: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 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
ni H- 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
IHWJtHIHIi m f - 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
BALANC
ASSETS
AMOUNT
c
LIABILITIES AND NET WORTH
AMOUNT
CURRENT LIABILITIES
c.s-
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.
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
-
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
®
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*
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
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
"
«'
PARTS-R 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
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
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 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 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
7.00-13/4 Ply/N Safety Jet 1/3 0/3 0/3 0/3 0/3 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 1 01 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 1 O/l 3 3
8.25-14/4 Ply/N Jet Air 1 1 O/l 0/1 1 1 1 3 3
8.25-14/2 Ply/N Jet Air 1 1.. 0/1 0/1 0/1 0/1 1 3 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 1 1 1 1 3 3
225R14 Radial Power Cushion - 00 00 00 0/0 00 00
205R14 Radial Power Cushion.. Op
7.75-15/2 Ply/PY Power Cushion.. -- 1/1 0/1 0/1 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 2 2 2 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 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 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
9.00-15/4 Ply/N Marathon - - ---0 1 1 1 1 1 3 0/3
9.00-15 Power Cushion - -00 00 00 00 00 00 00
9.00-15 Custom Power Cushion 0/0
9.15-15/4 Ply/PY Custom Power Cushion -.-0 5 5 5 5 5 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 1 1 1 1 3 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..... 1 1 1 1 1 3 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
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
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
8 2l4 6Ply/NSafeSmice"::::::- 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
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 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
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
sfellipiBuu'apYemiV 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.. 3 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
Goodyear
Lee Tire
33
6
Cooper -
6
1
Denman
2
Mansfield.
5
2
Dunlop
5
2
McCreary
5
Firestone
36
8
Mohawk
8
2
Gates
4
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 
