company, to provide retirement payments for all employees who I
been with the Company for more than one year as of the end of the fiscal year for which the paymei
computed. The Company for the purposes of this plan is defined as Automatic Radio Mfg. Co.,
and certain operating subsidiary corporations. Payments are credited among the employees under
plan in proportion to the aggregate fixed remuneration of such employees. No payments under the ]
were made in fiscal 1967. In the fiscal year ended September 30, 1968 the provision for such contr)
tion amounted to $202,300. il"
STOCK OPTIONS
On October 20, 1960, the stockholders approved a restricted stock option plan under which opti
were granted to a limited number of key officers and employees for the purchase of not more thai
total of 40,000 shares «f the Common Stock of the Company. This plan has been terminated and
options granted thereunder are outstanding. On February 4, 1965, the Board of Directors adoptee
amended stock option plan providing for the granting to eligible employees of options to purcl
Common Stock designed to be Qualified Stock Options under Section 422 of the Internal Revenue C
of 1954, as amended by the Internal Revenue Act of 1964. This amended plan provides that the opti
shall expire five years from the date of grant. Options may not be exercised prior to 18 months from
date of grant.
The amended plan provides that the per-share option price may not be less than the fair ma
value of the shares at the time the option is granted. The number of shares at any time outstani
which were issued upon the exercise of options (whether granted under the restricted plan or
qualified plan), or which are attributable to shares so issued, plus the number of shares issuable uj
Uie exercise of stock options may not at any given time exceed 40,000 shares, subject to adjusta
in the event of stock dividends, split-ups, combination of shares, recapitalization, mergers, consolidat
•ale of assets for the securities of another company and the like. As of November 1, 1968, 40,
shares of Common Stock were available for stock options; such increase reflects a 4% stock dividend j
on December 29, 1961 and a 4% stock dividend paid on January 18, 1963.
The plan is administered by a stock option committee composed of from three to five member
the Board of Directors. No member of the committee may receive an option while he is a memll
although he may have received options prior to being named to the committee.
As of November 1, 1968, all directors and officers of the Company as a group held optioo
purchase a total of 6,700 shares of Common Stock at purchase prices ranging from $4.75 to $7
per share, or an average price per share of $6.00. The expiration dates of these options range betvw
February 10, 1971 and October 2, 1972.
As of November 1, 1968, options to purchase 15,900 shares had been granted and 24,264 sM
were available to be granted without further stockholder authorization.
435
Sec "Price Range of Common Stock and Dividend Policy" for information relating to recent
|t ket prices of the Common Stock. For further information with respect to outstanding options, option
pes and persons eligible to receive options, see Note 8 of Notes to Financial Statements.
PRINCIPAL AND SELLING STOCKHOLDERS
Sliarts (o Percent lo
Shares be OivDcd be Ovmed
Principal and Sclliag Shares Percent lo be After Alter
Stockholders OwDed(l)(2) Owned Sold Sale(2) ' Sale(2)
David Housman 351,703 16% 30,000 321,703 14%
Edward L. Housman 254,498 12 30,000 224,498 10
Charles J. Housman 254,48L 12 30,000 224,481 10
, Frank M. Housman 254,538 12 30,000 224.538 10
Herbert E. Housman ....*.. 255,038 12 30,000 225,038 10
Arthur Schifrin<»> 53,802 2 22,400 31,402 1
; Melvyn Haber 10,878 — 3,600 7,278 —
Englander, Englander &
Englander 7,500 — 2,500 5,000 —
, Edward BeUinson 4,900 — 1,100 3,800 -^
i Richard Mendelson 1,420 — 500 920 —
(i> All share] are owned both of record and beneficially except as otherwise stated. Information in
this table is given as of the date of this Prospectus.
(*) Excluding treasury shares and after giving effect to the issuance of the 200,000 shares being sold by
: the Company and 71,000 shares of Common Stock to be issued in connection with the acquisition of
Wallfrin Industries, Inc. (see "Business — Recent Developments").
(i> Arthur Schifrin owns both of record and beneficially 9,702 shares of the 1 1,000 shares outstanding of
the Company's 2% Cumulative Convertible Voting Preferred Stock, or 88.2% of the class (see "Business —
' Recent Developments").
I After giving eflect to this offering and the Wallfrin acquisition, David Housman and members of his
fiily as a group and trusts for their benefit will own beneficially 1,287,809 shares or 54% of the
(aimon Stock of the Company. After giving effect to this offering and the Wallfrin acquisition, ofiBcers
I'l directors of the Company and their wives and minor children will own beneficially 809,278 shares or
5?6 of the Common Stock of the Company.
DESCRIPTION OF STOCK
. The holders of Common Stock are entitled to dividends when, as and if declared by the Board of
rectors out of funds legally available therefor. The Company's 2% Cumulative Convertible Voting
l:fcrred Stock (the "Preferred Stock"), of which there are 11,000 shares issued and outstanding, pro-
ves that no dividends shall be paid on, or purchases made of, the Common Stock when any dividend
liable in respect of the Preferred Stock has not been paid. The Preferred Stock, at the option of the
14
32-493 O - 69 - pt. 1-29
436
Company, may be redeemed commencing on the fifth anniversary of the acquisition in whole or in pai
at $100 per share plus accrued dividends. In any one year commencing June 30, 1974, the holdei
of the Preferred Stock may present up to 20% of the original amount issued each year for redemptio;
at $100 per share plus accrued dividends. On liquidation, the Common Stock and Preferred Stock woul^
^harc ratably in any distribution of assets. Holders of Preferred Stock and Common Stock have no pre
emptivc rights, the Common Stock has no conversion or redemption privileges, and the Common Stoc
is entitled to one vote per share. The Preferred Stock will have equal voting rights with the Commo
Stock on all matters except that each share of Preferred Stock will be entitled to four votes. Holders c
Preferred Stock at any time may convert one share of Preferred Stock into four shares of Comma
Stock, subject to adjustment in the event of recapitalization, merger and the like. The outstanding shan
of Preferred Stock and Common Stock are, and the shares of Common Stock offered hereby upo
issuance thereof will be, fully-paid and non-assessable.
The Board of Directors is authorized, without further action on the part of shareholders, to issi
up to an additional 89,000 shares of preferred stock, in any number of scries. Any such series mz
be made senior to or may'be put on a parity with the preferences, rights, voting powers, restriction
qualifications, dividends, times and prices of redemption, liquidation rights and conversion rights, (
any of them, of shares of the Preferred Stock and the Common Stock, except that if the voting powei
of the Common Stock are adversely affected any common stockholder shall have the right of appraisal j
specified by the Business Corporation Law of Massachusetts.
UNDERWRITING
The Underwriters named below, for whom Francis I. duPont, A. C. Allyn, Inc. is acting as Repn
sentative, have severally agreed, subject to the terms and conditions of the Purchase Contract, to purcha:
icverally and not jointly, from the Company and the Selling Stockholders Common Stock of the Compar
as follows:
Aggttgi
Nombi
I^amc Addrtsj of Sliar
Francis 1. duPont, A. C. Allyn, Inc One Wall Street. New York, N. Y. 10005 72,li
Bache & Co. Incorporated 36 Wall Street. New York, New York 10005 9.0
Bear, Stearns & Co One Wall Street, New York, New York 10005 9,0
Clark, Dodge & Co. Incorporated 140 Broadway, New York. N. Y. 10005 9,0<
Dominick & Dominick, Incorporated 14 Wall Street, New York, N. Y. 10005 9.0i
Goodbody & Co 55 Proad Street, New York, New York 10004 9,0i
E. F. Huiton & Company Inc. One Ch.ise Manh.iltan Plaza, New York, 9,0i
New York 10005
W..C. Langlcy & Co 115 Broadway, New York, N. Y. 10006 9.0i
Reynolds & Co. 120 Broadway, New York, New York 10005 9,01
G. H. Walker & Co. Incorporated 45 Wall Street, New York. New York 10005 9.0(
I. Earth & Co 404 Montgomery Street. San Francisco. Calif. 94104 7.51
Estabrook & Co "0 Pine Street, New York. New York 10005 7,51
H. Heniz & Co 72 Wall Street. New York. N. Y. 10005 7,5(
Hirsch & Co.. Incorporated 25 Broad Street. New York, New York 10004 7,51
Johnston. Lemon & Co. Southern Building. Washington, D. C. 20005 7,51
McDonnell & Co. Incorporated 120 Broadway. New York. N. Y. 10005 7^
15
437
Name Address
fert W. Baird & Co., Incorporated 731 North Water Street, Milwaukee, Wiscon?in 53201 6.000
Et, Burge & Kraus 1414 Union Commerce BIdg,, Cleveland, Ohio 441 15 6,000
B:man Eichler, Hill Richards Incorporated 460 South Spring Street, Los Angeles, California 90013 6,000
J . Bradford & Co., Incorporated J. C. Bradford Bldg., Nashville, Tennessee 37219 6,000
B:her & Shcrrerd 1500 Walnut Street, Philadelrbia, Pa. 19102 6,000
CrtJ&Co. 11 Nf arietta Street, N. W., Atlanta, Georgia 30303 6.000
Cwell, Weedon & Co 629 South Spring Street, Los Angeles, California 90014 • 6,000
In, Kalman & Quail, Incorporated 100 Dain Tower, Minneapolis, Minnesota 55402 . 6,000
/ij. Edwards & Sons, Inc. 409 North Eighth St., St. Louis, Missouri 63101 6,000
Flkner, Dawkins & Sullivan Securities Inc 60 Broad Street. New York, New York 10004 6,000
Ft of Michigan Corporation Buhl Building. Detroit, Michigan 48226 6,000
pden. Miller & Co. Union Commerce Building, Cleveland, Ohio 44114 6,000
I er, Ryons &. Co 623 South Hope Street, Los Angeles, California 90017 6,000
1 Milwaukee Company 207 East Michigan Street, Milwaukee, Wisconsin 53202 6,000
1 Ohio Company ._ 51 North High Street, Columbus, Ohio 43215 6,000
F scher Pierce & Co., Inc ?*. Mercantile Dallas Building. Dallas, Texas 75201 6,000
Faholdt & Gardner 506 Olive St., St. Louis. Mo. 63101 6,000
1 Robinson-Humphrey Company, Inc. Two Peachtree Street, N. W., Atlanta, Georgia 30303 6,000
So&Co 460 Montgomery Street, San Francisco, California 94104 6,000
I tz, Warner & Co_ Two Broadway, New York, New York 10004 5,000
I Jctytr &. Co 14- Ca.-o-i;!M Sj^e", New Or'.ei.-.s, Lojisiina 70130 3,0:0
Inan, Ccffm &. Burr-DoolittJe, Inc 115 Broadway, New York, New York 1CC06 5,000
!el, Nicolaus & Company Incorporated 314 North Broadway, St. Louis, Missouri 63102 5,000
jck & Company, Inc _ 300 American Bank Building, Portland, Oregon 97203 4,000
jllcher and Company 828 Seventeenth Street, Denver, Colorado 80202 4,000
ligess & Leilh 33 State Street, Boston, Mass. 02109 4,000
': First Columbus Corporation 58 East Gay Street, Columbus, Ohio 43215 4,000
l-z/eld & Stern 30 Broad Street, New York, N. Y. 10004 4,000
; vburger & Company 1401 Walnut Street, Phil;idclphia. Pn. 19102 4,000
Well, Kistler & Co. - 110 Old Street, Fayetteville, N. C. 28302 4,000
; fensperger, Hughes & Co^ Inc „ 20 N. Meridian St., Indianapolis, Indiana 46204 4,000
:>erts, Scott & Co., Inc „ First National Bank Building, San Diego. Catiromim 92112 4,000
<iu. W. Scranton & Co 209 Church Street, New Haven, Conn. 06507 4,000
ilee, Mosley, aose A Keraer Incorporated 1500 Walnut Street, Philadelphia, Pa. 19102 4,000
rnuon A McKinDon „... 2 Broadway, New York, New York 10004 4,000
380,100
16
438
The offering of the Common Stock is made subject to receipt and acceptance thereof by the Undc
writers and subject to prior sale and to the right to withdraw, cancel or modify the oflering without notic
The Underwriters are committed to take and pay for all of the shares offered hereby if any are take
The Company and the Selling Stockholders have agreed to indemnify the Underwriters against certa
liabilities, including liabilities under the Securities Act of 1933. The Purchase Contract provides th
the Company and the Selling Stockholders (other than the former stockholders of Wallfrin Industri<
Inc.) will each pay their pro rata share of the expenses of the offering except that the Company will be
transfer agent and registrar fees and the cost of certificates for the Common Stock.
The Underwriters propose to offer part of the shares being acquired by them directly to the puW
at the initial public offering price set forth on the cover page of this Prospectus and part to dealers at
price which represents a concession not in excess of 75^ per share under the public offering price. 11
Underwriters may allow and such dealers may reallow a concession of not in excess of 25 < per sha
to certain brokers and dealers. After the initial public offering, the public offering price and concessio
may be changed.
In the Purchase Contract the Company assumes initial responsibility to the Underwriters I
expenses of the offering. "The Selling Stockholders (other than the former stockholders of Wallfl
Industries, Inc.) have agreed with the Company that they will pay their proportionate share of su
expenses directly or reimburse the Company.
The Selling Stockholders named herein have agreed that without the consent of the Representati
of the Underwriters they will not sell any additional Common Stock for a period of ninety days after li
oommencement of this offering.
LITIGATION
The Company is a plaintiff in two treble damage actions against Ford Motor Company ('Tori!
in the U. S. District Court for the District of Massachusetts. Both actions charge that Ford has viola
the antitrust laws in connection with its practices in the sale and distribution of automobile radi)
Essentially, the Company alleges that Ford by unfair practices has attempted to force the Company <
of the market for radios custom designed for specific styles and makes of automobiles manufactured
Ford. One action instituted in 1963 claims damages in the trebled amount of $15,000,000. The otl
action instituted in 1968 does not set forth a specific sum of damages, and if the Company is successi
damages will be assessed and thereafter trebled by the Court. The Company also is seeking pcrmaa
injunctive relief to terminate the alleged unfair practices. Ford has filed counterclaims in both acti(
charging the Company with certain unfair competition, and claims damages in an unspecified amou
In the opinion of special counsel for the Company, Goodwin, Procter & Hoar, Boston, Massachuse
tte. Company's claims have legal merit, and the counterclaims should not result in any material liability
the Company. Depending upon the results of this litigation the Company may commence similar iitigati
against one or more other automotive manufacturers.
17 .
439
LEGAL OPINIONS
Legal matters in connection with the legality of the Common Stock oflercd hereby will be passed
t'lm for the Selling Stockholders and the Company by Englander, Englandcr & Englander, 294 Wash-
ii'.on Street, Boston, Massachusetts 02108 and for the Underwriters by Carter, Ledyard & Milburn,
Id Wall Street, New York, N. Y. 10005. Englander, Englander & Englandcr is one of the Selling
Srkholders (see "Selling and Principal Stockholders" and "Management"). Brown, Wood,
FIcr, Caldwell & Ivey, 70 Pine Street, New York, N. Y. 10005 will pass on certain matters as special
pnsel for the Company. The informatioji with respect to legal matters appearing herein under "Litiga-
te" has been reviewed or prepared by Goodwin, Procter & Hoar and is included herein on their
Biority. Carter, Ledyard & Milburn and Brown, Wood, Fuller, Caldwell & Ivey may rely on the
oiion of Englander, Englander & Englander as to matters of Massachusetts law.
U EXPERTS
The financial statements included in this Prospectus and related schedules included in the Rcgistra-
ti Statement have been examined by Haskins & Sells, independent certified public accountants, to the
e:nt and for the periods set forth in their opinion appearing herein and in the Registration Statement,
a have been so included in reliance upon such opinion given upon the authority of that Finn as experts
iiiccounting end auditing. The opinion of Haskins & Sells is based in part on the reports of other
imntantt.
18
440
OPINION OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Automatic Radio Mfo. Co., Inc.:
We have examined the consolidated balance sheet of Automatic Radio Mfg. Co., Inc. and
consolidated subsidiaries, except three Canadian subsidiaries, as of September 30, 1968 and the relat
statements of consolidated income, retained earnings and paid-in capital for the three full years then ende
Our examination was made in accordance with generally accepted auditing standards, and accoi
ingly included such tests of the accounting records and such other auditing procedures as we co
sidered necessary in the circumstances. As to the Canadian subsidiaries, we were furnished with t
reports of other independent accountants on their examination of the financial statements of the
subsidiaries. The statements examined by other accountants relate to approximately 7% of the tO)
assets and approximate percentages of sales of 10%, 10% and 9% and of net income of 20%, 16% ai
11% for 1966, 1967 and 1968, respectively.
In our opinion, based on our examination and the reports of other independent accountants refcrt
to above, the above mentioned consolidated financial statements present fairly the financial position i
Automatic Radio Mfg. Co., Inc. and its consolidated subsidiaries at September 30, 1968 and the resn
cl their operations for the three full years then ended, in conformity with generally accepted accountii
prindpka applied on a consistent basis.
Haskins & Sells
Boston, Massachusetts
November 23, 1968
19
441
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
Eld of Dirccton
/roMATic Radio of Canada, Limited
We have examined the Consolidated Balance Sheet of AuJomatic Radio of Canada Limited and its
iisidiary as at September 30, 1968 and the related Consolidated Statements of Income and Retained
Eoings for the three years then ended. Our examinations were made in accordance with generally
t;pted auditing standards, and accordingly included such tests of the accounting records and such
otr auditing procedures as we considered necessary in the circumstances.
In our opinion these consolidated financial statements (which are not separately presented herein)
psent fairly the financial position of the companies as at September 30, 1968 and the results of their
orations for the three years ended on that date, in conformity with generally accepted accounting prin-
c es applied on a conristent basis.
ToucHB, Ross, Bailey ft Smart
Chartered Accountants
ItMito, Ontario
(lober 24, 1968
20
442
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
Board of Directors
Crystal Radio of Canada, Limited .
We have examined the Balance Sheet of Crystal Radio of Canada Limited as at September 30, 196
and the related Statements of Income and Retained Earnings for the three years then ended. Our exami
nations were made in accordance with generally accepted auditing standards and accordingly include
such tests of the accounting records and such other auditing procedures as we considered necessary in th
dfcumstances.
In our opinion these financial statements (which are not separately presented herein) present faiil
the financial position of the Company as at September 30, 1968 and the results of its operations for tb
three years ended on that date, in conformity with generally accepted account'mg principles applied on
consistent basis.
ToucHB, Ross, Bailey & Smakt
Chartered Aooountantt
Toronto, Ontario
October 24, 1968
21
443
AUTOMATIC RADIO MFG. CO., ESC. AND CONSOLIDATIED SUBSIDIARIES
CONSOUDATEO BALANCE SHEET
September 30, 1968 and (Unaudited) December 31, 1968
ASSETS
C*ENT Assets:
Cwh
Notes and mortgages receivable
Trade accounts receivable less allowance (or doubtful accounti of $278,700 at
; I September 30, 1968 and $298,400 at December 51, 1968
L Inventories — at the lower of cost (principally averate) or market (Note 2) :
Ij Finished goods
' Work In process . .".
Raw materials and supplies
Other ;;
ToUl current asseU 22,527,700
In AND MORTOAOES Receivablb.
IBSTMENT Pkoperty Under CONSTRUCTION (ie« Long-Tcnn Debt).
)fE»TY, PukNT, AND Equipment (Note 3):
Und
Buildings .*
Machinery and equipment
Lcauhold Improvements
Total
Less accumulated depreciation and amortization
Property, plant, and equipment — net..
HER Assets:
Unamortized bond discount and prepaid interest .
Olhar
Toul other assets
Total
Amounts are rounded to nearest hundred dollars.
See notes to financial statements. .
September 3(^
1968
Dcccmhcr 31.
1968
(Unaudited)
S 1,318,600
. $ 1.239.100
229,700
227,700
9,085,800
10,672,300
4,903,200
6,270,100
2,272,700
2,077,500
4,349,700
4.311,400
368,000
255,300
22,527,700
25.053,400
402,300
399,800
593,000
747.400
312,300
362,300
2,043,300
2,721,900
1,105,900
1,184,200
161.400
164.700
3,622,900
4,433,100
1,320,800
1.366,000
2,302.100
3.067.100
34,100
24,300
28,600
27,200
62.700
51,500
$25,887,800
$29,319,200
22
444
326.
AUTOMATIC RADIO MFG. CO., INC. AND CONSOLIDATED SUBSIDIARIES
C0^^50LroATED BALANCE SHEET
September 30, 1968 and (Unaudited) December 31, 1968
LIABILITIES AND STOCKHOLDERS' EQUITY
September 30, Decembci ,
1968 1968
(Uoaudil
CtnuiENT Liabilities: ^ ^.,„»,
Notes payable to bank, t 3.200.000 ^ « 2.500.(
Acceptance, payable '•.429.400 7.008,:
Current portion of long-term debt 221,700 253,<
AccounU payable 1.050.500 1,256.:
Federal, itale. and Canadian income Uxes (Note 4) 1,772.600 2.193,1
Other accrued taxes 157.800 73,;
Accrued profit sharing contribution (Note 5) 202.300
Other * 368.600
Total current liabilities 11.402,900 13.612,
Long-Term Debt (Note 6):
Mortgages payable 2.205.000 2.521.(
Mortgages on investment property under construction 300.100 383,.
Leu« purchase obligation ^00.000 ^0°.'
Total 3.105.100 3,505.1
Less current portion shown above 221,700 2Si,'.
Total long-term debt 2.883,400 3.251,
Commitments and Continoent LiABarriES (Note 7)
Stockholders' Equity (Notes 1 and 8):
Capital stock:
Common stock, par value $1 per share— authorized, 3,000.000 shares; issued,
2,166.750 shares 2,166,700 2.166,
To be issued pursii.int to agreement (Note 8):
Preferred stock, par value $100 per share— 11.000 shares
Common stock. 71,000 shares
Paid-in capital
Retained earnings
Total 11,670,200 12.523,i
Less shares of common stock held in treasury, at cost— September 30, 1968,
60.977 shares; December 31. 1968. 59,977 shares 63.700 67;
ToUl stockholders' equity 11,601,500 12.456.1
Total $25,887,800 $29,319,:
■■ ■ ■ ■ I =
Amounts are rounded to nearest hundred dollar*.
See notes to financial lUtements.
23
1.100,000
1,100,
71.000
71.
1.337.700
1.339.
6.994,800
7,846.
445
AUTOMATIC RADIO MFG. CO., INC. AND CONSOLIDATED SUBSIDIARIES
STATEMENT OF CONSOLIDATED PAID-IN CAPITAL
For the Three Years Ended September 30, 1968 and (Unaodited)
For the Three Months Ended December 31, 1968
ilance at beginning of period
cess of proceeds over cost of treasury stock sold
cess of proceeds over cost of treasury stock
issued for stock options exercised
Total
ss excess of par value of preferred and common
stock issuable over stated value of capital stock
of subsidiary acquired in a pooling of interests
itraosBction
lance at end of period
Three Monllii
Year Ended Stpltmbtr 30
1966 1967
1968
196»
(Uoaodi(td)
$2,377,200 $2,377,200
$2,377,200
$1,337,700
— —
14,000
—
— —
4.700
1.400
2.377.200 2,377,200 2,395,900
— 1,058.200
1,339.100
$2,377,200 $2,377,200 $1,337,700 $1,339,100
Amounts are rounded to nearest hundred doUan.
See notes to financial statements.
24
446
AUTOMATIC RADIO MFG. CO., INC, AND CONSOLIDATED SUBSIDIARIES
STATEMENT OF CONSOLIDATED RETAINED EARNINGS
For (he Three Yean Ended September 30, 1968 and (Unaudited)
For the Three Months Ended December 31, 1968
■ YcT EnJed Stptembtr 30
l»t< 1967
Balance at beginning of period:
As previously reported $4,082,100 $4,320,500
Applicable to Wallfrin acquired in a pooling
of interests 72,400 224,200
Adjustment (See Note (a) to Statement of
Consolidated Income and Note 4) (324.100) (275,400)
As restated 3,830.400 4,269,300
Net Income 545,500 1,083,800
Total ■ 4,375,900 5,353,100
Less —
Excess of redemption price over par value of
preferred stock 106,600 —
Elimination of net income included twice
because of a difference in Wallfrin's fiscal
year (See Note (a) to Statement of Con-
solidated Income) — —
Balance at end of period $4,269,300 $5,353,100
Tbree MooQn
Ended
1968
1968
$5,121,000
337,300
(105.200)
5,353,100
$6,994,800
1,677,000
852,000
7,030,100
35,300
7,846,800
$6,994,800
$7,846,800
Amounts are rounded to nearest hundred dollars.
See notes to financial statements.
25
447
AUTOMATIC RADIO MFG. CO., INC. AND CONSOLIDATED SUBSIDIARIES
NOfES TO FINANCIAL STATEMENTS
For the Three Years Ended September 30, 1968 and (Unaudited)
For the Three Months Ended December 31, 1968
I. Principles of Consolidation, etc.
The consolidated financial slalements include the accounts of Automatic Radio Mfg. Co., Inc. and its wholly-
rned consolidated subsidiaries. The accounts of two wholly-owned subsidiaries, which in the aggregate are not
gnificant, have not been consolidated.
At September 30, 1968 and December 31, 1968 the Company's equity in the net astels of iu wholly-owned
>niolidate«l subsidiaries exceeded the carrying value (cost) of the capital stocks of the subsidiaries by $2,685,300
ltd $3,311,200, respectively. This excess has been allocated in the consolidated financial tUtemenls as followi:
September 30, December 31,
1968 1968
Charged to properly, plant, and equipment (Note 3) S 468,300 S 468,300
Credited to retained earnings (representing the undistributed
earnings of the subsidiaries since dates of organization or
acquisition) 3,146,200 3.772,100
Credited to paid-in capital 7,600 7,600
All material intercompany items have been eliminated.
The accounts of the consolidated Canadian subsidiaries are included in the consolidated balance sheet at exchange
ttes in effect at September 30, 1968 and December 31, 1968. Income and expense accounts have been translated at
xchange rates in effect at the end of each of the five years ended September 30, 1968 and three months ended
iecember 31, 1968. The resulting translation gains or losses included in the statement of consolidated incocne are
o( material. The net sales and net income of the consolidated Canadian subsidiaries for the tlire* ytan
■ M, 1968 and three months coded Deoembcr 31. 1961 were as foQcws:
Net Sales NctlncooH
Year ended September 30:
1966 $1,998,100 $111,100
1967 2,591,800 174.200
1968 3,149,300 180.900
Three months ended December 31, 1968 919,900 48.700
On November 15, 1968, the Company acquired, as of September 27, 1968, in a transaction treated as a pooling
f interests, the entire outstanding stock of Wallfrin Industries. Inc. in exchange for an agreement to issue 71.000 shares
f previously unissued common stock and 11,000 shares of 2% cumulative, voting, convertible preferred stock (see
{oie 8). The Company agreed to issue a maximum of 53,000 additional shares of previously unissued common stock
ontingent on annual net income of Wallfrin for each of the five years ending September 30, 1973, as follows:
a) The Company will issue 300 shares for each $10,000 of net income of Wallfrin in excess of $200,000 a
year, and
b) The Company will issue 6,100 additional shares in any year net income of Wallfrin exceeds $350,000 plus
6,100 shares for each preceding year that net income of Wallfrin exceeded $200,000, but was less than $350,000.
The Company further agreed that under certain circumstances it would, if requested, repurchase in four yea"
,,ie|lnalng in 1974 the common shares to b« issued at the then existing market price less a discount of 7%.
26
448
AUTOMATIC RADIO MFG. CO., DSC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS— (CoDlInued)
The Company has also entered into employment contracts with the (onner stockholders of Wallfrin which provide
for total annual compensation of $135,000 for each of the ten years through September 30, 1978. The Company has
further agreed to pay additional compensation to these stockholders based on 25% of the net income in e:(cess
of $350,000 of Wallfrin commencing in the year Wallfrin's cumulative net income from October 1, 1968 exceeds
$1,750,000.
The excess of the par value of the Company's preferred and common stock to be issued over the par value o(
Wallfrin's capital stock acquired ($1,058,200) has been charged to paid-in capital.
On November 15, 1968, the Company purchased the building presently occupied by Wallfrin from its owners
for $250,000 plus the assumption of outstanding mortgage liabilities of approximately $350,000. This porchas* it
included in the accompanying balance sheet at December 31, 1968.
2. Inventoubs
Opening and closing inventories entering into the computation of cost of goods sold were u follows:
September 30, 1965 $ 5,458,300
September 30, 1966 7,363,000
September 30, 1967 9,997,100
September 30, 1968 11,525,600
December 31. 1968 12,659,000
3. Property, Plant, and Equipment
Property, plant, and equipment includes an amount of $468,500, representing the excess paid by the Company for
the capital slock of a wholly-owned realty subsidinry over the net assets of that company as shown in its accounts at
date of acquisition. In the statement of consolidated income, deprecialion has been provided on the portion of this
excess allocated to buildings. The depreciation charge on this excess amounts to S9,400 in the current year, $2,300
for the three months ended December 31, 1968, and aggregates $102,300 since the dale of acquisition. Other property,
plant, and equipment is included in the consolidated balance sheet at cost.
Land and buildings located at Thirty Washington, Street, Brighton, and Two Main Street, Melrose, aggregating
$1,940,600 at cost, are pledged as collateral for the 6'/i% real estate mortgage of $1,820,000 maturing March 8, 1977.
In addition, investment properly under construction of $593,000 at September 30, 1968 and $747,400 at December 31,
1968 is pledged as collateral for the 6Vi% and 7H% mortgages maturing September 6, 1987 and April 10, 1988.
In 1968 a subsidiary entered into a lease agreement with Cuyahoga County, Ohio, under the terms of which
the County sold $600,000 of first mortgage revenue bonds maturing at various dates from December 1, 1969 to
December 1, 1991. The County used such funds to purchase land and construct a plant to the subsidiary's specifications.
The subsidiary agreed to make semi-annual rent payments equal to the amount of interest, bond principal and premium
(in event of early retirement) and trustee fees and expenses, and to purchase the property for $500 at the expiration
of the lease. The above transaction has been recorded in the accounts as a purchase with a related liability therefor
The parent company is a guarantor of this liability.
It is the policy of the companies to compute depreciation based upon the estimated useful lives of the varioui
daises of assets using both the straight-line method and the declining balance method (at I507« and 200% of the
itraight-lioe rates). Leasehold improvements are amortized over their estimated useful lives. The straight-line annual
niM of depreciation are as follows:
Buildings 2- 10%
Machinery and equipment 8Vi-33VS%
Maintenance and repairs are charged to expense u incurred. Renewals and betterments are charged to the property
at cost
27
449
AUTOMATIC RADIO MFG. CO., INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANOAL STATEMENTS— (CoDtinned)
CosU and tccumulated depreciation and amorlltation related to asseti retired or otherwise disposed of are eliminated
rom the accounts at the time of retirement or sale and the resulting gain or loss is recorded In income.
4. FeoERAL Income Taxes
The Federal income tax returns of the Company and Its subsidiaries, with the exception of a sates subsidiary, have
)ecn examioed by the Internal Revenue Service through September 30, 1964. Tax returns of the Company and certain
>f hs subsidiaries for the two years ended September 30, 1966 are presently under examination.
Tbe balance of retained earnings of the Company at September 30, 1965 hu been restated from amounts
Vtviously reported to include • retroactive charge of $324,100 for additional Federal income taxes settled in 1968.
3. PaoPtT Sharino RenaEiKENT Plan
During 1966 and 1967 the Company had a profit sharing retirement plan under which an amount equal to the lesser
)f 10% of net income before Federal income taxes, or 15% of wages and salaries of persons under the plan was to
n contributed to the trustees under the plan to provide retirement payments for substantially all employees as of the
md of the (ucal year for which the payment was computed. Payments were to be credited among (he employees nnder
bt plan in proportion to the aggregate fixed remuneration of the employees. No contribution was required for the
fcars ended September 30, 1966 and 1967 because of a provision in the plan which required that losses of prior years
M deducted in computing net income before taxes. During 1968 the plan was amended to include certain subsidiaries,
o eliminate the provision for carrying forward losses of prior years, and to make the contribution, subject to the limi-
■tions of the Internal Revenue Code, discretionary on the part of the Company. The profit sharing provision omounted
» $202,300 for the year ended September 30. 1968.
Wallfrin has • profit sharing plan under the terms of which tbe board of directors may determine the amount
if that company's contribution under the plan. Such contribution may not exceed the allowable deduction in detcr-
nidDg taxable income under the provbions of the Internal Revenue Code. The proAt sharing provision for Wallfrin
Ddoded In the statement of consolidated income for the years ended September 30, 1966. 1967, and 1961 was $22,700^
(29,900. and $1,900, respectively.
4 LoNO-TtsM Dot
Laif^BVi debt doc after one rear as of September 30. 1961 and December 31, 196S b as follows:
StflimberSa^ DtcenbtrSl.
1961 J96S
^f»i 9;ste ^Tiorpcc SVi'^ — payable ia monthly instalments of 510,000
thmujt f.tara. I. i*-* SUO0.000 SWTO.OOO
■Real estate mortgage, 79t — payable in immtlilj msnihnrns rf >k.-3 'tili«
February 13, 1969 and subject to annual renewals to December 1, 19B7) 2BB;3DD 2BI),TOD
Real estate 1st mortgage, 5'/4%— payable in qtiatlerly instalmenU of $1,437 ,,. ,^
with a final payment due May 1971 — 165,300
Real estate 2nd mortgage, 6%— payable in monthly instalments of $833 with
a final payment due May 1971 — ".000
Real estate 3rd mortgage, 6%— payable in monthly instalmenU of $1,840
through May 1974 — •'••'OO
Mortsage oa investment property under consUuction, 6V4%— due September 6, -
,5g7 150,000 149,100
Mortgage on investment property under construction, 7Vi*— due April 10, 1988 150,100 233.400
Lease purchase obligation (Note 3) — • ^<^-^>°°
600.000
Total due after one year $2.««3.400 $3.231,100
28
450
AUTOMATIC RADIO MFG. 'CO., INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS— (Conltnoed)
The •uregite •mounu of Ioo(-term debt maturltiei due each fiscal yew to September JO, 1973 tad lubte^uent
diercto b u foUowi:
September 30, December 31, .
1968 1968
1969 $ 221.700 $ 253,900
1970 145.000 178,200
1971 145,000 381,200
1972 145,000 164,700
1973 145,000 165.900
•fter 1973 2,303,400 2,361,100
Total $3,105,100 $3.505.000
7. Commitments and Contingent LiABiLmes
In October 1967 (he Company entered into a joint venture agreement for the purpose of developing, manufacturing
and dislribuling a scanning device. Under the terms of the agreement the Company has agreed to place in escrow
40,000 shares of common stock held in the treasury until such lime as a prototype of the device has been delivered
■t which time such shares will be released to the other joint venturer. The Company has further agreed to advance
to the Joint venturer up to $500,000 for development and research in perfecting the device. During the year ended
September 30, 1968 and three months ended December 31, 1968 approximately $116,500 and $48,300. respectively
wu advanced for such development and research and has been charged to cost of goods sold In the statement of
consolidated Income.
At September 30. 1968 and December 31, 1968 there were open letters of credit ouUUnding ill the amonnt of
approximately $4,057,800 and $5,054,200 for material purchases.
See Note 1 for information relating to an agreement to repurchase shares of common stock Issued for the acquisitioB
of Wallfrin in certain circumstances.
Certain counterclaims have been brought against the Company in connection with litigation brought by the
Company against Ford Motor Company. In the opinion of counsel such counterclaims will not have a material effect
on the financial statements (see Litigation).
CerUin of the operating plants and warehouses occupied by the Company and its subsidiaries in Boston, Chicago,
Burbank and Toronto are leased. Under the terms of the leases the aggregate annual rental is approximately
$81,000. The leases expire at various dates to August 1976.
S. Cafital Stocic and Stock Options
In connection with the acquisition of Wallfrin as described in Note 1, the Company agreed to issue 11,000 shares
of 2% cumulative, voting, convertible preferred stock with a par value of $100 a share and 71,000 shares of previously
unissued common stock with a par value of $1 a share. The common stock has not been issued pending listing thereof
on the American Stock Exchange. The preferred stock has not yet been authorized but stockholder approval is to be
requested: if it should not be obtained, 54,000 shares of common stock are to be issued in lieu thereof. In the latter
event, the conjolidated balance sheet would reflect the elimination of the preferred stock, and the stated amount therefor,
$1,100,000, would be transferred to common stock, $54,000 and paid-in capital, $1,046,000. If the 54,000 shares
of common stock were issued in lieu of the 11,000 shares of preferred stock, the effect on the financial statements
would not be material.
Commencing five years after the acquisition, the preferred stockholders may annually redeem 20% of the originally
issued shares at $100 a share plus any accumulated dividends, or the Company may call for redemption all or any part
of the outstanding preferred shares at $100 a share, plus any accumulated dividends. At any time, the preferred
stockholders may convert their shares on the basis of four shares of common stock for each share of preferred stock.
Each shar» of preferred slock has the ume voting rlghu and privileges as four shares of common stock.
29
451
AUTOMATIC RADIO MFG. CO., INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANaAL STATEMENTS— (CouUnued)
During the year ended September 30, 1968 and (he three months ended December 31, I96(, 2,100 shares and
1 000 shares, respectively, of common stock held in the treasury were reissued as a result of the exercise of stock
options. In December 1966 the Company sold 7,500 shares of treasury slock for $22,500 which was oot recorded In
the accounts until the year ended September 30, 1968.
lo connection with a qualified ilock option plan, as amended on February 4, 1965, 40,164 shares of common
Itock, either authorized and unissued or held in the treasury, are reserved for option at December 31, 1968. Under
the Plan, options may be granted to officers and employees at not less than the fair market value of the stock at the
date the option is granted, except that no option may be granted under the Plan to any person who, if an option were
granted and exercised, would then own more than 5% of the common stock of the Company. Each grant of options
imder the Plan becomes exercisable, with respect to one-third of the (harea subject thereto, eighteen monthi from
date of grant, and the remainder, thirty-«lx monlhi from date of grant At September 30, 1968 and December 31, 190
there were 15,900 and 14,900 shares reaerved for outstanding stock options.
A summary of options follows!*
September 30. 19«l: ^^^^^^^
Option Price At Dale Granted
Shares Per Share Total Per Share Total
Options granted during:
19(] 4,000 $2.50 $ 10,000 $2.50 $ 10,000
1966 5.000 4.7S 23,750 4.75 23.750
1967 6.000 5.75 to 6.75 36,500 5.75 to 6.75 36,500
1961 3.000 7J0 to 16.75 35.125 7J0 to 16.75 35.115
18,000 $105,375 $105,375
Options which became exerds-
tble (net of cancellations)
during the year ended Sep- At Dales EierclsaMe
lember 30: —
1066 None
,967 3,000 2.50 to 4.75 $11,252 $5 J5 to 5.75 $16,583
I96S ZZZZ'Z'ZL 2.667 2.S0 6,667 17.25 46.(M
~Jfi^ $ 17.919 » «.5»>
T.ren/eTS.e^O,''' A. IHtes E,.rc..a
,,6g 2.100 rSOW 4.75 $ 7,050 $5.00to20.00 $ 33.500
December 31, 1968:
Options exercised during
the three months ended ...«_ »,t m-,m
December 31, 1968 ^000 $2.50 i 2,500 $25.97 SlS.m
No options were granted or became exercisable during the three months ended December 31, 1968.
When options are exercised, paid-in capiul U credited with the difference between the option price and the par
value of previously unissued shares Usued or the cost of treasury shares reissued.
The option price represents the fair market value at the date the option was granted and all opUoM terminate
Ave years from lh« date of grant or upon termination of employment by the Company.
30
32-493 O - 69 - pt. 1-30
452
AUTOMATIC RADIO MFf. CO., INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS— (Concluded)
The »$sngttt shares of common stock reserved (or stock options, conversions and contingent issues are (aamurixed
M foDom:
Scnteniber December
30, 1968 31, 196»
Slock option plan 41.164 40,164
Preferred stock conversion 44,000
Contingent issuance based on future net incoma of acquired
subsidiary 53.000 53.000
Total 136.164 137.164
The Company has agreed to place in escrow an additional 40,000 shares of common slock held in the treasury
in connection with the joint venture described in Note 7.
9. 9DmBMENTA»Y PaoFrr and Loss Inpokmation
Iteca Monlbs
' Y««r Ended Scpte.ib«r3C_ j^'^^* 31,
1966 1967 1968 1968
Maintenance and repairs:
Charged to cost of goods sold $ 36.700 $ 17,400 $ 24,400 S 7,200
Charged lo other profit and loss accounts 1.600 4.000 3,600 2,700
Total S 38.300 $ 21.400 S 28.000 $ 9,900
Depreciation and amortization:
Charged to cost of goods sold $170,200 $144,800 $157,400 $ 38,000
Charged to other pro5t and loss accounts 7,100 11,000 16,200 8,900
Total $177,300 $155,800 $173,600 $ 46,900
Taxes, other than Federal, stale and Canadian income
bxes:
Payroll:
Charged lo cost of goods sold $156,600 $163,800 $165,400 $ 50.300
Charged lo other profit and toss accounU . 28,400 32,900 49,700 16,700
Real estate and personal property:
Charged to cost of goods sold 141.100 151.900 130.900 33,700
Charged to other profit and loss accounts . . 6,200 18,700 11,100 3,500
Total $332,300 $367,300 S357,I00 $104,200
Heats:
Charged to cost of goods sold $ 58.700 $104,900 $ 68,200 $ 20,700
Charged lo other profit and loss accounts 44,600 57,600 104,000 25,200
Toul $103,300 • $162,500 $172,200 $ 45,900
31
453
No person hns been nutliorizcd lo ^ve any in-
irmation or to make ony representations, other
lan those contained in this Prospectus, in coonec-
on with the ofTcr contained herein, nnd if given
r made, such information or representations must
ot be relied upon as having been authorized by
le Company, the Selling Stockholders or any
Inderwritcr. This Prospectus does not constitute
n offer to sell or a solicitation of an offer to buy
1 any Jurisdiction in which it is unlawful to laalie
gdi offer or loUdtatioii.
'380,100 Shares
Common Stock
(•1 Par Value)
AUTOMATIC RADIO MFG. CO., INC
PROSPECTUS
'•■ The Company has filed with the Securities and
Exchange Commission, Washington, D. C, a Reg-
islralion Statement under the Securities Act of
1933 with respect to the securities offered by this
Prospectus. This Prospectus does not contain all
Df the information set forth in the Registration
Statement. For further information with respect
to the Company and such securities, reference is
made to the Registration Statement and to the
exhibits and schedules filed therewith. Each state-
Dicnt made in this Prospectus referring to a docu*
ment filed as an exhibit to the Registration State-
Dicnt is qualified by reference to the extiibit for
a complete statement of its terms and conditions.
Dated February 4^ 1969
Francis I. duPont, A. C. Allyn, Inc.
454
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS.
Item 22. Marketing Arrangements.
Reference is made to Sections 3, 7 and 8 of the Form of Agreement Among Underwriters, to
Section 9 of the Form of Selected Dealer Agreement comprising Exhibits 1 (a) and 1 (c) to the Registra-
tion Statement, and to Exhibit 1(d).
Item 23. Other Expenses of Issuance and Distribution. — i, i;;.
' " ^ 1 To Be Paid
Mnvi vo •'''""> ^*P»''' i bySelUng
%\ji " b by Company ■ Stockholder!*
Securities and Exchange Commission registration feci $ 1,183.47 1$ 793.05
Accounting fees and expenses 1 .,.^ Tf''''" '^yiltlil {.•'-'■'•'••
Legal fees and expenses..
Blue Sky fees and expenses
Printing
Indemnity insurance premium..
Miscellaneous
Total .
• The contract for the acquisition of the outstanding capital stock of Wallfrin Industries, Inc. provides that the
Company will pay the expenses of one registration under the Securities Act of 1933 for the Wallfrin sellers, Messrt.
Schifrin, Haber, Bellinson and Mendclson ; consequently, their proportionate share of the expenses of this registratica
•re being paid by, and are included in the above expenses for, the Company.
Item 24. Relationship with Registrant of Experts Named in Reglstritioa Statement,
See "Legal Opinions" in the Prospectus.
Item 25. Sale&^ta Special Parties.
See "Stock Options" in the Prospectus and Item 26 below.
Item 26. Recent Sales of Unregistered Securities,
On , 19 , the Company issued 71,000 shares of its Common Stock and 11,000
shares of its new 2% Cumulative Convertible Voting Preferred Stock to the four holders of all of the
outstanding common stock of Wallfrin Industries, Inc., in exchange for all the outstanding common stock
of that company. In addition, a maximum of 53,000 shares of Common Stock may become issuable to
such holders if certain earnings tests are met. See "Business — Recent Developments" in the Prospectus.
A total of 27,600 shares of the 71,000 shares of Common Stock are being sold under this registration
statement. Since the balance t)f the 71,000 sh.nres were (and the 53,000 (maximum) shares contingently
issuable will be) and the 11,000 shares of 2% Cumulative Convertible Voting Preferred Stock were
usued pursuant to agreements to take for investment and not with a view to distribution, and did not
involve any public offering, exemption from the Securities Act of 1933 is claimed pursuant to Section
4(2) thereof.
In December, 1966, the Company sold 7,500 shares of its Common Stock to Englander, Englander
& Englander for $22,500. Since the shares were issued pursuant to an agreement to take for investment
and not with a view to distribution, and did not involve any public offering, exemption from the Securities
Act of 1933 is claimed pursuant to Section 4(2) thereof.
During the three years preceding the date of this Registration Statement, 3,100 shares of Common
Stock were issued to employees at option prices of $2.50 and $4.75 per share upon exercise of Qualified
Stock Options for an aggregate consideration of $9,550. Since such employees agreed to take such shares
for investment and not with a view to distribution, and the issuance of such shares did not involve any
public offering, exemption from the Securities Act of 1933 is claimed pursuant to Section 4(2) thereoL
455
[item 27. Subsidiaries of Registrant.
The following tabic lists all subsidiaries of the Company. All voting shares of each are owned by
the 0)tnpany, and all are included in the Company's consolidated financial statements.
Jurisdiction of
Subsidiaries Incorporition
A. R. Trust „ — Massachusetts
Automatic Radio International Corp _ _ Massachusetts
Automatic Finance Corp „ „ Massachusetts
Automatic Radio Sales, Inc _ _ Massachusetts
Engineering Systems, Inc _ „ Massachusetts
New-Trqnics Corporation „ „ _ Ohio
Thirty Washington Trust — _ Massachusetts
Trans-American Corp Massachusetts
Wood Products Company _ _: Massachusetts
Car Products, Inc _ MassachusctU
Wallfrin Industries, Inc _ „ New York
Canadian Corporations:
Automatic Radio of Canada, Ltd Ontario
Crystal Radio of Canada, Ltd _ Ontario
Titan Radio of Canada, Ltd • Ontario
The foregoing list of subsidiaries does not include one domestic corporation and one Canadian cor-
poration, all of the outstanding stock of which is owned by the Company. These two subsidiaries would
not in the aggregate be considered a significant subsidiary.
Item 28. Franchises and Concessions.
None.
Item 29. Indemnification of Directors and Officers.
Section 67 of the Business Corporation Law of Massachusetts allows indemnification of directors
and officers elected by the shareholders to whatever extent such indemnification is provided for by (i)
the articles of organization or (ii) a by-law adopted by stockholders, or (iii) a vote adopted by holders
of a majority of the shares of stock entitled to vote on the election of directors or such officers.
Article XXTI of the Company's present By-Laws contains the following provision with respect to
indenmification of directors and officers:
Each person who shall be or shall have been a director or officer of the corporation or who shall
serve or shall have served at its request as a director or officer of another corporation, or as a trustee
or officer of an association or trust, in which the corporation owns stock or shares or of which the
corporation is a creditor or in the affairs or prosperity of which the corporation has any other lawful
interest, shall be indemnified by the corporation, to the extent legally possible, against all liabilities
and expenses at any time imposed upon or reasonably incurred by him in connection with, arising
out of or resulting from any action, suit or proceeding in which he may be involved or with which he
may be threatened, by reason of his then serving or theretofore having served as such director,
trustee or officer, or by reason of any alleged act or omission by him in any such capacity, whether
or not he shall be serving as such director, trustee or officer at the time any or all of such liabilities
or expenses shall be imposed upon or incurred by him. The matters covered by the foregoing
indemnity shall include any amounts paid by any such person in compromise or settlement, if such
compromise or settlement shall be approved as in the best interests of the corporation by vote of a
disinterested majority of the board of directors, or by vote of the holders of a majority in interest
of each class of the capital stock of the coriwration outstanding and entitled to vote for directors
present or represented at an annual meeting or a special meeting called for the purpose, not counting
as outstanding any stock owned by any interested director, trustee or officer ; but such matters shall
not include li.nhilities or expenses imposed or incurred in connection with any matters as to which
such person shall be finally adjudged in such action, suit or proceeding to be liable by reason of
dereliction in the perfonnance of his duty as such director, trustee or officer. Eich person who shall
become a director, trustee or officer as aforesaid shall be deemed to have accepted and to have con-
tinued to serve in such office in reliance upon the indemnity herein provided. The rights of indem-
nification hereby provided shall not be e.xclusive of or affect other rights to which any director,
trustee or officer may be entitled. As used in this paragraph, the terms "director", "trustee" and
"oflRcer" include their respective heirs, executors and administrators, and an "interested" director,
456
trustee or officer is one against whom as such the proceeding in question or anotlier proceeding on
the same or similar grounds is then pending.
Article XI of the By-Laws to be adopted in January 1969 will contain the following provision
with respect to indemnification of directors and officers:
Each person who shall be or shall have been a director or officer of the corporation or who shall
serve or shall have served at its request as a director or officer of another corporation, or as a trustee
or officer of an association or trust, in which the corporation owns stock or shares or of which the
corporation is a creditor or in tlie affairs or prosperity of which the corporation has any other lawful
interest, shall be indemnified by the corporation, to the extent legally possible, against all liabilities
and expenses at any time imposed upon or reasonably incurred by him in connection with, arising
out of or resulting from any action, suit or proceeding in which he may be involved or with which
he may be threatened, by reason of his then serving or theretofore having served as such director,
trustee or officer, or by reason of any alleged act or omission by him in any such capacity, whether
or not he shall be serving as such director, trustee or officer at the time any or all of such liabilities
or expenses shall be imposed upon or incurred by him. The matters covered by the foregoing
indemnity shall include any amounts paid by any such person in compromise or settlement, if such
compromise or settlement shall be approved as in the best interests of the corporation by vote of a
disinterested majority of the Board of Directors, or by vote of the holders of a majority in interest
of each class of the capital stock of the corporation outstanding and entitled to vote for directors
present or represented at an annual meeting or a special meeting called for the purpose, not counting
as outstanding any stock owned by any interested director, trustee or officer; but such matters shall
not include liabilities or expenses imposed or incurred in connection with any matters as to which
such person shall be finally adjudged in such action, suit or proceeding to be liable by reason of
dereliction in the performance of his duty as such director, trustee or officer. Each person who
shall become a director, trustee or officer as aforesaid shall be deemed to have accepted and to have
continued to serve in such office in reliance upon the indemnity herein provided. The rights of
indemnification hereby provided shall not be exclusive of or affect other rights to which any director,
trustee or officer may be entitled. As used in this paragraph, the terms "director", "trustee" and
"officer" include their respective heirs, executors and administrators, and an "interested" director,
trustee or officer is one against whom as such the proceeding in question or another proceeding on
the same or similar grounds is then pending.
In so far as indemnification for liabilities arising under the Securities Act of 1933, as amended, is
required or permitted to officers and directors of the Company pursuant to the foregoing provisions, or
otherwise, the Company has been advised that, in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in said Act, and is, therefore, unenforceable.
In the event that a claim for such indemnification (except in so far as it provides for the payment by the
Company of expenses incurred or paid by a director or officer in the successful defense of any action, suit
or proceeding) is asserted against the Company by such director or officer in connection with the securi-
ties being registered, the Company will, unless the matter has, in the opinion of its counsel, been adjudi-
cated hy precedent deemed by it to be controlling, submit to a court of appropriate jurisdiction the question
of whether or not such indemnification by it is against public policy as expressed in the Act and will be
governed by the final adjudication of such question.
The Company has agreed to indemnify the Underwriters against certain liabilities under the Securities
Act of 1933. See Exhibit 1(b) hereto.
Item 30. Treatment of Proceeds from Stock Being Registered.
Of the net proceeds to be received by the Company from the sale of the Common Stock being regis-
tered for its account, $1 per share will be credited to its capital account and the balance will be allocated
to paid-in capital. • ,
Item 31. Financial Statements and Exhibits.
(a) Financial Statement and Schedules:
Included in the Prospectus:
Statement of Consolidated Income for the five years ended September 30, 1968.
Notes to Statement of Consolidated Income.
Consolidated Balance Sheet as of September 30, 1968.
Statement of Consolidated Paid-in Capital for the three years ended September 30, 1968.
Statement of Consolidated Retained Earnings for the three years ended September 30, 1968.
Notes to Consolidated Financial Statements.
457
Omitted from the Prospectus but inckided in tlio Registration Statement:
For the year endeJ September 30, 196S:
Schedule V — Property, Plant, and Equipment.
Schedule VI— Accumulated Depreciation and Amortization of Property, Plant, and
Equipment.
Schedule XII — Allowance for Doubtful Accounts.
Other schedules are omitted because of the absence of the conditions under which they arc
required or because the required information is given in the fmancial sUtcments or notes
thereto.
Schedules supporting the consolidated financial statemenU for the years 1966 and 1S>67 included in
Form 10-K annual reports for such years are incorporated herein by reference. >
(b) Exhibits:
1 (a) — Form of Agreement Among Underwriters.
1(b) — Form of Purchase Contract.
1(c) — Form of Selected Dealers Agreement.
1(d) — Stand-OflF Agreement.
2(a) — ^Agreement and Plan of Reorganization for the acquisition of Wallfrin Industries,
Inc. dated September 27, 1968.
2(b) — ^Agreements, dated November IS, 1968, supplementing agreement for the acquisition
of Wallfrin Industries, Inc.
2(c) — ^Agreement providing for the acquisition of real estate of Wallfrin Industries, Inc.,
dated November 15, 1968.
2(d) — ^Agreement in connection with joint venture to develop a patented scanning device
I and to transfer patent rights with International Scanning Devices, Ltd.
2(e) — ^Lease with County of Cuyahoga, Ohio.
3(a) — ^Agreement of Association and Articles of Organization and all amendments thereto
filed through September 1, 1960 filed as Exhibit 3.1 to the Company's Registra-
tion Statement, No. 2-17020 and incorporated herein by reference.
3(b) — ^Amendments to Articles of Organization filed from September 1, 1960 to present
3(c) — ^Amendment filed January , 1969 to Articles of Organization (to be supplied by
"* amendment).
3(d) — By-Laws of the Company (to be supplied by amendment).
4(a) — Specimen of Certificate for Common Stock, $1 par value.
4(b) — 6^ yo 10-year real estate mortgage of The A. R. Trust and Thirty Washington Trust
(two wholly-owned subsidiaries of the Company) including guaranty of Com-
pany, due 1977.
S(a) — Copy of Qualified Stock Option Plan.
S(b) — Form of Notice to Exercise Options.
5(c) — Form of Stock Option Agreement
6 — Form of Opinion of Englander, Englander & Englander.
7 — None.
8 — None.
9 — ^None.
10 — None.
11(a) — Copy of Company's Profit Sharing Plan (including declaration of trust) and two
amendments thereto.
im>) — Profit Sharing Plan of Wallfrin Industries, Inc.
11(c) — ^Trust Agreement relating to Profit Sharing Plan of Wallfrin Industries, Inc.
H(d) — Employment contracts with Arthur Schifrin, Melvyn Haber, Edward Bellinson,
and David Nager.
11(e) — Bonus agreement with Arthur Schifrin, Melvyn Haber and Edward Bellinson.
11(1) 3-year lease of building in Toronto, Canada with a corporation owned by members
of the Housman family.
12 — ^Reference is made to the information set forth in Item 29 of the Registration State-
ment which information is incorporated herein by reference.
458
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant has caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized,
in the City of Melrose and Commonwealth of Massachusetts on the ' day of November, 1968.
AUTOMATIC RADIO MFG. CO., INC
(David Housman, President)
Pursuant to the requirements of the Securities Act of 1933, this Registration Statement hai,
been signed below by the following persons in the capacities and on the dates indicated:
Sima'ore
lVJdri.M'/^i'^::^-.^>\N:\AA
(David Houunaa)
rAC\2/..
(Charles J. Housman)
U,
(Edward L. Housman)
(John J. Grady)
Tit>
President and Director
(Principal Executive
Officer)
Treasurer and Director
(Principal Financial and
Accounting Officer)
Excaitive Vice President
and Director
•Oerk and Director
Director
November :?, 1968
November V, 1968
November V, 1968
November il, 1968
November , 1968
(JaoMa P. HcManmon)
CONSENTS
The consent of Englander, Englander & Englandcr will be included in their opinion to be filed as
Exhibit C.
The consent of Goodwin, Procter & Hoar is filed by separate letter with the Registration Statement
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Automatic Radio Mfc. Co., Inc.:
We hereby consent to the use in this Registration Statement of our opinion dated November 23, 1968
appearing in the Prospectus which is a part of such Registration Statement, and the references to us
under the headings "Statement of Consolidated Income" and "Experts" in such Prospectus.
We also consent to our opinion referred to above being considered as comprehending our opinion
that the finandal schedules of Automatic Radio Mfg. Co., Inc. and its Consolidated Subsidiaries for the
three years ended September 30, 1968, as listed in Item 31(a), when considered in relation to the basic
financial statements, present fairly in all material respects the information shown therein.
/Ayi^<^'u.^/y^ill^
HaSKINS & SXLU
Boston, Massachusetts
Norember 27, 1968
459
ACCOUNTANTS' CONSENT AND REPORT ON SCHEDULES
Brd of Directors
/^OMATic Radio of Canada, Limited
The examination referred to in our report dated October 24, 1968 on Automatic Radio of Canada
L itcd and its subsidiary included tlic appropriate supporting schedules for the five years ended Scptem-
b 30, 196S ns prepared for consolidation in the schedules listed under Item 31(a) of Part II of this
pistration Statement. In our opinion, such schedules, not presented separately herein, present fairly the
jiirmation required to be stated therein.
We consent to the use in the Registration Statement of our Opinion dated October 24, 1S>68
(tearing in the Prospectus which is a part of such Registration Statem^erit.
I - Touch E, Ross, Bailey & Smakt
■ x\ /N /-\ /-N Chartered Accountants
Jprep^ ■
epircd fori consolidation irathe schedules
stcd Lnder iW 3Ha) (if PWt II oflthis
l^istrjtjp'n Stxtemcnt
'■onto, Ontario
]vember21, 1968
ACCOUNTANTS' CONSENT AND REPORT ON SCHEDULES
)ard of Directors
irsTAL Radio op Canada, Limited
We consent to the use in the Registration Statement of our Opinion dated October 24, 1968 appear-
^ in the Prospectus which is a part of such Registration Statement
ToucHE, Ross, Bailxy & Skabt
Chartered Accountants
oronto, Ontario
oranber 21, 1968
460
SCHEDULE
AUTOMATIC RADIO MFG. CO., INC. AND CONSOLIDATED SUBSIDIARIES
PROPERTY. PLANT, AND EQUIPMENT
For the Year Ended September 30, 1968
Column A
Column B
Column C
Column D
Column F
Clattification
Balance at
Beginning
of Year
Balance of
Wallfrin
Acquired in
Pooling of
Interest!
Additions
■t Cost
Rctirementf
or Sales
Balance dl
At Close <i)
of Year jLi
Land - % 189.600
Buildings 1.751,000
Machinery and equip-
ment - 958,700
Leasehold improvements 91,100
Total $2,990,400
$ 57,300
6.600
$ 122.700
292..^00
149,900
65.900
$ 60.000
2,200
% 63.900 $ 630.800 $ 62.200
$ 312,3af|
2.043.3aj ,«
1,105,90^
161 .40W
$3.622.9M
SCHEDULE V
AUTOMATIC RADIO MFG. CO.. INC. AND CONSOLIDATED SUBSllMARIES
ACCUMULATED DEPRECIATION AND AMORTIZATION OF
PROPERTY, PLANT. AND EQUIPMENT
For the Year Ended September 30. 1968
Column A
Column B
Column C
Column D
Column E (
Description
Balance at
Beginning
ofYear
Balance of
Wallfrin
Acquired in
Pooling of
Interests
Additions
Charged
To Profit
and Loss
Depreciation
and
Amortiration
Expense
Deduction (torn
Accumulated
Depreciation
and
Amortization
Retirements
or Sales
Balance
at Close
of Year
Buildings $ 401,900
Machinery and equip-
ment 718.700
Leasehold improvements 53700
Total
$ 19,500
2,200
$ 76,500
85,800
11,300
$ 46,600
2,200
$1,174,300 $ 21700 $ 173.600 $ 48,800
$ 478.4001
777,4001
65.0001
$1.320,800 1
461
SCHEDULE XII
AUTOMATIC RADIO MFG. CO.. INC. AND CONSOLIDATED SUBSIDIARIES
ALLOWANCE FOR DOUBTFUL ACCOUNTS
For the Year Ended September 30, 1968
Jaice at beginning of year _ $272,700
Jancc of Wallfrin acquired in pooling of interests 21,200
Babncc as restated 293,900
Vision cliarged to expense — _ _ „ 95,400
jnCHini) 'of jirrounts jirrwonsly WTittan loff 9,400
Tot.-J. 3yb,7U0>
* accounts written off 120,000
laKC at end of year $278700
p
462
Mr. Watts. While we are on this, Senator, could I just ask one
clarifying question of Mr. Housman with respect to the Xerox exhibit
he has given us ?
Mr. Housman, you have given us a two page, paper-clipped Xerox
exhibit. Page 1 is apparently the cover of a Bendix catalog. It is called
"Bendix Radio Service Manual— 1964 Fo-Mo-Co FM-AM All Tran-
sistor Radios."
The second page paper clipped to this is not identified anywhere on
the page, except that it is identified as page 12. Is this part of the same
pamphlet for which you have given us the cover ?
Mr. Housman. Yes. The second photostat you have appears on page
12 of this service manual.
Mr. Watts. And this is a page which shows the prices of certain
tuner assemblies which to a layman would be a radio ?
Mr. Housman. No, sir. It is not a radio. It is a part of a radio. We
just want to point out the similarity in costs between the various parts
that go into the manufacture of this radio.
Mr. Watts. Well, now, these are whose prices to whom ? Are they ^
Bendix's prices to the dealers?
Mr. Housman. No. I presume these are Ford's prices to the dealer.
Mr. Watts. Ford's prices to the dealer. And under the Galaxie head-
ing, under the Thunderbird heading, under the Continental heading,
all 1964 models, there is the identical descriptive caption, "Tuner as-
sembly, FM-AM complete with pushbuttons," and the prices, which
have very similar part numbers also, are only 50 cents different. The
Galaxie is 50 cents less than the Thunderbird and the Thunderbird is
50 cents less than the Continental, is that correct ?
Mr. Housman. That is correct.
Mr. Watts. Well, now, earlier, though, you said the dealer paid
much higher prices, if I followed you, you said the dealer paid much
higher prices for the Continental radio. Now, here it says 50 cents
more.
Mr. Housman. A higher price for the radio. This is only a part of
the radio. The tuner is only a small segment of the radio itself. There
are many other component parts that go into the construction of a
radio and this is primarily called to your attention, sir, that you may
understand that these were almost similarly all the same all the way
through.
Mr. Watts. I think I understand. At this point perhaps we can
move on and if we need to, we can clarify it in the record, Mr.
Chairman.
Senator Nelson. That is right. Then your questions and answers
will be printed in the record.
Mr. Housman. Fine. Now, if you would like a photostat of the en-
tire instruction, service manual, I will be very happy to photostat the
entire book and submit it to the committee.
Senator Nelson. If you would submit it for the committee files.
Mr. Housman. Thank you, sir.
(EorroRiAL Note. — The subcommittee had not, at the time this
record went to press, received the document referred to, in its entirety.
The cover and page 12 of the document, presented in Xerox copy
form by Mr. Housman as an exhibit, and discussed above, are repro-
duced here, as follows :)
463
Exhibit 27
(David Housman's exhibit No. 2: Cover page and page 12 of a catalogue en-
itled "Bendix Radio Service Manual 1964 FO-MO-CO FM-AM All Transistor
ladios.")
Bendix Models
F4TBM
F4TBF
F4TBC
F4TBS
F4TBE
RADIO
1964
&W'\m FO-MO-CO
A I „ FM-AM
I V4 OJUUxl All Transistor E5ad:3s
Ford Part Numbers
C4MY- 18805
C4AZ-18805
C4VY-18805
C4SZ-18805
C4GY- 18805
Serial Number Prefix
F4TBM
F4TBF
F4TBC
F4TBS
F4TBE
J^L '
■~-'^.-^;i
^!!:-
MERCURY— F4TBM
GALAXIE— F4TBF
CONTINENTAL— F4TBC
WARRANTY SERVICE
PROCEDURE
Warranty service for Bendix
Fo-Mo-Co FM-AM radios must
be handled through the Ford
Motor Company and its au-
thorized representatives.
THUNDERBIRD— F4TBS
'-^/'?vCJr
COMET— F4TBE
GENERAL INFORMATION
This manual contains trouble-shooting procedures,
schematic and layout diagrams, alignment instructions,
plus essential information for servicing Bendix Fo-Mo-
Co FM-AM radio models F4TBE, F4TBF, F4TBM,
F4TBS, and F4TBC.
TYPE:-These 1964 Bendix Fo-Mo-Co All-Transistor
Radios are combination FM and AM receivers.
The .idic is switched from FM to AM or from AM
to F..r by the six-pole double-throw switch (SI)
which is actuated solely by the pushbuttons. Except
for .,;iinor deviations noted on the schematic dia-
gram, all of these radios have the same electrical
circuit which uses a total of ten transistors and six
diodes.
TUNING RANGE:
FM— 88 to 108 mc
AM— 540 to 1605 kc
INTERMEDIATE FREQUENCY:
FM— 10.7 mc AM— 262.5 kc
POWER INPUT:"12-volt storage ba :ery, negative
terminal to ground.
Voltage— 14.4 VDC
THE
Part No. 2093000-2
CORPORATION • BENOIX RADIO DIVISION • BALTIMORE, MARYLAND, 21204
AUTOMOTIVE PRODUCTS DEPARTMENT -
Price SO cents
Printed in U.S.A. 11-63
464
1964 MERCURY, GALAXIE, CONTINENTAL, THUNDERBIRD AND
COMET FM-AM PUSHBUTTON RADIOS,
MODEL
NUMBERS
F4TBM, F4TBF, F4TBC, F4TBS AND F4TBE RESPECTIVELY— REPLACEMENT PARTS LIST (Con
inued)
1964 GALAXIE MODEL
F4TBF
TUNER PARTS
Unit
Unit
Symbol
Part
Liat
Symbol
Part
List
No.
Doacription
No.
Price
No.
Description
No.
Price
liCC
CIC
Tuner assrmbly. FM-AM complete
2093060-2
31.60
Tuner assembly. FM-AM complete
2093060-2
31.50
with pushbutlons
with pushbuttons
Tuner assombly, AM with puah-
2093392-0502
20.00
Tuner assembly. AM with push-
2093393-0502
20.00
buttona (l.-ss FM-AM slide
buttons (less FM-AM slide
awitch and bracket)
switch, mounting bracket
Tuner assembly, FM with
2093394-0701
10.00
and shuttle gate)
mounting bracket
Tuner assembly. FM with
2093394-0702
7.60
L1,L2,L3
Coil assembly. FM tuner
Order complete
FM tuner aasy.
L1,L2,L3
mounting bracket
Coil assembly. FM tuner
Order complete
L4,L5,L6
Coil assembly, AM tuner
2090131-69
3.25
FM tuner a«iy.
SIB.CD.E.F
Slide switch assembly. FM-AM
2092702-1
4.00
L4.L6,L6
Coil assembly. AM tuner
2090131-70
3.25 '
CouplinR rod {actuates FM tuner)
2002703-1
.25
SIB.CD.E.F
Slide switch assembly, FM-AM
2092702-4
4.00
Clutch assembly, manual
2090133-44
1.80
Coupling rod (actuates FM tuner)
2092703-4
.25 ;
(incls. mtg. bracket)
Clutch assembly, manual
2090133-45
1.80
Declutch gate
2091807-1
.90
(less mtg. bracket)
Spring, declutch gate return
2091808-1
.25
Bracket, manual clutch retaining
2091197-15
.20
Pointer and arm assembly
2090129-38
1.00
Declutch gate
2091807-4
.50
Spring, pointer backlash
2090130-14
.15
Spring, declutch gate return
2091808-5
.15
Clamp. FM tuner carriage
2092706-2
.25
Pomter and arm assembly
2090129-40
1.00
coupling rod retaining
Spring, pointer backlash
Shuttle gate (actuates FM-AM
slide switch)
2090130-17
2092706-1
.15
.90 .
1964 THUNDERBIRD MODEL F4TBS
TUNER PARTS
Unit
Unit
Symbol
Part
List
Symbol
Part
List
No.
Description
No.
Price
No.
Description
No.
Price
RCC
GIC
Tuner assembly. FM-AM complete
2093059-2
32.00
Tuner assembly. FM-AM complete
2093059-2
32.00
wilh pushbuttons
with pushbuttons
Tuner a.ssembly. AM with push-
2093392-0503
20.50
Tuner assembly. AM with push-
2093393-0503
20.00
buttons (less F.M-AM slide
buttons {less FM-AM slide
switch and bracket)
switch, mounting bracket
Tuner assembly. FM with
2093394-0701
10.00
and shuttle gate)
mounting bracket
Tuner assembly. FM with
2093394-0702
7.60
LI.L2.I-3
Coil assembly. FM tuner
Order complete
mounting bracket
FM tuner aasy.
L1.L2.L3
Coil assembly. FM tuner
Order complete
L4.L5.L.6
Coil ai^icmbly. AM tuner
2090131-69
3.25
FM tuner a««y.
SIB.C.D.E.P
Slide switch assembly. FM-AM
2092702-1
4.00
L4,L6.L6
Coil assembly. AM tuner
2090131-70
3.25
Coupling rod (actuates FM tuner)
2092703-1
.25
SIB.C.D.E.F
Slide switch assembly. FM-AM
2092702-4
4.00
Clutch assembly, manual
2090133-44
1.80
Coupling rod (actuates FM tuner)
2092703-4
.25
(incls. mtg. bracket)
Clutch assembly, manual
2090133-45
1.80
Declutch gate
2091807-1
.90
(less mtg. bracket)
Spring, declutch gate return
2091808-1
.25
Bracket, manual clutch retaining
2091197-16
.20
Pointer and arm assembly
2090129-48
1.00
Declutch gate
2091807-4
.50
Spring, pointer backlash
2090130-14
.15
Spring, declutch gate return
2091808-6
.15
Clamp. FM tuner carriage
2092705-2
.25
Pointer and arm assembly
2090129-50
1.00
coupling rod retaining
Spring, pointer backlash
Shuttle gate (actuates FM-AM
slide switch)
2090130-17
2092706-1
.16
.90
1964 CONTINENTAL MODEL F4TBC
TUNER PARTS
Unit
Unit
Symbol
Part
List
Symbol
Part
List
No.
Description
No.
Price
No.
Deacription
No.
Price
RCC
L4.L6.L6
Coil assembly. AM tuner
2090131-69
3.25
SIB.C.D.E.F
Slide switch assembly. FM-AM
2092702-1
4.00
Tuner assembly. FM-AM complete
2093068-4
32.60
Coupling rod (actuates FM tuoer)
2092703-1
.25
with pushbuttons
Clutch assembly, manual
2090133-44
1.80
Tuner assembly. AM with push-
2093392-0504
21.60
(incls. mtg. bracket)
buttons (less FM-AM slide
Declutch gate
2091807-1
.90
switch and bracket)
Spring, declutch gate return
2091808-1
.25
Tuner assembly. FM with
mounting bracket
2093394-0701
10.00
Pointer and arm assembly
Spring, pointer backlash
2090129-49
2090130-19
1.75
.15
L1.L2.L3
Coil ass..mbly. FM tuner
Order complete
FM tuner assy.
Clamp. FM tuner carriage
coupling rod reUining
2092705-2
.25
465
Mr. HousMAN. Again, I want to apologize to the committee if I
ive dealt with Ford more than with General Motors or Chrysler
nd the only reason for that is that we had the service manual on the
ord but what applies to Ford positively applies to the other two
iant manufacturers, General Motors and Chrysler. What I wanted to
ring out is the fact that they were using this extra money that they
re getting on higher priced merchandise to lower the costs on the
»wer priced merchandise where they are in competition with inde-
endent manufacturers like ourselves and in order to drive us out of
. usiness which they have been very successful with.
Senator Nelson. Our next witness will be Mr.
Mr. HousMAN. Sir, I am not through yet.
Senator Nelson. I thought you had finished.
Mr. HousMAN. I have not concluded.
I am on page 7. I have a recommendation that consists of a page
nd a half and I will be through then.
Senator Nelson. Fine. ,
Mr. HousMAN. To the committee's seven questions I now take the
iberty of adding one more question. What ought to be done by the
Tovernment to cope with monopoly power in the automobile industry ?
Answer : By conducting these hearings, this committee is taking a
, -iant first step. The publication of its hearings held July 10 and 23,
968 has made generally available to the law enforcement commu-
nity—the Justice Department and the Federal Trade Commission—
.asic industry information adequate as a predicate for effective en-
orcement action. The committee might seek to supplement this rec-
'ird by ascertaining from, for example, the Justice I)eP^i:tment, why
t has failed to act in connection with the Pennzoil and Kendall mat-
ers referred to in answering the committee's question number 2, and
vhy Justice has failed to act in connection with the complaints my
)wn company has lodged about the anticompetitive conduct ot the
tutomobile companies. Even more important, the committee could
iscertain what consideration has been given by the Justice Depart-
nent to stripping General Motors of its monopoly power so that it
m\\ no longer have the capacity so effectively to engage m a classic
conspiracy" in restraint of trade.^ . .-„,
Specifically, what is the status of governmental enforcement action {
The committee may be able to find out why it is that the disproportion-
ite market control enjoyed by the automobile industry— the automo-
oile dealer franchise system— has been permitted by the antitrust en-
forcement authorities to persist despite its systematized abuse and
despite the exclusive dealing marketing practices it embodies.
If the committee takes such action, and as a result learns from the
antitrust enforcement authorities that the automobile industry is be-
yond reach of effective antitrust sanctions, then I think the committee
should turn its attention to the obvious alternative : The creation of a
Federal Automobile Commission having comprehensive ^e^latory
powers of the character enjoyed by CAB, FCC, ICO, h FC, A^O— all
of the agencies which function to regulate monopoly and harness
monopoly's performance to the public interest.
iVmted states v. General Motors Corp., 384 U.S. 127, 140 (1966).
466
Mr. Chairman, members of this committee, I want to thank you foi
this opportunity and I trust that anything that you want answered
I shall be very happy to come forward with the answers either todai
or if they are presented in writing, we will answer them promptly.
Thank you kindly.
Senator Nelson. Thank you very much.
Our next witness is Mr. Richard Luntz, R S L Corporate. Mr. Luntz
we are pleased to have you here today. You may present your testimony
as you wish.
(A biographical note on Mr. Luntz follows :)
Biographical Note
R. 8. Luntz, Chairman, R S L Corporate, Building 2, Cleveland Division, 142ii
Hamilton Ave., Cleveland, Ohio 44114, has been active in civic endeavors as well
as in industry for many years. He has served on the cancer board and was eo-chaii
man of the mayor's committee on educational television in Cleveland. His pai
ticular international concern is the world hunger problem. R S L Corporate, th\
closely held company that he heads, has been in existence for over six years an«|
is bringing to production "a new concept of motor car" which the company del,
scribes as "designed to meet the contemporary quality requirements of a specific!
market sphere." The firm also has a component division that has developed prodL_
ucts for the automobile industry. A letter addressed to Senator Wayne Morse b
Mr. Luntz appears in the printed hearings before subcommittees of the Senat
Small Business Committee (90th Congress, 2d session) on "Planning, Regulatioi
and Comx)etition : Automobile Industry — 1968," page 42 (1968).
STATEMENT OF RICHARD LUNTZ, CHAIRMAN, R S L CORPORATE
BUILDING II, CLEVELAND DIVISION, CLEVELAND, OHIO
Mr. Luntz. Senator, committee members, the automobile businesK
has been called the most compelling theater possible.
Senator Nelson. May I interrupt you, sir? Did you submit any*
thing on ih^ nature of your corporation ?
Mr. Luntz. I did in a profile of myself, yes. Would you like clarii
fication, sir ?
Senator Nelson. Are you in the manufacturing business?
Mr. Luntz. Yes. We have been in development for about 5 yeai
now on production motor car that we have in the production pro
totype stage at this point.
Senator Nelson. Go ahead.
Mr. Luntz. The automobile business has been called the most com
pelling theater possible. Indeed, this may be the case, but it can als<
be said that there are an incredible number of incorrect assumption!
concerning the industry and its product.
One of the primary fallacies is that the immense size of the h\{
three automobile companies is negative to the public's best interest
In point of fact, super corporations in the United States are pro
portioned to the pace, complexity and sheer numbers of the con^
temporary world and represent an important bulwark to our nationall
existence in peacetime and equally important in war. For the Justice
Department to decimate these firms as a result of their capability and
efficiency while functioning within healthy industries is to comp^o^
mise the Nation's welfare and security.
Perhaps the most important fact in appraising the state of the
automobile market in America is that there are more manufacturers
467
competing for the American automobile consumer today than there
liave been in the past 30 years. This fact is in direct contrast to the
proposition that General Motors' size grants it undue advantage over
existing automobile manufacturers and serves to discourage other
firms from entering the automotive market.
The frequently discussed entry barriei-s to successful automobile
manufacturing for the American market have been overstated. Entry
jean be effected on the same basis that the English, Italians, Erench,
jGermans and Swedish have done — by producing a motor car that
meets the requirements of a specific market.
Volkswagen, BMC, Volvo, Saab, and Datsun feature economy, rea-
sonable service and above average quality. Jaguar presents unusual
value with considerable style. Rover and Citroen offer advanced engi-
neering. Rolls Royce, Ferrari, and Mercedes give longevity and dis-
tinction. These foreign producers are now selling in the United
States over 1 million cars annually through independent dealerships
as well as through franchised dealerships selling American oars.
During the years that the foreign manufacturers were making suc-
cessful inroads into the American market, three American independent
automobile manufacturers ceased production. In the view of qualified
, observers, the demise of these automotive firms was not a consequence
I of GM's size but occurred because their respective products did not
equal the appeal of the balance of the American industry offerings or
the offerings of the foreign producers. In brief, they were not com-
petitive.
Although the individual resources of the American independents
were substantial following World War 11^ these firms neglected to pro-
vide themselves with a major requisite to successful automobile sales —
progressive, automotive oriented, executive and design teams, attuned
to the post-war competitive environment.
There is a distinct difference in the design, manufacturing and
merchandising philosophy of the foreign producers as compared to
their American counterparts. The former design very purposeful ap-
pearing machines based upon the premise of a long production life.
The American automobile industry, in contrast, generally incorporates
a major body redesign every 3 years. Exceptions to this major restyl-
ing cycle occur in regard to low volume American cars.
As clearly evidenced by the Volkswagen, substantial sales can be
achieved in the American market without recourse to frequent restyl-
ing. Some will contend that the independent can engender substan-
tially more sales by eschewing frequent styling changes presuming, of
course, that the automobiles evolved by the independent producer rep-
resent distinct and obvious value in a package that is aesthetically valid.
The proposition has been frequently forwarded that General Mo-
tors, through massive expenditures for advertising and promotion, is
able and does, in fact, saturate the American public with direct and in-
direct persuasion that GM is the superior product and the "All Amer-
ican" way to go. The claim has also been made that the public does not
have access to factual information concerning current automobiles.
This statement and the foregoing proposition are again at odds with
the facts.
Previous to World War II only two generally known automobile
magazines were available in the United States and these were rarely
32-493 O - 69 - pt. 1-31
468
on newsstands. Today, the American public can turn to 10 or more
monthly automotive publications featuring in depth articles on auto-
mobile engineering, styling, specifications, and innovation. During the
course of a year these publications conduct road tests on virtually every
car model manufactured in the world. Consumer research magazines
provide additional documented information.
This wealth of automotive information, available at newsstands!
across the country, recently prompted a prominent advertising execu-
tive to state, "Advertising today can sell a good automobile, but re-
gardless of budget, it cannot sell a poor one."
John Bond, publisher of several automotive magazines and an emi-
nent engineer, has stated that, in his opinion, the foreign automobile
manufacturers will capture an appreciably larger portion of the Amer-
ican market than they presently hold. kL
As one views the foreign inroads in electronics, cameras, and motorfl
cycles, Mr. Bond's statement appears entirely creditable. Certainly,
General Motors, Ford, and Chrysler in the automobile industry and
super corporations in other industries, with their means and proce-
dures of efficiency, in part stemming from their size, must be con-
sidered important factors toward holding our own in our own market-
place during the increasingly competitive years ahead.
Perhaps it is essential that we now pause and speak of another
consideration.
We have before us an increasing awareness of the interdependence «|
of the multiple facets of our society. One manifestation is the deepen-
ing dimension of responsibility that has accrued to business and in-
dustry. The Nation's social ills and the world circumstance compels it.
As a nation of the world community we have expressed ourselves as
being concerned to the point of horror with the fact that 10,000 in-
dividuals a day die of malnutrition. We are further aware that a child
that has suffered with malnutrition for the first 6 years of his life is
irrevocably mentally retarded, as well as being physically depleted.
With the specter of starving people before us, with new American
cities to build and inner cities to rebuild, with a war to successfully
terminate and with the multiple other commitments, manpower must
be utilized to produce things that have quality, enduring value, and
worthwhile purpose.
The automobile industry is regarded historically as being the pri-
mary catalyst toward the great forward stride of the Nation since ■
1900. It would, therefore, seem particularly appropriate for the in-
dividual automobile companies to initiate, in the business community,
procedures for evaluating future policies and future products on the
basis of their long-term impact and value to the social scene.
As our society derives increase product worth or value from public
and personal expenditures, more becomes available to effect inroads
upon our social inequities as well as permitting a greater effort in
assisting impoverished nations abroad to achieve self-sufficiency.
In regard to the American automobile industry, for example, it is
now within the state of the art to double the life of the American auto-
mobile by utilizing a newly developed technique of coating sheet metal
with a chrome over galvanized or electro-galvanized steel treatment.
The cost of this processing is approximately $36 for a typical medium-
priced car.
469
Senator Nelson. Are you saying that this process alone could double
the life of an automobile ?
Mr. LuNTz. I am assured of this by the steel company, yes.
Senator Nelson. What about the other operating parts of the auto-
mobile ?
Mr. LuNTz. The rust, Senator, is the matter that generally disables
an automobile permanently. The other components have a life ex-
ipectancy with reasonable maintenance of a substantially greater time
tlian the rust situation, but simply one
Senator Nelson. Where do you get your figure that this can be
done for approximately $36 ?
Mr. Luntz. This was quoted to me by the vice president of a major
steel mill.
Senator Nelson. Why do not the automobile companies do it,
then ?
Mr. Luntz. I have no comment, sir, on that statement.
Senator Nelson. Is this process used by any foreign manufacturers?
Mr. Luntz. I do not believe it is. As is generally known, motor
c;irs are scrapped primarily due to rust rather than mechanical failure.
AVithin 7 to 8 years the average American automobile will deteriorate
to the point that it must be scrapped for $20 or less.
A car whose sheet metal has been processed with chrome over
iriilvanized steel would be worth somewhere between $400 and $500
at the end of 8 years. Assuming the figure to be $400, and that the
factory added a coating process cost of $50 to the consumer price, and
taking into account the $20 scrap value if the vehicle had not been
])rocessed, we find that there is an approximate, inherent loss in value
of $330 per vehicle.
Based on an 8 million car year, using the most conservative reason-
ing, including an allowance for geographical locations where rust is
not as serious a problem, consumers would have an aggregate loss of
approximately $2,100 million for each year's production run.
Senator Nelson. For each year ?
Mr. Luntz. For each year, Senator.
Furthermore, the typical car within 4 to 5 years of its manufacture
loses a great deal of its structural integrity through rustinj^ and in an
accident frequently proves structurally inadequate. Many lives can be
paved if the chrome over galvanized steel process is utilized on produc-
tion motor cars.
In respect to the automobile exhaust system, steel companies can
provide a so-called, low grade stainless that will increase the exhaust
system life to 8 years at an average cost penalty of less than $4 per car.
Normally, an exhaust system requires replacement every 21/2 years,
thus, over a span*of 71/2 years it will have to be replaced three tmies.
Inquiries to Chrysler, American Motors, General Motors, and Ford
dealers produced individual exhaust system replacement quotations
averaging $70. Based on an 8 million car production jear. over the life
of the vehicles of that year, making allowances for certain unknown
factors, there is an aggregate loss to consumers of approximately
$1,400 million for exhust system replacement.
The American motor car industry would indeed reach a higher
plateau of accomplishment for the Nation and the world community
were the 1970 production cars to have running changes incorporating
470
stainless steel for the exhaust system and utilizing a chrome over
galvanized coating for body sheet metal.
Now, let us discuss tomorrow— tomorrow began when the great
majority of Americans began to understand and appreciate that we
are of a world community and of a world economy.
In brief, time stable social orders must evolve in the underdeveloped
countries. These regions ultimately will contribute toward world
trade with products logical to their resources and inherent abilities,
even as our products will find markets within their rising economies.
Our attitudes, the means of implementing them, our goals and our
commitment must be fitted to a newly emerging world circumstance.
Those views that were proper to a social order of limited international
concern are, in many instances, no longer appropriate, realistic, on
Much of the spectrum of American life is changing in response to
the need of the individual, in our neighborhoods, in our communities,
our Nation, and the world. The very evident dissatisfaction of the;
young is due in part to our failure to take adequate measures to allevi-
ate the serious inequities and desperate needs here and abroad.
Enlightened leadership within Government and business and re-
sponsible citizenship from all the people must effect the changes essen-
tial to individual dignity for all men on this shrinking globe.
Thank you.
Senator Nelson. Thank you very much, Mr. Luntz.
Now, does anyone wish to comment on any testimony that was made
by any other witness ?
Mr! Mann. Mr. Chairman, I have some general comments but I do
not want to take any more of the committee's time. I do not want to
take more than my share of it.
Senator Nelson. You are on the panel representing 10 manufac-
turers and the reason we are running today and tomorrow is because
you do represent them and observations have been made that I am
certain you would not agree to. You are entitled to an opportunity to
respond and I might say further that I would not expect you or any-
body else who wished to respond to some complicated issue to neces-
sarily be confined to an off-the-cuff statement here. If anyone of you
wishes to submit something for the record later, we will leave the
record open and it will be printed, so you will have a more adequate
opportunity to discuss some of these issues.
Mr. Mann. Thank you very much, Mr. Chairman. Obviously, it is
impossible to comment on everything that has been said, but I
have two or three things I wanted to suggest for the committee's
consideration.
One is that I find a common denominator in representing 10 cor-
porations to what I used to find when I tried to rej)resent the United
States abroad. The common denominator is that in both cases, the
clients are large, they are successful, and that other people are unable
to compete.
I simply wanted to make that general observation because it runs
through many, many of the things we heard here yesterday and today,
you can hear foreigners saying about the U.S. economy as a whole.
Second, I wanted to refer to some of these phrases and cliches that
appear throughout the testimony yesterday and today without, I must
471
add, any really solid evidence to support them. I am referring to
phrases like "monopoly power," "monopolistic muscle" — notes that I
have made here this morning just listening. Actually, if there is any
country in the world that is competitive, it is the United States of
America. And if there is any industry in this economy that is highly
and intensely competitive — and I think I know something about com-
petition— it is the automobile industry.
Many of the complaints that we are hearing spring from the fact
that some people are really unable to comj:>ete.
Let use take the assertion of the "exercise of power," and this is an-
other quote, "power over prices." Now, what evidence is there that
anybody actually artifically fixes the prices for an automobile?
Prices for automobiles are fixed in the marketplace by consumers and
I have spent a great deal of time in my presentation, poor as it was,
trying to explain why this happened, why competition exists at the
manufacturing level and all the way down through the retail level and
exactly how it works. I do not know of any other way it could work in
an intensely competitive, open society. Prices are really not fixed by
companies. They are fixed by buyers who decide what car they are
going to buy and what price they are going to pay.
Now, the "power" over costs. It seems to me, Mr. Chairman, that one
of the jobs of any efficient competitive industry is to reduce costs be-
cause only by reducing costs can you hope to be able to reduce prices
to the consumer. Now, I do not think that reducing costs of materials,
efficiency — the cost of putting a car together in that sense — should be
considered as something which has anything to do with monopoly. It
is really a function of competition. It is probably the principal func-
tion of a competitive society.
Wages, "fixing" wages. Who really believes — who watched the labor
negotiations and who witnessed the strike against Ford and the con-
sequent effects on its profits and earnings and its share of the market
last year — who really believes that the automobile industry has great
political power in terms of "fixing" wages?
Now, consumer demand — there is a lot of talk about consumer
demand. The industry has "power" over consum.er demand. Wliat this
says really in substance, Mr. Chairman, is that the American people
are not intelligent enough to decide what their own needs are — that
they read these advertisements in the paper or listen to them on tele-
vision and they are "brainwashed."
Now, if the American people are that incapable of managing their
own affairs, what hope is there going to be for political democracy in
this country ? Do we not have to assume that the average American is
intelligent enough to know what his needs are ? Is not that pretty basic
and fundamental in our economic system, in our whole political
system ?
Senator Nelson. You raise a philosophical question which a num-
ber of people have written about over the past few years, about
whether or not — not just the automobile industry, but whether or not
industry does not through very effective advertising and promotion
establish the taste of America. 1 might just say that, having a son who
a year ago would not wear any blue jeans that were not skintight and
now will not wear anything unless they have got bell bottoms on
472
them, that was not created by consumer demand. But there is a lot of
investigation to be done about creation of standards of taste.
Mr. Mann. Well, people seem to like change. The ladies hemlines
seem to be changing these days. They go up and they go down, and
so forth. I suspect that this is because people prefer to wear something
a little bit different, especially the young ladies.
Senator Nelson. I see you have not been persuaded yourself^ —
Mr. Mann. I do not find anything very bad or vicious in change
and in responding to the kind of consumer demand whether we are
talking about — style or whatever we are talking about.
Senator Nelson. I see they have not persuaded you on the new wide
ties. Anyway, I am on your side.
Mr. Mann. Mr. Chairman, there are a lot of questions that I cannot
really address myself to, first, because I do not know anything about
them, and secondly, because they involve the competitive process or
pricing practices or costs or something of that kind. And secondly,
because they are involved in lawsuits. If you have any questions about
the facts are on some of these things, I am sure that if Mr. Watts
will talk to the companies, they will do their best to be as helpful as
possible to the committee.
Senator Nelson. I just want to make clear to you, since you are
representing the industry that is being discussed here, and there have
been some very thoughtful critics of the industry, whether you agree
with them or not, that in fairness to. you, you will be given the oppor-
tunity to respond in writing to any of the issues that you wish to
respond to. As I said also, we will leave the record open for any of
the witnesses to respond to additional questions from us or to supple-
ment their statements.
Now, does anybody else wish to comment on any of the other testi-
mony here?
Mr, Mann. I have one additional comment, sir, that I think might
be of interest to the committee, and then I promise to be quiet unless
somebody asks me something.
Mr. Arkus-Duntov has a very interesting thesis if you read his
paper. He says, first, that he is frustrated because he was unable to pro-
mote the sale of a Wankel designed engine and then his next conclusion
is that he can only expect that new companies will produce it and that
these new companies have to be financed.
Then he makes a very interesting statement. He says, in order to sell
shares of the stock in the company that is going to finance the Wankel
engine, I will read the statements from his statement :
The traditional function of the Commission, namely, the protection of the in-
vestors, would have to be subordinate to promote the channeling of venture capi-
tal to radical new^ inventions in the transportation field.
That is the end of the quote.
Now, this is really the nub of the problem. If any person responsible
to the stockholders for investing a very large sum of money — he sug-
gests here it may be as much as a billion dollars, or perhaps a little
bit less — I would suggest that he ought to be pretty well convinced that
this is not in the category of drilling a wildcat well where there is one
chance, let us say, in a hundred of being able to achieve success. And
what I have found in my 21/2 years with the industry is that we are
473
flooded with all kinds of ideas which we promptly pass on to the com-
panies. We are not the ones to handle those. Rut just as a mail-order
house, there is hardly a day passes that two or three people do n(jt have
a brand new idea about how to revolutionize the automobile.
Now, there are bound to be some very good ones in here, and I am
sure the companies look at them very closely, but to sujrgest that Gen-
eral Motors, the board of directors of General Motors or Ford or Chrys-
ler or American Motors, ought to engage on a venture that would not
l^ass the Securities and Exchange Commission which is intended to
protect the investor seems to me to be a very suggestive and revealing
statement, I just wanted to make that point.
Mr. Arkus-Duntov. May I comment on this^ I am afraid, Mr.
Mann either misunderstood my statement or possibly I did not explain
myself clearly. I am not advocating the support of the Wankel engine
development. Personally I am no longer associated with it ; I am citing
its history here merely as an example. This engine is pretty well on its
way because smaller companies, as I mentioned in my testmiony, have
adopted it, and recently a larger one, Volkswagen, acquired NSU,
which would indicate that this engine is slowly finding its way. I am
suggesting that the problem of the automobile industry is that it can-
not adopt new inventions, as has been shown by its record. We ought
to provide means similar to those existing in certain areas of the capital
market, to bring new inventions to the market. We all know the success
story of Xerox. The struggle of the inventor of the Xerox process be-
fore he was able to bring it to the market, is a classic, because it reveals
tlie difficulties of financing and selling a radical new product. It was
not brought to the market through a large company but, rather,
through the support of a small company and venture capital.
Polaroid is another good example, and the list is quite long. There
have been, since World War II, many thousands of small and med-
ium-sized companies grew dramatically with the help of venture capi-
tal. My point is simply that we should create legislation to help fin-
ance small companies and individual inventors. I certainly do not
suggest that GM should be favored by any tax incentives or SEC
regulations which would allow it to use public money and not protect
the investor. All I am suggesting is that inventors should be helped,
and small business should be helped to introduce innovations because
the big companies have failed to do so.
Now, you have mentioned quite a few things about the research
conducted by the automotive industry, and I would just like to refer
to a few specific items — air pollution and safety. Air pollution and
safety do not require further research. To research problems which
are obvious and known to everybody is usually just a poor excuse for
inaction. It sounds great to give a research grant to a university to
find out about safety but all you have to do is travel on highways and
you know what it is. The problem is by no means difficult. For in-
stance, for safety you need good brakes, which is self-evident. How-
ever, disk brakes, which are considerably better than conventional
brakes, and have originally been introduced by the aircraft industry,
have frequently been offered as optional equipment. To offer a inajor
safety item, such as brakes, as an option, shows irresponsibility.
Equally, you mentioned safety belts before.
474
Safety belts have been offered as optional equipment in cars in the
late fifties, but would usually be attached to the platform, rather than
to the frame. To attach a safety belt to the platform makes it just an
ornament. It looks attractive, but that is all. In case of a crash, it does
not protect, because the belt is not properly attached to the frame.
Mr. Mann. Are you saying today
Mr. Arkus-Duntov. Originally. You said the industry introduced
the safety belt before there was a requirement. When they were orig-
inally offered as optional equipment, they were put in mostly as an
ornament. It was only because of regulation that they were put in
more or less properly.
Unsafe tires, installed by manufacturers, have been mentioned by
Senator Nelson. Safety is by no means as mysterious as it appears to
be. It only requires a serious engineering effort. Air pollution was
identified in the early fifties. If you spent any time in Los Angeles
in the fifties, you know what air pollution is. You did not require
research for it! Unburned hydrocarbon in the atmosphere were objec-
tionable. That was clear. But to eliminate it required technological
change. This change was not forthcoming.
What I am suggesting is that we should improve a system whereby
people, who have new ideas on transportation, can find venture capi-
tal to put them into practice. May I repeat that I used the case history
of the Wankel engine to illustrate the automotive industry's inability
to adopt inventions, as has been shown by its record. It seems to be
a considerablv better powerplant from the consumer point of view
than the existing one. I am sorry I took so long. Senator.
Senator Nelson. That is all right.
Mr. Mann. I would like to say if things were that simple, Mr.
Chairman, all that would be required would be good will. I think the
paper we handed you on the seminar, on the safety seminar, is an
example of that. If there is anything I have been impressed with,
it is the enormous complexity of measuring emissions, discovering
which emissions are harmful, which ones contribute to smog, and
in what proportion. We are just on the edge of knowledge both in
safety and emissions. And I think the chief value of some of the papers
that I have offered here yesterday and today is to acquaint the com-
mittee with the enormous complexities in all of these areas. It is not
a simple thing as some people pretend. And the magnitude of the
efforts being made to attack the problem on all fronts is impressive.
Now, this is the thing that I have been impressed with and I really
would invite this committee again, I think you yourself, would be
impressed if you would walk with me, it will not take long, through
some research centers and proving grounds to see what people are
doing and what papers are being read in the Society of Automotive
Engineers and how they are going into this really complex problem
and what they are doing about it.
Now, there may be better ways to do it and we certainly do not
claim we have a monopoly on knowledge. I said in my statement that
the small inventor has often come up in the past with ideas that no
one else has been able to think of. But is not this the way our system
is supposed to work ? Is not this the way it always has worked ?
Mr. Arkus-Duntov. Could I just make one rejoinder? In the 1930's
diesel engine locomotives were introduced in mining. Their problem
475
of exhaust emission was similar to that experienced by the automotive
industry in the fifties. It took the designers of diesel engine locomo-
tives little time to clear it up, and diesel locomotives have been used
in mines ever since without dangerous exhaust emission. You did not
have to research what was happening with the exhaust. You knew it
quite well. I am sorry to take up so much time, but I think it is a
fundamental question of the industry to substitute research for action.
When aircraft designers were faced with a speed barrier in the late
thirties, a German engineer and British engineer, Hans von Ohain
and Frank Whittle, separately invented the jet engine in 1936. By
1941, experimental jet aircrafts were flying. In 1948, they were opera-
tional in spite of the tremendous lack of manpower caused by the war.
It surely does not need decades of research to arrive at the conclusion
that air pollution is objectionable and safety insufficient and, in the
meantime, produce cars which are air polluting and unsafe.
Senator Nelson. Did you have a comment ?
Mr. LuNTz. Yes, Senator, and committee. I think — I question
whether one or two of Mr. Mann's statements indeed carry the mes-
sage or the thinking of Detroit. He has suggested that competition is
the god and under it perhaps anything goes.
Now all industries have a basic responsibility in terms of the public
welfare. As far as automobiles are concerned, the safety details and
features must be considered as fundamental to the vehicle's design as
are the wheels.
I had not intended to become involved in debating with Mr. Mann
on specific areas of motorcar safety, as clearly some strides have
been taken in this direction. "Wlien the inference is made, how-
ever, that all that can be done in regard to safety is being done be-
cause this organization or that or several are working on overall high-
way safety, I must react with frankness.
When the further inference is made that the need of a competitive
price in the marketplace may negate the inclusion of some safety fea-
tures, it is extremely important that we come to cases on the subject.
There are, of course, factors other than the design of the automobile
which contribute toward the overall hig'hway safety situation. Driver
competence, street and highway design, and law enforcement are
among them. Each aspect must be importantly improved.
That these auxiliary areas of concern exist in no way lessens the
need of incorporating obvious and needed safety-related features in
the immediate future motorcar.
The Senator has pointed out a major situation that the laws or hint
of laws has caused to be fixed — the standard equipment overloaded
tire with the normal passenger load. There are other clearly evident
safety inadequacies that need not await additional time-consuming
overall safety studies, nor will they raise the cost of the car to the con-
sumer by the $200 figure as hitherto suggested by Mr. Mann.
For example, the fasteners that secure certain critical chassis com-
ponents; that is, steering and suspension pieces, and certain other
pieces should be of a type and material that cannnot fail.
The tubular brakelines that carry hydraulic fluid are presently made
of a marginal material and are subject to failure within the lifespan
of the average car. I am aware of three specific instances when this
476
particular failure has occurred. Materials are available to prevent
brakeline failure for the life of the car.
An obvious safety hazard is the minimal life expectancy of auto-
mobile exhaust systems. Sharp edges on glove compartment doors
that, in accidents, frequently spring open are a further fault com-
mon to many car designs.
The cost of these specific safety-oriented changes and certain ad-
ditional ones is insignificant to the consumer purchase price of an
automobile. The inclusion of these improvements would not cause any
motorcar produced in the United States today to become noncom-
petitive as a result of the minimal price increase involved.
Indeed, it would seem that industry, and not just the automobile
industry, but all industry, should review its products and use as the
basis what, indeed, is proper and fitting for the best interests of society.
And I have endeavored to suggest this in my statement.
We are talking about nominal costs for vital features and their in-
clusion would indeed make a great deal of difference to the safety
record. It disturbs me at this late date, after all that has passed,
that it is suggested that many other factors are important to highway
safety, with the suggestion that the automobile is not — its design is
not fundamental to this. Now, obviously, there are other factors but '
equally obviously there is a great deal about the automobile that could
be, at very minimum expense, taken care of to the point that cars*
would be appreciably safer.
Senator Nelson. Thank you. I believe you submitted a letter to
the hearings that were conducted last year by Senator Morse and
myself on this same subject matter in which you stated that your
company was going into the automobile business.
Mr. LuNTz. Yes.
Senator Nelson. Production, I take it.
Mr. LuNTz. Yes, sir.
Senator Nelson. I believe Mr. Eomney, formerly of American
Motors, had testified several years ago before the Kefauver commit-
tee that it would take a billion dollars to set up an automobile manu-
facturing business and another billion dollars to set up a suitable
distribution network.
Do you have any observations to make about that ?
Mr. LuNTz. Yes. That is a very important point. We did not have
all the money in the world when we began our program, and yet we
felt there was a very definite need for a machine that would have
considerable longevity and altogether be a valid package. And there-
fore, one of the major concerns that we had was with tooling costs.
Senator Nelson. Were with what ?
Mr. LuNTz. Tooling costs — tooling costs in the automobile in-
dustry can be fabulous, but they need not be. There are techniques
available whereby the tooling costs can be cut to a fraction of what
is generally considered typical.
I think it is important to qualify that statement by saying that
we are starting with an expected automobile production of 12,600
units which by Detroit's size certainly is a most minor operation.
But we believe that in the course of time, we will be able to garner
a much higher production. And therefore, our approach is to build a
quality product, to particularly be very careful in terms of reviewing
477
some of the industry's ways of doing things, and in many areas we
are departing from the industry's way, not that their way is neces-
sarily wrong for their particular volume, but if one indeed is sincere
about starting in the motorcar business, there are ways of doing it
without risking a great deal of the public's money. This is the approaoJi
that we choose to follow. There has been a previous instance where
an automobile company has gone to the public for tremendous sums,
then spent several years engineering their product, and ultimately
not getting into production. It seems to us that we had better prove
ourselves with a smaller operation before we look at the larger one.
So our company perhaps emulates some of the European builders in
terms of our approach to merchandising and manufacturing.
Senator Nelson. How far along are you ?
Mr. LuNTz. We are with our production prototypes at this time.
Senator Nelson. Do you have a time schedule?
Mr. LuNTz. We have, sir, yes. I will tell it to you privately if you
don't mind.
Mr. Mann. May I say that he is very welcome to join in the compe-
tition, Mr. Chairman.
Senator Nelson. I had a question that I didn't ask you, Mr. Mann,
at the conclusion of your testimony because I wanted to give everybody
else a chance to make their remarks.
On page 25 of your statement, discussing the question of secrecy of
financial data in the automotive industry, you state that the disclosure
of detailed financial data by a company would enable competitors to
deteiTTiine its weaknesses and strengths and then avoid its strengths and
exploit its weaknesses.
An issue has been raised here, commented on in the past 2 days, con-
cerning the so-called company dealerships, stimulator dealerships,
those that are owned by the manufacturer. What I would wonder about
in considering the question of competition, a free and open market, is
this: How can the companies justify a requirement that their fran-
chised dealers make a monthly report which, according to the testi-
mony yesterday must disclose in great detail their financial status?
The monthly reporting forms are more detailed and more complicated
than the Federal income tax return forms. They require each dealer
to make this detailed monthly financial report to the same company
that establishes a competing dealership; but that same information,
or comparable information, is not available to the franchised dealer,
the independent franchised dealer, about his competitor, the company-
owned dealer. Isn't that really quite an unjustifiable and unfair com-
petitive position for the company to be in with the dealership that it
owns vis-a-vis its franchised dealer?
Mr. Mann. The question is does a manufacturer by requiring, if he
does require — this is the first time I had heard it yesterday — financial
statements from dealers, does he put that dealer in a competitive dis-
advantage with a company-owned store? Is that what you are saying,
Mr. Chairman ? Is that the question ?
Senator Nelson. Yes.
Mr. Mann. Well, I suppose the first thing we would have to find
out to answer that is whether there are any company-owned stores
that are competing with people who make these statements. The num-
ber of company-owned stores, wholly owned, I am speaking now about
478
wholly owned because there is a great variety of arrangements as 1 1
understand it, where that kind of a situation exists. I really don't
know. I will say this, that the manufacturers have a self-interest in
every dealer selling as many cars as he can, an obvious self-interest,
and giving the best service that he can and I would presume that the
purpose oi requiring data is to make sure that the customers of the
manufacturer served by that dealer are getting the service that they
are supposed to get and that they are not losing out to their competitors
in the marketplace.
Senator Nelson. The question is how well is the dealer doing from
the standpoint of the company. All they need to know is how many
cars did that dealer sell for the company that month. They don't have
to know anything else. They can take a look at that and say he is selling
100 or 10 or 20 or three or 50 a month and that is better than he was
doing last year. They don't have to have a financial statement as to
what his condition is.
Mr. Mann. Mr. Chairman, I don't know enough about it at this
moment but I will submit an answer for the record on that. Either
I or the companies will.
Senator Nelson. All right.
I am not really familiar with that situation as testified to yesterday.
I am familiar, after looking at some information, with what tire
companies have done by establishing a factory-owned tire retail outlet
and establishing it a block away from one of their own dealers, and
creating, in my judgment, a completely unjustified competitive situa-
tion. But it does seem to me, if the testimony here yesterday was
correct, that for the companies to say they can't ^ve any financial
disclosure but require their dealers to give detailed monthly disclosures,
and then the companies own competing outlets, we have a situation
which is potentially monopolistic, in that, if the companies want to,
they can drive the independent dealer out of business any time they
desire. But we will submit the question.
Mr. Mann. Mr. Chairman, could I comment on that last statement?
My impression is not that the companies are trying to expand the
number of company-owned stores. I don't really know an3i:hing about
the tire business now. But in the automobile business, the number
of company-owned stores is very limited. It is a very small percentage
of the number of dealers. And let me, without knowing a great deal
about the details, give you some hypotheses on why the few that exist
do exist, if I may. A number of concrete situations. And maybe, Mr.
Chairman, we can give the industry a better way in which to handle
their problems.
Senator Nelson. Did you testify as to that yesterday?
Mr. Mann. Well, very briefly, but in Manhattan, Mr. Chairman,
for example, it is a high-rent district. There isn't really much chance
of owning an establishment with the square feet you need to sell and
service cars and make a profit out of it. So as far as I know, nobody
wants to buy a store in downtown Manhattan and yet each manufac-
turer finds he has a lot of customers there that need service. They live
in Manhattan. They buy cars and they live there. And it gives them
a place to go to and get serviced, gives them a place to go to and look
at the product.
479
Let's take another case. Let's suppose a dealer is in a ghetto, the
Jecaying part of an inner city, and he begins to lose his sales, his
sales begin to go down. There is nothing at all to prevent that dealer
from going to a bank and getting the money he needs to build a new
plant out m the suburbs where the people are who buy the cars. But
if he has financial problems, he may come to the company and say, I
need some financial help in financing this. Now, what the company
does — and I am trying to get a definition of "company store" out of
this, or manufacturer's store — what the company says is that if you
need this money, we will lend you the money, as I understand it, until
you can pay it back.
Now, we heard a great deal yesterday about 10-percent capital and
100-percent control. There is nothing to prevent the dealer who owns
90 percent of his business really from going to a bank, borrowing the
money, if he doesn't already have it, and paying off the 10 percent.
The problem is once a manufacturer makes a loan, he wants to make
sure that in a very intensely competitive business, that this business
is going to be a success and that he gets his money back. His object
is not to spread out in a series of company- or manufacturer-owned
retail dealerships all over the country. His objective is to keep a
healthy dealer organization going and to keep it as wholly owned
and as independent as it is humanly possible to do it. So this is really
the problem as I have understood it and I have talked to a lot of dealers
as well as a lot of manufacturers.
The great majority of dealers don't have these problems because they
have been successful. They own their stores. They are independent.
They make all the decisions and the factory doesn't enter into it at
all and this is what all producers would like to have. They made a
deliberate decision to market and retail through independent, inde-
pendently owned dealerships throughout the Nation.
Senator Nelson. Well, we will submit the question on that. I
wouldn't be thinking of the situation in downtown Manhattan but of
the situation, if it does exist, of establishing an outlet in competition.
I don't know whether that exists. That was my understanding from
the testimony. I am aware it does exist in the tire outlets.
Mr. Mann. I am sure the companies whose practices differ so much
would be happy individually to give you any information you want
on this.
Mr. Watts. Mr. Chairman, might I make a suggestion on that
point? I wonder if Mr. Mann would convey to the passenger car mem-
ber companies a request that each of them submit a list, by names and
addresses, of their dealerships in the five boroughs of the city of New
York and indicate what the percentage of corporate ownership of each
of them is.
Mr. Mann. I will be happy to submit that to them.
Mr. Duffy. Mr. Mann, if I may just confirm for a moment some-
thing you said, up until several months ago I lived in Manhattan. I
was one of those unfortunate people who paid about $95 a month just
to keep my car in a garage. I lived on the East Side and I guess the
nearest service facilities within Manhattan was one of these dealer-
ships we are talking about on the West Side. So as a user living in
the city, I appreciate very much the fact that there was at least some-
thing there I could go to and I didn't have to drive out into Queens
480
or Brooklyn or somewhere. I don't know, of course, whether this is
true in any other place but Manhattan. That is just my experience.
Mr. Mann. Thank you, sir.
Mr. HousMAN. Mr. Chairman, I should like to comment on the
dealer development plan also. I was given to undei-stand that there
were about 600 dealer development operations throughout the United
States.
Senator Nelson. Dealer development ?
Mr. HousMAN. We heard yesterday from Mr. Cohen and from Mr.
Hammond that there were approximately 600 in one category. That
was dealer development, that is company owned. And it is my under-
standing that where the dealer comes in to run the dealer development
operation, that he has to pay his way out, out of the profits generated
through that operation. He cannot go to a bank and borrow the money
and pay off his obligation to the manufacturer. The money must come
out of his profits and there are no profits.
Furthermore, you take Manhattan. I recall my distributor in New
York complaining that when Mustangs came out, the New York opera-
tion, that is, the dealer development operation, advertised that they
had 240-odd Mustangs for sale, advertised in all the newspapers, and
there wasn't a Ford dealership in the vicinity or even as far as New
Jersey that had a Mustang on his floor to be sold.
I should also like to comment on Mr. Mann's remarks to the effect
that he represents 10 of the manufacturers, automobile manufacturers,
in the country. He implies that these manufacturers are so big and so
successful that they are beyond competition. In other words, that the
independent is not able to compete with OEM. Tliat is definitely not
so. On an equal basis, independents are well able to compete with
OEM, but not if OEM is going to apply pressures and is going to
apply coercions on the dealerships and is going to threaten dealerships
that if they buy an independent radio or another accessory that they
will be cut off from either hot cars or their warranty services will not
be taken care of. In one instance, one of our dealerships working
through one of our distributors, testified that he had to hide radios in
the dirt barrel for fear that the agent for the automobile manufacturer
would punish him and take punitive measures against him.
If the manufacturer is going to use his excessive profits that he de-
rives from the sale of automobiles or the sale of accessories at high,
excessive prices, and utilize those profits to sell cars to the fleets and
to the car rental agencies at $400 and $500 below the dealer cost, where
is competition ? This was testified to yesterday by Mr. Cohen and Mr.
Hammond.
If OEM is going to subsidize all of its losses through these excessive
profits and not expose these profits, the independent trying to operate
in the free enterprise system is at a very serious disadvantage.
Mr. Duffy. Mr. Housman, may I interrupt you for a moment if I
could, please. I note here on page 4 of your appendix the following
statement :
Automatic remains a competitor in the custom automobile radio field only by
subsidizing its continued presence therein on the basis of profits made in its
other lines.
I am confused quite frankly. Are you saying here that you may be
taking a loss on one or tAvo particular items and subsidizing this loss
from profits in other areas?
481
Mr. HousMAN. Where is that statement, sir?
Mr. Duffy. Page 4 of your appendix. And maybe I misinterpreted
this, but is this not exactly what you have just told us the automobile
companies were doing?
Mr. HousMAN. May I read
Mr. Duffy. It is about seven or eight luies up from tlie bottom on
page 4, the sentence begins "Automatic * * *"
Mr. HousMAN (interrupting). "Only by subsidizing its continued
presence therein on the basis of profits made in its other lines."
That is correct, sir. If Automatic Radio Co., had to continue its
business on custom automobile radios as such, as we did in the early
years, in the fifties and early sixties, we would have gone the same
way as Peptone, as Soundex, as Tenna, as Bendix. We would have
been bankrupt today. But fortunately we were able to latch onto
diversified items.
Mr. Duffy. If I may, I think we are getting a little far afield in
my question. I think you said — now, if I am wrong, I would appre-
ciate your shownng me — that the automobile companies were doing
this as well.
Mr. HousMAN. No. I am talking about Automatic Radio.
Mr. Duffy. Yes. I realize that but didn't you just say before I de-
veloped this particular statement that the automobile companies were
in essence doing the same thing ?
Mr. HousMAN. No, no. They were using their excessive profits. They
were not using other items to subsidize their losses but they were using
the excessive profits they are making on radios and accessories and the
sale of their automobiles to subsidize these losses like giving $400 and
$500 away to the fleet owners.
Mr. Duffy. Somehow I am really getting even more confused. It
seems to me that automobile companies may not subsidize losses in one
field through profits made in another. Is that essentially what you are
telling me ?
Mr. HousMAN. In doing so, in subsidizing these losses over here, they
are using these excessive profits and they are competing with the inde-
pendents to the point where independents can not compete against
them.
Mr. Duffy. I think I understand that a little better. IVIaybe I can
understand your statement a little bit more. Now, you say that you are
likewise subsidizing your losses in the custom radio field by profits
made in other lines, is that correct?
Mr. HousMAN. On the overall manufacturing of our company, we
are losing money on custom automobile radios and we have been losing
and we are subsidizing those losses by reason of the fact that we are
in other fields wherein we are making a profit.
Mr. Duffy. Mr. Housman, w ould I be unnecessarily oversimplifying
this if I said that reduced to its simplest terms, we are saying that you
subsidize losses in one product line through profits made in another?
Mr. Housman. Not necessarily so.
Mr. Duffy. Well, I submit that you are both doin^ it and I don't
understand why it is wrong for automobile companies to do it and
not for Automatic to do it. Perhaps you could explain this to me.
Mr. Housman. ^¥i\en an automobile manufacturer— I simply want
to state, sir, that in the same field, if we were manufacturing radios
482
'
and we were making a huge profit on one radio in tlie same field, and
then we were losing money on another radio, that would be legitimate.
That would be legitimate because the profits gained through the man-
ufacture of one item over the other is accounted for in the overall
manufacturing profits against losses over here. But I am pleading the
cause that the car manufacturers are able to use their excessive profits
to compete unfairly, illegally, against the independent manufacturer
on these low end items.
Mr. Watts. Mr. Duffy, without trying to take sides on these mat-
ters but just to indicate a possible point of view here, I would like to
comment. You asked Mr. Housman what is the difference between, say,
GM or Ford Motor Co. or Chrysler subsidizing one line which is not
profitable by large profits made in another, when Mr. Housman admits
on the face of his statement that he is doing the same thing. I would
suggest two possible answers to that question. One is the great differ-
ence in the size and power of the big three of the automobile industry
on the one hand and of Automatic Radio on the other. The other is
the extent to which its information about the practice is ascertainable.
Now, in that connection I would like to go back to Mr. Mann's
statement
Mr. Duffy. Excuse me, Mr. Watts, if I may, is Senator Nelson
scheduled to return ?
Mr. Watts. He stepped out very briefly for an errand. He is due back
momentarily. Incidentally, he asked me to take this matter up before
he left. Were you finished, because I want to get back-
Mr. Duffy. I am essentially finished except to say that quite frankly,
without going back and studying these answers that you have given
us and taking a further look at it, I am still somewhat confused as to
why in essence the same — I think we did agree it was not an over-
simplification before — why the same practice can be wrong in one in-
stance and not in another.
Mr. Housman. These are not the same practices. I brought out the
fact that the automobile manufacturers are taking a — almost a similar
radio and they are getting a fantastically high price for that radio and
using that money to compete with the independents on their low ends,
driving the independents out of business where we cannot compete
against them.
Furthermore, the pressures that they apply to their dealerships on
top of this make it impossible for the independent to sell to tlie dealer-
ships, make our operation very unprofitable, in fact, it is at a loss,^
with the result that I mentioned to you before, that everyone in the
independent field excepting Automatic Radio has gone out of business
in that field. We are appealing over here for the committee's attention.
Mr. Duffy. Mr. Housman, it apj^ears your attorney wishes to con-
sult with you, therefore, I will yield to Mr. Watts.
Mr. Housman. It is true, we are doing it against our will. We have
no choice if we want to survive. OEM is doing it by choice and not
chance.
Mr. Watts. Mr. Housman, how much of the extent to wliich your
profits in one line, stereos, tape players, air conditioners, are subsidizing
your losses in another, is information that is accessible to your com-
petitors through your annual reports and through the rei)orts that you
483
file witli the Securities and Exchange Commission ? Is that not to some
extent ascertainable?
Mr. HousMAN. More or less.
Mr. Watts. To what extent is the information about tlie practices
of the automobile companies ascertainable from their annual reports?
Mr. HousMAN. It is not ascertainable.
Mr. Watts. That gets us back to this philosophical question that Mr.
Mann raised in his statement. He said disclosure of detailed financial
data by a company would enble competitors to determine its points of
weakness and strengths, exploiting the weakness and avoiding the
strengths.
Xow, it seems arguable at least that this may be precisely what free
enterprise competition requires, information, so that weaknesses can
be exploited and thereby corrected through the competitive process.
The question I would like to leave with Mr. Mann, as a question to
answer now or later, is w^hethcr there isn't something terribly one-
sided about this system in which automobile manufacturers get monthly
statements from their dealer establishments but will not even disclose
group, much less divisional financial accounts to their own competitors.
It would seem to me, if I w^ere a dealer I might feel that, in the interests
of simple equity, since I have to give a monthly financial statement
4 pages long — in the case of Chrysler — that I ought to be entitled to
equal establishment-level data, not division-level or group-level data
but establishment-level data comparable to that which is being taken
from me by competitor-supplier. Would you care to comment on that?
Mr. Mann. I would like to comment on that more in detail in writ-
ing later but I will point out now one difference. When you ask a corn-
pany to make public its divisional data or its unit costs to its competi-
tor, you are having one effect in my opinion on the competitive process.
The difference between the manufacturer asking data of a dealer is that
they are not competitors. They don't really compete with each other.
Now, that is the obvious first question and you are going to come back
and say, iDut the manufacturers are in the dealer business, and this is
what the data you have asked for will give you.
Now, obviously, if you were turning over one dealer's cost data to his
competitors down the street, you would have a situation comparable
to asking one manufacturer to turn over his cost data to his competitor
down the street.
Mr. Watts. At one point in your statement you asked whether we
wouldn't propose the same rules for all industries and all companies.
I don't presume to speak for the chairman or the committee ; but, for
myself, I would suggest the possibility that perhaps we don't need the
s;une rules for all industries and all companies. We have many indus-
tries which operate uiider highly specialized rules— the air transporta-
tion industry, the rail industi-y, the banking industry. We also have
different rules, under the Small Business Act, for different sizes of
companies. So it seems to me at least conceivable that at some point
we might reach a stage where we are going to have different rules for
companies with sales of $250 million a year or a billion dollars a year,
special rules that don't apply to companies with smaller sales.
Mr. LuNTZ. Mr. Watts, might I just interject. If I recall correctly,
it was Alfred Sloan, former head of General Motors, who a great
number of years ago, recognizing that many dealers would have more
484
profitable operations if they had advice — this was in the early days —
and he began a policy of suggesting that dealers consult with the com-
pany on some of their problems. This was done during the days of the
depression, if I recall, to assist the dealerships, and in fairness to thd
industry and Mr. Mann, this was not intended for purpose of prying.
They were indeed trying to perform a service for the dealer and at that
point in time it was a beneficial thing.
Mr. Watts. Is it still a beneficial thing ?
Mr. LuNTZ. This is a matter for review, possibly.
Mr. Mann. Mr. Watts, it would help me to prepare my answer in
writing if you could explain to me how the public interest would be
served — precisely how it would be served.
We know what the disadvantages are and the risks are. But what
is the public gain aside from the idle curiosity that people have about
things? What is to be gained from breaking down a tradition that has
applied in every country in the world from the beginning of the exist-
ence of corporations, that internal company data which will give com-
petitors clues as to how they are able to reduce costs, what their cost
accounting procedures are, how they are able to compete, the effect of
revealing that, all that kind of infonnation, on individual incentive^ —
now, this is all known in economic theory. It has been recognized for
many years by everybody. Now, against those disadvantages, what
precise advantages to the public, to the consumer, would be derived
by going into a corporation — and I really don't agree with you that
there ought to be one rule for somebody who has more than a certain
sale and another rule for somebody who doesn't, but aside from that —
what would be gained by doing what you suggest, concretely ?
Mr. Watts. Well, there are two classes of persons who might benefit.
Three classes. The first class is the class with which the Securities and
Exchange Commission is concerned in its proposed regulation with
which I am sure you are quite familiar.
Mr. Mann. There is no arguments on that.
Mr. Watts. The investor class.
Mr. Mann. Disclosure for the investor. I understand that very well
and the companies may have views on how much the investor needs to
know, but certainly, the principle is accepted. This I understand. But
this will be taken care of by the SEC, assuming it does its job, right ?
Mr. Watts. Well, it will be assuming it does its job and assuming
the admittedly immensely thorny questions of costs and benefits can
be resolved. Now, sooner or later the SEC will promulgate a rule, which
won't make everybody happy, or they won't promulgate one, which
will also make a lot of people unhappy.
The second class is the competitor and the competitive process, which
benefits the consumer. Now, I offer this not as a conclusion, sir, but as
a hypothesis. Suppose that a certain division of one of the five hirgest
corporations in the world is operating year in and year out at a profit
of 130 percent on invested capital, while another division is operating
at a profit of minus 2 percent on invested capital. I don't know whether
that is true or not, but if it were true, if it were known, first of all, the
figures involved, the amount of dollars involved, if the company ^yero
GM, might l>e the size of the agricultural ]>rogram of the American
people. Secondly, the competition. This would be a^
485
Mr. Mann. We have to really be precise on what we arc talking!:
about. A minute ago you were talking about sales. But now you are
talking about net profits on investment, I presume. If you look at For-
tune magazine's list of the 500 largest U.S. industrial corporations,
wc shall be talking a lot about profit and I don't want to take up the
committee's time but I have got a lot to say about profit, but GM ranks
ill 1968 No, 53 in the list of the largest 500 corporations, not first^ — 58d.
Ford is ranked 204th in the list of 500 largest. Chrysler is ranked
as 140th in that list of 500. American Motors, which is one of the 500
largest corporations in the land, ranks 454.
Mr. Watts. Mr. Mann
Mr. Mann. I am just saying that there is something that strikes me
as wrong about delivering one fellow a competitive advantage over
another unless we are very clear what social purpose or what economic
purpose or what political purpose is going to be served by it.
Mr. Watts. In one sentence, the social purpose that is going to be
served is more effective and vigorous competition.
Mr. Arkus-Duntov. May I say a few words.
Mr. Duffy. May I ask that you yield a moment ? We began this line
of questioning on the assvmiption that Mr. Housman was required to
disclose the fact that he was losing money on a particular line and
subsidizing it by profits from other lines. Now, I have here a copy of
the prospectus which is only part of the registration statement for a
securities issue for Automatic Radio. I have looked through this very
closely to determine whether there is such a disclosure. Also I have
checked the financial statements and I note that there is none. So I
would like to clear up the record on at least that point, that one of our
initial assumptions was perhaps not as valid as we might have hoj^ed.
Would you like to take a look at this? I will be happy to let you take a
look at it.
Mr. Watts. I think the chairman has another commitment and
would like us to terminate this discussion. Is that correct, sir?
Mr. Housman. Mr. Chairman, before you conclude, may I mention
that I appear here before the committee, asking the committee for their
assistance and asking for the assistance of the Department of Justice.
We are in no different category than the Big Three, the OEM. I read
from a Japanese newspaper dated December 13, 1968, as follows :
Ford noted that Japanese cars were doing well in the American market. The
Japanese made Toyota is third in the import sales and American companies
would like to invest in Japanese firms.
From Mr. Ford, but there is no reciprocity. That is what we are
upset about, Mr. Ford said: They are just not reasonable and they are
going to find themselves in trouble in this country. They are going to
see a lot of acts by Congress.
Now, here OEM wants protection for their survival in the foreign
countries. We are asking your help for survival in this country in the
free enterprise system for us to continue, and when I say us, I am re-
ferring to tens of thousands of accessory automobile manufacturei"S
who want to continue in business here in the United States.
Senator Nelson. Mr. Arkus-Duntov?
Mr. Arkus-Duntov. Yes. I just want to say a few words because
I do represent investors and for the last 10 years, have been working in
the field of investment management. In my experience, secrecy sur-
486
rounding corporate reporting is very rarely justified for competitive
reasons. I am afraid that it has been used because the trend has always
been for corporations to refuse to divulge data on their operations,
whereas investors, SEC, and other public agencies, pressed for more
detailed information on the companies operations. No companies seem
to have been damaged so far by disclosing data to the investors or
other agencies on their operations.
In Europe corporate secrecy has been traditional, but this trend has
changed in the last few years. The more successful corporations, in
fact, have been publishing reports similar to ours. Again, there has been
no problem from the competitive point of view. My suspicion is that
divisional reporting takes away from the management some of its con-
trol because, once data becomes available, the public can better evaluate
management's performance, and can force them to correct mistakes,
which would otherwise remain hidden. If we are concerned with effi-
cient utilization of resources, I think there is something to be said for
additional public control over giant corporations. It is now impossible
to decide whether it is efficient for GM to have to diesel locomotive
division or not. Chances are that, without divisional breakdowns, this
division will continue to operate, regardless of whether or not it is
efficient. The management of big corporations usually have control
without actual ownership. There is certainly something to be said for
investors and the public having some control over their operations. I
think that unless they can prove that divisional reporting damages
them competitively, they should be required to do so. On the other
hand, if they can prove that divisional reporting is harmful, then it
should be waived. In some instances, disclosure of operational data
really might do damage, but, let us not assume so.
Senator Nelson. Maybe I do not understand something here. If
Chevrolet belonged to somebody else, if all they produced was the
Chevrolet, they would be doing divisional reporting, in effect, would
they not ?
Mr. Arkus-Duntov. Yes.
Senator Nelson. So every corporation that produces one product
is doing divisional reporting.
Mr. Arkus-Duntov. Right.
Senator Nelson. Why would it hurt GM to do divisional reporting?
Mr. Arkus-Duntov. You see, what we call the "conglomerate,"
which has now become a fashionable word, came into existence some
time ago; they are corporations which operate in a variety of fields.
GM is a conglomerate, although its primary operation is in the auto-
motive field. If a company produces only one product, disclosure
does not seem to hurt it. If it produces a variety of products, divisional
reporting should not hurt them either. I think that it is really a
question of control rather than cojnpetitive reasons which make them
reluctant.
Senator Nelson. Why would it be a disadvantage for GM to report,
when in fact all companies that do make one product do report divi-
sionally and still compete in the competitive economy? AYhat is the
difference between GM and the others? Do you want to comment on
this, Mr. Mann?
Mr. Mann. I would not w^ant this to be my final answer on this. I
have not yet seen any good purpose seen by divulging it. And I can
487
easily see the risks. Let me say one thing, Senator, that General Motoi-s
is not a collection of independently operating companies. It is a liighly
integrated company. It has a common research facility, for example.
It has common proving grounds. I do not know a great deal about the
internal workings of GM, probably not as much as maybe you do, Mr.
Chairman, but I do know from what I have seen that Fisher Body
makes bodies for a number of different makes. This is what the com-
panies refer to when they talk about the lack of comi>arability of cost
(lata. Now, w^e both know that cost accounting is really not for the pur-
pose of determining unit costs or divisional things. It is for the purpose
of keeping costs down. That is w-hy it is called cost accounting. And
I do not say that you could not develop a new additional set of book-
keeping to do what you say would be a difficult thing to do, but I sup-
pose if Congress were to pass laws that everybody had to have the same
accounting system, it would be an expensive thing to do and a tedious
thing to do. It would involve many subjective judgments. How do you
allocate to these general services that a particular division may get
from the larger organizations ? These are all subjective and they will
always be subject to a margin of error, I presume. But I guess this is
not impossible to do. It is a very difficult thing to do, to say the least.
It is about the same thing as a football team. If you were to go to
Mr. Lombardi, if you were the opposite coach of the other team, and
say : "I want each one of your plays in advance, I want the blocking
assignments of each one of your guys," I would think that that would
give your team a certain advantage. And I would think that when you
get into something that we have never, in any countr}^ in the Avorld —
and this includes Europe. They are far behind us in disclosure of data,
in fact, I helped to get disclosure of data some years ago over there.
But the consequences, known and unknown, in tenns of incentives and
things of this kind, in just opening up internal data, seems to me to be
very obvious from an economic standix)int.
Now
Senator Nelson. I do not see how you distinguish that. If the
Chevrolet division reported on their products individually, how is
that any different from a company that manufa<itures just one automo-
bile and reports in effect divisionally ? How does that differ?
Mr. Mann. One difference is that there is no — the books are not kept
that way.
Senator Nelson. Well, they can change the books.
Mr. Mann. I do not deny that. But it still would not tell you very
much, Mr. Chairman, unless everybody kept them the same way. '
Mr. Arkus-Duntov. Could I say a word? I think Mr. Mann is
mistaken. In fact, internal books are kept this way because no major
corporation, with several divisions, could afford not to keep control of
each division and not to allocate properly the overhead, technical re-
search, general office expenses, etc. So the data are available. The ques-
tion is only whether this data will be disclosed. Without this data, there
would be no control within the corporation,
Mr. Duffy. Does that data that is kept by corporations conform to
the requirements that the IKS maintains for intercorporate transaxj-
tions?
Mr. Arkus-Duntov. Let me point out that we frequently have two
types of accounting. One is lES accounting, the other one is accounting
for the investors. They are not the same.
488
Mr. Duffy. The point I am trying to make here is that even within
the accounting profession there are substantial differences of opinion
as to how to go about this.
Mr. Arkus-Duntov. Well, I think it is not so much a question of
how to go about it, because the problem of accounting is always a
matter of opinion.
Mr. Duffy. Certainly the Government with its IRS does not agree
with our accounting profession and for that matter the SEC does not
agree with either of them.
Mr. Arkus-Duntov. What we need for public disclosure is some
consistent type of accounting. Companies have different types of ac-
counting and many, such as airlines, use two types of accounting — one
for taxes, one for books ; one if they are subsidized and another if they
are not.
Mr, Duffy. If we had a regulating agency we would have four.
Mr. Arkus-Duntov. But all you need is to have consistency because,
if you have it, it is not important what system you use. If it is con-
sistent it will show the variation from year to year, and allow you to
judge what the individual divisions of the corporations are doing. It
may show that certain divisions are always in the black and some are
always in the red. So, really, the type of accounting is not such an im-
portant matter. I know that since the conglomerates are under pressure
for divisional reporting, various accounting techniques have been pro-
posed. The difference in techniques does not matter. If a decision is
made that divisional reporting should be required and incidentally,
some corporations have already done so, then a satisfactory system will
be adopted. Accounting of Standard Oil of New Jersey and Texaco, I
am sure, are quite different. There is probably little comparison be-
tween the two. Still, you can form a judgment on the company as long
as their accounting techniques do not change.
Senator Nelson. I thmk we will bring this to a conclusion.
Mr. Mann did raise a question of what purpose would be served. I
think the purpose is that, when we get into tremendously powerful
business corporations, economic groups of every kind, a public service
is performed by the public's understanding what they are doing.
Now, General Motors produces over 50 percent of all the cars in this
country and we will always have the problem, whether it is valid or
not, that monopoly questions are raised and monopolies are considered
not to be in the public interest. If they are monopolistic enough, such
as power companies, we regulate them. We set the profit rate and reg-
ulate them, decide how much they can charge, and so forth. So that is
the question that is really raised here. When you get into an industry as
big as this one, where over 50 percent is controlled by one company
and another 47 percent by two others, there is a public interest in know-
ing what is going on. I think that is the issue raised.
Mr. HousMAN. Mr. Chairman, Mr. Mann raised the question, which
leads us to believe that all the operation of Greneral Motors are inte-
grated. They have the same proving grounds, and so forth. You will
find if you will check into the General Motors setup that each division
is separate. There is a division of Buick and Pontiac and Chevrolet
and Oldsmobile and Cadillac and there is no integration there what-
soever. Each one manufactures its own product under its own super-
vision. Each one has its own engineering and in fact they compete
489
with one another and I am sure that the profit picture and the opera-
tional picture is known by each divisionally. General Motors being the
overall, being the father of them all, they will get all of these reports
and they will be able to submit _a consolidated report, but you can rest
assured that they are individually controlled and mdividually
operated.
Now, Mr. Mann also mentioned what purpose is served so far as the
public is concerned. He mentioned the public — ^the investor of General
Motors. How about the investor of the individual dealerships. They
also have investors. They also have an interest in this. And if General
Motors or Ford or Chrysler is going to have their dealer development
organizaJtions competing with the independent 27 odd thousand deal-
erships, the dealerships should know what is going on and they should
not be put at a disadvantage or reporting to OEM and OEM holding
them in serfdom, I will mention that word again.
Senator Nelson. Thank you.
Mr. Mann. Mr. Chairman, we will try to give you the information.
Senajtor Nelson. Fine. I want to thank all of you for taking the time
to come here today. It has been a very thoughtful contribution by each
of you and we appreciaite your coming.
Mr. Mann. Thank you, Mr. Chairman.
Senator Nelson. We will convene again tomorrow morning at 9
o'clock.
(Whereupon, at 12 :50 p.m., the hearing was recessed, to reconvene
at 9 a.m., Friday, July 11, 1969.)
THE ROLE OF GIANT CORPORATIONS IN THE
AMERICAN AND WORLD ECONOMIES: AUTOMOBILE
INDUSTRY— 1969
FRIDAY, JULY 11, 1969
U.S. Senate,
Subcommittee on Monopoly of the Select
Committee on Small Business,
Washington^ D.O.
The subcommittee met, pursuant to recess, at 9 : 20 a.m., in room
G-308, New Senate Office Building, Senator Gaylord Nelson (chair-
man of the subcommittee) presiding.
Present : Senators Nelson, and Dole.
Also present : Chester H. Smith, staff director and general counsel ;
Raymond D. Watts, counsel; and James P. Duffy III, minority
counsel.
Senator Nelson. We will resume our hearings at this time. Our first
witness this morning is Prof. Mark B. Schupack, associate professor
of economics, Department of Economics, Brown University. Our sec-
ond witness will be Prof. Neil H. Jacoby. Our third witness will be
Mr. Alan S. Boyd, and our fourth witness will be Prof. Douglas F.
Dowd.
We are happy to have any of the witnesses comment on the testi-
mony of any of the other witnesses. You may present your testimony
in any way your desire. The committee is very pleased to have you
here this morning, Professor Schupack. Please proceed to present your
statement as you desire.
(A biographical note on Professor Schupack follows:)
Biographical Note
MarTc B. Schupack, Associate Professor of Economics, Department of Eco-
nomics, Brown University, Providence, Rhode Island 02912, is a graduate of the
Massachusetts Institute of Technology (B.S., Industrial Engineering, 1953) who
also holds the M.A. and Ph. D. degrees of Princeton, in economics. He was a Barr
Fellow at Princeton University during 1956-1959. He has worked as an industrial
engineer for Sylvania Electric Products and served as a lieutenant in the U.S. Air
Force in Japan in 1954-1956. Dr. Schupack joined the faculty of Brown as an
instructor in 1959 and served successively as assistant professor and associate
professor. He is currently acting chairman of the Economics Department. He has
also served as a consultant to the RAND Corporation, Santa Barhara, California ;
to the Providence, R.I. Community Action Organization, Progress for Providence,
Inc. ; and to the Study Commission for Education, State of Rhode Island. In
1964-65 he was a Ford Foundation Faculty Fellow at the Econometric Institute,
Rotterdam, The Netherlands. He has been a member of the State of Rhode Island
Consumers' Council since 1966. Dr. Schupack contributed a paper to the .sub-
committees of the Senate Small Business Committee for the record of hearings
on "Planning, Regulation, and Competition : Automobile Industry— 1968." Among
his many other publications are Forecast of Nciv England's Machine Industry
in 1970 (vsrith J. L. Stein), Boston: Federal Reserve Bank, December 1959, 1970
(491)
492
Projection Report No. 11 ; and The Market Demand Facing Small Businesses in
Providence and Rhode Island, a report submitted to Progress for Providence,
Inc. in 1967.
STATEMENT OF MARK B. SCHUPACK, ASSOCIATE PROFESSOR OF
ECONOMICS, BROWN UNIVERSITY, PROVIDENCE, R.I.
Mr. ScHUPACK. Thank you, Senator Nelson.
Let me read most of my prepared statement, skipping over two or
three paragraphs, so I stay within the allotted time.
The free enterprise market system, when it works well, is the best
system yet devised for allocating the limited resources of society. By
working well, we mean that the competitive pressures of the market-
place force firms to allocate men, machines, and materials in a manner
which best serves society. Very roughly, the ideal competitive pres-
sures are those which allow the individual firms to exercise a niinimum
amount of arbitrary market power. If a firm is to stay in business the
range of decisions possible is severely circumscribed by market compe-
tition. All this has been discussed and reemphasized since Adam Smith
wrote about the benefits of the free market almost 200 years ago.
It is clear that ideal competition does not prevail in large sectors of
our society. A glance at the large number of industries with very high
concentration ratios will indicate that many goods are produced in
markets where the number of firms are few and the range of discre-
tionary behavior available to firms is very large. We cannot expect
decisions of the firm under these conditions to approximate what is
best for society. Some of the less-than-ideal behavior patterns which
can result from a concentrated industry were brought out in the 1968
hearings ^ before this committee.
Government policy should be aimed at restoring a suitable amount
of competitive pressures to concentrated industries. I personally reject
the apparent conclusion of Professor Galbraith's analysis in the 1967
hearings - before this committee that concentration will not be elimi-
nated so that we had best figure out ways to control concentrated indus-
tries. Allocation of resources is likely to be far more eflficient with
market forces operating than with some form of regulation. We have
been notoriously imsuccessful in our attempts to regulate industries.
We have traditionally relied on antitrust types of actions imple-
mented by the Justice Department and the FTC to correct departures
from useful competition. While the actions of these agencies have not
been totally ineffective, they have not proven adequate for the task.
Actions under the present institutional arrangements have been cum-
bersome, slow, and the weapons have not always been directed at the
proper targets. It is generally agreed among economists that actions
taken to correct market structure problems should move away from a
legalistic approach toward a procedure based on economic judgments
of the situation. We should be aiming for socially desirable markets,
not criminal prosecutions.
The most complete attempt to restructure our fight against poor
markets is contained in the White House Task Force Report on Anti-
1 "Planning, Regulation, and Competition : Automobile Industry — 1968." Hearings before
subcommittees of the Select Committee on Small Business, U.S. Senate, 90th Cong., second
sess.. July 10 and 2.3, 1968.
2 "Planning, Regulation, and Competition." Hearing before subcommittees of the Select
Committee on Small Business, U.S. Senate, 90th Cong., first sess., June 29, 1967.
493
trust Policy, popularly known as the "Neal report," which was com-
pleted on July 5, 1968, and released on May 21, 1969.^
Tvet me just briefly state what some of the recommendations of the
report are. Most people, I think, have seen some version of this report
since it was issued at the end of May.
The most important contribution of the report is the recognition
that old-established centers of concentration are very difficult to break
u}) under present procedures. They propose a new Industry Concentra-
tion Act which would provide the legal basis for treating existing in-
dustrial concentration. They set definite structural guidelines for the
iuiplementation of the act: Industries with four-firm concentration
ratios over 70 percent would be liable for actions and the ultimate goal
will be to have the market share of all firms below 15 percent. Imple-
mentation would take place through a special panel of district and cir-
cuit judges, called the special antitrust court. They would be ex-
clusively occupied in conducting deconcentration hearings. There are
no criminal penalties in the act. The court would be empowered to hire
and use economic and other experts as needed.
Senator Nelson. Are you saying that in that recommendation any
firm that had more than 15 percent of the market share would be
required to divest ?
Mr. ScHUPACK. No. I think that the primary provision implement-
ing the action would be the 70 percent four-firm concentration ratio.
Senator Nelson. What does that mean ?
Mr. ScHUPACK. That, over 70 percent of the — I presume assets, al-
though you can measure it by sales also — over 70 percent of the assets
are held by only four firms. In this case, and it obviously applies to
the automobile industry — ^the court would have the legal basis for
starting divestiture action. The goal of the divestuture action would
be to have no firm remaining with over 15 percent.
1 Senator Nelson. As that would apply to the automobile industry,
the Big Three would each have to divest themselves of something,
right?
Mr. ScHUPACK. That is correct.
Mr. DuEFY. Professor Schupack, if I might, why did you pick assets
as the test? It is tradition in my understanding of antitrust concepts to
talk in terms of percentage of market control. Assets may not mean
anything. You may not have any meaningful relationship between
assets and market control.
Mr. Schupack. I think in most cases the practical difference would
be very little. In order to have a large share of the market, you have to
have a large productive output. In the automobile industry the ratio
between assets and sales and sales would be relatively constant among
the three firms, I would guess. You have to have production line, you
have to have all the machines necessary to make a certain number of
Mr. Dtjffy. Moving a little further, would you confine the 70 per-
cent to a national market or regional markets? Supposing I have a firm
market around New York City but in terms of the national market I
that has 70 percent of the assets in the regional market, let us say the
have only 5 percent of the market.
3 This was reproduced among other places in ''Antitrust and Trade R%"la«on R^PO.'t-
No. 411," Special Supplement, pt. II, May 27, 1969. [See app. IX-B In Part lA of this
record. — Editor. ]
494
Mr. ScHUPACK. I think the Neal report meant the national market
but some of the key controversies in antitrust actions have been, which
markets do you mean.
Mr. Duffy. Precisely.
Mr. ScHUPACK. And the Neal report does not get into that contro-
versy. I think you must imply a national market from the report, the
least restrictive definition of 70 percent.
Mr. Duffy. You could have highly concentrated regional markets.
Mr. ScHUPACK. Absolutely.
Mr. Duffy. And not become involved.
Mr. ScHUPACK. The corner drugstore might have a virtual monop-
oly of the drug business in a radius of 10 miles which is the maximum
distance a person would go to find a drugstore.
Mr. Duffy. Would you then propose to maintain normal antitrust
concepts for the regional markets situation ? For instance, the regional
market around New York City involves some 25 or 30 million people,
involves a considerable amount of interstate commerce.
Mr. ScHUPACK. I think not. I think you are up to about page 8 of
my statement where I reject this kind of a guideline for taking action
but propose to substitute something else.
Mr. Duffy. All right.
Mr. ScHUPACK. Very briefly, the rest of the Neal report has to do
with a new type of merger act, changes in the Robinson-Patman Act,
changes in the patent laws, changes in our data collection procedures,
and certain minor things having to do with fair trade, income tax
incentive for mergers, and premerger notification. This first provision,
the Industry Concentration Act, I think is the one that is most im-
portant to what I would like to talk to this morning.
The effect of all these recommendations would be to provide a
sound economic basis for the effort to increase competition. There
should be consistent treatment of both old and potential concentra-
tions. The legal aspect of the procedure would be reduced by the
elimination of penalties. The whole process would be speeded up and
provisions made for following up the court action to see that com-
petition remains. There would be no need to determine how the con-
centration occurred or the intent of the parties. Only present markefc
conditions would be at issue.
Despite my complete agreement with both the thrust and specific
recommendations of the Neal report, I feel that there is one majort
deficiency which might be rectified bj^ adding to the report's proposals.
The proposed Concentrated Industries Act provides in section 3(c) :
Rather than quoting the whole thing, its content is, verj roughly, that
the court shall make use of whatever expert testimony it feels is desir-
able for its proceedings.
I judge that this arrangement would be inadequate for the task at
hand. It is too reminiscent of the present practices of the court and
regulatory agencies where individual experts are called upon to testify
using only their own personal experiences in the area and very limited
research facilities. Too often they are provided with incomplete or
incorrect data and have no means for improving the situation. Since
different individuals and groups of individuals are called upon for
different cases, there is no opportunity for developing a cumulative
and growing body of information and ideas about improving compe
495
tition which will be useful to courts or re^latory agencies. There
is no provision for providing a continuing discussion of the relevancy
of the structural guidelines for action proposed by the Neal report.
This is the question Mr. Duffy just brought up. There is no means
for experts to make independent judgment of the market situation and
to initiate action based upon that judgment. In short, the proposed
use of economic and other information, promises little improvement
over the present inefficient, piecemeal, and many times distorting
procedures.
I propose that a new ty[>e of agency be established, although it
might actually be placed within the Justice Department or the FTC.
It might be called the market evaluation group (MEG), the term
''group" indicating that its function would be primarily research and
analysis. It would be charged with continually reviewing competitive
market situations to discover conditions requiring action under the
laws proposed by the Neal report and to monitor the effects of past
decisions under these laws. All relevant talents will be assembled in
I a permanent organization : Economists, engineers, accountants, statis-
ticians, lawyers, and any others deemed necessary.
The MEG should have the power to evolve its own standards and
framework to be used for initiating action under the law. In other
words, I reject the 70 percent concentration ratios of universal reason-
able guidelines for initiating action. These more flexible and compre-
hensive standards could replace the rather simple structural guidelmes
proposed in the Neal report. For example, the Neal report recommends
that any decree issued, "shall not require that a firm take any steps
which such firm establishes would result in substantial loss of econo-
mies of scale." Evidence submitted in the 1968 hearings before this
committee indicated that one of the chief scale economies now present
in the automobile industry is represented by the large dealer networks
used for marketing cars. The economies of large networks come from
the practice of almost universal exclusive dealerships. If this can be
prevented, then this source of scale economies will be eliminated, and
an argument against deconcentration of the automobile industry re-
duced in force. The MEG should have the freedom to pursue argu-
ments and alternatives of this nature, which would lead ultimately to
very flexible criteria of satisfactory market structure and behavior.
The MEG should also have the power to subpoena from the firms
involved all necessary data for its investigations. It would probably be
necessary to formulate some rules of disclosure similar to those in
effect for the census, but the MEG must have the ability to bring to
, court all data which it would deem necessary to argue the case for
{ divestiture or other suggested remedies. Firms involved m highly
• concentrated industries will have to accept the fact that formerly
private information, such as cost data which could imply, for example,
scale economics, must now become public information." The rights to
; privacy would be lost when firms become involved in market situations
I which might be judged to be against the public interest. Data collected
I by the MEG could remain secret except as needed for court, arguments.
! *The appendix to this statement contains comments on a P^P^^rit ten by Professors
Burgess and Glahe of the University of Colorado using *">"« of the Ford cost data P^
llshed in the 1968 hearings. The main point of the comments l^ that the_ data as presented
which is much more than we have ever had. is stil 'ni^i'fflcient to infer anything a^out
pricing policies or market behavior. [The Burgess-Gahe paper referred t^and^I^o^sso^
Schuplcks comments thereon, appear in app. VI, in Part lA in this record.— u-ditor. j
496
Ideally it would be most effective if the MEG had the power not
only to collect the information and make the analysis leading to decon-
centration actions, but also had the power to initiate and implement
the actions. Under our present legal system most actions of such a
group would probably be challenged in court. Considering this, the
prosecution and implementation system outlined in the Neal report
looks like the best available alternative. However, one power should be
given to the MEG : The ability to force the Justice Department to
commence prosecution of a case based on the analysis provided by the
MEG. Senator Hart's statement entered as evidence in this committee's
1968 hearings ^ pointed out that antitrust action of any sort lacks a
constituency, and it needs one badly. Giving the MEG power to force
initiation of action against offending industries will provide some
measure of that constituency, such as State and Federal consumer
groups have provided it in other areas. If the MEG is to work in the
manner suggested, the place it is put within the Government organiza-
tional structure may be crucial in determining its aggressiveness and
effectiveness. It is suggested that the MEG be made as independent as
possible of existing groups where varied vested interests have been
established. Mr. Nader noted that the Antitrust Division policy toward
concentrated industry can be characterized in an attitude of saying :
We know we should proceed, but we do not feel we can.*
It is hoped that the appropriate institutional arrangement can be
made for the MEG so that this difficulty is avoided. Unfortunately^ as
Senator Hart remarked, "Congress has no stomach for demanding
action in this field." ^
It should be noted that some of the proposed duties of the MEG are
now being handled by groups within the Justice Department and the
FTC. No present group, however, provides the comprehensive con-
tinuing study envisioned here along with the freedom and powers that
MEG should have. The present groups are limited in their activities
and generally must concentrate on specific cases at issue.
The method of operation used by the MEG would essentially be
large cost -benefit type studies. This is approximately the methodology
envisioned when economists talk about workable competition. A usual
definition of workable competition is when no other alternative market
structure would yield more social benefits. The MEG would evaluate
alternative market arrangements until the most appropriate one was
devised, taking into account all factors involved in changing the
present industry structure. Most economists will readily admit that
we do not yet have a perfect framework within which we can conduct
the analysis. However, we will never get any closer to the target of
better market performance until we are willing to shoot in the general
direction of the target in the best way now available. Very useful cost-
benefit studies have been done on very complex projects where many
social as well as private costs and benefits were involved, for example,
the London subway system ^ and large river projects.® Surely we can
do meaningful studies on more narrow homogeneous industries.
B p. 396.
8 p. 427.
7 p. 396.
8 C. D. Foster and M. B. Beesley, "Estimating the Social Benefit of Constructing an
Underground Railway in London," "Journal of the Royal Statistical Society," series A,
126, 1963, 46-92.
•Roland McKean, "Eflaciency in Government Through Systems Analysis" (New York:
Wiley. 1958).
497
The creation of an MEG would help to rationalize the i^sue of cor-
porate secrecy. Surely we need to know more about individual finns
bcfoi-e sound judgments can be made about the presence or al>sence
of workable competition. But I think it would be very dangerous to
operate on the assumption that the Government has tlie right willy-
nilly to extract in open public hearing any information it desires alx>ut
:i firm. Some rights of privacy must prevail. Before a firm is forced to
yield information beyond that needed to protect investors (as is now
required by the SEC), it should be established that the public interest
re(i[uires that the particular information desired is needed. The MEG
would be an ideal group to decide what information is really needed
for proper analysis as opposed to information which might serve no
useful purpose except to embarrass the firm in a perhaps sensational
manner. If the attitudes displayed by the automobile industry when
dealing with this committee during the past few years are any indica-
tion of how they would cooperate with an MEG, then subpena powers
certainly are needed by the MEG and standards of privacy regarding
corporate data must change. However, unlimited and unwise access
to all of corporate data may result in publicity-seeking witch hunts
wliich can only harm the cause of improving industrial competition.
There are two theoretical matters which I talk about at the end, two
theoretical objections which my colleagues would raise to a group such
us the MEG. I feel neither of these objections are overriding and
neither outweight the benefits which an MEG would bring to us. Let
me read now just my last paragraph on page 12.
In summary, the market is the most useful resource allocation mech-
anism we have. It is better to make it work well than to give up and
regidate concentrated industries. The best way to make it work well is
to directly investigate and attack cases where it is apparently not
working. It is proposed here that the recommendations of the Neal
report alone with an additional investigatory organization can be im-
plemented to achieve the goal of reducing concentration and bettering
market performance.
Senator Nelson. Thank you very much, Mr. Schupack.
(Professor Schupack's prepared statement follows :)
Statement by Mark B. Schxtpack, Associate Professor of Economics,
Brown IJniversity
The free enterprise market system, when it works well, is the best system yet
devised for allocating the limited resources of society. By working well, we
mean that the competitive pressures of the marketplace force firms to allocate
men, machines, and materials in a manner which best serves society. Very roughly,
the ideal competitive pressures are those which allow the individual firms to
exercise a minimum amount of arbitrary market power. If a firm is to .stay in
business the range of decisions possible is severely cirtnimscribed by market com-
petition. All this has been discussed and reemphasized since Adam Smith wrote
about the benefits of the free market almost 200 years ago.
It is clear that ideal competition does not prevail in large sectors of our so-
ciety. A glance at the large number of industries with very high concentration
ratios will indicate that many goods are produced in markets where the number
of firms are few and the range of discretionary behavior available to firms is
very large. We cannot expect decisions of the firm under these conditions to ap-
proximate what is best for society. Some of the less-than-ideal behavior Pa^^rns
which can result from a concentrated industry were brought out in the I9b8
Hearings ^ before this committee.
1 Planning, Regulation, and Competition: Automobile ^"dustrv— 1968 Uwings before
Subcommittees of the Select Committee on Small Business, U.S. Senate. 90th Congress,
2d sess., 10 and 23 July 1968.
498
Government Policy should be aimed at restoring a suitable amount of competi-
tive pressures to concentrated industries. I personally reject the apparent con-
clusion of Professor Galbraith's analysis in the 1967 Hearings ^ before this com-
mittee that concentration will not be eliminated so that we had best figure out
ways to control concentrated industries. Allocation of resources is likely to be
far more eflicient with market forces operating than with some form of regula-
tion. We have been notoriously unsuccessful in our attempts to regulate indus-
tries.
We have traditionally relied on antitrust types of actions implemented by the
Justice Department and the FTC to correct departures from useful competition.
While the actions of these agencies have not been totally ineffective, they have
not proven adequate for the task. Actions under the present institutional arrange-
ments have been cumbersome, slow, and the weapons have not always been di-
rected at the proper targets. It is generally agreed among economists that actions
taken to correct market structure problems should move away from a legalistic
approach towards a procedure based on economic judgments of the situation. We
should be aiming for socially desirable markets, not criminal prosecutions.
The most complete attempt to restructure our fight against poor markets is
contained in the White House Task Force Report on Antitrust Policy, popularly
known as the Neal Report, which was completed on 5 July 1968 and released on
21 May 1969.' The main recommendations of that report can be stated briefly.
1. The most important contribution of the report is the recognition that old
established centers of concentration are very difficult to break up under present
procedures. They propose a new Industry Concentration Act which would provide
the legal basis for treating existing industrial concentration. They set definite
structural guide lines for the implementation of the Act: industries with four-
firm concentration ratios over 70% would be liable for actions and the ultimate
goal will be to have the market share of all firms below 15%. Implementation
would take place through a special panel of district and circuit judges, called
the special Antitrust Court. They would be exclusively occupied in conducting
deconcentration hearings. There are no criminal penalties in the Act. The Court
would be empowered to hire and use economic and other experts as needed.
2. A new Merger Act is proposed which would forbid merges among large firms
regardless of the industries in which each of the individual firms operate. The
aim is to expressly forbid conglomorate mergers which would result in large
concentrations of economic power in the merged firm.
3. The Robinson-Patman Act would be modified so that all competition-
increasing price discrimination will be allowed but all competition-.stifiing price
discrimination be forbidden. The actual wording changes to accomplish this
purpose become very complex.
4. The i>atent laws would be revised so that, if a firm chooses to license its
patent to one person, it must license it to all who desire to use it on comparable
terms.
5. Data collection should be improved so that published information will yield
more insights into market iierformance. The present limitations on disclosure
of information received from individual firms are recognized ; no change in them
is proposed.
6. Several other minor recommendations were made including eliminating the
basis for national fair-trade provisions, changes in the income tax laws to reduce
the incentive to merge, and providing for mandatory pre-merger notification.
The effect of all of these recommendations would be to provide a sound eco-
nomic basis for the effort to increase competition. There should be consistent
treatment of both old and potential concentrations. The legal aspect of the pro-
cedure would be reduced by the elimination of penalties. The whole process would
be speeded up and provisions made for following up the court action to see that
competition remains. There would be no need to determine how the concentration
occurred or the intent of the parties. Only present market conditions would be at
issue.
Despite my complete agreement with both the thrust and specific recom-
mendations of the Neal Report, I feel that there is one major deficiency which
might be rectified by adding to the Report's proposals. The proposed Concen-
trated Industries Act provides in section 3(c):
* Planning, Regulation, and Competition. Hearing before Subcommittees of the Select
Committee on Small Business, U.S. Senate, 90th Congress, 1st Session, 29 June 1967.
*This was reproduced among other places In Antitrust and Trade Regulation Report,
Number 411, Special Supplement, Part II. 27 May 1969.
499
"In any proceeding under this Act, the Special Antitrust Court may designate
one or more economists or other persons to serve as expert witnesses to be called
by the court. Such witness or witnesses (i) shall be furnished with all evidence
introduced by any party ; (ii) may offer additional evidence subject to objection
by any party ; (iii) shall offer analyses of the issues, with particular reference
to relevant markets; (iv) shall recommend appropriate provisions for decrees;
(v) shall be subject to cross-examination and rebuttal."
il judge that thi.s arrangement would be inadequate for the task at hand. It is
too reminiscent of the present practices of the Court and regulatory agencies
where individual experts are called upon to testify using only their own personal
experiences in the area and very limited research facilities. Too often they are
provided with incomplete or incorrect data and have no means for improving the
situation. Since different indiWduals and groups of individuals are called upon
for different cases, there is no opportunity for developing a cumulative and grow-
ing body of information and ideas about Improving competition which will be
useful to courts or regulatory agencies. There is no provision for providing a c-on-
tinuing discussion of the relevancy of the structural guidelines for action proi>osed
by the Neal Report. There is no means for experts to make independent judgment
of the market situation and to initiate action based upon that judgment. In short,
the proposed use of economic and other information promi-ses little improvement
over the present inefl5cient, piecemeal, and many times distorting procedures.
I propose that a new type of agency he established, although it might actually
be placed within the Justice Department or the FTC. It might be called the Market
Evaluation Group (MEG), the term 'group' indicating that its function would be
primarily research and analysis. It would be charged with continually reviewing
competitive market situations to discover conditions requiring action under the
laws proposed by the Neal Report and to monitor the effects of past decisions
under these laws. All relevant talents will be assembled in a permanent organiza-
tion : economists, engineers, accountants, statisticians, lawyers, and any others
deemed necessary.
The MEG should have the power to evolve its own standards and framework to
be used for initiating action under the law. These more flexible and comprehensive
standards could replace the rather simple .sitructural guidelines proposed in the
Neal Report. For example, the Neal Report recommends that any decree issued
"shall not require that a firm take any steps which such firm establishes would
result in substantial loss of economies of scale." Evidence submitted in the 1968
Hearings before this Committee indicated that one of the chief scale economies
now present in the automobile industry is represented by the large dealer networks
used for marketing cars. The economies of large networks come from the practice
of almost universal exclusive dealerships. If this can be prevented, then this source
of scale economies will be eliminated, and an argument against deconcentration
of the automobile industry reduced in force. The MEG should have the freedom
to pursue arguments and altematives of this nature, which would lead ultimately
to very flexible criteria of satisfactory market structure and behavior.
The MEG should also have the power to subpoena from the firms involved all
all necessary data for its inve.stigations. It would probably be necessary to formu-
late some rules of disclosure similar to those in effect for the census, but the MEG
must have the ability to bring to court all data which it would deem necessary to
argue the case for divestiture or other suggested remedies. Firms involved in
highly concentrated industries ^vill have to accept the fact that formerly private
information, such as cost data which could imply, e.g., scale economics, must now
become public information.^ The rights to privacy would be lost when firms become
involved in market situations which might be judged to he against the public
interest. Data collected hy the MEG could remain secret except as needed for court
arguments.
Ideally it would be most effective if the MEG had the r>ower not only to collect
the information and make the analysis leading to deconcentration actions, but
also had the power to initiate and implement the actions. T'nder our present
legal system most actions of such a group would probably be challenged in court-
Considering this, the prosecution and implementation system outlined in the Neal
Report looks like the best available alternative. However, one power should be
* The appendix to this statement contains comments on a paper written by Professors
Burgess and Glahe of the University of Colorado using some of the Ford cost data published
in the 1968 Hearings. The main point of the comments is that the data as presented, which
is much more than we liave ever had. is still insufficient to infer anything about pricing
policies or market behavior. [See Appendiix VI in Part lA of this record. — Editor. ]|
32-493 O - 69 - pt. 1-33
500
given to the MEG: the ability to force the Justice Department to commence
prosecution of a case based on the analysis provided by the MEG. Senator Hart's
statement entered as evidence in this Committee's 1968 Hearings^ pointed out
that antitrust action of any sort lacks a constituency, and it needs one badly. Giv-
ing the MEG power to force initiation of action against offending industries
will provide some measure of that constituency, such as state and federal con-
sumer groups have provided it in other areas. If the MEG is to work in the
manner suggested, the place it is put within the government organizational
structure may be crucial in determining its aggressiveness and effectiveness. It
is suggested that the MEG be made as independent as possible of existing groups
where varied ve.sted interests have been established. Mr. Nader noted the "Anti-
trust Division policy towards concentrated industry can be characterized in an
attitude of .saying 'We know we should proceed, but we do not feel we can.' " * It
is hoped that the appropriate institutional arrangement can be made for the
MEG so that this difficulty is avoided. Unfortunately, as Senator Hart remarked,
"Congress has shown no stomach for demanding action in this field." ''
It should be noted that some of the proposed duties of the MEG are now
being handled by groups within the Justice Department and the FTC. No present
group, however, provides the comprehensive continuing study envisione<l here
along with the freedom and powers that MEG should have. The present groups
are limited in their activities and generally must concentrate on specific cases
at issue.
The method of operation used by the MEG would essentially be large cost-bene-
fit type studies. This is approximately the methodology envisioned when econo-
mists talk about workable competition. A usual definition of workable competition
is when no other alternative market structure would yield more social benefits.
The MEG would evaluate alternative market arrangements until the most ap-
propriate one was devised, taking into account all factors involved in changing the
present industry structure. Most economists will readily admit that we do not
yet have a perfect framework within which we can conduct the analysis. How-
ever, we will never get any closer to the target of better market performance
until we are willing to shoot in the general direction of the target in the best
way now available. Very useful cost-benefit studies have been done on very com-
plex projects where many social as well as private costs and benefits were in-
volved, e.g., the London subway system ^ and large river projects." Surely we can
do meaningful studies on more narrow homogeneous industries.
Many of the problems with the automobile industry cited in earlier Hearings
before this committee would all be put into proper perspective if the industry
were studied in the MEG and subjected to the procedures recommended by the
Neal Report. Such industry facts as the enormous size and concentration of firms,
the combining of sales and financing operations, large dealer networks, coercion
of dealers to handle only one brand of car, price leadership, administered prices,
reluctance to introduce safety features or many new design improvements, poor
condition of delivered new cars, excessive and emotional advertising, etc., could
all be used by the MEG to develop a comprehensive picture of the nature of the
present market organization. These facts plus other information which the pres-
ent Committee has been unable to wrest from the automobile firms would serve
as a basis for suggesting alternative market structure which can better serve the
public.
The creation of an MEG would help to rationalize the issue of corporate se-
crecy. Surely we need to know more about individual firms before sound judg-
ments can be made about the presence or absence of workable competition. But I
think it would be very dangerous to oi)erate on the assumption that the govern-
ment has the right willy-nilly to extract in open public hearing any information
it desires about a firm. Some rights of privacy must prevail. Before a firm is
forced to yield information beyond that needed to protect investors (as required
by the SEC), it should be established that the public interest requires that the
particular information desired is needed. The MEG would be an ideal group to
decide what information is really needed for proper analysis as opposed to in-
B p. 396.
« P. 427.
■' P. 396.
*C. D. Foster and M. E. Beesley, "Estimating the Social Benefit of Constructing an
Underground Railway in London," Journal of the Royal Statistical Society, series A, 126,
1963, 46-92.
"Roland McKean, Efficiency in Oovernment Through Systems Analysis (New York:
Wiley, 1958).
501
formation which might serve no useful purpose except to embarrass the firm
in a perhaps sensational manner. If the attitudes displayed by the automobile
industry when dealing with this Committee during the past few years are any
indication of how they would co-operate with an MEG, then subpena powers
certainly are needed by the MEG and standards of privacy regarding corporate
data must change. However, unlimited and unwise access to all of corporate data
may result in publicity -seeking witch hunts which can only harm the cause of
improving industrial competition.
My theoretically oriented colleagues in the field of Economics might raise
two objections to my proposal for an MEG. Both these objections come from anal-
yses done in the field of welfare economics. The first problem invoves the so-called
theory of the second best" "Very roughly, the theory says that, if some indu.stries
in the economy cannot be made to achieve the conditions of perfect competition,
then it is not clear that it is best to make the indu.stries you are trying to change
approach closer to the ideal of i)erfect competition. This is the situation we face
when trying to devise policy action to change the market conditions in a con-
centrated industry. Some industries will still remain non-competitive ; then what
action do you use for the one you are trying to change? There is no theoretically
useful answer to this question. I shall assume that the MEG would do enough com-
putations to insure that any policy actions they propose would, in fact, improve
market performance and consumers' welfare. Consideration of the second best
problem would mean that MEG probably would not be able to devise methods of
achieving the absolute best performance, but it should be able to tell when it is
making things better instead of worse.
The second diflBculty is that it might be very diflScult to tell just what the gen-
eral public wants in order to maximize its collective welfare. It can be shown
mathematically that it may be impossible to construct a consistent statement of
preferences in which each individual has his proportionate voice. This has led
many economists to throw up their hands and despair of ever finding a guide to
what is best for the public interest. I think it is much more reasonable to adopt
the point of view proposed by Professor Rothenberg." He would let the political
institutions which are actually created be sufl5cient to reflect the desires of
society. In other words, the people willingly accept the kinds of political insti-
tutions needed to carry out the programs they desire. In the present case, this
means that Congress' setting up the institutions suggested in the Neal Report
and the MEG suggested here would be suflScient to imply that the public desires
a serious effort be made to increase industrial competition, and that the public
as a whole feels that its welfare will be increased if competition is increased. If
Congress fails to act on any of the many possible proposals for increasing compe-
tition, one must conclude, rather sadly, that the public concensus really favors
large concentrations of economic i)ower in monopolistic and oligopolistic indus-
tries. One can only hope that a decision in favor of industrial concentration
would reflect public ignorance or apathy on the issue, conditions which can be
corrected by future hearings of the sort being held here today.
In summary, the market is the most useful resource allocation mechanism we
have. It is better to make it work well than to give up and regulate concentrated
industries. The best way to make it work well is to directly investigate and attack
cases where it is apparently not working. It is proposed here that the recom-
mendations of the Neal Report alone with an additional investigatory organiza-
tion can be implemented to achieve the goal of reducing concentration and better-
ing market performance.
Senator Nelson. We will proceed to hear all the witnesses before we
get to questions. Probably that will be the most expeditious way to
present this.
Our next witness is Prof. Neil H. Jacoby, professor of the Graduate
School of Business Administration, University of Oalifomia.
Professor Jacoby, we are very pleased to have you here this morning.
Your statement will be printed in full in the record and you may
present it in any way you desire.
(A biographical note on Professor Jacoby follows :)
!« A good description of the problem is in O. A. Davis and A. B. Whinston, "Piecemeal
Policy in the Theory of the Second Best," Review of Economic Studies 34(3), July 1967,
323—331.
u Jerome Rothenberg. The Measurement of Social Welfare, (Englewood Cliffs : Pretttice-
Hall, 1961) . See especially Chapter 13, pp. 309-336.
502
Biographical Note
Neil H. Jacoby, Professor, Graduate School of Business Administration, Uni-
versity of California at Los Angeles, 405 Hilgard Ave., Los Angeles, California
90024, is currently on leave from his post in the graduate school, where he was
Dean from 1948-68, to serve as a "Visiting Fellow of the Center for the Study of
Democratic Institutions, Santa Barbara, California. An economist who has writ-
ten extensively on financial, monetary, and fiscal policy as well as on develop-
mental subjects. Dr. Jacoby, served as a member of President Eisenhower's
Council of Economic Advisers during 1953-55 and as United States Representa-
tive in the Economic and Social Council of the United Nations during 1957. He
has led economic missions to the Organization for Economic Coordination and
Development, India, and Laos, and during 1965 headed the mission to evaluate
the American economic aid program to Taiwan, Republic of China. Among his
recent books are U.S. Monetary Policy, U.S. Aid to Taiwan, and European Eco-
nomics— East and West. His widely noted article from the July 1969 issue of
The Center Magazine, "The Conglomerate Corporation," is reprinted in appendix
IX, in Part lA of this record. The Center for the Study of Democratic Institutions
has also published his recent essay, "The Progress of Peoples," as a Center
Occasional Paper, with a Center Discussion.
STATEMENT OF NEIL H. JACOBY, PROFESSOR OF BUSINESS ECO-
NOMICS AND POLICY, UNIVERSITY OF CALIFORNIA AT LOS
ANGELES, AND VISITING FELLOW, CENTER FOR THE STUDY OF
DEMOCRATIC INSTITUTIONS
Mr. Jacoby. Thank you, Senator Nelson, and gentlemen. I appre-
ciate this opportunity to present my views on the subject before the
committee.
I have submitted a written statement which is addressed to the gen-
eral relationships between corporate concentration and conglomeration,
on the one hand, and the vigor of competition, on the other.
However, I believe that the reader of this statement very readily will
see the applications of the principles set forth therein to the automobile
industry.
I shall not read my paper but rather try in the time allotted to point
to what seem to me the most important features about it.
Senator Nelson. Your paper will be printed in full in the record.
You may proceed.
Mr. Jacx>by. Thank you.
The main thrust of my paper is that a great deal of the current pub-
lic apprehension about corporate mergers and giantism and concentra-
tion and conglomeration, and their alleged threats to competition, are
either exaggerated or lack a factual or analytical foundation. I have
tried to identify nine propositions that command rather widespread
public support and belief today, which seem to me to be quite wrong.
The first error is that a great wave of corporate mergers is now
sweeping through the United States economy and will radically re-
structure the manufacturing sector if it is not arrested by the Federal
Government.
When we look at this notion in the light of history, we find that the
American experience has been that merger waves peak out after a few
years of hyper-activity. They do not continue indefinitely. My own
guess is that the present merger wave which reached an alltime peak
last year, 1968, may have already crested in terms of business assets
involved, although In 1969 the number of companies merging continues
to be rather high. There are two basic reasons for the cresting; first.
509
the fact that the antitrust authorities have intervened to stop mergers
of large companies ; secondly, and perhai>s even more importantly, the
sag in the stock market has not made it profitable for mergers to be put
through. The securities can't be sold to tlie public on favorable terms.
Another error is that big companies grow larger by merger. I have
pointed out that the Federal Trade Commission statistics themselves
show that, during the last 20 years, mergers accounted for only 19
percent (less than a fifth) of total asset growth, and less than 3 percent
for the 10 largest industrial companies which, of course, include three
of the auto comipanies. Internal growth is by far the preponderant
means by which big companies grow.
A third error is that American manufacturing has become much
more concentrated in recent years, with a consequent diminution of
competition. Now, I believe that the facts refute this proposition. The
Federal Trade Commission figures on concentration are open to rather
important modifications and revisions.
The most dramatic statement that has been widely publicized is that,
during the last 20 years, the 200 largest manuf acturmg companies have
raised their share of total manufacturing assets from 48 to some 58.7
percent. I w^ould like to point out that there may be a statistical trick
in these figures, which makes them measure the relative success of a
group of large enterprises rather than the trend of concentration. The
100 or the 200 largest firms at the end of a period will rather obviously
have grown faster than the corporate universe, and they will be a dif-
ferent group than the 100 or 200 largest at the beginning.
There are other faults in the statistics. A great many of our biggest
manufacturing firms have diversified into nonmanufacturing activ-
ities, such as services, and this may create an overstatement of their
share of total manufacturing assets. Still another statistical flaw in
these concentration figures is that they appear to include foreign sale.**
and assets of the large companies. Now, the giant companies are the
ones that have "gone international," as we fciow. If you purge the
sales and assets of these big companies of both their nonmanufacturing
components and their foreign components, you will probably get a very
different picture of the trends of concentration.
Senator Nelson. You haven't broken that down ?
Mr. Jacoby. I have not been able to do that, sir. It can be done
promptly, so that we get a true measure of trends in concentration. My
guess is that, when it is done, we will find that aggregate concentra-
tion, that is, the share of total assets held by the 100 or 200 larg:est
companies has not increased; and that market concentration — which
is the more important and relevant measure of the vigor of competi-
tion— will have decreased in the last 20 years. So I see nothing in
the figures to cause me concern. A case has not been made up to the
present time that concentration has increased in American manu-
facturing.
This is one other point I would like to make on concentration ratios.
In many industries in which there is active international trade in
manufactured commodities, such as autos, we should use global meas-
ures of concentration rather than national measures of concentration.
We are still thinking in a nationalistic strait jacket. Yet 10 percent of
the U.S. automarket is now supplied b}^ foreign manufacturers, and
we have a very low tariff on autos— I think 71/2 percent today on new
504
cars. We have a worldwide market. It would be desirable for the
FTC to supply us with some measures of global concentration. It is
obvious that the auto-industry today in a realistic sense is much less
concentrated than it was 20 years ago when the Big Three in Detroit
had the American market to themselves.
A fourth common error is the notion that, by their mere size and
alleged economic, power, the giant corporation "overawes" small busi-
ness, and either eradicates or deters entry into small business. The facts
belie this idea flatly. The relevant figure here is the Department of
Commerce's index of new business formations which in the year 1968 —
the year that witnessed a peak of mergers — stood at its alltime high
of 125 on a base of 1957 to 1959 equals 100. A record of 240,000 busi-
ness corporations were formed last year. The ratio of the business to
the human population of our country has been remarkably stable for
the last 40 years — about one enterprise for every 40 Americans. That
ratio has not diminished. There is every reason for believing that the
small business population has a fecundity and a vitality that today
is as great as it ever was. So the notion that the large corporation
is somehow deterring entry is not borne out by facts.
Another erroneous notion that because they possess a great deal
of market power, large corporations "administer" and "institutional-
ize" hi^h prices for their products. Any analysis of the behavior of
prices m the last decade will demonstrate the lack of truth in this
idea.
The prices of manufactured consumer durable goods rose 10 percent
or less in the last decade, and auto prices alone rose only 2 percent. In
contrast, the cost of home ownership went up some 31 percent, of all
services rose by 37 percent, and of medical services soared 60 percent.
A spot check of the components of the Consumer Price Index leads me
to conclude that the larger the producing firms the less has been the
increase in prices. We don't find our source of inflation in the manu-
factured products, which are typically produced by large corporations.
We find it among the services of the economy, where demand has been
expanding most rapidly.
A sixth error is that giant corporations possess such great economic
power that they can shape their own environment and are not disci-
plined by market composition. This is a theme presented by Prof. J. K.
Gralbraith before this committee in 1967. I would say that it is deci-
sively refuted by everything that we know about the rationale and the
processes of managing large American corporations. Corporate plan-
ning has not "replaced the market," to use Professor Galbraith's
phrase. Instead, if one looks carefully at the process of corporate plan-
ning, and there is ample literature on this subject, it is an effort by the
enterprise to react to market forces more sensitively and quickly than
would be possible without planning. Every big business predicates its
glans upon market-determined prices. The pricing studies of the auto
rms that were placed before this committee bear this out. For even
the largest firm, the market is the final arbiter, as General Motors
found with Corvair, Ford with Edsel, or Locklieed with Electra. All
of the product differentiation, advertising or selling effort in the world
did not change the market verdict.
905
If the large firm really had the power to persuade consumers to buy
whatever it made, why does it spend millions to market research to
find out what consumers want ?
Critics often say that the giant corporation has the power to "shape
national priorities." From the evidence I have examined, this allega-
tion lacks any substance whatever. The economic and political power
of General Motors, to take an example, is miniscule compared with the
power of the American people. General Motors reacts to the will of
consumers, as recorded in dollars spent in product markets. It reacts
to the will of voters, as recorded in election booths and legislatures.
General Motors, for example, was compelled by public disfavor to stop
producing the Corvair, The auto firms were compelled by Federal and
htate legislation to meet higher safety and air pollution standards.
They couldn't shape the environment. They had to respond to an en-
vironment that was made for them.
The auto manufacturers responded to the demands of the public for
annual models and for high performance in vehicles. If Americans
generally want stable styles rather than shifting styles, and if they
want longer life rather than high performance cars, auto manufac-
turers will surely make such cars for the reason that they can stay in
business only by meeting these demands. So we can't blame the auto
makers for the particular combination of qualities that their products
possess. I may add that, if and when Americans want to ride in urban
rail transit systems as I personally hope they soon will, they will be
built. Indeed, they are being built in the San Francisco Bay area today.
So I suggest we should once and for all abandon the fantasy that the
big corporation has large economic or political power.
A seventh common error is that large conglomerate corporations
lack economic or social justification, and should be restrained or even
forbidden from making acquisitions. I have pointed out in my written
statement that there are, in theory, some important social gains to be
realized from the conglomerate merger. First, the conglomerate is
in a position to endow each of its constituent subsidiaries with larger
financial resources and better management skill, enabling each of
those constituents to offer more vigorous competition to rivals in its
respective industry than it could as an independent firm.
Secondly, the conglomerate being committed to a strategy of diversi-
fication can significantly raise the level of potential competition, be-
cause it stands ready to enter any industry either de novo or via acquisi-
tion where it perceives a profit opportunity.
Thirdly, and most importantly, while the conglomerate merger does
increase the size of the surviving company, it does not increase the
market concentration ratio. And insofar as market concentration is re-
lated to the vigor of competition — and I would say that the relation-
ship is very tenuous — the conglomerate merger is more likely to be
benign, less likely to be malignant, than any other kind of merger. In
my view the Department of Justice is misallocating resources in focus-
ing its big guns on conglomerates.
The eighth error is the belief that competition is effective only
when an industry is unconcentrated on atomistic. I think this fallacy
arises, as I have stated in my paper, from a narrow and outmoded
conception of the nature of competition inherited from classical eco-
nomics. This posits a homogeneous product, a large number of firms
506
in the industry, and a lar^e number of buyers, a static environment,
where products were unchanging and competition was conceived to
be a simple process of price adjustment to a position of equilibrium.
In the contemporary economy we have dynamic technology, large
supernumerary income, great uncertainties, continental and in some
cases w^orldwide markets, instantaneous communication, and a very
high mobility of persons and commodities. We need a new conception
of competition. I have outlined a conception of competition as a multi-
vectored dynamic process, involving first intra- industry competition
(which is the only kind that a great many economists who are trapped
within the old classical theory think of) among firms in an industry.
Here you have many variants : price, product design, warranties, credit
terms, et cetera. Next, there is inter-industry competition among firms
of many industries that offer new products or improved products. We
have next international competition from the foreign based firm, which
has become very important. Finally, we have potential competition
from new entrants. Before a judgment can be passed upon the status
or trend of competition in the manufacturing or any other sector of the
economy, all of these vectors of the process need to be evaluated.
In this broader and truer perspective, we see that the number of firms
in a single industry or the industry concentration ratio are really of
minor weight in measuring the total strength of competition. For
many industries, other factors, such as potential or foreign competi-
tion, may outweight introindustry rivalry in their disciplinary effects
upon the firm.
I would, of course, be beyond the scope of this brief commentary
to try to make such an evaluation. I do venture the opinion that in
American manufacturing, as a whole, contemporary competition is
very effective. I would go further and say that it exerts a stronger
discipline on the behavior of the large manufacturing corporation to-
day than ever before. For example, interindustry competition for the
supernumerary income of consumers has become more intense, as the
amount of this income has risen in relative terms. I would also point
to the rise in intensity of international competition, which is abso-
lutely beyond doubt. The behavior of General Motors is disciplined by
Volkswagen, Toyota, and Fiat as well as by Ford and Chrysler. United
States Steel's pricing policies are influenced by Mitsubishi as well as
by Bethlehem and Youngstown, et cetera. Potential competition has
also become a vector of rising strength as the corporate philosophy of
diversification and conglomeration has gained adherents in the Ameri-
can business community.
Finally, the ninth common error is that it is necessary to break up
giant corporations and concentrated industries in order to assure effec-
tive competition. This misconception arises from a failure to compre-
hend all of the dimensions of competition, and also all of the
dimensions of a public policy to maintain competition.
The keystone of a competitive jwlicy should be affirmative measures
to strengthen all vectors of the competitive process — intraindustry,
interindustry, international and potential. To be more explicit, we
c^n assure competitive behavior in the American steel or autoindus-
tries by removing remaining tariffs, quotas, or other barriers to im-
ports, and to convert national into world markets. When a corporation
bulks large in the American market, public policy should aim to
507
enlarge the market rather than to diminish the enterprise. General
Motors occupies 50 percent of the U.S. ]:>assenger market but only 25
percent of the world market. It looks a lot smaller in proper context.
Governments in the European Economic Community now appre-
ciate the necessity for continental markets to absorb the output of firms
that are large enough to achieve economics of scale and yet numerous
enough to assure effective competition. Paradoxically, while the Euro-
peans have been enlarging their markets and promoting business
consolidations for efficiency, the U.S. Government threatens disinte-
gration of large companies in the name of competition ! Worldwide
markets enable us to have our cake and eat it too. We can enjoy the
economies of scale (and let me point out they are financial and
managerial as well as production and marketing in nature) along
with the benefits of competition.
The other prong of a jwsitive policy for competition is to remove
barriers to entry, particularly entry into concentrated industries. Now,
the real barriers to entry are not national advertising or product differ-
entiation or economies of scale. The real barriers are governmental
requirements of licenses, permits and certificates to enter many regu-
lated and nonregulated industries, which do nothing but entrench the
position of the established firms. There are also governmental barriers
to imports. Finally, there are actual and threatened blockades by anti-
trust authorities of entries into industries by mergers or acquisition
which would heighten competition. This is illustrated by the current
misplaced attack on conglomerates.
A broad review should promptly be made of all licensing and certifi-
cating requirements — Federal, State, and local — to purge them of
anticompetitive elements. Barriers to the imports of products of con-
centrated industries should be phased out. A better balanced anti-
trust policy on mergers should be designed, which recognizes their
constructive as well as their negative consequences.
There is no justification for dismembering a corporation whose large
size has been gained by competitive superiority and maintained with-
out predatory or exclusionary behavior. As Mr. Turner said before this
committee, it would be paradoxical for the Government to turn on a
winner when he wins.
I do not, of course, endorse everything that the big enterprises do.
The leaders of these companies make mistakes, as all human beings do.
The important point is that there is no pattern of anticompetitive
behavior. "When it occurs, it is episodic and exceptional.
I agree with Professor Schupack that we simply know too little
about the structure and functioning and environmental relationships
of the large corporation to embark upon a public policy at this time of
forced dismemberment. In the realm of microeconomics or industrial
economics we face the task in the economics profession of producing
sound criteria for public policy, as valid and comprehensive as those
now available in the field of macroeconomics. Here is a field in which
during the next decade it is imperative to develop far more knowledge
and better principles and ideas.
Thank you very much.
Senator Nelson. Thank you, Professor Jacoby.
(Professor Jacoby 's prepared statement follows :)
508
Statement bt Neil H. Jacoby, Professor of Business Economics and Policy,
UCLA
Americans have always mistrusted large size and concentrated power in social
institutions, whether public or private, political or economic. We have a nostalgia
for the modest farming, mercantile and manufacturing enterprises and the lim-
ited governments of the early 19th century. Our political faith is democracy and
a government of separated parts, each checking and balancing the other. Our
society is one of institutional pluralism. We believe that no organization —
corporation, union, military or ecclesiastic — should have power to dominate
others. The growth of giant institutions has been viewed consistently with appre-
hension. Big business corporations, in particular, have been castigated by critics
as a threat to effective competition, as a barrier to entry of new firms, and even
as a menace to democratic government.
Nevertheless, the vast enlargement of the nation's population, markets, income
and wealth, and the remorseless advance of technology, have called forth orga-
nizations of increasing size to perform efficiently the tasks of a burgeoning society.
Business corporations have continued to grow, along with the economy. During
the past decade big business has become bigger than ever. At the same time, the
real product of our economy and the welfare of the American people have ex-
panded faster than ever before. If it has not contributed to this result, corporate
giantism at least has not prevented it.
Today, there is a furor over the recent wave of business mergers, especially of
the conglomerate type. The belief is widespread that mergers are radically con-
centrating American manufacturing, and impairing the effectiveness of compe-
tition. In an emotional atmosphere, ill-considered proposals are being advanced
to place the structure of the manufacturing sector in an economic straightjacket.
I refer to such ideas as a CJongres.sional ceiling upon the absolute dollar size of
any business corporation; or imi>osition of an 18-month moratorium upon all
mergers of companies of substantial size. Such measures would inhibit changes
in industrial structure that could produce economies, enhance competition, benefit
consmers, expand exports, or enable American firms to penetrate foreign markets.
Indeed, they would serve to vitiate the competition that they are designed to
envigorate !
American society, of course, requires an adequate dispersion of economic and
political power to buttress human freedoms and foster social progress. Vigilance
in maintaining comi)etition is a healthy sign of concern for the strength of our
economy. There is an important role for the antitrust agencies and Congressional
study and surveillance of economic structure and behavior. Yet corporate growth
should be assessed in the light of an expanding U.S. and world economy. It should
be viewed in the light of new technologies and knowledge, permitting new finan-
cial and managerial economies of scale. Changes in corporate structure, such as
the emergence of the conglomerate firm, should be examined as a natural entre-
preneurial response to emerging opportunities for achieving economic, financial
and managerial economies. Let us avoid apocalyptic views of economic change.
Let us reject the conspiratorial theory of corporate growth through merger —
that it is motivated only by a quest for monopoly power and profit. Let us, in-
stead, look for the sources of structural change in the dynamic processes of the
economy.
Much current public apprehension about corporate mergers, giantism, concen-
tration and conglomeration, and their alleged threats to competition, are exagger-
ated or lack a factual or analytical foundation. Let us examine a number of
erroneous propositions that appear to command widespread public belief.
Error 1. — The great wave of corporate mergers now sweeping through the U.S.
economy will radically restructure the manufacturing sector if not arrested ty
the Federal government.
The American experience has been that merger waves peak out after a few
years of hyperactivity, and do not continue indefinitely. There are persuasive
reasons why the present merger wave, which reached an all-time high during
1968, may already have crested in terms of business assets involved, and be in a
phase of recession, even though the number of companies merging continues to be
high. Even during 1968 mergers of manufacturing firms involved only two or
three percent of manufacturing assets — a far cry from "restructuring." The
4,.'>00 firms that dii^appeared by merger were a minute fraction of the 240,000
business corporations that were organized that year. (See the author's article
"The Conglomerate Corporation" in The Center Magazine, July 1969).
509
Error 2. — Mergers and acquisitions are the principal means by which big cor-
porations grow larger.
The truth is that mergers have always been a minor source or corporate growth.
According to the statistics of the Federal Trade Commission, assets acquired by
the 200 largest manufacturing companies during the 20-year period 1948-67 ac-
counted for only 19 percent of their total asset growth, and only 3 i)ercent for
the ten largest corporations. Inve.stment projects and programs developed within
the companies themselves have been the dominating factor in the growth of the
large enterprise.
Error 3. — American manufacturing has become much more concentrated dur-
ing recent years, with a consequent diminution, of competition.
The facts refute this proposition. Much has been made of the FTC calcula-
tion that over the period 1948-67 the 200 largest U.S. manufacturing companies
raised their share of total manufacturing as.sets from 48 percent to 58.7 i)ercent,
and that the 100 largest firms increased their proportion from 40 to 48 percent.
However, there may be a statistical trick in these figures which makes them
measure the relative success of a group of large enterprises rather than the
trend of concentration. The 100 or 200 largest firms at the end of a period rather
()l>viously will have grown faster than the corporate universe. They will be a
different group than the 100 or 200 largest at the beginning.
Another statistical illusion may have arisen from the fact that many large
manufacturing firms have diversified into .services and other nonmanufacturing
activities, thus creating an overstatement of their share of total "manufacturing"
assets.
Of the 100 largest firms in terms of assets in 1948, only 36 had been on this
list in 1909. Only about 65 of the top 100 in 1948 held this status in 1968. Striking
changes have occurred in every generation in the constellation of industries rep-
resented by the industrial giants. Thus the twenty-year period 1948-68 marked
the emergence of the aerospace and multi-industry leaders, and the disappearance
from top rank of many tobacco, motion picture and retail merchandising com-
panies. In an expanding and technologically-dynamic economy, commanding size
does not continue automatically nor does it guarantee immortality.
A more fundamental point, however, is that figures on aggregate concentration
of the manufacturing sector as a whole reveal nothing about the structures of the
indu.strial product markets in which competition occurs.
The fact that the proportion of total manufacturing assets held by the 200 or
100 largest firms has risen over the span of a generation Is irrelevant to the meas-
urement of competition. The total number of competitors remaining in the arena
is far beyond the number needed for effective competition even if the 435,000
other manufacturing enterprises doing business in 1968 are ignored.
To the extent that concentration ratios measure the effectiveness of competi-
tion— ^^and this relationship is very tenuous — it is market concentration that
counts — the percentages of industry assets or sales accounted for by the largest
four, or eight, firms. FTC studies show that during the past twenty years market
concentration in U.S. manufacturing as a whole has not changed significantly.
Indeed, it appears likely that market concentration has declined on the average,
if the foreign operations of U.S. corporations and the U.S. operations of foreign
companies are properly taken into account, as the FTC does not appear to have
done. The enormous growth of multinational business since World War II is in-
dicated by the increase in direct investments abroad by U.S. companies from $12
billions in IMQ to $55 billions in 1967. Foreign sales and assets bulk large in the
accounts of the biggest U.S. manufacturers. Conversely, many large European and
Japanese companies have penetrated deeply into U.S. markets. In industries of
active international trade and investment, such as automobiles and steel, global
rather than national measures of market concentration are appropriate, and they
would generally reveal lower and declining concentration of U.S. markets.
Error 4. — By their mere size and economic poiccr, giant corporations "overawe"
small businesses and either eradicate them or deter entry into small business.
If this proposition were true, one should expect to find a decline in the number of
business formations and a significant rise in business failures. The facts are to the
contrary. The Department of Commerce's index of new business formations stood
at its all-time high of 125 (1957-59 equals base 100) during 1968, the very year in
which corporate mergers also reached a high point. A record 240,000 business
corporations were formed in that year. Indeed, the ratio of the business to the
human population of the U.S. has been remarkably stable. Business failures dur-
ing the past decade have been persistently at a low level. The most promising road
910
to fame and fortune for the young entrepreneur today is to establish a successful
small business, sell it to a large corporation for a capital gain, and then organize
another small business. By acquiring small firms, large corporations create a
bouyant market for capital assets, and thereby create incentive to form new
enterprises. A ban on business mergers would depress the rate of business
formations.
Error 5. — Because they possess much market power large corporations "admin-
ister" and "institutionalize" high prices for their products.
If this allegation were true, one would expect that prices of manufactured con-
sumer goods — in the production of which giant corporations are prominent —
would have gone up fastest during the past four years of general price inflation.
The contrary is the case. Consumer durable goods prices rose 10 percent or less in
the last decade. In contrast, costs of home ownership went up 31 percent, all serv-
ices rose 37 percent, and medical services soared 60 percent. The biggest price in-
creases occurred in goods and services not produced by large manufacturing cor-
porations. Price behavior in recent times suggests that cost and demand relation-
ships in competitive markets have dominated differential movements of prices in
both concentrated and unconcentrated industries. The size of producing firms has
been associated with favorable relative price and quality trends in products.
Error 6. — Giant corporations possess such great economic power that they can
shape their own environments and arc not disciplined by market competition.
This thesis was the central theme of Professor J. K. Galbraith's The New In-
dustrial State, and was presented at hearings of this Subcommittee during 1967.
It is decisely refuted by all we know about the rationale and processes of man-
aging large American corporations. Corporate planning has not "replaced the
market". Corporate planning by the enterprise is an attempt to react to market
forces more sensitively and quickly. Every big business predicates its plans upon
market-determined prices. For even the largest firm the market is the final
arbiter, as General Motors found with Corvair, Ford with Edsel, or Lockheed
with Electra. All of the product differentiation, advertising or selling effort in
the world could not change the market's verdict.
Error 7. — Large conglomerate corporations lack economic or social justification,
and they should be restrained, if not forbidden, from making acquisitions.
Substantial economic and social gains can be realized from the organization
or expansion of multi-industry corporations. Conglomeration can produce benefits
to the firm and to consumers by reducing the risk/reward ratio for the enter-
prise through diversification. It can reduce the costs of capital, achieve economies
of scale in employing specialized management talent, and transfer corporate as-
sets from less to more efficient control. Whether these gains will be realized re-
mains to be demonstrated. Nevertheless, government restraints or prohibitions
against conglomerate mergers would deprive society of important potential bene-
fits.
The economic foundation of the conglomerate merger wave is the post-war
revolution in management science and computers, which enable managers to
plan and control effectively larger sets of diverse business operations than has
been possible heretofore. Other factors contributing to conglomeration are the
research and development explosion, the rise of the service economy, a quantum
jump in taxation, and a doubled price of capital.
Although conglomeration has complex effects, and multi-industry firms need
careful study, the net effects of conglomerate mergers are probably to enhance
competition.
In the first place, the conglomerate corporation can endow each of its con-
stituent subsidiaries with larger financial resources and better management skills,
enabling each to offer more vigorous rivalry to other firms in its respective indus-
try than it could offer previously as an independent firm. For example, it could
enable a constituent to finance a longer-range program of product research, de-
velopment and marketing.
Secondly, the conglomerate can significantly raise the level of potential compe-
tition in every industry, thus leading established companies to behave more com-
petitively than they otherwise would. Being committed to a business strategy of
diversification, the managers of the conglomerate stand ready to enter any in-
dustry, either dc novo or via acquisitions, in which they perceive favorable op-
portunities for profits. Manifestly, it behooves the managements of established
firms to improve products and keep prices down to deter conglomerates from
entering their industry. With its managerial resources and philosophy the large
conglomerate can surmount barriers to entry that might deter a single-industry
enterprise.
511
Conglomerate mergers increase the size of the surviving company, but they do
not increase market concentration ratios. The conglomerate format reconciles the
growth of large corporations with stable or falling market concentration ratios.
Because conglomerate mergers are more likely to be benign, less likely to be
malignant, than any other kind of business combination, the public welfare would
be ill-served by penalizing or forbidding them. Experience to date has revealed
no pattern of anti-competitive behavior.
The antitrust authorities have asserted that large conglomerate companies
"may" (sic) engage in various kinds of anti-competitive conduct, such as preda-
tory pricing, cross-subsidization or commercial reciprocity, and this is the basis of
their restraints upon conglomerate mergers. While any large firm has the power to
misbehave, only its unlawful actions are punishable. The salient question is
whether conglomeration creates a high probability of anti-competitive actions. In
view of the wide delegations of authority to the managers of their subsidiaries
made by most conglomerate companies, the answer appears to be negative. Until
much more is known about the internal management and external behavior of
conglomerates, there is no adequate reason for special measures to stifle their
growth.
Error 8. — Competition is effective only when an industry is unconcentrated (i.e.
"atomistic").
This fallacy arises from a narrow and out-moded conception of the nature of
(X)mpetition, inherited from Classical economics. The Classical theory posited a
large number of firms in an industry, all producing and selling a homogeneous
product to numerous buyers. In this static framework, competition was conceived
to be a simple process of price adjustment by ea<^ firm to a position of equi-
librium, at which rate of supply equalled rate of sale, and price equalled average
cost per unit, including normal profits. In the Classical model a large number of
competing firms was essential to insure competitive behavior. Price was the only
important variable. A natural inference was that the number of firms and the
concentration ratio of an industry was a good index of the vigor of competition.
In the contemporary American economy of dynamic technology, large super-
numerary income, great uncertainties, continental markets, multinational
business, instantaneous communication, and high mobility of persons and
conunodities, new conception of competition is needed. Following the reasoning so
brilliantly developed by Professors Schumpeter and J.M. Clark, competition today
should be seen as a multi-vectored dynamic process involving the following
elements :
1. Intra -industry competition (among firms in an industry)
(a) Price
(lb) Product design and innovation
(c) Selling Costs
(d) Services
(e) Warranties
(f ) Credit terms
(g) Stock of used products
2. Inter-industry competition (from firms of other industries)
(a) between existing products
(b) among new products
3. Inter-national competition (from foreign-based firms)
4. Potential competition (from new entrants)
Before a judgment may be rendered up on the status or trend of composition in
the manufacturing sector of the U.S. economy, all of these vectors of the competi-
tive process must be evaluated, and a summation made of the aggregate power of
competitive forces bearing upon the individual enterprise.
In the broader and truer perspective of modern competitive theory, the market
power of the large corporation is seen to be constrained by many forces. The num-
ber of firms in a single industry, or the industry concentration ratio, are of minor
weight in measuring the strength of competition. Other factors, such as potential
or foreign competition, may outweigh intra-industry rivalry in their disciplinary
effects upon the firm.
It is beyond the scope of this commentary to evaluate all of the forces of com-
petition in American manufacturing, or to estimate their trend. However, there is
much evidence that contemporary competition is effective and exerts a stronger
discipline on the Ifchavior of the large manufacturing corporation than ever
before. Consider the following facts:
1. Intra-industry competition among firms in the same line of business con-
tinues to involve many competitors, and there has been no trend to increased
512
market concentration. Moreover, rivalries in product designs, new products, and
service warranties appear to be multiplying.
2. Inter-industry competition for consumers' sux)ernumerary income (the sur-
plus of disposable income above that required to satisfy conventional "necessi-
ties") is becoming more intense, as the amount of such income rises in absolute
and relative terms. Thus the critical decision for a consumer often is not whether
to purchase a new Ford, Cheverolet or Plymouth ; but whether to buy an airline
vacation, a boat, a summer cottage or a hi-fi music system instead. Inter-industry
competition puts pressure upon firms in all industries to keep down prices and
offer new or improved products or services in order to attract the maximum
number of dollars from fickle and fancy-free consumers.
3. International competition has obviously risen in intensity since World War
II, as hundreds of foreign and domestic corporations have penetrated markets
in other nations via either exports or investment in foreign branches and sub-
sidiaries. Twenty years ago, for example, U.S. auto, steel and electrical equip-
ment makers had the American market to themselves. Today, the behavior of
General Motors is disciplined by Volkswagen, Toyota and Fiat as well as by Ford
and Chrysler; U.S. Steel's pricing policies are influenced by Mitsubishi or Thies-
sen as well as by Bethlehem or Youngstown ; General Blectric's bids on turbines
are tempered by English Electric or Brown-Bovier as well as by Westinghouse
and Allis-Chalmers.
4. Potential competition has also been a vector of rising force in recent times,
as the corporate philosophy of diversification and conglomeration has gained ad-
herents in the American business community. As more business leaders have
become committed to a strategy of diversification to stabilize the rate of earnings
growth, more large firms having both motive and finanical and managerial re-
sources are ready to enter any market wherein profit opportunities appear bright.
Established firms in every industry cannot prudently ignore the probability of
their entrance, if their products are not competitively designed and priced.
In summary : The weight of evidence suggests that competitive forces bearing
upon even the largest firms are strong and rising, and are suflBcient to maintain
effective competition.
Error 9. — It is necessary to break up giant corporations in concentrated in-
dustries in order to assure effective competition.
This misconception arises from a failure to comprehend all of the dimensions of
competition and of a public policy to maintain it. The keystone of a competitive
policy should be aflSrmative measures to strengthen all vectors of the competitive
process — intra-industry, inter-industry, international, and potential.
A powerful means of assuring competitive behavior in the American steel or
auto industries would be to remove remaining tariffs, quotas and other barriers
to imports, and to convert national into world markets. When a corporation bulks
large in the American market, public policy should aim to enlarge the market
rather than to diminish the enterprise. General Motors occupies 50 percent of the
U.S. passenger car market, but only 25 percent of a world market. Governments
in the European Economic Community appreciate the necessity for a continental
market, able to absorb the output of firms large enough to achieve economies of
scale, and numerous enough to assure effective competition. Paradoxically, while
they have been enlarging their markets and promoting business consolidations for
efiiciency, the U.S. government threatens disintegration of giant corporations in
the name of competition ! Worldwide markets enable us to have our cake and eat
it too. We can enjoy the economies of scale — financial and managerial as well as
production and marketing — -along with the benefits of competition.
Public policies can also enhance the force of potential competition by removing
barriers to the entry of additional firms into concentrated industries. The real
barriers to entry, as Professor Yale Brozen has pointed out in a recent article, are
not national advertising, product differentiation, or economies of scale. They are
governmental requirements of licenses, permits and certificates to enter many
regulated and non-regulated industries ; governmental barriers to imports ; and
actual or threatened blockades by antitrust authorities of entrance into industries
by mergers or acquisitions, illustrated by their current attack on conglomerates.
A broad review should promptly be made of all licensing and certificating re-
quirements— Federal, state and local — to identity and purge them of anti-com-
petitive elements. Barriers to imports of the products of concentrated industries
should be phased out. A better-balanced antitrust policy on mergers should be
designed, which recognizes their constructive as well as their negative
consequences.
513
There is no justification for dismembering a corporation wh(»se large size has
been gained by competitive superiority, and maintained without predatory or
exclusionary behavior. It would be paradoxical for the government to turn on a
winner, when he wins ! To reject this iK)licy is not. of course, to endorse all
actions of giant enterprises. Like other humans in an imperfect world, leaders of
liig firms sometimes make bad decisions, display insensitivity to changes in
public demands, or even violate laws. Such episodes are exceptional, however, and
are paid for dearly by the offenders, either by loss of market position or by
governmental penalties.
A truly comprehensive Federal ix)licy for competition would reinforce the eco-
nomic contributions of large firms, and would further insure their socially-ac-
ceptable behavior. A forced dismemberment of leading coriwrations, in the present
state of incomplete knowledge, would have incalculable consequences and might
seriously weaken the U.S. economy. Deep, empirical studies of the structure,
functioning and environmental relationships ot large corporations are sorely
needed as a basis for understanding their social role assessing their perform-
ance. Let us hope that the remarkable advances made during the past generation
in the analytical concepts and statistical techniques now used effectively in solv-
ing macroeconomic policy problems will, during the next generation, be matched
in respect to the microeconomic problems of industrial economics.
Senator Nelson. Our next witness is Mr, Alan S. Boyd, president,
Illinois Central Railroad. We are very pleased to have you liere this
morning Mr. Boyd. You may present your statement however you
desire and it will be printed in full in the record.
(A biographical note on Mr. Boyd follows :)
Biographical Note
Alam. S. Boyd, President, Illinois Central Railroad, 135 E. 11th Place, Chicago,
Illinois 60605, was the first Secretary of Transportation of the United States,
having been appointed by President Johnson to head the Nation's twelfth Cabi-
net-level Department on November 6, 1966. His nomination was confirmed by
the Senate on January 12, 1967. Before taking charge of the newly created De-
partment of Transportation, Mr. Boyd had served as Under Secretary of Com-
merce for Transportation, a post to which he was appointed by President John-
son in 1965. His background combines law, flying, politics, government, and reg-
ulation of several forms of transportation. Before coming to Washington in 1955
to become a member of the Civil Aeronautics Board, as an appointee of Presi-
dent Eisenhower, he had served in his home State as, successively. General
Counsel of the Florida Turnpike Authority, member of the Florida Railroad and
Public Utilities Commission, and as chairman of that commission. He was ap-
pointed Chairman of the U. S. Civil Aeronautics Board by President Kennedy
in 1961 and served in that post until his appointment as Under Secretary of
Commerce in 1965. He assumed the presidency of the Illinois Central Railroad
in January of this year. Mr. Boyd attended the University of Florida, where he
was on the basketball squad, flew C-47's in the Army Air Corps' Troop Carrier
Command in World War II, received a "GI Bill" law degree from the University
of Virginia, entered general law practice in Florida, and served as a major in
the U. S. Air Force, Korea, 1951-52, before beginning his distinguished career in
public service.
STATEMENT OF ALAN S. BOYD, PRESIDENT, ILLINOIS CENTRAL
RAILROAD, CHICAGO, ILL.
Mr. Boyd. Thank you, Mr. Chairman. I am deli^rhted to have the
opportunity to appear before the committee. My testimony is based on
the assumption that I was invited because of having been Secretary
of the U.S. Department of Transportation rather than for any rele-
vance that might have been developed from my current position as
president of a railroad. • i i.
Economics is an arcane subject. This committee has dealt with the
highways and byways of it and has had the wisdom of most of the
514
high priests of American economics, including the popes and the Cal-
vinists and possibly even some atheists. There is one general area of
agreement, if I understand it. It is that the productive capacity of the
United States is concentrated in relatively few units, particularly in
the automobile manufacturing industry. The implications of this con-
centration of economic power are the subject of concern of this com-
mittee.
In order to judge the implications, it seems to me we must first es-
tablish the national values and priorities against which these implica-
tions may be viewed. My own ranking of values would begin with
health, including nondiscriminatory medical care ; education, available
to each individual regardless of location, to the extent of the indi-
vidual's ability to absorb ; the right to quiet and the peaceful enjoy-
ment of one's own property, as well as public facilities and natural re-
sources. In this I would include the ability to walk the streets with
safety, day or night, while breathing pure air as well as the ability
to drink, fish, or swim in clean water. We should expect an environ-
vironment in the urban society wherein our ears are not assaulted with
a cacophony of sound at all hours of the day and night. Each of our
citizens should be able to lead a productive life. These are highly in-
dividualistic statements of value from which I think our public policy
makers have to derive a conglomerate, if you will, national set of
values.
Competition is a value we should maintain and promote. It seems to
me that competition and planning, which I believe are necessary in
any sophisticated economy, tend to conflict with each other at least to
a degree.
Mature industries must, it seems to me, do their planning on the
basis of a calculated percentage of market participation. One con-
straint that must bear on the calculated percentage is the effect of the
antitrust laws. There is no doubt in my mind that the most fervent
well wishes of American Motors are to be found in the management
of General Motors or at least in its legal department. In this sense
I believe the concentration of economic power does have a paralyzing
effect upon competition. I mention only General Motors because, were
American Motors to perish, GM would get all the blame, regardless of
what effect Ford or Chrysler had on its downfall.
One area that puzzles me greatly, in terms of our national priorities,
is the matter of planned obsolescence in automobile design and con-
struction . I am appalled at what appears to me to be the phenomenal
waste of resources represented by this approach to automobile manu-
facturing and sales. At the same time, I confess to being less uncom-
fortable with the known evil planned obsolescence represents than
I am with the unknown alternatives.
Another area of concern to me is that of how much innovation
should a giant automobile manufacturing company present? This, I
think, gets back to American Motors again. From time to time the
major manufacturers exhibit, at the automobile sliows around the coun-
try, very advanced prototype automobiles. Most of these incorporate
features which do not appear to be appropriate for inclusion on, or in,
automobiles of present-day models but require complete redesign. It
would seem that the manufacturers had to get from here to there on
some revolutionary basis, so one wonders what is in between.
515
A layman's impression is that the major manufacturers have a
number of improvements in the closet which thej can pull out as
needed and that, in fact, there is continuing innovative design research
underway. Despite the secrecy of the industry, it seems that each of the
manufacturers has some general idea of what the others are planning
to produce during the next model year and that, rather than using up
all of the innovations in the closet, enough are pulled out for t}x new
model to make it roughly competitive and maintain market participa-
tion but other items are saved until needed. This surmise is not in-
tended to be critical. As a matter of fact, I think under existing
conditions that probably it is the prudent wa;y to do business.
The major barrier to entry into the automobile manufacturing mar-
ket, in my opinion, is the sheer magnitude of capital involved to devel-
op inventory. While I am confident an ability to tie into the existing
automobile dealer organizations would be a major asset, I do not see
the inability to do so as critical in terms of entry. If my recollection
is correct, about 20 years ago the Tucker organization was able to
develop a nationwide dealership establishment. They just could not
develop an automobile.
My reasoning is that we have today a substantial number of national
and international firms engaged in marketing consumer goods to the
public who have shown no reluctance to engage in large-scale selling of
durable goods. I refer to organizations such as Sears, Roebuck & Co.,
and the various discount houses as well as supermarkets, operating
throughout the country. It seems to me that capital requirements are in
fact the greatest barrier to entry and that these requirements are re-
lated to the potential market, rather than to the competition or
concentration.
The automobile industry has been slow to incorporate safety fea-
tures into automobile design. There are apparently two major reasons
for this. One is that safety does not sell ; the other has been the widely
held and expressed belief that safety on the highways can be largely
related to the nut behind the wheel. I think there is a lot of validity in
both beliefs. Safety does not seem to provide much of a benefit as a
sales weapon. There has been no doubt in my mind that automobile
manufacturers could, in fact, package occupants in such a fashion as to
protect them much better than has been the case in the past, from their
own fault or folly as well as from the impacts occasioned by collisions.
For this reason, I believe the safety legislation enacted in 1967 is so
important in that it provides authority to establish minimum per-
formance standards, which can in effect eliminate the importance or
lack thereof of safety as a selling tool. At the same time, manufac-
turers who feel they can accomplish something by going beyond the
minimum are free to do so.
A history of business enterprises would not contain many footnotes
showing consciousness of social costs and benefits related to products
manufactured or services provided. I do not criticize the automobile
manufacturers for failing to include safety appliances in the design of
their automobiles. I should say more safety appliances or at a greater
rate. I do not want to leave the impression that they have done nothing
in safety. That would not be accurate.
The whole thrust of our economic activity, as I see it, in simplified
terms is that business is business and should make money. To the extent
32-493 O - 69 - pt. 1 -34
316
any social benefits are derived from the profits of business they come
either through the payment of taxes by the business and the disposition
of tax revenues or through the largesse of the philanthropic owners of
the business. I am trying to describe what I think is a fact, not neces-
sarily my view of what life should be. Under these circumstances, how-
ever, it seems to me entirely appropriate for the Congress to legislate
as it did in 1967, requiring that business enterprise provide for certain
standards of safety performance — which, of course, must be paid for
by the consumer.
A greater concern has been the proprietary attitude which the so-
called highway lobby has taken toward highway users and user funds.
And I am unable to quantify the participation of any of the elements
that make up the highway lobby and say the automobile manufacturers
represent x percent, the contractors, roadbuilding contrgictors, x per-
cent, and so forth, but they obviously all have an interest and that
varies from issue to issue as I have understood it.
Not only has the lobby felt that the revenues of the highway trust
fund were sacrosanct but that using the automobile or fuel taxes as a
means ot deriving revenues had to be related to highway usage. I have
never quarreled with the segregation of revenues in the highway trust
fund for the special purposes to which it is put. We have a great many
automobiles in this country and we need many and better highways.
I have been convinced all along that we needed all of the money that
was available in the highway trust fund for the interstate and other
Federal aid systems.
I have never understood, however, the proprietary attitude toward
either excise taxes on the motor vehicle or on the fuels. I think it is
highly appropriate for the taxing authorities to generate revenues for
transit from these sources. I also happen to believe it is in the best
interests of the automobile public to provide for improved transit in
their urban areas, but that is a side issue. My basic point is that the
State should be able to develop tax revenues from any source and use
it for any purpose for which there is legislative authority.
I think it is somewhat unfair to the parties involved to discuss the
"highway" lobby and paint every highway or highway user interest
with the same brush. In connection with the efforts of BART ^ to raise
an additional $155 million to complete its project in the San Francisco-
Oakland area, there were widespread rumors that the automobile in-
dustry was fighting the proposals to generate these funds from various
automobile user charges. I discussed this issue with the top manage-
ment of two of the major automobile manufacturers. Both assured me
that their companies were not in any way involved, and I believed
them. They were careful to state, however, that the dealer organiza-
tions in California were generally in opposition to the efforts of BART
to raise these revenues and I should say I do not question the honesty
of these statements or the integrity of the men. There is no doubt in
my mind the automobile dealers were, in fact, self-starters.
Priorities, as related to the automobile manufacturing industry
and the American society, should be based first on safety and secondly,
on pollution control. The toll of death and injury on our highways
is appalling. The statistics are readily available and I will not go
into the details that are known to all of you. And the automobile
1 Bay Area Rapid Transit.
517
manufacturer cannot design a car which eliminates all of the dangers
to be found on the highway. There is more that can be done, however,
and constant pressure should be maintained by the Government on
the manufacturers to see that safety performance standards are vigor-
ously pursued.
The pollution of our air through gaseous emissions is certainly at
an intolerable stage in the urban environment. The reduction and
ultimate elimination of air pollution from motor vehicles should be
a matter of high priority for both the manufacturer and the Govern-
ment. Another form of what one might term pollution is also found
in the manner in w^hich automobiles are abandoned and junked aroimd
the countryside. I wish the committee would give some thought to
the rather large detail of how these junks should be disposed of so
that where we have otherwise natural beauty, the landscape is not
marred by these hulks.
Priority in the transportation area should be aimed at the present
toward the development of comprehensive mass transit facilities both
in our urban areas and in our major corridors.
In whatever terms one wishes to use, our greatest value is by all
means, people. It follows that our prority should go in one direction,
to people. This is why I mentioned mass transit development. Transit
systems properly designed can offer an esthetically pleasing public
environment and provide transportation comparatively free of safety
hazards that plague individual transportation. This is, of course, quit«
important for those who have not the resources to possess private trans-
portation, for those who have not the ability or health to operate their
own transportation, and for those who find the tension dissociated with
driving in congested traffic unpleasant and unproductive.
Ours is indeed a mobile society. We are fond of telling each other
this is the case. In the urban portions of it, however, we are coming
to suffer serious defeats in our valiant efforts to maintain the average
speeds of 30 or 40 years ago. This, of course, makes the ownership
and operation of an automobile in the urban area less and less appeal-
ing. It is for this reason, I have believed the automobile industry in
toto should strongly support the development of the finest urban mass
transit systems that can be devised. The benefits to the automobile
public will be far greater than any cost of development of such systems
in our major cities.
The most important area of understanding here is that transportation
is not an either/or proposition. Though we are an automobile oriented
society, it is time for the automobile community to appreciate that we
cannot live by the automobile alone. Mass transit systems, by definition,
are not going to cover much of the territory of the United States. The
highway system will continue to grow. The economic health and the
social tranquility of our urban areas is directly related to the develop-
ment of mass transit systems. These urban areas provide and supiwrt
the institutions of American life, which the automobile interests must
cherish as does every other American. These are the values we should
protect.
The conclusions I reach are that innovation is likely to appear at a
slower rate in mature industries, when production is concentrated in
relatively few units. National goals and priorities are and should be the
product of governmental policy ; business activity should support those
318
goals through taxes on profits. Regulation to effect national goals
should be limited to health and safety in the automobile manufacturing
industry. Corporate automobile manufacturing policy should enthu-
siastically support the development of urban mass transit systems —
for their own benefit.
Senator Nelson. Thank you very much, Mr. Boyd.
(Mr. Boyd's prepared statement follows :)
Statement of Alan S. Botd
Mr. Ohairman, and members of the committee, I wish to express my apprecia-
tion for the opportunity to appear before this committee. My testimony is based
on the assumption that my presence was invited because of my having served as
Secretary of the U.S. Department of Transportation. I assume the observations
and experiences during that period of my life are more relevant than anytliing I
could offer based on my current position as president of a railroad.
Economics is arcane subject. This committee has had the benefit of the wisdom
of most of the high priests of American economics, including both the Popes and
the Calvinists. There is one general area of agreement. It is that the productive
capacity of the United States is concentrated in relatively few units, particularly
in the automobile manufacturing industry. The implications of this concentration
of economic power are the subject of concern to this committee.
In order to judge the implications, it seems to me we must first establish the
national values and priorities against which these implications may be viewed.
My own ranking of values would begin with health, including nondiscriminatory
medical care; education, available to each individual regardless of location, to
the extent of the individuars ability to absorb ; the right to quiet and the peaceful '
enjoyment of one's own property, as well as public facilities and natural resources.
In this I would include the ahility to walk the streets with safety, day or night,
while breathing pure air as well as the ability to drink, fish, or swim in clean
water. We should expect an environment in the urban society wherein our ears
are not assaulted with a cacophony of sound at all hours of the day and night.
Bach of our citizens should be able to lead a productive life.
Competition is a value we should maintain and promote. It seems to me that
competition and planning, which I believe are necessary in any sophisticated
economy, tend to conflict with each other at least to a degree.
Mature industries must, it seems to me, do their planning on the basis of a
calculated percentage of market participation. One constraint that must bear
on the calculated percentage is the effect of the antitrust laws. There is no doubt
in my mind that the most fervent well wishers of American Motors are to be
found in the management of General Motors or at least in its legal department.
In this sense I believe the concentration of economic power does have a paralyzing
effect upon competition, I mention only General Motors because were American
Motors to perish, GM would get all the blame, regardless of what effect Ford or
Chrysler had on its downfall.
One area that puzzles me greatly, in terms of our national priorities, is the
matter of planned obsolescence in automobUe design and construction. I am ap-
palled at what appears to me to be the phenomenal waste of resources repre-
sented by this approach to automobile manufacturing and sales. At the same time,
I confess to being less uncomfortable with the known evil planned obsolescence
represents than I am with the unknown alternatives.
Another area of concern to me is that of how much innovation should a giant
automobile manufacturing company present? This, I think, gets back to Amer-
ican Motors again. From time to time the major manufacturers exhibit at the
automobile shows around the country, very advanced prototype automobiles.
Most of these incorporate features which do not appear to be appropriate for in-
clusion on, or in, automobiles of present day models but require complete rede-
sign. It would seem that the manufacturers had to get from here to there on some
revolutionary basis so one wonders what is in between.
A layman's impression is that the major manufacturers have a number of im-
provements in the closet which they can pull out as needed and that, in fact, there
is continuing innovative design research underway. Despite the secrecy of the in-
dustry, it seems that each of the manufacturers has some general idea, of what
the others are planning to produce during the next model year and that rather
than using up all of the innovations in the closet, enough are pulled out for the
519
new model to make it roughly competitive and maintain market participation but
other items are saved until needed. This surmise is not intended to be critical. As
a matter of fact, I think under existing conditions that probably it is the prudent
way to do business.
The major barrier to entry into the automobile manufacturing market in my
opinion is the sheer magnitude of capital involved to develop inventory. While I
am confident an ability to tie into the existing automobile dealer organizations
would be a major asset, I do not see that as critical in terms of entry. My reason-
ing is that we have today a substantial number of national and international firms
engaged in marketing consumer goods to the public who have shown no reluc-
tance to engage in large scale selling of durable goods. I refer to organizations
such as Sears Roebuck and Company and the various discount houses as well as
supermarkets, operating throughout the country. It seems to me that capital re-
quirements are in fact the greate.st barrier to entry and that these requirements
are related to the potential market, rather than to the competition.
The automobile industry has been slow to incori>orate safety features into
automobile design. There are apparently two major reasons for this. One is that
safety doesn't sell ; the other has been the^ widely held and expressed belief that
safety on the highways can be largely related to the nut behind the wheel. I
think there is a lot of validity in both beliefs. Safety does not seem to provide
much of a benefit as a sales weapon. There has been no doubt in my mind that
automobile manufacturers could, in fact, package occupants in such a fa.shion as
to protect them much better, than has been the case in the past, from their own
fault or folly as well as from the impacts occasioned by collisions. For this
reason, I believe the safety legislation enacted in 1967 is so important in that it
provides authority to establish minimum performance standards, which can in
effect eliminate the importance or lack thereof of safety as a selling tool At the
same time, manufacturers who feel they can accomplish something by going
beyond the minimum, are free to do so.
A history of business enterprises would not contain many footnotes showing
consciousness of social costs and benefits related to products manufactured or
services provided. I do not criticize the automobile manufacturers for failing to
include safety appliances in the design of their automobiles. The whole thrust
of our economic activity, as I see it, in simplified terms is that business is busi-
ness and should make money. To the extent any social benefits are derived from
the profits of business they come either through the payment of taxes by the
business and the disposition of tax revenues or through the largesse of the philan-
thropic owners of the business. I am trying to describe what I think is a fact, not
necessarily my view of what life should be. Under these circumstances, however.
it seems to me entirely appropriate for the Congress to legislate as it did in 1967
requiring that business enterpri.se provide for certain standards of safety per-
f ormance — which of course, must be paid for by the consumer.
A greater concern has been the proprietary attitude which the so-called high-
way lobby has taken toward highway users and user funds. Not only has the lobby
felt that revenues of the highway trust fund were sacrosanct but that using the
automobile or fuel taxes as a means of deriving revenues had to be related to
highway usage. I have never quarreled with the segregation of revenues in the
highway trust fund for si^ecial purposes to which it is put. We have a great
many automobiles in this country and we need many and better highways. I
have been convinced all along that we needed all of the money that was available
in the highway trust fund for the Interstate and other Federal aid systems.
I have never understood, however, the proprietary attitude toward either ex-
cise taxes on the motor vehicle or the fuels. I think it is highly appropriate for the
taxing authorities to generate revenues for transit from these sources. I also
happen to believe it is in the best interests of the automobile public to provide
for improved transit in their urban areas but that is a side issue. My basic
point is that the state should be able to develop tax revenues from any source
and use it for any purpose for which there is legislative authority.
I think it is somewhat unfair to the parties involved to discuss the "highway"
lobby and paint every highway or highway user with interest with the same
brush. In connection with the efforts of BART to raise an additional $155 mil-
lion dollars to complete its project in the San Francisco-Oakland area, there
were widespread rumors that the automobile industry was fighting the proposals
to generate these funds from various automobile user charges. I discussed this
issue with the top management of two of the major automobile manufacturers.
Both assured me that their comi>anies were not in any way involved, and I be-
lieved them. They were careful to state, however, that the dealer organizations
520
in Oalifomia were generally in opposition to the efforts of BART to raise these
revenues. I do not question the honesty of these statements or the integrity of the
men. There is no doubt in my mind the automobile dealers were, in fact, self-
starters dealing with their views of self-interest and that the manufacturers were
not involved. Of course, it is true that without the manufacturers there would
be no dealers but I don't think that is reason to lay the blame at the door of the
manufacturers in this particular case.
Priorities^ as related to the automobile manufacturing industry and the Ameri-
can society, should be based first on safety and secondly, on pollution control.
The toll of death and injury on our highways is appalling. The statistics are
readily available and I will not go into details that are known to all of
you. And, the automobile manufacturer cannot design a car which eliminates all
of the dangers to be found on the highway. There is more that can be done, how-
ever, and constant pressure should be maintained by the government on the
manufacturers to see that safety performance standards are vigorously pursued.
The pollution of our air through gaseous emissions is certainly at an intoler-
able stage in the urban environment. The reduction and ultimate elimination of
air pollution from motor vehicles should be a matter of high priority for both
the manufacturer and the government. Another form of what one might term
pollution is also found in the manner in which automobiles are abandoned and
junked around the countryside. I wish the committee would give some thought to
the rather large detail of how these junks should be disposed of so that where
we have otherwise natural beauty, the landscape is not marred by these rusted
hulks.
Priority in the transportation area should be aimed at the present toward the
development of comprehensive mass transit facilities both in our urban areas
and in our major corridors.
In whatever terms one wishes to use, our greatest value is by all means, people.
It follows that our priority should go in one direction, to people. This is why I
mentioned mass transit development. Transit systems properly designed can offer
an aesthetically pleasing public environment and provide transportation compar-
atively free of safety hazards that plague individual transportation. This is, of
course, quite important for those who have not the resources to possess private
transportation, for those who have not the ability or health to operate their own
transportation, and for those who find the tension associated with driving in con-
gested traflic unpleasant and unproductive.
Ours is indeed a mobile society. We are fond of telling each other this is the
case. In the urban portions of it, however, we are coming to suffer serious de-
feats in our valiant efforts to maintain the average speeds thirty or forty years
ago. This, of course, makes the ownership and operation of an automobile in
the urban area less and less appealing. It is for this reason, I have believed the
automobile industry in toto should strongly support the development of the
finest urban mass transit systems that can be devised. The benefits to the auto-
mobile public will be far greater than any cost of development of such systems in
our major cities.
The most important area of understanding here is that transportation is not an
either/or proposition.' Thougli we are an automobile oriented society, it is time
for the automobile community to appreciate that we cannot live by the automo-
bile alone. Mass transit systems, by definition, are not going to cover much of
the territory of the United States. The highway system will continue to grow.
The economic health and the social tranquility of our urban areas is directly
related to the development of mass transit systems. These urban areas provide
and support the institutions of American life, which the automobile interests
must cherish as does every other American. These are the values we should
protect.
The conclusions I reach are that innovation is likely to appear at a slower
rate in mature industries, when production is concentrated in relatively few
units. National goals and priorities are and should be the product of governmental
policy ; business activity should support those through taxes on profits. Regula-
tion to effect national goals should be limited to health and safety in the auto-
mobile manufacturing industry. Corporate automobile manufacturing policy
should enthusiastically support the development of urban mass transit systems —
for their own benefit.
Senator Nelson, We will now hear from Professor Douglas Dowd,
College of Arts and Sciences, Department of Economics, Cornell Uni-
921
versity. Professor Dowd, we are pleased to have you here this morning.
Your statement will be printed in full in the record and you may
present it howev^er you wish.
At the conclusion of Professor Dowd's presentation of his statement,
the members of the panel may comment on any of the statements by
other members of the panel. That is the purpose of having all four
here at once. So if you wish to make individual comments on state-
ments of the other panelists at the conclusion of Professor Dowd's
statement, feel free to do so.
Professor Dowd.
(A biographical note on Professor Dowd follows : )
BlOQEAPHICAL NOTE
Douglas F. Dowd, Professor of Economics, College of Arts and Sciences, Depart-
ment of Economics, Cornell University, Ithaca, N.Y. 14850, has made economic
history, economic development, and economics of race and poverty his primary
fields of teaching and research. A veteran of the U.S. Army Air Corps in World
War II, he was awarded the A. B. and Ph. D. degrees of the University of Cali-
fornia, Berkeley, in 1948 and 1951, respectively, and was on the faculty of that
university, as a lecturer, during 1950-53. He has been a member of the economics
faculty at Cornell since 1953. Dr. Dowd Was a Guggenlieim Fellow in 1959-60 and
a Fulbright Fellow in 1966-67. He is the author of Modern Economic Problems in
Historical Perspective (1962) and Thorstein Veblen (1964). He has published
(with Mary Nichols) a civil rights boolv. Step by Step (1965) and was editor of
and a contributor to Thorstein Veblen: A Critical Reappraisal (1958) and Amer-
ica's Role in the World Economy (1966). He has also published many articles in
professional journals on European and American economic history, and in various
I)eriodicals on contemporary economic and social problems.
STATEMENT OF DOUGLAS F. DOWD, PROFESSOR OF ECONOMICS,
DEPARTMENT OF ECONOMICS, CORNELL UNIVERSITY, ITHACA,
N.Y.
Mr. Down. Thank you, Senator Nelson.
Before I turn to my prepared remarks I would like to say that
although I am an economist I am not going to be concerned in my
remarks with the usual questions that economists take up and the kind
of questions that have been pretty much concentrated on in these hear-
ings before and to a certain extent today ; namely, market behavior and
prices and product change and competition and the like— not because
these things are unimportant but because to me at this time they are
relatively unimportant by comparison with the question that I have
picked up from Senator Nelson's communication ; namely, the effect of
the giant corporation on the American life style, and the extent to
which corporations of vast size shape the Nation's values and priorities
to suit their needs.
I would like to say again, before turning to my prepared remarks,
that in my own view, and this will sound odd coming from an econo-
mist, whether the market works well or badly in the various dimensions
that economists talk about, although that may be important, is not
primary in the society that we have on our hands today.
The better the market works, in a certain sense, the more the society,
our society, comes to be dominated not only by the market and its suc-
cessful functioning but the more it comes to be dominated as our soci-
ety is dominated by a businesslike and economic outlook — which is to
say that power is held very much in those terms. Values are expressed
322
very much in those terms. Institutions are framed very much in those
terms. Our perspectives, our priorities, our ways of evahiating and
looking at things, our ways of imderstanding things, are very much
dominated by businesslike market-expressed considerations and I do
not think today we can afford that kind of thing. I do not think we can
afford to have the implicit and the explicit power of our society held
in the hands, whether corporate or private or public hands, where the
guiding criteria are does this contribute to a successful market and to a
successful level of production ?
I say this because it is so clear to all of us, I think, that the kind of
questions that need swift resolution in our society are questions that
are qualitative and social rather than quantitative, so that I will be
concerned in my remarks to which I will now turn with questions of
power and questions of priorities and questions of social arrangement,
Wlien I use the term "power," it refers to the ability to control or to
influence, to make decisions in one's own terms and to affect or signifi-
cantly influence or control the decisions of others on matters relevant
to the holders of power. Effective power and allowing the powerful to
make decisions on their own terms, always means that others are hav-
ing decisions made for them. The decisions referred to may be positive,
negative, or neutralizing ; they may lead to new^ paths or obstruct such
movement.
The automobile industry in the United States is a prime example of
such power — power it requires and has gained for its fabulously suc-
cessful operations. The consequences of its having that powder have
been reflected both in the economic and in the non-economic, the social
and the physical, spheres of American existence. The automobile has
stamped itself on almost every facet of our daily lives, and there is
virtually no aspect of our lives into which the enormous power of the
industry does not intrude, directly or indirectly.
Time allows only a few details to support these generalizations, and
to suggest something of the how and the why and the wherefore.
They will be familiar details, but their implications may be less so.
In passing, it might be said that the controversy marking earlier
hearings — for example, between Messrs. Galbraith, Turner, Adams,
and Mueller — can perhaps find some resolution in what follows. Pro-
fessor Galbraith was challenged, I believe b;^ Mr. Turner, on what
was taken to be his contention that "technological imperatives dictate
vast industrial concerns and the high levels of market concentration
and, hence, the death of the market." ^ My own reading of Professor
Galbraith's "New Industrial State" allows no such narrow interpreta-
tion ; on the other hand, he does not quite say what seems to be more
appropriate; namely, that the historical interaction between techno-
logical possibilities and needs, corporate needs and desires, and an
evolving public and private system of attitudes and power have en-
couraged and allowed a high degree of concentrated economic power —
a structure that, as it evolves, makes each successive step both easier
and more compelling. The automobile industry has been a leader in
this evolution, a complex process in which not technology alone, or
business drives alone, or public policy alone, but their dynamic inter-
action is the appropriate explanatory framework,
1 Seminar discussion, June 29, 1967, p. 18, of the hearing on Planning, Regulation, and
Competition, before this subcommittee.
523
Around the turn of the century, the automobile industry had no
significant power in this country ; it produced a rich man's toy. "Wlien,
with Ford's Model T, motor vehicles became a capital good for farm-
ers, the industry began to take on social significance. That significance
was well established by the early '1920's, the war having had several
important transforming effects on both the supply and demand sides
of the market for motor vehicles. The already substantial power of
the industry moved toward the extraordinary when, in the mid-1920's,
General Motors introduced the model change and institutionalized con-
sumer credit for the financing of what otherwise would have been im-
possible on any large scale — that is, mass-produced automobiles for
the middle income population. For these interlocked developments to
move ahead dynamically, it was -essential that the American middle
income consumer be persuaded of the importance of an automobile to
him, of having one that was in style, and that he be able to finance it.
But if this was to take place on a massive basis, clearly there had to
be roads, and service stations, and a thick rope of intertwined construc-
tion, industrial, commercial and financial innovations.
For the production economics of the automobile industry to thrive,
in short, it was necessary for the American people to aspire, and be-
come "addicted," to the possession of their own car — or cars — and
to be able to buy and use them easily. Success came, and with it the
connecting in of an incalculably broad segment of our entire social
existence — suburbs, stimulation of the construction, the steel, the pe-
troleum and petrochemical — and many other — industries, the decline
of the railroad, and the growth of a new stratum of merchandising,
advertising, repairing, and financing activities ad infinitum. Nor can
it be doubted that much that was begun in the automobile industry
was picked up, made possible by, and continued in other consumer
durable goods industries ; and that our mentality, values, our inclina-
tions as a people have changed as a result of these and other develop-
ments left unmentioned.
The proverbial man from Mars, looking at us afresh, would doubt-
less come to the conclusion that the automobile was the dominant
fact in our producing, consuming, and perhaps our fantasy lives ; he
could plausibly conclude that the four-wheeled creatures run the so-
ciety and that the two-legged creatures are its servants.
Be that as it may, is it not sensible to believe that those who have
controlled what is so important in our lives, as a product, also have —
and require? — the power to control, at least influence, the environment
in which automobiles are not only produced but used ? That is, do not
automobile producers have to create and maintain a political and
social environment that enhances their ability to gain and maintain
satisfactory access to resources, labor, capital, and markets ? And does
not this strongly suggest the corollary need to influence, whether di-
rectly or indirectly, the minds and decisions of governments and of
consumers ?
Were the automobile industry small, we could consider all these
questions as having apropriately slightly implications for our lives.
But the automobile industry, and those that are structured and that
function in its way and with its means, is anything but small. If, as
is often said, 1 in 6 of us depends directly or indirectly on the success-
ful functioning of the automobile industry, we may take that as an
524
enormous fact ; and we may therefore deduce, however, vaguely, that
our whole way of life has been shaped such that one massive industry
can function successfully.
Undoubtedly, of the numerous consequences of a successfully func-
tioning automobile industry — and of those other industries and activ-
ities whose roots and branches have their origins and their health in
that process — there are m.any consequences that any objective observer
would find favorable. Most obvious among these have been the direct
and indirect stimuli to employment, productivity, and higher incomes
that so much characterize the modern American economy. Somewhat
more controversially, one can point to the direct and indirect effects of
this giant industry on our military potential, our overseas relation-
ships, the growth of a suburban culture, and the extravagant physical
mobility of Americans. Some will find these developments to be favor-
able, some mixed, and some unfavorable. Still another set of develop-
ments are likely to seem quite unattractive to almost everyone, except
perhaps those in the industry itself who believe that their livelihood
is dependent on them.
Most obvious among these unsettling effects of the industry on our
lives is the sheer danger of having so many people hurtling around in
deadly weapons. The tens of thousands of dead and the unknown hun-
dreds of thousands of maimed every year on the streets and highways
cannot seem anything but a frightful price to pay for the convenience
and the prestige of driving and owning a car — although, as our cities
become impossibly congested with the traffic, the term "convenience"
becomes more than misleading. Added to that problem is another, that
of air pollution, which, though due to causes in addition to that of the
automobile and connected industries, is one of the prime "disamen-
ities" of our mobile world. Still another, if less observed problem, is
the enormous waste of resources involved in the continuous model
changes and deliberate obsolescence policy of the industry. It is un-
questionably true that the transportation function of the automobile
could be adequately served without much reference to its external
trappings ; and it is equally clear that the economics of the industry
depend squarely on just those changes that add up to sheer waste of
resources — natural and human. In a world that aches with poverty and
a shortage of resources, such a problem cannot be taken lightly.
The mention of that question takes me to the most intangible and
possibly the most important of the developments associated with the
rise and the power of the industry : I refer to the effect the industry
has had on our ways of thinking about and evaluating social processes
and ordering our priorities. Decades of advertising have unquestion-
ably allowed us to acquiesce in the social costs of the automobile, and
to do so almost unconsciously ; have encouraged us to spend much in
the way of effort and desire to have an esteemed automobile — and those
other consumer goods whose role in our lives is played on the same
stage — and have blinkered us as we attempt to assess the value of
alternative ways of living. Attitudes have been altered, as is always
true and necessary, when societies move from one kind of economy to
another ; and the automobile was the critical step that moved us from
an industrializing economy to one that made mass-produced consumer
durables a normal part of life for a large percentage of Americans.
But those changed attitudes are a function of the power of the industry
525
to alter them and keep them that way; and they are backed up by
political power held in and by the automobile industry and its com-
patriots. An example of what I have in mind, and only one example,
is our current urban and national transportation crisis.
Increasingly, it is agreed that the populous parts of America re-
quire public transportation facilities nuining on rails and fueled by
means that will not pollute the atmosphere. The railroad industry
itself will not undertake the necessary steps because of the enormous
cost involved, because they see their own interests differently as rail-
roaders, and because over the declining decades they have found other
fish to fry. The problem is perforce a public problem, and if it is to
be resolved it will be resolved through means devised and financed
in large part by public authorities — local, State, and Federal. In
short, the problem is a political problem, a problem of power. As
matters now stand it is also a problem that will not be resolved, for
the several interests that revolve in and around the automobile indus-
try have the power to veto any meaningful program. I refer to the
automobile industry and its manufacturing satellites, the petroleum
industry and the road construction industry, all of them profitably
engaged in producing, fueling, and paving the ways for cars and trucks.
One need not be a political expert to imagine the difficulties of such
interests being sidestepped by local. State, or Federal governments as
requests for bonds, appropriations, and legislation try to materialize.
Indeed, a realistic appraisal of the situation would lead those who wish
to move along these lines to expend their efforts elsewhere, to give
up before they begin. In the modern world, tilting at windmills is
not a viable occupation.
The details of the foregoing can be argued with endlessly, but its
g-eneral outlines seem indisputable : the American economy in its stra-
tegic center, industry and finance, is tightly interwoven not only with
the connected sectors of advertising and trade, but as well with the
centers of poltical decisiomnaking, as regards both domestic and
foreign developments. Over that pattern of vital interdependence and
interaction there presides a pattern of control and power which acts to
affect our lives in almost all aspects. There is nothing of either con-
spiracy or malevolence suggested by this analysis; it is the natural
path for a modern industrial society.
Wliat is "natural" is not always desirable, and in many areas of our
lives we have taken steps to interfere with what is natural : we control
disease, and fend against gravitation, heat, and cold, among other
things. It is more difficult to fend against what is natural in social
development, nor is it simple to make useful suggestions. Wliat may
be said is that, valuable though the antitrust laws may be, they have
had, and will have, no substantial effect in providing adequate remedies
for the present impact of concentrated economic power on our lives.
Many of us today believe that America is in a social crisis of sub-
stantial dimensions. The existence of such a crisis means that many
changes are needed in societ5^. Today, they are needed by and argued
for mostly by the powerless— and especially by students and the black
and the poor. Those who possess the power to make changes benefit too
much from the status quo to develop strong impulses for substantial
change. In my view, these hearings cannot produce legislation to com-
506
bat this problem; at most they can contribute to awareness of the
problem.
Senator Nelson. Thank you very much, Professor Dowd.
(Professor Dowd's prepared statement follows :)
Statement of Douglas F. Dowd, Pbofessob of Economics, Cornell University
Senator Nelson has stated that previous hearings before this Subcommittee
have raised and left unresolved seven questions. These questions, all of which
are essential to our understanding of the automobile industry and to many other
industries, range through matters of secrecy, price competition, the structure of
the industry, the related behavior of auto dealers, safety considerations, tech-
nological progressiveness, and finally, "the effect of the giant corporation on the
American 'life style' and the extent to which corporations of vast size shape
the Nation's values and priorities to suit their own needs." My intention is to
focus largely on the last question, not because it is necessarily more important
than the others, but because economists almost entirely neglect these vital mat-
ters. That we do so is partly because our training tends to the narrow and the
technical, and partly because seldom if ever are we asked (or do we possess the
temerity) to come to grips with matters combining such a high degree of con-
troversiality and complexity. Where angels fear to tread, I shall risk entering,
knowing who treads in such areas. Someone must, and because I think that, I
have spent the last decade or so pondering such questions. More specifically, as
an economic historian my emphasis in research has been on the particular rela-
tionship between the structures of power and of the economy, and the related
processes of social change. If I make any contribution today, its measure will be
mostly in the rasing of still more questions for this Subcommittee, and hopefully
others, to pursue.
When the term "power" is used below, it refers to the ability to control or
infiuence, to make decisions in one's own terms and to affect, significantly in-
fluence, or control the decisions of others on matters relevant to the holder of
power. Effective power, in allowing the powerful to make decisions on their own
terms, always means that others are having decisions made for them. The deci-
sions referred to may be positive, negative, or neutralizing; they may lead to
new paths or obstruct such movement.
The automobile industry in the United States is a prime example of such
power — power it requires and has gained for its fabulously successful operations.
The consequences of its having that power have been reflected both in the eco-
nomic and in the non-economic, the social and the physical, spheres of American
existence. The automobile has stamped itself on almost every facet of our daily
lives, and there is virtually no aspect of our lives into which the enormous power
of the industry does not intrude, directly or indirectly.
Time allows only a few details to support these generalizations, and to suggest
something of the how and the why and the therefore. They will be familiar de-
tails, but their implications may be less so. In passing, it might be said that the
controversy marking earlier hearings — e.g., between Messrs. Galbraith, Turner,
Adams, and Mueller — can perhaps find some resolution in what follows. Professor
Galbraith was challenged on what was taken to be his contention that "techno-
logical imperatives dictate vast industrial concerns and high levels of market
concentration and, hence, the death of the market"* My own reading of Professor
Galbraith's New Industrial State allows no such narrow interpretation ; on the
other hand, he does not quite say what seems to be more appropriate ; namely,
that the historical interaction between technological possibilities and needs, cor-
porate needs and desires, and an evolving public and private system of attitudes
and power have encouraged and allowed a high degree of concentrated economic
power — a structure that, as it evolves, makes each successive step both easier and
more compelling. The automobile industry has been a leader in this evolution, a
complex process in which not technology alone, or business drives alone, or
public policy alone, but their dynamic interaction is the appropriate explanatory
framework.
Around the turn of the century, the automobile industry had no significant
power in this country ; it produced a rich man's toy. When, with Ford's Model T,
motor vehicles became a capital good for farmers, the industry began to take on
♦Seminar discussion, June 29, 1967, p. 18, of the Hearing on Planning, Regulation, and
Competition, before this Subcommittee.
527
social significance. That significance was well-established by the early 1920's, the
war having had several imiwrtant transforming effects on both the supply and
demand sides of the market for motor vehicles. The already substantial power of
the industry moved toward the extraordinary when, in the mid-1 !>20's, (Jeneral
Motors introduced the model change and institutionalized coiLsiimer credit for
the financing of what otherwise would have been impossible on any hirge scale-—
mass-produced automobiles for the middle income population. For the.se inter-
locked developments to move ahead dynamically, it was essential that the Ameri-
can middle income consumer be iJersuaded of the importance of an automobile
to him, of having one that was in style, and that he be able to finance it. But if
this was to take place on a massive basis, clearly there had to be roads, and
service stations, and a thick rope of intertwined construction, industrial, com-
mercial and financial innovations. For the production economics of the automo-
bile industry to thrive, in short, it was necessary for the American people to
aspire, and "become "addicted," to the po.ssession of their own car — or cars — and
to be able to buy and use them easily. Success came, and with it the connecting in
of an incalculably broad segment of our entire social existence — suburbs, stimu-
lation of the construction, the steel, the petroleum and petrochemical (and many
other) industries, the decline of the railroad, and the growth of a new stratum
of merchandising, advertising, repairing, and financing activities ad infinitum.
Nor can it be doubted that much that was begun in the automobile industry was
picked up, made possible by, and continued in other consumer durable goods
industries; and that our mentality, values, our inclinations as a people have
changed as a result of these and other developments left unmentioned.
The proverbial man from Mars, looking at us afresh, would doubtless come to
the conclusion that the automobile was the dominant fact in our producing, con-
suming, and perhaps our fantasy lives ; he could plausibly conclude that the four-
wheeled creatures run the society and that the two-legged creatures are its
servants.
Be that as it may, is it not sensible to believe that those who have controlled
what is so important in our lives, as a product, also have — and require? — 'the
power to control, at least influence, the environment in which automobiles are not
only produced but used ? That is, do not automobile producers have to create and
maintain a political and social environment that enhances their ability to gain and
maintain satisfactory access to resources, labor, capital, and markets? And does
not this strongly suggest the corollary need to influence, whether directly or
indirectly, the minds and decisions of governments and of consumers?
Were the automobile industry small, we could consider all these questions as
having appropriately slight implications for our lives. But the automobile indus-
try, and those that are structured and that function in its ways and with its
means, is anything but small. If, as is often said, one in six of us depends directly
or indirectly on the successful functioning of the automobile industry, we may
take that as an enormous fact ; and we may therefore deduce, however vaguely,
that our whole way of life has been shaped such that one massive industry can
function successfully.
Undoubtedly, of the numerous consequences of a successfully f unctionmg auto-
mobile industry— and of those other industries and activities whose roots and
branches have their origins and their health in that process— there are many that
any objective obsen^er would find favorable. Most obvious among these have been
the direct and indirect stimuli to employment, productivity, and higher incomes
that so much characterize the modem American economy. Somewhat more contro-
versially, one can point to the direct and indirect effects of this giant industry on
our military potential, our overseas relationships, the growth of a suburban cul-
ture, and the extravagant phy.sical mobility of Americans. Some will find these
developments to be favorable, some mixed, and some unfavorable. Still another
set of developments are likely to seem quite unattractive to almost everyone,
except perhaps those in the industry itself who believe that their livelihood is
dependent on them.
Most obvious among these unsettling effects of the industry on our lives is the
sheer danger of having so many people hurtling around in deadly weapons. The
tens of thousands of dead and the unknown hundreds of thousands of maimed
every year on the streets and highways cannot seem anything but a frightful price
to pay for the convenience and the pre.'.tige of driving and owning a car—
although, as our cities become impos.sibly conge.^ted with traffic, the term "con-
venience" becomes more than mi-sleading. Added to that i>roblem is another, that
of air pollution, which, though due to causes in addition to that of the automobile
528.
and connected industries, is one of the prime "disamenities" of our mobile world.
Still another, if less-observed problem, is the enormous waste of resources involved
in the continuous model changes and deliberate obsolescence policy of the Indus- ,
try. It is unquestionably true that the transportation function of the automobile
could be adequately served without much reference to its external trappings ; and
it is equally clear that the economics of the industry depend squarely on just
those changes that add up to sheer waste of resources — natural and human. In a
world that aches with poverty and a sihortage of resources, such a problem cannot
be taken lightly.
The mention of that question takes me to the most intangible and possibly the
most important of the developments associated with the rise and the power of
the industry : I refer to the effect the industry has had on our ways of thinking
about and evaluating social processes and ordering our priorities. Decades of ad-
vertising have unquestionably allowed us to acquiesce in the social costs of the
automobile, and to do so almost unconsciouisiy ; have encouraged us to spend
much in the way of effort and desire to have an esteemed automobile (and those
other consumer goods whose role in our lives is played on the same stage) ; and
have blinkered us as we attempt to assess the value of alternative ways of living
Attitudes have been altered, as is always true and necessary, when societies move
from one kind of economy to another ; and the automobile was the critical step
that moved us from an industrializing economy to one that made mass-produced
consumer durables a normal part of life for a large percentage of Americans.
But those changed attitudes are a function of the power of the industry to alter
them and keep them that way ; and they are backed up by political power held
in and by the automobile industry and its compatriots. An example of what I
have in mind, and only one example, is our current urban and national trans-
portation crisis.
Increasingly, it is agreed that the populous parts of America require public I
transportation facilities running on rails and fueled by means that will not pol-
lute the atmosphere. The railroad industry itself will not undertake the neces-
sary steps because of the enormous cost involved, because they see their own
interests differently as railroaders, and because over the declining decades they
have found other fish to fry. The problem is perforce a public problem, and
if it is to be resolved it will be resolved through means devised and financed
in large part by public authorities — ^local, state, and federal. In short, the
problem is a political problem, a problem of power. As matters now stand it is
also a problem that will not be resolved, for the several interests that revolve in
and around the automobile industry have the power to veto any meaningful
program. I refer to the automobile industry and its manufacturing satellites, the
petroleum industry, and the road construction industry, all of them profitably
engaged in producing, fueling and paving the ways for cars and trucks. One need
not be a political expert to imagine the difficulties of such interests being side-
stepped by local, state, or federal governments as requests for bonds, appropria-
tions, and legislation try to materialize. Indeed, a realistic appraisal of the
situation would lead those who wish to move along these lines to expend their
efforts elsewhere, to give up before they begin. In the modern world, tilting at
windmills is not a viable occupation.
The details of the foregoing can be argued with endlessly, tout its general out-
lines seem indisputable : the American economy in its strategic center, industry
and finance, is tightly interwoven not only with the connected sectors of adver-
tising and trade, but as well with the centers of political decision-making, as
regards both domestic and foreign developments. Over that pattern of vital inter-
dependence and interaction there presides a pattern of control and power which
acts to affect our lives in almost all aspects. There is nothing of either conspiracy
or malevolence suggested by this analysis ; it is the natural path for a modem
industrial society.
What is "natural" is not always desirable, and in many areas of our lives we
have taken steps to interfere with what is natural : we control disease, and fend
against gravitation, heat, and cold, among other things. It is more difficult to
fend against what is natural in social development, nor is it simple to make useful
suggestions. What may be said, is that valuable though the antitrust laws may
be, they have had and will have no substantial effect in providing adequate rem-
edies for the present impact of concentrated economic power on our lives.
Many of us today believe that America is in a social crisis of substantial di-
mensions. The existence of such a crisis means that many changes are needed
in society. Today, they are needed by and argued for mostly by the powerless —
529
and especially by students and the black and the poor. Those who possess the
power to make changes benefit too much from the sbitus quo to develop strong
impulses for substantial change. In my view, these Hearings cannot produce
legislation to combat this problem ; at most they can contribute to awareness of
the problem.
Senator Nelson. Now, does any one of the panelists wish to comment
on any of the statements by any of the other panelists? Yes, Professor
Schupack.
Mr. Schupack. Let me take just a minute to outline very briefly
a framework I think that will encompass all four of us and yet point
out the differences among us, and I think there are substantial
differences.
I think the major problem we are faced with is how do we go about
allocating our scarce resources, the old general economic problem, so
that the consumers, not business, get from these resources the maximum
benefit ?
I think if we take the allocation process as a very broad process,
including many of the things which Professor Dowd just talked about
and Mr. Boyd talked about, that is, life style, leisure, as w^ell as the
development of economic goods, we can have a framework within
which we can all fit, perhaps not comfortably but I think we will fit.
An example, I think, is Sweden where most people agree that
Sweden's economic production, their GNP, could be higher than it
is now. They have consciously chosen to have more leisure and less
time spent producing economic goods, and they have constructed a
mechanism which gives this choice to the people. I think that it is a
choice mechanism that we are talking about here, the choice of how-
to allocate our resources.
I think Prof. Dowd and Mr, Boyd explicitly brought out this deci-
sion process, I think it was implicit, not as explicit as perhaps I would
have liked it to be, in Mr, Jacoby's statement, I would disagree with
Prof, Dowd on the place that the market can play in this kind of a
process, I think Prof. Dowd sees the large number of problems from
our industry's operating which the market will not satisfactorily re-
solve, and he is apparently suggesting that much of the allocating
decision has to be thrown over to the public sector rather than private
markets.
Let me read from a part of my statement I did not read, the bottom
of page 11 and the top of page 12. One of the problems economists
face is how^ do we get a decisionmaking mechanism which really and
truly reflects the desires of consumers? And I think this is essentially
the answer we are after.
A suggestion made by Prof. Rothenberg in a book which I cite here
says that the political institutions which are actually created should
be sufficient to reflect the desires of society. In other woi-ds, the people
willingly accept the kinds of political institutions needed to carry out
the programs they desire. In the present case this means that Con-
gress setting up the institutions suggested in the Niel report and the
MEG uggested here would be sufficient to imply that the public desires
a serious effort be made to increase industrial competition and that the
public as a whole feels that its welfare will be increased if competition
is increased. If Congress fails to act on any of the many possible pro-
posals for increasing competition, one must conclude rather sadly that
the public consensus really favors large concentrations of economic
530
power in monopolistic and oligopolistic industries. One can only hoj)e
that a decision in favor of industrial concentration would reflect public
ignorance or apathy on the issue, conditions which can be corrected by
further hearings of the sort being held here today.
My comment on Dean Jacoby's statement is that I thoroughly agree
with him that the data doesn't really imply in any direct sense that we
have a dangerous market structure, that concentration is increasing.
On the other hand it certainly doesn't imply the reverse. I can tell
nothing from the data. I do not tell from the data that we have an
inadequate or a good market structure. I think the whole point of my
proposal was we don't know. He mentioned General Motors, that the
proper context in which we ought to look at General Motors is 25 per-
cent of the world's market as opposed to 50 percent of the domestic
market. It is unclear to me which figure is right or maybe no figure of
that kind adequately describes the sort of things that we are concerned
with here today.
Two small points. Dean Jacoby suggests that the goals of a corpora-
tion are not strictly profit maximization. I think I must agree with
Mr. Boyd. I see no other goal that the corporation has. There have been
a large number of studies done in the last 10 years in trying to find
alternative objectives of firms. In my view, none of the studies makes a
convincing case for anything except profit maximizing behavior on the
part of the firm. Indeed, the firms ought to do this. They are under
some obligation to their stockliolders to behave in that fashion.
One other point. I am sorry to comment so much on Dean Jacoby's
paper, but he outlined his arguments in greatest detail. It is much
easier to comment. He claims that the pricing behavior of large corpo-
rations has in fact been in the public interest rather than against it. I
think this is a much more complex argument than can be analyzed by
looking at rising prices in general and raises in prices for products
produced by large firms. There is both a supply and demand side to
this problem. The giant corporations are the ones likely to have had
the largest technological change, the largest improvement in products
and processes. They are the ones who could produce goods much more
cheaply than very small firms, or the service industry. The service
industry notoriously has very little opportunities for technological
change.
A string quartet still takes four man-hours to produce an hour of
chamber music, knd no technological change in the world is going to
improve that.
So we need far more information before we know whether the pric-
ing behavior of giant corporations is in the public interest or has been
against the public interest.
My last point now is that the net effect of conglomerates upon com-
petition or upon the allocation of resources is clearly an unproven
proposition at this point. There are social gains to conglomerates.
There are many social disadvantages to conglomerates. And imless
Dean Jacoby knows of more studies than I know of, there is now no
evidence which will tell us whether we need worry about what we see
in front of us, or whether we should worry about what a proper market
structure ought to be, and whether the present one could be changed
substantially to improve it.
Senator Dole. Mr. Boyd ?
591
Mr. Boyd. I think most of these shells went over my head, inter-
mediate range, to Dean Jacoby, so I will jut pass for the moment.
Mr. Jacoby. Since I seem to have been the main target, maybe I
had better respond !
First, I did not say or imply, at least I was not conscious of having
done so, that the maximization of profits in the long run is not the
proper goal of the management of a business. I thoro\ighly believe it
is. I want to clear that up. I think, however, that emphasis has to be
on the long run. In the large corporation, the time perspective should
be — in the corporation's own interest as well as in social interest —
longer than for the smaller firm with its more limited resources.
I agree wholeheartedly with Professor Schupack's point that we
have too slender and too slight a grasp upon the facts of industrial
economics to be sure of public policy in this field. I was therefore
somewhat surprised at his endorsement of the Neal report, which
proposed to break up leading companies in industries where the top
four firms account for more than 70 i^ercent of the market. This, it
appears to me, would be a highly imprudent and risky step. The ques-
tion was very well put, "what market"? And here we come back into
the many dimensions of competition. I outlined what I called a multi-
vectored dynamic theory of competition, which is in accord with the
realities of the world, and in the context of which the industry con-
centration ratio as we traditionally measure it is really not a very
important factor.
May I point to what seem to me the correct conclusion reached by
another unofficial report — the so-called Stigler report — which has been
leaked around conspicuously, which asserts that our knowledge is
too slender to justify divestment by large companies. There is not a
strong case to be made today for the disintegration of giant com-
panies.
Let me now pass to another point. Professor Dowd made the rather
paradoxical statement that the better the market works, the more
society is dominated by the values and priorities of the large corpora-
tion. This assertion depends on the belief that the large corporation
does have the power to impose its values upon others, to influence the
society.
All the evidence I have examined leads me to precisely the opposite
conclusion: The automakers as well as other large manufacturers
respond to the exercise of power by the public. They react to economic
power represented or registered in the dollars spent in markets; or
political power registered in the polling booths and in the legislatures.
I cite instances w^here the automakers have been forced to with-
draw products that did not satisfy the public, and instances where
they have been forced to comply with safety and air pollution stand-
ards imposed upon them by the public.
Now, it is true that for the last half century Americans have had
a love affair with the automobile. It has, indeed, come to play a very
large role in our economy and beyond that, as Professor Dowd points
out, in our society. My personal view is close to that of Professor
Dowd's : I think that the auto has come to play too dominant a role.
But if we believe in consumer sovereignty and in economic democracy
functioning through the competitive market, Professor Dowd and I
have no right to substitute our values for those of the public. If the
32-493 O - 69 - pt. 1-35
532
public prefers "hot" cars and high performance to safety — and there
is a tradeoff in these f actor^-and we believe in consumers sovereignty,
we must bow to their decision. We must do what we can to educate
the public to a better set of values ; but we have no right to substitute
our values for those of the public.
Therefore, I do not agree with the notion that the automakers en-
gage deliberately in "planned obsolescence." I think that they endow
their products with the qualities that the public will pay for. Where
high performance is preferred over a high order of safety, they will
provide performance rather than safety. As Mr. Boyd says, "safety
doesn't sell." We know that only a minor fraction of auto riders wear
the safety belts that Federal law now requires automakers to install.
Mr. Boyd reminds me of the Tucker car, which was built on the idea
that safety would be the preeminent quality. We know that project
didn't get off the ground.
I think safety should sell but our role must be that of educating
the public to a different set of values and not that of playing dictator
and substituting our own values for those of the public.
Finally, just let me say this word. The large corporation in my
thinking about it does have a public responsibility to view its profit-
making role in a longtime perspective. We have a right to expect of
the leaders of large corporations a long view and I personally am
critical of the auto industry for having been defensive and reactive
to what seems to me a rising public demand for control of emissions
from the vehicle and also for safety. It seems to me that instead of
being reactive and defensive, the automakers should have been inno-
vative and aggressive and sensitive to the emergence of these new
values, and I believe that they have paid for their myopia and insensi-
tivity in now being compelled to respond to higher standards both
of safety and of air pollution. And also I think in some loss of public
confidence. I hope they have learned a lesson from this experience.
Thank you.
Mr. Boyd. May I say something, Senator Dole? I would like to
comment on one unfortunate word that Dean Jacoby used when he
inferred from my statement on planned obsolescence that I was indi-
cating some conspiracy. I didn't mean to give that implication at all.
In fact, further in my statement I said I think — I have no criticism
of that aspect of the automobile manufacturing activities. Obviously
this is not limited to automobile manufacurers in the first place, to
whatever extent there is planned obsolescence in the production process.
I think it is a very unfortunate thing.
The problem as I see it really gets down to this. That is, who sets
forth for the public what are the alternatives? This is a rather funda-
mental question to me and I don't have the answer to it. I think the
safety features of automobiles, however, have clearly been shown to
be an alternative to the lack of safety features which had to be pre-
sented by the public acting in concerted action through the Congress,
and I don't know to what extent alternatives in whatever fashion one
wishes to define them should be set forth, that we should leave it to
the market to set forth the alternatives or we should say the public
must set forth what are the alternatives for the consumer. It is a very
difficult question to me.
533
I think — while I have the floor, I would say that I think one of the
difficulties, one of the other difficulties here is the matter of definition
and measurements of competition and to what extent we are talking
in quantitative terms and to what extent we are talking in qualitative
terms. I tend to agree with Professor Dowd that the great issues facing
this comitry today are social issues and quantifying social issues is
something that I have been trying to do for the last 6 years in various
projects in which I have been involved, and I can assure you that I am
no more of an expert now than I was 6 years ago and don't know how
to do it.
On one other point, Professor Dowd expressed great pessimism aboiit
urban mass transit, the development of urban mass transit. Here again
we get to the question of alternatives. My own thesis has been that we
can't expect to have urban mass transit until there is support of the
public for urban mass transit, until it was established as an alternative
that could be seen and felt and touched so that the people \yould know
what is available instead of having to deal with the reality of most
urban mass transit today. But I am quite optimistic that the automo-
bile industry and the other members of the highway family are gradu-
ally, and I think some of them fairly rapidly, are beginning to see
their own self-interest in supporting urban mass transit developments
and that we can expect to have a much better future than we have had
in the past on urban mass transit. One thing which may not be relevant
to the issues at hand, but I think the suggestions of Professor Dowd on
pages 4, 5, and 6 of his testimony outlining the evokition of the auto-
mobile, the development of the automobile on the United States, gives
us a very interesting possibility to consider with the manufacturer of
automobiles in the Soviet Union. The Soviet Union has undertaken
contracts with Fiat to begin production I think this year of some
800,000 automobiles for private consumption and as Professor Dowd
pointed out, the growth of the automobile has revolutionized American
society. I frankly think that probably this effort of the Russians is
about as revolutionary in our civilization as the development of the
atomic bomb. I am not sure I see all the implications and I don't think
it has much to do with competition here but I just thought it was so
well stated that it should be commented upon.
Mr. Down. May I say something? The first thing I will say is in
response to Mr. Boyd's remark about the Soviet Union, I think he is
probably correct in thinking that if the Soviet Union pushes the auto-
mobile from a different end of the stick from the way it was pushed in
this country it is bound to have what I would see as deleterious effects
on their society. I think it is a real mistake on their part but they
haven't asked for my opinion and you have, so I will go on.
I would like to make some connected responses to some of the things
that were said in the prepared testimony and some of the things that
have just been said.
Let me begin by talking about the consumer. It is an article of faith
in the kind of economics and the kind of society that we have produced
in this country that in turn takes its articles of faith from Adam Smith
in this respect, that the consumer should be King, sovereign, and yet I
think anyone who has studied the history of this country and especially
those of you who are involved in the Government of this country know
that the primary pressures and the effect of pressures in making public
5M
policy come from producer interests, not from consumer interests and
we all know why that is so. It is virtually impossible for consumers to
organize or even have the morale or understanding or wish to organize,
and consequently the public policy is made almost entirely or exclu-
sively in terms of automobile manufacturers or whatever. Whether it
has to do with tariff policy or the development of railways in the past
or highways in the present, and so on.
When we use the word consumer, in economics, we tend to use tjiat
word in a very constrained and restricted sense. Wq tend to be think-
ing of the consumer as one who receives what benefits he does in terms
of price relationships and the introduction or nonintroduction of mar-
keted products with variations through time and so on. But of course,
the consumer as Mr. Boyd has pointed out, as we all know, the con-
sumer is all of us living the total lives that all of us live, whether we
are black or white, young or old, rich or poor, it doesn't make any
difference. We have a total life and I supiwse if I had to summarize
in one sentence what I was trying to say before, it is whatever one may
think of past American economic development, one can say that in the
present our lives— in terms of our fears and in terms of the hopes of
many people in this country and elsewhere — are increasingly domi-
nated by negative attitudes toward the things we fear or the hopes
that we don't believe can be realized depending upon who we are, and
in any case, whether we speak of hopes or fears, we are not speaking
of things that can be resolved in the marketplace. They can be harmed
or helped but not resolved in the marketplace.
Turning to a connected question, Mr. Schupack and Mr. Jacoby
had a small dialog about whether it was appropriate or not about
profit maximization or other aims on the part of private enterprise.
I am not terribly concerned with whether corporations try only to
maximize profits or mostly to maximize profits or largely to try to do
something else. My concern is that it is not their function to do any-
thing but to try to maximize profits because to the degree that corpora-
tions have the power to make decisions on other things, I don't want
them making decisions on other things. As a consumer, as a citizen, as
a person who resides in this society, I don't want decisions that will
lead to changing the quality of my existence made by corporations
that are in the business of making a product and trying to sell it at a
profit. Their business is to make the thing and try to sell it, try to do
well as businessmen, and I am not too sure that I would be happy hav-
ing General Motors or even the life insurance companies or other large
corporations, financial or nonfinancial, making decisions about how
our cities should function, and so on, and so on.
I think, in other words, that when we get to the question of power
in this respect, power to make decisions, I distrust very deeply the
ability that I know exists within the business community to make de-
cisions that affect not just the production and sale of their products
but to one degree or another the whole quality of our lives.
This power that they have, they have not because they have sought
conspirator i ally to gain that power. They have developed that power
because in the kind of society tliat we have which is so much domi-
nated by economic considerations, there is a vacuum that exists in the
power making, in the power using and power gaining process.
535
So that, for example, Dean Jacoby has made much of the question of
selling things. Safety does not sell, I think both Dean Jacoby and
Mr. Boyd said. What sells is what is sold and what is attempted to be
sold and whether it sells or not depends upon the means available to
the seller and we all know, for example, that if the automobile com-
panies, and I do not think they will, 1 think they should but should is
an ethical notion that I do not think applies too much to the business
community, we all know that the automobile companies in their adver-
tising, whether it is Chevy, Ford, or, I should say General Motors,
Ford or Chrysler or American Motors, they all emphasize the thing
that they know they must emphasize, given the existing situation,
which is style, pretty girls, larger than life or smaller than life, as the
case may be, all kinds of things that have to do with the jazzier qual-
ities of American life and we know that if the automobile companies in
conjimction with each other were to try to sell safety, we know that
they could sell safety. We also know that anyone else who tries to sell
safety has no means of communication available to him in any signifi-
cant sense. And we also know something else, or I should say it is more
difficult to know something else that is just as tiiie, and that is that the
thing that is easiest to sell is the thing that is ongoing. The thing that
is most difficult to sell is any change in the status quo, not just because
people's minds have to be changed but because there are no institutions
through which changes are to be promoted. Our society, like any soci-
ety, has its institutions framed in terms of its ongoing activities, not in
terms of changing those activities.
We really have only one basic institution in the society that is even
concerned with change and that is the educational institution and even
there there is more in the way of conservative in faculties than there is
in the way of innovative ideas.
I would like to say also connected with this that when Dean Jacoby
quite properly says that degrees of market concentration probably
have not increased, or may even have decreased in certain industries,
although I am sure they have increased in certain others, this does not
even interest me as a primary question. What does interest me is the
extraordinarily significant increase in the centralization of power as
compared with the concentration of market power. When we speak of
conglomerates, for example, it is obvious that for Gulf & Western to
pick up this, that or the other industry does not necessarily increase
the market concentration in the original industry, whatever tliat may
be. AVliat it does do is to centralize the power in the society over eco-
nomic life and in my view, therefore, also over political and social life.
Now, to say that Gulf & Western and other conglomerates and exist-
ing large corporations, most of which are going conglomerate, have
picked up centralized power is not to say that they have done this
conspiratorially or deliberately in order to be able to have their way.
It is to say that in our society there are no otlier significant sources of
power when it comes to the direction that our society will take. They
move into a vacuum and they expand within tliat vacuum or they reor-
ganize their relationships of power that have existed within that vac-
uum. Aud, I think in this case, in this respect, I should say that the
manner in which economic affairs work is, I think a mirror, and natu-
rally a mirror of the manner in which political affairs work.
53e
I am not terribly much interested, for example, in the facts that I
can choose between, and here I get to something that Mr. Boyd said,
and I agree with him, that I can choose between a Chevy and a Ford
or a Plymouth. What I am interested in having available to me as a
citizen and consumer is can I choose between a Chevy, a Ford, a Plym-
outh, as they now stand, and another way of life, another kind of
car that even — this is not even found in, say, the VW, because the
VW, in trying to appeal in the American market, is appealing to a
certain set of standards, reduced in size and with a different set of
characteristics, but what it is not doing is offering us a choice that
has all the relevant possibilities. Just as in our political life, and I
do not wish to offend anybody when I say this, I am not much inter-
ested in a choice between a Humphrey and a Nixon. I am interested
that there be that choice rather than no choice but this does not tell
me or the average voter what the possibilities are for his society politi-
cally. And when we think of marketing a new kind of a car, we can
think of the difficulties of marketing a new kind of President. Of
course, it is possible someone can choose to run for President if he
wishes to but it is not a meaningful kind of thing. Let me close by
saying one further thing. That has to do with the reference that Mr.
Schupack made on Sweden.
The kind of society which Sweden has developed, which I find in
many ways admirable, but not in all ways, it developed not by virtue
of hearings like these. It developed because Sweden in the first place
is a very different kind of society than ours, in terms of the size, cul-
ture, homogeneity, and so on, but also the kind of quality, the role
that economic affairs play in Swedish life have been very much affected
by decades and decades of a cooperative movement, a labor movement
and a socialist movement. That is to say, there has been an intertwin-
ing of various strands of political groupings that have tried to find
means of exercising social control over their society, not i^articularly
radical but social control that had as a basic presupposition in all
three cases, the co-ops, the labor people and the socialists, the notion
that the market should not dominate the society, that the people's in-
terests should dominate the society. And as anyone who knows Sweden
knows, if you wan to find healthy and wealthy free enterprise, Sweden
is one of the countries to look to. There are some verj^ powerfiil, very
rich, and healthy corporations there but they are living within a set
of constraints that came about through political movement rather
than through the market or rather than through pieces of legislation.
That sort of thing is, I think, very much missing in America and
I think it is very necessaiy and I do not see the time in which it is going
to appear. But I think that is what we need.
Senator Nelson. Thank you.
Professor Schupack?
Mr. Schupack. I think that we are talking about two different things
here. I think Dean Jacoby and I are trying to talk in one area and Mr.
Boyd and Professor Dowd in another area, both extremely important
and perhaps both of which should be taken into account by this
committee.
One is the kind of things which should be decided by a social-
political process, and I will not go into this in detail. I think both
Mr. Boyd and Professor Dowd have gone into detail. They feel very
537
strongly that there are enormous numhers of allocative decisions
wliich must be made by a social decisionmaking mechanism, and I have
no more to offer right now on that score than anyone else.
However, there will always be a very large part of the production of
our society to be allocated by a private market mechanism. The Federal
expenditures portion of our GNP is roughly 20 percent, and is not likely
to go enormously higher, at least not in the immediate future.
What about the other 80 percent ?
Now, the other 80 percent is not immune to having social conse-
quences. This has all been brought out here today. But even after tak-
ing care of the social, in economic jargon, the social externalities that
many of our large industries generate — -for automobiles, the obvious
ones are the pollution and safety factors^ — there is still the remaining
allocative process which we should try to formulate in the most effi-
cient manner to satisfy the consumers in the best possible way —
consumer sovereignty again.
The political pressure groups have been dominant. I should say the
political pressure groups from the producers side of the economy have
been dominant. The consumer groups now are starting to develop some
pressures of their own. My personal proposal for a group to evaluate
industries should be classified, I think, as a consumer pressure group, a
pressure group trying to get whatever is left to the private market into
the most efficient arrangement possible. I do not think we are in dis-
agreement among the four of us but I think that at least some of us
have been talking about one aspect of the problem and some about
another.
Mr. Jacoby. Mr. Chairman, Professor Schupack has, I think, put his
finger on the central issue here. We have in our society a dual mechan-
ism for making decisions about the allocation of resources or, if you
prefer, the assignment of social priorities. First, there is the political
process, the voting booth and the legislature, which is a decisionmaking
apparatus for allocating priorities among public goods and services,
and also for setting the rules that must be obeyed by private enterprises
and private markets in the production and sale of privately produced
goods. Secondly, we have the competitive market, which is a demo-
cratic decisionmaking apparatus for allocating priorities among
privately pix)duced goods.
When Professor Dowd asks that the people's interests rather than
the market should dominate social decisions, I think this misconceives
the issue. The market does express the people's interest. Now, he may
disagree with what the people consider their interests to be. Here we
come back to the matter of consumer sovereignty. He mentioned that
Americans ought to want more leisure, as they do in Sweden. It seems
to me the American people want more income rather than more leisure,
and the evidence of this is the rising incidence of second jobs among
men and the rising participation rate among women. Americans want
more income and less leisure, and they have a right to make this choice.
So that we have a dual api)aratus for making economic decisions,
and the problem is to make each function most efficiently within its
own appropriate sphere. I personally would be loath to interfere with
the principle of consumer so\'ereignty, simply because I do not want
someone else telling me how I should allocate my income. At the same
time, as a citizen and as an economist, I will do my best to try to per-
538
suade other people that my set of values is the best possible set. In the
end we must rely upon competitive markets and upon consumer choices
in tliose markets to do the job of allocating resources among privately
produced goods.
The real goal is one of public education to get a different priority of
values if we do not like the priorities we have now. A second goal is to
make the competitive market more responsive and sensitive in register-
ing the values that people have.
Senator Nelson. Well, I think all the statements that have been
made have been very thoughtful and I would agree to a great extent
with Professor Dowd's comments about lack of choice, lack of con-
sumer influence in the political field as well as the marketplace. I think
there is a great feeling of frustration among a vast number of people
in this country, both politically and economically, and in their relation-
ship to the marketplace. There is a great feeling of a lack of influence
in the political marketplace or in the economic marketplace, I think,
that is accounting for a whole lot of the emotional, political disturb-
ances that you see in the country. In my judgment, these feelings are
going to grow rather rapidly, so that you might get the political
choice you are looking for some time. And it seems to me, the idea that
you cannot or will not interfere in that marketplace is not a support-
able position for one very simple reason, and that is that our resources
are rapidly vanishing and we are rapidly increasing demands upon the
resources, both through the population increase and the tremendous
wastage of resources. And in resources I include water and air. At the
rate we are going, there will not be an unpolluted river or lake in
America of any consequence whatsoever in another 15 years. I see no
indication at all that it is going to be reversed. So one of the most
significant assets this country has is going to be substantially degraded
in all watersheds of America, as it already is in the Lake Erie area
watershed.
We are using 350 billion gallons of water a day. The total available
national supply, if you capture what is normally coming from the
atmosphere and do not mine the aquifers, is 600 billion gallons. We
will achieve 600 billion gallons by best estimates in about 12 years.
And then by the year 2000 we will be using 1200 billion gallons of
water, twice the national supply. So, here is one resource that is very
rapidly being degraded — some of it beyond recovery by any methods
we know of today — for human consumption.
If there is not dramatic interference in that marketplace, dramatic
interference, with very tough pollution enforcement, we face a cata-
strophic situation in terms of water.
Air is the same thing. I do not know of anybody who says that they
agree that the air ought to be polluted and the water ought to be pol-
luted, but the power structure is such, as Professor Dowd said, that
the individual is helpless in the face of what it takes to match the
power of those who are destroying these t%vo resources, which affect
the total economic capacity of this country and the health of the Na-
tion. And you move from air to consumption of any goods you wish,
whether it is timber, metals, oils, all of those are — the use of them
is determined simply by the ones w^ho are exploitinof them for profit.
There is no guideline that I know of of any significance other than
that one, and the fact of the matter is that we are running out of re-
539
sources in the world. There is no question about that. So, given another
quarter of a century at the pace we are going, without a dramatic re-
versal politically, a dramatic political interference with what the pri-
vate sector is doing, you will have an environmental situation that is
practically unlivable. If not in a quarter of a century, it might be 30
or 40 years. We are creating a large unlivable environmental situation
for human beings just as we are creating it for a great many of the
world's creatures today, such as the bald eagle and the falcon and the
Bermuda petrel, the salmon in Lake Michigan, wildlife and insects of
all kinds. We are just arbitrarily destroying them by our interference
for economic profit. There is the use, for example, in the latter case I
mentioned, the uncontrolled use of pesticides.
So, I would not pick on the auto industry particularly. I think what
the auto industry does is done by a good many industries ; but as you
look around the countryside at the vast auto graveyards and look at all
the metal that is in those autos that are there, and consider the fact,
which I think is pretty clear, that the life of the auto could be extended
two or three times over what it is, and save that precious resource on
which survival of society as we now know it depends, you want some-
thing to be done. But it will not be done without some dramatic inter-
ference, I think. I notice one of the witnesses before the committee in
1968, Ralph Nader, presented some statistics, which I assume are ac-
curate, that the auto industry consumed 11 percent of the aluminum, 20
percent of the steel, 35 percent of the zinc, 50 percent of the lead and
more than 60 percent of the U.S. consumption of rubber in 1967. He
says that one out of every six retail dollars goes to buy or to provide
for motor vehicles. Over $100 billion a year are expended on new cars,
used cars, gasoline, tires, auto repair, replacement parts, auto insurance,
and finance, the construction and upkeep of roads and other support-
ing facilities.
The question I would raise is, is there any realistic hope that the
automobile industry itself would move in the direction of reducing the
waste of the resources that go into that automobile by producing one
that lasts longer, by backing away from a ridiculous policy of chang-
ing the fender each year, or is that something that, to protect society's
survival, we are going to have to interfere with as a political group ?
Mr. ScHUPACK. I used one phrase to describe this problem and I
think Dean Jacc^by used a different phrase; perhaps we should have
emphasized this aspect more strongly. I would like to see the market
work after social effects have been accounted for. Dean Jacoby said
that the Grovernment has to set the rules under which these industries
can operate. I agree with you completely, I agree completely with what
you have said. I think the resolution of most of the problems which
you brought up, and the problems of the automobile industry, revolve
around the proper setting of the rules before you let industry go free
and operate in a competitive fashion in the marketplace.
The Automobile Safety Standards Act, I am not sure of the name
now, which outlined precisely what the automobiles had to have to
pass minimum safety standards, could be extended to involve things
which affect the longevity of an automobile, which affect the ease of
scrapping it once it is worn out.
I know we had this problem with detergents. Detergents made out
of certain chemicals just will not break down and dissolve, and they
540
add to our pollution problem. Standards can be set up to forbid that
kind of a product to be manufactured.
Senator Nelson. I might say about that one, I introduced that legis-
lation. We have not licked them. They are loaded with sulphates which
is a fertilizer and one of the worst pollutants that we have got. So they
just changed from a particular base which created foaming and stopped
the foaming, which was visible. But we still have the sulphate, which is
invisible. The foam was a bad pollutant, but now it is sulphate.
Mr. ScHUPACK. It is possible to devise programs which these have
to meet, which would solve some of the social problems, not market
problems. , J
Senator Nelson. Let me ask a question. Yesterday there was a wit-|
ness who testified — I know nothing about the business — simply testi-
fied that by a process which would cost about $35 a car, $36 a car I
think he said, you could coat the frame, the metal parts of the auto-
mobile, and I think he said at least double its life. Would you favor
legislation compelling them to do it ?
Mr. ScHUPACK. Absolutely. I think that the justification for sucli
legislation can be the existence of the kind of automobile graveyards
that you have been talking about. The legislation could reduce that
sort of problem.
If one wants to go further, one can claim that the market has broken
down in this instance. Rules must be set which bring us back toward a
more efficient marketplace. All I am saying, I think, is that the Gov-
ernment has to interfere, as you say, but there must be some agreement
on the proper point to interfere. I think there is some line where the
market is a better allocater than the Grovernment. It is a serious ques-
tion where that line is and I think Professor Dowd would draw it at a
different place than I would.
Mr. Jacoby. Senator Nelson, when you point out that the Nation is
running out of clean air and pure water and that it is the appropriate
role of Government to intervene to arrest these trends, I could not
agree with you more heartily.
Let me put the point in another way. Economists refer to externali-
ties, external costs which do not appear in the profit and loss state-
ments of the auto makers or the accountants of households. In my view,
the automobile has imposed upon society very heavy exteimal costs
which ought noio to he intemalized. Wlien the auto makers contend
that they ought not to bear the costs of air pollution, I would argue
that this is a cost they have imposed upon society, and that it is the
role of Government to require them to bear these costs of minimizing
air pollution, and also of making more safe vehicles. This is what I
meant when I said that part of the role of Government is to set the
rules for producing and distributing privately produced goods.
The large external costs that have been imposed by the auto industry
upon our society should now be internalized and borne by the auto
producer who, of course, will attempt to pass them on as he does his
other costs in a higher price of the car to the consumer. They no
longer ought to be imposed upon the public.
Mr. Duffy. I just want to address one point to Professor Schupack,
if I may. You will have to excuse my basic ignorance of economics
in asking this question.
Mr. I)owD. That sometimes is an advantage.
541
Mr. ScHUPACK. My profession is being a teacher.
Mr. Duffy. This same gentleman that Professor Nelson spoke of
more or less indicated to the committee that he identified the need
for a car which offered an alternative. I suppose something along
the lines that Professor Dowd was su<^gestin^ before.
One of the things that his car is gomg to do is to provide a longer
life. This raises a very basic question in my mind and that is which
comes first? Does the consumer demand always run ahead of what
the marketplace is going to offer or does the marketplace tell people
what they are going to demand? And I guess depending on how
you would answer that question, is this man now going to generate
demand by producing a product or is he producing that product be-
cause he senses there is a demand ?
Mr. ScHTTPACK. I think this is where I would part company with
Dean Jacoby. Ignoring the social problems now, which means ignor-
ing, I think, half of my colleagues here, I think that one of the ways
you put it is probably the way it happens now. The other way, the
more desirable way, is more likely to come about if, say, we had 15
or 20 or 30 auto firms rather than four. Take the auto industry. I will
make another criticism of Dean Jacoby's report. At one place he claims
that the automobile firms as they are set up today, even with just
four firms, clearly must be responsive to consumer demands. If they
did not make products that were ultimately sold, they would go out of
business. I a^ree with this.
The question is how responsive ? It is a matter of degree.
I would judge, and I do not think either of us could prove the point,
that the auto industry now is not responsive enough, not as responsive
as alternative market structures could make it, to consumer demands.
With 15 or 30 automobile firms, which my testimony in the 1968 hear-
ings suggested would not eliminate the technical large-scale efficiencies
of auto production, you are much more likely to get a large variety of
automobiles. If firms could enter on a reasonably small scale, still
retain technical efficiencies, firms are likely to try new technical innova-
tions and feel they could make large inroads before their competitors
caught up, but you have to have competitors. In my judgment, four is
not competition. Fifteen might be.
Mr. Duffy. Professor Jacoby, since this issue seems to be between
you and Professor Schupack, I would like to hear from you.
Mr. Jacoby. I disagree with Professor Schupack's judgment in this
matter. Merely increasing the number of American auto manufacturers
will not produce any greater sensitivity to consumer demands. We have
now four American producers and a dozen foreign producers who com-
pete actively in the American market. Mr. Mann testified before this
committee a day or two ago that the American producers alone put out
some 360 different models. This seems to me to offer a reasonably wide
menu of choices to the American public. We have always to balance the
desirability of even wider choices against the higher costs of producing
these choices. We do not get an infinitely wide menu without bearing
extremely high costs. Thus, each of us could have a custom-made auto
built to his own specifications at a cost of perhaps $150,000 or so !
The other point I would like to make is that the auto manufacturer,
as indeed the manufacturer of any complex durable good such as an air-
plane, is constantly trying to arrive at the mixture of qualities that is
considered optimal by his customers.
542
Now, we can build a perfectly safe vehicle. I imagine a Sherman
tank, properly insulated in the interior, would provide the ultimate in
safety. Yet we would sacrifice enormously in economy, in speed, in
mobility, in comfort, and a great many other qualities.
Senator Nelson. Let me ask a question at that point. That is the argu-
ment of the auto industry, and, as a matter of fact, they used the same
tank you did when they argued about it. The only thing that puzzles me
is that short of building a Sherman tank, why have they not done any-
thing about energy absorbing in the front of the automobile ? Why have
they not done something about a crash bar ? Why did they not ever pad
the dashboard until we had a law that said they had to do this thing?
They never did any of these things and a great many of the injuries
were due to people hitting their heads on dashboards, or were due to a
top that could not hold up. You can dent it with your hands. So the
Sherman tank image is not a very good argument. They just have not
done anything in this field.
I had a question for Mr. Boyd. I think his pen must have slipped in
an otherwise very fine statement when he said safety does not sell. The
only question I would ask is, when did they try it, with what device
which was worthwhile, and did it flunk ? Which one
Mr. Boyd. All right, sir. I will be glad to answer that question. I
will begin by qualifying it to the extent of saying that I am not sure
that I comp)letely believe that safety does not sell but I do believe the
manufacturers had a logical basis for that conclusion.
My recollection is that in the year 1957, the Ford Motor Co., after
some market surveys, concluded that its advertising campaign that
year would be based on safety, and the safety features that the new
Ford products incorporated.
They did undertake that advertising campaign and that same year
their sales were greatly diminished vis-a-vis their competition.
Senator Nelson. What dramatic safety device that was convincing
and useful and actually a safety device did Ford put in their car that
General Motors and Chrysler did not ?
Mr. Boyd. I am not sure about that and, of course, that could be
established, but I am sure of this from many conversations with people
in every facet of the industry. The whole industry looked on that
campaign with sheer horror when it was over and concluded that
Ford had bought the farm because it was trying to sell safety.
Now, I have raised the question whether or not it was possible that
Ford designed some turkeys that year, but that does not seem to have
been a consideration. Maybe I should say lemons. I believe that is what
sometimes come out of the automobile industry. But there is no doubt
in my mind that the whole industry looked on the safety campaign
that Ford put on with great interest and that Ford really exerted
itself and as I recall, installed some safety features which were not in
some of its competitor's cars. And the conclusion was an overwhelming
one, that they had gone right down the wrong road.
Now, they may be wrong about that and it may be that their par-
ticular advertising approach was not right, but — that a different ad-
vertising approach and maybe some different safety components would
have made a difference. But I cannot fault them for their concern
about it.
543
Senator Nelson. All I say about that, Mr. Boyd, is that I think the
public took a look at those Fords and then took a look at the Chevies
and the rest of them and said, "Now just what things is jroinp: to save
my life that is in this Ford that is not in these other cars?" And they
found nothino;. They have not done anything: in this field really. And
if they had had demonstrations and had had tests with dummies in the
car, human beinjjs in the car, and then had taken a Chrysler product
and a General Motor product and had run them through some crashes
and had demonstrated that a p:uy in the Ford car would have survived
with no injuries, while in the other car he would have been seriously
injured or killed, I think the public would have bought it.
The problem is, all they did was change the advertising campaign
instead of the car.
Mr. Boyd. I do not think that is necessarily fair to Ford. I believe
Ford put in some safetv features that the other cars did not. The
extent of that I cannot tell you.
Senator Nelson. They were the first ones to support seat belts. That
is true.
Mr. Boyd. One thing — of course, the other matter that comes up in
evei-ything, you have got to get people's attention and certainly part
of the marketing process as I understand it in the automobile industry
is that if you get an owner of a Ford or Plymouth or Chevrolet, you
work on him to keep him an owner of that particular type of car or
upgrade himself in that family. And you do not start from a zero base.
There have been some studies run over a period of time which I am
told indicate that the people who read automobile advertising are the
people who have just bought new cars.
Now, this leads one to wonder about the effect of a lot of the ad-
vertising that is done and how do you get through to the consuming
public, that maybe you do have something different ? I do not question
that if any automobile manufacturer were to hire Indianapolis or
Daytona race tracks and take their own and their competitor's cars
and go out and run some crashes up against the wall and film them
and put them on television, they would get a lot of attention that way.
I am not sure that those who develop their advertising programs would
feel that it was a good way to go about selling automobiles even though
their own car showed up better than the others.
Mr. ScHTJPACK. Sir, may I suggest that this may not even be the
proper way to ask this kind of a question. It seems to me that the issue
of auto safety has such enormous, as Dean Jacoby said, externalities in
the amount of medical resources tied up, legal resources tied up fight-
ing court cases on automobile accidents, that one does not even stop to
wonder why the automobile industry has not taken safety into account.
One can just assume that this is a Government function and preroga-
tive because of the enoromus externalities, that the automobile industry
could not even begin to feel the social costs of an unsafe automobile,
and that this is one obvious place where the Government has to start at
the beginning to set the results under which the automobile industry
must operate. Do not worry about their intention or their objectives.
Mr. Boyd. I think I would like to add one more comment about sell-
ing safety and this gets from economics and politics to psychology.
That is that I am convinced there is a very firm belief on the part of
most Americans, maybe most human beings, that it is not going to
544
happen to me, and this, I think, is a great deterrent factor in trying
to sell safety, the feeling that I am not going to get in trouble.
Senator Nelson. Well, I am sure there is something substantial to
that, but for an industry which has said for year and years and years
that safety will not sell, you cannot convince me that they spent much
time either trying to develop safety in instruments or trymg to sell
them. If you do not believe it will sell, you are not going to spend
money in developing something that costs money. They have not done
much about trying to make the automobile a safe container which can
be rolled and in which you package the item that is riding in it in a
safe method within reasonable costs of development. And there is
another factor in this "Safety does not sell" idea. I am sure that lots of
people do say, "It is not going to happen to me ;" but I do not know of
a single mother or father in his country who, every time the teenage
kids take the car, does not say, "I hope they drive carefully and will
not have an accident." If a company were producing a car that was
safe, there would be a great appeal to that parent to buy the car. Every
single time I have been at somebodj^'s house and the teenage son is not
back, they say, "I hope something did not happen to him."
So people are anxious about safety and I think it would sell if the
industry were concerned about selling it.
Mr. Boyd. I want to be clear, Senator, and I think my record is
clear, that I have not been happy with the relative lack of action by
the manufacturing industry. I think there is a question of the social
versus the — the social values versus the marketplace that is involved
here and looking at it as one who has no interest except as a sometimes
automobile driver and owner, I would have thought that the manufac-
turers at some stage of the game, with all of the money they put out in
market research, would have appreciated what Dean Jacoby was talk-
ing about, the rising interest in safety, and have spent — put more effort
into safety research to prevent the Government regulation which ulti-
mately had to come about because of their failure or inability to do
anything about it.
Mr. Jacoby. I would like to suggest, Senator Nelson, that safety
standards are not a decision that ought to be left to the voluntary ac-
tion of the automobile industry. Manufacturers in the industry, do not
recognize and cannot measure the tremendous external costs that are
involved. The enormous insurance premiums that are paid on account
of auto accidents is one type of cost. The tremendous expense of polic-
ing our highways, removing wrecked cars, et cetera, is another kind.
Simple cost-benefit analyses would show, I am sure, that when you
integrated all of these external costs into the true costs of present day
auto accidents, an increase of 50 or a $100 in the price of the car to
make it more safe would be a tremendously high-yielding investment
for society. That is why I would argue that it is up to Congress and
the State legislatures to iinpose these standards on the industry.
Senator Nelson. Did you have a comment. Professor Dowd ?
Mr. DowD. Yes. I would agree with what Dean Jacoby just said but
I would broaden it considerably. I think there is a tendency to look
at this sort of question from the wrong end of the horee, so to speak.
I do not think that business firms either have or can be expected to
have a sense of social responsibility and as I suggested before, if they
did have, I would not particularly believe that the particular sense
545
of social responsibility they have is the appropriate one. I do think
that it may be useful to ask ourselves this kind of question about the
automobile industry and about many other industries. Suppose we
were to look at the product that particular industries produce and
sell. Automobiles, which is to say, transportation, although that is not
what they sell entirely, transportation from the auto industry and beer
from the beer industry and suppose we were to ask what kind of social
criteria should guide the production, sale and consumption, the use
of these products, and then ask ourselves how in fact are these products
produced, sold and used? And I think we would find a world of
difference between those two situations, one an ideal and the other the
reality.
When it comes to beer, for example, I would favor legislation that
would say that beer companies cannot, whatever consumers want,
cannot put out beer in beer cans and similarly with soft drink com-
panies because as anyone who studied this knows, there is no way of
disposing of those damn things. There is no way of getting rid of
them except to throw them on roads, in lakes, and into rivers.
I would say that industrial firms should not be allowed to pollute
the streams. It is a natural, necessary thing for them to do, given a
certain set of impulses and a certain set of costs, of otherwise behavior,
et cetera.
I think if we were to ask ourselves, in other words, at this stage of
our economic and social development, what kind of criteria should
guide the production and use of particular kinds of products, we
would find that it would be necessary to have an enormous set of
regulations within which production could be carried out by the busi-
nessman's own criteria within those constraints, but I think we also
know that in order to not only devise and implement, not only to de-
vise and make legal and requisite such regulations but to implement
them and to effectuate them, I think we know we are talking about
a political never-never land because the kind of constraining legisla-
tion that would be necessary, that is, setting up a framework within
which certain criteria were" realized and allow freedom within that
framework, to set up that framework is politically out of the question
at the moment. If it were possible, the regulators would be those who
are regulated, as in public service commission— for example, the regu-
lators would be the very people supposedly regulated and the chances
are the whole thing would be changed very soon because it does not
work.
Now, essentially what I am talking about here is a problem ot power
once more. Power and a set of public attitudes, I should say a condi-
tion of public ignorance and apathy, which is not something that is
natural to people, is a product of this society as much as our gross na-
tional product is. In other words, our attention has to be directed to the
condition of our society, such that there is a blindness and a deafness on
the part of the average citizen to what his interests are.^Vhen Ave speak
of the average citizen making choices, we are not speaking of him mak-
ing informed choices. We are speaking of making choices loaded in
one way rather than the other, and he simply does not have the in-
formation, he does not have the persuasion, he does not have any per-
suasive agencies, not even his Government, that can with a loud and
clear voice tell him what his real choices are.
When it comes to the automobile specifically it seems to me that it
would be quite possible to meet many of the criteria that most Ameri-
cans accept, that it is better to have private than public enterprise, and
at the same time have severely constrained private enterprise — for ex-
ample, that a product has to meet certain safety conditions, has to meet
certain longevity conditions, with a range, that it has to meet certain
kinds of functional conditions and also to have that situation set up
within a larger transportation framework where the Government sees
to it that we do have adequate transportation facilities of a mass public
variety.
But these questions are political questions and they revolve around
the distribution of power, and it does not seem to me that it is simple
or easy or even possible at this moment to devise realistic ways of
bringing the ideal to something like the reality. I do not think it makes
any sense at all to expect industry to be able or to want to take upon
itself these kinds of criteria. I just do not see that that makes any sense
at all. I would be amazed if the automobile industry had gone about
forthrightly developing safety characteristics for automobiles over the
past 20 years. They would have been simple enough. It would not have
cut into their profits. It is not their business, that is all. It is a social
problem, not their problem,
Mr. ScHTJPACK. Let me agree with what Professor Dowd said, and
this, of course, reflects what I said before : Why should we expect the
auto industry to do anything that they do not see directly benefits
them ? I would agree with Professor Dowd in large part that the set-
ting of the rules is a political problem. It is complicated, difficult, com-
plex. But I am more optimistic I think, about the possibility and feas-
ibility. I would hope that one of the results of tMs continuing set of
hearings over the past 2 or 3 years would be a recognition of the
problem that these rules are needed, that there are social versus private
solutions which need to be developed, and that it is up to Congress to
develop the social part of that solution plus whatever controls and re-
straints are needed on the private sector, and to continue to press for
solutions in that area.
Even in the area of regulation which admittedly is not very success-
ful today, either on the 'State or the Federal level, I think, and this
is a judgment on my part, I am beginning to see a kind of knowledge-
ability, a kind of social responsiveness of some regulatory agencies.
It is very crude, it is in the beginning stages, but it is not impossible
and I think we can move in this direction.
It is an evolutionary kind of thing. We need not start off with some
different structure. I agree with Professor Dowd we are not going to
start off with a new structure but with the present structure. I think we
can make some progress.
Mr. Watts. Professor Jacoby, on page 4 of your statement you
tended to deprecate and also to class as an error the concern about the
increase in what your friend and my friend, Willard Mueller, has
called "aggregate concentration," that the staff of the Cabinet Com-
mittee on Price Stability made much of, that the Neal Task Force
made much of. I refer to the increase in two decades from 48 to al-
most 59 percent of the share of manufacturing assets held by the 200
largest corporations.
547
You say this is a statistical trick, because the 100 or 200 largest firms
at the end of a period rather obviously will have grown faster than
the corporate universe.
By that do you mean they are not the same firms for the most part,
that the 200 firms of today are not the 200 largest firms of 20 years
ago, in significant part ?
Mr. Jacoby. I mean this may be the case. I have not been able to
examine in detail the process by which the FTC developed the figures.
1 do not state this as a fact but merely as a possibility.
Mr. Watts. Well, I have not made a close comparison of the names
of the 200 largest of 1948 and 1968. Professor Galbraith made the point
2 years ago that there is a remarkably low rate of turnover among the
200 largest. Certainly not all those names that were on the list 20
years ago are still on it and some that were not on it then are on it now.
In the particular industry about which we are principally concerned
in these hearings, all the names are still on it. Senator Nelson in his
opening statement had a table to show the rank on Fortune'^?, list, in
every year that the Fortune list has been printed, of the "big four" of
the automobile industry. GM has headed the list every single year.
Ford has been third on the list every year, except for 2 years in
which it edged ahead of Standard Oil and was second. Chrysler has
fluctuated between positions five and 12 and has been in position five
continuously the last 4 years. Only American Motors has vacillated
rather widely from a high of 38 in 1960 to a low of 131, and that low,
most lamentably, was last year.
Now, another point you made in this connection was that increases
in aggregate concentration may not be important because the growth
of these firms is accounted for by their foreign business. However, I
want to be clear about this. Am I correct in my impression that
the 58 percent figure that is talked about for 1968, 58.7, compared to
the 48 percent figure for 1947 and 1948, is of assets used in manufactur-
ing in the United States? That is the yardstick; is that correct?
Mr. Jacoby. I believe not, sir. My understanding, and I have not
been able to verify this with the Federal Trade Commission, is that
they have simply taken the total assets of the firms whether they are
located in the United States or abroad, and whether they are involved
in manufacturing or in other activities.
Mr. Watts. I am almost certain it is assets used in manufacturing
in the United States; but, Mr. Chairman, with your permission at this
point in the record we will insert a clarification of that.
Mr. Jacoby. It should be clarified. .
(The following exhibit was subsequently submitted by the Chair-
man:)
Exhibit 28A
(Subcommittee chairman's exhibit No. 6 (subsequently submitted) : Letter dated
August 22, 1969, from Willard F. Mueller, Director, Bureau of Economics,
Federal Trade Commission, to Senator Nelson.)
Federal Trade Commission, Bureau of Economics,
Washington, B.C., August 22, 1969.
Hon. Gaylord Nelson,
U.S. Senate,
Washington, B.C.
Dear Senator Nelson : This is in response to your request that I clarify some
points raised by Professor Jacoby in his recent testimony before your subcom-
mittee.
:?9-4Q1 O - KP
548
Mr. Jacoby has made several erroneous representations with respect to the
FTC's estimates of the top 200 corporations' share of corporate manufacturing
assets.
(1) He stated that "there may be a statistical trick in these figures which
makes them measure the relative success of a group of large enterprises rather
than the trend of concentration. The 100 or 200 largest firms at the end of a
period rather obviously will have grown faster than the corporate universe. They
will be a different group than the 100 or 200 largest at the beginning." Professor
Jacoby implies that the FTC used the same 200 companies over the entire period
1948-1967, rather than the 200 largest in each year.
This inference is wrong. We have not played any statistical tricks on Professor
Jacoby. In fact, he is the only person I know who has suggested this interpre-
tation of our data. The FTC series does not, as he suggests, measure the share
that the 200 largest corporations of 1967 held in 1948 and 1967. Rather, it
measures the share that the 200 largest corporations of 1948 held in 1948 and
the 200 largest of 1967 held in 1967.
(2) Professor Jacoby states that the FTC estimates overstate the increase in
overall concentration in American manufacturing because the figures include
the total assets of American corporations engaged primarily in manufacturing.
He is correct that the FTC figures include some nonmanufacturing and foreign
assets. He is not correct, however, in inferring that the inclusion of some of
these companies' foreign operations distorts the trend in the FTC series. The
most conclusive evidence on this score is the fact that the FTC series went up
less rapidly between 1947 and 1966 than did the Bureau of the Census series
that measures the share of value added by the 200 largest manufacturing cor-
porations. The latter series is the only one restricted solely to domestic manu-
facturing operations. Although for a number of reasons it understates the share
of total domestic manufacturing controlled by the top 200 manufacturing corpo-
rations, it provides an accurate estimate of the trend.
FTC series
Bureau of
share of
the Census
corporations'
share of value
manufacturing
added by
assets
manufactures
47.2
30
56.7
42
9.5
12
1947
1966
Increases.
As can be seen from the above comparison, the FTC series rose by a smaller
percentage than did the Bureau of the Census series.
Finally, a soon to be published FTC staff study shows that the figures shown
in the FTC series actually understate substantially the importance of the top 200
manufacturing corporations of 1968.
I hope this information will help to answer the questions raised by Professor
Jacoby 's interpretation of the FTC's statistical series.
Sincerely yours,
WiiXABD F. Mueller,
Director.
Mr. Watts. Now, I turn to the matter of how much we know. You
and Professor Schupack differed on many points but you certainly
agreed that we need to laiow more about the nature of our economy,
the nature of our industry. How much more do we need to know about
the nature of our very large companies? How much more, for example,
do we need to know, to be very specific, about how much of General
Motors' revenue is derived from foreign operations as opposed to
domestic operations, would you say. Dean Jacoby ?
Mr. Jacoby. Well, I would answer in this way. The passenger auto-
mobile market is really a world market and not a national market. The
appropriate concentration ratio would be a ratio that took into account
the firms that are selling in this market, whether they are foreign
based or domestically based.
549
Now, if you are asking me do I believe that General Motors ought
to divulge routinely the earnings from foreign operations, I would be
willing to rest on the standards established by the Securities and Ex-
change Commission in this regard.
Mr. Watts. Now, in this connection. Dean Jacoby, in the original
proposal of the Securities and Exchange Commission, promulgated
last September, one of the new items of disclosure would have been
a breakout of foreign revenues. As the proposal was revised and re-
promulgated — for further consideration, not as a rule — in February,
that particular requirement, among others, was deleted. As a result of
the industry comment that SEC received between September and
February, they gave quite a bit of ground to industry, and that was
part of the ground they gave, if I am not mistaken.
Mr. Jacoby. Yes.
Mr. Watfs. Would you rest on the September proposal or the Feb-
ruary proposal of the SEC as the better public policy ?
Mr. Ja(x>by. It does not seem important to me that a manufacturing
enterprise break out publicly its foreign and domestic sales and profits.
It does seem to me important, however, that a manufacturing enter-
prise which is making and selling products in different markets, which
is a member of different industries, should break out its sales and
profits by industry.
Mr. Watts. Would you say, then, for example, again focusing on
General Motors, not because we have any animus against General
Motors but simply because it happens to be the largest corporation,
would you say that General Motors ought to disclose how much it
makes from locomotives as compared to buses, as compared to automo-
biles, as compared to trucks ?
Mr. Jacoby. Yes. I think it is a member of different industries,
according to the standard industrial classification, and should be
required to report its sales and profits by industry. But I would not
be in favor of requiring it to go further and break down the passenger
car operations by model or make.
Mr. Watts. In other words, we ought to know how important passen-
ger cars are as compared to trucks, not how important Cadillacs are as
compared to Chevrolets ?
Mr. Jacoby. That is true, and the reason for the distinction is that it
would help the investment community guide capital resources to the
most profitable areas. This is information — intelligence — that is neces-
sary for the guidance system of our whole capital allocation process.
Mr. Watts. Mr. Mann yesterday, when I made essentially the same
suggestion to him, countered with a question to me : "What good would
it do?" He said that he could see incalculable harm it would do. May I
pass on to you Mr. Mann's question ?
Mr. Jacoby. I have answered it. It would provide investors and bank-
ers who underwrite security issues, investors who buy them, bankers
who lend money, with
Mr. Watts. How about other firms that might compete? They are
investors, too. This is the great disadvantage, from General Motors'
point of view. If they published data that revealed that they were mak-
ing, let us say, hypothetically, 200 percent profit on an investment in a
particular area of their operations, that would cause investors; namely,
550
investors in competing firms, to take another close look at that market.
Is that correct ?
Mr. Jacoby. Well, if General Motors, for example, were making an
abnormally high profit, let us say, in the truck business, where they are
competing with firms like International Harvester and Mack, I think
that the public is entitled to know that, just as we would expect Inter-
national Harvester to break out its sales and profits on trucks versus
farm implements, two industries in which it is currently engaged. Both
kinds of information are necessary to enable the financial community
to allocate capital more efficiently in the economy.
Senator Nelson. What about requiring divisional reporting ? That
would mean the Cadillac division.
Mr. Jacoby. No. I would not ask General Motors to break out Cadil-
lac versus Chevrolet. That is all part of the passenger car industry.
Senator Nelson. Why would tnat be objectionable ?
Mr. Jacoby. I do not think it is needed. I do not think the information
is sufficiently valuable from the standpoint of capital allocation to
justify the cost.
Senator Nelson. Justify the cost ?
Mr. Jacoby. The cost of preparing and publishing it. I do not think
this is a matter of importance to the investment community.
Senator Nelson. Well, what about the public?
Mr. Jacoby. Or the public.
Senator Nelson. This is the point that seems to me to be important. If
you have a company that is as large as the statistics repeatedly show
GM is, with over 50 percent of the domestic auto market, producing
locomotives and trucks and buses as well as automobiles, a very power-
ful economic company because of its massive size, is it not of great
social value in a free society to have a substantial amount of informa-
tion about that company and about any economic group, no matter what
it is, when they have so much power? I do not understand the
objection.
They always say, "But our competitors would find out what we are
doing." Well, I think they all know anyway. They are hiring execu-
tives back and forth. But every other company m America that is
producing only one product in effect is making a divisional report
and they are competing in our competitive system. If you make just
one automobile, you are reporting on that automobile. If you make
just one wagon, one product, you are reporting on that product and
everybody sees in effect the divisional report. Why should not the
most powerful and biggest corporation in America be able to stand
up to revealing the same amount of product information as thousands
of other corporations reveal in this country ?
Mr. Jacoby. Well, that is exactly what I am suggesting they should
do. Let me repeat my point: For the purposes of rational and effi-
cient capital allocation, every multi-industry or multi-market corpora-
tion should report to the public regularly its sales and profits in each
of the markets or industries in which it is participating. It does not
seem important from the standpoint of guiding capital allocation that
General Motors break down its passenger cars as between Camaros
and Cadillacs or various other makes and models that they may be
producing.
551
Senator Nelson. I do not understand the objection. They have the
figures themselves. Every other company in America has to do it if
they make just one product. We are dealing with a corporation that
is huge. Any corporation of this size or anywhere near this size may
or may not be engaged in monopolistic practices. Our Justice Depart-
ment historically has not been very good about taking on bi^ people
who engage in monopolistic practices; they vary from administration
to administration anyway. Furthermore they may never discover it. It
is just one Federal agency here. So is it not possible that they can
engage in monopolistic practices, unfair competition, selling a car at
a much lower price in one particular make to compete with another
company and push them out of the marketplace and be paying for it
out of some other division ?
I am not saying any one of them is doing this but they can do that,
so why should we not have the information ?
Mr. Jacoby. Well, I would assume that competition in the market
would take care of that problem. There is a sufficient number of other
makers of cars — large and small — among the 360 models domestically
produced alone, and the dozens or even hundreds of foreign cars
available, to assure that within each price class and type and style,
there are alternatives open to the buyer, and that each maker disci-
plines the other.
As an economist I am interested in efficient capital allocation among
industries.
Senator Nelson. Would divisional reporting injure efficient capital
allocation in any way ?
Mr. Jac3oby. I cannot see that it adds significantly to the efficiency of
the process. The auto companies will have to answer for themselves as
to why they do not want it, but I would not insist on it.
Senator Nelson. They do not want it because they do not want the
public to know. That is pretty obvious.
Mr. ScHTjPACK. I disagree^ with Dean Jacoby in two items. One is
the question you just brought up. There are two publics that an in-
dustry has to tell people about. One is the investment public, the effi-
cient allocation of investor funds among different industries, and as
Dean Jacoby suggests, I suggest it would not add significantly if we
had divisional reporting in GM for the investor to know whether he
ought to put his money there or into another kind of a firm.
But that is only half the story. The other half is the general public,
the consumer again, who has no constituency, who is concerned with
efficient market structure and market operation. For that we have got
to have divisional reporting just as you suggest. The kind of cross-
subdization which can take place is all too easy to do and it is all hidden
at this point. We have no idea what kind of loose leaders might be
thrown into the market.
Mr. Duffy. Professor Shupack, you make a very strong case for
divisional reporting and without really saying what my feeling is, it
just occurs to me that Professor Jacoby has mentioned that there are
some 360 odd different models of automobile or something like that. I
believe that is far in excess of the number of divisions of all the auto-
motive companies.
Mr. ScHUPACK. It depends on how you want to report the model.
562
Mr. Duffy. Would you want to have reporting of automobiles in-
clude air conditioners in Chevrolets
Mr. ScHUPACK. No. I think this obviously gets silly because you get
down to the point where you have got so many joint costs, joint costs
being costs which you need to incur for all model production, but
which you cannot allocate to any one of the models. I do not believe
there are 360 different models made. It depends on how you define
the different models.
Mr. Jacoby. I am relying on the testimony of Mr. Mann at this
point.
Mr. Duffy. You never can be certain that there never would be
any crossover of surplus profits from one area to another.
Mr. ScHUPACK. This is so. On the other hand, again, I think that a
full investigation would reveal some kind of rational place to draw
the line. "Wliether it is the present major brand names or some sub-
groups under those brand names, I think is an empirical question
which one answers only when one sees the amount of complementarity
among the costs, that is, the amount of joint costs shared by the
models; really, the closeness of the models. Someone said General
Motors perhaps makes only three or four basically different models.
Does that answer your question ?
Mr. Duffy. I am still a little bit confused. For instance, let us take
something I am familiar with just because I happen to favor a particu-
lar model of General Motors car. Pontiac makes, what, five or six or
seven or more models that I am aware of. Now, would you have us
report on the basis of just the Pontiac Division or would you have us
report on GTO and Catalina and Firebird ?
Mr. ScHUPACK. No. My intuitive reaction is no. One can only answer
this with some confidence once you have seen the data which nobody
has seen yet, once you see the accounting system and the actual physical
way in which these are produced. If they are all produced on the same
production line my guess is you could not possibly separate out the
costs of each of the models. Most of the costs are in a conmion produc-
tion line. The amount of common use of production facilities may be
one way to start to divide what you can break out and what you cannot.
Mr. Duffy. I see as much difference between Firebird which is a
little thing and Catalina which is a full-sized car. If I shared your
concern that you might be subsidizing losses on one car by profits on
another I would want to get down to the bottom of it.
Mr. ScHUPACK. It is a matter of degree, a matter of practicality.
Mr. Duffy. You and Professor Jacoby are saying essentially the
same thing.
Mr. ScHUPACK. I am just drawing the line in another place. I would
go down much further than he would advocate going down. Where I
have to stop is a practical matter.
One last point I want to make regards Dean Jacoby's notion that the
automobile industry is really competing in a worldwide market. The
1966 export of automobiles Avhich is the latest year I have was just
slightly over 3 percent of their total sales. Now, does 3 percent of their
sales constitute a major involvement in a world market? Well, this
is a matter of judgment. The number seems awfully small at this point.
Mr. Boyd. I would say, if I can interpolate, I thought Dean Jacoby
553
was talking not only aJbout exports but imports in terms of world
market.
Mr. Jacoby. I was. I think the more relevant figure is that about 10
percent of the American market is supplied by foreign automo])iles.
Mr. Watts. Mr. Chairman, may I, without objection, insert in the
record, in connection with the point we were discussing on the Securi-
ties and Exchange Commission proposals of September and February,
an article from the Journal of Commerce of July 9, 1960. just, the day
before yesterday, on the history^ of this matter? The article is headed :
"Big Firms Fight Data Requests."
Senator Nelson. It will be printed in the record.
(The article referred to follows :)
Exhibit 29
(Subcommittee counsel's exhibit No. 1 : Article by Jan Nugent, "Big Firms Fight
Data Requests From Competitors, Critics, Capital," The Journal of Commerce,
New York, N.Y., July 9, 1969)
Feom Competitors, Critics, Capital : Big Firms Fight Data Requests
(By Jan Nugent)
Washington, July 8. — The most bitter "freedom of information" battle may
be waged, not over the musty file cabinets of government bureaucracy, but over
the profit and loss statements of some of the country's large, diversified firms.
As multi-product companies have grown, so have the demands from single-line
competitors, corporate critics and ofiicial Washington for detailed financial break-
downs by conglomerate enterprises on a product by product basis.
Presently, most diversified firms lump together profits and losses from all di-
visions in reports to the Securities and Exchange Commission and their stock-
holders.
The SEC believes the practice does not provide investors with enough infor-
mation to make sound investment judgments, and has proposed a rule, not yet
final, for more detailed reporting.
The diversified firms argue that this kind of disclosure would require compli-
cated, time-consuming bookkeeping for no legitimate purpose. They also main-
tain it would place them at a decided competitive disadvantage.
The detailed financial data also has important antitrust implications. It could
help validate or lay to rest a traditional charge made against large, diversified
firms — they use earnings from their profitable divisions to .subsidize their money-
losing ventures and squeeze out smaller local competitors.
If the data substantiate that accusation, it could inspire a rash of private (or
federal) antitrust suits. .
A Senate Small Business Subcommittee is holding hearings on the auto industry
this week, zeroing in on "needless corporate secrecy" practices by the Detroit
Giants. ^ , ^, j. ,
Sen. Gaylord Nelson (D-Wisc.) subcommittee chairman, feels the auto makers
make too big a mystery of production costs and divisional profits and losses. He
noted that the four largest auto companies had earlier refused to disclose pro-
duction costs, divisional financial data or unit-cost figures to his panel.
KEY PART
The House Judiciary Committee, midway in its conglomerate investigation, re-
gards the detailed financial information as a key part of its probe. So far. success
in attaining it has been mixed. , . , , , ,• „
The SEC softened its initial proposal on the issue, which has now been i>ending
since September 1968. The present version would require companies to disclase
separately profits and losses from products or services which made up 10 i^er cent
of total sales, operating revenue, or hefore-tax income for the past two fiscal
The SEC decided not to make diversified companies report the amount of assets
used in a particular type of activity, or to require a breakdown of sales and
earnings received from foreign sources, from a single customer or the government.
554
The agency's arm has been nudged by some legislators on Capitol Hill who feel
the present proposal is too little and too late (since it is still not in effect) .
Sen. Nelson has threatened to introduce legislation going "substantially be-
yond" pending SEC requirements. Sen. Philip Hart ( D-Mich. ) , chairman of the
Senate Antitrust and Monopoly Subcommittee, indicated in recent public re-
marks he was not satisfied with the SEC proposal, or with the speed with which
it was emerging.
CABINET COMMITTEE
President Johnson's cabinet committee on price stability criticized SEC's 10
percent requirement, contending it would produce product line reporting from
corporations with only a few product classes, but very little information from
huge conglomerates which make hundreds of items.
The cabinet committee recommended extension of detailed reporting to prod-
uct categories which accounted for 5 per cent of sales. Under the 10 per cent re-
quirement, the 50 largest manufacturing companies would have to give data for
only 14 per cent of the industry categories they operated in 1963, the committee's
report contended.
More detailed data could also dash or enhance the management mystique in
which conglomerates formerly gloried. "If you were to find one or two divisions
were supporting the rest of the company, it would take away some of the ro-
mance," one source commented.
Mr. Watts. Sir, in our last record we inserted the text of the Sep-
tember proposal. In this record can we insert the text of the February
proposal of the SEC for comparison ?
Senator Nelson. It will be printed in the record.^
Mr. Watts. And finally, might we, in connection with the point we
were discussing on planned obsolescence and the junked car problem,
insert a rather encyclopedic article on that subject from the Wall
Street Journal of June 26, "Auto Age Eyesore," with a related story
from the same issue ?
Senator Nelson. It will be printed in the record.
(The articles referred to follow :)
Exhibit 30
( Subcommittee counsel's exhibit No. 2 : Article by Tim Metz, "Auto-Age Eyesore —
Abandoned Cars Litter City Streets, Posing Huge Disposal Problem — Low-
Scrap Prices Deter Junk Yards From Taking Them ; Haul-Away Efforts
Costly — 'Like Sweeping Back Water' " ; and related article, "Swift Parts Thieves
Turn Parked Cars Into Junkers," both from the Wall Street Journal, June 25,
1969)
Auto-Age Eyesore — Abandoned Cars Litter City Streets, Posing Huge Dis-
posal Problem — Low Scrap Prices Deter Junk Yards From Taking Them ;
HAUii-AwAY Efforts Costly — "Like Sweeping Back Water"
(By Tim Metz)
Big-city mayors must sometimes wonder whether Henry Ford did the world
such a good turn when he came up with assembly lines capable of turning out
cars by the millions. For one of the fastest-growing problems for many cities
is abandoned cars that clutter streets in residential neighborhoods and blight
the landscape along urban freeways.
"A derelict car hurts a street and a neighborhood in countless ways," says
Mayor John V. Lindsay of New York. "It's the wor.st sort of eye.'sore. It attracts
car" strippers and vandals. It collects dirt and refuse. It becomes a dangerous play-
ground for children. Narcotics addicts use it for a shooting gallery, and tramps
use it as a flophouse."
Mr. Lindsay and community leaders in other cities across the country say the
most troubling aspect of the "junker" problem is that so far it has defied solu-
tion. Moreover, the problem threatens to get much worse, for the scrap heap is
growing faster than it can be removed or destroyed.
1 See enclosure (exhibit 2C) In exhibit 2 of appendix VII-A in Part lA of this record.
555
A SYMBOL OF WASTE
As recently as 1964, when 5.7 million cars were junked, all but 400,000 autos
were consumed by industry for steel-making. In 19G8, however, some two mil-
lion car hulks remained to be disposed of after industry's needs had been met.
In Mr. Lindsay's view, the growing junk pile is "a .symbol of an affluent society
and a wasteful society — a society that is barely able to control its own environ-
ment."
Many of the worthless junkers are abandoned at the curb in poor neighbor-
hoods, sometimes by outsiders who bring jalopies in from other sections of town.
That's apparent in an area such as Detroit's Titth Precinct, a low-income, largely
black neighborhood.
On many blocks there, two or three abandoned cars sit at curbside or in va-
cant lots. Often the wheels are missing and the windows smashed. Some are
burned-out hulks. Through last month, Detroit police hauled 1,437 abandoned
cars out of the Fifth, up 37% from two years ago. Trying to keep up with the
junkers "is like trying to sweep back water," says James Clarke, a Detroit police
inspector.
Mr. Lindsay says that New York hauled away 21,500 abandoned cars during the
first five months of this year, compared with 30,000 during all of 1968. Mayor
Alfonso Cervantes of St. Louis says : "A year ago, we rarely got a citizen's com-
plaint about derelict cars, but in May they accounted for 22% of the 384
complaints my oflSce received.
MORE CABS ON THE EOAD
Several factors are behind the explosion in abandoned cars. There are more cars
on the road to wear out. Motorists are also driving more ; thus their cars wear out
faster. The experts also say that cars depreciate faster these days than ever
before, making their owners more likely to walk away from even a relatively late-
model vehicle when it breaks down. Martin Molnemey, a Detroit Chrysler-
Plymouth dealer, says that 10 years ago "if you had a five- or six-year-old car,
you had a marketable product worth $250 or $300." Now, he adds, a five or six-
year-old car is often worthless.
But the most important reason is that demand for scrap metal has been sluggish.
As a result, demand for junkers has held level at about five million cars a year.
But the seven million cars junked last year were up 12% from the previous year
and almost 66% above 10 years ago.
A switch to steel-making processes that use le.ss scrap is one of the main reasons
the scrap metal market's consumption of junkers is no longer keeping pace with
the pileup. Scrap steel from autos that brought $43 a ton in 1956 now fetches only
about $20 a ton. Many scrap dealers say it costs them almost $20 to transport an
old car hulk and then shred it into usable scrap, leaving a negligible profit A few
junk yard owners refuse to take old cars even when their owners offer them free.
The junkmen who do take cars are often highly selective. Julius Wainer, a
Detroit scrap dealer, says he's only interested in junkers when he can make a
profit selling individual parts, such as radiators. But like most dealers, Mr. Wainer
only wants cars made after 1962. "The older ones aren't worth the trouble," he
says.
CITIES FOOT THE BILI.
In some cities, including New York and St. Louis, local governments must pay
most of the cost of picking up junkers. Mayor Lindsay isays that New York spent
$585,000 last year to get private contractors to take away abandoned cars. St
Louis paid out $40,000 in the fiscal year ended last April and expects to spend
$100,000 in the current fiscal year.
Rising insurance and auto registration costs are also contributing to the junk-
car problem. "By the time a guy pays for his plates and insurance, he's liable to
wind up paying out more than his car is worth," says a Detroit policeman. And in
Missouri, where a tough new safety inspection law recently went into effect many
drivers are junking their cars when they find out that the cost of repairs necessary
to get their vehicle through the inspection line will be more than the car's market
value.
Even if the streets could be swept clean of abandoned cars, that wouldn't solve
the problem. Junk yard operators would still be left with ugly mountains of old
cars, sometimes covering acres. Thus, ways are needed to dispose of the mountains.
Proler Steel Co. of Houston has built seven giant auto shredding machines.
556
each capable of turning 250,000 cars a year into neat chunks of scrap. The ma-
chines are now operating in various parts of the country, but they are running at
less than full capacity. The catch is that the low price for scrap metal holds down
the amount Proler can pay for old car hulks, which makes junk yard operators
less than eager to dispose of their old car stockpiles.
Maryland recently passed an auto disposal law that might make the use of
such machines more feasible economically for scrap firms. Beginning a year
from now, the state will pay scrap processors $10 for each car they demolish.
The money will come from small fees charged auto buyers.
The Maryland law also provides that beginning next Jan. 1 junk yard opera-
tors will be allowed to keep cars that are seven model years old or older for a
maximum of one year. After that, the wreckers face fines of $5 a car for each
six-month period after the deadline that the car goes undestroyed. Several other
states are considering similar legislation.
The Federal attack on the problem of disposing of old car hulks has been limi-
ted to research projects and to the moderately successful but scantily financed
attempts to screen auto junk yards from public view. The screening program re-
ceived no funds at all in the fiscal year now ending and isn't scheduled to get any
in fiscal 1970. The Nixon Administration, however, says it will seek funds for
screening in fiscal 1971.
Perhaps the most novel solution to the old-car problem comes from Warren B.
Diederich, a Fargo, N.D., contractor. He recently patented a method of crushing
cars into interlocking shapes that could be coated with waterproof materials
to prevent rusting. The idea is that the interlocking shapes would be a perfect
substitute for crushed rock in building such things as breakwaters and jetties.
But there is a considerable snag. The crushing and coating operation makes the
method cost about 50% more than rock. Now Mr. Diederich is concentrating on
reducing the cost of his technique.
Swift Parts Thieves Turn Parked Cars Into Junkers
Auto parts thieves are doing their part to make the derelict car problem
worse.
"There are literally hundreds of cases I can recall where a car owner has
parked his car, then gone on a routine errand for as little as 30 minutes, only
to return to find his car transformed into an instant junker," says John Inglis, a
Los Angeles police detective.
"These guys are slick. They move in fast with a tow truck, hoist out the
engine and transmission, then take the seats, tires — practically everything of
any value," he says. "In a short time, all that's left is an auto hulk." Detective
Inglis says about 10 cars a day are stripped in this fashion on Los Angeles
streets.
In Chicago, full .stripping of cars is less common, "but a lot of guys have run
out of gas on the freeway and then come back to find their batteries and spare
tires missing," says Jess Brown, a police sergeant.
Senator Nelson. I want to thank you gentlemen for takino- time to
come here and testify today. We appreciate your contribution to these
hearings. Very helpful. Thank you.
(Whereupon, at 12:15 p.m., the subcommittee adjourned, subject to
call of the Chair.)
o
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