Full text of "Work materials ..."

BOSTON PUBLIC LIBRARY

3 9999 06542 03

5 CE OF NATIONAL RECOVERY ADMINISTRATION

DIVISION OF REVIEW

THE RUBBER INDUSTRY STUDY

By
W. H. Cross
G. S. Earseman
J. H. Lenaerts

WORK MATERIALS NO. 41

INDUSTRY STUDIES SECTION
February, 1936

9S85

OFPICS 0? ivATIOl^AL ZECOVniRY ADUriST-^ATIOF
DI VI SI OF OF :I2VIEy/

TI-IE RUi3S:3H licTlISTHY STUDY

3y
T7. Ii. Cross
G-. S. Sai-seinan
J. E. Lenaerts

Il.,DU3T?vT SiTIDIES SSOTIOr
February, 1936

P il E "J p. D

This rejort on "The RulDber Industry Study" ¥;as pi-epared by W. H.
Cross, G-. 3. Earscman and J. H. Lenaerts of the Industry Studies Section,
M. D. Vincent in charge.

This study wa.s Lindertcien chiefly for the "purpose of recording the
formulation, operation and effect of provisions in the rubber codes
affecting prices, ■oarticularly the emer;.ency price provisions and the
mi niiiTJjn price regulations established in the Retail Tire Trade.

In order to provide abachgro"and of "OJider standing of the problems
involved, this report contains (a) a survey of the industry as to its
extent, its relationships with workers, users and related industries,
and its long^ record of un jrof itability, and (b) the major and speciaJ
problems of the industr3/, foreign domination of raw materials, excess
capacity, ra.pid technological develoyjiaents , limitation of marlcets,
price instability, and industry discord.

Pour approved codes ai'plied to the Rubber Industry and Trade.
Three of these, the code for the Rubber Tire Llanuf acturing Industry,
that for the Rubber Manufacturing Industry (other than tires) and that
for the Retail Rubber Tire and Battery Trade, are dealt with in this
report. The code for the Reclai^^ied Rubber Manufacturing Industry is not
treated here. Sta,tistical na,terials contained in this report were
coi/ipiled b:/ the stu.dy ii^iit caid were not checked by the Statistical
Scvction.

Limit8,tions of tiiue e.nd personnel have prevented as thorough a"-:
pre-publication review of the nianuscri.jt as the Division would have
wished to make. There rerac?.ins a difference of opinion bet¥/een the
reviewer and the authors as to whether the authors are too severe in
their criticism of the KRA, the Code Authority, and Industry Member
participation in the administration of code provisions. The revieTi^er
holds that it is not reasonable to expect that the long-standing and
involved problems of the industry could be adequately met in the short
time in which these codes were in effect.

At the back of the re'oort a brief statement of the studies under-'
taken by the Division of Reviev;f will be found.

L. C Marshall,
Director, Division of Review.

Rebrixary 3-., 1936

13 R!y35g

9685

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RUBBEB IITOUSTHY STUDY
■TABLE OF CONTENTS

Stuninarj^ of Findings 1

....■■ CHAP'TEE I - IKTRODUCTIOU

1. Definition of the Industry 5

2. Historj?- and Development of the Industry 6

3. Diversification of Products . 7

4. Plan of 'study ' '. . 8

CHAPTER II - SCOKOMIG ASPECTS 01 .THE IKDUSTRY

A. Scope

1. Declining Number of Establishjnents. 9

2. Unprof itatility and ShrirJtage of Demand as Causes of

Decline in Number of Establishments 9

3.' ' Location of Sstfiblishirients by Area and La.ck of Trend

of Migration to -any One Loca,tion 10

4'.' Iv'uJnber of Establishments tj States . .^ 11

5'.' Kumber of ¥age Earners 13

6". I'Tumber of Wage Earners by States. 14

7. Shrinkage in Invested Capital 17

8. ' DBcliniug Value of Industry PToduats, by Classif ication. . . . . . .18

9. Value of Products 21

10. Decreasing Volume of Production of Pneuma.tic Casings 22

11. Decreasing Volume of Production of Rubber Products 24

li-A Production and Consumption of Tires by States Indi-
cating Interstate Character of Commerce in Tires 26

12. Excessive Productive Capacity of the Industrj-' 29

13. Seasonal Fluctuation and Declining Trend of Production 34

B. Distribution, Competition, and

1. Varietur in T^'-pe and Number of Distribution Outlets. 49

2. Confusing and Illogical Price Structure in the Industry 41

3. Price Str^acture in Other Rubber G-oods Industry. 42

4. Character and Intensity of Intra-Industi?'- Competition 42

C. Financial Aspects of the Industry

1. Corporate .end Subsidiary Sfructure for Specialized
i\mctions. 45

2. Comparison, of Profitability^ of Tire and Other

Rubber G-oods Divisions 49

3. Unprof itability of Tire Industry 51

4. Kurriber of Declining Profitable Tire Companies 52

5. Increasing P'srcentage of Tire Companies

Reported Losses -. . . .- 55

5. Increasing Gross Profits in Tire Industi^;-. . . . 58

7. Decreasing Net Profits in Tire Industry -. 59

8. Decreasing Value of Fixed Assets of Tire Industry 60

9. Inc'.'eased Deficits Due To Pajinent of Unearned Dividends 6r

10. Taxes Paid by Tire Gompaines. 63

11. Transfer of Capital and- Production Abroad 54

-i~

9685

RU33BR IL1)USTRi STUDY (GO¥'J}.)

TABLE OF COl^^Tg'TS

12. Decrer.sing Importance of United States in Page

Crude Ru.o'ber Cons^'oLmption 65

12-A Record of Insolvencies in RuTDoer Indiastr^?- 67

D. .7AG-ES. ' .

. - . 1. Effect of Hepression ano Codes on Hourly ~ages 68

. . 2. Effect of Depression a.nd Gooes on Weekly "Jages. ., 69

3. Effect of Depression a.nd Cod.es on Annual Payrolls 70

4. Increasing Importance of '.Tages as -an Element of Costs 71

5. High 'Tages Paid D,y Tire Industry in Comparison with

All Other Industry , 72

E. EMPLOn.IElIT AlZ) HOURS

1. Decrease, in Average '.Teelcly Hours in Tire Division 73

2. Decrease in Average "Jeeklj Hours in Other Rubber Division 74

3. Pluctuaticns in Employment from 1926 to 1935 ' . 74

4. Seasonal, Eluptuetions in Employment 75

5. . Increasing Productivity of Labor in Tire Manufacturing.. 78

■ 6.. Di spla,cement of Labor Due to Technological Changes.....'. 79

7. Suramar3^ of Smplovraent, Payrolls, and lian-Hours

in Tire Industrj'. . 80

:-..:_ CHAPTER III

SPEClAIi PR03LEHS IF THE IlolUSTRY

-A. • .EOREIGI'T COFTROL OVER RA~ IL4.TERIALS

1. Tlie Stevenson Act :' '. 88

2. The International Rubber Regulations Committee 91

3. Losses to Manufacturers Attendant on Market Eluctuations. . . . . 93
49 Disparitj^ in Costs to Lai^ge and Small Manufactiirers 93

■•B,. GHAJMG-IIJG CHAi'::ELS OR DISTRIBUTIOII 95

G. DESTRJJOTITq: PRICE CUTTIHG-

1. Pactional Conflicts 99

2. Manufacturers vs. Mail Ord.er Houses 99

3. Large Versus Small ilan'^afacturerg 100

4. Guarantees, Trade-ins and Other Price Cutting Devices 101

5. Unfair, Use gf Superior Capital Resources 102

D. .THE PROBLEM OP C017TIKUAL CMUGES iK TIRE SIZES AH) TYPES..'. 103

...... CHAPTER IV .

, IBIDUSTRY m^TDSR T.^IE CODES

■ A. CODE EORJ.ULATIOiJ

1. Proposed Codes . ; " 105

2. - Finavl Determination of Basis of Codification 107

3. I ndustir;.'- Proposals -Price Stabilization .. 109

4. Assent To and Approval Of Codes ". 12C

9685 -ii-

RimBER li'IDUSTHY STUDY (COiJT.)
TABLE 0? gOL'TSivTS

B. LABOR PROVISIOrS ir CODES Page
.1. Hours . ,:...,. 121

2. Wage s 124

. 3. Liodifica,tion , 127

C. PRICE STABILIZATION PROVISIOFS

1. Uniform Accounting and Cost Recovery Provisions 128

. 2, Open Price Piling 135

3. The Emergency in the Retail Tire Tra,de

....... 1. Tir,e Distrilsution and Price Structure 145

2. 1^^365 of Distribution. ' 145

3., Range, of. Q.ualitier. Offered 145

4. Retail Prices 145

5.. Dealer Pri ce s 146

6, DeaJ.er Discounts. 145

7. Johber Prices •. 146

8.. Private Brand Prices... 147

9. Price ITars in tlie Inuustrj/- and Tra„de. 148

10. Industry Efforts at Stabilisation 148

11. The Situation after January 1, 1S34 149

12. The Tmce Declared under Section 4 150

13. The Retail Tire Code Provisions 152

14. The Decla.ration of Emergency 154

15. The Existence of the Emergency 15-4

15. The Classification of Tires and Tubes. . . : 155

17. The Lov.'est Reasonable Cost 156'

18. The G-Uv.rs.ntee Clause and Controversj'" 157

19. Effect of Emer.gency Provisions on Current Prices....... IJO

20. Effect of Orders Fo. X-48 and Uo. 6757 '162

21. Complaints Against the Emergency Regulations 163

22. Small Dealer Complaints 163

23. Complaints from Small Man^of acturers 164

24. Complaints from Private .Brand Distributors 165

25. Complaints of Lack of Enforcement. 166

25. The Demand for Differentials in Price. 166

27. Modification of the Emergency Price Provisions 159

28. BreakdoTJn of Compliance and Enforcement 173

29. Termination of the Emergency Provisions 174

30. Effect of Expiration of Emergency- on Price Levels 175

31. Subseouent Price Trends in the Trade '176

D. CODE AUTHORITIES

1. Selection, Organization, and Agencies 177

2. Financial Aspects of Code Authority Operation 179

3. Effectiveness of Code Authorities ; 183

CHAPTER Y
POST CODE DEV:]LOP; lElTTS AITJ PUTURE PROBLEMS

■A. MAJtKET DI1MA:iD AND rT'yir'y?l''^i T'sIEjOS . 189

B. E^iPlOT'EMT kyj STANDAPD)S OP LABOR 191

9585 -iii-

RUBB3R IHDUSTHY STUDY (COIT.)

TAEL 3 OF cor^TarTS

Page

C . EA¥ IvIATERIAL SUPPLY Ai^H) PRICES. ..'... j ...... , 192

D. fclARIvETIUG POLICIES KCH PR0EITA3ILITY 194

APPEEDIX I

1. SCOPE OF STUDY.. ;.■. . .'. 196

2. LSTIiODCLOGY. .-.■.. .' .' •• • 196

3. IFCOi£?LET'E ASPilCTS OF THS REPORT.'. .... ... 197

4. OTHER I SSUES '7HICH iviAY PROFITATBLY' liZ EXPLORED., , , . 197

APPEIQI X II ' . ,' ;. ■

THE RUBBER limUSTRY. ". '. . . ' • • 199

Ta'ole

]

14
15
16
17

I!}!DEX OF -TABLES. GiiARTS AITD FXHIBITS

I'lrfoe.r o.f establis-hnents, ■1"29-1933

Geographical Location of Estalilislrients,, 1929-1933

llun"ber. of Sstabll-slinents "by States, 1929-1933

ITunt'er. of Employees,' 1-9-26-1955

Hui.iber. of vJage Earners "oj States, 1929-1933

Estifiated Ca--iital Investment, 1929-1933

Value of Products, 1923-1933

Volume of Procluction of PneuTnatic Casings, 1926-1934

Index of .production of RuDter'Iianufa.cturing Industry,

1926-1933 , .

Ket Sales of Tires, Tuues, Solids end Accessories lay

States, 1929-1933 ■ ■ '

Production and. Sales of Tires r,nd Tubes "by Selected

States, as ;oer cent of Total Value, 1929

Utilisation of .productive Capacity of Tire Industrj^

as .Esti'n,ated 03^" .Rabber Iia,nufacturers ' Ascociation,

1927-1933

Practical .Capacity and percentage of Practical Ca"oacity

Utilized in Tire Industry, 1921-1930

Monthly Out'outs Required for Annual Production of

69,000,000 tires '^ ■

Capitalization and Bonded Debt of Rubber Industry,

19~24-1932 -

Index of Production of Rubber Tire I'aniifacturing In-
dustry, 1926-1935

Fanber of Outlets Engaged in Reta.il Distribution of
Tires, 1934

Subsidiary Corporations of the Croodyea.r Tire a.nd
Ri.ibber Company,- 1935

Conparison of Prof itabilit:/ of Tire Division and other
Rubber Division, 1927-1 95o'

-iv-

11
12-15

14
15-16-

18
■ 22

25
27-28

32
33
34
36
38
40

47-48
50

9685

Table 20 Prof itabilitv- of Rubber Tire Inctustr^r, 1926-1933 52

" 21 Rij.bber Tire Conpanies Reporting Profits, 1926-1933 54

" 22 Rubber Tire Companies Rerjorting Losses, 1926-1933 55
" 23 Gross Profits of Tire Ilanufactiiring Industry, 1926-

1933 58
" 24 llet Profits of Tire Hanufacturing Industry, 1926-

1933 59
" 25 Percentage Fixed Assets a.re of Total Assets, 1930-

1933 50

" 26 Dividends Paid by Rubber Tire Industry, 1926-1933 61
" 27 Dividends Paid by Rubber Tire Com^oanies Reporting

Eat Incone, 1926-1933 ' 62.
" 28 Dividends Paid by Rubber Tire Companies Reporting

no ITet Incone, 1926-1933 &Q

Taxes Paid by Ru.bber Tire Industry, 1926-1933 64
Foreign Branch Factories of American Conpanies, 1935 65
30-A Crude Rubber: World Production and United States

Imports , 1921-193S -66-67

Insolvencies in Rubber Industry, 1927-1934 68
Average Iioui-ly TJages, 1926-1935 ■ ■ 59

Average ¥eei-;ly Wages, 1926-1935 70

Annual Payrolls, 1926-1934 71

Percentage of Cost Represented bjr Labor, 1925-1933 72
Comparison of Annual Tfe'^es Paid by the Tire Manu-
facturing Industry and by all Hanufacturing Industry,

for Census Years 1921-1933 72

30-

" 37 Average Weekly Hours in Tire Division, 1926-1935 73

38 . Average Weekly Hours in Other Rubber Division,
1926-1935 74

39 Seasonality of Emploj^-ent in Tire Division, 1929,
1933, 1934' '" 77

40 Seasonality of Emplo^Tient in Other Rubber Division,
1929-1933-1934 ' ' 73

41 Index of Productivity of Labor, Six Representative
Pln.nts, Tire Hanufacturing Industry, 1922-1931 79

42 Effect on Labor of Specified Technological Changes
in Tv/o Tire Hanufacturing Plants 80

43 Index of Zmriloynent in Other Rubber Hanufacturing
Industry, 1926-1935 83

44 Index of Employraent in Rubber Tire Hanufacturing
Industry, 1926-1935 84

45 Index of Payrolls in Rubber Tire H'anufacturing
Industry, 1926-1935 85

46 Index of Man-Hours Worked Per Week in Rubber Tire
Manufacturing Industry, 1926-1935 86

47 Rubber Q;aota.s, Prices, and World Stocks ujider the
Stevenson Act 90

48 Percentage of Rene'^al Tire Sales by Distribution
Channels 95

-V-

9685

Chart

Pa.-i-e

Ilistribiition of Tot?".! Dollar Voli'jne of
Business 23

Pra,ctical Capacity and Percentage of • ..
Practical Capacity Used, Tire Kanufactur-
ing Division • ,35

Production in Tire lls.nufacturing Division , 39
Employ;:} ent in Tire an.d Other Pait'oer Manu-
fa-cturing .76

Eriploj^ent, P?,yrolls and Man-Eours in Tire
■ 1,'anuiacturinf: Division , 81

" 6 Unit Sales of Eenera,l Pneunatic Tires "by

Type. of Distrihutor ,96

Exhibit I Rubber Tire Industrj'-, Consolidated Ba^lance

Sheet 1S30-1S33 Inclusive '. 20

" II Euhher Tire Industry, Comparison of FLecei-ots

and Deductions of All Conpariies 1926-1933 incl.53

" III Ruhber Tire Industry, Corapcarison of Receipts
and Deductions of All Compjinies Shorring "!Tet
...Incone'i 1926-1933 ■ Inclusive 56

" IV Rubber Tire Industry, C-omparison of Receirits
and Deductions of Conpanies Sho\7ing ."Ho
Net Incone" 1926-1933 Inclusive 57

-VI-

r\ nr rr

■. -1-

' SUi.n.'AHY OP ?iitdii:gs .

The rub-er industi^r in America includes the manufacture of
pi^oducts in ijhich rubber, an inport, is an inportant constituent. The
industry dates frorji J.839 'Then the process of vulcanizing rubber 'was
discovered by an Anerican inventor, Anong the:', earlier and still im-
portant prod^icts are rubber foot'jear, ' wateiproof clothing and hard
rubber. To these American ingenuity has added hose, belting, packing
and valves, heels and soles, drag and sanitary .sxmdries, floor cover-
ings, toys, and novelties and vehicle tires. Thus the use of 'rubber
is extended into a wide field of hiuian activity.

The developnent of the automotive industry created a nen
field for rubber, the motor vehicle tird. This was a free market in
that demand \7as created withoiit the usual cost to the industry of
]oioneering distribution and use of products, Tlie field nas very.
attractive to maiiufacturers and investors. During the period from
1900 tol9o0 some 600 concerns essayed the manufacture of tires. Of
these only' about 30 remain active today.

By 1910 motor tires 'jere the most importcint product of the
industr;- and have continued so. Other rubber manufacture is carried
•on irr about 400 establisiinents. The annua.l value of rubber ]products
exceeded a billion dollars in 1919 aJid 1920, and again from 1925 to
1929, There were 150,000. wage earners in the industry during the
latter period. Hourly and anh'nal earnings of workers were high com-
pared to other industry, particularly so in the tire division. In-
dustrial relations ha,d been harmonious.

The chief favorable aspect of the industry is ability to
2Drodiice merchandise in great volume and of continually inproved quality.
The record of technical i^i-ogress in tires strnds as a remarkable
achievei'.ent, - -

Yet this grea.t industry, at the inception of l\r,R,A, , had
gone through a decade of almost profitless opero,tion. In addition a
qua/rter of a billion dollars of new capital had been poured into the
industry for unwarranted e3q:)nnsion of facilities, for recouping losses
2iid xtnerrned dividends. This period had been marked ''oir great mortality
aJiiong small enteiTprises and concentration in fewer and larger estab-
lisliments. Declining production and technological change werS dis-
placing labor and causing unem2olo3rr.ient despite shortening of h»urs to
sha3;e th'e work,- Continued ujiprofitability prevented return to in-
vestors and ^as rapidly •'ondermining the security of woikers.

The unprofitability of the industry is in part due to wide
fluctuations in supply and price of. rubber under foreign control and
manipulation. Another factor is the burden of excess productive
capacity. There wa„s ■unwarrcjited expansion by the large companies
betx;een 1920 and 1929, E?cport business has been lost and Ai-ierican
ca.pit.al has •;one abroad to construct plants to complete in foreign
markets. Domestic production has declined, due to changes in style
and custom, to greatly increased life of pro6.ucts in use, and to
depression,

3eq, Ho, 9685

But the chief cause of losses has "been conpetition rrithin
the industry and trade, evidencing itself in violent and costly price
wars ajnong continually changing channels of distrihution. The in-
dustry v/as far from facing the forces of depression with a united
front, '

The principal i^^ohlem presented to N,11,A. in codification
of the industry, was to statilize conditions of conpetition so as to
provide gres^ter security for those engaged in it as workers or as
owners. It was ohvious that even a 25 hour week would not restore
employnent levels of 1929 with the current capacity of the country to
atsorh products of the indtistry. The labor standards proposed in
codes were readilj?' agreed to by the Industry and assured sons re-
ernjDloyraent and considerable increa.se in wage rates i:-i the lower
brackets. The record of the industry in rnalcing equitable adjustment
in wages above the minimum was excellent. Average hourly rates in-
creased steadily during the codal period.

However, the formulation and adraini strati on of code pro-
visions for marketing standards presented a long drawn out struggle
by individuals and groups to preserve or to outlaw practices which
they believed to have important competitive advantage or disadvantage.

Proposals. looking to marketing stabilization which were
advanced ''oy industrj'' groups included resale price maintenance, alloca-
tion of production, mandatory uniform accoimting, and cost recovery,
price differentials for specified classifications' of producers and
consumers pjid ojjen price filing,

■ N R, A' s efforts to provide stability included the approval
of uniformminimum labor standards, trade practice rules requiring
ordinary standards of honest;?- in competition, and varying methods of
cost recovery, ptiblicity of prices, and minimum sale prices in differ-
ent divisions of the indtistrj^

JBecause of flucttmtions in the jirice of crude rubber, the
industry felt strongly that mandatory cost recovery required use of
current replacement costs of materials. Grade rubber prices were
rising rapidly. Large well-financed manufacturers had bought well
in advance at lov? prices, while small companies' resources usually
permitted buying only as needed and at current prices, "

This IT.H.A, refused to aroprove, a„s a matter of policy. When
the \inifonn accounting manus2 and cost formula was a"oproved for the
llubber Lianufacturing Industry (other than tires), N,2,A, stipulated
the use of either cost or market price on materials, whichever v;as
lower. This did not satisfy the. industry at all, Tlie tire manfactur-
ing division refused to accept the stipulation and forthwith ceased
any effort to secure approval of a cost control plan.

Open price filing was approved in several divisions and met
v/'ith varying degrees of success as a price stabilizing device. In the
rubber footwear division difficulties arose due to four members re-
fusing to compljr. This case \Tas referred to the Pederal Trade Com-
mission for determination, and the ensuing delay rendered the pro-

Req, IJo, 9685

~3-

viKion imdesiratle to tlie coraplyinf^ nenlDersj it was al^andoned and the
provision stayed "by 1I,3,A, In the heel and sole division, the industry
requested that the provision be stayed, Because of a price rrar rnenters
had co::pletely lost faith in one another, in the filin/j reo^uireinents,
and in the quality of compliance secured. In the mechanical goods
division the device ^7as apilied so vigorously and effectively by the
Divisional Code Authority as to result in charges of illegal combination
being brought against them both hj 1j,II,A, and before the Tederal Trade
Commission, In the tire division, the partieJ. price filing provided for
proved an entirely ineffective instrainent for price publicity or the
improvement , of competitive conditions.

The experience nith maaidatory costing practice and cost re-
covery, open price filing and custocjer classifications, indicates that
they would not have been effective price stabilizing instruments in the
tire division, had they been put into practice there. Discord and in-
tensity of price competition were greater in the tire division than in
other divisions of the Industry, v;here these devices were tested,
Diffic-oltjr and delay in enforcement with the machinery provided crip-
pled their operation when the point at issue was an important one.

In the tire division of the Industry little was done toward
price control among manufacturers after the disapproval of the re-
placement cost principle and their abandonment of efforts to secure
approval of mpjidatory cost fomrala, A sejDarate code for tire retailers
was approved and an effort made to curb destinictive price cutting ijnder
its provisions.

An emergency due to destr-o.ctive price-cutting was declared
to exist in the retail tire trade and minim.um prices and other regula-
tions of selling iDractice xrere im^DOsBdo

Some of the regulations were ill— advised md produced con-
troversy and disrespect for the provisions in general, Tlie restriction
upon g-aarantees stayed but the controversy'" over it exaggerated the im-
portonce of the q^VLestion a,nd brought on a worse condition than existed
before restriction was attempted,

Llinimum prices did not protect the- small retailer or the small
nanma.ct"arer as they were meant to do. Large manufacturers and distribut-
ors immediately made the minin\un price the going price. This was tin—
profitiible to the snail dealer, as in fact it was to the large one yiIio
perhpps couJLd stand it better and with one price for a:ll there was a
marked diversion of business to the nationally advertised lines of large
man'ofacturers. This brought complaint from sm,all manufacturers and
private brand distributors as well.

While some increases in orices of low grade tires were brought
about, and prices to fleet ovmers and governmental agencies were brought
more in line bjr the fixed minirawii prices, the mass of individual users
bought tires as cheaply as or cheaper than they had except during price
wars,

La.ck of efficient enforcement brought a breakdown of com-
pliance and was followed by unethical and evasive practices even on the

Req, No, 9685

_4-

part of retailers not previously {^■iven to such tactics.

The effort to raodify the regidity of the program and estah-
lish differential levels to remedy the situE.ticn rssu.lted in an un-
wieldy and iinenf orceahle re^.iiliLtion and did not much im/ro'^'e conditions.

The p«rf ormance of code, authorities as governing; bodies was
not enc jura;;;;ing . Facto-S which interfered with their success were com-
petitive- hias and oartizanshi-i, lack of time on the part of company
executives, and in one case failure to organize properly or to secure
financial support from the Industry.

On the whole, the codes failed to improve conroetitive con-
ditions in the industry to any considerable extent. This failure was
due to discord, to factional disputes and sabotage on the part of
industry itself, to inept and ill planned treatment of the outstanding
need for more orderly price competition, and to failure of enforcement
in important cases.

Developments since the tex'mination of codes have served to
emphasize the proolems v/hich must be solved if the industry is to enjoy
any return of its one time prosperity or maintain even its present ;
status in production or emplo/ment.

Disorderly and destructive price competition continued until
recently. There has been continued mortality amrng efficient small
enterprises who vrere without financial resources to continue operations
at the profitless levels being maintained. Just recently there has
been a cessation of hostilities, probably due chiefly to rising rubber
costs. Possibly pressure from disgruntled security-holders has had
some effect.

Increased demand, particularly from the automobile manufact-
uring industry, hc.s increased production and en^Jloyment in man-hours.
Hours of work have been lengthened since the termination of code re-
strictions and the number of workers has not .'increased in proportion to
man-hours of employment .

liThile equipment for nev;ly manufactured automobiles stimulates
production in the few establishments participating in that business,
renewal tire sales in 1935 declined below those in 1934 and no marked
increase is expected for the coming year. The practice of retreading
tires is increasing and due to the greatly increased life of the product, in
increased sale of new cars immediately reflected in increased tire re-
newal demand. The demand for other rubber goods follows the trend of
general business activity very closely.

As a result of restrictions on exports from cru6-e rubber pro-
ducing countries, and increasing consumption in America, it is evident
that our manufacturers v/ill be bidding for rubber in British or E^aropean
markets with resulting increases in cost. As this stimulates production
of reclaimed rubber and generally has a salutary effect u-'ion profits in
the industry, such an event would not be entirely unwelcome, though
prices to consumers would naturally be increased.

9685

-5-

CHAPTER I
INTRODUCTION

1. DEFINITIOIT OF TKS IKPUSTRX

The Bureau of the Census defines the Rubber Industries
Group as comprising three industries, namely,

1. Rubber tires and inner tubes

2. Rubber boots and shoes

3. Rubber goods, other than tires, inner tubes,
boots and shoes.

These industries embrace establisnments using india rubber or gutta
percha as an important constituent of their iDroducts of chief value.

Under Codes of Fair Com-oetition thrre was a different
classification of divisions of the Industry, and of the trade
marketing to the consum.er its product of chief value, tires and
tubes. There were four approved Codes, namely:

No. 156-The Rubber Manufacturing Industry

No. 174-The Rubber Tire Manufacturing Industry

No. 377-The Reclaimed Rubber Manufacturing

Industry
No. 410-The Retail Rubber Tire and Battery Trade

The Code definit,ion for the Rubber Manufacturing Industry
was "the manufacture for sale in the continental United States (in-
cluding Alaska) of any ruboer product or pr«>ducts, expressly exclud-
ing, however, all solid and pneumatic tires and pneumatic .tubes and
tire accessories, and/or tire re-oair materials, together with such
other rubber products as may be s-pecifically covered by another duly
approved Cede of Fair Com^ictition.

"The term 'Division of the Industry' as used herein,
includes the several branches of the Industry which have been or
may hereafter be established, as herein below provided, as adminis-
trative units, under the provisions of this Code. The Divisions
established and defined in Chapters II to X arc:

Automobile Fabrics, Proofing, and Backing

Division

Rubber Flooring Division

Rubber Footwear Division

Hard Rubber Division

Heel and Sole Division

Mechanical Rubber Goods Division

SpongG Rubber Division

Rubber Sundries Division

Rainwear Division."

The Rubber Tire Manufacturing Industry Code defined the

Req. No. 9685

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Industry as: "the mamifacture for s le in ul;e contiiiental United
States (including;' Alaslis,) and sale at wholesale by man^ifactiarers or
subsidiaries or affiliates of the sane, of solid or pneiiniatic rubber
tires and/or pne"amatic rubber tubes, tOi;.y?ther v/ith such related
branches or divisions as m.ay from tir.ie t • tirae be included under the
provisions of this Code by the President, after siich -notice~and -
hearinf- as xie na,y prescribe."

The declaimed Icabb'-r Industry v3.-r defined as: "the manu-
facture for sale of reclaimed rub'oer together with such related
branches or sub-divisions as may froin time to time be included under
the provisions of this Code by the Presit'ent or the ■Administrator,
after .such notice arid heariur, as he nay prescribe."

xhe Retail Pubber Tire and Battery Trade v/as defined in
the Code as: " tlie sale or offerin,_;: for sale to the ult'.imate. consuj.ier
and not for resale" purposes, oi:

(a) Solid or pneuniatic rubber tires and pneumatic rubber
tub e s ;

(b) Automotive stor<a£;e batteries for startinfi, lighting
and/or i-jnition service and radio receiving storarje
batteries;

(d) Automobile rims and wheels in connection with change-
over from one t'^rpe of tire enuipment to another;

(e) The servicing of products of the Trade.

2. HISTOP-Y AHD D:5;/EL"P:IErT ry TrI3 IimUSTPY ,•

The Pubber Industry ori:;lnated in the United States in 1839
with the discovery of v^ilcanizatioh 'by Cha,rles Goodyear. Ke
discovered that ''oy compounding, crude rubber with sulphur and applying
heat to the mixture, it could be made to taj.:e permanent form with any
de^^ree of flexibility and. hardjies- desired. Among the earliest
products were rubberized clothing, footwear and si.iall articles as
Dalls ajid erasers.

Ppo-bber footv.'ea.r remo.ined the article of leo,ding importance
in manufacture until about 190P. Prim 1870 .to 18S0 the manufacture of
hose, beltiriti, and other mechanical rubber goods y/ere important factors
in the Industry's growth, ' Prom 1890 to 1900 carrin.ge and bicycle
tires, both solidi and pneuiiiatic, were important factors and remained
so until superseded by a'atoiaobile tires. Pneuiviatic tires for a,utr—
mobiles first ap'oeared about 139^; by 1909 the growth of the automo-
tive industry had made them tlio leading product of t_ie ruobcr
industry.

In 1914 the Industry was recqcv^ized. s.s a "separa,te
schedule" industry by the Census Bureau and data on particular
comiuodities are available only since that date. Detailed data on
rubber goods, other than tires and tubes, boots and shoes, have only
been recorded since 1921.

The rubber group, then, includes footv/ear, a relatively old

9fi85

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industry, tires, a comparati-frely ne- industry like its parent, the
automobile industry, and other rahber goods, a mixture of old,, middle
aged, and new industries. Tiie new industries are constantly expending,
as inventive genius and low prices meJ^e rubber ■ ada^o table to new uses.

3. DIV ERS II' I CAT lOIT 0? PEODUCTS ...

The extreme diversification of the uses of ru-bber is due
to the unusual number of a special chara,ct eristics which it possesses.
It is airtight and water tight; it can be made as soft as a glove,
or as hard as stone; under abrasion in certain conditions, it will
outwear- steel; it "will stretch but is highly resilient and has extra-
ordinary cushioning qualities; it is chemically inert; and it is a
non-conductor of electricity.

With all of these qualities a,nd with the number" of uses to
which it can be put, the number of items produced in the industry run
literally into the tens of thousands.

A large percent-^ge of these items are small. It takes a
great many bathing caps, teething rings, rubber sponges, jar rings,
toy balloons, rubber' shoes or rabber heels to total a million dollars
in sales.

But, by way of contrast, a mechanical rubber goods plant
will occasionally turn out a conveyor belt weighing 25 tons and sell-
ing for many thousands of dollars.

, ; The volume of sales is large in the aggregate, but it is
divided among some four hundred establishments with only a limited
number of any great size'. A f-ew establisliments have attained
national prominence, either because of large activity in tire produc-
tion or because they make so many of the different lines of general
rubber products that the sum total of their output reaches a substantial
figure.

The most favorable characteristic of the Industry, is ability
to develop and produce merchandise in great volume and of continually
improved quality. The record of technical progress in tires stands as
a remarkable achievement. Tire life has steadily increased, due to
improvements in design and construction. Except for a slight rise in
1925 and 1926 tire prices have declined steadily since 1920, until 1933.
The consumer has ijjidoub t edly derived the entire benefit accurueing from
technological change and these factors have brought about a steady and
marked decline" in dollar volume of business in the tire division.

The most unfavorable aspect of the industry is its long
continued record of unprofitability and the futile competition and
discord in the industry itself, preventing any concerted effort to
right that situation.

Disorderly competition in the industry has evidenced itself
in violent and costly price vi^ars. The continued -unprofitability.

3585

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from this and other causes, now threatens the security of those engaged
in the industry, either as '.■.'orlrers or as o^7ners,

4, PLAIT OF STUDY

The present study of the Industry has "been defined as a "study
of code administration, plus." It is a study of the problems presented
"by the Industry to N. E. A. in pla.i;iing for industrial recovery, the
formulation of code provisions to deal vrith those prohlems, and the op-
eration and effect of the provisions approved.

Emphasis has heen placed o '. the determination, operation and
effect of code provisions relating to price and especially the Declara-
tion of Emergency device, and the establislunent of miiiinrain iprices in the
retail tire trade.

Statistical and technical facts about the Industry have "been
compiled to show continued unprof itability, the continued integration of
the industry into fevfer and larger estahlisliraents, and the continued
mortality of small enterprises.

Unusual and special problems presented, as over-capacity, for-
eign control of raw material sup->ly and prices, chpjiging channels of
distribution, factional conflicts, degeneration of marketing programs
into a rout of futile price competition are discussed as they converged :
to bring about the emergency condition.

The deternination and operation of other market stabilizing
devices as' cost recovery, price filing, etc., are discussed to complete
the history of lI,RcA. dealinj^s vith this problem tliroughout the Industry,

Further problems which must be faced by the Industry in plan-
ning for the future are but touched upon. This Industry must, in the
near future, develop greater solidaxity and plan carefully if there- is
to be any degree of prosperity or security for those engaged in it a's
workers or as owners.

9685

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CHAPTSE II

ECOHOMIC ASPECTS OP THE IIOUSTRY

A - SCOPE

1. DECLIKIlia ITOBER OP ESTABLISMffillTS

The rmm'ber of establishments engaged in the manufacture of
rutber "oroducts in 1929, according to the Census of Manufactures, as
shown in Ta'ole I, is estimated at 525, and in 1933, the number is esti-
mated at 408 establishments, a decrease of 117 establishments, or 22.3
per cent. The decrease has not "been uniform for the three divisions as
the folloTring data will show.

The number of tire manufacturing establishments decreased from
91 in 1929, to 44 in 1933, a decrease of 47 establishments, or 51.6 per
cent.

The number of boot and shoe manufacturing establishments de-
creased from 22 in 1929 to 13 in 1933, a decrease of 9 establishments,
or 40,9 per cent.

The number of other rubber manufacturing establishments de-
creased from 412 in 1929 to 351 in 1933, a decrease of 61 establishments,
or 14.8 per cent,

2. IMPR0PITA3ILITY.- AlID SHRINKAGE OP DEMAND AS CAUSES OP
DECLIjJE IH IRrrSPR OP ESTABLISHl'ffiKTS.

The' principal causes of the reduction in number of tire
factories are lorobably (l) the unprofitability of the business due to
■orice cutting and inventory losses on raw materials, and (2) the in-
creased intensity of competition due to actual shrinkage in demand for
tires.

The business has been unurof itable , even for the largest and
most ef:^icient units. The small manufacturers, with limited working
capital, have seen this denleted in competition with their well-
financed rivals. The decline in demand due to lower automobile pro-
duction and the increased life of tires in use has heightened the in-
tensity of competition, reduced margins and forced many smaller units
into mergers, cDnsolida,tions, or complete suspension of operations.

Req. No, 9685

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Table 1 - Nuinber of Establishments, 1929-1933

Division

1929

1933

Decreases
Kunber Per Cent

Tires 91

Boot and Shoe 22
Other Rubber

Products 412

Total 525

44
13

351

406

47
9

117

51.5
40.9

.14. 8

22.3

Source: U. S. Census of Manufactures

The decline in the number of boot and shoe. manufacturing
establishments is due (l) tartly to the decrea,sed demand for rubber foot-
wear resulting from the changing habits of the AmericaJi people, and
(2) pa,rtly to the increased comiDetition of foreign manufacturers. The
wide use of the automobile a,s -nersonr"! transnortation, the prompt re-
moval of snow fron the streets in large cities, and the growing indif-
ference to foot protection in stormy weather, hf^ve contributed to the
decreased demand for rubber footwear. The export market of the American
manufacturer has suffered greatly because of the rise of Japan and
Czech'osloval^ia s.s ira-oortant factors in the manufacture of rubber foot-
"'fear, and also because of the growing tendency toward the establishment
of a domestic industry in .majiy countries. The domestic market has also
been affected by im-oorts of rp.bber footwear from Ja'oan and Czechoslo-
vpJsia. The Tariff Commission instituted an investigation in October,

1932, and in Febru.ary 1933, the rates of 35 Der cent assessed on the
foreign value of canvas shoes 8Jid 25 "oer cent assessed on waternroof were
ordered assessed on the American value in the future. This was the
maximum increase' permitted- by law.

The decline in the number of establishraents engaged in the manu-
facture of other rubber "oroducts is fDerha'os due to the decline in demand
for rubber T^roducts, and to some extent due to the integration taking
place within the Industry.

3. LOCATION OF EST.^BLISHjIENTS BY AREA AIJD LACK OP TREND OF
MIGRATION TO AilY OjE LOCATION

The Rubber Manufacturing Industry is located chiefly in the East
North Central States where, in 1929, according to the Census of Manu-
factures as shown in Table 2, 34.1 loer cent of the total number of estab-
lishments were located. The Middle Atlantic and Nev/ England States were
next in importance vfith 25.0 ner cent pjid 20.8 Toer cent res'oectively.

It will be observed from Table 2 that during the period 1929-

1933, there have been changes in the number of establishments in the
various districts and some districts hp.ve increased in im"oortance.
These changes, however, are com-oaratively small^ and do not indicate a
migration of the Industry to any one area.

-11-

TalDle 2 - Geoi.Ta'ohical Location of '^st-'blishnients

1929-19S3

Area

19;

29 ■■

193

Decrease

I'Tu-nlDer

Per Cent

Vvjioev

Per Cent

I'u'n'ber

Per Cent

Hew England

109

20.8

22.1

17.4

liiddle Atlantic

131

25.0

105

25.7

19.8

East North

Central

179

54.1 ■ ■ ■"

131 .

32.1

26.8

Uest IJorth

Central

4o2

3.9

27.3

South Atlantic

3„8

3.2

35,0

East South

Central

1„5

1.0

50.0

West South

Central

1.3

1.5

14.3

Mountain

60.0

Pacific

8,4

10.3

6.8

Total

525

100. G

408

ICO.O

117

'22,3

Source: Census of l.ianuf act ares

N.B. St.-^tes com"orising the various areas are shorvn in Tahle 3.

4. FJiBSra OF ESTAajLISKGHTS BY. STATES

Suther manuf-^cturing estpDlisliments in 1929 and in 1933, as
shown in 10,1316 3, were located in 34 states. The -orinciTjpl states and
the numher of estahlishnents in each in 1929 are as follows: Ohio, 113;
Massachusetts 72; ITew Jersey 55; New York 47; and California 35.

Eubher tire npnufr^cturing estr^hlishments in 1929 wore found in
21 states, and, in 1933, in 17 states. In 1929 Ohio vras the r)rincipal
state in tire manufpcturing vith 32 of the total 91 establishments
located within its "borders. California was second in im-oortance with
7 establishments. In i93U5 Ohio was still first in imioortpjice with 15
of the total 44 establishments, and California was second with 3 estab-
lishments.

Rubber boot ar.d shoe manufacturing establisiiments in 1929 were
located in 8 stp.tes with Ilassachusetts first in imx>ortance with 10 of
the 22 establishments^ Connecticut and. Hhode Island were next in im-
portance with 4 and 3 establishments resoectivelj?-. In 1933, boot and
shoe establishments we.'e locs.ted in 7 states, with Massachusetts first
with 5 of the total 13 est-blishmerts; and with Connecticut and New
Jersey next with 2 establisiiiaents each,,

Other rubber jaanuf acturing establishments in 1929 and 1933 were
located in 33 states. Ohio v;as the princi-oal state in 1929 and 1933,
with 81 establishments in 1929 and 66 estrblishments in 1933.
Massachusetts was second in imoortance with 60 and 55 establishments for
the corresponding years. New York, New Jersey, California, and Illinois
are also important in the raanufacttire of other rubber products. In
many of the other states the manufacture of rubber products is

Eeq. No. 9685

... « J..^_,—

apparently'' of minor importance, and, as will "be observec from Te.tle 3,
there were, in 1933, t\7elve stptes v?ith only one establishment each.

Tahle 3- iliirnber of Estrblishments-hy .States .
.1929-1933 - :

1929

1933

States '

Tires

Boot

s Other

Total

Tires

Boots

Other

Total

New England

109

Maine

New Hampshire '-

. 1

Ve-rmont

■ . ■

Massachusetts

1^;

• 55

Rhode Island

. 10

Connecticut

■ 14

Middle Atlantic

115

. 131

.95

105

Few York

■ 3-

45 .

;■, 47

Mew Jersey

, 6

Pennsylvania

■ 6

. 29

East North Central

130

179

' 108

■' 131

Ohio

^ ' 81 ■

113

6S'

Indiana

1 .

Illinois

1 .

; Michigan ;

Wisconsin

■^fest North Central

15 .

Minnesota

I owa

Mi s souri

■ 1

■9

North Dakota

South Dakota

Nebraska

Kansas

South Atlantic

Dela^'are

■

Maryland

2 .

D. C.

Virginia

T/est Virginia

North Carolina

South Carolina .

Geor.r-ia " . '

'r .:

. 3

Elorida

East South Central 2
#9685

Table 3 (contin-aed)

1929 1933

States Tires Boots Other Total Tires Boots Other Total

Kentucky

Tennessee

Alabama

Mississippi

West South. Central

3
1
1
1

3
1
3
1

1
1

1
1
1
1

Arkansas

Louisiana

Oklahoma

Texas

Mountain

Montana

Idaho

Wyoming

Colorado

New Mexico

Arizona

Utah

Nevada

Pacific

Washington

Oregon

California

arand Total

6
3

6
5

35 .

525

4
1

1
1

351 408

Source: Census of Manufacture.

NUMBER OF WAGE EASNEES

The number of v/age earners declined from 149,060 in 1929
to 106,260 in 1933, a decrease of 42, 800. or 28.7 per cent. The high
point in employment during the period 1926 through 1934, as shown in
Table 4, was in 1928 when 149,150 wage earners were employed. The
low point occured in' 1932 when 90,810 wage earners Virere employed, a
decrease of 58,340 or 39.1 per cent from. the high point of 1928.
Since 1932, emplojTnent has increased and in 1934, there were 120,050
wage earners employed, an increase of 29., 240 or 32.2 per cent over
the low point of 1932.

9685

-il4-.

6. .T!-u3Tl 07 ^AQ'Z ZA'i'~r'S 3Y ST.i?]]S

Ohio ill 1929, as shovn in Table 5, emplo'-ed in tire manufpc-
turing 53,307 up.ge earners or 55.4 per cent of the total number employ-
ed. According to rv.-ila'ble date, Cs.lifornia wps second in importance
with 5,339 '.'"age earners or 5.4 per cent. i'.'iasFschusetts rrr s also im-
portant in tire man-aircturing, "but because there ^^ere only tno estab-
lishments in thrt State, dr?tF as to the nuraber of '7a.'Te ea-^ners are not
available.

Ohio, in 1933 hac! strengthened its position in tiie IndListr^?-
by enploying 25,621 nege earners or 67.3 per cent of total. California
showed a slight Iocs, emplo"-ing 3,145 ^rcge earners or 5.9 per cent.
Dats as to other states are not avallaole.

Mcassacnusetts, both in 1929 and in 1933 as shown in Table 5,
was the princips,l state in the number of ■■•a-'e earners enga.ged in man-
ufacture of rubber boots anc shoes. In 1929 llassachusefets employed
11,153 wage earner's or 43.5 per cent of the total engaged in rubber boot
and shoe mamafacture, and, in 1933, em"olo"-ed 8,578 wa,ge earners or
35.9 per cent of the total.

In the raaonufacture of ot-.ier rubber products, i'ew Jersej'-, in
1929 and 1933, as shown in Ofeole 5, ran:ed first in imDortance in num-
ber of wage earners emploj^'ed. In 1929, Few Jersey employed 7,740 wage -:.,
earners or 19.2 per cent of the total, anc in 1933, emplo.^ed 7,162
wage earners or 20.3 per cent. Ohie, Fei? York, and Co::necticut ^"ere :.
a.lso importajit.

Table 4- L-umber of EmiDlo'^'^ees 1925-1935.

fear Tires All Other Total

llumber Index I'uraber Index I'uiTiber - 'Index

1926

79,770

95.8

51,400

93.3

141,700

94,7

1927

78,150

93.9

63,700

96.8

141,350

95.1

1928

83,150

99.9

55,000

100.4

149 , 150

100.1

1929

83,260

100.0

55,800

100.0

149,050

100.0

1930

59,760

71.8

55,600

84.6

115,360

77.4

1931

49,130

59.0

50,100

76.1

■ 99 , 230

55.6

1932

44,710

53.7

45,100

70.1

90,810

50.9

1933

52,960

53.5

83,300

. 81.0

105,250

71.3

1934

52,150

74.5

57,900

OC.l

120,050

80.5

1935

(June)

58,030

59.7

52, 900

80.4

110,930

74.4

Source: 3. L. S. Data ■'■ith FRA a.djustments to 1933 Census.

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9365

-17-
7. SH3IU1CAGE IN li-TYESTSD CAPITAL

In. 1939, the capital invested in the Sabher Industry was
estimated "by the laibher Manuifacturers ' Association to have heen
$842,906,000. In 1933 the Association estirnatcs the capital at
$580,858,000, a docreaso of $262,048,000 or 31.09 per cent compared
with that of 1929.

Among the causes for the decrease in capital investment may
he mentioned (l) lov/ prices for finished products, (2) inventory losses,
and (3) payment of tincarned dividends,

Tliat prices were destructive of capital was admitted "by the
Eubher Manufacturers' Association in their brief to N. R. A., October
20, 1933, which read as follows:

"With a productive capacity of $600s000,000, ex-
pressed at present prices, and an excess capacity existing
since 1928, the pressure on each manufacturer to maintain
his sales volume at the expense of others has resulted in
a competitive- price level which has made it impossi"blo for
the Industry, as an industry, to make a net return on its
investment for four years."

Another factor affecting the general welfare of the industry
is the fluctriation in prices of cotton and ru'bher, the two basic mater-
ials in the manufacture of tires. The values of these materials have
gone through wide and frequent fluct-uations, and the sta"bility of the
tire companies' business and profits has been seriously affected by
them. In the interval from 1925 to 1931, the seven major companies
took inventory losses of $83,000,000. (*) This sit-uation has seriously
affected the stability of the Industry and the general price level.

The third factor contributing to the dissipation of capital
has "been the pa^Tnent of "UJieamed dividends. Reports of the Bureau of
Internal Revenue show that between 1926 and 1933, the Tire Division of
the Robber Industry paid out in dividends $232,999,197, despite the
fact that the net losses of the Tire Division during the same period
were $4,791,590, making a total deficit of $237,790,787.

Tahle 6 shows the estima.ted capital invested in the two
divisions of the Ruhber Industry for the five year period, 1929-1933,
It ¥v'ill be seen fhat the tire division represented in 1935 an invest-
ment more tlian twice that of the other ru"b"ber goods division. However,
it should be stated that these estimates may properly "be called "inform-
ed estimates", and are subject to correction. No one knows the exact
capital invested, and an atten^pt to estima,te the capital invested in the
two divisions is made more difficult because most of the tire manufactur-
ers also engage in the manufacture of other rubber products, but in sub-
mitting their reiDorts, such manufacturers do not indicate the extent to

(*) RubbRr tlanufacturers ' Association, 3rief, October 20, 1933.

9685

-13-

which their capital is invested in each division of the Industry.

On the basis- of available data, it appears tliat the invest-
ment in other rubber industry has- suffered more severely than that of
the tire division. For oxarnple, the capital in the other rubber in-
dustry decreased from, $286, 906,000 in 1929 to $161,858,000 in 1933,
a decrease of $125,048,000, or 43.6 per cent. On the nther hand, the
tire investment decreased from $556,000,000 in 1929 to $419,000,000
in 193S, a decrease of $137,000,000, .oi> 32.7 per cent,

.Exhibit 1 is a consolidated balance sheet compiled from
reports submitted to Bireau of Internal Eevenue by companies classified
by that Bureau as Tire Manufacturing Companies. It is open to question
whether the Industry classifies some of these companies a.s tire com-
panies.

Table 6 - Estimated Capital Investment,
1929 - 1933
(Thousands of Dollars)

Year

Tire i/ifg.

Other Rubber

Ivlfg. Total Rubber
Industry

Decrease from
1029
Amount Per cent

1929

$556,000

$286,906

$842,906

1930

545,000

253, 354

798,354

44,552 5.23

1931

490,000

219,000

709,000

133,906 15.89

1932

425,000

185,292

610,292

232,514 27.60

1933

419,000

161,858

580,858

252,048 31.09

Source: Code Application

Bubber fenufacturers ' Association, 1933.

8. DECLIHIIG VALUE OF IHDUSTEY PHODUCTS, 3Y CLASSIEICATIOII

The products of the rubber industry are usually classified
into three divisions, namely, tires and tubes, boots and shoes, 8,nd
all other rubber products. Tires and txibes are . the most important
division, with other rubber products second, and boots and shoes
third. During the period of Code Arlministration there were two codes
for the rubber industry, namely, one for tires and txibes, and one for
boots and shoes and all other rubber products. The Code for boots and
shoes and other rubber products was sub-divided into nine groups with
a divisional Code for each group, as follov/s; (l) Automobile Fabrics,
Proofing and Backing, (2) Rubber Flooring, (3) Rubber Footwear, (4) Hard
Rabber, (5) Heel and Sole, (6) Mechanical Rubber Goods, (7) Sponge Rubber,

9685 .

'19^

Addendxim:

Tables ¥o. 15, 20, 21, 22, 23, 24, 25, 26,
27, 28, and 29, ;.ind Sxhitiits I, II, III and IV following,
are compiled from tabulation sheets and published reports
(statistics of Income) of the Bureati of Internal Revenue,
United States Treasury," Department.

This material should onl^- be interpreted in
the light of explanations and limitations of the sources
contained in a communication from the Treasurj'' Department,
dated Janua.ry 27, 1935. Quotations from this communication
are included in Ax;"oendix II to this Study.

9685

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9685

-21-

(8) Eutber Sundries, and (9) Rainwear.

9. VALUE OF PRODUCTS

The total value of products of the rubber industry, as shown
in Table 7 and in Chart 1, declined from $1,111,630,000 in 1929 to
$468,615,000 in 1933, a decline of $543,015,000 or 57.8 per cent. During
the period 1923 through 1933, the peak year in value was 1925, when total
production was valued at $1,269,445,000. Every census since then has re-
vealed a shrinkage in value reaching a low point in 1933 with total value
as stated ahove. The decline in total value of production is the result
of a decline in toth'the unit price of individual ruhber articles, and
the number of such units. With a very few exceptions, the number of
rubber articles produced decreased from 1929 through 1934.

Although complete figures are not available, but based on the
estimates of the Statistics Section of N.R.A. it is believed that the
low point in value of products was reached in 1932. In that year the
production of equivalent units was at its lowest point, the cost of
materials was lowest,' and the .number of employees was lowest.

The value of tires and tubes decreased from $676,910,000 in
1929 to $256,513,000 in 1933, a decrease of $420,397,000 or 62.1 per cent.
During the period of 1923 - 1933, the high point in value occurred in
1925 with value estimated at $824,548,000. Since that year, every census £
has revealed a decrease in value, reaching lowest point in the last
census, 1933, with production valued a? stated above.

The VB.lue of boots and shoes decreased from $111,359 5 000 in
1929 to $41,513,000 in 1933, a decrease of $69, 84,, 000 or 62.7 per cent.
The high point in value of production was in 1923 when products were
valued at $134,987,000. The year 1927 very closely approached the peak
year of 1923 when production was valued at $133,196,000. Since 1927,
value declined rapidly, reaching, a low point in 1933 with products valued
at $41,513,000. Complete figures are not available for the 1934 production,
but it is estimated that value for that year showed an increase over the
low of 1933.

The value of other rubber products declined from $323,361,000
in 1929 to $170,589,000 in 1933, a decrease of $152,772,000 or 47,2 per
cent, D'oring the period 1923 - 1933, the peak in value occurred in 1925
when production was valued at $324,974,000. The low point was in 1933
v/ith production valued as stated above.

The statistics presented in Table 6 show that the decrease
in value from 1929 to 1933 has been greatest in the Boot and Shoe
Division whose value decreased 62.7 per cent. Tires and tubes were
a close second with a decrease of 62.1 per cent. Other rubber goods
showed the least decrease, 47.2 per cent. The showing made by this
division is perhaps due to the nev; uses to which rubber is applied
with the resultant increase in production. The changing positions
of the three divisions of the Industry as illustrated in Table 7 which
shows that the value of other rubber products increased from 29.1 per
cent of total value of all rubber products to 36.3 per cent in 1933,
During the same period, the value of tires decreased from 60.9 per

9685

-23-

cent to 54.9 uer cent, vfhile boot and shoe decreased from l*^.') -oer
cent tu 8.8 -oer cent.

Table 7 - v'^lue of products 1.923-19o3

(Thousands of Dollars^

Yec.r Tires Boots and Shoes Other Rubber ' Total

Value Per cent Value Per cent ■■'"alue Per Value Index
of total of total cent

of total (1939
lOO^

1923 S569, 12') - 59.4 $134,987 14.1 $254, 677 36 . 5 <fe958, 794 86 . 3

1925 824,548 64.8 119,923 9.6 324,974 25 6 1,269,445 114.2

1927 779,523 63.5 133,196 l'l.9 313,750 25.6 1,226,479 11'). 3

1929 676,910 60.9 111,359 10.0 323,361 29.1 1,111,630 100.0

1931 356,865 60.3 48,308 7.9 193,527 31.8 608,7'Vi 54.8

1933 256,513 54.9 41,513 8.2 17', 589 36.3 468,615 42.2

Soui-ce: Census of i :amxfactures .

10. ^EECHKlSniG VOLUxJ, OP PRODUGTIO'i 0? Pir:Ul.,;ATIC C.SI.IGS

The oea:-!: yeai' in the voliojne of production of oneumatic ca-
sings ras 1927, vfhen "oroduction is estimated at 77,016,000 casings,
as shvDTTn in Table 3. Yearljr, therecfter until 1932 ■oroducticn de-
clined reaching a low -ooint in 1932 with -oroducticn estimated at
4'',3S2,0>,) casings, a decrease of 36, 684, '"'"'0 casings or 47.3 per
cent.

Since 1932, veirly production has increased and both in
1933 and in 1934 annual production was gre?ter than in the preceding
';"ear .

The decreased volume of production is the result' cf sever;--!
fc.ctcrs anong which may be mentioned, (l"* the increased mileage' of
tires, (2) the decressed volixme cf automobile "oroduction, and (S) loss
cf exoort markets.

That, the increased 'rdlea-^e of tires was reducing the avail-
able market for tires was set forth by the Rubber ranirfacturers'
Association in their brief filed with the H.R.A. on October 20, 1933,
which reeds in oart as follows:

"The Industry has consistentlv imoroved its
"oroduct. Therefore the life of a tire has materially
increased. On the br.sis of the number of cars registered,
sales of replacement tires oer car avera'^;ed around two
in 1928 and 1929, and only one rud one-third in 1932.

9685

-23-

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9685

-24-

In other words, the mimber of cr.si'igs and tubes which a,n
a-utomobile needs during its life h^s materially decree.sed
due to continual imoroveraent in the quality of the tires.
That this decrease is due to longer life and not to alloxT-
ing cars to reraa.in idle is demonstrated by the fact that
gasoline consumption has remained at a high level, even
though car registra,tions hc.ve diminished."

Espressing the same thought, Mr. Boris Stern, of the De-
partment of Labor, in his study, Labor Productivity in the Automobile
Tire Industry (Bulletin No. 585, July, 1933) Bureau of Labor Stc.tis-
tics, stated that:

". . .constajit im'orovement in the Quality of
tires may result eventually in the manufactiire of tires
that will last as long as the average automobile. In
that case, the largest source of the present demand for
tires will be automat i call Jr eliminated and tire vnanufac-
turing will be reduced to a minor part of the automobile
industry. "

That the decreased voluiae of automobile loroduction was one
of the contributing factors in the -olight of the tire industry -'as
also set forth by the Rubber lisjiufactu-rers' Association in their
iDrief of October 2'i, 1935, a.s follows:

"Automobile tires are a secondary 'oroduct. The
demand for them is only as accessory eauiDment to either
a new or an operating automobile. The iDroductien and
use of automobiles is the limiting factor in the business
of tire companies. The reduction in the -oroduction of ne\7
cars from about 4,000,000 a year in 1928 and 1929, to
1,275, on. -) in 1932, and an estimated loroduction of 1,800^000
in 1933, has seriously curtailed the original eaui-oment
market. Moreover, car registrations hrve decreased about
10 "oer cent, and the market for replacement sales has ac-
tually decreased."

While the export business is only a small part of the tire
manufacturers' sales, in units, it has shown the very C'.nsiderable
decrease of from 2,796,000 -oneumatic casings in 1929 to 1,058,00') ca-
sings in 1933, a decrease of 62 per cent. The outlook for inprove-
ment in the export field is distinctly unfavorable. This subject is
discussed more fully in a separate chapter, entitled "Treaisfer of
Capital and Production Abroad. "

11. DECZEASIi^IG- VOLUIviE OP PHODUCTION OF 3IIBBEE PRODUCTS

Inasmuch as the Rubber i.ianufacturing Industry consists of
the manufacture of some 30, OOn items, the total unit volume of iDro-
duction is difficult to ascertain. However, table 9 presents an in-
dex of the volume of production obtained by applying weights to the
leading products and expressing the weighted composite in terms of 1929
production.

9685

-25-

The index of production, during the period 1926 throus^h
1934, as shown in ta,ble 9, increa.sed yeprly from 75.5 in 1926 to
1')>.0 in 1929, and thereafter, decreased yearly to 56.7 in 1932.
The downward trend was stopped, and, in 1933, the iade:-:, for the
first time in four years, was grea+.er thpn that of the ;nreceding year.

Table 8 - Volume of Production of Pnewaatic Ca.sings

1926-1934

(Millions of Crsiii.gs"^

Year Pneumatic Casings

Number Index

1926 ■ ■ 6",9'i'^ 88.1

1927 • 63,854 92.4

1928 ■ , 77,016 111.4

1929 69,144 100.0

1930 51,288 ■ 74.2

1931 49,044 70.9

1932 . ;■■ 40,332 58.3

1933 45,588 65.9

1934 47,172 68.2

Source: Survey of Current Bixsiness with adjustments by II. H. A.

Table 9 - Index of Production of 'Rubber i.'snufacturiiig

Industry.

1929 - 100 1926 - 1933

Year Index

1926 75.5

1927 85.6

1928 92.6

1929 10 \0

1930 78.0

1931 6'1.2

1932 56.7

1933 67.6

1934 71.2

Source: N.R.A. Research and Planning Division,

constructed from production and/or shipments

9685

-26-

data for selected items as reported in Bureau
of Foreign and Domestic ComM.erce Survey of
Current Business , weighted according to lorice.

11.A. PRODUCTIOl^T AM COi"SUi:PTIOK OF TI.TIS BY STATES,

liiDICATIiiG livTT'i.^STATS CHAHiiCTE?. OP C0u.E3.CE Ii:

TI3ES,

Although the products of the Rubber Industry are sold in
every state, complete statistics a.s to the vol-ome and value of sales
of all rubber products are not available by states. However, the
Euhber Manufacturers' Association submitted to the ¥.H.A. in Aoril,
1935, statistics showing by states the sales for 1929 and 1933 of the
principal members of the Industry. These statistics, shown in Table
10 represent for 1929, 57.7 per cent of the total domestic sales
of the entire Industry, and for 1933, 65.9 per cent, and may therefore
be regarded as a representative sample of the Industry. They shew
that tires and rubber accessories are sold in every state of the Union,
and that the value of sales per state, in 1929, varied from $566, )00,
or v).16 per cent of the total, for Ilevada, to $32,530,0-).), or 9.33
per cent of total, for i^ew York. In 1933, sales "oer sta.te varied from
$247,000, or 0.16 per cent of total, for Nevada, to .$14,43 1, v.;, or
9.22 per cent of total for "Jew York.

It is interesting to note that in 1929, 17 states each con-
sumed less than 1 per cent of the total Tjroduction; only 6 states
consumed more than 5 -uer cent; and onlv one st.3te consujned e.s .ro.ch
as 9.33 per cent. The 1933 figixres are, for the most part, si;:ilar
to those of 1929.

9685

-27-

Table 10 - Net Sales of Tires, Tubes, Solids and Accessories
By States - 1929 - 1933 .a/

(Thousriids of Dollars'

1929

1933

States

Anount

r'er cent
of Total

Amount

Per cent
of Total

Alabama

$ 4,73')

1.35

$1,908

1.22

Arizona

2,06 1

.59

710

.45

Ar'iansas

3,825

1.10

1,388

.89

California

26,686

7.65

13, 244

8 . 46 ._

Colorado

3,215

.92

1,4^8

.9^

Connecticut

5,423

1.56

2,486

1.59

Dele.ware

784

.22

482

.31

D.C.

1,925

.55

1,')84

.69

Florida

6,099

1.75

3,031

1,34

Georgia

5,430

1.56

S.Osn

1.97

Idaho

1,278

.37

591

.38

Illinois

19,728

5.66

8,635

5.52

In6.iana

lO, 362

2.97

4,491

2.87

lo'vra

7,40.)'

2.12

2,832

1.81

K&nsas

6,754

1.94

2,419

1.55

Kentucky

4,268 ■

1.22

2,217

1.42

Louisiana

5,719

1.64

1,985

1.27

Ilaine

2,114

.61

1,172

.75

I.Ia-ryland

3,835

1.10

1,904 •

1.22

Massachusetts

12,303

3.53

5,861

3.74

I.iichigan

14, 139

4, ■'■)6

■ 5,793 ■

3.70

Minnesota

7,341

2.11

2,912

1.86

Ilississippi

3,909

1.12

1,305 •

.83

Hiss our i

10,731

3 . 08-.

5, 057

o.2o

Montana

1,783

.51

803

.51

Nebraska

4,559

1.31

1,900

1.21

Nevada

■ 556

.16^

247

.16

i:ew Hampshire

1,329

.38

717

.46

New Jersey

10,237

2.94

4,897

3.13

New Mexico

1,'^38

.30

519

.33

ITew York

32,530

9.33

14, 430

9.22

North Carolina

7, ^'80

2,03

3,411

2,18

North Dakota

1,631

585

.37

Ohio

21,616

6.2'i

9,280

5.93

Oklahoma

7,986

2.29

3, 544

2.25

Oregon

3,639

1.04

1,826

1.17

PennsylvaJiia

24,264

6.96

12,298

7.86

?.hode Island

2,177

.62

1,096

.70

South Carolina

2,174.

' . 80

1,446

.92

South Dakota

2,285

.66

728

.46

9685

-28-

•Table 10 (continued')

States

1929

Amount

Pel' cent
of Total

1933

Aiacunt

per cent
of Total

Tennessee

$5,925

1.70

Texas

2'\669

5. S3

Utaii

1,996

.57

Vermont

1, 140

.33

Virginia

4,795

1.38

Washington

5,287

1.52

TJest Virginia

3,598

1 . 03

Wisconsin

8,729

2 . 5^ )

Wyoming

924

.27

Total

$348,615

100.00

Total Sales

of Industry 604,352 (b)

Less Exports

Per cent Sample

is of Total 57.7

$2, 828

1.81

9,276

5.93

799

.51

3,470

,30

2,462

1.57

2, 440

1.56

1,415

.90

2,789

1.78

339

.22

$156,542

237,432 (b)

65.9

]_,) i_.)o

Sources: a/ Rubber ] 'manufacturers ' Association Reoort to IJ.R.A.
April 1935.'
B/ Summary of Cora;ner.

With some slight qualifications. Table 11 demonstrates the
interstate character of the Tire Industry. The data show tha.t in
1929 the six states which produced 81 per cent of all tires and tutes
consumed only 28 per cent, while the remaining states, which pro-
duced only 19 per cent, consumed 72 per cent. It must "be noted that
the sales data -certain only tc sfiles of leading manufacturers; but
these mry be assumed 'to "be fairly representative of sales of all
manufacturers. In addition, no allowance has been made for exports,
but they constituted less than 6 per cent of the total production
in 1929, and furthermore, most of the exports - if not all - must
also enter into interstate commerce.

The inter-state character of the Rubber Industrjr is also
indicated "by the coroorate structures of the larger coiiioanies. As
discussed later in this reuort in the ■Daragra.-oh entitled, "Corporate
and Subsidiary Structure for Soecialized Functions, " some of the
larger rubber corat)anies have as nanv as tv-'o hundred subsidiary cor-
porations organized under the la\'?s of the various states and foreign
countries.

9685

-29-

Every in;'n-al'p.cUirer knows tlmt the costs and ccnditic.is of
manm''p,cture in cne st;..te or country directly affect those of another
state. Examples of this are found in the im-oosition of xirotective
tarrifs to protect Americon Industry from the coin-cetition of foreign-
made goods, and the migration of the textile industry from Her.' Eng-
land to the South, and the migration of the American Hubber Inc.ustry
to the British Empire.

Table 11 - production and Sales of Tires and Tubes by

Selected States, as Per cent of Total ■V.?,lue, 1929.

State production * Sales **

Total 10' \0 10). o

California 7.3 7.6

Ic-7a 0,2 2.1

Hew Jersey . 1.5 , 2.9

Ohio 65.3 6.2

Pennsylvania 1.7 7,0 •

TJisconsin '5 3 2.5

Total, 6 States ^"81.3 28.3

Total, All others . 18.7, 71.7

Source :

* Census of i'anufactures

**Rubber Manufacturers' Association, Inc.,

confidential bulletins issued Anril 12,1930,

and A;oril 5, 1935. Sales are as reported by

leading tire ra;inufacturers .

12. EXCESSIVE PRODUCTIVE CAPACITY OE THE Iivn3USTHY

The determination of the productive capacity of an in-
dustry is difficult. Even when the exact figures are available, like
a balance sheet, they ^ocrtr^y the picture only at a stated tine.
Plent capacity is seldom static, since im-orovements in processes and
methods tend steadily to increase it. Conversely, an increasing va-
riety of products may restrict caoacity.

No estimate has been made as to the productive capacity of
the Rubber Industry, but, within recent yea.rs, at least three esti-
mates have been made as to the capacity of the Rubber Tire Industry,
namely, by the Rubber Manufacturers' Association in 1934, by Mr.
EdV'fin G. Nourse of the Brookings Institution, in his studjr, "Ameri- i,
ca' s Capacity to Produce," 1934; and by Mr. A. L, Kress of the Re-
search and Planning Division of N.R.A., November 1933. The three
estimates differ considerably, and it is difficult to reconcile them.

9685

-30-

The Rubber Manufacturers' Association, in its letter of
August 1, 1934, to Deouty Adininistrator, E. D. Bransone, stated that
its "survey of the capacity of the tire olants indicated that the
Industry, as a whole had a ca,pacity of 13,671 tires per hour, e.ssuraing
the size and type assortment ex-oerienced over the twelve-month -oeriod
ended Deceraber 31, 1933. Converted to an annual "basis, this capacity
would amount to 82,026,000 tires per year, assuming a maximum of 6,000
hours of plant operation at the caoacity "oer hour given. "

The Association submitted the tabulation in Tahle 12, show-
ing the deraestically oroduced sales of pneumatic casi.igs and the
number of hours that it would have been necessary for the Industry
to have ooerated to produce the sales given at the existing cr:Dacity
■oer hour. It will be observed that the oercentage of the 6, .'O ) hours
capacity used varied from 49 per cent in 1932 to 79 -oer cent in 1929.
In the seven-year period from 1927 through 1933, the caoacity uti-
lized averaged 63 per cent.

The Association felt "quite confident th.'t this inf ori-ietion
conclusively demonstrated the desirability of liuiti'a;;^ the creation
of additional production capacity."

Ilr. Edwin G. Hourse estimates that the loercentage cf capa-
city utilized during the -oeriod 1921-1930 varied from 56.3 per cent
in 1930 to 90.9 oer cent in 1925. In making this estimate, Hr.
bourse relied uoon the U. S. Rubber Com-oany for data as to crpacity
and upon the Bureau of Poreign and Domestic Commerce for da»ta as to
jroduction. The estijiate of Llr. Nourse is shown in Table 13 and Chart
2.

Mr. A. L. Kress of the Research and Planning Division of
il. R. A., in his report of IJovember 9, 1933, estima.ted the -productive
ca"oacity of the Tire Manufacturing Industry at 98,50O,<)00 per year as
of January 1, 1933. This estimate was based on 281 days o-oeration
oer year, or a capacity of 350, OOf* tires oer day. In determining the
extent of the over-caoacity, Mr. Kress considered the seasonal va-
riations in oroduction. "Assuming a maximum demand of 69,0'jOj '00
tires a year (1929 production was 69,'150, fiOO) the average m.onthljr
production would be 5,750,000. Table 12 shoTTs an index of seasonal
variations, together with the maximum demand in plant c:~pacitjr to
provide for seasonal ueaks.

"As oointed out in Table 14 the demand on -productive capa-
city would vai-y from 4, 870, OOO tires oer month in November to
6,613,000 in April or 36, <) -per cent variation. The high figure is
at the rate of a/oprcximatel-/- 8' •, Ooo, OO't tires -oer vear. Assiiming
that the index is t-roical for all producers, and that the varia-^'ions
cannot be smoothed out by building up inventories for the s'oring
demand, the Industry must have a "stand-by" ' ce/oacity of 8 ', 0':.i'"\ -^OO
tires to meet an g.vera.ge demand of '69,00'>',00''> tires. This means
that, on the basis of 1929 oroduction,' 'the Industrv has an e::cess
caoacity of 18,50''),ono tires or 23 -oei" cent over and above the capa-
city renuirements of 80, 0'Vi^ i-yi-"* tires for the seasonal oeak. It is
not believed that demand will exceed 70, Ooo, ooo tires ever the next

9685

-31-

five years.

"If these estimates are reasonalily" adequate, the Industry-
must look forward to carrying, as an industry, 'between $35,000,000
and $40,000,000 of fixed assets which caxinot he utilized. This
situation is the direct result of expansion programs of the Industry in
1928 and 1929. The productive capacity of the Industry was increased
50,000 to 60,000 tires daily "by these programs."

^1 interesting comment on the capacity of the Tire Industry
is found in the issue of "Standard Trade and Securities" puhlished liy
Standard Statistics, April 17, 1935, page AT-97, which reads as follows:

"Excessive productive capacity in the Tire Industry is a
further factor that has tended to prevent harmonious trade re-
lations and economic selling prices. The Industry is much tetter
off in this respect than m,any other trades, however, total tire
capacity in the United States, based on 252 days' operations per
year, dropped from 106,000,000 in 1929 to 85,300,000 in 1931, and
69,200,000 at the "beginning of 1935. Present production capacity
should average 70 per cent active in 1935, a much higher ratio
than is indicated for general industry."

Under such circumstances the flow of investment capital into
the Tire Industry for plant expfmsion is o"bviously not justified, so
long as excess capacity exists.

Between 1924 and 1929, ahout $273,000,000 of new capital
flowed into the Suo'ber Industry for e:cpansion and recouping of losses,
as shown in Ta"ble 15. This new investment occurred despite the fact
that even at that time the Ru"b"ber Industry was pro'bably one of the
most unsuccessful in the annals of American "b.usiness. The Bureau of
Internal Revenue, in 1929, ranked the Ruh'Der Industry first in un-
profita'bility in that 47.5 per cent of all c'orp'orations reported on
net income. Furthermore during the seven years 1924 through 1930, when
all manufacturing industry averaged 9.2 per cent on capitalization, the
Ru"b"ber Industry averaged only 2.3 per cent. On this "basis, the
Ru'b'ber Industry was only 40 per cent as profitable as the Textile In-
dustry which averaged 5,9 per cent during this period.

The record made by the Tire Division of the Rubber Industry
since 1929 is even more depressing than that of the Industry as a whole
prior to 1929. As discussed later in this report in the chapter on the
"Profitability of the Rubber Tire Industry," the four years, 1930
through 1933, the Tire Division suffered losses of $77,027,000 or 2,97
per cent of sales of $2,598,752,000,

9685

-32-

Ta"ble 12 - Utilization of Productive Cp'oacit-'- of Tire Industry
as Estinated "by Paib .er Ta.nufacturers' Association,

Year Unit Sales

Pneumatic Industry Percenta-^e of 6,000
Casings Hours Hours Ca-Dacity
(000)

1927 50,703 3,709 . .62

K928 60,889 4,454 74

1929 64,868 4,745 • . .79

1930 52;S73 ,' 3,831 64

1931 ' 48,531 ' 3,550 . / , 59

1932 39,917 '■ 2,920 49

1933 44,533 3,243 54
Average ' "51,559 3,779 . 63

Source: Ra^oter Hanufsxturers' Association
L.etter to Deputy E. D. Bransone
August 1, 1934

9685

Table 13 - Practical Capacity and Percentr^e of

practics.1 Cariacitv Utilized in Tire Indn.stry.

Year Practical E£.^ti:nated Percenta.re of

Capacity Production Practica.l Capacity

(000) (000) Utilized

1921 45,645 27,298 59.8

1922 46,480 40,927 88.1

1923 61,840 • ■ 45,426 73.5

1924 62,000 • 50,817 82.0

1925 64,692 • 58,783 90.9

1926 68,634 60,120 87.6

1927 74,501 63,553 85.3

1928 86,691 75,524 87.1

1929 91,600 69,766 76.2

1930 91,600 • 51,610 56.3

Source: "Americans Capacity to Produce" Page 583, Ed.Tring G-. bourse,
The Brookings Institution 1934.

9685

Ta"ble 14 - I'ontnly Out;outs .Required for Anniiel Production
of 69,000,000 Tires.

Month

January

February

March

April

May

June

jaiy

August.

Septe-.iloer

Octoher

llovenber

Decenher

Seasonal Inde:?L
95.3

110.8
115.0
111.8
113.0

96.0
103.0

94.0

89.3

84.7

87.9

Monthly Outnut
5,479
5,704
6,371
6,613
6,428
6,498
5,520
5,922
5,405
5,135
4,870
5,054

Source: I'iress Re'oort - Pa-'^e 9 "Ruoher Tire Industrj''" Research and
Planning - N.R.A. ilovenher 9, 1933.

13. SEASONAL 'PLUCTUATIOiT AMD DECLIi:i;':G TREUD OF PRODUCTIOH

The pea.!' year of lorod-uction in the tire nantifacturing division
during the -cast decpde, 1926-1935, occurred in 1928, '-^hen the i-idex of
production, neasured on the 1929 level, and a.s shom in Tahle 16 and
Chart 3, rra.s 112.2. During 1928, Toroduction every nonth exceeded the
1929 average -pith the exception of January and Decenher, rhich were
92.6 and 95.1 respectively.

In 1929, the peak of production uas in '■'8.j, with an index of
131.9, the highest point ever reached in the history of the Industry.
In the regaining nonths of the ''^ea-r, ^Droduction rapidlj'' declined,
reaching a low point of 55.0 in Dece^oer, con-o.ared ^-'ith 95.1 for the
preceding Decenher.

In 1930, during the first half --ear, -production recovered
somewhat, reaching an index of 98.1 in May. As shown in Chart 3, after

9685

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O i-l

^ »

O 9

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^ ^

■P

O -H

^ *»

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4> M

O IB

d -H

044

gg o

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(DN

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to ♦•
C\i 0)

9685

Tatle 15 - Capitalization a,nd Ponded Pe"bt of P.ubuer
Industry 1924 - 1932 (a)
(i'illions of Dollars)

Capitalization Bonds Total
Year and

'ort;^a-^es Amomt Per cent

Increases over

Preferred Connon Total 1924
Stocl: Stock Stock

1924

$ 348

1925

334

1925

279

1927

258

1928

258

1929

291

1930

276

1931

252

1932

238

265

$ 634

$ 108

742

- —

251

585

204

789

6.33

386

555

192

857

15.50

457

715

240

955

28.71

442

710

247

957

28.98

484

775

240

,015

35.79

515

791

151

942

26.95

486

738

268

,006

35.58

449

687

251

938

26.42

(a) Included rve a. ne.^;:ligi"ble nu--'ber of co'T-'anies engared in the

manufacture of bone and "buttons.
Source: Statistics of Inco--,e,

Bureau of Internal Revenue

9685

-37-

May, prorliiction fell off, and in IvTovenber the index n'as 46.2, with
an average for the j^-ear of 73.8.

In 1931, during the first half year, production increased and,
in iiay, -oroduction index stood a,t 96.7. Compared vith the preceding
year, the I'ay index was 1.4 points under, and connared rith May 1929,
it r'as 35.2 -Doints under. The second half of 1951 witnessed the usual
decrease in husiness, hut it is iraportant to note that each succeeding
year established a nevr low in production. In 1931, the low point
occurred in Deceraher, with an index of 45.6.

In 1932, production in the first quarter year did not show
the usual seasonal increase. However, with the imposition hy the
Congress, of the excise tax to hecome effective JuIjt- 1, 1932, production
rapidlj!- increased, and in June 1932, the index was 96.1. The second
half year tells a disnial story, 8.n6. -^roducti'^n declined to 33.8 in
Decemher, the lowest point reached in the decade, with a yearly average
of 56.9. ■ .,..., ., , .

The year 1933, and opened with little hotje for the Tire In-»
dustry. fjusiness lagged, ano. during the hanking hoi i day in I'arch, the
index of production was 34-.8, compared with- 122.5 for March 1929, With
the reopening of the "banJvS, production was speeded up, and in June,
for the first tine since July 1929, the nonthljr index exceeded 100 when
production wa.s 103.5. The high production in June was the result of the
effort of the industry to accumulate inventories Defore rise in costs,
due to enactment of the national Industrial Recovery Act. After June,
production declined -to 52. .3 in Dece^^iher, rdth an average for the year of
64.5.

In 1934, the year of Code operation, production was More nearly
uniforn," var3'"ing from 88.5 in I. 'arch to 50,9' in Septeraher, with a yearly
average of 67.3. This uniformity of oroduction ?;as the result of the
"loadin.g" progran of the Industrjr in the previous -year a;id early in 1934.
As will he seen fron the chart, there was a tremendous increase in
production in 1933, This increa.sed rirod-action was in a^nticipation of
1934 sales and placed tremendous inventories in the hands of retail
dea.lers and constr^ers. The truce and the estahlishment of minimum prices
oy the K.R.A. curhed price wars. Inventories were liq_uida.ted more
gradi^allj;- and production was, therefore, -.ore ii^iiform.

Por 1935, production figures are available for only the first
six months. There was a slight decrea.se compared with 1934, and in
Hay 1935, the Tire Industry ended code adi^.inistration with rjroduction
indexed at 71.4 of the 1929 average..

9685

-38-
Ta"ble 16 - 5u"b''.jer Tire ""a.".ufacturinig: Industry
Index of Production 1926-1S35 .
1S29 " 100

1525 1927 1928 19-29 1930 1951 1932 1933 1934 1935

JAIT. 89.9. 87.2 92o6 109,2 78.4 63.4 '59.4 38.5 66.4 78.8

FEB. 90.2 8S.6 110.4 112.2 79.3 68.5 66.5 40.1 73.5 74.7

iJia. 99.0 111.4 118.3 122.5 84.3 79.7 62.8 54.8 88.5 74.1

APE. 95.8 112.7 107.7 128.1 97.0 84.3 59.8 53.1 81.5 76.9

TAY 89.7 109.2 ■" 117.5 131.9 98.196.9 64.7 87.9 76.3 7l;4

JIT IE ■ 95.5 109.1 116.2 118.8 88.0 96.7 96.1103.5 74,2 66.2

JULY 87.1 89,4 112.5 105.6 68.8 85.0 60.8 ' 98;l 58.1

AUa. 104.8 101.7 130.6 95.2 73.4 68.5 52.4 86.0 61.1

SEPT. 102,7 85.4 117.5 79.5 59.3 55.3 43.9 68.8 50.9

OCT. 91.1 83.4 125.1 81.9 65.1 51.6 43.3 59.4 56.4

iTOV. 76.9 78.6 103.2 60.1 46.2 43.1 39.0 52.2 '57.1

DEC. 83.1 79.0 95.1 55.0 49.4 45.6 33.8 52.3 63.3

Average 92.1 94.6 112.2 100.0 73.8 69.9 56.9 64.5 67.3

Source: Ag£;rega,te prodaction divided "by 1929 average conpil ed "by
St.\tistics Section IT. P. A. ITove-i'ber 1935.

-39-

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9685

-40"

B. DlS^rRIBUTIOII. COIvgETITIOH. Aim FRI_C SS

1. VARIETY lil TYPE Aiffl liULIBER OF DISTRISUTIO:" OUTLETS.

Tires are distril^uted thi'0U;:ih many channels, but the more im-
portant, as classified by Prof. ?if. ¥. Leigh of Akron University, are as
follov;s: Independent Dealers, Mail-Order Houses, Chain Stores, Depart-
ment Stores, Oil Com^pany Stations, Eactory-owned Stores, Direct Factory
Shipments, and Spares throUi^h Car -Manufr.cturers. The total number of
outlets engaged in the retail distribution of tires in 1934, vras esti-
mated by the Rubber Division of the Bujrea.u of Foreign and Domestic Com-
merce at 183,777. The number of outlets in each classif icrtion is shovm
in Table 17.

Table 17 - lumber of Outlets Engfged in Retail Distribution of
Tires - 19 34 -

TYPE IsiUlffiEH
Independents

(a) Dealers 84,000

(b) Sub-Dealers 35,000

(d) Jobber Sub-Dealers 20,000

(e) Tifarehouse Dealers 950

Factory -owned Stores 1,350

Auto Supply Chain Stores 375

Mail Order Retail Stores 900,

Oil Com^iany Stations 40,000

Mail Order Houses 2

Total 183,777

(a) Included in this classification are many n/erchants whose sale of

tires is negligible and may not exceed one sale per year.
Source: Special Circular #3533, Rubber Section, Bureau of Foreign
and Domestic Commerce, December 15, 1934.

In reference to the above estima.ted number of outlets,
Mr. Albert Abrahamson, in his Study, the "Price of Automobile C'ires"
a/, had the following comments to make:

"The number and importance of these types of out-
let have been estima,ted by various persons. The figure
of 180,000 h£;,s become the accepted estimate of the num-
ber of places in the country where tires may be bought.
Careful examination of the ba-ses for such an estimate

a/ The price of Automobile Tires , by Albert Abrahamson, Report Wo» 2
.Bie. price Study, November 1, 1934, H.R.A,

9685

-41"

leads to the belief 250,000 would "be just as ac-
curate. The truth no one really knows. It is
further estimated that 85 per cent of the outlets
do less than -2000 inhusiness each year, so far
as tires are concerned. At a public hearing, the
statement ?/as ms.de that 160,000 dealers have total
annual tire seles of less than $1000, and that feoff-
or than 1000 dealers have animal sales of $25,000
or over. Only 10,000 units in the country are real-
ly tire dealers in the sense that more tlian half
their annual volume is in tires. The bulk of the
dealers are uire mercha,nts on such a small scale
that the tire business must be a-n incidental part
of some other business or businesses, a conclusion
which is substantiated by various tests. On the
other hand, the bulk of the tires sold reach the con-
sumer through a relatively small number of dealers.
In the case of renewal sales, 43 per cent of dollar
volume is in commercial accounts, always handled by
large dealers or by the fo.ctory itself"

2. COlOTrSMG AiiD ILLOGICii PRICE STRUCTURE III THE IlIDUSTRY

The price structure existin(_:i in the Tire Division of the
Rubber Industry is not the result of an orderly plan of merchandising,
but, in effect, is the result of the confusing and contrrdictory meth-
ods of merchandising piirsued by the various manufacturers and mass
distributors. The lad: of a uniform sales policy, together with the
excess productive crpacity of the Industry, have produced a price struc-
ture which changes from day to day.

The pricing system and policies pursued by tiro manufactui-ers
in soliciting dealer business has been called a race of discounts. Most
manufacturers have a'"iiet billing" price to dealers of a certain dis-
count (usually 25'Jj), from their published consumer list price. This is
the price extended any dealer buying for re-sale regardless of quantity
of purchases. Beyond this price, the m.ethods followed to reduce prices
and provide preferential buying positions for larger ' accounts- are be-
v/ildering in number and variety.

Any attempt to analyze further the price quotations available
yields discouraging results. For there is no one price at any time
even for the identical tire. One would expect differences in prices to
different types of dealers and consumers. But there are further dif-
ferences. One can begin with the various prices published by the manu-
fe.cturers as "list prices." As far as "list prices" are concerned,
there has been a tendency since 1929 for most of them to be identical.
But, apparently, list prices mean very little. At most, a list price
is the maximum a dealer will charge a consumer. Actua,lly, it is more
properly described as a base from which to make countless discounts to
meet what are called "competitive conditions."

Req. No. 9685

-43-

The dealer, in addition to Ms regular discount, tJets dis-
counts dependinti on the volume of business, discounts for cash, dis-
counts for special price sales, discounts if he a.cts as wholesaler as
well as retailer, discounts if he handles "corni-iiercia,l accounts," dis-
counts if he handles only one brand of tire, and finally and, in many
respects, most importaait, there are special discounts and "cut-backs"
to "meet com.petition. " At one time, fourteen ten per cent discounts
were applied to the list price. It is safe to sa.y that usually the
dealer pays list minus the ree.ular discounts down to forty per cent of
list price. When price v/ars become particularly bitter, the price to
the dealer may i,o as low as tv/enty per cent of list.

The contemporary -price structure of the Tire Industry reveals
a multiplicity of prices, and, instead of considering the price of a
tire or the price of tires, one should speaJc of an array of prices of
many tires. A further discussion of prices and corripetition is found
later in this report und-cr Section III, "Special Problems in the In-
dustry. "

-' 3. PEIGE STRUGTT,IKE IN OTHER RUBBEH GOODS INDUSTRY

The price structures, prevalent in the other divisions of the
Rubber Industry, are usually based on a manufacturer's list price,
from which are deduced discounts applicable to the various classifica-
tions of customicrs. As in the case of tires, the list price in the
other rubber goods division represents usus.lly only an ideal of what
the manufacturer would like his dea.ler to .^et for his products. As a
matter of fact, tra.de conditions in the other rubber goods division are
very similar to those in tires, B.nd price wars are prevalent.

The Industry is composed of a few large and many small manu-
facturers. The ability of the la.tter to secure business is dependent
upon their quoting prices under those of the larger manufacturers. As
long as such lower prices arc kept secret or are limited to a small
market, there is little danger of a price war. But should such know-
ledge be broadcast to the trade generally, a price war is certain to
ensue. During the period of Code administration, the Heel and Sole
Division had to suspend the open price filing provisions of its Code,
because the lower prices of small manufacturers became common know-
ledge, precipitating a general price war a.nd forcing reduction in pri-
ces to a point below cost,

4. CHARACTER AHD IIIT'EITSITY OP im'RA-IliDUSTRY COlvIPETITIOil

The character of the competition existing in the distribu-
tion of rubber products ha,s been largely determined by the fact that
rubber products are, for the most part, small in size, low in unit cost,
and are adaptcdto innumerable uses. The result is that rubber i^ro-
ducts are offered for sale in stores of every description. Moreover,
the sales of rubber products are usually only a small percentage of
the total sales of the retail merchant who, therefore, can afford to
feature the sale of rubber products as "loss leaders." This demoral-
izes the price structure ot the entire Industry, and is, no doubt, one
of the principal factors contributing to the present plight of the In-:-
dustry. This i'S especially true of the tire division and boot and

Req. lie. 9685

-43- ■
shoe divisions.

In the tire division, there are three princijjal classes of
outlets, namely, independent dealers, mass distrihtLtors, and company-
owned stores. The character of the competition in this division has
"been determined "by the fact that the mass distrihutors include such or-
ganizations as Sears HoelDuck and Company, Montgomery Ward & Company,
Tifestern Auto Supply, Standard Oil Company, and others. These organiza-
tions hy virtue of their lavre volume of. sales, purchase their tires at
exceptionally lov,r prices, or, in the words: of the Federal Trade Commis-
sion, at discriminatory pricas. Tlieir price advantage is further en-
hanced hy the fact that their tire sales are only a negligible factor
in their total sales volume. Tires are accordingly used as "hargain
specials" to attract ' trade. Tires are sold through such channels at a
price lower than the cost-price of the independent tire dealers, who,
finding it impossihle to compete, are heing forced out of husiness.
This, in turn, is having repercussions vdthin the Industry, and. the
tire manufacturers, confronted with a decreasing numher of outlets,
have teen compelled to establish their own retail outlets, commonly
known as "company-ovmed stores," At "oresent, there is said to te more
than eleven hundred such stores and their nuniher is constantly increas-
ing. Of course only the larger and financially able manufacturer can
afford to establish their own retail stores, and the plight of the
smaller and r/ealcer manufacturer becomes more critical.

There is raging today the fiercest competition the Industry
has ever known. It is not likely that the small independent dealer or
manufacturer can survive, and the Industry may be fa,ced with a monopoly
in the not distant future.

It is worth v/hile to bear in mind the character of the com-
petition as described by Mr. Edward B. Levy, President of the Fisk
Hubbcr Corporation, at a public hearing on the proposed Setail Tire
Code, December 14, 1933. Mr. Levy spoke as follo?/s:

"The Trade may be roughly divided into tvra groups:
1. The company owned stores, the controlled dealers, the
mail— order houses, the oil company outlets, and chain stores.

2. The independent dealers.

"The first group incltides the retail stores and retail
subsidiaries of the big. tire manufacturers and stores controlled
by them. There are at the present time more than eleven hundred
such 'company-ovmed stores, ' and in recent years their number has
constantly and rapidly increased."

"In this group also belong the thousands of filling stations
and service depots, through \7hich certain large oil companies
retail special brand tires.

"Also in this group are the mail-order houses, the two
largest" of .which- are saicl to--be oT^erating over nine hund.red retail
stores.

0fi85

■ ■ -44"

"The common cliaxacteristic of these 'f-rou-o 1' retail outlets
is their dependence: "apon the resources of the corporations v/hich
"bac'C and ovm then.

"The second group .incltiues thousands upon thousands of con-
cerns, individuals, firms, corporations - of varyin.;; size "but
mostly small, scattered throughout the country, and each existing
independently of each other, and of any other resources except
the capital invested in them.

"The common characteristic of these 'Group II' retail outlets
is their individual independence.

"ITov/ these two groups are in constant, fierce competition
v;ith each other. It is v/orth a moments consideration to under-
stand the circumstances under which this competition is carried on.

"The company- ovrned and controlled stores, the mail-order
stores and oil company outlets, select the hest location available,
regardless of ex;oense involved, are tacVed by unlimited finances,
extensive national and local advertising programs, and complete,
even extravagant, service equipment and facilities.

"If a price list is estahlished and no sales are made, this
type of store can live; the personnel may be changed, ex^oenses
villi go on.

"Paym.ent of bills is not forced by the parent com;oany,
losses are absorbed at the hone office, more money is siroplied
and continuous operation goes on.

"Opposed to this, tlie independent dealer must finance himself;
he cannot afford the most desirable location in town; cannot carry
on extensive acvertisin^ prograi.is; hiust economize on equipment
and service facilities; is billed for his purchases at a definite
price an^. must pa,y f^r the.a when due, and finally has no home
office vdiicii v/ill absorb his losses or supply additional capital.

"The smaller retailer, located on an obscure side street
with nn electric signs, no local or other advertising, and selling
a tire not nationally advertised, cannot sell xnar^y tires, tubes,
and/or batteries at the Consu..iers List Prices, and, if he is com-
pelled by layr to do so, the business will naturally gravitate to
tiie large, v;ell located, extensively advertised a-nd often extrava-
gantly opera-ted company stores, to mail order houses, retail
stores, to the better located oil stations of the lar;_,e oil com-
panies, and to the hundreds of other lar;_;e chain stores, depart-
ment stores and others ha,ndling tires, tubes, and/or batteries;
leavin;_, the independent dealer of modest means at a great dis-
advantage and eventually f:^rcing him out of business."

-45.

C. ri!TAFCIAL ASPECTS Cj THL INDUSTRY

1. COPvPOHATE AlID SU3SIDIA3Y STPUCTUPE POP SPECIALIZED
FUI'CTIOMS.

Tne 31^^J Pour Conpaniec, na^aely, Pirestone, Goodrich, G-ood^
year, and United States, and it is iDelieved, . n-my of tne siaaller cori-
panies have found it -Mractical to or^-janize se"oarate corporations to
handle specialized functions in the manufactxire and distribution of
ru b"b e r p r o due t s .

Por exoiTiple, the ■:>ood;"'ear Tire and Puboer ''ompahj^, on the
'basis of data suljmitted to the Securities a.id Pxchan;2:e Coirjnission, as
shown in Taole IC, consists of j3 corporations of v;hich 27 are or/^an-
ized under 'the la,ws of foreign countries. ±^3 da'ca indicate that
corporations were set up for the following activities: Gomaercial
Banlcin , Coal Minin^;;, Cotton Plantations, Cotton ilills, Investment
pjanlcin-;,, Housini^;. Construction, Peal Estate, Retail Stores, Pa'b"ber Manu-
facturing, Pubber Plantations, and Zeppelin Const;u.ction.

The Firestone and &-:Ddrich Companies liave set up corporate
structures similar to that of ^-oddvear. In the proceedin£,s hefore
the Federal Courts, these companies sought to deny the authority of
the Labor Pelations Board to order labor elections within their fac-
tories, because their factories were en;;;a;,-;;;ed solely in intrastate
comnerce, havin:^- been :;r^anized under the lav/s of Ohio, operating only
in Ohio, and sellin. their entire ou.tput to their sales -company, also
an Ohio corporation.

The sta.tement filed by the G-oodyear Company with the
Securities and Exchant^^e Commission, describing; briefly the i^,eneral
character of the business done, fives some indication of its corporate
structure. The statement reads as foll:;v/n:

"The registrant is en^ja^'ed in the manufacture and sale of
rubber tires, mechanical goods, rubber heels and solin;;,' for
shoes, a complete line of hose, belt in.":: and packing, .and inci-
dental to carryia, on the foregoing business, it 07ms stoc]: of
sales companies and com"oanies en/;a,L:,ed in related business (the
holding of such stock, hov/ever, being merely incidental to the
business of Ihe registrant, which is not a 'Molding Compa,n3'' in
the same sense thai siich term is ordinarily emploved).

"The registrant's subsidiary, C-oodyear-Zeppelin Corporation,
is incorporated to majiufacture lighter- than-air-craf t , and is in
the business of manuf ac ttiri .'g and selling; light weight articu-
la,tec3 streamlined trains.

"The registrant obtains a part of its coal su^rpply from its
subsidiary, the 'Theeling Tov/nship Coal Mining Company at Adena,
Ohio, and obtains a part of its supply of the principal raw
materials used in the manufacture of ru.ober goods through stock
control of the froodyear Pubber Plantations Company, ?/hich con-
trols 9', 000 acres of ruobei" plantation lands in Sumatra and the

Sfi85

-46-

Pliillippine Islands, and tliroufli a controlling;' ov/nersiiip of the
Southwest Cotton Coimany, located ac Phoenix, Arizona, v/hich
ovms 3-1,000 acres of land and is en-"aged in the £'rov/ing of
cotton, and of Goodyear Clear^^'ater 'lills at CefJartovrn, P.oclnnart
and Cartcrsville, GfBor.^ia; GfOodjear Decatur l^ills a,t Decatur,
Alahar.ia; Goodyear Fabric Corpora.tion, llev/ Bedford, liass; and
Goodvear Cotton Com-nany ^f Canada, Limited, at St. Hyancinthe,
Q;aebec, all of Y/hich comptanies are en:;,a;';;;ed in the manufacturing
of tire fabric."

The developnent of such corporations as Gooayear, Firestone,
Goodrich and others have i7rou;;ht such cha/nir;es in American life that
it is questionable T/hether th'^ older concepts of private enterprise
are applicable. There are some economists v/ho believe tha,t modern
corporations, such as Goodyear and the li;:e, are not only methods of
proper t3^ tenure, hut are means of ors^ranizin;; economic life and that
there has developed a "corporate system"-as tiiere v/as once a feudal
system - which has attracted to itself a combination of attributes
and powers, and has attained a decree of prominence entitling it to
be dealt with as a major social institution. Moreover, those econo-
mists believe that the corporate system v;ill move fonTard to propor-
tions vfc.ich would staii,fjer ima£;ina-tion today; just as the corporate
system of today was bej'-ond the ima"ination of most statesmen and
business men at the opening of the present century.

In discussing the present development of modern corpora-
tions, Messrs. Adolf A. Berle, Jr., and Ga,rdiner C. Means, in their
book, "The iiodern Corporation and Priva,te Property," pa<:,e 357, offer
the following comments:

"The rise of the modern corporation has broU|i-:ht a concen-
tration of economic pov/er v/hich can compete on equal terms with
the modern state-econom.ic pov/er versus political power, each
stron/:; in its ovm field. The state seeks in some as^iects to
refju-late the corporation, while the corporation, steadily be7
coming more powerful, maZces every effort to avoid such regula-
tion. Where its own interests are concerned, it even attempts
to dominate the state. The future may see the economic organism,
noY/ tjrpified by the corporation, not only on an equal plane v/ith
the state, but possibly even superseding it as the dominant form
of social organization. Tlie law of corporations, accordingly,
might well be considered a.s a potential constitutional lav; for
the new economic state, while business practice is increasingly
assuming the aspect of economic sts.tesmanship. "

9^85

■ -47-

TaT^le 18 - Sulisidiary Corporr.tions of the G-ood.3.^ear Tire and Hulober

Company - 1935.

Sutsidia-ry

Per cent of Voting
pc^Ter Held "oy Parent
Cora^t'any

The r-oodye3,r Tire L. Kul^ber E:roort Company

The Goodyear Tire & Eul^lDer Export Company, Ltd.

The Goodyear Hei^^^its Realty GoiHpan:;

llarathon [rubber Company, Inc. ,

The '.Tneeling Tov/nship Cca,l Minin^';: Company

The Goodyea,r Puboer Plantations Coinpany

Southwest Cotton Conpejiy

Win;-foot Corporation

The Goodyear Tire & Rubber Gompan;^, Inc.

The Goodyear Tire & Rubber Coinpany, Inc. - (Ala)

The Goodyear State 3a,n.::

Goodyear- Zeppelin Corporation

Zeppelin, Inc.

Croodyear Investment Corporation

Compania Espanola Del'e-omaticos & CoAicho Good^year (S.A. )

Allyn libber Products Coirijoany

Good;/ear Tire c"; Rubber Companj-' of Alabama

Tlae Goodyear Tire & Rubber Company A/S

The Goodyear Tire & Rubber Com-^axiy J\.G.*

Goodyear Clearwater Hills

The Goodyear Tire & Rubber Company of Cuba

Gocdyea,r Fabric Corporation

Goodyear G-ui;oia!:ti ebolag

The Goodyea.r Tire & Rubber Company, Ltd. (Java)

The C-oodyear Tire & Rubber Company of I.Iexico, S.A.

The Goodyear Tyre & Rubber Company, of Hew Zes-land, Ltd.

The Gooayear T3a'-e and Rubber Gomioany (S.A. ) Limited.

Goodyear Portufueoa Limitada

"-oodyear Sei'vice, Inc. (inaxtive)

The Goodyear Tire & Rubber Company of South America

The CrOod^ear Orient Company, Limited

The Goodyear Orient Sales Company, Limited

C-oodyear Rubber Prodejni AKC Spol (Czech) (in liquidation)

llaamlooze Vennootschap LandbouA7 Meiatschappi j llabara

Middlebury Land Company

Heumaticos C-oodyear S. A.

Penximatiques Societe Anonyiue

Goods/ear Decatur Mills

Goodyear Os.al;eyhtio

Overseas Tyre Rubber Co. Ltd-.

The Gcod,''-ear Tyre & Rubber Co. (India) Limited

The Goodyear Tyre & Raibber Compsiny (Great Britain) Limited

The Staffordshire Housing Company, Limited

Goodyear Tire ci Rubber Company of California

C-oodyear Tire & Rubber Com^iany of California, Inc.

100

71.4
10

SI,

100

* The Common Stock elects a majority of the directors.

3RC5

-48-
Table IC (contiuMed)

Subsidiary

Per cent of Yoting
Pov/er Held T3y Parent
Company

lOC.O
II
II

The Goodyear Tire & Pubber Corroany nf Canada, Lta. ,

Common Stock

Preferred Stock

*See I'Totp
CTOod;,'ear Cotton Go. of Canada, Limited
Croodyear Improvement Comioany, Limited

The G-ooayear Tyre £; Eu.bber Company (Australia) Lim.ited
ilOO)i of vote unless Preferred Stock is in default, then

Preferred Stock votes)
The C-oodyear Tyre & Eubber Comi:any of Autralasia Proprieta,ry,

Limited "' 100.0

The I'Zelly- Springfield Tire Company (iiaryland) "

The Zelly-Springfield Tire Company ,(lje\T Yor:) "

•■^Hote - Tiie Common Stock elects a majority of the directors

9^85

-49-

2. COIiPABISOE OF PE0PITA3ILITY OF T1?Z AilD OTI-IIIR EUEBSE
&^-^'"DS Divisions

A co.^parison of the prof ita'oility of the Tire Industry with
the other parts of the Eubber Industry v/as made TDy Hr. E. G-. Holt of
the Ruh'ber Section of the Bureau of Foreign and Domestic CoLT;:-!erce,
and v/as published in his Ruhbe_r Industiy^^ Lette_r I'To._l, July 31, 1935.
This comparison, as shovm in Tahle 19, chov/ed ths,t the other ruh'ber
division y/as m^re profitable than the tire division, despite the
fact that the tire division had a volume of "business several tines
greater than that of the other rubber division. LIr. Holt's suamary
is as follDY/s:

"This analysis shows the tire corporations as a group
hegan the year 1931 with a net deficit after taxes of 344,047,000
as a result of operations during the preceding four years,
v/hereas the other rubber corporations txcounting for only 13.7^1
per cent of the j-ross income of the rubber industries during the
period, had a net income after taxes of rio5,043, 0'")0, or a rate of
4.G9 ;oer cent on their total ;;;ross income, but in spite of this
the Industry as a vmole had a net deficit, after income tax,
amounting to 39,005,000, The avera.-e nmnber of rubber corpora-
tions reioorting v;as 52B, tire corporations 151, and other rubber
corporations 377; the p.verage nnmocr reporting a net incom-e
before taxes wa.s; total rubber corporations 244, tire corpora-
tions 44; other rubber corpora,tions 200. The averaiV.e nainber
reporting a deficit was: total rubber corporations 255; tires 94;
other rubber goods I'-^l. Thus, less than one- third of the tire
corporations operated at a profit, ?/hile five-ninths of the
other rubber corporations enjoyed a net income for the four year
"perioo-."

9^8::

-50-

Table 19 - Gor.iparison of Profitabilit;- of Tire Division and ^thei

'r.u'foer Division, l'.'?27-13o0

( Tlinusan..'.E- of Dollars^'

I tens

,. ire
C.or-oorations

'"'tlier P.ubber
Oor"o orations

Total

Total ^^rcES Income
Corporations Re'iortin
Net Income:

•:.-95.?--^t

717.030 •'5.212,854

G-ross Income 2,752,995

7et Income 121,^25

Income Tax 14,2-:-7

i:et Income less Ta:; 107, 37C

5o'v,2j2 5 . 337 , 2'i7

53 , 935

fl,449

..'-7 A-R

175,5fi0

20,'^9Pi

154.8^^4

Corporations Reporting
¥.0 ITet Income

i^ross Income
Deficit

1,742,743
l!:;i.-i25

132, "3C 1,075,587
12. -±44 l?^3,Sf^9

l.;et Income After Tax
and Deficit

44,047 (a)

35 , 0-2

9,005 (a)

(a) 5et Deficit

Source; ""ub'ber Industry Letter No. 1, Pa, g 4 Bureau of Forei;;n and
Domestic Comi.,erce, July 21, 1935.

-51-

3. Uiff?.0FITA3ILITY 'T TI3E ILIDUSTHY

An analysis of the inc:!me tax reports filed 'by rvJo'ber tire
manufacturing companies at the B^areau of Internal P.evenue shoves that
the number of such companies varied from. -'^'^ in 1933 to 175 in IQo*^,
as shoY/n in Table ,30. This nuinber is considerahly lar.'jer than the
estima^te of the Census of i!amifact"ares, see Tahle 1, and it is prolsable
tha.t many other rub'ber manufacturers are included v/ith tire manufac-
tur er s .

I>arin;[; the eight yer?,r pp-riTd, 192R-19o>'>, the Industry lost
4,791,000 or 0.'^'^ per cent of its sales volu:ie of ;57, 305, 0' 'O.OOO.
Durin;';: the period, the Industry was profitable in 3 years and suffered
losses in 5 ye.ars.

Ill 1328, Y/hen all ~ther industry, /generally spealrin/;;, v.'as
profitable, the Tire Industry lost 310,89^,000 or 0.97 per cent of
sal e s .

Ilr. A. L. Xress, of the Research and Plaiiuin^:; Division of
1^.?..A. , in his report on the Tire Indu-str^'', IToveiaber 9, 1933, made
the follov/inf" comments on the profitability of the tire industry:

"i'otv/ith standing the great increase in dem.a,nd betv.'een 1919
and 192G, and the com.plete absence r^f any inter-industry compe-
tition, the tire industry has probabl;-'" been one of the most un-
successful in the annals of American business. In the year 1S29,
tae rub'ber industry'- ranl:ed first in unprofitabilit^r in tnat 'V7.5
pfr cent of all companies re"o:rted no net income to the 3uree.u of
Intei'nal Revenue. "

In connection v/ith the above cpaota-tion, it should be noted
that this report shows thao in 1929, ^S.P> per cent of all tire manu-
fa-cturing con^oaiiies reported losses.

Exliibit 3 shov;s a comparison of receipts and deductions of
all companies for the period 192fi throuoh 1933.

9fiS5

Table 20 - Profitability of RuVoer Tire Industry, 193^^-1953

( Tho-j.sanciG of Dollars)

fear IT-um'ber of I^ercent Percent

Companies Sales profits Defrcits i^rofits Deficits

are of are of

SsJes Sales

.1,230,23- :; 34,221 - - 2.7r

1,173,530 38,130 -- 3.25 '-•-

1,125,5C9 - - 10,' 9'^ - - 0.97'

1,17^^,^43 10,731 - -■ 0.92

897,953 - - 40,803 - - 4.54

f^'.4,884 - - 13,131 - - 2.04

503,32.'^ - - 22,727 - - 4.52

552.589 34o O.Ofi

192^

175

1927

If^O

1928

154

1929

139

1930

1931

fiS

1932

fifi

1933

Total 7,305,000 83,123 87,923 1.14 1.20

ITet Deficit . 4,791 O.fifi

Source: Compiled from data of Bureaii of Internal
P.evenue H, L. Wells, '". H. Cross i'.'l.A.
ITo verib er , 1935 .

irarKR OF DECLiniT;- PROFITAjBLE TIPE C^lIPAl'IES

The nura'ber of tire comi^anies reporting profits to the
Bureau of Internal P.evenue duri^ig the period 192i^-1933, as shovm in
Table 21, declined from W i:i 19.:^^' to 12 in 1932. In 1933, the
nuiaber increased to 2<^. It is sif^niiicant that the profitable com-
panies of the Industry v/ere in the minority, constituting in 1952,
only 18.2 per cent of the total number of companies." The best year
was in 19 J7, r/hen they constituted 40.0 per cent. In 1933, they
were 33.5 ijer cent of the total number.

9fi85

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-54-

Durinr the eight year period, the profitp-lile coni;oanies did
a, volu:.ie of liusineGs ".if 34,135,123,000, or 5^.'^ per cent of the total
vol-ujne of the Industry, and their profits were 3213,333,000, or S.l^i
per cent of their voluir.e. Their oest year was in 1939 v/ith profits
of S4.'^, 14-8,000 or n.4-fi per cent of sales, and the poorest year v/a-s
1S32 vdth profits of Gl, 7^2, 000 or 1.72 per cent of sales.

Althou;;:h the ntmiher of companies reporting profits was
considerahly less than half of the totsJ n-arnber of companies v/ithin
the Industry, their volijine of "bf.siness Ava.s in nanj'' years considerahly
more than half of the total volume of the Indust::y.

This is due to the fa,ct that tvro of the lar.;jer companies,
Groodyear r.nd Firestone, v;hich are responsi"ble for ahout 30 per cent
of total sales of the Industr'/, have shown a consistent ability to
mahe money. Every j'^ear duria-j the period covered in this report,
both companies sho\7ed profits with the one excejDuion of 1952, v;hen
G-oodyear suffered losses. The ^orof itability of these two compa.nies
Y/as due to particular conditions not found in the other large com-
panies.

S;-±Li'bit 3, at the end of this chapter, shows a comparison
of receipts and deductions of companies showing "net income" during
192^-1933.

Table 21 - Rubber Ti^^e ComT)anies Reporting Profits,

192'" -"1935
(Thousands of Dollars)

Comia

nies

Sa:

Les

Profits

Year

ITumbej

? Per

cent of

itaount

arcent of

^^.lount

Percent

Tot

al Industry,

ota.l

of Sales

idustry

Yoluj'.ie

19 in "

' .Si=,

37.7

3 333, 7 9 9

-7.8

355,028 '

'f^.3fi

1927

P,A

-0.0

G09,9>^1

fi9.0

53,305

fi.58

192C

31 . 3

711,417

-5.2

31,58fi

4 . 44

1929

30.2

714,492

^0.7

-'^,148

fi . 41S

1950

20.4

-3'^,171

^3.^

9,921

2.27

1931

32.4

351,273

51.4

11 , 532

3.48

1932

10.2

103,'^35

20...

1,7R7

1 . 72

1935

2'=.

193,319

35.0

,^..,.Q^.3. .

3.13

Total

.,133,122

5f^.R

213,338

S.lfi

. ... .

....

Source: Compiled from data, of Bureau of

Internal Revenue, Harvey L. ''Veils,
V". H. Cr-^ss, Z'^.R.A. ITovenoer, 193j.

9:^85

-55-

5. I1^C.?:EASI^Tt p"HC7JFTAC-E 07 TI?J?. COMPAITIES P.EPCHTIHC- LOSSES

The nui'n'ljer of tire comanies reporting losces to the
Bureau of Intf:-rnf,l Revenue, clurin/; the period lS2'"-193o, as shovra i:i
Table 22 varied from 109 in 132Pi to -'.-'^ in 1931. This decrease in
nui.iber does not indicate an increase in profitability, but is due
to the fact that there are fev;er companies in the liidustry, the
v/ealrer havin^, "been forced out. J^artnernore, the unprof itahility of
the Industry is illustrated by the fact that, althou-^h ujiprofi table
companies decreased in number, they increased in inercentage of total
coiivoanies.

The percentaii^e of coirroanies reporting; losses has never been
less than f^O.O per cent, and in 1532, the percento-ge v/as a high of
81. 8 per cent.

Ohe volune of sales represented by the non-profitable
companies varied frou 31.0 per cent in 1927 to 79. fi per cent of the
total voluae of the Industry in 1933.

Durin-ig the eic}^t ye.ar period, these coLxoanies did a voluiae
of business of -'o, 171 , 4'"7,00C or -^3.4 per cent of the entire Industry's
volume and suffered a loss of .■218,129,000 or I'^.Or per cent.

Exhibit '-::, a/u end, of chapter, shov/s a comparison of
receipts and deductions of companies sho\7in2 "no net income" during
the years 192*^ through 1933.

Table 22 - Ri.ibber Tire Companies Reporting Losses 192^-1933

(Thousands of Dollars)

Corroanies Sales _ Losses

Year ""umber Percent of Aiiount Percent of Ai.iount ^"ercent of

Total Ind^ustry Total Sales

Industry

'(^2.3 :39.-^437 ' 32.2 L.18, G07' 4.74

«0.0 3'-3,i''19 31.0 15,173 4.17

fiS.G 414,172 3h.8 42,482 10, 2«

fi9.8 4«2,5:i 39.3 35,3^7 7.fi5

79. n -oi,782 51,4 50,72^ 10.90

fi7.4 313,195 48.fi 2-.:,fiC3 7. 88

81. 4C0,fi41 79, fi 2-.-, 439 ^.11

192^

109

1927

gfi

i^:^2,:

lOfi

1929

1930

1931

-.fi

1932

1935

Total

fifi.7 359,270 fi5.0 rt,404 1.7

3,171,4^7 43.4 218,129

P,.

Source: Com.piled from data of Bureau of Internal
Revenue, rlarvey L. 'Tells, and W. M. Cross,
IT. ".A. ITovemoe:. 1935.

9^35

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-58-

(-. irc?j5Asiiiri CtHoss phci'its iit tihe irDUST'

Cross profits in the Tire ■ anufactiiring Industry during
tlie period 192(^-1933, as shovm in Table 33, based upon reports of
the Bureau of Internal Eevenue, varied from If^..-? per cent of /jjross
sales in 192^^ to 30.0-^ per cent in 1932. Tne avera^.e percentage for
the eitjht yea.r period v/as 22.2" per cent.

In actual aiiicunts, ^^ross profits \7ere /^reatest in 1927
I'/ith 3280,9^5,000. Yearly thereafter, gross profits declined to
' 150, 7-i2, 000 in 1932. Hov;ever, in 1953, the dovmv/ard trend v/as re-
versed, and gross profits increased to 3153,722,000, representin'; for
the first tiiae since 1927 an increase over the gros- profits of the
preceding year.

It is interestiu; to note tha,t s,s gross profits decreased
in araount they increased in percentage of gross sales. ?av? material
costs v/ere declining, rapidly d^nring m^st of the period for which

However fixed charges on used and unused manufacturing
facilities, lethar,;;y in reducing administrative and distrioution
costs as saJes diminished in voliiine, delayed passin-" on reduced
costs to the consujner and reduced amount of net profits as will 'be
shown.

Table 23 - Cross Profit of 'i'ire i lanufactiiring Indiistrj'-,

192'='-1933
(Thousands of Dollars)

"" ■ '

" ■ ' ■

Year

l"u

nloer of

^■ross

ost of

'■ross

Pr:)

fit

ompsjiies

Sales

oods Sold

Amoant

Per

cent of Cross

Sal

192fi

175

229,043 '

207 , 205

1«.87

1927

IftO

171,950

390,985

2£0,9'^5

23.97

1928

154

12,J,439

902,317

220,122

19.fil

1929

139

JL.

170,081

918,004

252,077

21.54

1930

894, ,59

711,0---9

lC3,'./30

20.51

1931

fi39 , 143

-:.72,253

lfifi,C90

2.'^. 11

1952

r^P,

501 , -.27

350,fiS5

150, 7- 1-2

SO.Ofi

1933

549,740

391,018

,158,722 ,

2" . 87

Total 7,27S,3f^2 5,^50,0^9 1,^20,295 22.2'^

Source: Compiled from data furnished 'by Bureau of

Interna.1 P.evenue, Industria.l Sub-' roup "Jo. 25

9^85

-59-

7. DECREASirG- IT/T P~:^FI'rS IN TI?r, IWDUST?/'

IJet profits in the -ire flaimfacturing Indu'str:/, during the
period 192P>-19o3, as shov/n in Table ?A, 'based on reports of the
Bureau of Internal Revenue, ha^'e avera,_ ed less th8.n tAvo per cent .
(l.CG) of total, compiled receii^ts. The Industry shov/ed a net rirofit
in only four of the eight years includes in this survey. The ^oer-
centage of net profits was greai^est in 1?3?, v/hen net profits are
estiuated at 3.71 per cent of total receipts. In 1929, net profits
were only 1.24 per cent of total revenue.

ITet losses were incurred in four of the eigiit' years , and
were greatest in 1930 y/hen they are estimated at 4.31 per cent of
total revenue. In l""'.!;", v/hen other industries v/ere showing profits,
the mfbber tire industry showed a, .net loss of 0.15 per cent of
total revenue. In three depression years, 1930-31-32, the Tire
Industry shov/ed a net loss of over .i74, 000, GOO. In 1935, the
Industry, for the first; time in four years, slaowed a profit, al-
though a very small prof it , , ahout one-tenth of one per cent of total
revenue (O.ll).

There are some authorities who 'believe the Tire Industry
can operate at a profit only during these 3'ears v/hen the ^irice of
crude ruo'ber is increasing. The adlaerents of this theory point out
that in 192S, when the -orice of .crude rdbber was falling, the
industry showed a net loss; in 1929,. v/hen the price of crude ru'o'ber-
v/as increasing during the greater part of the year, the Industry
shov/ed a net profit; 'but, in 1930, 31 a,nd 32, vhen the price steadily
declined, fue Industry shov/ed net losses each year. In 1953, when
crude ru'b'ber shewed the first rise in price for four years, the
Industry shov/ed a net profit for the first time in four years. '

Table 2-1 - Vet .Profits of Tire lianufacturing Indu.stry

192f^^-1933
(Tnousands of Dollars)

Y e ar Tur.i'b e r Total

of Compiled
Companies ?:eceipts_
$1,292,356
1,201,083
1,152,722
1,209,006
933,062
668,426
529 , 157
576 . 746

1926

175

1927

160

1928

154

1929

139

1930

98,

1931

1932

1933

Total Statu-tary
He duct ions

$1,255,558
1,156,522 '
1,160,622
1,194,026

973,246

680,519

551,711

576.106

Compiled ITet Profit
Amotint Per cent

?96,788

2.85

44,561

3.71

7,900 d

0.15

14,980

1.24

40,184 d

4.31

12,093 d

1.81

22,554 d

4.26

640

0.11

Total 7,562,558 7,548,320 14,233 1-.88

d-deficit
Source: Compiled from data furnished 'by Bureau of Internal Revenue,

Industrial Su'b-G-roup No. 25

9685

DECHEASIKG VALUE OF FIXED ASSETS OP TIKE IITIUSTHY

The fixed assets of the Tire MtLnuiact-uring Industry, on the "bases
of datp. issiied "by the Bureau of Internal Revenue, as shoYm in Tahle 25, are
decreasing in value and in importance to total assets of the Industry.

The decrease in dollar value has heen from $407,627,000 in 1930 to
$305,893,000 in 1933, a decrease of $101,734,000, or 24.9 per cent.

The decrease in percentage value of total rissets has "been from 34.70
per cent in 1930 to 30.97 per cent in 1933,

The explanation for this decrease is found in the depreciation
charges of the Industry and also hecause very little ne^f construction has
taken place.

Tahle 25 - Percentage Fixed Assets are of Total Assets

1930 - 1933
(Thousands of Dollars)

Tear ilumher of Fixed
Companies Assets

Total Percentage of Total Assets
Assets Represented ty Fixed Assets

1930
1931
1932
1933

92
65
64
76

$407,627
358,982
334,110
305,893

$1,174,504

1,095,592

1,034,549

987,849

34.70
32.77
32.30
30.97

Source: Compiled from data of iiureau of Internal Revenue, Industrial
Suh-Group Ko, 25

9. IICREASED DEFICITS DUE TO PAYtiEi^TT OF UN'EAEHED DIVIDEIIDS

The amount of dividends paid hy the Ruhber Tire Industry is shoroi
in Tahle 26. Data are not available to show dividends paid hy the other divi-
sions of the Industry. It will be seen from Table 26 that the Tire Industry
paid out in dividends in the period from 1936 through 1933, $232,999,197, de-
spite the fact that the losses of the Industry diiring the same period were
$4,791,590, making a total deficit of $237,790,787.

The profits of the companies, reporting a net income during this
period, vrere $213,338,205, and their dividends were $161,696,994 or 75.79 per
cent of profits, as shown in Table 27. The percentage of dividends to profit;
varied from 31.24 per cent in 1929 to 312.68 per cent in 1933.

The deficits of the companies, reporting a net deficit during this
period, vrere $218,129,795, and their dividends were $71,302,203, or 32.69 per
cent of deficits as shown in Table 28, making a total of deficits of
$289,431,998..

9685

-61-

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-62-
Tatle 27 - Dividends Paid by RuTjIp er Tire Com'p.anjLes

Reporting LTet Inc o me - 1936 - 19?3

Year

Cash

Stock

Total

Het .

Percent

Dividends

Profits(a)

Dividends

are of Profits

1926

$24,232,530

'4 ( 61,810

$24,294,440

$53,028,335

45.81

1927

15,558,045

1,091,951

16,649,996

53,302,945

31.24

1928

15,461,645

418,376

15,880,023

■31,585,859 ■

. 50.28

1929

36,401,882

18,002,274

54,404,156

46,145,229

117.59

1930

24,514,948

— —

2^., 514,948

9,920,970

247.10

1931

15,260,837

— ^

16,260,837

11,532,243

141.00

1932

5,508,702

— »

5,508,702

1,761,747

312.68

1933

4,183.892

„ —

4,183,892

6,057,877

69.07

Total 142,122,581 19,574,413 151,696,994 213,335,205

75.79

(a) ¥.et Profits less Income Tax and Prior to Pajnnent of Dividends.

Source: Compiled from data furnislied bv Bureau of Internal Revenue,
H. L. Wells, W. H. Cross, November' 1935.

Table 28 - Dividends Paid by Rubber Tire Companies

: Reporting DIo Met Income - 1926 - 1933

Year

Cash

Stock

Total

Net

Percent •

Dividends

Deficits(b)

Dividends are
of Deficits.

1926

$7,683,066

$ J15.700

$ 7,698,766

$18,807,221

40.94

1927

32,650,972

9,227

32,670,199

15,172,872

215.32

1928

1,405,031

40,000

1,445,031

42,482,281

3.40

1929

742,617

37,745

780,362

35,366,926

0.22

1930

12,004,300

8,925

12,013,225

50,724,447

23.68 ■

1931

4,651,087

4,651,037

24,583,303

18.84

1932

10,488,774

—

-10,488,774

.24,489,241

42.83

1933

1,554,759

6,403,504 '

24 ,'28

Total 71,190,606 111,597

71,302,203 218,129,795

32.59

(b) Net Deficits prior to pajTnent of Dividends.

Source: Compiled from data furnished by Bureau of Internal Revenue,
H. L. Wells, W. H. Cross, 1-T.R.A. November 1935.

9685

— o3—

10. TiULbS PAID BY TIM. GO¥I'MaES

Complete tax data are available only for the Ruttier Tire
Division and not for the Rut ter .Industry as a whole. These data are
summarized in Table 29 pjid show for the period 1926-1933, the amount of
income tax and other tarces paid by the tire division and the percentage
taxes are of sales.

It will be seen that in the eight year period, 1926-1933, the
Industry paid a total tax bill of $87,820,000, representing -l. 20 percent
of the total sales of $7,305,000,000^ During this period, taxes have
varied from 0.79 .percent of sales in 1926 to 2^75 percent of sales in 1933,

The tax bill of the Industry prior to 1932 seldom -exceeded 1,00
percent of sales. However, in the latter part of 1932, the Federal Govern-
ment began the imposition of new taxes which brought the tax bill of the
Industry to heights undreamed of in earlier years. The new taxes were
excise and cotton processing taxes.

The excise tax is 2,25 cents per pound on tires and 4,00 cents
per pound on inner tubes, and during 1933, 1934, and 1935, averaged
$27,000,000 per year. This is almost 400 percent greater than the total
tax bill of the Industry in 1932,

The Cotton Processing Tax levied a tax of 4,2 cents per pound
on raw cotton, 'Although exact statistics are -not available the probable
effect of this was to impose upon the Tire Industry an additional tax
burden about equ.al to the excise tax. The Akron Beacon Jpurna,! Newspaper
estimates that this tax levied $20,000,000 annually upon the Tire In-
dustry, 'This is almost 300 percent greater than the total tax bill of
the industry in 1932, , . ,

The above estimates of the excise and processing taxes gives
credence to the belief held- in the Industry that the Industry pays as
much in taxes as it does in wages. For example, in 1933 the Industry
paid in r.-ages $54,737,000. The average tax bill of the Industry was
$57,000,000, estimated as follows:

Income Tax (average 1926 to 1933) $3,000,000

Other Tax " ii h ii 7,000,000

Excise tax ( " 1933-34-35) 27,000,000

Processing Tax (average 1934-1935) 20.000.000

Total taxes 57,000,000

Wages (1933) 54,000,000

The invalidation of the cotton processing tax will, of course,
reduce the tax bill of the Tire Industry, but it is problematical, in
view of the financial plight of the Industry, whether this saving will be
passed to the consumGr.

Heq. Ho, 9585

"54-

Table 29 - T<'.u-es Paid "by Rubber Tire Industry,

1926-1933
(Thousands of Dollars)

Percent

Year

Sales

Income

Other

Total

Taxes are

Tajxe s

Taxes

of Sales,

1926

$1,230,236

$2,566

,$7,170

. $9,736

0.79

1927

1,173,580

6,430

7,019

13,450

lel5

1928

11,125,589

7,997

7,194

15,191

1.35

1929

1,176,843

4,199

7,387

11,585

0.98

1930

897,953

618

7,310

7,928

0.88

1931

644,884

1,058

6,190

7,248

1,1:2 ■

1932

503,326 •

174

7,298

7,472

1.48

1933

552,589

986

14,223

15,209

2,75

Total

7,305,000

24,023

63,792

87,820

1,20

Source: Compiled from data of Bureau of Internal Revenue,
H. L, Wells, W. H. Cross, N,R.A. iTov^mber 1935.

11. TRAIISI'ER OF CAPITAL MID PRODUCTIuH ABROAD

Because of tariffs, import quotas, and other factors, the American
Rubber Industry, to maintain its position in irorld markets, has been forced
to export capital and trained personnel for the purpose of establishing
and operating factories in foreign countries. The exact amoxint of capital
sent abroad for this purpose is not loioi^/n, but it is estimated that 16
branch factories have been estrablished in 9 foreign countries by American
Companies, as shown in Table 30.

With the establishment of a foreign branch factory, not only is that
particular market lost to ABierican exports, but also those markets are
lost Y/hich can be economically served from that branch. For example, the
establi slime nt of braiich factories in Canada, Australia, and England, has
resulted in the practical e:-clusion of American made tires from most of
the British Empire, Also, the establishment of factories in Argentina not
only closes that market but threatens the markets of the neighboring South
American countries.

The newer factories built in foreign countries have the benefit of
the home, factory' s experience gained from years of operation and they
are equipped with the most modern and up-to-date machinery. Also, their
labor costs are lower, with the result that their products are threatening
to drive American made rubber products out of international commerce.

The following quotations taken from the statement of the Goodyear
Company filed in 1935 at the Securities and Exchange Commission, gives
some indication of the extend of the operations of branch factories:

Req. No. 9685

"The English "olent -as uiiilt in 1S27 anc o';'ns a Joroximately
74.3 acres of land, has a comhinecT floor space of approximately
400,739 soupre f^et, and employs an avera;';e of more thaji 1,405
people. The Encli''h plsjit , loc tpd at 'Tolverhsxiption, ' England,
consists of 31 "buildings, all of v.hich a.re of the v.iodern factory
t;;roe."

"Tlie Australian plant v.as huilt in 1927, and ovns approximately
21.2 acres of land, has a conhined floor space of 360,979 square
feet, and employs an avera^^e of nore than G45 people. The Australian
plant, located at Sydney, Australia, consists of IT "buildings,
all of '"hich are of the modern factory type."

The possi"bility ha.s b-en sugg-=sted that the United States tcariff policy
is resoonsilale for the closing of vorld markets to An"^rican maaiufactured
products. Vfithout a,ttem"ting to ans^-er definitely this ruestion, the
evidence at hajid indicates that, prior to the passage of the Tordney-
I'.cCumhur tariff in 19 2?, only t?ro Aa'-^-rican rub"bpr coraoanies had "branch
factories in foreign countries, namely, Goodyear and Firpstone with small
factories in Cana.da, and that, yithin the decade suosenuent to the pa.ssage
of the Eordney-McGurifour tariff, American coiipaaiies has estahlished 15
factories in 9 foreign countries. Also during this period, the percentage
of international shipments of pneumatic cr sings represented "by the "United
States exports declined from 31.4 per cent in 1229 to 22.0 per cent in
1933, and the United Kingdom replaced the United States axS the i,7orld's
principal ex:)orting couaitry of pneumatic casings. (*) There are so many
factors affecting intprna.tional trade th-^t on the "basis of present informa-
tion it is difficult to ascrib'^ the present situation to any one factor. (*)

- Ta"ble 30- - F o reign Bran ch Ea ct or ies o f Am erican Gomanies ,1935.

omoaiv ■ Coi^-ntries

Eirestone Argentina, Caii^'da, Eng-

land , S"oain
General Llerico (License arrange-

ment )
Goodrich Canada, Erance ^ Japan

Goodyear Argentina, Australia,

Ganacl.a ,
England, Java

India- ' 3cotland(License arrange-

ment)

SeToerling ■ Canada

United Str;,tes Canada.

Sourpe: Co. oiled from data su"bmitted to Securitips and
Exchang e Comi;';i s si on .

Source: - "2u"b"p=^r In-'ustry Letter ilo. 16" - Bureau of Foreign and
Domestic Go®..ierce - Cctohpr IE, 1934. (*)

9685

-66-

12. D3C:^.EASIH- T "ORT^AIICZ 0? UiTIT~D 3TATZS III GHUDE 3II333?.
GOH3U2r?TIGlI

The con3tim-_)ti:)U of crude rij.o";jpr in the United Strtes may he
us^r^d ,-s an indication of the condition of thp raVu-^r incustry in the
United St?tes. In 19?'']:, a^ shoun in Tahle 30-A, the United States con-
s^Aiaed ahout 75 per c^nt of total ■-orld production. Yearly thereafter,
hovfever, the percpnta/:e declined, and, in 19"4, the United States con-
sumed only 45.2 per cent of the total '-'orld prodiiction.

On the ossis of actual tonna:::e consiuiied, the United States
increased its consumption every year xmtil 1S29, v/hen the pe.ak vips reach-
ed i.-.'ith 528,602 lon,^: tons. Tiie next three years v/itnessed a falling off
in consUi,iption, reaching a lov' in 193] v.'ith 383, 760 long tons. In 1933
and 1934, consuTotion increased --and in 1934 v/as ;i:reater than that of any
year prior to 1929.

Tile" statistics of crude ruhher consur.iotion indicate tha.t
the period of groY-th of Amcric n rabcer industry is a.T:)arently dra- ing
to a close, --^nd that the rubier industry is develo":)ing in foreign count-
ries, at the expense of the American industry. The increasing importance
of foreign countries is the result of (l) the e:r?ortation of Amprican
capital i-hereby branch factories of Americsii coLroanies i"'ere established
in foreign countries, and (2) the development of domestic inc'ustries in
many countries. Tiiese factors ha,ve driven Ai'nr-rican rubber footwear out of
world markets snd haA'^e made A;H'=rican ruboer tires of secondary im"50rtance
in world markets. 'There are some authorities who believe that it is only
a matter of a short time before foreign made tires invade the American
domestic market , just as foreign made footwear and novelties have already
done.

If the An:-rican rubber industry contin\\es its policy of self-
destruction through price ^-ars, ^oa^rment of unearned dividends, excessive
capitaliza.tion, sjid lack of a national industry vievioint, it riil oe
unable to resist successfully a foreign attack.

Table 30-A Cinide j^jbber; '-^orld Production ,-nd United

States Imorts - 1921 - 19-4 jp)

(Long tons)

Year

7/0 rid

j-roduction

United St

tes

llet

F-r cent of ''.^orld

Imports (f

)

Production

1921

301 , 012

(o)

17 C, 736

{^)

59.6 (b)

1922

406 , 394

296 , r^04

72.9

1923

40G , 641

301 , 527

73.8

1924

425, 'v:i

319,013

74.9

1925

1^28,485

335,596

73.0

1926

624,312

399 , 972

64.1

1927

615 , '"55

403,471

65.6

1928

662 , '^41

407,573

61.5

1329

363,558

■ 528,602

62.3

1930

317 , 731

457,422

55.9

Ren.

No.

9685

-67-

19ri 799,700 (c) 476,19? (c) 59.5 (c)

193.' 708,800 393,768 55.6

1953 863,100 398,365 46.7

1934 1,016,715 4-9,173 43.2

(a) Excludes r.e-Z;>r:)orts

Sourcp: (b) Cor.raerce Yearbook, 193-', Pare 382

12. A E5C0ED OF IHSOLVZHCIFS III ITJBBFH IliDIJSTRY

TTie total nujTibpr of insolvncies in the Rubber Manufacturing
Inc^ustry, during the "oeriod of 1927 through 1934, is estimated, by Dun
and Bradstreet, as sho'm in Tp,ble 31, at 104 insolvencies v.-ith liabilities
of $15, 539 ,7'^'3. The nujnber of insolvencies is evenly divided betv.f°en
tires and other rubber loroduces with 52 insolA'encies for each division.
Horever, the amount of liabilities ho.s been al.'.i0F;t 100 p'^r cent greater
in tires than in other rubber -products, the amounts being $10,310,366 aJid
05 , 228 , 372 res-^ectively.

vThe year of the largefet n-omber of failures w^s 1928, v/ith 20
insolvencies, and in that y^ar liabilities '-'ere also greatest i-dth r^4,848,163.

Tlie year of the least nujnb-r of failures v?as 1934, ^-hen no
failures in tire manufacturing were recorded, and only 5 failures were
in other inibber products with liabilities listed at 062,5.d.
As this is the year in which the Industry operated under the Code, the
rema/rkably good showing ma^de by the Industry is doubtless attributjible ■ -
both to the Code and to im;-3rovpd business conditions. It. is interesting
to note that in no year of the depression period, 1929-1934, was the
number of insolvencies or the amount of liabilities as great as in the
pre-depression year of 1928, when sales were highest and the Industry en-
joyed one of its ..lost profitable years.

One of the reasons, perha.^^s, for the decreased number of
failures is the fact that b- 1932, ■.:i3ny of the weaiier companies had been
eliminated, and with the ris° in the "orice of crade rubber and resulting
increase in value of inventories, the Industry was able to take advantage
of the im"orove..ient in business. Tlie decrea.se in r.ur.iber of bankru.ptcies
in 1933 and 1934 gives credence to the belief of some authorities that the
rubber industry can operate at a profit only in a. rising crude rubber
market .

The effect of banlcruptcies and mergers within the tire industry
was to hasten the development of concentration of manufacture to a few
establisliments. The extent of such concentration is shovm by the Census
of Ifenufactures which shov/s that from 1'"'27 to 1933, the number of tire r. ...-i.r.-
manufactxiring esta,blishrnents decreased from 109 to 54; the number of wage
earners per estailisliraent increased from 718 to 1,204; and the niunber of
tires produced per establishment increased from 590,500 to 1,033,205;

Hecf-ITo. 9635

-68-

Sucli a rpoid decre'^.se in the iuii'n'Dpr of establishripnts , accor.naniecl "by
the substpiiti.al inc/paRe in the avera^-'e nirnber of '•'rf;p e: rners em'Dloyed,
and the increased catput per "^st -hlish I'^nt clerrly indic.i.tes the extent
of concentration -hich is t^'iin;: -place I'-ithin the industry.

Table 31 - Insolvencies in !^ubber Industry

1^37-1934

Tire . raiufacturing Other IViabber anuf -cturing(b)Total

Year ITumber Lia.bilities (a) ilunber Liabilities Rubber

■; ,anuf acttiring
' ~ ■ ■'■ ITo. Liabilities

1932

1928

132S

1930

1931

1932

1933

1934

non

-^1,080,1 34

4,509,963

1,131,000

465,200

1,219,930

25 , 400

1,779,2..!

ol, 576, 900 16 ■ 2,657,0 ;;4

238,200 20
258,000 11

67 , 200 9

.952,170 17

9 33,;322 17

1^.9,968 9

6.^,551 :

1,399,000
5-^2,400

3,172,103
949,223

1,919,209

Go , ^' -Ji.

■otal 52

;;> 10,31^

572 104 $15,:j3973S

Sources: ■ (a) Letter of ' \in 5: 2racstr'=pt, inc. to "'.'.H. Gross
of ;/.~.A. J^'nuar7 22, 19"5.

(b) Dmi .2 "r.u" street .onthly 5Levie"r, Auju.st, l'"'^4,
Fa;;e 1;^:, .ay, 1^":-, Pac^e 9'.

D. .TA^SS

1. 3rr2CT OP 22?22;3I01I AlTD C022S Oil H0U2LY "JA'^ZS

Av^ra e hourly ^-a. :e rates paid by the tire and other rubber
-Tiann-facturin;: industries ourinj the past decfde, 1926-19'~5, are shovm in
Ta.ble 3\ It vill '"e s-en that the '-^a^e rate in the Tire Industry is
c.onsid^rahly hi'V'hcr thon in the other rubcpr in; u.strj^. Sev-ral reasons
have b^en ^dv^^nced for this, but the tv/o ,.iost '-idely held are that first,
tire .lanufacturing is a ne^^' ini'ustry -'ith an increasing denpjid for
slcilled Y'Oi-kers, secondly, tire uanufacturing is centered in one locality,
iUcron, where the concent .; at ion of labor tends to r.irintain a hi h '-/age
level.

In tire .vipnuf act-aring , -v^-'.-.-ge n lurly -'a'es '"ec-r'=^sed from
67,7 cents in 19:9 to 61.9 c-'-nt's in 19"2,, a, decrease of 5.2 cents, or

C.5 -j^er cent. Since 15'^2,

h-^ve inc..-'^ -ced, and in J-uaae, 193a, '"ere

■..4.5 cents, the hi hp--5t -Doint in Vn.^ n st d'=c.'"de.

j'leo-Mo.

-69-

In other ruliuer maiiiif acturing, average hourly wages decreased
from 55, n cents in 1939 to 45.5 cents in 1932, a decrease of 9.5 cents,
or 17,2 per cent, Unlilce tire manufacturing, there pfas a further decrease
in 1933, -,7hen average hourly wages reached their low pbint of 44,1 cents,
a decrease of 10.9 cents, or 18 per cent from the 1929 level. Since 1932,
wages have increased and in June, 1935, were 54.0 cents. The wage in-
crease for this division, however, has not "been as great as tha,t for the
tire division. Present hourly wages in tires are at aj.i all time pealr,
hut in other ruhher, present hourly wages are helow the 1931 level,

Tahle 32 - Average Hourly Vfages 1936-1935

Year

Tire Hanuf actui'ing

Other Ruhher

Manufacturing

(cents)

58. 5

55.6

68,4

55.5

67.4

54.7

67.7

55.0

68,0

55.1

67.3

54.8

61.9

45.5

63,2

44,1

77.6

50.2

84.5

54.0

1926
1927
1928
1929
1930
1931
1932
1933
1934
1935 (June)

Source: Bureau of Labor Statistics, and prior to 1932,
K, I.C.B, adjusted "by li.R. A,

2. Ja^ITECT OF DEPRESSION MB CODES OE T/EEKLY I7AGES

Average weekly wages for the decade 1926-1935 are sho^-m in
Tahle 33.

In tire raanufacturing, weekly wages d.eclined from $29,95 in
1929 to $20.22 in 1933, a decrease of $9.73 or 32.5 per cent. During this
decade, v/eekly wages were highest in 1923 when they averaged $31.52.
Yearly thereafter wages declined, reaching their low point in 1932. Since
then, wages have increased, and. in June 1935, were $25.85, averaging
slightly higher than the 1931 level.

In other ruh'ber manufacturing, weekly v/ages declined from
$23.49 in 1929 to $17.19 in 1933, a decrease of $6.30, or 26.8 per cent.
The high point occurred in 1927 when weekly wages averaged $23,64. The
low point was 1933, as described. Since then, weekly wages have increased,
and in June, 1935, $19.00, slightly above the 1931 level.

9685

-70-

Table

- Ay^^^rrre W-e:cly Vfcves 1936-19gC-

Year

Tire ' .'rnui.-^cttirin;

.Other irUbber il-inufacturing ("b)

1926
13,37
1928
1929
1930
1931
1972
1933
1934

(June)

:i39,64

3K533

;j9.9o

28..77

25.::;;

20.67
20.22 ,

n T ■"' o

3o» uo

52\,76,
:23.64
•;3.33
23.49
23. 22
20.54
17.85
17.19
17.9::
19.00

Source: .bureau of L-oor St.-tistic?; ,
(t)) 2. L.S. aiid Prior to .ly
.with ii.Pi.A. adjuGtivient 3, ,

ic.i.;

:GT 0? DZP33S3I0y Ai\T) 00^:33 OIi

s\.: . _ ■ Ll j-iiJ

p;iT::0LLS

IiT the >ibb---r .pnuf •■ cturing Iiuustry, r^s a Thole, annual
'payrolls, , as sho'^ii in Table "^^1-, decreased from ']:^07 , .1" " ,000 in 1929 to
>S4,032,000 in 1931, a o.ecre-se of ,:'J.23,500,000 or ng.S per cent. During
the "oeriod 1926-19' 4, ' the hi.'i-h ooint occurred in 1928, v-hen rnnupl pay-
rolls pre estimated at '■)211 ,9i')0,0r'0. Yearly thereafter, axinual ppj^rolls
decrepsed, repchin.:' th^ir lov? point in 193,:. Since then, payrolls have
increpsed and in 1934 are p^-^timated p.t 0127,036,000.: Using 19 "-9 as a,
base, the 1934 'Dayrolls a.re 51.2 per _ cent of noraal.

In tire nanuf acturing , annup.l payrolls tecreased from '|;127 ,038,000
in 1929 to ;";45, 240, 000 in 1933, a decre^-'se of SSl, 34;:,600 or 64.4 loer
cent. Inj.ring the period. 1925-1934, the high 'joint occured in 1928, '-'hen
annupl ppyrolls s.re estinated -"-t $131,092,000. Payrolls declined yearly
thereafter, reachin;~; theiir lor' oirt in 193!. Since then, an u'lturn has
occurred, and in 19'^4 annual -jryroll? are estiapted at $7:3,0" 8, 000, or
ex;pressRd on the 19'i9 index, 9.1 nor.ial.

In other rabb-^r .aanufr cturing, sjinu^l ppyrolls decreased from
■■;n0,444,000 in ,1929 to :''3;;, ?92,0r-!' in lo^ \ ::. decreas- of .$41 ,552,000 or
41.3 Ter cent, As in the cpse of tire nantifacturiiig, punu-^l "oayroils '.■■■ere
greatest in 1928 -h=n they -/ere estir-iated r,t $'10,308,000. Since 1932,
payrolls hpve increased,; piid in 19'':.4,. re estiup,ted at ''51., 948,000 or 64.5
"oer cent of normrl.

3en-IJo.953i:

-71-

Ta"bl e 34 - Annual Payrq.ll s ,1 SSA-ISS."
(19,39 = 100.0)

Tire

Other

Ruboer

Year

Manuf ac tur i n^
Amount Index

Amount Index

Total__.
Amount Index

(000)

'l92f^''

"' '"^126/628" "

'di.J

'^72^!^^^'""'

9l?.'3 "

1!J192,972

"9'2.*9" '

1927

120,172

94. 5

78,2^0

97.3

198,432

95.fi

1928

, ' 131,092

103.2

80,808

100.5

211,900

102.fi

1929

' 127,088

100.0

80,444

100.0

207,532

100.0

1930

88,972 .

70.0

fi3,752

79.2

152,724

73.fi

1931

"3,024

49. f^

49,55fi

fil.fi

112,530

54.2

1932

45,240

35.fi

38,792

48.2

84,052

40.5

1933

54,75fi

43.1

44,304

55.1

99,0fi0

47.7

1934

75,088

59,1

51,948

fi4.fi

127,03fi

fil.2

Source: B.L.S. with IJ.R.A. adjustments.

4. IWCEEASING IliffOSTANCE 01 WAGES AS AI-I ELEISHT OP COSTS

Data presented "by the Census of Manuf oxtures, as shovm in
Talile 35, indicate that wages are increasing in importa-nce as an ele-
ment of cost. This is perhaps due to the fact that prices of raw ma-
terials have decreased more than have I'/ages,

In tire manufacturing, wages have increased from 13.0 per-
cent of cost in 1925 to 18.3 percent in 1933, the latest year for v.hich
data are available.

In other ruhher manufacturing, wages have increased from 21.0
percent in 1925 to 25.fi percent in 1933.

It is interesting to note that althougli wages in the Tire
Industry are considerably higher tha,n those in the other ruoher manu-
fa,cturing industries, yet they form a smaller percentage of total costs.
Large scale production in the Tire Industry and a greater degree of
mechanization is responsilile for lower proportionate laDor costs.

Req. llo. 9fi85

-73-

Tatle 35 - Pej.c en tj?^e of p o_s^t Jl epr e s_ent ed

igg::- - 1933

Tire Manufacturing- Other P-uooer I'anufacturinf^

Year Total Total Wages a,s per- Total Total Waces as per-
Value Wa^es cent of Value Volume Wa£;es cent of Total

CQ.QPJ^^^LQ.'IQL .j^f. A^pJP:PA .-..-JLQ.':P,I- : ..iPf^Sll .y^iy-^. ^

1925 $925,002 $120,f^l4 13.0 335,304 70,f^71 21.0

1927 8fi9,fi88 120,0(^4 13.8 355,389 ' 78,009 22.0

1929 770,177 127,002 l'^,5 347,284 80,224 23.1

1931 40fi,283 63,039, 15,5 207,982 '49,508 23.8

1933 299,313 54,757 18.3 173,430 44,379 25.fi

Source: U. S. Census of Manufactures

5. HICyH WAGES PAID 3Y TIRS IITDUSTHY Il\f COMPARISON WITH ALL '
OTHLH IFDUSTEY

Average annual Af/ages received by rulDber-tiro workers have "been,
on the average, 15 percent higher than the average wages received hy
vror":cers in all manufacturing industry. Table 3n shows the average an-
nual v/ages paid in the tire manufacturing industry and in all manufac-
turing industry for the years 1921 througli 1933, and the percentage dif-
ferentials in favor of tire manufacturing. The data are the average in-
come received "by all employees, "both part and full-time workers and in-
dicate that employees in the Tire Industry averaged, during these years,
wages v/hich were 14.5 to IS -oerceut higher than the wages received "by
vrorkers in manufactilring industry in genera,l.

Table 3fi - Comparison of Annual 7/ages Paid "by the Tire

Manufacturing Industry and "by all manufactur-
ing indiis tr;/,. fp?i .Q.6nsus j/iear s_ A^,21;-l_933_.^

Annual Wa.ges Paid Percent Differential
"fear Tire All : [anuf a.c tur- in Favor of Tire
^^_Jia-.^Pi^acturi_ng ing Industry Manufacturing _

'iS2i ""'"' VT^so""" $i,'iGb' i^.'s"" '"

1923 1,470 1,255 17.0

1925 1,475 . 1,280 15.0

1927 1,535 1,300 IS.O

1929 1,530 1,315 Ifi.O

1931 1,280 1,110 15.5

1SJ33 1,.0.35.^ ^ _8.BS_ . A?.* .Q -.._

Source; Basic data from C^ensiis o^ Jlanu^factiy:__e^ for the years noted,

"Ru";j"ber Products", ."Subber Tire and Inner Tu-be Industry.

Computed 'by LPJ., Division of Piesearch and Planning, "oy

dividing total annual v/ages "by average number of wage

earners, both full and part-time.

Peq. No. 9fi85

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E .. . EMPJL,0":nvElTT_MD . HOIIRS

1. DZCHEASS lil AVERAGE "ffiirCLT HOUP.S II-T TI3S DIVISIOII

Tatle 37 shoT/s the average T/ee:.-l7 hours for the period,
192i^ through June 193o. Average weelcly hours declined from 44,2 in
1929 to 31,7 in 1933, a decrease of 12.5 hours, or 28 percent. In
1934 average ?/eekly hours declined further to 30.7.

The decrease in weelcly hours was the result of the policy
of the Industry to "share the v.-ori:". In 1931, the Industrj^, especially
esta"blishments in Akron - che,nged from an 8-hour shift to a fi-hour
shift and from a six to a four or five-day v/eeli. By this means, the
Industry managed to lessen for labor the hardships attendant upon the
depression. Because of this policy, the Code provision limiting hours
to Z^ hours per v/eelc a.ccomplished little reemplo:,Tnent inasmuch as the
Industry v/as already on a 30-hour Y/eek.

Unfortunately, however, it now seems (iTovem'ber, 1935) that
the thirty-hour y/eek is to he abandoned, and the Goodyear lire and
Rubber Company of Alzron has announced its decision to return to the
8-hour day and 40-hour week. (See Akron ilewspapers, November, 1, 1935. )

Tahle 37 - Average Weekly Hours in Tire Division

192« - 1935

Year AXP/.^-^s A^iii^S- Jl^ elrljr

Furah er

192fi

44.7

1927

45.3

1928

4fi.8

1929

44. 2

1930

42.3

1931

37.9

1932

32,7

1933

31.7

1934

■ 30.7

1935

(June)

30.9

. , „_

^ ^ ^ .. .. - _- ^ .--.--.. -

Index
9'29' =' "idd.

101,

102.

105.

100.

9S.

85.

73.

71.

fi9.

R9.

■'

Source: From 1932 to date, basic da-ta from, -^ureeu of Labor

Statistics for "R-a'b'ber Tires a,rid Inner Tubes," as published in Trend
of Employment ; for previous years from Ilatj-onal Industrial Con-
ference -.^„^a, b ejrv i c_e_ L e^t t er adjusted to liureau of Lahor Sta-
tistics series. Index computed "by iIRA, Research and Planning
Division.

^eo. No. 9i=i85

-74-

2. DECHEASE I'v. AVEPJIGE 17EEICLY H0U3S IIT OTHER RUBBER DIVISIOII

Avei'age hours Trorked per i-eel: or,- Yiage earners declined
from 42.7 hours in 1929 to 38.fi hours in 1933, and to 34.9 hours
in 1934. The 1933 hours represented a decrease of 4.1 hours per
week per v/age earner, or lo.2 per cent reduction.

Table 38 shows th,e averafie hours per vieelz for the period
of 192*^ through June, 1935.

Table 38 - Average Weekly Hours in Other Rubber Division

192fi - 1935

Year AY-SJI^iiS Jlours J'i/'e_eklj_; _ ^ _ X^Aex - ^-^

[''" _ Ji^^er 7" "^.'_ . „ ._. ..CCsMkjJ^OJD)^

192fi 41.0 9fi.2

1927 42.fi 99.8

1928 43.0 100.7

1929 . 42.7 100.0

1930 43.2 . 93.8
19S1 37.5 87.8

1932 3fi.8 8fi.2

1933 3G.fi 90.4

1934 34.9 81.7

1935 (June) 33.3 82.7

Source: iCA' Statistics Section - Based upon B.L.S. and IJICB data.

3. FLUCTUATIONS IrJ EMPL0Y?\Ci-T PROM 192fi to 1935.

Empl oyiTient in the Rubber Indiisti'y reached its pealc in
1928 \'/hen 149,160 employees were enga-ged. , Erorn 149,0fi0 in 1929,
the number of employees fell to 10'-',2'^0 in 1933, a decrease of
42,800 employees, or 2u.fi per cent. The low point was reached in
1952 at 90, 810 'employees. 1335 and 1934 saw gains, the average for
the latter year being 120,050 employees. The first six months of
1935 have shovm a reaction from this figure and average employment
of 110,930. ' ' .

In the tire division, the trend of employment has folloA^ed
that of the Industry as a y/hole, with the exception that the decline
in employment to the lo?/ point of the depression v/as more accentuated
and recovery from the low point more pronounced. From the high point
of 1929, v/hen 83,2fi0 Y/ere engaged, emplo;;Anient fell off to 52,9fi0 in
1933, a decrease of 3fi.4- per cent. The year 1934 sav/ a recovery to
fi2,150 employees, but this gain ?/as not maintained during the first
half of 1935, employment declining to 58,030 or about 4,000 em-oloyees.

In other rubber ma-nufactujring changes in employment have
not been so marked as in the tire division. The first foujr years of

9fi85

-75-

depression, 19S9-19oS employrient decreaseo. 19.0 percent compared to
3R.4 percent for tires. The nuinerical loss v;as from '^5,800 in 1929
to 5o,300 in 193^, or 12,500 eirvinlo^/'ees. E1r.plo.7r.1ent increased, liov/ever,
this increase in enplo^/riient \7as not a true emploj-aent increase "but ?/as
to a large extent the consecaience of the reduction in v/eekly hours which
decreased from 3^.3 hours in 1932 to 3--.:. 9 hours in 1934. Moreover, this
gain y/as not maintained in t]ie first half of 1935, employment for that
period averaging 52,900 or a recession of 5,000 employees. This de-
crease in employment was accom.panied "by an increase in V7ee!:l;' hours.

The differences in fluctuations of emploj-T.ient in the tire
and other rrJaber goods divisions is no doiabt a.ccounted for hy the
greater degree of mecha.nization in the tire division as compared to
a preponderance of manual laocr in the m.anufacture of other rubher
goods. It is known that in the tv.o yea-rs from. 1929 to 1931 labor
productivity in terms of pounds of tires per man, increases 55 percent.

Chart 4 shows the fluctuations in employment in the tire
and other rubber manufacturing divisions. Tables 43 and 44 show the
actual index of emplo3."ient.

The increase in productivity of labor and technological -un-
employment is discussed more fully in a later chapter entitled, "Pro-
ductivity of Labor in Tire Manufacturing."

4. SEASOHAl FLUCTUATIOi'S IN ElviPLOYlIElW

The unsettled conditions within the Tire Division ha,ve not
only greatly accentuated the seasonality of employment, but have also
resulted in varj^ing seasons of peak emjjloyment. Eor exsmple, in 1929,
employment increased in the early months of the year, reaching a ]Deak
in May. On the other hand, in 1933, employment did not increase until
later in the year, reaching a peal: in -Jkigust. The year 1954, hov/ever,
?/as more like 1929, ^'dth e.mplonnent reaching its peak in May.

Table 59 which follov/s, shov/s employment for the years 1929,
1933, and 1934, with an index based on the average monthly employment
for each year. This Table shov;s that in 1929 monthly employment varied
from '^5,110 v/age earners in December, to 92,010 y;age earners in May, a
difference of 28,900 v/s,ge earners, or about 47 percent. In 1935, em-
plo;;Tnent varied from 41,9''^0 wage earners in Jajiuary and April, to
'^4,110 wage earners in Aii^ust, a. difference of 2.2,150 v/age earners, or
slightly more than 50 percent. In 1934, eriiployment i/as more nearly
uniform, with a difference of about 20 percent between peak and low
point. Tiie peak y/as reached in May, with fi2,280 employed wage earners,
and the lov; point we-s reached in Hovenber, v/ith 5^,790 waxge earners, a
difference of 5,490 employed v/age earners.

9fi85

.76-

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9685

• 77-

Ta'ole 39 - Seasoiiality of Employment in Tire Division
19,:iS, 1932, 1934

Month

""I""Tl"is

'^iy/.iy

1
-1-

935 !!",r"

I'axi'b er

Faraoer

Index

Iniiab er

I ndex

Index

Jan.,

""T^,¥io'"

" Y04."3 '

""";i,VfiO "

" 79V2"'"

'"'5"9703"0

" 95. 0"

Pe-b.,

87,840

105.5

43,9fi0

Cl.l

fil , 530

99.0

Liar.

89,340

107.3

-l,?fi0

78. S.

fi4,450

103.7

Apr.

90,590

108.8

41,9fi0

79.2

fi7,730

109.1

May

92,010

110.5

4fi,390

87.4

fiS,280

109,8

June

91,2^0

109.fi

53,210

100.5

fi8,190

109.7

July

89,510

107.5

59,950

113.2

fi3,950

102.9

Aug.

85,fi80

102.9

fi4,110

121.0

fil , 030

98.2

Sept.

81,(^30

93.1

fi2,8fiO

118.7

53,120

93.5

Oct.

75,850

91.1

-1,530

llfi.2

57,280

92.2

Nov.

^5,440

78.fi

59,730

112.9

5fi,790

91.4

Dec.

fi3,110

75.8

''joq.cfy

59 , 280

111.9

59,370

95.5

•.4yL6.?>jS.s . , _ .

[''.^Af^Ml''

jLjoo'.^cT

Source: Index is published ty Bureau of Lahor Statistics for "HuOher

Tires and Tiabes" in 'Ir en d_ojf Ji]jn^l o,"m^^^ base shifted, adjusted
to 1933 Census totals, and multiplied by Census base by USA
He search and Planning Division.

The seasonality of emplo;,iient in the other rubber division is
sho?m in Table 40, which shov'/s for the years 1929, 1933, and 1934, the
estimated numher of employees by months a.nd the monthlj'' index "based on
average monthly employment. It v;ill be noticed that the seasonality of
employment for the three ye.ars yjd.s not identical. Tor example, in 1929,
employment v/as greater in the early months of the year and declined in
the latter months. In contrast to this, in 1933, emplo5Tnent vras greater
in the middle months.

In 1929, peak employment r/as in Au/;;ast v;ith fi7,800 employees,
and lo\7 point of emplo>Tnent was in December v/ith fi0,100 employees, a
difference of 7,800 employees, or 11.5 percent.

In 1933, peaic employment y/as in October with fifi,300 employees,
and the low point of employment ?/as in May with 42,fi00 employees, a
difference of 24,200 employees or 3fi.2 percent.

In 1934, pealc emtjloyment was in April vath fi2,200 v/age earn-
ers, and the Ioyi point of employment was in November with 54,fi00 wage
earners, a difference of 7,fi00 employees or 12.2 percent.

9fi85

-78"

Table 40 - Seasonality cf Eaployr:8nt in Other Hub'ber
Division 19^9, 1935, 1934.

Month

A9_29_

.,19^

195

Number

I nclex

rui-iij er

Index

'rumber

Index

Jan.

'^7,'r^6o

"Tdi.V

'" 45, 900

. ■^-— - -■■

' 'fi'd, 200

103.9

Teb.

fifi,500

101.1

45,500

85.4

fi0,800

104.9

Mar.

fif^,HOO

101.2

43,500

81.fi

fil,400

lO^fi.O

Apr.

fifi,700

101.-^

43,300

81.2

fi2,200

107.3

May

P'P',500

101.1

42,fi00 •

79.9

59,fi00

102.9

June

R7-, 000

101.8

45,900 .

Sfi.l

55,700

9fi.l

July

(^7,700

102.9

51,000

95.7

58,000

100.1

Aug.

P>7,800

103.0

fi0,200

112.9

5fi,500

97.2

Sep.

fi7,400

102.4

fi5,fi00

123.1

5fi,000

9fi.fi

Oct.

fi5,500

99.5

fifi,800

125.3

55,300

95.4

Kov.

fi0,300

91.fi

fif^.OOO

123.8

54,fi00

94.3

Dec.

fiO.lOO

■ 91.3

■ fi3,000

113.2

55,200

95.3

Average

"bYsbo"'""^'

Too."o''"

""53, '366 "

"160. "6

"577942""

'166.0'"

Source: Index as published by Bureau of Labor Sta,ti sties v/ith ad-
justments to 1933 Censu.s by ilRA.

IIICHSASim PRODUCTIVITY 0? L.A30?- I'J TI^E JIAMIFACTUPJIIG-

Tiie United States Department of Labor has made an excellent
survey of productivity in the Tire Industry, based on studies in six
plants Avhich produced fiO percent of the total output in 1931.*

Thi-s survey "ooints out that in these six plants the 1931
production nas greater by 21,'>00,000 tires than the 1921 production.
This v/ould have necessitated an increase of 35,500 employees, at the

1921 rate of man-hour output. Actually, there ras a net decrease of
7,150 employees, or a total of 42,fi50 direct labor employees techno-
lo,'5ically displaced. This condition has been characteristic of the
entire Industry.

Table 41 shov/s that the index of prodiictivity of labor,
based on the number of tires produced per man-hour, and, using the
year 192fi as 100, increased from 7fi.34 in 1922 to 149.51 in 1931.
In other v/ords, durin/.; tiiat decade the n-jinber of tires produced per
man-hour increased a,lmost 100 percent.

Table 41 shows also that the index of productivity of labor,
measured by the pounds produced per man-hour, increased from fi8.4fi in

1922 to 18fi.08 in 1951, an increase of 172 percent.

* Bureau of Labor Statistics, Labor Productivity in the Automobile
Tire Industry, by Boris Stern. (Bulletin ilo. 5S5, July 1933) p. 2fi.

9fi85

-79-

During this period, the avera.ge r/eirht per tire increased
from 17.33 poimds in 1922 to "2.55 j.ounds in 1951. (Boris Stern.)
This increa,se occurred despite the la.ct that the hea.vier solid tires
were replaced "by the lig,hter pneusTiatic tires. ""The explanation for
the increase in tire v/eight is to' oe found in the replacing of high
pressure tirtis hy "balloon tires \7hich are larger and heavier, ^,nd "by
the increasing use and -nroduction of tires for trucks and busses.

Ta"ble 41 - Index of Productivity of Labor, Six i^epresenta,-
tive Plants, Tire Manu.facturing Industry -
1922-1931

Year

^ Index _ , _

Out-put per i,ian-hour
Tires Pounds

1922
1923
1924
1925
192^^
1927
1928
1929
1930
1931

7^.34

85.17

89.75

8-.. 30

100.00

107.20

113.9?^

117.13

124.43

149.51

74.50
77.10
83.55
100.00
114.17
127.20
138.32
158.75
18fi.08

Source: Bureau of La''Dor Statistics, La"l3or Productivitj'^ in the Auto-
mobile Tire Industry, by Boris Stern. (Bulletin Uo. 585,
July 1933)' P., 7

^. DISPLACEIvENT OF LA30R DIE TO KCHIIOLOOICAL CHAiJG-3S

It is seldom possible to segregate any one factor as "the
cause" of the increased productivity of labor in a manufacturing iDlant.
In some cases, major cha,nges - such as, for instance, the invention of
the Ov/ens bottle blowing machine in the Glass Industry - were revolu-
tionary in scope and v/ere responsible for abrupt and la.rge displace-
ment of vrorhers.

The Tire Industry, however, offers an instance in which the
increased productivity of labor Y/as due more to the so-called evolii-
tionary small cha-nges in production' tha,n to any large revolutionary
change in the process of tire manufacturing. Essentially there has
been but one major change' in the manufacture of pneur-mtic tires, and
that occ'ujrred when the core process of tire "building gave place to the
flat-drum process. In some plants this occurred a,s e&rly as 1919.
By 1927 practically all of the major plants in the Industry had already
adopted the drum process. But the increa,se in the man-hour did not
cease in 1927. On the contrary, since 1927, and especially in 1931,
there has been an increase in man-hour productivity larger than diiring

9fi85

-80-

any preceding year in the history of tire 'building.

The follov/int';- changes in tire manufacture are presented in
Tatle 42 as illustrative of the type of technological changes v/hich
recently occurred in two plants. In one column is shov/n the nature of
the change and in the other its immediate effect on the labor engaged
in the particular hranch of the plant v/here the change took pla.ce.

Table 42 - Effect on La'bor of Specified Teclino logical
chan:£:es i-n Two Tire Manufacturing Plants

Technological change

Effect on Labor

3 ^uhher plasticators installed

Compensators installed on 40 tire-
building machines, and room rearranged
to talce care of increased output.

2 Conveyor units, 1 for the purpose of
assembling inner tubes valves and the
other for the testing of valves installed.

Saving in direct labor, due
to increased man-hour out-
put, of 328 man-hours per
day, equivalent to dis-
placement of 41 men,
Sa-ving in normal production
estimated to exceed 41fi
man-hours ^Der day, or 52
men displaced.

5 men and 5 girls eliminated,
saving 80 man-hours per day.

Curing room rearranged to take care of
increased production.

Cutting and rerolling departments
consolidated and rearranged.

Saving in direct labor,
vmen operating at full
capacity, 173 man-hours
per day, or 22 men displaced.

Direct labor savings, 112
mtui-hour daily, or 14 girls
disrjlaced.

20 Modern shoulder- driom machines in-
stalled to replace old fla.t-drura ma-
chines for building tires.

Direct labor saving fiOO
man-hours per day, or 75
men displaced.

Source: "Labor Productivity in Automobile Tire Industry" by
Boris Stern, -bulletin ITo. 585 of Bureau of Labor
Statistics, Page 25, July, 1953,

7, SUMl^lAEY OF EMPLOYI^ilUilT , PAY5.0LLS, MD MW-HOUHS IH
TIEE IKDUSTRY

The summary of emploiTnent, payrolls, and man-hours in the
Tire Industry during the decade 192^-1935 is shovm in Tables 44, 45,
4P<, and Chart 5. The statistics presented in these Tables are based
on the B.L.S. Index shifted to 1929 base with IT.H.A, adjustment to 1933
census, and the 1929 monthly average is placed at 100.
9fi85

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9685

Tlie peak in employment, payrolls, and man-hoixrs, was reaaahed in the
second qi-iarter of 1929. There was a seasonal decrease in the third
quarter, and as a result of the stock narket crash in Octoter, 1929, the
seasonal upturn of the fourth quarter did not occur, TDut, in its stead,
the Industry was plunged into the depression, and lows were set for en-
ploycient, xiages, and payrolls.

In 19S0, in t he first quarter, a slight recovery took place, a.nd
lahor regained part of its losses. Unfortunately the recovery was only
for a short duration, and in the second, third, aid fourth quarters the "• ,
recession was accentuated with index of employment down to 59.5, payrolls
dor/n to 46.6, and man-hours down to 48.5

In 1951, in the first quarter, the seasonal increase in demand
brought the lahor indexes up slightly over 60. C. But the second, third,
and fourth quarters completely destroyed the gains of the first, a,nd set
new lows for man-hours and po.yrolls, the index of man-hours decreasing
to 35.8 in Kovemher, and the index of payrolls decreasing to 34.4 in
Novenher, The devastating impact of this on lahor was some^-rhat allevia.ted
"by the "share-the-work" program volrjitarily adopted by the large nemhers .
of the Industry in 1931. The effect of this mai'' "be niee.sured hy the
difference "between the indexes of man-iiours and emplojonent.

In ITovem'ber 1931, when the index of man-hours was 35.8, the index of
emplojinent was 54.4, a difference of 18.5 points, or over 50 i-sr cent.
Prior to the adoption of this policy, the indexes of employment aiid man-
hours were almost identical.

In 1932, there were slight recoveries in man-hours and pa,yrolls
during the first and second q\i3,rters. However, the third a,nd fourth
quarters again established new lows, with man-hours at 31,3 in Septen"ber
and payrolls at 27.6 in Septem"ber. The index of employment, thro-OFghout
_1935, reneaned faarly steady at or a'bout 53.7

In 1933, the first quarter did not show the usual seasonal recovery,
"but esta"blished all-time lows in index of emplojnnent, man-hours, and
payrolls. Employment was 50.1 in March, man-hours were 29.7 in March,
and payrolls were 25.8 in March. In the second and third quarters a
spectaculaj- increase took place, sending the index of employment up to
77.0 in August, payrolls up to 57.9 in July, and man-hours up to 62.9 in
July. In the fourth quaj^ter, a reaction set in and part of the gains
were lost.

In 1934, the Industry went under Code goverrjnent, and in the first
and second quarter, further gains were noted, employment increased to
820 in Iley, payrolls to 68.28 in May, and man-hours 70.9 in May. The
third quarter witnessed a reaction sending the indexes down to the avera,ge
of the preceding year. The fourth quarter showed good incieases, and the
year ended "better than ejiy year since 1929.

In 1935, there were seasonal increases in the first quarter, sending
the indexes up, "but not quite as high as the 1934 level, for instance,
employ-;.ient wa.s 75.1 in February, payrolls were 6S.0 in Fe"bruary, and uan-
hours v;are 55.6 in Pe'bruary. The seconc. quarter saw a, slight decline,
and the Indv.stry ended Code govermaent in May, with enplojrment at 73.0,

>35

„83-
payrolls at 51.8, and man-hours at 43.8

Data are not available as to lator conditions since J-ujie, 1335.

Tc-'ole 43 - Index of Employment in Otaer B-Uoloer
Manitfact-grin-^ Ino-ustry, 1326-1333

(

(1323 = 100.0)

Month • 1326 1327 1328 1323 1330 1831 1332 1333 1334 1835

Jan. 37.3 34.4 101.7 102.7 30.0 78.4 73.1 63.8 31.5 86.3

FeTD. 86.7 85.0 102.1 101.1 89.1 77.5 72.3 63.1 32.4 87.8

Mar. 37.4 35.0 37.9 101.2 8.' .0 73.1 71.7 66.1 93.3 38.4

Apr. 36.5 36.7 83.2 101.4 88.5 75.1 63.6 65.8 34.5 86.2

IMty 34.5 38.6 38.0 101.1 85.6 75.8 68.2 64.7 30.6 85.4

J-une 92.4 98.0 95.0 101.8 84.8 75.7 69.3 69.8 84.6 83.0

J-oly 79.6 33.8 100.2 102.3 82.1 75.4 65.5 77.5 88.1 80.4

A-ug. 31.0 33.8 39,1 103.0 82.7 73.6 56.6 31.5 85.5

Sept. 84.4 38.0 102.6 102,4 80.4 76.3 66.3 33.7 85.1

Oct. 84.1 98.5 103.6 33.5 81.3 76.5 70.8 101.5 84.0

Nov. rs«i;: 37.3 102.7 31.6 80.7 77.5 73.1 100.3 83.0

Dec. 33.0 101.7 102.3 31.3 81.8 75.1 74.0 35.7 83.8

Average 83.3 36,8 100.4 100.0 84.6 76.1 70.1 81.0 88.1

Soxirce: B. L. S. Index shifted to 1823 "base and K.II.A. adjustments
to 1333 Census total.

9685

-84-

TalDle 44 - Index of Employment in Rut'oer Tire Man-uf acturing
Industry 1926 - 19 55

(1929 5 lOQ.O)

Month 1926 1927 1928 1929 1930 1931 1932 1933 1934 1935

Jan.

98.1

89.9

92.8

Feb.

98.9

91.5

96.5

Mar .

97.5

92.9

97.5

Apr.

97.2

98.1

96.0

Mai'-

94.1

1C1.8

96.5

June

93. 3

99.9

98.9

July

94.7

98.0

lu3.3

Aug.

97.1

105.7

Sept.

100.3

94.1

105.0

Oct.

98.5

90.1

104.8

Kov,

90.6

86.0

100.2

Dec.

89.3

88.0

100.1

104.3

77.6

61.1

105.5

75.9

59.9

107.3

75.6

59.7

108.8

77.9

60.1

110.5

79.6

62.9

109.6

80.1

63.5

107.5

74.0

61.1

102.9

71.1

59.3

98.1

66.9

56.9

91.1

63.2

55.0

78.6

59.5

54.4

75.8

59.9

54.1

54.6 50.4 70.9 74.1
55.2 51.5 73.9 75.1

54.8 50.1 ,77.4 74.5

54.9 50.4 81.4 74.3
54.9 55.6 82.0 73.0

56.1 63.9 81.0 72.3

55.7 72.0 76.8 69,7
53.5 77.0 73.3

51.2 75.5 69.8
51.2 73.9 68.8
51.2 71.8 68.2
51.0 71,2 71.3

Average 95.8 93.9 99.9 100.0 71.8 59.0 53.7 63.6 74.5

Soiirce: B. L. S. Index shifted to 1929 "base with N. R. A. adjustments
to 1933 Census

9585

-BO-

Talile 45 - Index of Payrolls in Rubtier Tire Mamifacturing
Industry 1936 - 1955

(1929 = 100.0)

Month 1926 1927 1928 1929 1930 1931 1932 1933 1934 1.935

Jan. 94.4 87.5 93.4

Fee. 99. -9 94.6 101.9

Mar. 9S.4 96.4 103.3

Apr. 96 .-6 102 .-6 101.0

May 92.6 105.2 97.7

June 91,9 101.8 102.7

■Jujy 93.5 97.1 104.9

Aug. 94.9 95.9 109.2

Sept, 102.2 93.5 113.3

Oct. . 98.1 89.1 109.2

Nov. 87.7 80.8 99.8

Dec. 88.1 89.0 101.2

Average 94.7 94.5 103.2 100.0 70.0 49.6 35.6 43.1 59.1

Source: B. L. S. Index shifted to 1929 Taase with N. R. A. adjustments to

1933 Census '

101.2

76.4

53,1

39.4

27.8

50.9

65.2

115.4

80.3

54.4

41.6

28.9

60.6

69.0

115.5

78.7

56.3

38.9

25.8

66.5

58.6

lis. 3

84.5

57.6

37.3

28.7

70.9

61.5

117.0

86.9

51.4

37.9

40.3

67,7

61.8

111.0

79.9

62.2

45.1

51.2

64.1

56.6

104.3

72.3

51.8

38.0

57.9

58.6

99.1

68.6

49.3

33.1

55.4

52.3

91.4

51.8

39.3

27.6

52.5

49.8

87.0

54.6

38.1

29.8

52.0

52,0

71.6

45r.6

34.4

28.6

47.0

52.8

70.2

49.9

36.7

29.3

49.6

62.9

9585

-86-

Tatle 46 - Index of M?,n-Hon.rs T/orked per Weak in Rui/'ter
. Tire ifenufactiirinig: Incaistry 1526 - 19Z5

(1929 = 100.0)

Month 1926 1927 1928 1929 1930 1931 1932 1933 1934 1935

Jan. 102.0 75.4 51.4 41,4 32.2 47.9 54.4

Feb. 95.5 91.7 98.1 111.1 79. 2 52.6 43.7 33.4 54.0 55.6

Mar. -■ 113.0 77.9 53.7 43.2 29.7 58.8 52.5

Apr. , 115.5 82.1 55.2 4j.2 33.2 62.9 54.9

May 91.4 101.4 101.1 115.7 85.0 61.7 40.7 46.7 59.7 49.8

June 109.8 78.4 62.7 48.5 60.0 56.1 49.5

July _ 113.2 71.9 53.5 40.9 32.9 51.3

Aug. 96.7 95.3 112.0 98.8 66.2 50.4 35.9 57.7 44.3

Sept. , : 90.8 55.3 41.0 31.3 52.2 43.3

Oct. ', 87.5 54.8 39.8 34.5 50.7 44.1

Nov. 91.1 86.2.103.9 71.2 48.5 35.8 33.1 .45.0 44.7

Dec. 71.3 51.3 38.4 33.5 46.4 54.9

Average 93.7 93.7 103.8 ICO.O 69.5 49.7 38.8 45.8 51.8

Source: B. L. S. Statistics: Previous to 1932, IT. I. b. B. withIT.Il.A.
ac-j-astments to 1933 Census

9685

SUIIoiTICi' 0? SLCTIOII II

The RuTDOer Industry, therefore, as has "been pointed out in
this section, at the ti-ie of the j:as5",ge of the ITa.tional Industrial
Recovery Act presented a serious problem to the Ad^ninistration,

This prohlen gvexr out of the critical conditions v;hich had
developed in tl^e Industry xrithin the ^oart decade and. v'hich threatened,
the security of ^.-'orhers pJid o^'rers alike. The principle fa,ctors in the
prohlem a.re sunraarized in the folj orbing paragraphs.

The Industry presented a.n unusual degree of unprof itatility,
of nortaJ.ity of smaller enterprises, rid of concentration into feirer
and larger estahlishrients. Production had declined greatly, due "both to
contraction of demand in depression conditions and to increased life of
products in service. The Industry r/a.s supporting a heavy "burden of ex-
cess production facilities.

The years 1924 to 1929 hr.d seem much nev caTDital invested in
the Industry. This capital hax. ^'one into increar^e of riroduction facili-
ties "b^" the large companies, reflected in the present excess capacit3'',
into ne^7 distri"bation outlets, replacing insolvent independent dealers,
and into foreign factories to "oreserve mar':ets lost to c'o-iestic "olants
"because of production costs and tariff harriers. i;uch of this capital
had "been dissipated in distri'oution of unea.rned dividends.

In s3-!pathy vdth these conditions, lehnr- ha.s suffered severe
displp.cenents dxie to technological cl^a.nges, ha.s received decreasing
percentages of "value a.dded tiy inanufacture", although average hourly
wages h.ave ''oeen increased.

9685

Req. To. 9685

-88-

CIIAPTER III

SPECIAL PROBLI]:.S III THS IlIDUSTKI

A. yOFLSI&IT COrTROL OVEF. ^IM lATIiPJALS

A -unique lorolilein faced "by the Piiboer Industry is the fact
that the "oroduction and "orice of its "orincipal ra.w "'aterials, crude
rubter, is almost entirely 'onder the control of foreign countries.
Although Anerica in years ^oapit has consu-i.ed as much as 74 ;oer cent of
the ^-Torlds "orodaction of crude ruFoer a.nd today is consuning nearly
50 ;oer cent, re produce, on Anerican orrned or leased plantations , but
a negligible portion of our orn recniirenents*

The starting of -olantations for the "iroduction of rubber
dates from about 1398, and the first actiia.l production of such rubber
uas a,bout 8 years later. Previousls'-, the bulk of the rorl d .surinl;/ nas
native production from Brazil. The eo,rl:/ 6.evelopnent of the rubber
plantation industry was almost exclusively a British affair. Although
the United States, as early a.s IS.IQ was consuming a.t least 50 per cent
of the vorld output, this corntry shoved little interest in 'crude
rubber production.

The reasons for this may be summarized as follorrs:

1. ITo suitable land for planting is orned under the American
flag.

2. From pilanting to production is at least a 10 years period,
and therefore unattractive to .the average American investor in the earlj^
years of the plantation industry.

3. Later, ^:'hen restriction schemes b'eg?,n to ha.rass the
American manufacturers rith uncertainty as to suTj-lies and costs, the
stimulation of native rilanting and rild production in areas not subject
to restriction forecast a latter glut of the m.ari':8t and discouraged in-
vestment.

4. The available financial resources of inost of the indi-
vidual m.anufacturing firris in the United States were required for the
expansion of their maniifacturing and cistributing faci"'.ities.

1. THE STEVEITSON ACT

The first restriction of crude rubber "oroduction to affect
Araerican manufacturers seriously uas under the Stevenson Act, a
British regulation which became effective Hovember 1, 192S. The Act
too^~ its name from the British Colonial Secretary then in office. As
a result of the production sl-omp following the World War, the rubber
mar'-et "'as seriously congested ajid lorices below production costs. The
overproduced situation in 1922 is evident fro'i the following fi^-ures: (*)

(*) Report on Rubber Restriction under the Stevenson Act, 'bj J.TJ.F.
Rowe, London and Cambridge Economic Service.

9685

-89-
Years . . Worlc' Prorliicticn World ATjsorption

1920 370,000 tons 310,000 tons

1921 283,000 " ' 265,000

1922 400,000 " 300,000 "

Stocks on Januaiy 1, 1922 were 310,000 tons against estimated
"necessary" 8 months supply of 200,000 tons.

At this time the relative importance of crude ruliTacr producing
countries v/as:

Percent age _o_f World _To_t aJL

Malaya 57.5 per cent

Ceylon 12.5

South India and Burma ^ 2.0

Netherlands 3ast Indies 25.5

Other Co"u;atries 2 .5

100.0

The net intention of the scheme was to raise the price of plan-
tation ruFoer to 30 cents per pound by as drastic restriction of produc-
tion as was necessary and then to allow a ^'radual resumption of full pro-
duction as lomg as tliat price was me.intained.

The means for restriction of production \vas regulation of per-
centages exportable at the minimum rate of duty (l cent per. pound) during
any three months period, such percentages or quotas "based upon standard produc-
tion of mature areas in tne year ended October 31, 1920. The quotas export-
able v-ere to start at 60 per cent.

The history of rubber restriction, prices and stocks is shown in
the following table. The scheme went into effect November 1, 1922, quarters
therefore are the three months periods beginning November 1, February 1,
May 1 and August 1 of each year. High' and low prices are the average high
or low price for any one month, actual daily high or low not being available.

9685

-go-

Table iTo.47 - Rubber Quotas, Prices and YJorld Stocks
Under the Stevenson Act.

Quota

Nevf Yor

k spot

V/orld stocks at end

exportable

rubber

price

of quarter;

at"

minimujii

nuirfoer of months'

" du

fc7

hif'h

Low

su"0"T ly ■

Last quarter

1922

2S6

First

1923

28'

Second

Third

Last

First

1924

Second

Third

Last

First

1925

Second

1,08

Third

Last

1,02

3-1

First

1926

100

Second

100

Third

100

Last

First

1927

Second

Third

Tiast

5-1

First

1928

Second

Third

Source:

Cha

rt prepared by 3.

G. Holt,

Assista

nt Chief, Leather and

Hixbber Sec

tion. 3ure

a\i of I''ox

-eiai and

Domestic Commerce.

'jJhen early in 1923, the British Government indicated tliat re-
striction v/ould not remain in effect after the exniration of the
Stevenson Act, ilovember 1, 1928, rubber prices fell off rapidly to
abou.t 18 cents per pound. After the actual exi^iration of restriction,
they continued their decline until the all time loi,7 of 2-3/4 cents per
pound \7as reached in June, 1932-

British rubber restriction vras bitterly protested by American
manufacturers and gave considerable impetus to the acquisition and de-
velopment of rubber plantations by the larger ones among them. The
Secretary of Commerce agitated the matter with the Congress, and the
Committee on Interstate and Foreign Commerce T'as directed to investi-
gate foreign control of shipments of crude rubber and other raw mater-
ials, $500,000 being appropriated for the purpose. The Committee's
report is characterized as "inconsiderable, " The Secretary of Com-
merce did make the folloirdng recommendations as to resistance to for-
eign monopolies on raw materials:

9685

-91-

1. Our iDankers can be clisco-araged from giving American credits
to the sutyport of these combinations.

2. We should initiate a strong, systematic campaign for volun-
tary saving in the v.se of every one of the commodities vjhen these combin-
ations become extortionate.

3. We should stimulate the manufacture and use of substitutes.

4. \Ye shotild stimulate pi-oduction in co"antries vdiere the com-
modities in question are not lihely to become subject to such combina-
tions.

5. We mi^-ht set up some sort of properly controlled machinery
for emergencies, which ?/ould prevent oxir many hundred buyers from bid-
ding against each other.

Insofar as it T.'as able, the Hubber Iikniifacturing Industry fol-
lov.'ed these sug^;estions • Bulletins and advertisements preaching the
preservation and care of tires v;ere isstied; the practice of retreading
tires \vas fostered and advanced; more and better reclaimed rubber was
made and used; the larger manufacturers sought means of locating and ■_ ' .-
planting their own rubber ■'plantations outside of* British possessions ;
finally, a rubber bxiying pool was formed, so to regulate and., to sta-
bilize the Industry's purcliases on the London Bxcliange as to prevent
further restriction.

There is no doubt tiia.t the Stevenson Act cost the American pub-
lic many millions of dollars pi the increased cost of rubber and rubber
products; its worst effect UTon the manufs-Cturing industry, was the evil
of drastically fluctuating vrorld stocks and prices. At one time ■ :;;
visible supply of rubber in America was less than one month's., normal consump-
tion, while prices rose and fell between 18 cents and a dollar and
twenty-six cents. The disparity in costs to large users buj^ing well in
advance and small users buying from hand to moxith, was most demoralizing;
losses taken by the BubberrBool are estimated at 13 to 20 million dol-
lars. Most of this v.'as taken on the declining ma.rket following the an-
nouncement that restriction would be discontinued.

2. THB IlTTBI-aiATIOlTAL HIBBEH H3GULATI0NS C0i.:;.JTT33

The Stevenson Act could be enforced ?/ithin British possessions
only. British controlled plantations elsewhere cooperated voluntarily.
The next largest producers, the Hethei'lands is^st Indies, did not.
Uaturally, the restriction and boom in prices gave considerable impe-
tus to further planting outside British possessions, to native and
wild rubber production.

Following the termination of restriction, V("orld stocks again
increased and prices declined. Under depression conditions, both
World stocks and United States stocks increased, the latter at the
faster rate, until the price reached 2-3/4 cents per pound in June, 1932.
A slight rebound during the fall of 1332 was later wiped out and
February and March of 1933 again saw rubber at 3 cents per poimd.

9685

-93- ■ ■

Steps to restrict production and export v;ere a^,ain discussed.
Meanwhile '."orld stocks leveled off and the increase in production of
manufacturers in this country hroUi^jht atout a sliarp pick-uo in consump-
tion and decline in United States stocks during the s-ammer of 193G.
Prices again climbed.

As of A-oril 28, 1954, an agreement dra-.Tn by the International
HuVoer Regulations Committee was signed to become effective Juiie 1,1934.
This time the regulation applies to all "orodxicing countries. The agree-
ment gives the following "Hea.son for Regulations:"

"Whereas, it ha.s been considered
necessary and advisable that steps should
be taken to regulate the prod.uction and
exoort of rubber in and from purciip.sing
countries, '.7ith the object of reducing
existing V/'orld stocks to a norraf^.l figure,
and adjusting in an orderly manner s'lXiply
to demand and maintaining a fair and
equitable price and which will be reason-
ably remunerative to efficient producers."

The participating poimtries and the basic quotas for each for
the year 1934 are;

Straits Settlements )

Federal iaalay States )

Unfederated i.lalay States ) 504,000 tons

Labuan andi Brunei V

Hetherlands and 3ast India 352,000

Ceylon 77,500

India, including Bv-rnia. 14,000

French Indo-China

State of llorth Norneo 12,000

Sarawak 24,000

Siam 15,000

The quota for French-Indo China was set at 30,000 tons, sub-
ject to the actiial im;oortation for use ''oif France itself.

In 1921, prior to restriction of production in British posses-
sions under the Stevenson Act, Llalaya haA been producing 57.5 per cent
of the world supply. ITetherlands E8.st Indies 25.5 per cent and other ":
countries 17 per cent. The basic quotas, calctilated from current pro-
du.ction in 1933, assigned to Malaya 48 per cent, Hetherlands 3ast
Indies 33 per cent, and other couaitries 19 per cent. The effect of
the British restriction schem.e, in stimulating pla.nting and. production
in the countries not subject to its control, is very evident.

Permissible exports were to be percentages of the basic quotas
as determined by the Committee from timiO to time. The agreement was
to run from June 1, 1934 to December 1, 1938, and basic qiiotas are
graduated upward slightly each year. The percentages are to be the
same for all participants except siam, for vhora percentages are deter-
mined in advance for the period. The Committee is to designate three

9635

-93-

persons re-Tresentative of tlie nian-afacturers in Great Britain, Europe,
and America, mw shall advise them as to vvorld stocks, the fixing and
varying of exroortatle percentages and other matters.

Thus America, still constiming one-half of the v/orld's rubher,
has one representative on a committee of three, which is in turn advi-
sory only to the committee determining the production and price of rub-
ber.

The present scheme, nevertheless, is constructive, flexible and
liberal in comparison to the Stevenson Act. So far the committee has
approached the task fairly and deliberately, and has evinced no inten-
tion of changing the statxis qu.o over, night. Since America has to live
y.'ith this foreign control of i-hat has been at tim.es our chief import,
we may consider the present situation a fortunate one..

3. LOSSES TO ;.AinJFACTUH33S ATT31IDA1JT
Oi" IjIAKaJIS FLUCTUATIONS

The principp.l primary rubber market is Singapore. It is
shipped principally in slo^7 bottons and the details of purchase, ship-
ping, unloading and delivery, inspection and grading consume much time.
Some advance purchasing is necessary" for any manufa.cturer using it in
quantity. Large manufacturers' h.abit is to buy well in advance of re-
q^uirements. The memory of 1925 when this coimtry liad less than one
month's sup-:)ly on liand, still Tjersists. There is little or no hedging
on purchases by manufacturers themselves. Th^ls a period of continiially
declining prices means continual inventory losses to the American manu.-
facturers. \7ere declines alvra.ys conpensated by advances, their books
would eventually balance, But the period of greatest activity in manu-
facture of rubber products, when our riianiifacturers were holdiiig larger
stocks tlian at arjy other time, saw declines in the price of crude rub-
ber for which ;oreyious advances had not provided any reserves, and ,
which may not be offset in many years to come.

From 1926 to 1931, the seven largest manufacturers took inven-
tory losses or v/rite-downs on crude rubber amoimting to over 33 million
dollars. (*)

(*)

See Brief of R^ibber Manxifactiirers Associ3,tion, Transcript of Hear-
ing, Bubber Tire uanufact^iring Industry, October 20, 1933.

It is conservative to estirna.te that the total losses of the Industry
from the same cause in tliat period well exceeded 100 million dollars.
This has been a very considerable factor in the Industry's record of
'onprofitability . It is one of the chief hazards in the Industry.

4. BISPAPJTY III COSTS TO LAHCZ AITD
b, SliALL MilUFACTUHI^HS

^B The fluctioations in rubber prices and the difference in buying

nabits of manufacturers serve to bring about a disparity in rubber costs

9635

'■"■' -94-

that is one of the chief factors in the lack of price stability in the
Industry.

From 1925 to 1932, ruhlDcr prices declined, and the mantifacturer
having no rahher, "buying from hand to mouth, was in the fortunate posi-
tion. His costs were lower and as a result his lo^-ered selling prices
brought dovm the price of finished rubber products faster than most
other commodities.

In 1933, the tide turned. Euoher rose in price from 2.8 cents
in February, to 7.8 cents in August. Following a slight recession,
prices again mounted, reaching 12-5 cents in April, 1934, and 16 cents
in July, 1934.

As of July 31, 1934, confidential figures submitted to the Ad-
ministration showed 90 per cent of rubber stocks in the country were in
the hands of the Sig Four ifenufacturers. This does not include the
position of the pseudo -manufacturers, such as Sears Roebuck, Montgomery
Ward, and others who bought their oira rubber. One large private brand
distributor had stocks which, on the basis of their current sales trend,
would last. nearly through the year 1935.

On the basis of credit ratings, perhaps one-third of the smaller
manufacturers were in a position, financially, to accunmlate inventories
of crude rubber. Itost of them were buying rubber as needed for manu-
facture, paying spot prices. ' •

Since the price of crude rubber had risen from less than 3 cents
to 16 cents per poi;jid in 18 months, the ineq-uality in cost at that time ,
to the manufacturer who had capital and had bought far in advance of his
requirements, and the nranufacturei*' who vra.s btiying as needed, is obvious.
A concrete exarrrplo of this is presented in the cost data of various
manufactxirers which was made available to the Administration.

In determining tlie need for increased floor level prices on
tires during the Retail Tire Emergency period, confidential cost figures
were submitted to the Administrator by six manufacturers. On eqLiivalent
size and type of casing, two l3.rge ma,nufacturers were costing the rubber
content at $1.08 and $1.11 respectively, while four small manufacturers'
costs on nibber content ran from $1.40 to $1.70. (*)

(*) See Report by C. A. Pearce, Research and Planning Division,
August 25, 1934, Page 55.

This explains Vi'hy the Tire Manufacturing Industry, in presenting
their accounting manual and cost formula for Adiainistrative approval,
were so insistent upon the principle tliat raw materials should be in-
cluded at current replacement values. It was their belief that other
basis would the cost formxila or the principle of cost recovery serve as
a stabilir^ing influence in their industry.

-95-

B . CH Al&IITG CHAITI-IZILS OF DISTHI3UTI0K

The variety of t;/]3es and nuralDer of retail distrilDution outlets
for rufoer products, particularly tires, lias already l)een discussed. It
is to "be rememlDered that 54- million people drive cars and use tires, e.nd
that many ty;;oes of retailers serving their other needs woxild also seek
to sell them tires. Especially so, since during the rapid growth of the
Automobile Industiy, the retailing of every automotive accessory was tout-
ed as a profitahle and increasing business.

Originally tire ma.nufactursrs theaiselves retailed, through "branch
offices or stores. As fast -as possiole, they developed distribution
through independent retail dealers of every type, who had any contact
with automobile users. These independent dealers were in ttirn supplied
direct from the factory, through branch houses, warehouses, jobbers and
distributors. Retailers included car dealers, garages, tire and vulcan-
izing shops, autpmotive supply and accessory stores, ha.rdware and gener-
al stores. In compa,ratively few cases and only in the largest markets were
the tire and vulcanizing shops, or tire dealers proper, a dominant factor
in the retailing of tires.

As will be seen from the accompanying cha.rt, up to ten years ago,
independent dealers, of the above types, controlled over 90 per cent of :.:.-'
renewal tire sales. The only other serious contender, in volujno of busi-
ness done, were the mail order liouses. The tvro largest mail order houses
had increased their share of the renewal business from 1.8 per cent in 1922
to 7.2 per cent in 1925. It .?/as at this looint that other factors began
to cut in, and the independent dealers' sliare of the business was sharp-
ly reduced. This not only ma.de matters difficult for the independent deal-
er himself, but also for the manufacturer who had depended upon him.

The diversion of renev^al tire sales from independent dealers to
those other channels is graphically illustrated in the accompanying chart,
and in the following table as well.

Table 48- Percentage of Renewal Tire Sales by
Distribution Channels

Independent Dealers
Spares on new cars
Company stores and )
direct factory sales)

Chain and Department)
stores )

Mail Order houses
Oil companies

1C22 1925 1927 1929 1931 1933 1934

91.0

88.6

73.4

55.7

62.9

58.2

0.1

0.8

1.5

5.0

6.4

0.1

1.7

5.5

9.3

9.1

10.0

'-Q

1.7

4.8

13.9

13. S

11.4

12.0

7.2

4.8

5.5

3.5

2.7

3.4

0.9

6.4

8.9

10.0

Source;: From figures com^^iiled by Prof. W ^,7. Leigh, of Akron
University.

The Mail Order houses' share of the total reached its peak in 1925.

9685

-96-

D
o

I—
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9685

-97-

From then on the "business of the t-vo big concerns in this field was
rapidly diverted to the retail stores they themselves were opening
throughout the coujitry. Meanwhile the gain in sales of private hrand
tires attracted attention froKi other chain or.i';anizations and many of
them "became active in the field. Tliey generally had a private "brand
tire made for them under contract, "but sometimes secured. exclusive re-
gional control of a lesser laiovm company "brand. Am.ong the most import-
ant of such concerns ivere:

Western A"ato Sup;3ly Cora;oany Kansas City, Mo.

TIestern Auto Supply Company Los Angeles, Calif.

Gam'ble Shogmo Company Ilnneapolis, Minn.

The Pep Boys (Manny, i.kc and Jack) Philadelphia, Pa.

Hicks EuD"ber Company Waco, Texas

Bohack Stores Brooklyn, N. Y.
and others

These concerns priced tires at mail order levels, advertised
vigorously and used everj'' promotional device as special sales events,
comhination and free-goods offers, trad-e-in of iised tires, etc.

Apparently during the four years from 1925 to 1929, the private-
ly owned, single estahlisliment tire dealer was particularly vulnera'ble to
this form of competition. The act"UAl volume of "business done "by ind.cpen-
dent dealers continued to incre3.so, in a continxially growing market,
tho'iogh their percentage of the total declined. Their profit margins were
reduced., however, and their credit standing was "being undermined.

This latter fa,ct is esta"blishod "by the entrance of the large
manufacturers into the retail field. During 1925 and 1926, some of the
larger conrpanies "began to do t"his rapidly. The juBtification claimed for
this move was to provide model retailing as an aid. to other dealers or to
provide permanent distri"bution in irrportant centers where a key account
Tifas needed as a supply depot for smaller dealers, and where a wholesale
"branch office would not "be self supporting. The real reason was the mor-
tality of independent dealers in comrnetitive centers, and the necessity
of replacing volume retail accounts who had gone "by the "board, finan-
cially, as more and .more of them did.

During 1929 two things h.appened. The largest distrih-ator of
petroleum products entered the retail tire field with a private "brand tire
and over 30,000 potential outlets readily availa"ble to him- This example
was quickly followed "by other oil companies, large and small, v.dth com-
pany "brands of tiros. Second, the market for tires ceased to expand and
"begs^n to contract. The stiperior quality of tires "began to tell, and un-
der the exigencies of depression users were keeping old tires in service
and cashing in on thousands of miles of Y;ear they Ixad formerly discarded.

Heretofore mail order and chain store operators had fairly eg.sy
sailing aga,inst competition from independent dealers, and had generally
used from 10 to 15 per cent lov;cr price level, finding that differential
ample. Now, hov;ever, these oper-ators were in turn up against superior
distrihution and superior merchandising at a"bout the price level they
themselves would like to take. Moreover, there simply wasn't enough "busi-
ness to go aro\"ind, and they had to iuwe volume sales to maintain their

9685

-98-

estatlishments. Naturally, they fell back uoon their chosen weapon, low
price. The stage ims all set for the years of iprice cutting and trade
wars to follov;.

In its hrief presenting the Retail Tire Code, The National Tire
Dealers Association presented the following figures on the number of
independent dealers In the country:

1928

85 , 000

1931

68,000

1929

80,000

1932

65,000

1930

75 , 000

1935

59 , 000

While these fii;,ures are obviously estimates yet the national Tire
Dealers Association was comiposed of 160 local and regional dealer asso-
ciations, and should have been in the best 'oosition of any authority to
determine the actual extent of the trade, and trend as to n'omber of es-
tablisiiments . We have already seen that the act"ual sales volume of these
dealers declined more than one-lialf from 1928 to 1933. The problem of
survival for them and manufacturers depending uoon them was difficult
in the extreme.

C. D3STRUCTIV3 PaiG5 CUTTIITG

It has been said thiat the Rubber Industry has a slogan, "We must
be competitive, at any cost." Price consciousness and. lack of marketing
stamina are not confined to the tire division of the Indii.stry. The period
during v/nich the Industry operated u^ider KHA codes saw price v^ars develop
in several other divisions As examoles, the footv/ear manufact^irers , the
manufacturers of mats and matting, of automobile fabrics and of druggist
sundries all engaged in price cuttin,\, to the point where-the Administra-
tion was asked to intervene. In the sole and heel division a price v/ar
developed, so drastic tkat clia.rges wore filed with ITRA that manufactur-
ers ¥/ere selling belovT actual production costs, let alone cost of produc-
tion and distribution.

From the: facts' available, these conflicts did not develop from
any marked disparity in costs of m3.terials or of manufacturing. They did
not develop because of excessive margins nor were they confined to industry
divisions where the number of competitors made information as to competi-
tion obscure, or 'hard to obtain. They developed in divisions whore there
were comparatively fev competitors and v/nere o;Ten price filing provided
full publicity as to going prices.

In the tire division, as recently as the fall of 1935, a price
vi/ar developed in the sale of tires to automobile manxifacturers for origi-
nal equipment on nev/ automobiles. In "this case there were but four oompe-
. titers, the Big Four manufacturers being the only ones Y;ho seriously so-
licit the business. The Business is taken on the narrowest of margins,
it being reported that the average price during the season 1934-35 re-
turned factory cost plus about 10 "oer cent to the manufacturer. The
business is usually contracted for over periods of six months. Current
estimates of nev/ car production for the coming-, season vrould indicate an
increase in the volui'tie of this business for all concerned, were the sta-
tus quo to be maintained.

Yet price cutting developed in this situation and was carried
9685

-99-

to the extent that the next six month's Dusiness is reported to he con-
tracted for at prices fully 10 percent helow those in effect for the
season Just past. Raw material costs had heen unusually stahle for a
year and. there had "been no reduction in lahor costs to warrant the lower-
ed selling price. Apparently price cutting can develop in this Industry
mthout the instigation of mail order houses, small manufacturers or the
other disturhing elements ustially hlamed.

1, FACTIOIIAL CGIIPLXCTS

There are, in the tire field, distinctly opposed factions, whose
interests do not coincide and whose differences of methods and objectives
aggrevate their lack of uniformity in pricing policies. The factional
conflict which has received the most publicity is that between manufactur-
ers and mail order houses. The increasing importance and influence of
mail order houses and their retail store divisions in the distribution of ■'
tires has already been noted,

2. MAEUFACTUaERS VS. !iAIL ORDER HOUSES

Tire manufacturers and dealers, even the manufacturers making
tires for the mail order houses, have resisted this encroachment upon tte
independent dealers ' market vigorously. One large manufacturer has waged
unremitting and loudly vocal warfare upon all private brand distributors,
and upon the iniquity of the arrangements between the mail order houses
and their suppliers.

The first weapon used was for a time a fairly effective one.
Manufacturers, wishing to maintain price levels and prestige on their
best known brand, brought out a secondary quants'- which was supplied
dealers at a price vriiich wo-ald permit matching mai 1 order prices. Com-
parable quality was claimed. The private brand distributors promptly
advertised their tires as equal in qua,lity to the nationally advertised
maker and countered with a secondary line of their own. This process
went on until as many as five quality grades were being produced, greatly
increasing the dealers' problems of pricing, inventory and stock turn-
over.

The mail order house originally took a price position 10 to 15
percent below the consumer list prices of the major tire companies. Their
methods of merchandising, however, include special seasonal sales, com-
bination fjid free goods offers which tend to widen this different ialo
Moreover as independent dealers and small chains approached their price,
they kept reducing it to maintain the differential they felt was necessary
to move their merchandise in volume. At one point in the Goodyear, Sears
Roebuck case before the Federal Trade Commission, testimony was offered
that mail order houses had initiated every cut in tire prices since 1926,

As the market for tires began to decline after 1928, the manufacturer
mail order or independent dealer mail order struggle increased. Price
cutting and price cutting devices which seem almost fantastic' were em-
ployed. One thing, which may be credited to the account of the mail order
people, is that they have never participated to any extent in the commercial
account wars. Those seem to be machinations of tire manufacturers them-

9685

i,^

-100-

selves, those cases where 10,12j or 14 "tens" off retn.il lists were
quoted*

It is further 'believed that, hovrever hard the 'bsrgain driven
with their source of supply on purchasing price, the mail order hou.ses
have always sold at a profit above their cost. Information informally
given the Administration during the emergency period was to the effect
that floor level prices represented a high mark up in their retail stores.
In the hearing of June 4, 1934, one mail order house reported a profit
of thousands of dollars on adjustment saleso

3. , LARGE VERSUS SMALL MAHUEACTUEERS

The diversity of interest "between the four large tire manufac-
turers and the small maiuf actiirers is sharply -defined and a point of con-
tinual conflict. The small maaufacturer does^not advertise nationally,
he does not maintain branch houses, he rarely participa,tes in tonnage
"business such as private brand contracts, new.. car equipment, direct, sales
to national accounts, the Federal C-overnraent, and the like.

The field of the small manufacturer was principally the large
independent dealer or distributor who could afford to buy direct from the
factory, dispensing with branch or warehouse service. Such accounts fre-
quently do a distributing business to smaller dealers; they imsist upon
protected territories which the small mantrfacturer is glad to give them,
and the cost of handling their business is slight compared to the cost of
covering small accounts. The small manufacturer passed along these econ-
omies in the form of discounts an.d the dealer sold their product either
at the level of nationally knoimi lines by the weight of his local prestige
and advertising, or passed along a part of "nis discount as a price "edge"
below the price of the Big Four,

This field of the small manufacturer has been invaded by his
large competitors with their "bonus for volijme" discount plan for large
accounts, and by three of them with subsidiary" company brands sold on
the same sales plan as small manufacturers were accustomed to use. In
fact, in the information collected by the Administration on dealer buying
prices, two of the lowest unit prices quoted to any class of account on
private or on company brands were on these "subsidiary" lines.

The large manufacturer has also supplemented Kis distribution scheme,
in three cases, with chains of company owned retail establishments, in
direct competition with other retailers in important markets. This his
small competitor cannot do. The large manufacturer, furthermore, has con-
tracted with marketers of petroleum products to distribute his company
brands through their system of dealers and agencies, allowing them maxirnxm
dealer prices. While this field is open to all, the oil company handling
tires as a supplementary activity will usually buy the best known and most
readily accepted product , price being about equal.

The small manufacturer thus is exposed to increasing competition in
a declining market. He may hold his present accounts by added concessions,
but will surely see their volume decline in the face of ever-increasing
chain store, company store, and oil company distribution. He may secure

9685

-101-

new pxcounts \)j relaxing his requirements as to terms of payment or degree
of credit responsilDilityB Either is costly. In two or three cases,
either hy outstanding quality of product and smart merchandising or hy
unusual ahility to economize, he seems to he riding out the storm,

4, GUiIUlJTii;.£S-. TRAD5-Ii\rS liH) OTHER
PRICE CUTTIKG- DEVICES

The Indtistry and Trade have shoim remarkahle facility in turn-
ing any marketing or promotior.al device into a price cutting instrument.
Many years ago it was the custom of the Industry to adjust defective tires
on the hasis of a certain expected mileage. This was originally 3500
mileso

From this modest "beginning came the practice of guaranteeing a
certain mileage as a sales inducement,, and in the case of tire failure,
adjusting on the hasis of the guarantee. Competition together with improved
tire quplity ran up mileage quaranteed from 3500 miles to 20,000 miles he-
fore this form of guarantee vras discarded. In isolated instances, certain
distrihutors advertised guaranteed mileage of 35,000 to 40,000 miles on
tires, quoting the low cost per mile as inducement to purchase.

When the time guarantee hec^-'jae prevalent in the Industrjr, the
same thing occurred^ The first time guarantee ws.s for a period of one

year, hut some competitors quickly stepped this up to 18 and even 24 .

months. One private hrand distrihutor, using a 24 month guarantee, features
the following argument in current advertising. The selling price of
their tire, divided ty 24j is shown as the cost per month, in contrast
with the cons-ojner list price of sta,ndard lines, divided in turn hy 12,
the numher of months for v:hich such tires are guara^nteed. The statem.ent
is made that the private hrand tire mil cost less than one-half as much
as the standard hrand, per month in service.

Trade-in allowance originated with the practice of some manufac-
turers and distrihutors to change over. tire equipment on new cars when
purchased, to gain prestige and distrihution for their product. During
1928 most manufacturers hrought out a "deluxe" type of tire, super-con-
structed and super- -priced. To place these tires in use reapidly the
trade-in device was used and liveral allowances made on partially worn
tires, . • .

The tendency of the trade to convert any such arrangement to the
uses of price cutting is evidenced in that the trade-in soon hecame a
factor in every sale, and utterly worthless tires were hought in on new
tire purchases a,s a price cutting device, pure and simple,

•Trade-ins v/ere solicited in advertising, Hlovances of frcn 50 cents
to 5 dollars per tire and up to 25 or 35 percent of the new tire price
were quoted. One large nail order house, in their 1933-34 Fall and Winter
catalog, offered a trade-in allowance on new tires sold, if the customer
wo'old cut out a small piece of the old tire sidev/all and mail it to them.

The free goods device started with offering any automotive
accessory of lesser value as a premium on the purchase of a tire at the '

9685

-102-

full list price. The premiiira might te an2''thing from a tute repair kit to
a gallon of oil, a free tuhe or even another tireo The most usual offer
was a free tute; the most literal offer vfas a two-for-one sale in which
two tires were offered at the consumers' list price of onse.

The persistence of such tactics is shown "by a current example
within the local trade. Washington papers of Tuesday, November 5, 1935,
carried a New York dispatch that tire manufacturers had agreed to a truce
in the price war prevailing since the first of this year, and that dealers
and distrihuto.rs hod heen "instructed" ps of November 1st to discontinue
all cut price advertising.. On Thursday, November 7th, a "Jashington paper
carried an ^^dvertiseraent "by a distributor of well known tires. Current
consumer list prices, as pxiblished by the manufacturers, were quoted.
Also a hot water heater, priced at $15,95, was offered free with the pur-
chase of four tires, and a storage battery, priced at $7.95, with the
purchase of 2 tires. The advertisement also proclaimed "Big old tire
allowance", and contained the unexplained statement "Save 26 percent".
Continued adherence to the manufacturers' agreement in the face of such
competition is doubtful, ■

5, UEFAIR USE OF SUPERIOR CAPITAL RESOURCES

With the disparity in material costs, due to rapid and wide
fluctuations in market prices and the differing habits as to advance buy-
ing, every cycle of rising material costs brings the charge that the pro-
ducers who are well covered on ray materials at low prices, a.re retard-
ing any increase in finished goods prices for the purpose of freezing out
their less fortunate competitors.

This has been conti:aually one of the points at issue between
the large, well financed manufacturers and the smaller manufacturers with
little or no capital available for corar.odity speculation. St was the
cause of the firm stand talcen by the Industry for the mandatory use of
replacement values in their cost formula presented to the Administration
for approval. It was the cause of their flat refusal to accept a cost
recovery plan without that provision.

The situation was stated as follows, in a letter from E, S»
Burke, President, Zelly-Springf ield Tire Company, to Leon Henderson,
August 23, 1934:

"If any manufacturer ih this Industry or any other
wishes to hold large sums of working capital for spec-
ulation, we have no objection to his doing so, Yife are
definitely of the opinion, however, that tire consumers
should not be obliged to bear the losses such manufac-
turers may incur in such speculative operations, and
we do not believe that makers engaged strictly in the
manufacturing business should be subjected to price
wars where speculators thro?/ away their speculative
commodity gains in attempts to crush competitors who
are engaged only in the manufacturing and selling end
of the business.

-103-

"That is tlie f-undamental vicious practice that is
winning the present price war for the large maniafacturers.
If it is allov.'ed to ■continue much longer, this victory
will be complete. "

In a little less than a year from the time this
protest was written, Mr, Burke's company had gone into
bankruptcy and had been acquired by the Goodyear Tire
and Rubber Company.

D. TEE, PROBLEM OF CGUTIimAL CHillGjiS IN TIR E SIZES MB TYPES

As the Tire Industry is in reality secondary to the Automobile
Industry, the automobile manufacturers practically dictate to tire manu-
facturers as to the size or types of product they must produce. Rapid
change in automobile design and construction continually requires new
tire sizes to be t^rought into production. Cars of early vintages still
in operation require certain tire sizes long after the volume of produc-
tion of those items is profitable to the tire manufacturer.

A tabulation of 1934 production by size and type of tire shows
the second, third and fifth most importajit sizes, in numbers produced,
sizes last used as original equipment on new cars in the years 1931, 1929
and 1927 respectively. Such longevity in pop-'olarity is unusualo Pord,
Chevrolet and Plymouth have themselves used five different sizes of tires
as original equipment since 1931o

The lasTnan, observing passenger car traffic on street or high-
way, might think that a range of some half dozen tire sizes would be
adequate from the standpoint of weight, power and speed characteristics
of automobiles in use. Yet we find in a c'orrent retail price list of one
manufacturer 90 sizes and types of passenger car tires without consider-
ing price lines and this number increased to 204 when different price
lines are talcen into account.

The burden of amortization and obsolescence of costly equipment
which is placed urjon manufacturers by this change and diversity in size
and type is heavy. One size may figure prominently as equipment on a
popular model which for one rea.son or another may never absorb the cost
of equipment set up for production. Equally costly is the m.aintenance of
equipment for production of negligible quantities of tires popular 10 or
15 jrears ago and still in demand here and there.

The problem confronting retailers, in maintaining adequately
diversified stocks and yet securing a profitable rate of turnover, is
difficult. The maintenance of warehouse or branch house stocks of items
rarely called for and not usually stocked by retailers adds materially to
costs of distribution.

These difficulties undoubtedly have been a considerable factor
in the unprof itability and mortality of smaller 'enterprises, small manu-
facturers and small dealers as well.

9685

-104-

Each in its own vay, the conditions ennu^me rated in this section
as special protlems of the Eubher Industr-r contriDute to reduce profit
and to increase the hazards of the Industryo

Foreign domination of crude rrJbber supply increases and reduces
the price of that commodity irrespective ,of American consumr)tion. Periods
of increasing prices provide some establishments with speculative profits,
but the disparity in costs due to fluctuations, in price makes for un-
settled prices of finished goods in the market place which is costly to
all establishment So

Changing channels of distribution and the struggle among out-
lets to maintain their, sales voliime in a declining market have produced
cut-price v/ars which have actually resulted in extermination of many
distributors', together with the manufacturers supplying them.

In the tire division diversification of product among sizes and
types dictated by the Automobile Industry and among price-quality lines
established for competitive pvirposes seriously affects costs of produc-
tion and distribution. This also means an additional heavy burden of
amortization and obsolesence of equipment added to cost of manufacture.

These factors converged to produce the state of disorderly and
futile price competition, the factional conflicts .-and prolonged, costly
price wars which confronted 11, R. A, , " .

, How the situation was dealt with appears in the next Section
of this report, Industry under the Codes.

9685

-105-

CI-IilPTSR IV
IKDUGTSY ILZJlir. THE C0I)2S

TMs section is intended to set forth the o'oeration
and effect upon the Industry of Codes of Fair Competition for-

The Hubher Mc-nufac'turin^^^^- Indtistry,

The Huhber Tire Manufacturing Industi-y,

The Retail Huhher Tire and Battery Trade.

The discussion applies to the opers/oion and effect of
labor irovisions, price control -irovisions, and other trade practice
provisions. Since labor conditions in the Industry have been
discussed in Section XL, both prior to, during and since the period
of Code operation, that :part of this discussion is brief and
confined to an outline of the v;age and hour minima and maxima
provided, and the effect u:oon eirr".loyment and earnings directly
traceable to these re;?;ulations.

EmT)hasis is placed upon efforts to stabilize prices and
reduce losses from disorderly competition, this bein^ the principal
issue on which the indtisti-y sought imrorovement at the hands of the
National Recoverj'' Administration.

A. COLE EOHI.iUIATI ON

1. PHCPOSED CODE

The following Trade Associations Eiffiliated with the Rubber
Industry filed -Codes with the Ifetional Recovery Administration,
Rubber Section, during tne formulative stages of Code making for .
the Industry;

Rubber Manufacturers Association, Inc.,
444 Madison Avenue, ICew York, City

national Tire Dealers Association,
100 LaSalle Street, Chicago, Illinois

Ru.bber Heel and Sole Man'of acturing Association,
551 Fifth Avenue, ITe\- York City.

Na,tional Rainr-ear Lxntif acturers Association,
56 Aniierst Street, Canbridge, Mass.

Rubberized Rainwear Manuf act-.-.rers Association,
110 East Lexington Street, Baltimore, Hd,

9685

•-106-
Sheet Rubber Sundries Lianufacturers Association,
515 Jifth Avenue, Ke'j Tork City.

Rubber Reclaimers Association, Incorporated,
500 Fifth Avenue, New York Cit3'-.

Gas Tubing iiam^jfacturers Association,

216 North Clinton Street, Chicago, Illinois

Several, other Trade Associations vrhich represented manufactur-
ers of rubber, products in part, while affiliated with the Rubber Industry,
chose to be classified with other industries and consequently filed their
Codes, accordinglj'-.

Sponsorshijj .of Manufacturing Codes

The Rubber i.ianuf acturers Association, Incorporated, 444 Madison
Avenue, iJew Yorh City, presented and sponsored the nicuiufacturing codes
for the Rubber Industry, namely, the Rubber I.Ianufacturing Industry, Code
#156, and the Rubber Tire Manufacturing Industry-- - Code #174.

This Association was fo'onded in 1900 as the New England Rubber
Club. In 1303 it was incorporated under the Massachusetts laws as the
Rubber Club of America. In 1915 it vras reincorporatedr "onder the Conn-
ecticut laws. In 1917, the name was changed to the Ru.bber Association of
America, Incorporated. In 1929, the name was ag.ain changed to its present
form, of Rubber i.'anufacturers Association, Incorporated.

In presenting the above mentioned Codes, the Association claimed
representation in the Rubber noj'rafact\\ring Industry (except Tires and
Tire Sundries), of over fift;.^ (oO) per cent in ntimber of establishments,
and over eight'^-f ive (85) per cent in volurae of business, ^ith reference
to tne Rubber Tire I ;an\if acturing Industr"'-, it claimed sixtv (60) per cent
in nunber, and eighty-six (S6) per cent in volume of business.

The record discloses no material objections to the sponsorship
of the Rubber i.;fijiiif8,cturers Association, . Incorporated, or that it was
not tralv re^Dresentative and well aualiiied to act for the Industry.

The National Raini?ear Manufacturers Association affiliated
them.selves v/ith the Riibber hanufacturers Association for the purpose of
Code s'oonsorship for the Rainwear Industry .

Sponsorship of Distribu t ing Code .

The National Tire Dealers -ti-ssociation, Inconoorated, 100 La-
Salle Street, Chica,go, Illinois, presented find sponsored the Retail

Rubber Tire and Batter/ Trade Code #410.

This i"^. a corooration organized and existing ■'onder the laws
of the State of Nev' Yor'i, and wps incorDorated in 192-3. It was claimed
to be nationa.l ii: scoje, and to serve the retail pcrrtion of the Tire
and Battery Industr;- in the same capacity as that of the Rubber
ManrLfacturers Arsociation, and the National Battery Manixf acturers

9685

-107-

Association, vitli renpect to the manufacturing portion of the Tire
Industry and Battery Industry/-, respectively.

In the raatter of true representation, this Association might
justly have "been cuestioned, as later developments proved that their
clai-is \-ere to say the least, optimistic as to their ability to repre-
sent DJid speah for the Trade, Hor-ever, at the time the Code v/as 'being
fonaulated, the following stateiient r^as presented to the Administra,tion:

"The Associa.tion has at the present time one hundred and sircty
(ISO) Local Tire and Battery Dealer Associations, in the principal
cities of the United States, ^-hose fujictions and duties are to
serve the retail iDortion of this Indiistry in those trade areas,
and it is also our intention, after the approval of the above men-
tioned Code, to place in the field permanently stationed at advan-
tageous iDoints throughout the united States, both from a geographi-
cal a:;id population standpoint, Zone IJci-nagers TTorhing directly for
this Association, vhose duties it vill be to carr3" oiit enforcement
of this Code, ';^hen a^op roved, and to form and maintain additional
locs2 associations,"

At the ti.me it \7as further stated that the Association repre-
sented 70 per cent of the independent tire dealers of America,

2. ril^AL I)ETIIR:,:i::ATI01I 0? BASIS or GODIl'ICATIOil

TJlien the preparation of the HcOiufacturing Codes uas first con-
sidered, the Industry divided itself into t'-^o major grou.ps, one group
dealing rdth the mamifacture of Tires and Tire Sundries, and the other
group -'ith the manufacture of all other rubber products,

(a) Subber Tire Llonuf acturing Industry

The Tire Llan-of acturers s,t first attempted to include in their
Code both the majiuf acturi: .g and distributing functions, but vrhen the
Acxiini strati on ruled that the manufactu.ring f-unction required one Code
and the distributi_ig f-onction another separate Code grotip started for-
mu-lation of the Code for the Hubber Tire lianuf acturing Industry,

(b) Rubber I.i;in.ui"'actr.ring Industry (other than tires).

The other grou^, that is other than Tires and Tire Sun.dries
LloJiufacturers, as the first step in the preioaration of their Code divided
the;.iselves into various com;;odity groups.

The groups ^'ere more or less a natural classification accord-
ing to types of com-iodities m.ade and sold, and some, of them in themselves
rrere very complex in their malze-up.

The number of items produced in the Indu-strj^- runs literally
into tens of thousojids, a large percentage of nhich are small articles.

These are distributed through practically'- every laiown type of
distributing organizs.tion to reach the ultimate cons'arner.

9685

-X08r.

After consic.erable effort to rer"'-uce to a ninimiirii the nuinter of
coninodity classifications, tnere resulted nine ;;ucli- -^i^'O'^ps.

These uere: , ' ■

Automohile ITabrics, Prooii:ig pjnd Backing Division

Ruhber Flooring Division

Eahber Poot'.":ear Division . "'

Hard Eufoer Division'

Heel and Sole Division

Mechanical Rabber G-oods Division

Robber Sundries Division . • ,

Rainvrear Division : ■ ' ,

Ea,ch of the above grouxis, after this classification, r-ent to
^Torlc to draw u.p its Code of ZTair Competition, end tilti^iatel;,'- nine dif-
ferent Codes uere formiilated.

It then becaj.ie -evident that nianiifacturing conditions in the
Industry, and the essential purpose of the ITational Recovery
Administration in administering the Act, nade it impera-tive that the
Industry rcrk out a single Code, if possiblec.

After long discussion, an agreenent rras reached on a Basic
Code T'hich beca,ne Chapter I of the Rabber licJiufacturing Industry Code,
This Chopter established the relationship between the Code Authority,
the several Divisional Code Authorities, and the Rubber Hrjauf acturers
Association. Incorporated, for; the adi;iinistra,tion of the Code, It a,lso
included all mandatory provisions of the Act, together i7ith the labor
provisions 8,pplicable to the entire Industrj?-, e::cejpt the Rainwear
Division, and the general fair trade practices a;oTilicable to all
Divisionso

Because of the difference in marketing methods, each of the
groups represented in the Industry, found it necessarjr to present its
ovm provisions as to marketing standards, sealing schedules, and trade
practices. These \7ere included in the final draft of the Code as
Chapters II. to X.

Vflien the preparation of, the Distributing Code vras first con-
,sidered, the representatives of the Battei-y Lanufacturing Industry
stated tha^t they desired their retaal ooerations covered by a Code, and
requested tha,t they be included imder the Code being formulated for the
Retail Ru-bber Tire Trade, After careful consideration by the
Ad:i in i strati on and rdth the aiDproval of the l\ra,tion3.1 Tire Dealers
Association, . the sponsors of the Retail Tire Code, it Tras decided that
the, interests of the two trades ^rere similar and that they might present
a .joint Code,

In order that all tjnpes of establislii.ients selling tires
shoti,ld be represented in the formulation of the Retail Tire and Battery
Trade Code, the Administration ca-lled in representatives of the

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Petrolemi Industr;^, large mail order houses, factory-onned stores, and
chain store supply houses.

¥ith this representation working cooperatively, the Code for
the Hetiiil Siio"ber Tire and. Battery Trade iras formulated,

3. II'IDUSTaY PROPOSALS - PRICE STABILIZATION

General Statement

After years' of unprofitable operations, due to the pressure
of competition in a declining market, many raemhers of the EublDer
Industr;?- Ijelieved that the provisions of the National Industrial
Recover;'' Act offered opportunities to place restraint upon competition
to an extent raich had not heiore "been possible. This is evident from
the proposals to control prices, limit production or otherwise restrict
com.petition with viiich practically every division of the Industry 'be-
sieged, the Administration, Msny of these proposals were directly con-
trary' to the e:qpressed purposes of the Act, •

Euhher Tire Manufacturing Industry - Proposals

The Euhoer Industry is so constituted that it is difficult
to draw a sharp line of demarkation "between its manufacturing and dis-
trrouting interests. Therefore, it was only natural that the Ind.ustry
in its early stages of Code formulation worked along the line of a
vertical Code which vrould take cognizajice of every step in the economic
process from nsjiuf:acturing to use. Tliis approach to the problem was Cue
to the history of prices which had proven unprof itahle to the Industry
for some j^ears prior to the enactment of the National Industrial
Recovery Act, However, when the matter of a vertical Code for the
Rahher Tire Ind-ustry and Trade was presented to the Administration, em-
bodying both manufacturing and. distributing activities, the A.dministra-
tion ruled that these two functions called for separate Codes, one for
the manufacturing activities, and one for the distributing activities.

There were two reasons for the seriaration, first, that a ver-
tical code was against the acxiinistrative policy in effect at that tine,
and second, that the Distribution Trade of the Rubber Tire Industry did
not wajit to be dominated by the manufacturers but desired a code of
their oim.

Having been overruled on a vertical Code, the Code Committee
apioroached the problem of price stabilization in part from the angle
of resale maintenance, and included such provisions in the Code sub-
mitted on October 2nd, 1933 to the Administration, which later, on
October 20th, was submitted at the Public Hearing,

The essential features of these provisions were:

1. In view of the fet,ct that about 50 per cent of the total
volume of sales of prod-ucts of the Industry to retailers consisted
of sales d.irect oj mem.bers of the Industry, the restriction of
such members as to trade practices would be imavailing unless

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siipplenented by provisions desiiiiied to present direct evasion
thereof, by sales tliroiJ,-:-! jobbers &nd ^diolesalers. Accordingly,
it vac provided that no raeriber should sell any product of his
nianufactiire through any jobber or wholesaler vho did not comply
\ith the trade practices set forth in the Code, in the resale of
such products.

2, Provision vas :nade for the publicity of filed prices .and
any changes therein,

3, Provision rfas made that each nenber of the Indxictry should
offer his jobber or dealer a contract in such form and subject to
such terms and conditions as night be prescribed by the President
or the Adr,iinistratcx« Tlie jobbers and dealers were to agree, aj:iong
other things, n.ot to sell the products to any consumer at less
than the filed prices in effect at the tine.

At the post hearing conference held in Washington, D. C, from
October 21st to 28th, 1953, in line ^-ath the discussion at the hearing
on the Code, the above mentioned provisions -/ere eliminated. However,
the Deputy proposed the incr.sion of the following in a revised draft
of the Code:

Article XIII
"A. Further recommendations "oj the Code Authority,
Section 6, The Code Authority mrj, in cooperation with the
Code Authority to be set ut) for the Hetail Rubber Tire ejid Battery
Trade, submit recounendations to the Adiainistra-tion for the develop-
nent of a vertical Code for the Indurtry and Trade, at a later
date,"

The omission of the resale maintenance provisions from the
Tire M.anufacturing Industry Code bro'ight ei protest from some twentj''
tire manufacturers i-ho, under date of IJover.ber 14th, addressed the
Administration on this subject as follows:

"It is the firm belief of the signatories to this memorandum
that the price relationship established for the sale of tires by
manufactiirers to the several cla.sses of trade enum-erated in the
Tire l,ianr.facturers Code, shall, be maintained by the distributors,
jobbers, and dealers in resale to all classes of consumers thro'cgh
the medii:mi of a- vertical code, so called,"

■ -' - ThT3-Ac'j7iini strati on maintained the iDOsition previously taJcen
and ruled against a vertical Code at a meeting of the Industr;'' held
in TJashington, D. C. on Hovember 28th and 23th, 1933,

(b) 'Allocation of Production

The Industry's projoosed pro.gram for allocation of production
involved production by each member only up to a certain quota assigned
him. This would be based uoon the percentage of the Industry's tota,l
business on that particula.r product done by him in a definite previous
period of tine. Initial quotas, ujider this plan, ■'rere to be based upon

9685

-Ill-

the buisiness done in the 20 months prior to Octoher, 1933, Penalities
vere to Le exacted from exiy nenber ezceedi:i.g the o^uota assigned to him, .

In the early formulative stages of Code making this •■ subject
received considerable attention a,s a means of stabilization. This may
be substantiated by referring to Mr, Harvey ZTircstone's letter of
Eoveviber 27th, 1933, addressed to the Acira ini strati on ^ in' which he made
the follOTTing statement:

:", .' . ,in o-or early meetings in June they proposed-, and had a
Code drafted providing for allocation, and in these meetings in
Hen York, rrhich covered a period of three treeks, tfhen any other
proposal ijas brought up, it was ignored and it ^7as not until
July 12, 1933, that a committee was appointed to present a plan
to take the place of allocation. ' (Por your information I enclose
'co-py of letter I addressed to Honorable ITewton D. Balcer on
Jvly 21st, on this subject,) Since that time ^7e have been ^■lnable
to accomplish anything, and the Industry is becoming firmly divided
betv.'een tno groups - one group for the protection of the special
brand distributors, and the other group for the protection of the
independent dealers," ■

The letter of July 21st, 1933 referred to by Mr. Firestone
was addressed by him to ilewton D. Balder,, '-ho had been retained as
couiisel for the Industry, ' The arguments against allocation in this
letter rrere:

1, Allocation wd'old reduce employment in the sales, distribut-
ing, and servicing of tires ^oj renoviug competition to increase
ss,les»

2, Alloca.tion rro-old destroy- initiative, and an incentive to
good\.ianage:ient and service,

3, Allocation vfould cheapen products.

4, Allocation would stop product development.

5, Allocation vfoixLd be impractical ■ in the Incustrj^ because no
standard period of volume could be determined, various classes of
trade e.re served, relation of grades and size of tires would inter-
fere, ■■ . ,

6, Tire Industry problems too unique to permit allocation.

7, Original equipment business would be an in surra am table
obstacle.

8, Allocation' would not sta.bilize prices or competition 'OJiless
a;'jplied to special brand distributoi;s, and. dealers, which is im-
possible,

Mr, J?. A. Seiberliiig, President of the Seiberling Rubber
Company, expressed himself on this subject on llovember 9, 1933, in a

9685

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letter to the Administration as follcrrs:

"The Industry is "being 'irrecked hjr greed for volume. It can
only he saved by price control, or procuction controlo The
Governnent, I understand is opposed to price control, therefore
the most iDractical solution is control through allocation of pro-
du.ction,

"A majority of the Industry in hoth number and yoluipe are on
record as favoring this plan; the percentage of each company to be
determined l)y the j^j^oduction during the tvrenty months period pre-
ceding last October; penalties for exceed.in,~ percentages above
ajQOvint allotted to be gra.d'oated progressively upTrard after the
amount allotted has been produced, - thereby automatically checking
incentive to battle for volume vhich is vrrecking the Industry;

"If the Governnent vill ^7rite a Code simply in form covering:

"lo Provisions for the protection of labor,

2, Provisions eliminating 'bad trade practices.'

3, Provisions controlling 2'^--°<^^''>^ction thron^gh allocation;

it vill s8.ve'the situation and be more acceptable to the Industry
than any pl.an that can be form-cLlated, Each company themselves,
T.'ill be free to name its ovm price and d.iscounts; this v/ill satisfy
the public-the provisions should be made preventing any company
from selling products belovr manufacturers' cost-formula as to cost
to be d-etermined later,!'

The Code Committee in a conference on Aug^ast 17th, 1933, nith
the Deputy Adjninistrator, eiqoressed the opinion that only two measures
could effect the necessary recovery in the Tire Industry-' - either
stability of price structure, or allocation of production, TTith refer-
ence to allocation, there rrere arguiuents presented for and against as
veil as a tentative proposal for allocation, Tlie conference, due to the
tride divergence of opinion, resulted, in a fon.:aol request being made by
the Committee that the Tire Code as submitted be held in abeyance until
a new Code could be submitted,

A tacit understanding nas rea,ched, that the Tire IncLUstry
\70uJ.d. submit a revised Code, nhich would be independent of the proposed-
iiaster Code for the rest of the Rubber Ind.ustry, Allocation of output
andL formulation of a Tire Industrjr Co:imittee vrith II.ll.A. representation
were to be given further study.

The rjiyielding attittide of the spahesnen for and against allo-
C0.tion of production, finally resvilted in omission of provisions re-
lating to this subject in the Cod.e s^ibnitted for anproval to the Adminis-
tration, on October 2nd, 1933,

Cost Recovery was considered by the Ind'astry as one of the
factors absolutelj^ essential to bring about stability of its price

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sti-o.ctere, and therefore the original Code presented to the Administra-
tion on July 31st, 1933, included the follovriniT provision:

"Article IV - llo corrpaxiy shall initiate a selling price for
a m-od\ict of the Industry rrhich vill not return to the compeny
initiating such price at least its o-jn individual nethods of cost
determination advocated in the Accounting Mtoiual of the Associa-
tion and revisions thereof fron tiiiC to tine hy the Conuittee, or
hy such other method as the Connittee shall deter-rine to he
3.pplicahlG to special situations not covered hy said Ilan-ual or
said provisions."

As the Code suhnitted on July 51st 1933, after fu.rther con-
sideration, did not in the opinion of the Code Cornnittee adequately
cover the needs of the Industry formo.l req-aest ^ras made tha.t any action
on it shoul.d he held in ahcyance by the Ad-nini street ion, pend-ing the
suhmission of a nevr Code,

On October 2nd, 1933, a nevr Code nas suhnitted vrhich hecaiie
.the subject of a Public Hearing on October 20, 1953, and subsequently
,was revised again in line vith the discussion at the Hea,ring and re-
submitted in final form on llovember 2nd, 1933,

Tlie cost recovery provisions in these tvo drafts of the Code
were substantiall;?- the same, and tool; the iorr.i of a cost and market
sta,bilization plan. The essential features vrere:

Tiiat the Code Authority should imnediately upon approval, of
the Code proceed rith a study -of a market stabilization plaJi,
based on cost control qualified by the follovring:

(a) A standard uniform system of accovmting, for the :^uidance
of each member -of the Industr;-, should be developed.

(b) The Code Authority shou.ld designate, nith the approval of
the Administrator, a disinterested and impartial agency to procure
and compile the data required iOr the study,

(c) The Code Authority should confer vrith the Administrator in
the course of formtilating its reco:iiaendc?/cions, a.nd make an initial
report -dthin 30 days of the approval of the Code, and a final
ve-povt within 90 days, " " l .' ^ ; " '_ " •

U-oon completion of the cost control plan, the Code Authority
was to make recom::iendations to the Adninistra.tor as to the elimination
of all grades- of tires and tubes other than the so-called first and
second lines.

On November Sth, 1935, some twenty members of the Industry
in a m.emorandun addressed to the Administrate ion took exception to the
proposed Code of November 2nd, 1933, Subsequently on llovember 14-th in
another memorandum, they outlined specific retjulations this group
wished to have included in the Code, and reiterated these on November 24th.

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With reference to Cost r-ecover^, the follOT:i]ig statement

was raa,ae.i

"It is the further "belief of the si.^i.natories to this meraoran-
duia, that the provisions of Article V of 'the Code noy on file -.Tith
the Administration, should if necessary, he modified or "broadened
so as to require the inmediate estchlishment of the lorrest repre-
sentative manufacturing cost viiich shall be coupled ^7ith the aver-
age cost of distribution, and sioecific provision shall be made in
the Code that no manufacturers shall sell below cost so deterained, "

In the Code as finally aporoved by the President, the draft
of the Cost Recovery provision as submitted on November 2nd, 1933,
remained vrith only 'one material change, that being that the final
reconnendation on the market stabilization plan should be .submitted in
sixty days from approval of the Code, instead of ninety days.

(d) Esta-blisliaent of Price Differentials. ■ ■

In the Code submitted by the Industry da.ted October 2nd, 1933,
there rras included a rather comprehensive iDlan for Differential Control,
This plan •provideC. that pending the establishment of a marl:et stabiliza-
tion plan based on cost control, that the selling price should be main-
tained at the then existing levels, or at such higher levels as might
be necessitated by incres,sed costs.

The essential features of the plan were;.

■1. Tlie Differential Control plan in any case was not to be
■ in efiect longer than. 90 days after the approval of the Code,

2, The Code Authority was to classify'" all members of the
Industrj.^ into four grou^js according to total sales for 1932 on a
sliding scale. • '

3, That during the life of the plan, no new dealer business
was to be solicited except on the basis- of an established set of
preferential discoijnts up to 15 per cent, based on the above men-
tioned volume grouping,

4, That during the life of the plan, no national or commercial
account business should be tal:en, except on the established

joref erential discounts up to 10 per cent, accoi?ding to the volume
grouping mentioned above,

5, An impartial agency was to be selected with whom all
existing contracts were to be filed below raa.ximum discount levels
established in the plan, Tliese contra,cts were to be liquidated
at the first opportunity,

6, There were certain limitations placed on jobber, city,
county, and state business' as to discounts to be allowed,

' As a result of the Public Hearing on October 20th, 1933, the
proposed Code was revised, and the j^lan for the establishment of Price

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■ Differentials was deleted.

The principal objection to such a program co:ne from the large,
nationally advertising coinpanieso They naintained that they had developed
a la.rge volume of sales oy continually giving the consumer better value.
The proposed plan, as thejr clai-ied, vould require thera to charge the
consumer more for their product, merely because of the previous large
volume of sales they had built up in that way. They clairaed this was un-
just and economically unsound.

(e) Open Price Piling System

At a meeting of the Industry;" in Washington, D, C. , on ITovember
28th and 2Sth, 1933, called for the purpose of further consideration of
the Code of l-Iovember 3nd, 1933, to ':-hi :h. sons twenty tire manufacturers
had talien exception, a proposal for the et^tablishment of an open price
system was made to the Industry by the Administration, This proposal
develoioed considerable opposition and a further meeting on this subject
we.s held on December 19th, 1933, In the interim on December 14th, 1933,
twenty-one tire comjoanies addressed the Administration as follows:

"Because of the param-xint importance to each and every member
of the Industry-, we recomiiend as a new section (Section 7) of
Article XI (f^irther recomnendations oj the Code -Authority) , the
follov/ing:

"' Section 7, On or before thirty days after the approval of
this Code, the Code Authority, with the approval of the Industrj?-,
shall maize recommendations to the Acjninistrator as to a fair method
of filing with the Association and for the Ac'ninistrator, discovints,
terns, and conditions of sale to all clo.sses of the Industrj^, as
then existing in the Industry'-,'*,

At the Inc'xLstrjr meeting on December 19th, 1933, a new proposal
was made by the Adiainistration '-hich, after a.-'jproval by the Industry was
incorporated in the Code., Article XI, Section 7, This provided that the
Code Authority, within 90 days, should moke recommendations to the
Administration for the establishment -of a complete open price filing
system for the Industry/, In the interim each member should file with
"the Aojninistrator all his prices, discounts, terms and conditions of
sale to all classes of customers, such prices not to be revised down-
ward except after 10 days notice to the Administrator,

In this '.-'sy the Administration hoped to provide temporary
stability of prices and f'arther to secure inforaiation as to conditions
in the Inou.strj'- for furtxier st\id3^ of its pricing problems.

On December 22nd, 1933, the Deputy advised the members of the
Indu-str;^ as follows on this subject:

"At the meeting in Washington December 19th, a new Section 7
of Article XI vras acopted for incorpora,ti-on in the Code,

"This Section provides that the Code Authority shall make a,
9685

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stvAy of the desirability of the ado-ition hy the Industry of a com-
plete oiTcn 2jrice systera p.nd rashe re coniier.dat ions to the Adriinistrator
rzithin 90 days,

"In the laeantime this Section provides that every member of
the Industry' shall file ^.Tith the Adriinistra-tor -'ithin 30 days after
the approval of this Code, all 'orices, disco-ants, bonuses, terms
and conditions of sale to all custo-.ers in order that the
Acijninistrator nay be f^jJ.ly informed as to conditions in the Industry,

"We are non engaged in determining the exact form in i-'hich
this information is to be subriitted to us in order that every pos-
sible safe-guard may be adopted to preserve the confidential nature
of the informa-tion. Will you, therefore, T'ithhold submitting any
data to us under this :Drovision until you have received from us
definite instractions as to exc^ctly how the information shall be
furnished. You Tiill not receive these insti^actions until gifter the
first of the year,"

(f) Proposals for Simplification of Tire Lines

The unnecessary and expensive diversification of product in
the Industry did not receive a great deal of attention in the period of
Code making. But one r-itness at the Public Hearing emphasized this
subject, Mr, E. D, Levy, President, Tisi: Eubber Company, presented a
proposal that each manufacturer be limited to the production of t\70 "orice
lines of tires, his first and second quality, and that each line be
properly marked and identified as first or second quality.

In March of 1933, three of the largest companies had announced
to the trade that they \7ere dropping the production of third and fourth
line tire, to simplify problems of production and reduce dealers costs
in stocking and sale. A;iother of the largest com.nanics did not follow
this program and for competitive reasons the three raolcers who had, by
October 1933, resumed the manufacture and sale of third and fourth line
tires. They evinced little Literest in pro-.iosed regulation of the
matter under the Code,

The point was carried, "bi^ its aggressive spokesman, to the ex-
tent that the approved code coiitained a provision that upon completion
of the Cost Control plan, the Code Authority should uake recommendations
to the Adi-ainistrator for the simplification of the present line of tires,

Further, a provision was inserted for the submission of
standard specifications for the standardization of manufacturing toler-
ances in the Industry, This was accompanied b:^ the stipulation that
product materially exceeding standard specifications should not be sold
except at proportionately higher prices.

Rubber Manufacturing Industry - Proiposals

The proposals dealing '-^ith price stabilization made to the
Administration by the Rubber Manufacturing Industry are substantially
the sane as those which were included in the a;iDproved Code, and are dis-
cussed hereinafter under the heading of Industry -under the Codes - C -

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Trade Practice Provisions,' Tlie erxLntions to this /^^eneral statement are:

(a) Co<:t Hecovery

Chapter IV - Hu'bher Footi/'ear Division

This Division in the ^^i-esentation of their Code, proposed tha.t
their Cost Conmittee should fro'i tine to tine, upon the iDasis of the
systen of cost accoimting i^rovided lor in the Basic Code, present a
proper representative cost for the Division for variovis standard kinds
and ii'rades of foot\7ear, rjhich in their opinion ^Tould ohtain during a
limited period of the future- and on the "basis of su.ch costs should
recoriiend a selling schedule, w'' .ich should after its approval hy the
rierahers of the Code in the Division, and hy the Atoinistrator, "he adopted,
and 'ohen "oronptly filed vrith the A-'.r;ociation, together vith a notation of
the effective date.

As to such products of the Division as '''ere not covered by
the sel].i:ig schedules nentioned above, no member should initiate prices
on regular rnerchcndise (other than on factorjr damaged ejid obsolete mer-
chandise) at less than its unit cost of production, plus its related
cost of marketing, including trpjnsportation, as detemined by the uni-
form cost accounting system.

To justify such a. proposal, the Cost Connittee claimed that
the Rubber Footuear business ra.s a seasonable one, and in order to
carry stabilization into effect, called for a policy on prices based
on costs '-hich r^ere expected to carry over the entire season, thereby/
eliriinating insofar a^s they could all speculative features,

(b) Open Price Piling

Cha.ioter IV - Hubber Poot- ear Division

This Division proposed that the selling schedules approved by
members of the Division and oi'- the Adninistraotor should be filed ten
days cefore the beginning of the respective selling season of the prod-
uct involved, and remain in effect during such selling season unless
due to unforseen cheaiges in costs, these schedules become inconsistent
^^ith costs, in vrhich case the Cost Committee of the Division should
promptly recommend new s ■iiedules for adoption.

Retail Sibber Tire and Bp.ttery Trp„de - Proposals

Negotiations for the approval of this Code v;eve begun in
Au;gust 1933, and after many meetings of the Code Committee^ and the
Ad-ainistration, the proposed dra.ft of a Code was r'ithdra\m at the request
of the Administra.tion, pending the approval of the Rubber Tire Manufac-
turing Industry Code, On account of adl tire dealers being to some
extent governed by the various tire manufacturers vrhom they represented,
it was deemed advisable to discontinue all negotiations for a retail Code
until such time as it v^as determined just vrhat provisions irould be in-
cl-aded in the Lianuf acturing Code,

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In vievr of the a'bove decision, c. hearing on a pro^^oosed Code for
this Trace was not held until Decenoer 14th, 19C3,

The Cost and Sales provirdo?-'.E, Article VII, proposed at that
ti;.ie '-"ere:

(a) Cost Recovery (Section 1).

Ever;'" meuher nas to install and use an accounting system nhich
conformed to the principles of, and \7p.s at least as detailed and com-
plete as, the uniform end standard method of costing Tjhich vras to "be for-
mulated and approved hy the Code Authority, rith such variations there-
from as might he required hy individual conditions affecting any nemher
or group of memherse This provision ^-ras considered iiapractical and Yia.s
deleted from the Code before its final approval.

(h) Price Piling (Section 2) -

Every menber was to file ''ith the Association in cuch mannor
and form as the Code Authority might prescrihe, a schedule or schedules
shorring its consiimers and preferred ^'holesale price lists-, ^/'ith naxiraum
discounts rnd trade-in allo^Tpnces, Thereafter no menher was eJlowed.
to offer, sell, deliver, or excliange his procucts at ;Trices lower, or
on terns more favorable than the price's and terns on file with the
Association, unless he had first revised his filed prices.

The reaction of the Trade on this provision, according to a
statement made by Mr, J, D. Tew, President of the B. P. Goodrich Conpcny
in a letter dated Pebruary 2, 19u4, to the Administration, was unanimously
supjjorted ''oy the independent dealers and nanv-facturers' retail stores
which, he estimated, represented 75 to 80 ~oer cent ol the retail volune
of the Industry, The provision also head the conditional approval of the
oil companies distributing special brand tires, but it was unconditionally
opposed "oj mail-order houses and auto;;otive chain stores, -which, he es-
timated, rid not exceed 15 per cent of the Industrj^ retail volume,

Again referring to Lir. J. D. Tew's letter of I'ebrtiary 2, 1934,
he sta.ted that in this particular natter there was less unanimity of
agreement ajnong dealers than on any of the other provisions of this
Article, This provision, hoi-rever, in his opinion, vro-uJd probably com-
m,3-iid a larger affirmative vote from dealers than Djnrf other tha,t could be
substituted,

Uo member was to nahe an^'' trade-in allowance, aside from the
warraaity or adjustment, er/ceiot in the case of the ptircliase of a first-
li '.e pa.ssenger car tire, No member ■ 'r,s to mehe any s^llowance aside from
warranty and adju.stment in such cases vrhich would bring the net realized
price lor the new tire sold to less than the member's Preferred IThole-
sale Price (except changeovers involving new tires.)

(d) Sstablish.ient of price Differentials (Section 2.)

It was recognized that there ^-fere certain semi-na,tional, local

9685 .

-.,119-

and -orivate "brand dlstril)-ators of tii-es, Sms ^° lesser const-Oiier accep-
tance of their products, who sho^ild he entitled to definite differentials
in their schedules for Catalog, Consumer, or Preferred Wholesale Price
Lists.

In vie-i7 of this recognition, it vras rec|n.ested that a study he
authorized of conditions existing in the Trade hy the Retail Tire and
Battery Trade Co'de Authority pjid the Tire. Ilanufact-aring Industry'- Code
Aiithority, together T,'ith represent3.tives of the Adjninistration, in order
that recovriendations might he made to the Admini strait or within 30 days
after the approval of the Code, covering differentials to he allov,'ed
the various narketers. Pending approva.1 of such reconnendations no rnem-
her xra.s to he pemitted to offer to o.ny consumer or commercial • account
any tires at greater differentials than those existing in price lists as
of Hovenher 15, 1933, ^nd. in no case at a greater differential than 10
per cent helow the list prices of the following maiiLif acturers: G-oodyear,
Firestone, Goodrich, United States, General, and Kelly-Springfield, and
further excepting those memhers who had catalogs or printed price lists
which were estahlished prior to llovemher 15, 1933. The differentials
referred to vrere not to he aoplicahle to ITederal, State, County, or City
husiness.

With ftirther reference to Mr, J, D, Tew's letter of
Pehraary 2nd, 1954, he comri.ented on this provision along the folloT-ing
lines.

"This provision was supported hy independent dealers and
ra8n.ufa.ctu.rers' retail stores, which reioresented at least 75 per cent of
the dollar volur.ie of the Industrjr, nnd was conditionally supported hy
the oil companies selling special orand .tires. It was, hov,'ever, uncon-
ditionally opposed hy the mail order houses rjid the automotive chain
stores, which he estimated could not exceed 15 per cent of the volume,"

The Consumers Advisory 3op/j.-d in commenting on this Article VII,
stated that with the formulation of this Code and the Manufactxirers' Code,
there came an opportxmity to get together and pla,ce the merchandising of
tires once gjid for all tine on a finn and logical hasis, such as the
trade had not enjoyed in many years past, Tha^t opportimity was apparently
completely overlooked, as there was nothing in the Code to lorevent a re-
currence of the devastating price wsrs which had periodically^ demoralized
this Trade and wrought ha„voc among its mer.hers. The Board recommended the
deletion of Article VII and that itte rewritten in the light of the spirit
and intent of the Act, T-'ith a cost recovery provision that would prevent
ratnless sla.shing of prices, and i'.'oulf insure the. free lolay of competitive
factors of m.anufacturing cost, technical skill ajnd souijd distrihution.

The foregoing excerpts from va^rious sources are t;n3ical, and
are cited to sho-^ the diversity of opinion e.xisting, and the prohlem con-
fronting ooth the Industrj^ and the Ac?m.inisti-ation in formtilating a con-
stractive instrum.ent for fair conpetition,

(e) Emergency price-fixing.

This proiDOsed provision and its O'oeration is the suhject of
specia.l treatr.ent, and is discussed fi.illy hereinaf ter*'

9685

-120-

(x) other provisions,

There '-.'ere other Inc.v.stry projiosr.ls designed to assist in
price stc?.'bilisation. These included:

(1) A provision for a sto:idard ■'js.rranty on tires,

(2) A provision prohibiting corrfoination S3,les,
(S) Other provisions.

In other rords, the Trade proposed Code provisions to cover
all the \miair trade T^ractices that had e.-dsted or ni:;ht exist in the
futvLTe to try to stabilize the iDrice struct'cre in the Industry under
the Codes,

• ^ 4. ASSEilT TO AE'D APpnOVAL OP CODES

(a) rXihoer I.^anufacturing Ind^istry

In the romula.tion of this Code, 8.s ha„s oeen pointed out in
Section 4 (a), much tine vra.s consined in separating the various product
divisions of the Industry into gro-a-.is for vhich c.ivisional codes could
"be dra^n. Once .these groups had conpleted their vfork events moved
s'dftly, and the proposed Code suhinitted "by the Industry on Septenber 26,
1953 hecaie the subject of a public hearing on October 25th, Pollo-aing
the hearing, further revisions in the Code vieve raade, none of i,Thich ^'^ere
activelj^ contested in sjiy civicion, and the final draft of the Code rras
preioo.red by I"ove:.:ber 20th,

Assent to this Code vras received fron the severed Code Con-
uittees concerned by Dece-aber 4th, The Code vrg.s a.pproved by the
President on Decenber 15th, rjid it becai:e effective on Decenber 26th,
1933.

(b) Pub .er Tire Fanuifac taring Industr;^ - Code #174

The preiDaration of this Code occasioned bitter controversies
in the Industrjr, both prior to and after the Public Hearing held on
October 20, 1933, One "group of small maiiuf acturers held out for rigip.
control of selling prices, vhile a groux) of large manufacturers con-
tested j'ust as vigorously for freedom from aiiy rigid code reg-alations in
this res'oect. This struggle at one tir:e threatened to -orevent agreenent
of a representative majority 01 the Industry on any code compatible "ith
H.3.,A. polic3'', lleeting after meeting rras hold, briefs and pleas vere
presented by each faction, until finally on December 19th, 1933, the
Administration called the iiembers of the Industry to a, meeting in
Washington.

At this meeting the Administration pro-iosed to the Industry
that they agree upon a Code in rhich the moot point of marhet stabiliza-
tion 'Tould be delegated to the Code Authority, nhich body r:as to present
to the Ad-iinistration, a plan approved by the Indiistry nithin 60 days.
At the sa:e time the Administration proposed to provide a stop-gap
stabilization of prices "oj reajuiring all members to immediately file
current prices and terns '"^ith the Adi;iinistro,tion, vfhich v'ere not to be

9685

-151-

revised cc-nvard cxcejit after 10 dai's notice. The AcLniiiistration also
connitted itself to esxlj approval of a Ptetail Tire Code, v/hich vrould
■irovic> for staoilization aad control of the price sitiiB-tion in the re-
tail field.

At this meeting a. najorit;- of the Industry in nurfoer and in
vol-cne consented to the Code 'jith the- provisos ;ientioned. The Code rras
a'oproved D;r the President on Dece:'-her 21st and "became effective on
Dec&iber 25th, 1933,

Early action on a Code for this Trade '-'as 'delo,yed "both "b:"- ef-
forts to secure a vertical Code for the Tire Industry and Trade, and 'oy
the controversj^ in the Tire Lian'of acturing Industry over negotiations
for approval of their Code, A hearing was not held oh the proposed Code
for the Retail Tire Trade ujitil Deceifber 15th, The Code as suhnitted at
the piihlic hearing contained so Eian^.^ and such drastic restrictions as to
prices and riarheting practices, that it ap;Teared almost an insun.iounta'ble.
task to develoiD from it rn instrument corapatifele vith H.R.A. policy and
yet satisfactory to a majority of the Trade,

rearing the ensuing negotiations and delays severe price \7ars
developing in the Trade necessitated action "by the Ad::iinistra,tion ^'hich
ciilminated. in the 40 day price truce agreed to on llarch 30th, 1934,
I>aring the period of this truce the Administration noved sT'iftly to
develop s. Retail Tire Code rrhich v,'Ould incor-oorate provisions for dealing
nith the emergency existing in the trade through the esta"blish'ient of
minimum retail jDrices on tires. These provisions "being completed, assent
to the Code nas ;oron.ptly o"btained from a majority of the Code Committee,
and the Code ■'7aE approved on lig.y 1st, to "become effective Hay 14th,

3. LABOR PROVISIOhS IIT COP'ES

1, PIOURS^

The Code i'or the Rubher Ivlpjiuf ac fcuring Industry (other than
tires) provided for a hasic ',";orl: ^-eeh of 40 hours i^ith not more than 8
hours in any 24 hour period. It rieniitted- a tolerance of 80 ho-or s per
year in er.cess of the na-xim-ujn hours thus specified, "but not more, than 48
hours in any one ^'eek. All overtime in e?:cess of 40 hours per week should
be paid ior at the rate of time ojid one-tnird,

'The Rainrear Divisional Code likewi e provided for a maximum
of 40 hours per vfeek, 8 hours per da;;- , ■'vith the additional stipulation
that such rork \7as to talie place in 5 d,ays of the rreek, exclusive of
Saturds,y and S'onday, In the P^fnTrear Division overtime vras expressly
prohi"bited.

The Code for the Ri.ib"'oer Tire Manufacturing Industry provided
for a "basic v-ork reek of 36 hours, averaged over the calendar 3"ra,r, a
ma;:im-um of 42-Jio-ars in ajiy one vreek, all hours over 36 per week to "be paid
for at the rate of time and one-third.

9585

-133-

Tlie llet/il Tire caicl Batte:-" Code ;_ji-ovi6.ed for a "basic i-'Oi-l:
vreek of 43 li:-.ii's, -ith :iot iiore tlxeii 10 hours in j-Jiy one da7, no em-
ployee to 06 r,ei-iitbed to ■ ork rnore than 52 hours in any one Treek,
T.iaile all hours "'orked in e;:cess of 4-3 vier ^-eck or 10 per do,3' vrere to
tepaid ::or a.t tiie rate of ti"ie and one- third.

In all t!:.ree codes the. usual exceptions -ere nade in the case
of naintenejiice cre^'-s, i.7atchnen, salaried employees in the uijper brackets,
and certain other specified occLipe.tions.

Adecyaacr of Hours Provisions

Tiiat the maxinuin hours "orovided in the nanuf aCturing codes
•fO"v.ld not produce any considerable inci'ease in enplojaient of ^-orkers
vras a fore pone conclusion. Under the President's Heenploj'nent Agree-
nent the Iluhber l.I-nuf acturinj Incu':;tr,y (other than tires) had "ooen
limited to a 40 hour -ryeek. The nui'aoer of 'TorV.-ers had been increased
from 4-2,600 in i,Iay 19oC, to 56,800 in October of that year. Part
of this increase .may be attributed to increased nanujfacturins activity
in anticipation of higher -.rices under th.e Codes, yet much of it vas
due directly to the shortt'ned hours. The 40 hour provision in the
Code, therefore, : id not .laterially change the sit-nation fron that
voluntarily adopted b;'- the Industr;^, There '"as no increase in em-
plo3^:ent after December 1933, In fact, e;::ploy:ient declined, primarily
due to lagging '.rnsiness concitions, so t. o,t for the -"-ear 1934 average
emiploj/nent ^-'as only 57,900, even th':.,igh average hours vorlred ver -^eel^
rrere v;ell beloi-; the; ma^ciinui-n provided being onl;r 34,9 ho-ars.

The Rubber L'finuf actrring Industry?' is not a gro^^ing Industry ,
and it is doubtful if the volnme of production attained in 1938 and 1929
'.'/ill be rea,ched again for so'ie years to cone. This, coupled '^ith the
teclmolofjical displacement of vorkers and increasing procuctivity of
labor rail rnec2;s it difficult to restore previous levels of employment
unless the vork "eek is shortened still further.

The 40 hour basic '-'ork '"eek limitation under the Code resulted
in requests for 19 eX'.-mptions, 9 being granted, and 10 denied. It 'Tould
appear that a moi-e flexible lim.itation ^Tould have been desirable, from
the point of vieu of the , Indiistry caid of labor a,s ^.--ell,

A basic maxira'cu'-i hours limit, rdth successively increasing
penalties lor overtime 'j-juld have given mana^gement more latitude to meet
unforseen eiiergencies pnd seasonal der^ajids for labor a,nd j^et -"ould have
discouraged overtime employi.ient ajid encoujraged addition of nev employees
rrhenever .justified, .Such an arrangement vould have avoided resort to
govern:2ent intervention or sanction in ordinary business emergencies,
but '-ovJ-d have given government control, throxigh checking of payrolls,
to prevent violation of labor standaords or the exoloitation of labor,

Sn-ch an arrangement T'ould have been simpler and less exoensive
in o-^eration, both for G-overrjient t-jid Indn.str3'-, and -■•o"a].d have been
more ;TO-)ular -ith 'lanager.ent. With ■jro-'oer meas\-.res for rdioinistration
it v-ould have accomplished, the pur-i0;;es of the Act, relieving iinera2-3lo3?ment
pn.d increa-.iiig purcha.sing po'-'er 'as effectively as cud the ■'irovision a*,p-
proved uno.er the Code,

9585

-133" ;1

In the Tiro Manufacturing Industry, in only tv7o months
during 1932 and 3 months during 1933, had workers averaged the 36
hours per week provided as a maximum "by the^ Code. In view of the
greatly increased productivity of later it was estimated that even
on a 25 hour week hasis, the production required to re-absorh the
workers employed during 1927, '28 and '29 would have been far ahove
that required by market demands for years to come.

Management had made every effort to spread work and increase
the number employed by shortening hours. In all the larger estab-
lishments a 6 hour shift and a 24 hour day was the rule. In smaller
factories, and particularly those in smaller communities management
usually tried to provide work for about the same number of employees
throughout the year, working short weeks and short days in winter,
long days and long weeks in summer. ,

Usually in the smaller establishment, limited working capital
and difficulty in forecasting demand prevented the accumulation of
finished goods inventories and required production to conform closely
to sales. . Thus it appears tliat the 36 hour week, averaged over the
year, TE.S well suited to the needs of the majority of the Industry,
though it proved quite restrictive to some of the smaller establish-
ments. This is borne out by the requests for exemptions received.

The average number of employees in the Tire Iv'Ianufacturing
Ind;astry .in 1929,. was 83,2.60. , This .declined to the low point of
41,780 in Mar.ch of ,1933, .but ..increased to 64,110 by August of that
year. . . The average for ihe- .year of .1934 v;as 62,150. . Weekly hours
worked. averaged.;44..2: in 192'9,,. ,31.7 in 1933, ,.30.7 in 1934. ,

In those establishments in the Industry which engaged in
the manufacture of both tires and other rubber goods some conflict
and confusion resulted from, compliance: with ..the, differing hour pro-
visions of the two Codes. Eere, again, the , greater flexibility
urged in a previous paragraph would have aided in fitting these restric-
tions to the needs of the Industry.

In the Retail Tire and Sattery Trade working hours were
materially reduced by the Code provisions. In the type of service
establishments retailing tires long hours and seven days a week liad
been the rule rather tlian the exception. It would be assumed that
the shortening of hours would have resiilted in considerable reemploy-
ment. HovTCver, frequently store hours wore reduced and attendance
of personnel was staggered so that it, is doubtful if the reemployment ac-
tually resulting came up to expectations.

The fact that the Code permitted longer hours tlian did the
Petroleum Code, the Mo tor VcMcle Retailing Code, the Motor Vehicle
Maintenance Code, all of ?7hich were applicable to many establishments
also retailing tires, resulted in come conflict. It would appear
that the hours provision of such closely related trades should have
been in agi-eeraent and that the Retail Tire Code should have conformed
to the Codes for the above group rather than to the Code for the

9685

.124^

general retail trade, in this respect.-

Unforttmately the Retail Tire Code Authority collected
no statistics on hours or employment. Statements as to the effect
of these provisions in that trade must "be hased upon individual
knowledge of c-^nditions rather tlian upon act"ual statistics.

Any general conclusions as to the adequacy of the hours
provisions in the Rahber Industry Codes in accomplishing the pur--
poses of the National Industrial ScCovery Act must take into con-
sideration the fact that demand for the Industry's products did not
increase. The^ limitation of maximum hours would doubtless have in-
sured the employment of more workers, Imd this "been the case. As
it was, there was no greater restriction than Industry had volun-
tarily placed upon itself and the only requests for eKemption arose
from the inflexible nature of the code restrictions in isolated cases
of emergency confronting individual establishments. In the case of
the Retail Tire Trade the provisions mSij be said to have been in-
adequate to provide any considerable increase in employment and to
some extent in conflict with provisions in codes for related trades.

2. WAGES

The Code for the Su.bber Manufacturing Industry (other than
tires) provided for a minimum wage of 35 cents per hour; in the Rain-
wear Division the minimum for non rcanufacturing employees was 35 cents
per hour, and for manufacturing. employees 40 cents per hour. In all
Divisions apprentices during a six weeks apprenticeship were to re-
ceive not less than 28 cents per hour.

The Code for the Rabber Tire Manufacturing Industry provided
for a minirn'om wage of 40 cents per hour and apprentices, during a
six weeks apprenticeship, were to receive not less tlian 80 per cent
of this or 32 cents per hour. This Code, however, contained the
so-called "1929 clause" as follows:

"Where. the hourly rate for the same or
similar class "of work on July 15, 1929, was less
than forty ($0.40) per hour, no employee shall be
paid less than the rate per hour paid on July 15,
1929, but in no event sli^.ll the rate per hour be
less tlian $0.35."

The Code for the Retail Tire and Battery Trade provided for
an hourly rate of not less than 40 cents per hour in Northern States
and 35 cents per hour in Southern States for employees paid on an
hourly basis or part time workers.

All three Codes provided for the same schedule of minimum
rates for salaried workers, as follows:

9685

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$15.00 per week in cities over 500,000;
$14.50 per Vvrcek in cities 'bctwocn 250,000 and 500,000;
$14.00 per VYeek in cities between 2,500 and 250,000;
•$12.00 per week in cities -under 2,500.

The Code for the Retail Tire Trade, however, provided for
a differential of $1.00 lielow the ahove rates for salaried ?rorkcrs
in all cities of over 2,500 population in the Southern states.

All three Codes nB,de the usioal stipulations as to wages for
clerical apprentices, partially incapacitated emplo-yees, and female
workers performing the same work as male enployees. Both 1/ianufac-
turing Codes contained provisions for equitable adjustments to he
made in all pay schedules of factory employees above the minimum with-
in 30 days after the approval of the Code by all employees not having
previously made such adjustments.

Adequacy of Minimum Wage Provisions

Statistics already given in Section II-D of this report
set out the gains in hourly rates and payrolls made in the Eubber
Industry under the Codes. There was a decided increase in the tire
division and a continued increase in hourly wages and weekly earnings
throughout the period covered by the Code. In the Other Eubber Goods
Division, substantial gains were made from depression levels though
pre-depression hourly or weekly wage levels were not reached.

The disparity in wage rates between the tire and other
rubber goods manufacturing divisions was more iffiirked during and sub-
sequent to the period of the Code than before. This may be accounted
for to some extent by the concentration of labor in the tire division
in the Akron, Ohio, and Detroit, Michigan districts. Both are high
wage cities and at least 60 per cent of tire workers are located in
the Akron district, and a considerable number in Detroit.

Ho such concentration of labor in any one district occurs
in the other rubber goods division and the majority of vrorkers 3,re in
smaller establishments and frequently in smaller communities.

To what extent this disparity of rates was affected by the
differing minimujn wage rates established for the two divisions is
not known. Farther inquiry into this sit-oation may well be in order,
as to whether the lower minimum for other rubber goods workers was
justified by differences in location or living costs.

The "1929 claiise" in the Tire Ife-nufacturing Code should have
been deleted. It was taken advantage of by only a few establishments.
In operation such a provision is difficult to administer, necessitating
accurate records of wage rates on individual operations for at least
5 years past. It can serve only to perpetuate ineq-ualities, the code
itself was designed to correct.

9685.

-126-

The Code Authorities for the two manufacturing Codes, through
their administrative agency, the RuhlDer Manufacturers Association,
cornputed complete fij-ares on adjustments in vrage rates above the
minimum m3.de hy memlDers tetvfeen ifey 1933 and January, 1934, ■ A
tabulation of these adjustments is shovm in the folloviring tahle.

Percentage of
Increase

- 4 '1

5-9

10 - 14

15 - 19

20 - 24

25 " 29 .

30 - 34

35 - 39

40-44

45 " 49

50 - 54

55 - 59

60 -.64 '

65 - 69

over 70

Percentage of
Decreases

Tire Manufacturing Other 5a"blier Ife.nufacturing
llo. of Per cent of 'Eo. of Per cent of
Siriloyees Total Ztanployees Total

505

.4-;

940

1.3 fo

59,939

48.9

22,

,887

30.7

56,430

46.1

29,

,384

39.6

2,247

1.8

,931

13.4

254

,619

8.9

. 437

.35

,531

3.5

2,452

2.0

407
270

.54
.36

.01

179
19

.25
.02

244

392
26;

SCI

.03

.04

128

114

.17
.00
.15

5-9
10 - 14
15 - 19

.10

164

.20

.04

Total Employees 122,535

100.00

74,203

100.00

9685

-127-

3. j;oDiFicATioi:s, Ai.,ErDi;Ei:Ts, e:ce!:ptioits or stays

Wo ejnendi.ient of the labor lorovisions of the Ra"b"ber Industry-
code vras made. Thirty-three request s for exemption under the labor
2-jrovisions of the Huhber L'aniia-''.ctiu-ing Indiistrj'' Code vere received
and deternined upon as follovrs:

J^ rou ■■iinirnum v/age provisions
Pron maximujB hour iTrovisions

Received

Granted

Denied

Prom Rainwear apprentice pro-
visions

In the Rubber Tire Iir?Jiui"a.cturing Division 4 req.uest'o for
exem.Tjtion vere received, 2 from the maximum hours provisions, one
of i-hich uas granted, and tno from the minimum vr^age provisions, both
being denied,

T^o requests "ere received from members of the Retail Tire
and battery Code, both being denied,

4, niDUSTRY COLiPLIAlTCE ¥ITH LAEOR PROVISIOITS

Tlie degree of comyiliance uith Codal labor provisions in the
manufacturing codes T7as reallj^ excellent. A summary of all labor
comi^laints docketed "oy the II.R.A, State Compliance offices under the
txio raanui'acturing codes follows. This includes all complaints to and
including Lia;- 25, 19S5,

Total Docketed

Rubber Tire
tianufacturing

Other Rubber
Manufacturing

221

Investigated Com-olaints:

Adjusted

IIo violation found

Bo okice erring rejections

Referred to District

Attornej'-
Referred to Compliance

Division or Regional

Offices

105
80
12

On h.and-; May 25, 1935

These figures do not include those labor complaints handled
by the Trpde Practice Complaints Committees, authorized to handle such
complaints i-rhen filed by one employer against another,

Req. i:o, S685

-128-

TJliile tlie record is not availr.'ble in detail, experience during
Code adriini strati on T.'Oiild indicate that a relatively large ntunlaer of
complaints docketed imder the Other pjaljlser l.ozi'ofacturiiig Code originated
in the Ha,inr?ear Division, other divisions having a nuch iDetter record
in this respect.

In addition to the atove, tro conplaints against tire manu-
factxiri:".g estahlisixients concerning violation of the collective bargain-
ing provisions of Section 7 (a,) of the Act "ere hea„rd hy the national
Labor Relations Board, In ooth cases injimctions against removal
of :T,H,A. insignia by the Compliance Division '7ere secured in United
States District Courts and the cases '-'ere pending v;hen the decision
in the Schechter case terr.iinated iurt:ier action.

Under the Retail Tire ,?nd Battery Code 651 labor complaints
^Tere docketed by IT.R.A. State Compliance offices, Dete,il as to the
disposition of these cases is not available. Daring the earlier history
of this Code compliaJice as to labor provisions T7as excellent. Later,
due no dou-bt to the emphasis placed upon price controversies ond the
failure of the Code Authority to organize for effective a,dmini strati on
of the Code, compliance shcred a rather general breal^ dorm.

Conclusion: Had the Rubber Industry sha.red in the general
improvement in business activity a:id earnings during the period Codes
'^ere in effect, the labor provisions, a.s written, "0u].d have 'been
adequate to assure labor sharing equitably in the increased prosperity.
As it -"'as, in the tire mojini'acturing division alone do vie find marked
recovery in labor's situationo

It can be said of the loeriod of Code administra,tion as 'jell
as during most of the histor;- of the rubber industry, that labor
has fared better than capital ??aid that fixture securit;' for workers can
only come from greater stability and profitability in the industry,

C. PRICE STABILIZATIOH PROVISIOIIS

1, UlTirORI.I ACCOUl-TC]i:"G iC3 COST P^COVSRY PROVISIOIIS

The basic cost recovery provisions for the Rubber Llaaxifacturing
Industry, Code #156, vere set forth in Chapter I, Article VII-A, Sections
1 and 2,

Section 1 provided that each member of the Industrjr should
substantially adopt the cost accounting formulas advocated in the
Rubber manufacturers Association Accomiting hanual, after its approval
by the Adiaini strait or.

In accordance vith this i^rovision, the Code Authority -
Code #156, submitted in January/ 1934, the "Uniform Acco'anting Ilanual,"
for the Industry, for the approval of the Administrator,

To definite action i.ras trken by the Aoministration for
some ti'^e in this matter as the Administration's i^olicy on these issues
TTas still in a formulative sta.te. This is evidenced in a letter that
General Hugh S. Johnson "rote to Senator h, E. T3'-dings on February 17,
1934, --hich stated in part:

Req. Ho. 9685

-li:9-

"****** in rei_'^ard to the rrvoroval of t.'i.G cost accoimting
;]!e:nials ^y the Aciinistrn.tion, this h; s "bo'jn receivin^r consideraole
study. We arc: endeavoriA/;; to fornulat'.; a policy v'hich nay liest "oe
calculated to sE,fe;;uard the interests of all concerned,

"As you can understr^nd, the -orohlein is not an eany one.
"^[e certsinly do not -'ant to aprji'ove ar-ytivin;]; vhich rrill put a si.iall
enterprise to a disproviortionate erpense in tr;-i;i;^ to maintain any
particular system. The prohlen is primarily one of evolving an
adec[uate definition of the elerie'nts of cost,, '-hich may properly
he ap;olied in the case of Codes r;hich prohihit selling belO^? cost,"

The Cost and Harhet Stahilization provisions for the Tiuhoer
Tire Uanufacturing Industry- Code #174, 'r^ere set fortli in Article V,
and provided, that the Code Authority should immediately' upon a„pproval of
the Code loroceed vith a st'>:dy' of a marhet stahilization plan based on
cost control.

This study '^as undertah.en to develop, under the direction of
the Code Authority, a standard uniform system of aCcoiuiting for the
:.7Uidpnce of each roemher of the Industry, The Code- Authority iras to de-
signate, rith the approval of ' the- Ai.'jninistrator, a disinterested and
impartial a;"ency to compile; data- required for the- study, rnd to act
as a confidential agent through •'.mi'ch' fjtich compiled data should he trans-
mitted, to' the Code Atitho,rityii-'i~-- ' ■' •' - . ■

The first notion trJ'eh by t'he Codei Authority r.'as to designate
the iciahber hanuiacturers Association as the disinterested end impartial
agency to collect and compile cost da!ta,' (*) Tlie Association Accounting,
i.Irnan,l '-as the result of ye.ars of ca.reful study oj memhers of the
Industry and the staff of the Huhher 'Llo.nuif.cturers Associsttion, A
large percentage of the memhers veve favorably impressed '.'ith it, and
considered it a very essential "."asiness instrument in the determination
of costs and. prices, and after the Code had he-en 8.pproved rrare very
anxiou-s to put it into operation on a mandatory ha.sis. They considered
the approval of the Accojjiting hanual as the keystone to all their cost
stabilization pirns, and \'ere sorely disappointed at t;;e delay in its
approval by the Administration,

Finally, on June 5th, 1934, a .joint Public Hearing on the
"Uniform Accou:iting Lianual" for both the hubber I.ioniifacturing Industry
and the Rubber Tire Manufacturing Industi-^^ v/as held in Washington, D. C,

In presenting the "Uniform Accounting Manual" ^i.t -the Public
Hearing, the Industry made the following general statement:

"This Uniform Accounting Manual for the Eubber Manuf-ac tuning
Industry differentiates betwe-en principles to be iised in the deter-
mination of cost for historical purposes and cost estimated as a
ba,sis for initiating selling prices. The uniform plan for the

(*) Ref, Adjninistrative Order #174-3 of March 1, 1934

Heq, ITo, 9685

-130-

calculation of costs for the initiation of selling prices is
necessary in the npdntenance of fair conpetition ■bet\7een various
merabers of the Industry a,nd its sulD-di visions inasnuch as there
are factors that serve to disru:)t pjid demoralize the price
structure of this and gjiy other industry o\7ing to the al^sence of a
complete definition of cost. Tor the purpose of effectuating the
terms of the Codes referred to atove, the Accounting Conriittee of
this Association, and strictly fron an accounting Doint of view,
and without conps.ny prejudice, agreed upon the principle contained
in the Cost ?ornula ■•'hich v/ill serve specifically to define cost as
it applies to the provisions contained in Article VII of Chapter I,
of Code ilo. 156 -nd the proposed Article V, for Code lTo» 174.

■"The "process of cost accoimting involving as it does the
allocation to products of indirect charges only renotely associated
with them, is essentially an art and not a science, since an
accurate or specific allocation of these charges is inpossihlev
True, 'a.ctual' costs are never laiown.

"It is needless to en-5hn.size the advantages to "be gained
froa the adoption of Uniforn Accounting within an Industry. Uni-
form Accounting has heen a,dvocated for a number of j^'ears hy the
Federal Tra^de Co-inission, Accounting Societies and Trade Associa-
tions. The a'osence of Uniform Accounting unquestions.bly is partial-
ly responsible for destructive competition where it exists in any
industry. The Hajiual and Cost Formula submitted to the Adminis-
trator for a;o:orov3,l contains genera.1 accounting principles which
are widely occeTted and recognized by a.ccountants and industry in
general, aaid we do not believe that there can be much disagreement
with any of the funda.mentals incorporated in this section of the
Manual. Suffice it is to say ths-t the principles ca,n be followed
by both large and small companies alike, the smaller companies
nat-arally maintaining less deta,il than the larger companies, but at
the same time observing the fun dame ntaJLs prescribed without im-
posing any undue hardship on even the smallest cor.pany* .

"Even where Uniform Accoimting is universally adopted
within an industry, there are certain other factors of aja economic
nature that tend to create destructive Gomt)etition. To correct
these conditions, the Cost Accounting Formula for the Calculation
of Rubber product Costs for Estr.blishment of Selling Prices was
inserted as a part of this iianual.-"

The essential factors in the Cost Accounting poruula presented
by tlie Industry were:

(a) Costs of major raw materials to be computed at re-
placement or market. va,lues«

(b) Pepreciation to be computed o.t reasonable i-ates not
less thaji rates recommended in the Manual UDon values not loi-^er
than current replacement costs.

9585

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Chepter I, Article VII-A,- Section 2 of the Cods for the Sub'Qer
ilamifactiiring Industry provided that no nenber of the Industrj^ shoald
initiate the sale and/or exchange of an^ product of its inanufacture at
a price or upon such terns or conditions as would result in the customer
paying less than the seller's own individual cost, ■•vhich nrs to he
determined in accordance with the Manual.

This Code also permitted tl'.s esta"b].ishnent of "the cost of the
raost efficient r.iem'ber of the Division: i.e., that representative member
of the Division whose cost was lowest", as a floor price.

This provision wa.s included in the following Chapters:

Chapter II, Automobile I'.'-brics, Proofing pnL lacking
Division.

Cha"oter lY, Ilubber Poot-e.^r division.

Cha'^ter VII, Mechanical Rubber Goods Division.,

Chp,.:iter X, Rain-ear Division.

On June ?th, 1934, two drys after the Herring on the Manual,
Offi/ce Menorpjiduiii =?223 was issued which determined the 'policy which v.'as
to govern "oricing practices under future codes pnd to which it was
desired to pdjust already' approved- codes b','- amendments worked out by
agreement with Code Authorities.

In brief, the ;oolicy estrblished bjr M.S. A. rfter months of
study rnd e.roeriiient wr s generally concurred in by the several Advisory
Boards as well as the legal and Research and Planning Division, wss as
follows:

. "To ban even fixing of nijiimiLm "trices exce^ot in emer-
gencies which made such action necessary to halt destructive price
cutting, protect small enterprises, curb mono23olistic tendencies
or maintained code ^Tages and working conditions;

"To permit open price provisions where desired by an
industry under conditions requiring posting of mrices with a con-
fidential disinterested agency for distribution to all r.embers of
the industry and customers willing to pay for the service - such
posted mrices not to be revise.d upv,'ard for 43 hoixrs,

"To encourage the inclusion of model cost finding and
e^ccounting mrovisions which shall, however, not be obligatory, but
not to encourage iiniform additions in the form of percentages of
differentials designed, to bring about arbitrary uniformity in cost
or prices.

"./Vp_ im.portaJit feature of the ruling against the establish-
ment of minimum wrices except in emergencies is that adequa,te
mp.chinery is set u'o to prevent cut-throat "orice coranetition between
emergency 'oeriods. The mrocedure permits any interested individual
to complain of destructive prices to the code authority which, if

9685

■mio,ble to pdjiist to the srtisf action of complainant p.nd. respondent,
will refer the conplr.iat to i-Eltl's Research rnd Planning Division."*

This imnediately raised a question of ^idninistrative policy in
connection with the Code rnd the Jianual.

The "representative cost" provisio3is of necessity'- had lieen in-
operative ;:iending the approval of the Accorintin,?^ ilanual, as there nas no
adequate yardsticl: for the deternination of costs for such a,pTDrova2. If
the several Divisional Code Authorities hnd proceeded rnd estahlished
ninirauin floor prices, there T70uld hrve heen no assurpnce that srles 1)6101,7
such costs ■woiild have constituted a Code violation*

The s'oecific reco'imenlptions o." the Division of Reserirch and
Planning dealing with the three essential factors o'" the cost fornula
mentioned hereinabove , ^-ere contained in their re'oort of AUfpust 1, 1934.
This report read in part as follows:

"The follo'-in™ chan/;es in the cost formula for this
Industry '-fill neet the oojectiono raised "by this Division:

"1. Saw naterirls should be oriced r.t the lo~er of actual
cost or current Mrrlret value.

"2. The basis for the inclusion of fixed overhead in
costs should bo the higher of the industry average, deternined as
projoosed, or the iisnufa.ctioi'ers' own rverp^ge use of -productive faci-
lities, sinil.'-rly deterni led, ^-'hichever produces the lo'-'er mark-up.

"3. The depreciation provisions should coincide both as
to basis and rs to r. tes ^-'ith the rules of the bureau of Internal
Revenue, exce-ot '^diere the basis has been axtif iccall]?- lowered, as
by a, reorganization or capital rerdjustnent, -jhen the brsis .nay be
either '.'hat it would have been if the reorga.nization or readjust-
ment had not taken olace of fair rQpl,ace;-!ent value."

Subsequent to the pixblic hearing, the Code Authority for the
Rubber Hanufacturing Indu^tr^- had advised the Administration that it
would assent to the staying of all "provisions relating to the estctblish-
ment of "representative costs", if the Accoimting h'anua.1 could be a.p-
oroved in the form sub;iitted. The Code would then prohibit a,ll members
of the Industry from initiating a. price belo-^ their own individual
costs as determined b]'" the Manual. Later - Seoteinber 17th, 1934, the
Code Authority, Code ^^153, held a, meeting and unanimously agreed that
on behe.lf of the members of the Industry, the Code Authority would
accept, with reservations, the changes demanded by the Administration
and contained in the report of the Division of ."e^ea.rch and Plaiining,
dated August 1, 1954;

The reservations made by the Code Authority/ at the time were:
* II.R.A. Release ITo. 5600, June 7, 1934.

9535

-133-

"It is understooL. tliAt in c.tvreeing to ncce-jt these
Modifications o;? the Cost Acco'anting i^SJiual, the neinhers of the
Code Authority hpve no-t . chcnged tlieir /oelief in the so-ojidness of
the i'.anup.l as ori;;ih3!riy subriittev., and that it is their intention
to continue to ■^dvocate the use of the original cost fornu].s, and
the principle of ' j"'epla.ce!-ient values', even thoU'-jh the;'- accept for
the tine hein/i;, the princi'ole of 'co^^t or re'olacenent values,
vrhichever is loirer', for na.terial; the lo\7er actual cost or formula
cost for overhead; rnd the npxinuji as i^ell ps the ininiiauin rates of
depreciatio:i.

"The 'leifoers of the Code Axithority are of the opinion
that if the fornula sugj'jested hy the :i'..?.<.A= is en'jloyed 07 the
Industry for p short '-.h-ile, thej'' -jill he ahle to furnish concrete
evidence thn.t such a forr.rala is not adapted to the needs of the
Huooer h'anufacturing Indiistry, and,^ that the Cost Accounting lianual
PS ori;s:inall;' SLih^iitted to the If.:-:. A. should oe approved*"

The Unifor^i Accomitins lianual for the l\UDoer ; 'anufacturing
Industry - Code -:,-15S, iias finally ap proved in Septeifoer 1334, "by
xi.dninistro.tive Order 15o-37, suhject to the follorring conditions and
requirenents:

, ."1. The o"oeration of provisions of Chapter II, Article
III-A, Section 1: Gha"3ter I'^^, Article III-A, Section 2; Chapter
VII, Article IV-A, Section 3; Chr-->ter Z, Article Y-A, Section 1 of
the Code of A.'rir Gonpetition for the ^iuoher 'ianuf a-ctiiring Industry
'be and the srne rre hereby sta;fed indefinitely pending the suh-
:iission oy the Code Authority "'ithin thirty (oO) Apsjs of rxaendnents
deleting said provisions fron said Code suid mating applicaole in
lievt thereof the orovisions of Charjter I, Article 7II-A; orovided
that the ap'jlice.tion of saad provisions of Chapter I, Article VII-A,
is construed not to prohibit aary neaber of the Industr3~ froji selling
belo-\r7 his ovn individual cost in good faith In order to neet the
com'ietition of pny other nerfoer.

"2. That the valLie of ra-7 materials shall be corapiited by
rll nembers of the Ilubber ilaJiufacturing Industry' un the basis of
cost or raarket ^Thichever is lo-7er.

costs shall be the higher of the Industry avera-ge, deternined as
set forth in said lianual, or the I'er.ibers.' o'jn averpge use of pro-
ductive facilities, siviilarly deterruned, '-'hichever Produces the
lower iii;?rk-u-o.

"4. All nerabers of said Industr;^ shall use in the
calcula.tion. of depreciation charges the deoreciation provisions
TThich coincide both as to brsis and as to rates ^-^ith the rules of
the ?ederal bureau of Internal llevenue, ez^cept -vhere the basis has
been artiflcally lo-'Tered as by reorganization for capital readjust-
Tnent , rrhen the b",sis na^^ be either 'That it "jould have beeji if the
reorganization or readjustment hp.d not taken place of the fair
replacement value »

9585

■ ,,-134-

"5. The Code Authority lor said Indus tr-/ shall 'r'ithin 90
darrs froin the date hereoj;' report to the Division Adninistrr.tor as
to the results of the use o::" said I'rnupl in connection vith the
o'oeration of the 'provisions of Cha-)tsr I, Article VII-A, of Scaid
Code." (*)

Pursuant to the renuirenents contained .in the ahove Adninis-
trative Order, Parasre^h I, the Industr" suhmitted the Code anendLients,
deleting the "representntive cost" provisions and on Decerfoer 18, 1934,
these anendnents 'rere ao^oroved ^oy Adninistrative Order vl5o-5S, '■'hich
"became Araendment #3 to Code 7,-155.

'The Tire lianuf&cturiny Indiistry did not follovj the le.^'d of the
Rubber ifenuf actu-ring Industry, and after their joint presentation of the
Accotinting Manual at the Hearing on June 5, 1934, refused to accept the
changes in the Jianual reconnended- dt the fiesearch and Planning Division
in their report of Atigust 1,'1S34. A bulletin fron the Code Authority
requesting a vote of the Industry on the proposal of II. H. A. nas
practics,lly ignored, only a fev decidedly negative replies being re-
ceived. .

The Cost Poriaula and Standard Uiiiforn Accounting Jianual being
the corner-stone of arxy narket sta,bilization plan in the Tire Division,
no further action nas taken by the Indixstry or Adnini strati on.

The cardinal 'princi^ole enbodied in ■ the Cost Porraula of the
Manual as presented - from the vie'-rpoin.t of the Tire ";a.nufa,cturing
Industry - vras tha.t ran materirls should be \:iriced a.t current replace- j
ment cost, rather than on the basis of cost or riprket, vriiichever is
lower, and when the. Adi^ini strati on refused to approve such a principle
the Industry lost interest in the matter.

As for further action on the Accounting ilrnual as a"To roved
for the Rubber llpjiufacturing Industry, Code -:rl53, condition -yS of ■
Adninistrative Order #156-57 gave the Industiy the opportunity to re-
port on the operation of the hanual. This condition =f5 wrs included
in the Order to allow the Industry to furnish concrete evidence that
the cost formula^ a.s approved wa.s not adapted to the needs of the
Industry'-.

Up to the tine of the termination of code aduiini strati on, such
a report had not been forthcoming beca.use the Code Authority on several
occasions ha^d requested an extension- of time in which to report, beyond
the 90 days originally granted, the contention being that the Industry
had not had sufficient experience with the j/lanual as approved to make
an intelligent report. These requests had been granted with the under-
standing that before June IS, 1935, a report would be submitted, or
further suitable Adninistrative auction would be tnJcen*

Although the Cost ?.ecovery Provisions, so a;oproved for Code
(*) Administrative Order 15S-37, dated September 25, 1934.

9685

-135-

ifl56> vere used in n, nuii'ber of instr,aces ty the Code p,nd Divisional Code
Authorities, .^nd theii- Trade Practice CoLrplaints Coniiittee in checking
alleged sales oelotr, cost, only one such case i7as referred to IT.R.A. for
further action, all other ' instances ap'oarently having heen ndjusted.

. Erqjerience r/ould indicate that Cost 'Recovery Provisions such
as were embodied in the Code for the Eubher: Manufacturing Industry, were
very difficult to adiainister, pnd the cost rnd tine elements in deter-
mining code violations were a deterring factor in effective ac'jninis-
tration.

A discussion of the hiininura price provisions for the Retail
Ruhoer Tire and Battery Trade is included in connection with the
declaration of eiiergencT in the Retail Ruboer Tire Trade,

2. OPEII PRICE PILIITG

(>a) Rubber 1 lamif acturing Industry - Code t15S.

The following discussion sets forth the experience of the
Industry under the oi^en price filing ;orovisions of the several Divisional
Codes.

Chapter II, Au-tonobile Pabrics, Proofing, r^-Tid. Packing Division.

Article III, Sections 2 and 3 set forth the open ^rice filing
system under which this Division of the Industi-y operated. It provided
for price filing of . auto-topping fabrics only, nnd had a five day
waiting period specified before prices could become effective.

Until the early months of 1954, the syster: operated compara-
tively successfully, and the members "made a conscientious effort to live
up to their filed prices. Hov-ever, as Code violations becoJie more pre-
valent, a gradual breakdown in compliance with filed mrices ensued,
finally conditions became so bad that the Industry requested the
Administration to stay the price filing provisions. Pinal adminis-
trative action on this a'oplication was pending -"hen the Code became
inoperative.

The ma.jor factor which contributed to the breakdown of filed
prices v.ts the very material shrinkage in volu_me of business available,
brought about by the very definite curtailment of auto-topping fabrics
in the Automobile Industry during recent years.

Cha"oter III Rubber Plooriug Division.

Article IV, Sections 1 and 2 rnd Article III, Section 2 set
forth the open "3rice system, used for this Industry group.

This system provided for an open price filing system with a
fifteen day waiting meriod before price reductions could becom.e effec-
tive. It further provided that Distributors, Sales Agents, and Special
Brand Accounts comply with the open price filing lorovisions aiid trade
practices of the Code.

9685

-136-

This systen presented prjactically no adrainistrative problems.
The inein"bers of the Division cooperated vrholehenrtedlyV improved condi-
tions in this Industry, and xiere enthiisiastic aOout the operation of
their price filing system. The participation of Distri"butors, Sales
Agents pnd Special Brand Acco'oiits as nenhors of the Division insofar as
compliance vrith the open price filing provisions ^'ere concerned, helped
in stabilizing prices and worked out to the satisfaction of all con-
cerned. Due credit for this good shoiring must "be given to an efficient
Divisional Code Authority. Conoliance 'jith filed prices '-las excellent.
This is the outstanding exarrole in the Fiuhher Industry where real
"benefits were derived fror.i the open price filin,; syster"..

The efficient adninistratioa of this Divisions^ Code may he
further ex[olained "by the fp,ct that there were only 15 :uen"bers in the
Division, all of whon hrd confidence in each other's integrity and took
a real interest in the Code,

Chapter IV Iltfo'oer Pootrrear Division.

Article Y, Section land Article VII, Section 1 contained the
open price filing provisions for this commodity group.

The system provided for the annual filing of unit prices,'
discounts, and terns of sale for all standard products. Such filing to
be rarde ten days prior to the opening of the "advajice order" season,
ilo member, of course, was allowed to sell below filed lorices. Any
member was allowed to file new schedules to meet competition within
thirty days after the opening of the aforesaid "rdvence order" season,
which new schedules should not become effective for ten dcys from date
of filing. On changes in price schedules ofher than those described
above, it was required that they be supported by adequate cost data to
warrant such chaiige.

It w?„3 also ;orovided that jobbers rnd Pgents should comply
with the I.Irrketing Standprds, Price Piling Provisions, and Tr.^de
Practices.

The open "orice filing provisions from the outset ;''er9 a point
of controversy rnd. the m.embers of the Division, T^ere divided into two
factions, eight favora.ble nnd four o^oposed. The contention was that
these provisions would lerd to monopolistic practices and were disad-
V8.ntageous to the smaller companies,. This controversy finally resulted
in Ml appeal by the dissenters to the federal Trcade Commission and re-
sulted in litigation before that body between Phillips-Bcier Rubber
Company et al and the Hational P.ecovery Adininistrp.tion - Docket 2201.

The eight complying members complied with the price filing
system for some months, the.t is until August 1934, but --fhen it became
apparent to them that it would undoubtedly require months before the
litigation before the Pederal Trp.de Commission could be terminated tand
the non-com"3lying members brought into line, they felt that they ccjld
no longer continue to file prices in justice to themselves under the
conditions, and therefore made application to the Administration for
exemptions from the price filing provisions of their code.

9685

-137-

Adj.iinistrntivo Order #155-29, dated Aw;"u-3t 20, 1S34, ^rve the
co:a"l7i-a!<^ r.ie.m'bers cf the Division the relief reouested liy granting each •
of t'lein an exe'v^tion frora the :rovisions in question. Shortly hefore
the insu-ance of the Order, ono.o-" the dissenting coM'oanies filed its
■orices 'Tith the "understanding that "b;" so dointi", it retained its oriainal
status in the litig-'ition before the Tederal Trrde Coirucsion. S^ib-
sequently this coi,ip,any ■v-s j^ranted on e::e;rotion ^.'ith the other coLrDanios .
h/ AiTinistrr.tive Order 15o-29. This still left the other three dis-
sentin;^; coLror.nies in the poGition of non-coiroliance '■-ith the Code.

Finally, after a nii'foer of nonths had elajsed, the non-
complying and coCTjlying rnenhers decided to cet tor-ether .to vrork up sono
constructive policy on price stabilization for the future, rather than
to continue as tvro separate factions. .

The first step in tryin,;; to accoirpllsh this -'.-^s for the
Division as a -".Thole to request r stay of the open price filing pro-
visions so that all menoers T70uld start i^ith the status of "being in Code
compliance. This request for a. stay vas granted the rluober Poot'^ear
Division by Adjainistr;\tive Ordt:r '}15'o~71, dated ilrrch 23, 1935, T.ath the
understanding that at the first "oractical opportunity the Division would
submit an araendj/ient to their Code in the ms.tter of open price filing.

TJ-p to the time of the teruination of Codes, such an amendment
had not been presented to the Adninistr;-,tion.

Chapter V - Hard rtubber Division.

Article V, Section 2 of the Divisional Code, provided for a„n
open orice filing system '-ith a ten dry T'aiting period before prices
coiJ.d become effective for ?11 products r/hich had been classified as
st.andard-line products by the Divisional Code Authority,

Generally speaJcing, the opara.tion of this o^Den price filing
system W8,s sa.tisfactor^', r.nd presented fo'j .administra.tive problems.

There rro.s only one dissenter in the Division -aho caused con-
siderable trouble in connection r.dth the filing of prices. .His con-
tention v/as that he did not Tpnt to divalge to his conpetitors the
secrets of his business and that the filing of ;irices v,'0uld, in his
opinion, lea.d to nothing but regulations T.Thich, '7ould constitute a price
monopoly. He finally did file his prices to a. sepa.rate selling agent,
vfhich filing in the opinion of the other members of the Division dis-.
closed nothing, and ga.ve very little information r.s to the act-oaJ selling
7orice of his product. Just "orior to the teriiination of Codes, the
Divisional Code Authority had decided to cite him for Code violation.

Chapter VI - Heel r nd Sole Division.

Article III, Sections 4 and 5 set forth vjrice filing provi-
sions for this Division, and included a five day waiting period clause
before prices could become effective.

This Division had a varied e::perience nith its price filing
provisions. For a number of months a.fter the approv8,l of the Code, the

9685

-138"

o■^cra,tion of the syston ^-orked satisfactorili'-, rncl filed :^rices i7ere
generally iiaintp.ined.

The first re.-^J hrenk-do^Tia came at the time of a pu'olic hearing
on Seatei.foer 5, 1934, th.e sujject of -,'hich herring rras an amplication for
exen-.-ition from the orice filing provisions of the Code or one of the
smaller comrianies. The request \"as primarily based on the argument that
this particular com-..van^^ hnd su rolled a local market and at lorrer prices
thpn the national ^nraiuf acturers before the Code, but that since the open
-rx-ice filing system had become effective, rll prices ^7ere the sajne, and
conseouently its customers preferred to ^oxi^r their requirements from
np tional manui'acturers -hose product hp.d greater public acceptance.

At this hepring, it -as brought out thp.t one of the larger
con-oanies had "orior to the Code, ignored the field in rhich the applicant
h; d o-oerrted, but since the Code became effective ^-ith prices broadcast
throughout the Trrde, felt it nn.s impossible to ignore that mcai'ket.

Shortl^^ r^^ter this meeting, a "orice irar broke out in the
Division, o,s the result of t-o of the Irrger conpaaiies having decided
differences of o-)inion on r;hat -as a proper price differential bet^ieen
the so-ccalled "'Tood-insert heels" a^.d the common "x-.'asher- insert heels.'
This controversy carried tiie Wiole :^rice structure i:i the Industry doun
-ith it, nnd caused -luch hr rd feeling.

The differences of the t-'O principals ras finally adjusted and
prices in -^prt regained their former levels, except that the natural
differentials between the various lines of products had been destroyed
and the members of the Industr;.^ -^ere left in a belligerent freiae of mind.

At p meeting of the Hsel p.nd Sole Divisional Code Authority on
December 22, 1S34, it '-as held that it vps practically impossible to
effectuate o-oen price filing despite the aggressive efforts on the^part
of the Code Authority to do so. most members found it impossible to
secure written evidence of violation v-hich \70uld pdecuately support a
court case. Others vrith evidence at hand, u;T.7illing to file a formal
coia-olaint against a competitor selling to mutual customers for fear the
vioiptor T70uld inform the custo:aer, and consequently they would lose the
customer's good will and business.

"Chiseling" became prevalent in the Division. Prive levels
were unsatisfactory^ pnd from the cost recovery viei7point the members
lost faith in erch other, so that finally the Division decided to
abpndon their mrice filing system, which had failed to the purpose i or
which it was designed, that is, among other things to remove a
dangerous weaioon from the hpnds of the "chiseling buyer", pnd induce
fair conrpetition.

An.

^u. p-o-olication for a stay from the price filing provisions
followed this decision, and was a-oproved in A^jainistrative Order rl^S-
54 dPted Pebruar-- 1, I'^SS, with the ^^nder3tanding thpt the stajr would
be effective until such time as the members of the Heel and Sole Divi-
sion could adjust themselves to a more effective ppolica,tion of the
price filing provisions.

q;-^aH

-133-

IIo further gdministrctive rction --rs tal:e-,a orior to Llay 27,
1955, althougli it becoiae moro a j-or.x-ent as tiiae vent on. that v.dth the
staying; of the iprioe filing; irovisious ihterestin the Code had ceased.

Cha.pter VII - Mechanical Itahber G-oods Di/isi.dn.

Article III, Section 3 and Article IX, Section 1, constituted
the open price filing; systen for this Division.

These Sections virovided for open price filing -'fith a ten day
waiting period before -orice chsni^es could become ef:"ectiye, on all
standard goods and goods ra^de under recognized standard s;oecif ications.

As to the opera.tion of the open price filing s^'^stea, the
Hechaiiical nubber Goods Divisional Code Authority as 'veil as the menbers
of the Division took a l:een and active interest in it, es^^ecially as it
related to the maintenance of filed ■trices. In fact,, .in their endeavor
to stabilize prices, they 'rent so far that the ni-atter "as called to
their attention as going beyond the' bouiids of po--ers granted th^en •'onder
the Code.

Subsequently, their actions -Tere' made 'the subject of charges
against thera by tne lirtional Hecover;^ Administration and the I'ederal
Trade Commission.

The specific charijes made against the oemibers of the Ilechanical
Rubber Goods Divisionr^l Code Aiithority by the I'-^tional Recovery Adminis-
tration resulted from the uniformity of prices and bids for fire hose by
members of the Division to a ntuaber of governmentcl agencies.

j'ive for;.ial char ;es vere r.j;;de:

1. That th9 2?e3pondents agreed aiiong ' txnemselves to disregard
Executive Order S'767 -jhich permitted bids up to 15/o beloi? filed prices
when competing for government purchases. ^ ■

2. That the respondents induced other ]iembers of the Division
to do likewise.

3. Thrt •the;'" boycotted or attempted to boycott non-members of
the Division who pro-oosed to sell products of the Industry at lorices be-
low those filed by members of the I'echanical Rubber Goods Division.

4. Thrt they used, or attempted to use the loo^'ers granted them
as a Divisional Code Authority in' the furtherance of a conspiracy in
restraint of trade.

5. That they neglected their dLities and obstructed proi^er
a.d;7iinistr:'tion of the Code.

Plearings on the above mentioned charges were held from Arpril
15th to 18th, 1955, inclusive, in I'ashington, D. C. oj the Director of
Code Administrrtion. The findings resulting from these hearings were:

9685

-1-0-

"Thp.t the evidenco discloses f^, ;oartiGipation 'bj
respondents, both as an individual code aiithorit-/ and in conjionction
with the HuLjher iianaf actiai-ers Association, Inc., and the Code
Authority for the Huhher ;;anuf acturing Industry, in an a,ctive, and
for a time,' a successf-'ol atteMot to obtain concerted a.ction aj-iong
nerahers of the Division particiilarly those nanufacturing fire hose,
to disregord the ;Drovisions of Lrcecutive Order 5757; active and
effective efforts to -prevent sales "by any member of the Fire Hose
sub-division to jobbers frho had bid on a launicipal purcha.se at less
than manufacturers' field prices; an iiroroper and unaxxthorized use
of the provisions of the Code concernin,;;; reclassif icrtion of
customers; and a publicly svo^jed disregard of an o.dj:unistrative dis-
approval of that portion of a subiiitted 'Uniform Terms of Sale' re-
lating to calender quarterly price revisions." (*)

Based on these findintjs the national Industrial Recovery 3oard
issued Administrative Order 155-31 da.ted Ila-y 2, 1935, nhich ordered that
the operation of certain provisions of the Code be stayed for the pro-
tection of consumers and com"oetitors , and in the furtherance of the public
interest.

It \7a,s ordered thatj

(1) The open price filing systcxm (Chapter VII, Article IV,
Section l) be stayed to the extent that a. waiting period Tjas provided
for between the time of filing revised price schedules ecic. revised price
lists, and the effective dr.te thereof, until an order was issued ap-
proving an amendment of said Section in conformitj'- with "J.R.A. policy;

(2) The provision which purported to give the Divisional Code
Authority final authority to reclassify customers (Chapter VII, Article
III, Section l), should be stayed matil an order was issued ap-nroving an
amendment of said Section, in conformity with II.R.A. Tpolicy; i

(3) The "Uniform Terms of Sale" established "oj virtue of
Chapter VII, Article V, Section 1, be staj'-ed until such time as the
Divisional Code Authority should have clearly a.nd unequivocs-lly directed
members of the Division to abide by only such terms as had received
specific Administrative a,pproval BJid. the national Indxxstrial Recovery
Board shall have issued an order terminating such stay.

(4) All the provisions dealing with marketing Standards
(Article III) ruid Selling Schedules (Article IV) be stayed until the
Divisional Code Authority should have clearly ajid uiiequivoca-lly directed
members of the Division to or.it mention, either directl3'- or indirectly,
of Executive Order 6757, in their respective filed iDrice schedules and
price lists, and the ITrtional Industrial Recover;/ :3oard shall have issued
an order terminating such stay.

(5) Pending further investigation, the question of removal of
the respondents from office, or their disqualification from further
service with the -Divisional Code Authority, as raight be the case, shoxild
be held in abeyance,

The respondents cor.'olied T.'ith the requirements of pa.ragraphs

(*) Report of Director, Code Administration Volume I, Administrative

Order 156-81, dated May 2, 1935.
9685

-Ml-

3 pnd 4 to tli!3 satisfpction of the AcLiinistrr.tior. rpA the stc.y ^^revious-
ly ordered vrs terminated 'hy Adnlnistrptive Order loG-CS on '/.srr 13, 1935.

HoiTever, the Tivisionpl Code Authority rnd nenbers of the
Division took e::ception to -opraf^raohs 1 a'.id 3 clril;un:_: discrimination
and lach of due irocess. They denied all chp.r.'yes ai';:ainst them rnd
appealed through their co'UJisel for ajiother hearing "before the national
Industrial Recovery 3oard.

This rec^uest for o. further hearing in the natter --Tas granted
and a date finally set for earl'/ in June,

In the interiia the Supreme Court decision on ^ay 27, 1935, rras
issued, and the hearing ras ahpndcned paad no further action token.

As a natter of infornptio;i t^ie ludi.istry resented the action of
the Administrp.tion in tliis instajice, and planned that if the final de-
cision of the hational industrial rLecovery Board uas unfavoraole to them
that they ^"ould take the matter to the courts.

T7ith reference to the charges brought by the FederaJ Tr!~-de
Connission the Industry decided not to contest tiie cha.rges, br.t agreed
to a "cease and desist order" a.t the sane tine jrotesting their
innocence of any v/rong doing.

Chapiter IX - Rubber Sundries Division.

Article III, Sections 1 and 2 set forth the -orice filing
iDTOvisions for tliis Industry Gromi, and nere limited to the .Statio2iers'
Rubber G-oods Division*

The system had no 'uinusiial features, but ^orovided for the filing
of conolete schedules of its mrices, disco'Oiits and terns of sale. It
further provided for a ten day nalting period before ;orice changes could
become effective.

This systen, generally S'oeaking, vorked very nell and -<tre-
sented only p. fev adiiinistra.tive problems. The one "hich ga,ve the
Industry the greatest concern wa.s presented 'oj the so-called distri-
buting manufacturers, nho strictly s-neaking -rere not manufa^cturers a-t
all. These distributors not being members of the Code '.-ere not obliged
to file prices or live up to the trade ^ra^ctices, and therefore neve at
liberty to quote .irices and. terns not in accordajice trith the filed
prices of their supplier manufa.cturers , ana in some instances caused
T'hat the members of the Division considered unfaar commetition,

(b) Rubber Tire h'an'ofacturin.j Industry - Code Tfl'''4.

This Code contained a dual provision for filing of prices; in
the first instance, list prices -,^ere to be filed rith the Code
Authority; in the second, all mrices, discou^its, terns and conditions
of sale vrere to be filed rdth the Administrator.

The prices to be filed vith the Code Authority -.'ere the
su^-gested resale lists a.pplicable to cons-jjiers , ijref erred rholesale list

9585

■^143-

a_jplicable to cornaercic'l r.cco-ants end strte lir.ts r j -licable
to govenxTieiital agencies. These lists '-erp issued by .anuiacturers
for depler guidance in ep"tablirfiing . ret-^il prices, •^lic'. in the case
of the cons"Ujners list as a ba.sis fron y/hich tra.de discounts were
figures. The lists issued ty most rnsiiiufacturers vere identicpl azid
soue few laajiufacturers did not even consider it necessary to issue
such lists.

Retailers or distributors were not bound 'b-'j the 'iirices so
published and the list orice was rarely the selling price and there-
fore did not even re^sresent actual retail price levels.

nothing whatever was gained by stich Drice filing exce ot
that members were thereby advised of any g-uerrl chaiige in suggested
retail "orices made by a coin-ietitor. They could in this ray learn
nothing as to changes he might ma!-.ce in trade discounts to dealers or
distributors. The 'orovisions were a.)tly cited a,s c^ ^'artia^l and in-
adpriiate atte;:nt at publicity of o rices.

Thp provision for lilin - of all '^-'ices, discovLnts, terms,
and conditions of sale with th^ Administr?'';or ' rs intended to serve a
two- fold 'Tarpose.

First, the Deputy issued very compete instructions to
Industry members as to the form in which dat:"> ■vas to be suL-mitted in a
series of eight letters or ■uestionnpires. 'Answers to these uestion-
naires provided the most complete fund of inf orm.a^tion every assembled
as to tyoes and brands of product, -Drices and marketing conditions in
the Tire Industry. Tliis informa^tion served as a bs.sis for the
classification of tires and tubes aaid the determination of lowest
reasonable costs promulgated to the .letrdl Tire Trade later in the
Zmergency regulations.

Second, the "orovisions ^"ere intended to provide sto^-gap
stabilization of orices pending action by the Industry on a comolete
open -Trice filing system pnd a plan of inarket sta.bilizat ion b-sed uoon
cost control. Prices filed with the Administrator could not be
lowered except after e. ten day V7aiting -leriod. Tliis -oroTOsal was
submitted to the Industry by the Aoxainist ration at an Indiistry meeting
on December 19, 1;)34, and proved a considerable factor in securing
Industry's consent to the Code on that date.

As to this latter Turpose, the provision "oroved unworkable
and ineffective. Tliis is evidenced by the fact that -Dromptly after the
ap Drova.l of their Code, the Tire Ind"o.stry became involved in a price
yrar so severe as to necessitate intervention by the Administration who
halted the 'orice cutting by a trace agreed to on Harch 30, 12^4., later
a3"Troved by the Presi6.ent's Executive Order Iio. 6G84, issued A"':)ril 19,
19.34.

Qoen Pri ce Piling - Distri".:)uting Code

(a) P^'tail PiJibber Tire and Battery Trade - Code ,,--410

The experienc= of the Trade with the open -orice filing "iro

9685

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visions Yire.s very limited for reasoiis as st."ted below.

Article VI, Sections 1, 2, and 3 relc?,ted to the oien -^rice
filing system for this Code -yrovidr-.l for:

(l) "^very meintier shonld file I'yith the Code Au.thority or its
duly constituted aj;:;ency, :^ schedule of such raernbers' r'^tail and
comniercia.1 "irices, discounts, terms, rnd conditions of sale (including
trade-in allowances, if any) for any 'oroduct or service of the trade
or any combination thereof.

( ;;) Thereafter no me/nb-r was to sell or offer for sale any
product or service of the trade or any combination thereof below the
■orice stated in such filed schedu.le:'- , withou,t first ^;iving; a three (3)
days notice to that effect- IJo advruice notice was renr-.ired if the
filed price was to be rs-ised,

(3) Every member was re-uired to oost and Icee'o posted
conspicuously in his establish^.ient or establishments a cooy of his
prevailing schedule of filea retail orices.

Tlie above mentioned provisions did not becom° effective
vdth the ar^roval of the Code on hay 1, 19"'^:, for the reason the.t the
Trade had been engaged in a price '-'ar pjid the Adi.iinistrator immedia.tely
after such approval, on Lay 3, 193j, decl^.red an e-mergency to exist in
the Trade and determined, floor level -oricps below vhich no lember of
the Trade might sell. This action was taken in accordance with the
emergency -orovisions of Article VI, Section 4.

After the ex-oiration of the emergency on October 1, 1^^.34,
an attenrot was ma,de by some of the local trade associations to establish
■Qrice filing. This ;orice filing for all practical purposes was on
a voluntary basis because of the ineffective ad.ainistra.tion of the
Code for reasons cited elsewhere in this re'oort.

Some beneficial results •-ere obtained by such '^rice filing,
as an a,id to stabilizing prices in certain local territories. The
record is very meager s,s to s^oecific information in this res^oect.

Attitude of T he In dust ry on len _?rice_3!^ili_n£_

At the orice filin.:;.: hearings condLicted by the IJationaJ
Recovery Administration on Jcaiuary 9, 19''^3, the Chpirnan of the Code
Authorities for the two ;;aiuifactu.ring Codes, i.'.r. A. L. Viles, e:roressed
himself on behalf of the In:histry as follows;

"Some divisions of the ~:ubber Industry have a
price filing system with a waiting period. Others have no
price filing system at all. ."he divisions waich desire to
retain such a system believe that an o'Den price filing system
coupled Tdth a cost recovery provision make it possible to
keep in the open aJl the facts necessa^ry for doing business
on an economic basis with decent wages, decent costs, decent
cora-:)etition, and decent profits. They are convinced that a "^rice

3685

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filin^; system tends to clisnel si'.lesmen*s rjiiiors and
rnisrPTrpsentation cases re/ja-'ding "orices made by chiseling
"buyers, and thus elimin^.tes de-;tractive ^rice cutting,
LJecause a manufacturex- is less lively to en";a;:p in
this -^i-Ectice of the frets are to he hroxv.ht into
the open, and laiovs that his coiu^etitors '-'ill hpve an
op-oortunity to beat hi:.,. The 'o^ice filinr system plso
protects honest consit^iers by pr'^^ventin;;; dishonest ones,
through misrepresentation from buying- on more advantageous
terms thai:i the honest ones can obtrin.

"The history of the l^'-.bber Uanufacturia;,' Industry
in recent yea.rs demonstrates that the great danger from it
lies not in monopolistic tendencies of price goti-ginj, but
in cut-throat competition and dei/ioralisation that have
resulted from an excess of laonufacturiug cp-)acity, and
have threa,tened the very exist ence of the Industry. Ou.t
of the eight yea.rs endin,-: in I'J"?, the combined sta.tem.evits
of the com-oanies that accounted for 03 of the totpl out-^ut
of all rubber 'orodiicts, including tires, sho^.-ed a net -orofit
in only three years, and for the eight year period sho-'ed
a net less of about 0'-iO,O* -'0,000. A continua.tion of this
condition vould necessarily result in a rediiction in number
of -oeo-ole employed in the Industry and a decrease in their
linages sjid in a decline in the gcnerpl economic Felfare of
the country.

"'7e repeat on.r conviction that effective cost
recovery ar.d price filing provisions should be permissive
in the code of these gro\ips rho sincerely desire thern unless
good reason can be shovm in specific cases why they are
harmful to the 'mDlic interest. Conditions in the 3ubber
I'ajiu-facturing Industry justify the inclusion of such pro-
visions in the Code of those divisions which desire the::i. "

The attitude of the Indiistry as a "hole to\-ard the various
price filing systems incorporated in its Code, after a y^-ars' experience
presented no united front for or against.

Tlie attitude varied for egch Industr3'" group, end to a great
extent depend.ed upon how successfully such a system had operated in
each particular case and to what extent it had been a. factor in
stabilizing prices.

It c:.va be safely said however, that the favorable reaction
of the Industry outweighed the unfavorable reactions.

One of the real v.-eajaiesses in the opera.tion of the open
price filing provisions v;as the lack of ■-■•uic;-: and effective enforce-
ment, es"iecially in the earlier stages of the Industry under the
Codes.

9685

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3. .TIffiSrChlRGEiICY IL' TIIE RETAIL TIKD TRADE

:iffi

1. TIEE DISTRIBUTIOli AID PEICi: STIIUCTUEE

As the effect of conditions 'r'hicli lir.d oee;; conver.^^'ing in the
Tire Industry for years prior to 1934, xie find a distribution picture
and price structure in the retail tire trade which was extremely in-
volved and difficult to ■'understand or explain, even "by the principals
themselves.

2. TYPES OF SISTRI3UTI0H '

Tires were passing fror.i manufacturer to iiser through at leo,st
8 chief channels of distrihution, this in addition to tires sold axito-
mohile ina,mifrcturers as new err eauipinent, and tires sold direct "by the
raanufa.cturer to Governnental deprrtnents and. other large individual
users.

Retailers included factory- owned stores, pseudo- jotters,
warehouse des,lers, co.talog houses, iipil-orcer hoiise retail stores, auto
supply chain stores and gasoline stations in a.ddition to the individual,
independent dealer themselves. Eacli outlet had its own hiiying arrrnge-
ment and cost, gave various degrees of service a.t var;.^ing ra.tes of over-
head expenses, a.nd sought its share pf the business ^-dth its own indi-
vidual appeal to "buyin ; notives.

3. RAli'GE py QUALITIES OITEBED

As has been previously noted, the situation vro.s further in-
volved by the range of qiialit;.^ lines introduced both to serve various
pocketbooks and as competitive orice weaoons. At various price levels,
there '^ere offered the standard first "grade tire, first intermediate,
standard second, second intermediate, and standard thrid grades.

4. RETAIL PRICES '

The price structure itself used by raanuJacturers' and their
intermediary outlets in pricing to the consijjner and to dealers iTas in-
volved. First, there wa,s a, Consumers list which, in the langua.ge of the
Tire Manufacturers Code, (*) ^as defined as "the list from which dealer
and/or jobber discounts shall be applicable and (which) shall apply to
the sale of tires and/or tubes to ownez^s of less than five vehicles."
In practice the first named -^rupose wa.s the one chiefly served. Host
manufacturers also issued list "orices intended to be a„p-Dlicable to con-.,,
mercial owner?, of five or more vehicles, including government accounts.
These were 10 per cent or 15 "tier cent below consuj~afe"rs lists and were
descri-otivelv referred to a.s Preferred Wholesale lists.

1*1 Printed Code IIoT"l74, Page 543, Article VI, Section 13, '■

Req. Ko. 9S85.

-146-^

T'jenty-tTro of the thirty-seven najiufactrLrers were using the
same Gonsiimers List nhen the Code rent into effect. Some of the smaller
manufacturers, recognizing the necessities of competition, used loiter
Consigners lists, or.sing them a^mroxino-tely on me,il-order catalog prices.

5." DEALER PniCES ■

ilet Billing prices -Tere the maximum -orices at which tires
Tvere invoiced to dealer accoijnts. They re-oresented discounts of 25 per
cent from Consumers List on first line, 22-'; per cent on second and third
line tires. Subject only to discount of around 2 per cent for eash,
they '7ere the net cost -orice to the ve.rj' sna^ll dealer vhose annual vol-
ume of purchases ^-'ould be less than $1000.

6. DBALSE mSCOUlITS

Every manufactiirer hrd en individual -Drograjn as to prices ex-
tended to other than the smallest dealers, the scale being lowered in
approximate ratio to the dealer's volume of purchases. Lending m'anu-
facturers usually grpnted a bonus for volijuae of -oLixchases on a sliding
scale, paying this annually or a.t shorter intervals, as earned. This
bonus usually ran up to a, 15 per ceat discoiint from Het Billing prices
on annual purchases of $15,000 or more. .Companies not using this plan
granted disco-ants on estina^ted volume of purchaseB as earned or antici-
pated, sometimes on monthly statements, sometimes on the face of the
invoice. Often factors such as the siae of the market, type of compe-
tition, or bargaining a.bility of the dealer seemed to determine dis-
counts.

One effect of such plans is to place such a -oremium, in pur-
chasing price, urjon volume of -ourchases that it becomes profitable for
the dealer to cut prices u:)on a.t least some sales to get volume which
will lor'er costs 021 all his purchases.

In addition to trade discoLints, there appeared discounts for
cash ajid anticipation of payment date, transportation allowances, adver-
tising allowances, allowajices for ourcha.sing in carload or container
qi.iantities, anu allov;a,nces or fees, or discouats, for acting as ware-
house or shio^iing-point dealer. Here also should be mentioned the prac-
tice of "cut-backs" or special discounts credited on goods sold at low
prices and gniara-nteed margins on sales made far below the dealers cost
in price wars.

7. JOB;jI]H PRICES

IThile similcor discounts and price concessions were made to
jobbers, there were no definite differentials existing between dealer
and jobber prices. Some fe- manufacturers catered to the true jobbing
trade and protected that trade with established differential discounts,
averaging' 12 per cent- below prices quoted dealers on their own lines.
However, it is a., matter of record that the maximum, prices auoted dealer
acco'ants on some lines equalled the best ^rice quoted any jobbing
account.

Req. Ho. 9685.

-147-

8t I^RIVATE BHAND PRICES

The foregoing disciission refers primarily to "company"
trands, that is, tires made under the "manufacturers ' own name or a name
owned "by him; in the industry the terra "Private Brand" is used to des-
ignate "brands o?/ned "by, and usually sold "by, parties other than the
manufacturer. The num"ber of Drivate "brands "being manufactured were
approximately 140 against a"bout 225 company "brands, including special
"brands. This applies to casings only, there were nearly 4C0 private
"brands of inner tu"bes.

Eighty-three accounts "buying private "brands were known.
Forty-three were classified as jo"b"bers, 2C as mail-order and chain
stores, 5 a.s distri"butors (essentially jo"b"bers), and four as dealers.
Ten were unclassified. Most private "brands were purchased at unit
prices "but some cases of cost-plus arrangements were reported. The
big accounts such as the two largest mail-order concerns are known to
"be on a cost-plus "basis.

Prices paid "by private "brand distributors averaged (un-
weig"nted) 54 per cent below consiimers list, about the same as the un-
weighted average of jobbers prices, though the lowest price paid was
considerably lower than the best jobbers price.

The price structure in the tire field, then reduced to fig-
ures is as follows:

The Consumers list prices established by manufacturers, on a
popular small size tire (28 x 4.75-19) were;

Standard first quality $8.40

First intermediate 7.55

Standard second 6,70

Second intermediate 6.05

Standard third 5.15

The net dealer price charged the small dealer (net billing)
was 25 per cent below Consum.ers list.

The net dealer prices charged dealers who Durchased from
$5000 to $6500 worth of tires per yea.r, on 27 brands for which they
could be computed averaged (unweighted) 38.1 per cent below consumers
list, and showed the following range:

10 brands under 35fb discount
8 " 35^ to 40^ "
7 " 40^ to 455C "
2 " over 45^^ "

An analysis of the lowest prices quoted to any type of deal-
er on these same 27 brands shows:

8 brands

35^ to 40^ discount

7 "

40'i to 45^ "

6 "

45ffe to 50JC "

2 "

50^ to 55^ "

1 "

55^ to 60^ "

1 "

over 60^ "

It is not necessary to complica.te the picture further by
listing discounts or spreads applying to jobbers or private brand

9685

"148-

'buj^'ers. The foregoin^?; data on the price structure of manufacturers
mean that competitive dealers rrere "bu.yinf; at discounts from the sug-
gested Consur.'iers List of from 25 per cent to as high as 60.4 per cent.
The corresponding mark-up which YjorJd 'be secured "by dealers, Y^ere the
suggested consumer lists "ma,inteined" , vrould rfinge from 33-1/3 per cent
to 153 per cent.

With five clearl" definsd price-qualit;' classifications and
twice, as many scattered and individual instances, with 365 lirand names,
variously d-esignated as Super, Deli'.xe, Heavy Service, Special Con-
sti-ucbion, Custom Tsuilt, etc., cipparently v.-ithcut discrimination as to
first, second, or third quality, puc v/ith the range of retailers Tduv-
ing prices d.etailedc ahove, it is dou'otful if a more perfect setting
for continued instability of price-levels could. h5.ve been d.evised.

9. FTIICE Y'AES IV THE IlID USTT AKD TSADE

It is difficult .to say v;hen price wars actually "began in the
tire industry. Perhaps their first appearance was in the original
equipment field - sales to automobile manufacturers. In this instance,
of co'cjrse, the competition was confined, to maniifacturers and the re-
tail field v/rs unaffected.. Th--> result vras to narrow down comeptition
for this business to the four largest companies and the entire elimina-
tion of profit from the business secured," other than the absorption of
plant overhead cost.

VHien the renewal til-e market began to, contract, after the
season of 19?8, this form of competition made its appearance there. At
first it Y,-as confined to sale's to coMmercial accounts and. we.s largely
under cover insofar as the general p'ablic v^as concerned. The general
consu^aer business, hovrever, presented too vulnerable a situation, aaid
it was not long before prices v/ere thoroughly dLemoralized. The various
phases of these price-cu.tting contests ht^ve been described above.

10. IinDUST~lY E?rOHTS AT STA:iLIZa.TI01'

Within itself, the Industry made various attempts to stay the
process it nad itself put in m.otion. In 1926 the Rubber Institute was
formed., G-eneral Lincoln C. And.rews named as Director (unofficially
termed the Czar of the Industry) , and a system of open price-filing
instituted as a means of controlling v.'ilful and needless competition.
The Institute first concerned itself primarily with original equipment
sales, as the then sorest point of the situation. Tiie effort was
shortlived, anci aftor its first serious brush with one of the larger
units Y/iiich v/as determined to increase it's sales with secretly lower
prices as the instrument, the plan of the Institute went into the
discard.

Continued attempts v.^ere made by committees of sales executives,
representin.^" large manLif acturers, small raanufc^cturers and private
bra:id. uarlreters to reach a common -"a-'ound and und.er standing, but as fast
as mad.e, promises were broken and aggreements dissolved. The In-
dustry's feeling that a solution of its price dasssntion and an end to
price cutting must be brougnt about, is evidenced by the proposals

9685

-149-

made to the Administration in the formulation of both the Tire Manu-
facturers Code and the Retail Tire Code. Those were [oroposals for the
allocation of production, for mandatory raethods of costing and cost
recovery - for the fixing of prices at v;hich nianufacturers would sell,
ai'id at which retail outlets of every ty-ie would be permitted to sell.

11. THE SITUATIO:; AFT5R JMnjAJ-^Y 1, 1954

The Tire Manufacturers Code wa.s approved on December 21,
1933, and represented a compromise by the Administration with the pro-
blem of price control in the Industry. Some highly restrictive pro-
visions relating to isolated trade practices were incorporated, a
partial and ineffective system of oiTen price filing was advanced,
while the entire subject of market sta,bilization was left untouched,
the Code Authority being instructed to devise a "olan and submit a re-
port within 60 days. This was an almost impossible assignment, for
the Industry had evidenced no ability to agree upon any such plan in
the foregoing six months, and was no nearer agreement then than at any
time previously. (*)

(*) Ref. Code History, Rubber Tire Ma.nufacturing Industry, Pages
62,63.-

PolloTjing the approval of the Code for the tire memufacturers,
a price war started early in January 1934. This outbreak was generally
char£,ed to the action of a lar;^e mail-order house offering trade-in al-
lovirances of 25 to 30 per cent for used tires exchanged on the purchase
of new tires.

Complaints from small and large dealers and from manufacturers
poured in on the Administration ''o-j the hundreds, and on February 2nd,
H.R.A. officials convened a conference of manufacturers, private brand
marketers, and representatives of dea.ler organizations at which an
agreement was reached to discontinue this practice.

No sooner was this stoiTTcd than both large mail-order hpuses
began to advertise cut prices on tires throughout the country. Manu-
facturers permitted and probably insisted that their dealers meet these
prices, and rebated dealers on a loart of their loss. Tires were being
sold below the manufacturers cost in many instances. Ty];)ical prices,
as advertised in the Perth Amboy, ITew Jersey, Evening Hews for March 12,
1934, by both Pirestone and C-oodyear dealers, were:

Lowest Re-oresenta.tive Cost

(*) To Dealer. (*)

$6.10
7.30
9.80

Regular

Advertise

Lowest ;

Size

of Tire .

Price

To ;ifg:

28 X

4.75-19.4 ply

$ 8.65

$4.85

$ 6.67

28 X

5.25-18

10.30

5.80

7.32

32 X

6.00-20

13.90

3.60

11.67

9685

■ 150-

(*) Lov/est re^resentr.tive cost to manufacturer as submitted
by Tire Industrj Code Authority, "based on 30 connenies
and includes distribution cost; to dealer a,s based on
discounts of 35-6 ner cent from regular ;oriGes, discounts
applicable to a $2500 dealer. Obviously, manufacturer
costs were incorrectly reported or money is bein^ lost
on sales even at re^jUlar -orices.

■ In such price-V7e,rs it is the 'oolicy of manufacturers to sub-
sidize dealers through rebates oi- "cit-baclcs" . 3oth manufacturer a:ad
dealer lose heavily, the manufacturer recapturing less than his own
cost of manufacture and distribution, the dealer -making, vi'ith his re-
bate, far less than his normal cost of doinj,, business. As an exaimole:

Ee^-jular price of tire
Invoice cost to dealer

Gross Profit

Price war jrice
Invoice cost to dealer

Loss

Eebate - ISV- or 58.74

G-ross Profit

The sbove case was du--)licated in every i:)art of the country
and hundreds of com"ola.ints reachecl the Adxnini strati on accompanied by
news^iaper advertisements. These com-^lainbs were from lar^e and small
dealers and ^lointed out that si?.ch losses Y^ere denletin^ their resources
and forcin^ them out of business. Ii^iediate a.'Tiroval of the Retail
Tire Code, and immediate a^roroval and enforcement of cost recovery
provisions in the lianufacturers Code were demanded. Ilany letters
merely im;olored the Administration to mt an end to the "orice cutting
by any means available.

12. THE TaUCE DECLARED UTDER SECTIOl" 4 (a)

It was at this -ooint that the Ifetional Recovery Administra-
tion brought leaders in 'the Industry and Trade to Washington for a
conference and arraiit^ed the Truce designed to stay the price war and
put an end to destructive -)rice cutting ^er.din^, the a,iToroval of the
Retail Tire Code.

On March 30, 1934, the representatives of the Industry agreed
to a truce on price cuttint^ for a Tcriod of 40 days. Durint^ the 40
days, the Administration promised that a Code Ti'ould be approved for
the Retail Tire Trade within the 40 days. The terms of the truce were:

9685

$11.65

8.74

2.91 -

25fi

8.16

8.74

.58

1.31

.73 -

8.9^',

-151-

l.„A fort,-''- day truce to '^le instituted, "beginning
at 12:01 A. M. A-)ril 3, 19:-A. The signatories to this
agreement 'v.'i 11 reconvene I.Iay 1, 1934, to consider ex-
tension of this agreement, unlesf. a Code is already in
effect.

2. The Goodyear Consumers price list as of
Pehruary 9, 1954, is to be uaed as a. base price of 100.

5. The Goodyear Preferred Wholesale list of
February 9, 1934, to be used as a base for commercial
prices and terms.

4. Guarantees to remain the same as at present,
with the exceijtion 'tha.t Western Auto Supply Company is .
alloi,7ed to issue its new catalog.

■ 5. Trade allovrances to be as a,greed upon in
Vfeshington conference of Februa.ry 5 and 6, 1934. (This
was that tra,de-in allowances would be made only on the
Tourchases of first-line tires and to bring net prices
not below preferred wholesale.)

6. Manufacturers are to discontinue all "cut-backs"
to dealers on sales effected after tiarch 31, 1934.

7. There shall be no free goods. ■

8. All cut--orice com-^arative advertising to be
discontinued a.s soon as nossible and not later than A"oril
1 , i n neYiT spap er s .

9. Sears Roebuck, Montgomery Ward, and Atla,s

to have on all lines a 10 per cent differential off the
base prices.

10. Western Auto Su-zoly Company of Kansas City,
Missouri, to have a 12-^- ^.ler cent differential off the
base for all lines exce-ot the lowest line which is to
have a 10 per cent differential off the ba.se price.

11. Pep Boys of Philadel-Vnia., Pennsylva.nia, are
to be permitted an 18 per cent differential off the
base for their single line.

12. Before any "oarty to uhis agreement shall
lo?/er prices to meet com;oetitioii, he shall notify
Leon Henderson, Director of Research and Planning
Division, I'.H.A. , and if the corniietition complained
of is not adjusted within 48 hours after receipt of
proper notice, all parties to the agreement shall
have the right to meet this com;i-)etition in that
market .

9685

-152-

Sigi'natories to the above Truce terms included the "31^;, Four"
manufacturers, Fisk, Lee, licClaren, and Seiberlin^, Sears, Ward, Atlas,
Western Auto Supply, and Pe-o Boys. •

This wa,s the first sue?. a;_,reemei.t negotiated "by the Adminis-
tration under Section 4(a) of the Industrial Hecovery Act. It was am-
proved by the President on Anril 10, 1924, the order of approval being
Executive Order !"o. 66G4-I3.

In a report to the Administrator under date of May 2, 1934,
the Deputy stated:

"While the truce has been reasonably observed,
evidence has continued to come in that such destructive
price-cuttins -oersists notwithstanding -the truce. The
conditions which precipitated the i-irice war still exist.
The truce is breakin,^" down at the present time. It is
my judgment that unless the emergency clause embodied
in Article VI, Section 4 of the Code is immediately
invoked, there will be a renewal of ^rice wars in the
Trade:"

"Reasonable observance of the Truce", is of course a relative
term. In a trade of 175,000 members, most of whom were under but
slii-jht control oy si^nr^tories to the truce agreement, considerable var-
iation from, fixed standards of price and merchandising methods per-
sisted and hundreds of letters and telegrams continued to come in. One
of the lar^e mail-order houses launched a s'lecial sale on Ap.ril 12,
contrary to Truce terms. ' They claimed nlans for this promotion were
all made, advertising printed, etc., and the situation explained to the
other participants, llo mention of the situr.tion ap-oears in the agreement,
hoTi^ever, and the effect was decidedly unsettling.

In the last two v;eeks, and after the setting of minimum
prices under the Retail Code were generally known, general violation
occurred. The lar^^e companies throu^,h their stores and dea-lers booked
a j^reat deal of commercial account business on future orders, and
commitments at less than the minimum prices would be, while large and
small retail distributors advertised cut prices.

15. THE KSTAIL TIBE CODE PROVISIOITS

During the truce the Retail Tire Code v/as completed and
approved on May 1, 1934. It contained the follov/ir.g provisions:

"Article VI, Section 4 -
Destructive price-cutting as set forth herein
is declared an unfair method of com'^etition and is
forbidden. Whenever the Code Authority determines
that a.n emergency exists throughout the Trade or
within the Trade in any area, and th^t the cause
thereof is destructive price-cut tin^ such as to
render ineffective or to seriously endanger the
maintenance of the ;^rovisions of this Code or of

9685 '

153

tlie Act, and the Code Authority certifies its
co-iclusions "based on cuch determinations to the
Aoxiinistrator, or the Administrator determinas
on his ovm initiative, that an emergency exists
rs hei-ein set forth, the Administrator may there-
upon declare such djci emergency to exist, suhject
to the provisions of Article XI of this Code,

"(a) Thereupon the Administrator may cause
to he determined in accordance v/ith such rules
and rej^txlations as he may prescrihe, the lowest
reasonable cost of any prod-uct or service of the
Trade, in any area concerning which such emergency
shall have heen declared to exist* Such lo?/est
reasonahle cost ?;hen determined as aforesaid,
shell he announced to Kemhers of the Trade in such
manner as the Administrator sha,ll direct.

"■(h) Thereafter until the Administrator shall
have declared that said emergency has cep.sed to
exist, no Memher of the Trade shall sell, or offer
to sell, or otherwise dispose of any product or
service of the Trade for which the lowest reasonahle
cost ha.s heen determined, as. hereinahove set forth,
at £, net realized price less than the lowest reason-
ahle cost so estahlished.

"(c) During the period of the emergency, the
d.eteri.iination of lowest reasona,hle cost may he
revised from time to time at reasonahle intervals or
E-S changes in circumstances or experience may indicate.

*'(d) The Administrator may at any time declare,
in such fair manner as he shall determine, that the
period of emergency has ended."

In addition to the provision that the Administrator might
declare a.t oxiy time the end of the emergency, Article XI, Section 1
of the Code read:

"provided, however, that Section 4 of Article VI of
this Code shall cease to have effect on Octoher 1, 1934,
unless pricr to said date the Code Authority shall have
recoi-imended continuance thereof and the Administrator
shaJl ha,ve approved such recommendation. In connection
with any such recommendat|ion, the Code Authority shall
suJbmit data to support the same."

The following claxise from the Executive Order approving the
Code is noteworthy:

"*** provided, that if prior to said
effective da,te, the Administrator on his own :'
initiative determines that an emergency due
to destructive price cutting, as stated in

5685

-154-

Article VI, Section 4 of said Code, exists
in the'I'rade, the ■Administrator raa^ therefore
cause to be determined the lowest reasonable
cost as' •set forth in scid Section 4 of
Article VI ,' and- such determinstion may there-
fore' bei ''announced toi the laembers of the Trade
in such mahnor s,s the Ad:-ainistrator she.ll
direct , but' shall not beaome binding, upon such
. . .,. _ members until the effective dB.te of the Code;
■ .' 'and j^ro vide d further, that in connection with

'the existence' of ail emergency due to destructive
'price cuttin.^ and the determination of lov/est
- . . ' reasonable cost thereunder as stated in Article VI,
Section 4 of the Code, in order to eliminate
unfair competition, the Administrator me.y
, ■, .■ . establish for the oeriod of such emer _:ency a
uniform jiur.rantee a,..d v/a,rraaty c;,r)-olicable to
the sale or offerin^ for sale of any products
of the trade:"

14. TEE DECLAaATIOr OF SiiXaC-El'CY

Under this provision, zhe AdiTiinistre.tor on liay 3, 1934,
issued Administrative Order i^o. 410-3, th.e declaration of emergency
in the Retail Tire Ti-ade, to beconie effective simultaneously with the
Code itself on Hay 14, 1934.

Administrative Order i"o. 410-3 did four distinct thini^'s.

1. It declared an emer.-^er.cj'- to exist in the Retail Tire
Trade, due to destructive price cutting such as to render ineffective
or seriously endanger the maintenance of the "orovisions of the Code.

2. It determined a classification, of each and every brand
of casings and inner tubes into four ^:rou-0'3 according to quality for
the establishment of lowest reasonable costs, at the same time ordering,
that no member should change the classification of an;-- brand, should
sell any brand not classified nor should use the classification for
advertising purposes in any form.

3. It established a minimum orice for each grade, size, and
ply of casin5<, and each grade and size of inner tube, belov which no
member of the trade could sell any casin^^s or tubes durin^ the period
of the emergency,

■■4. It provided that durin^, the "oeriod of the emergency no
member of the trade should offer, use, or expend any guarantee or
warr.a.nty. applicable to the sale of tires or tubes excent aga,inst de-
fects in material and worlonanshiiD for a ijeriod of 90 days from date of
sale.

15 . THE aXISTEIICE OF TEIE' EiaaC-El' CY .. •:,

With the finding, that an emer„:ency actually existed there

9685

-155-

can "be no dis-rate. That destructive price-cutting existed is obvious
from the advertised nriccs on tires nuoted previously. The number and
distribution of exactl;,^ simil'T comiolaints received by the Administra-
tion established that the condition existed throujihout the trade, and
the rate of raortalitj arnon^- dealers and smsJl manufacturers established
thft uhe condition was destructive of establishraer.ts, of capital, and
of employment.

16. THE CLASSIJICATIOi: OF TIRES A"D TU.3BS

In his report to the Administrf.tor accompanying the Emorjgency
order, the Deputy stated:

"In order to establish lowest reasons.ble
costs, all tires and tubes must. first be classi-
fied into .-.rou-os. The Tire Industry Code Authority
was ashed to recoramejid a complete classification
■ of all brands. They rjroposed three groups, A, 3, C.
The result i..^-_. classification was submitted to every
manufacturer and orivate .brand distributor, by the
Code Authority. I notified thr^se companies that
r any objections to the proposed classification must
be filed with me not later than April 25. Twenty-
three requests for reclassification were received
andgiven 'due consideration.' Errors and inequalities
uiQ.doubtedly still exist, but every rea^sonable effort
has been m^ade to fn.irly classify all brands. There
are no available standa.rds whei'eby such a classifi-
cation could rationally be made. Eor the most part
it represents the o-oinion of the individual companies
themselves.

"G-rouii A consists of v;hat are commonly termed
'first-line tires', GrouiB, 'second-line tires', and
C-roun C, 'third s.nd fourth line tires.'
Primarily, the t-i'i''0'>-"'-"'^ino ha.s been ma.de on the basis of
the pla.ce of any brand of tires in the present price
structure. Provision must be made in the regulations
for addin_: to or chan.in:, this classification, v>'hich
is shown in Exhibits C- and E," (*)

(*) This refers to 'che nln&d imer^^ency pLegulations.

There bein^, no standard specifications within or without the
Industry, the classification of tires into Groups, A, E, a/nd C pro-
bably very roi.£-.hly aistinguished a.ctual differences in qualitjr. It
?/as the cause of considerable controversy betvireen manufacturers and the
Administration. ITumerous revisions were made, in each case after con-
sultation vlth the Tiro Industry Code Authority, who effected the
original classification.

9G85

"156-

17. THE LOfeST HLaSQIJABLE COSTS

The estaDlishiiier.t of lowest rea.sono.'ble cost necessitated a
determination of what -irice levels ¥;ere considered as destructive and
to whom.

The most desirtihle method v;ould have been to deterraijie the
lowest reasonable cost of manuf^-cture, and to cAd to this the lowest
rea,sonable cost of distribution. This method wa.s not follov/ed because
available data, on raanufacturin;_. costs were simply not adequate. From
the data j^dven ;)reviously on manufacturers discounts to maximum dealer
accounts, and mass distributor 'orivate-brand accounts, it is apparent
tliat to use the costs of these outlets as the' Icest cost channels of
distribution v.'ould establish a minimum retail -irice floor so lov^' as to
offer no protection to the inde-oendent dealer.

The lowest reasonable cost a,;T;arentl.v v:as determined to be
that level which would cover enovi^h of the costs of the siinall inde^oend-
ent dea-ler to allov; him to survive.

In his report to the Admi.iistrator, the De;outy stated:

"The followin,, classif ice>,tion of some 7c, 000
deE,ler accounts was furnished by manufacturers.
You will noce that .a-iproximately 90 per cent of all
tire dealers --lurchased less thaai $3500 worth of tires
annually. * *

"It is reconiiiended, therefore, tha.t the lov,'est
reasonable cost for dealers purcha.sin;^ $3500 worth of
tires annually be established, since they tire more
nearly rei^resentative of the Tra.ae.

"An examination of manufa.cturers' discounts to
dealers for passenger car casin^^s disclose that a
$2500 dealer receives tra,de discounts of 35 vjer cent
a.nd 6 per cent from the Consuiaers' list -price.* * * *
It is recommended tha..t the invoice cost to dealers be
este„blished on Grouo A tires by a.-rilyin, the discounts
of 35 ner cent and 6 per cent to the Cons'omer' list. *
* * * * *To the invoice cost established for Groui A tires
it is proposed to add 10 ^er cent as a -)artial al-
lowance to cover store wai;;es. Actually, store v/a^es
avera^^e from 15 -ler cent to 35 per cent in a retail
tire store, exjoressed as a, ^Tercentage of cost of merchand-
ise. The lowest reasona.ble cost on Groups 3 and C has
been established somev/hat a.rbitrarily with rCj^'ard to
relative cost between the two £ro'.xns, based on da.ta
submitted by manufacturers. A similar method has been
used in determining; the lowest reasona-ble cost for
truck and bus tires and tubes.

"The above method results in the following
cost floors in terms of -^ercentai^e of Grou-o A current

9685

-157-

list prices oi tivent.y-two manufactvirers usiiij^
identical lists:

Cost Floors - per cent Group A List Price Tires and Tubes

Grcuo A Groun 3 Group C

Passenger car casings

Passenger tubes

Truck casin^iS and Farm

Tractor Tires
Trucic tubes
Solid Tires (Western States

5^1 higher)

ii''

77i',
72^

79^;*

73^0

70 :

71*'^
60^>

60f>

75'

(The Grou--) A or first line list --irice equf^lling 100)

"The following exsm^ole shov;s the relationshi'o of the
cost floors to preva.ilin^ lists, on one tire:

b-roup A
Group B
Grou-' J C

X. 4.75 -

19 4 -

■ PI;'

' Tire

List .

Cost

Lcv.'est

Eea.E

sonable Lowest

Price

Floor

Cost

$ 8.65

77^-^i

$ 6.70

S6.67

6.90

6.05

5.94

'5.Z0

5.?0

5.26

(*) Subniit'ced b/ "ohe Tire Industry Code Authority

It is apparent that diff erentia.ls customarily established
in list price between first, second, and third-line tires by manu-
faxturers themselves, were not followed in the minimum prices esta-
blished.

V/hen the minimum ""'rices actually became the ^oing prices,

the effect of this move was to -olace dealers in a fe.r better position

as to margins on the lover o,ur-,lity tires. The dealer made more money
selling the chea,r)er article.

18. TEF GaARAlTTEE CLAU SE ATJ) C0IIT R0VE3SY

The subject of warranties on tires had been a moot point in
the Industry a^nd trade for years, s/.id since thg first start to formu-
late codes, the Industry. had endeavored to reach an agreement amon^
themselves on a uniform warranty for tires and tubes. ITo agreement
has been reached.

There were two tvpes of warranties in use; the one knovm as

9685

-158-

the Standard Wari-anty was i:i use by most iua.nufacturers, -oroliaoly 70
per ce:-t of all tires beiii^ sold under it; it read:

"Every joneunatic tire of our r;ia.nufa.ctui'e oearini^
our na,ii,e and serial number is \.-arra:nted by us against
defects i]-}, material r-',nd v/orlcmenslii'o durin,;, the life
of the tire to the extent vhat if any tire falls be-
cause of such defect v/e will either re"orir the tire
or mahe a. r3asoi:a,bl9 allo'';o,nce on the •■yc.rchase of a
new tire."

The second tyoe of wa.rrant;"- wa,s used b;;- about 13 sinall manu-
facturers, and several private brand distributors. It was known as
a time warranty. The tire v-as .guaranteed for a --leriod of time, six
to twenty-four months and a_.iainst all road hazards, re x.rdlesr of
failure throu/,h defects in material and. voi-lcnanshi ->. Adjustments were
i-nade on a pro-oortionate basis, for exannle, if a r.ire vua,ranteed for
12 months, is replaced at the end of B months, the ;rarcha.ser pays
eij^ht-twelf ths of the current retail price and receives a nev/ tire.

Both ty-TCs of wa.rranty were o":)en to criticism, the first
because it facilite.ted nolicy adjustme.its made to satisfy a customer
having, no real claam, the seco;id because it is obviously unsound to
[guarantee a tire e.,j,ainst all road hazards. The so-called Standard
Warranty wa.s staumchly su-x-.orted liy the 3i^-, Four Ifenufticturers, with
their national distribiition and tra,ined adjusters throughout all mar-
kets, as the fairesi and .most economica.l. The small manufacturers
and distributors usin._, the time warranty, cla,im.ed it was most practical
from their point of viev;. . They had no trained representatives to
liandle adjustment claims in the field and the^ warranty provided a
fair and ea.sily understood basis for ha.ndlin^-/ all claims.

In his reT}ort to the Administrator, submitting the EmerL^ency
Order, the Deputy said:

"The Administrr.tion ought not to be ;nut in the
position of having to determine Ex. uniform vra.rranty for
the tiie industry and for this trade. It is possible,
however, that the vrarranty ma^y constitute a device for
unfair comnetition durin.;. the emer,.,ency unless limited
as to time."

Just whar. ^oressure or \7hat logic overruled the first ex-
pressed conviction of the Deputy can only be conjectured. In a trade
where retailers' buyin^_, discoum:s varied from .::C; to 60 -oer cent and
where price wars had carried quotations to 10, 13, and 14 "tens" off
list lorices, the comi:)etitive pressure of various "guarantees appears
somewhat inconsequential. Undoubtedly', however, if it v.'as foreseen
that minimum prices to be established would become the exact sales
price for all tires, the comi.^etitive <i&.-vaxXa.-^e of a liberal guarantee
would be enhanced just a.s T;ould the rea.dier consumer acceptance ac-
quired by years of heav^/ advertising. ■

The emergency order, a.s issi'.ed contained the provision:

9685

-159-

"jurin;: the ■c.'. io:. of tlie .;iri£r"';ency no ucrn'oer
of the ti-F'io sliall*****-ase or extend any gusirantee
or warranty i.p jlica.ble tn't]".e sale of SMch tires
or tabes exec; t a'cdnst c. elects in uate_-ial a?i(i
v/orln.ianship lor t. jeriocl of ninety (30) c.ays frora
(..ate of sale."

Criticisi.1 WaS not lony Crla-'ei. A storm of nrotests greeted
the E,_jiounce..ient from Lianuf acturerp, their dealers, and uhe private
dr^j'id CListri outers, usin the cine wairanty. Hi _lit aamifacturers,
Ar.ustron;^, Coo ler, CovL.uroy, Dayton, C-atc^s, G-iant , Lee anc. lTorv;alk
i;.:.„rLnately Ji'otested, statin,-' tiat the x,i'-Ae warranty was an iiroor-
tant fect'iire of their sales ^lo i s,ra, s,nd that SLifficient time had
not l)e;.n ;_,i"'ven to :ir-r,.iit a read;iusti.,ejit of their "Tclicies so as to
coiirjly with 'che "-rovisions of tJie Or^er . Other yrotests from 'orivate-
hrand discributoi-s and inde";;endent dealers were received in consider-
ahle nuj.iber.

The 3-ier enev Order oecame eifective ef Mffy 1'^:, and on
May 16, the Administration issuec Auahnis '^rative Order Uo . dlO-4,
sta'-'in the 90 dey v:arr£i2it-r claus,-": for a jeriod of 30 days froai
Maf 1-.-, A "n^.hlic hearin on the issue v^as set for J'one 4.

Diiriny the 50 day stay, the Acaninistration was suhjected
to a ha±ra;e of "'>ro;.:ia,:anda, much of it inspired hy manufacturers and
di'atridiitors who favored one or the other form of .uarantee. The
issue "became sharpliy drawn, the "J.ar; e manyfacturers and a few small
one favorina the restriction on . uarantees to 90 days, most- small
memul'act-arers ana ,.;Ost "irivate-orand distriOutors fravorina the time
warranty. The -ooin'os of advanta;" e to members of the Industry and
Trade in either pro-', ram virere accentuated, and the import,ance of
£:ucirri.n'cees as coi-[;Detitive devices was over-stressed in the aiind of
each participant in the a reeiaent .

At the "■•udlic he.-.rin ,, one representative of a larae manu-
facturer advocatec. the 90 aay warranty, £incther filed a brief in
favor of it, several inde^^endent de.-. lers, all hiit one of them memihers
of the P.et;--il Tire Ccae A~atliority, spol;.e in favor of the 90 o.ay
restriction. Sai.\ll ma:iuf ..-.et^irers were unaniaiously a^;ain3t it, stating
that it would .■'lace them at a distinct disadvs,nta e in coi.vpetin,';; with
lar- ,e -manufacturers of nationally aavertised tires. The smaller m:.Jiu-
facturers and the principal :rivr.,te brand chstributors usin^ a time
warranty >/ere in favor oi a u'hform warranty for the Industry, with a
definite tii..e limit.ation. Tv.fo larpe private brand distributors Vi'ere
op'iosed in princi-)le to arn^- form of limitation on wa,rra.nties. (*)

There \-/as still no lossibilitj of a;:^reement in the Industry
or Trade on a nniform warranty. The Achainistration ?/as by this time
convinced that the 90 dt.y restriction woula worh an unjust hardship
on comoanies usin^;^ th.:e warranties. On June l-i, the Administrator,

(*) Trinecri:ot of Piablic Hearin;-_^ June a-, 193d, Retail Tire Trade

.Req. ho. 9G85,

-150-

in Order Wo. 410-7 staj-eo. tlie 90 day v/arranty clause indefinitely,
subject to his further orders.

The net effect of the atte-n^t tc re;,ulate the \ise of
different v^arranties va.s to accentug.te the feeli.v; in the Indiistry
over this ouesticn and the coRjetitive vrlaa of the tirao warranty.
Iffiiaediately after the T.-ir; Foiir Laiiufacturers learned that these using
a tirae warranty would ue periaitted to continue, they each adopted
this type of warranty and annctnicec. the ic'.ct of their so duing in
newspaper advertismi-';: throu,;-;hout the ccijiitry

Yet the head executives of tv/o of these coiTipanief; have in
public statements within the past two months (Deceuher, 1935) decried
the use of such warranties as an expense to the Industry and an unsound
practice forced upon it by "Mrivate brand distributors. Some distri-
butors of private brand tires increased their time warranty to as much
as two years on first line tires.

The cost of time warranties to the ma,nuf acturer usin them was
clearly shown as net';,li,: idle, in comarison with trade and other dis-
counts freely and frenuentl^r extended in price vw:rs. The cost of this
form of warranty is clearly less than the cost of competitive a^dver-
tising carried on by the larger com-anies. Yet the attempt at re^^ulation
and the controversy ensu.iii;^ had apparently so enhanced the importance
of such warranties in the minds of tne Industry that it was felt to be
a competitive weapon none co^ild afford to do without. Attempted regula-
tion liad left the situation worse that it foLtnd it.

19. EFF.-CT OF 1 Idlll&ZlTCI P_.0 VI3I C:iS OjI CIK.:^-:!:? idlCES

To determine the effect of the eiuer;'_-ency provisions on
current price levels, we mtist first laiow what price levels were,
prior to the emer;";,ency perioo. . To determixie the rcta-il price
level of tires at any one time or oljce is tnr ii..possildlity;
the variety of quality lines, the orevalencs of elastic trade-in
and change-over allovifa".ces tind other factors thoroughly becloud
the issue.

The following quotation from an advertisement published by
Sears-Soebuch and Com lany on IJay 9, 1954, is in point:

"You saA'e one-third on All-State Crusao.ers
at these "orices, - 3 days only, May 10, lAa.y 11, May 12,
inclusive. The ..rice on All-State Crusaders will advance
about one- third on May 14.

"And remember Sears Fa-mous All-State Tires will
be drastically reduced on May 14."

All-State Crusaders are Sears ' third ouality tire. All-
State is their first quslity. On the effective date of the
Emergency Order, they -priced both lines at the minimma or floor
level price. This meant an increase in the oin-: price of their

Heq. Wo. 9G85

-161-

third line, a "drac-tic" reduction in tli-; :,OJ.n;, -.rice of their first
line tires,

Mont.2;o;.iery Ward and Coniiany trvoadcast the follov/ing nev/s-
paper advert iseiiient throw-.hout the county:

"Tlie II. H. A., thro-j-.-h the Retail Tire CooLe,
effective Mond;;//, May fourteenth, is requirin.3 a/o jroxi—
i-iately twenty 'jer cent .irice increase on Ward's Rambler
tires. ?/e would -irefer to continue the low -Drices niade
possible "by our econoraical method of sellin: tires. We
re-yret tliat ve cannot do so after the U.S.A. order fixing
these prices hecones effective ne:rt Monday."

In this case also, Wards- .Ra^mhler Tires are their
third line. Fnilo floor "rices meant soue increa,see in the price
quoted on that line, they proniDtly ret'.uced. ^-rices on first a,nd second
line tires to the irdniniur.i a-llonahle voider the Emeri^'ency oi'der.

Another chain store. The G-amble-SI:osmo Company, operating
several hundred opined and a;'-;ency storet> in the Sorthv/est, advertised
that the Emergency Order reouired an advance in tlie jrice at 7/hich
they i/ere selliny tires. In this case also, iuvesti2;ation showed
that prices on third line tires only i7ere so affected.

Here it should be noted, that lowest reasonable cost
established on first and second line tires v'a.s above, v/jiilo on third
line tires it was below the lov^est representative cost of man'of acturers
(includinr distribution costs) furnished oj the Tire In^ustx-y Code
Authority. If, then, lowest reasonable cost or floor level prices
represented advances of tv;enty per cent or one- third over prices at
which private brand distributors -wf.rQ selli/.;;, third line tires, it is
apparent that third-line tires v/ere being used as a competitive weapon
and were being sold at less tha,n cost, by those distributors. This
must be true, even after malung due allowance for more economical
distribution methods .

The fact is that within two v/eel;s after the effective date
of the Emer_^ency Order, \-he t'/vo large mail-order find chain store houses
had rocxiced their store "orices to the floor-level throu,^;ho~j.t the
country. The Big Eour tire manufacturers had met these ;"'rices vifherever
they had stores or controlled distribution, and were ri.r,;ing independent
dea,lers to meet them and the .ainiiui^jn price had become the • oing ■orice,
almost 'oniversally.

■By July 1st, the l£i.rge y.ianijfacturers were allowing their
smallest dealers rebates or "cut-bachs" on sales made at floor-level
prices. Prices had not only fallen below the ; :ener3,l level in effect
on May 14, but, insofar as sales to the individual consnjmer were con-
cerned, were nearly as lo¥7 as they had. been during the price wars
prior to the Truce of March 30. Tl:-ese facts were brought out in the
public hea.ring held on Au^^rast 3, 1934.

Req. Ho. 9635

-16.3-

The sale of first lins tires still exceeds in voliome the
sale of second aiid third line. Thus, althou'li there were scattering
instances of act-oal increase in "irices a t v;hich third-line tires
had been offered, the .'j.'eneral trend of tire price levels wac downvvard,
following the imposition of minii.aim prices, This is further evidenced
by the ,.;>;eneral lengthening;, of dealer discoxuits as filed with the
Ac^jninistration during this period.

20. EFFUCT OF OHDBHS IIP. X-48 MS 110. "767

As the Retail Tire Trade, by definition, covered sales to
the ultimate consumer and not for i-uj^poses of re-sale, the Code and
the Emergency Order provisions applied to sables naae to the Federal
G-overnment and its de"3artnients . Thus the issuance of Administrative
Order N9.X-48 on Jijne 13, 1934::, brou'ht about considerable uncertainty
as to tiie status of sales to governnienta,l s,gencies under the emergency
miniioma prices.

This Order ;.Drovided, in '^art, that:

" such 'members notwithstanding such ;orohibit ions ^
conta,ined in such Codes irta,y: (a) quote prices and
terms of sale to governmental agencies as favorable
as those permitted to be quoted to ar\:f commercia^l
buyer for like Quantities; ci,nd

"****that nothin^, in this Qri.er contained'
shall operate to permit deviation from or aban-
donment of oMen price and cost protection "pro-
visions now or hereafter contained in any such
code. ******"

Prompt protest from tire Liajinl-acturers and distributors
followed the a:inouncement of this rv-ling. Oii Jvjie 37, 1954, the
Administrator approved Order Ho. 410-9', sta,Yin- Order Ho. X-48
from any application it miglit have to the linergency 'Trovisions
in the Retail Tire Trade and exempting members of the trade from
order Ho. 410-3, to the extent that the'/ mi^^ht auote or sell to
governmental agencies at not less than 10 per cent below the floor
level prices.

The stabilizin;^ effect of this Order was' short-lived, as
Executive Oraer Ho. 6767, ap::n'oved June 39, 1934, perrriitted persons
subject to Codes of Fair Coriipetition to quote governmental agencies
Ujp to 15 per cent below -irices required to be filed "oj su.ch Codes,
provided they recorded such price ?/ith the filing agency as soon as
bids vjere opened. Filed prices, going prices, and minimuiii prices
in ta.3 Retail Tire Trade being by this time one and the same, this
meant permissible price-reductions to governmental agencies up to 15
per cent below the minirmijvi for any other co^.sioiaer .

Again confusion developed a.nd strong protest was received
by the Acijnini strati on. On July 16, 1934, the Admdnistrator issued
Order Ho. 410-11, reducing for the Retail Tire Trade the tolerance
below minimuiu prices .ranted in Executive Order Ho. 6767 to 10 per cent,

Req. Ho. 9685

-163^

Individual interpretations of Vne ap'olication of this
tolerance to the minimxim prices set in Emeri^-ency Order ITo . 410-3,
resulted in nmch confusion and complaint. The Deputy's Office, and
the Government Contracts Branch of the C'jmpliance Division v/ere
flooded with complaints of violation, most of which consisted of
figTiing prices to the nearest penny, the nearest nickel, etc.
Explanations anO. interpretations v/ere issued, awards were delayed
in efforts to secure strict compliance. In general, the hair-
splitting nature of some of the decisions involved and the 'onwieldy
procedure involved in enforecement contrihuted to a. h reakdown of
coinpliance . Complia.nce or non-coiirpliance 7»as determined upon
figuring the price of a tire or tube in mills and acceptance or
rejection of bids "by contracting officers was delated pending-
formal opinions as to compliance by Depaty Administrators, Legal
Advisers and the Chief of the Government Contracta Bra,nch, cleared
by the Administrator himself to the head of the G-overnment De.^iartraent
involved.

21. COMPLAIIII'S AGAIIJST TH5 EivSHGiZFCY IlSr'ULATIOIilS

Complaints against the Ei.iert-,ency Hegulations, or in other

words, com]3l8.ints against the miniiiium price levels, divide themselves

into four ma.in categories:
/

(a) Corqolaints from small dealers,

(b) Com-^-daints from. smcJl manufacturers,

(d) Com,jlaints on lack of enforcement.

22. SLALL DEALER COI.TLAI KCTS

In respect to small dealers, it must be remembered that
the rninirnum prices were established on the basis of returning to
the dealer who purchased ^2500 worth of tires per year, his merchandise
cost plus 10 per cent to cox'er 73artially store wages. The merchandise
cost to such dealers was computed as 25 and 1 per cent off of Con-
sumers' list prices, i'igu.res submitted to the Administration by
manjxfacturers showed over 90 per cent of all dealers purchasing less
than st2500 annually.

Vife have already stated tha.t the bonus for volume or discounts
in lieu of that, started with dealers buying .;1000 worth of tires '
or more amraally. The cost to all dealers buying less than .plOOO
was "net billing", or 25 per cent off Consuxiers' list.

A mdnim-'om price of 77g-. p.er cent of list had become the going
price, the resale price, for mpjiy thousa,nds of dealers v/hose buying
price was 75 per cent of list. This left them a marrdn of 2g- per
cent; if they were occasionally able to take their cash discoiijit of
2 ler cent, this margin was increased to 4-g- per cent, jiot even the
10 per cent a beneficent Adminstration ha.d allowed for store costs.

Compla.int was iirompt, voruuvdnous a.nd sustained. Manufact-
urers supplying these dealers recognized the sit'oation before the

P.eq. ilA.._3SS5--

-^164-

Ad-dnistration uid, and tool: liasty steps to n-eserve their sinall
dealer distributors by rebatin.;,, leii; .thenixi. discotarits or "cutting-
back" to dealers up to 10 3er cent on sales v.iade at floor level prices.

Herplies to a a^aestionnaire circulatea by the national Tire
Dealers Associc^tion, subiidtted in evidence at the hearing on Au:ust 3,
1934, showed of 476 dealers answering, ^^±6 in favor of a minimum
price, 375 in favor of increasing the present minimum, 323 selling at
the floor level prices, and'-287 showing a decrease in sales "feoluine
for May and Jime, 1934, cointi-ared to the sane period of the previous
year .

25. COMPLAIIITS EHOLI SI.IALL i.LA.njTACTUaEIlS

Complaints from small marxuf acturers were based on two
counts; first, from those who claimed they could not recapture costs
of manufacture and distribu ion at the ..oin -jrices; second, from
those who claimed they could not ma,intain their sales volume since
with one price level for all, their norme.1 business was diverted to
manufacturers of nationally advertised and acce":ited ;;^roducts.

On June 5, 19o4v, 18 small i/ianufact'arers met in Vifashington
and presented to the Ach.dnistrator a unanimous petition that floor
level prices be increased. They :'resented numerous -advertisements
as evidence that floor level prices '//ere now the r.oing orice for tires,
due to the action of mail order houses in iirmediately tcdcing that
position and of large :,:ici.nuf actu-rers in meeting their price..

They .resented an affidavit prepared by a committee of their
own cost accoujitants, comiaring their ma.nufactui'ing and distri outing
costs with the floor level prices. These costs, compiled according
to the Eubber Manufacturers Association formula, plus 25 per cent,
considered a conservative retailin- cost, were greater than the floor-
level price in. all cases.

They jresented data on rising raw material and la.bor costs,
showing that their production costs virere ra;-iidly increasing. The costs.
submitted for eom;,parison were based upon rubber at 10|- cents per potmd,
and cotton at 11 cents. The spot rubber price was then 15 cexits per
pound, which would have increased these costs by around 2Jt per cent.('*')

The -oetition stated that in order to permit their dealers
to sell at oing prices, tliey were not only sustaining ca'sital losses,
but were losing voluiiie of sa,les as v/ell. Thev sta.ted that this was
the situation of 18 small laahufacturers, representing a total investment
of a.pproicim£itGly 100 million dollars, emplovdng an average of ap-:)roxi-
mately 2'.j thousand -oersons with a.nnual '^avroll of over 25 million dollars

(*) Eef . Brief and exhibits submitted Deputy Administrator

A. L. Kress by The Small l,ian\^i'acturers Committee, June o',

1934,

Re a. Ko. 9685

-165-

and havin,?; a totcil of 2o tliousancl dealers o.e ■.end.''ii.fc upon them for support .

In contrast to such conrilalnts t'.;ere were soae smaller i.tanu-
facturers who claimed that their sales volriiiie de;jended upon their
aoility to undersell the prod^lcts of larre, natiorally adivertising
competitors; that due to economies in ; itinuf acture and sellin.:\, they had
always been able to do this heretofore; that, v,'ith prices fixed £,nd the
minimum price the ;:';oin;',;, price for a.ll, their own marhetin;-^; ad'vanta.'^e v»ras
annulled c^nd the.t their sales were bein,:; rapidly diverted to the large
concerns .

In SLi.p lort of this latter complaint there is strong factual
evidence. Three large ma-nufacturers and 13 small manufactiirers re-
ported to the Administration tl;eir ^oiiit sa.ies of tires for the months
of March, April, May and Jiuie of 133^ and 1934.

In the months of May and Jruae, 1334, uijit sales of the small
companies declined 4-2 per cent from their sales in the same period of
1933.

Unit sales of the three la,rge manufacturers declined 21 per
cent for Ms.y and June, 1934, against the same ^leriod of 1953.

135-x unit sales of two of these large man^oJacturers who
had large compcuiy-owned stores and indepenc.ent dealer representation,
equalled their 1933 sales, . Apparently this complaint was well founded.

24. COMFL A IIITS ?HOLI P'R I VA TE BnAl'II) DISTZISUTOaS

Me he.ve alrea.dy seen the published complaints of two of
the large orivate br.';r-d distributors, that the minimum prices established
in the emergency order required them to increase '^rices un their lowest
priced tires. Thijy continued to voice this com"ola,int throughout the
emergency period,.

They further complained of loss of biisiness, due to their
inability to maintain the price differential below company brand tires
they had always enjoyed. They pointed out the economics in ther
methods of purchasing and distribution in grec.t detail a.t the public
hearing on Aufjust 3, and stated they were losing sales because floor
level prices prevented their passing on these economies to the consumer.
At the same they they presented cha^rts illustrating the diversion of
their business to the com.pany owned store of the large manufacturer and
to the marketers of petroleum products handling better laiown tires.

Another comr^laint, hi _h.t ironical in view of their ovm action
in respect to comliance, was the statement that they were literally
forced, because of their prestige and n-ominence, to observe the minimum
prices-, vdiile email competitors, secxire in their very obscurity, 'onder-
sold them ?/ith inip-'anity.

The only faction reraahning complaisant over the emergency
provisions themselves were the Big Four Manufacturers. They clam.ored
for better enforcement, it is true, and e::presse6_ the view that higher

a.eq. llo. 3G85

-166-

floor level prices vi^ere desirable. But with the situation of one
price for all, they 'jvere entirely content. As Mr. I]cLv7ard D. Levy,
President of the Fish H^ihber Corporation, stated at the hearing on
AU;:,u.st 3, "I do not accuse the BitS Pour of consciously seeking a
condition of monopoly; I certainly, v/ould not expect thera to refuse
to acce;ot it if it were thrust upon then!"

25. COi.IPLAIMgS OF LACK OF. ZlvFCUGZlilTirT ■ '

T/liile the situation as to compliance and enforcement will
he further discussed later, it must he aclmov;ledged that the situation
would have been accepted in better grace by all concerned if there
ha.d been any incentive or iniipulsion to coiiroliance, other than the
individual conscience.

The two large mail-order houses greeted the Emergency
announcement by distributing millions, of "suiioiier flier" catalogues,
offering tires for sale by mail well under floor-level prices. They
continued to distribute these . catalogues uiitil the.y issued their
reg-ular Fall and Yifinter Catalogu.e on July with even lov/er prices.
Literally thousands of these catalogues and tear-sheets from them
were sent to N.H.A. by small dealers demanding som.e action to induce
compliance.; the situation liaving been arranged for in s.ome way vath
the high comme^nd in the Adiainistration no a.ction was telcen.

It will be recalled that during the -1-0-day -truce one of
these concerns launched a special sale contrary to truce-terms, claiming
the necessity for following plans inade and using advertising arranged
for before the truce. In this case they claimed the catalogues were ;
printed prior to the announcement of minimum prices. Despite the
fact that no order granting an exemption or stay of mdnimum prices was
ever recorded, no action on- this violation was taken by the Compliance
Division.

With this precedent, cut rate houses througliout the coui^Ltry
followed suit. With the extremely low -/rices and operating; margins
he faced, the "one.;?rice for all" program and open underselling and
violation by the unscrupulous, the position of the independent dealer,-
and his supplier as vYell, v\ras intolerable. lie was entremely vocal
and acrimonious about it. '

26. THE DUIAI^TIj F05 DIFFEHEITIALS Ih' FPJCE

Iv'. F. A. 's correspondence files are replete with letters
from small manu-facturers and certain chain distribittors of private
brand tires, insisting that at price eo^uality v/ith nationg-lly adver-
tised tires, they were losing: inuch of their market. The pressure
from such complaints finally induced the Deputy to collect the
statistics on unit sales of large and small 'manufacturers during
'the period of the emergency wMch are mentioned above. Further, on
July 12, 1934, the Deputy called -an informal conference for the
Industry a.t Washington for a discussion of this issue. At that con-
ference Messrs. Eisbrouch of McClaren, Seiberling, Levy of Fisk,
Butler of pharis, Behotegi:iy of C-oodrich, Mayl of G-oodyear, and

Rea. No. 9685

-167-

Trintorn cf the Rational Tire Dealers Association testified that
small Lianiif acturers ano. private brand distributors needed a
diiT erential belov/ the price level adopted by la.r-e manufacturers.
The chief dissenter from this proposal was Mr. Jackson of Firestone,
v/ho insisted that the lar^^e 'U-ivate brand distributors had both
national advertising, presti/"je and distribution which should -oermit
thera to sell at price eouality with his own line.

At the later public hearing held August 3, again, Mr. Ragnett,
a Pharis dealer, Butler of the Pharis Company, Murphy of Corduroy,
Levy of Fisk, and Prall of Hontgomey Ward and Company, all testified
to the need of differentials belov: the ,\,oing price on nationally adver-
tised tires.

In support of the fi',ures compiled by the Deputy,
Prall of HontfpLiery Yferd and Conroany sLibmitted a tabulation of an
inquiry conducted "oj his staff, covering 2600 tire dealers and
stores:

Percentoge haviiig greater sales
Kind of Dealer in Jvne than in May, 1934-

Dealers e,nd stores handling

Big Pour tires 54

Dealers ana stores handling

tires of five medium sized
man-jf acturers 50

Dealers and stores handling
tires of 33 small manu-
facturers 4-3

Sears-Hoebuck, Y/ester Auto,

and Gamble stores 39 "

Mont jomery Ware. Stores 42 "

Appa-rently, under the emergencv provisions and with Trice
equality at the floor level price, the trend of purchasers was defini-
tely to the -Troducts of the Big Pour Ifetional Advertisers .

It will be remembered that under the terms of the Truce,
agreed to March 30, 1934, differentials were designated for the
tires of private brand distributors. So differentials v/ere set in
the Emergency Order, the Adminis traction optimistically holding
that such differentials as virere custoi:iary would be mainta,ined above
the minimum. Furthermore, the need of a differential in pDrice for
small manufacturers had not before been reouested as necessary by
small namuf acturers themselves, most of the discussion having centered
on the necessity of differentials between private brand and company
brand tires.

The Tire Lieniifac turi ng Industry itself made variotis and
contradictory recommendations to the Administration on this issue.
The Tire Industx-y Code Authority, at a meeting on Jvlj 11, passed a
resolution reco.iirAendin.'-: to the Ac'jii.inistrator -

Reo. h'o . 9G85

-158-

"that tlie Coc'.e Authoi-ity's idea of a
;Droper differential "between the Big Four Com-
panies and Tinadvertised lines and mass dis-
tribution should be, on A, B anc. C tires,
10 per cent ."

The Marketing; Covuiiittee of the Code A^ithority, a more widely
representative body, on July 18, recooiaended to the Administrator
that the Industry be divided into three groups and differentials
granted as follov.'s:

Clasc, A Tires ' Class B Tires

Group 1 TiO differential Ko differential

Group 2 5^ . below GrouJD 1 2^^ below Group 1

Group 3 lO'-j below Group 1 S'-s belov/ Group 1

No differential on class C tires, inner tubes, and solid tires
Group 1 included the Big Fdur, General, Kelly-Springfield,

and Seiberling.
Groiip 2 included Big Fout "subsidiary lines", Dayton, Fisk,

India, Lee J McClare, Mohawk, Overman, and Pennsylvania.
Group C included all other raanof actLirers and private brands.

Finally, a public hearing on this issn.e was noticed for
August 3, 1934. The hearing was conducted jointly by the Deputy
Administrator and the Director of the Division of Research and Planning.

For two days prior to this hearing, the Tire Manufacturing
Industry, meeting in New York, had strn.ggled to reach some agreement
and a recorame.idation to the Administrator covering -a differential
price schedule modifying the single minimujn jrice set by Administrative
Order Ho. 410-3. They v/ere entirely in agreem.ant that an increase in
minimum prices was needed, b^^t disagreed on the subject of differentials.
Finally, by a vote of 14 to 11 they agreed upon the schedule submitted
to the Administrator at fiie hearin;;j -the next day.

This schedule called for an increase of 10 per cent in the
minimum, or floor-level prices; a differential of o.25 per cent above
the new floor for tires bea.ring the names of the Big Four (except one
tire made by Firestone), all other tires subject to the same minimum
price except tires sold by mail thro-agh the medium of catalogs for
YiThich a differential minimum price 10 per cent below the floor would
be permitted.

At the hearing, (*) all manufacturers testifying, the
Manufacturers Association, the National Tire Dealers Association, The
Greater New York Tire Dea,lers Association, and six independent dealers
urged that mdninuim prices be raised, testifying that at present they
did not cover costs of nianuf ac ture and distribution.

(*) Ref. Transcript of Public Hearing, August 3, 1934, Retail
Tire Trade .

Rea. No. 9685

"169-

Tvv'O ma.nv.fact"LU'ern, Fisl; and Carlisle, testified that minimum
;price fixing v/as not a cure for the situation, that price cutting "began
with the nifTiUf acturers themselves, and fair comjetition could only
he assured hy cost control.

i'ieprosentatives of four private orand distrihtitors, three-
chain store organizations and one mamafacturer , assailed any form of
price-fixing as uiworhaole and uxienf orceaole, stated that it unwisely
increased cost to the consuj-aer and inrpaired the voltime of husiness
done. Lack of enforcement of emergency price provisions Y^as cited
and criticized hy nearly every witness.

All. smalieranianufacturers testifying claimed they were
doin;': husiness at a loss, ha,ving to increase discounts to keep alive
their dealers, in turn forced to sell at the lo"«v prices set hy private
brand distributors and the Eig ?our. They all pointed to decreased
voluiae of business and rising costs. They all stated that v/hile
their costs on rub .er were rising rapidly, the large companies still
had stocks of low cost rubber and vvere playing a freeze-out game by
keeping prices dovm.

27. MOSIJICATIOl: OF THL laiEHGEITCY FI;ICZ PZOVISIOKS

In uheir determination of the issues they faced, both on
the request for increased mininiom prices and for differentials in
minimum prices, the Aojninistration was guided and influenced by much
information secured from other sources than the testimony at the
public hearing, and vifritten representations of members of the Trade
and Industry. Much aata was secured on stocks of crude rubber in
the country, the amounts held by tire manafacturers and the actual
credit resources of manufacturers as contributory causes of their
position on rubber. (*)

The large mantii" 3.ctijrers and the large private brand dis-
tributors had many months sup-oly of rubber at costs well belov; the
current ma,r]:et . Few small manufacturers had nay considerable supply
and in most cases their credit position dic\ not permit foi-ward buying.

For the first time accurate data on a^ctual ma.n^'jf actuing
costs v/ere available from representative large and small companies.
The CGS'G date siibmitted by five concerns whose costs viere considered
very accurate by the Rubber Manufacturers' Association, showed that
they were either losin.'-- money or operatin.;; on the thinnest of margins
after allowing their dealers only slight margins -under the floor level
■unit prices. A sixth mamrfacturer, submitted partially itemized cost
fi{^ures shovang comfortahle margins for himself a,nd his dealers at the
floor level prices. (*)

(*) Ref . pLCport by C. A. Pearce, Division of Research and
Planning, Augu.3t 25, 193-1, Pages 10, 11.

(*) Ref . Report by Division of Research and Planning on Revision
of Administrative Order Ho. 410-3, August 25, 1934, pages 11,
14, 17.

Req. llo, 9G85

vivo-

A s-condary reason for not increasing; prices was the current
finished :";ood inventories in the hands of laarrof acturers and dealers.
This was estii.iated at 19,000,000 casings on Jxilj 31 (annual renewal
consuiintion heinj; Foprozijuatuly 3-3,000,000), and it was considered
uneconomic to diBcourajje the liquidation of these stochs hy price
increases .

Prohably the fs.ct that an -increase would have assessed the
puhlic with a s".5eculs/bive profit on stocl-s of crude ruhher held hy
the better financed manufacturers and the current finished f;;oods
inventoiy position, were adequate x'.easons for denying the request for
an increase in floor "trices. The request for differential price levels
fared 'better than that for hi,2,her price levels. There was strong
evidence that the one price for all policy was rapidly divertin;_ the
business of the small manufacturers to the lar^e companies with their
well laiown, advertised and uiiiversally accepted lines.

Then, too, the lar e mail order houses, no punitive ruction
ha.vin,^' been tehen by the Administration, in respect to violation of
uinii.ium prices in the summer catalogs, had already distributed some
millioviS of their rej^ular Pall and Winter catalogs, listin^- tire ^^rices
from 12 to 39 per cent below those pei'mitted mider Administrative
Order l-Io. 410-3. This could not be sanctioned ?/ithout providing
differentials for tlie clcunorin;^ small manufacturers as well.

Administrative Order ITo . 4-10-15 was approved by the Adminis-
trator on Au'-.ust 23, 1934. It ^jrouped tires and tubes into five divi-
sions, accordin..'3 to'i "brand and method of distribxition, establishing
differential miniuiujn prices for each of these divisions .

The ^roupin;,, according to the E.iiergency Regulation in the
Order, was as follows:

Division I - Tires and tubes bearing any of the follov/ing
names in any form: Pirestone, General, Goodrich, Goodyear,
United States.

Division II - Tires and tubes bea.i-ing priv^ate brands only,
sold by and/or throiigh outlets whose principal lines of
business is the iiiarketin,^, of petroleum products .

Division III - (l) Tires and tubes v/hen sold by Montgomery
Ward and Comoany, and Sears Roebuck and Com^iany, throu^gh
their retail stores.

:■ (3) Tires and tubes bearing any of the

followin; names in any form: Bad;;,er, 3r\insv\rick, Diamond,
Federal, G and J, Gillette, Hood, Marathon, Miller, and Yale.

(3) Tires and tubes bearing any of the
following' names in any form: Cooper, Dayton, Dunlop, Falls,
Pisk, Gates, Giant, Inland, Kellj^-Springf ield, Lee, McClaren,
Mansfield, Master, Mohawk, Pennsylvania, Pharis, Seiberling.

Rea. Ko. 9685

-171-

Divisid n IV - Tires and tu'ccs not ■inclildecl in Divisions I,
if, III, and V.

Division V - Eotv/itlastandin;;; Divisions I, II, III, and IV
tires and tiibes' sold tlie cons'ujriher throu^:ii the medium of
regularly issued catalocsy when orders are received 'by
mail or telegraph only, and delivery is m,ade hy mail,
express, or freight only. , "

The minimum or floor-level pric's established for each;Divi-
sion in the above grouping are sloown for class A, B, and. C tires. and
tubes. The price is shown in percentage of the Industry ConSui-ner
list prices, published February 9, 1934:

Division I
Division II
Division III
Division IV
Division V

Class A

(First Line) Tires snd Tubes

Former

Industry's

ilew

Percentage of

Minim-om

Secommend2iti on

Minimujn Price

lange from former

Price

(Casings Only)
89.5

8C.1

Minimum

77.5

80.5

77.5

85 ■

74.79

- 3.5

77.5

76.5

. Pall Catalog
prices of Sears
.-and Ward

-12 to -14

Class B (S econd Line). Tires and Tubes

Division I
Division II
Division III
Division IV
Division V

Pormer ■

re en tags

Minimum

ndustry '

::,

ITew

ange from

Price

?.eco'iTir;iendat

ion

MiniiiTom Price

Pormer Minimum

70 .

78,94

74.3

-6

70.

75.

72.1

-3

70 .

75.

70.

75.

67.2

-4

70.

".7.5

Pall Catalog
prices of Sears
and Vferd

-14 to -18

Req, IIo. 9685

Clc-ss C (Third and Pourth Line) Tires and Tubes

Po rrne r I nc.us t ry ' s

Minimum Reconirnendation Hew Perce;ita^':,'e of

Price Tires liinirnujii Price clian^je from

Tires-T'abcs only Tires Tubes Pormer Minimum

Division I SO 54 55.7 . 60 54
Division II 60 54 65.7

Division III 60 54 G5.7 57 51. -3 - 5

Division IV 60 54 ■ 55.7 54 48.6 -10

Division V GO 54 55.7 Pall Catalog -IS ,to -18

prices of Sears

and Ward

Poth the f;ror..pin;j of brsLnds of tires into Divisions and the
miniKrom prices set for each division vrere an atterapt to approximate
customary .rice relationships and vjiderstandin. js, which had existed in
the Indixstry and trade previous to tlie emer ,ency regulations. In
the truce af;,reement of March 30, differentials of 10 per cent "below
consmaers list hs.d been allov/ed Atlas, Sears, and V/ard, iS-j per cent
to the T/'estern Auto Supply, c.,nd 18 per cent to pep Boys.

Whereas the Tr\ice agreement had recot^ni^^ed no differential
betvreen lar-je and s-iiall r.-ian uacturers, the new order raised the level
for the largest maviy:factarers (Division l) 11 oer cent above that for
small ma:iufacturers (Division III), s-nd allowed a group of very small
manufacturers, those dcin;_ less than .5 per cent of the Industry total,
a differential 5.5 ";er cent below even that. This was on first line
tires. On second eaid third line tires, the price level for the largest
gianttfacturers was but slightly above their smaller compatitors, while
minimuiri :>rices for the very small companies were dropped materially.

Administrative Order IIo . 410-15 was notev/orth as an attempt
to write into law, industry agreements 3,nd jjrice under s tE,ndi ngs . It
further was an attenvot to measure, in dollars and cents, such inta-ngible
factors as oublic 8-Cceptance, the value of advertising, distribution
facilities, and methods of sade . Pui'thermore it sanctioned, by a
ruling of the Ac'xiini strati on, the "-osition which had been tairen by mall
order houses in violation of previous orders of the same administration.

This last featiire of the new emergency regulations provoked
a stoi^m of Protest from small manufacturers and their distributors
when they saw the mail order hoLises permitted prices far below those
allowed to distributors 'ho had customarily based tneir entire sales
program on price parity v/ith the i;iail orcer house.

Another feature of the regulations, wherein they depa,rted
entirelj^ from Industry recommendations, caiised serious controversy and
brealcsown of comoliance. The firestone Conipa,ny produced a tire
knov/n as their Century of Progress brand. This tire was vigorously
advertised as first qxiality in ever?/" respect, the ecmal or superior
of any other first line tire. They oriced it at the exact level

Req. No. 9685

-172-

maintalned lay Sears and V/arc, in tlieir retail stores. This had been,
since the emergency v/ent into effect, floor level price, the same
price as continued in the neviT regula^tions for Division III tires.
In the reconimenda^tions received from the tire manvufacturing industry
as to establishment of differentials the Century of Progress tire
vras omitted, Firestone's High Speed brand, was named in conj^anction
with the first line brands of Goodyear, Goodrich and United States.
His competitors evidently felt that in vie\,- of his having no private
brand or subsidiary line business, he was entitled to a lower price
position on the Century of Progress line.

However, the wording and intention of the nev/ regulations
placed this tire in Division I, the minimom price allov/e;-'. for it
being 11 per cent aoove the prices Dermitted tires '.in Division III
with which it had formerly been competitive. This xDosition Mr.
Firestone refused to accept, and telegra.phed a request for a stay of
the order to the Acministration . He was not advised of the denial of
this request until a month after the Order became effective.

In the meantime, Jlrtstone continued to price their
Century of Progress tire at the Division III floor level price. The
ihree other largest com.panies protested this situation to the
Administration, but seeing no effective fiction to secure comrpliance
on the part of Firestone, met his price on their ovm first line tires,
wherever it appeared. Thus the new emer.-ency regulations and differ-
ential mininroiii price levels Y;ere almost universally disregarded, the
largest and most proMinsnt manufacturers setting the pace, the small
companies and their dealers, ■'onrelieveci of the competitive pressure
from above on the part of nationally advertised tires, and facing
the extremely low prices perniitted on tires sold by miaii order, sellin;:
at v.'hat thev could get.

28. SBEAKDOM OF COiJLIMCE AiID mOHCELiriJT

Adi-fiiniscrative Order Ko . <l-10-3 wa.s approved May 3, 1934, to
become effective May 14, 1934. The ipinimiJiTi prices established by the
Order were of course Imown to man^ufacturers and distributors as soon
as printed copies of the Order were available, and in fact miost n:ianu-
facturers and la.rge distribLitors , were officially or imofficially
advised of the price floors as soon as the Order was ao^roved.

The first effect was a rush to book forv/s.rd orders and coiiy-
mitments from^ commercia.1 users, for future delivery ar less than the
mdnimiam 'orice set. Both manuf actLirers and distributors participated
in this flurry, many dealers a^dvertised the urgency of buying "beiore
prices were advanced by the code" , and ■cUidoij.bte_dly some business was
secured on this basis

The most serious situation v/as the publishing and dis-
tribution of the tv;o la-rge mail-order houses of millions of "summer
flier" catalogs offering tires a.t m.ail order sale, at less than the
floor prices. These jrices were good only on sales by mail, according
to the catalog, but at least one of these concerns arranged to accept
orders and make deliveries thro^igh a special department in their

Eeq. No. 9635

-174-

retail stores at such "trices. These concerns claimed they ha-d received
authorization frora hi._,h officials in rl.H.A. for this ci.ction, in vie?/
of certain out-of-pocl:et eyL^ense to the customer urchasin^ by the
mail-order method. At any rate, efforts of the Deputy Achainistrator
of the H.R.A. Field Officers to secure ahateuient of this violation
were fruitless. The catalogs continued to he issued throUf'jhout the
suimaer, and of the thousands of cortrolaints received hy the Conrpliance
livision, none hecejne the sii.hject of action by the Compliance Council.

As these catalogs reached oracticsJly eYery section of the
country, they brou,?;ht protest both from sm£i.ll independent dealers and
smaller chain store establishiiients , l\fo explanations the Ac.mini strati on
could malre served to remove the ii:rpression that these concerns v/ere
receivin;';; preferential treatment as to code enforcement. Hot only did
feeling; ruii hiz-jh, but the lack of enforcement served as a shield for
axxj other retailer who; chose to violate the emergency provisions. The
two concerns mentioiied then in turn reported such violations to the
Administration as reasons for their losin.^ business through their retail
stores, where they cls.imed to be sellin;^^ a,t the floor level price.

Thus until the Dromnlgation of the revised eixiergency
regulations of August 22, 1934, the Trincipal non-compliance existing
v,'as Sihe surmner flier catalogs of mail order companies, and sporadic
outbursts of cut price selling by lar;e retailers and the sij:ialler
chain store operators. These concerns handling lesser ]Qiown lines,
saw their normal sales going to nationally l^iown lines at floor level
prices, and naturally resorted to tl/.eir one weapon, cut-price selling.
In this they could feel fairly secure, because of the lack of enforce-
ment in the catalog situation. In the case of pressure from the
Hetail Tire Code Authority or N.R.A, State offices, they could terminate
the advertising, sign a certificate of compliance,- and nothing further
was done .

Following the issuance of Or^-er No. 410-15 on Aiigust 22,,

non-coj^pliance was the rule, rather than the exce^'tion. As we ^e. -

seen, the large manirfacturers did not increase their ":)rices, due to
the action of the Firestone ComiaTLj on their Cent-ory of Progress tire.
This a;iatter was not adjusted until September 25, when Firestone having
been notified of a hearing before the Coiiipliance Council, agreed to
comply and advertised increased prices.

Dealers and distributors generally continued to sell at or
about the floor-level price as it had been luider Order ITo . 410-S, not
attempting to ujiderstand or to com^ply vv'ith the involved differential
price set-up established in the new emergency regulations in the Order
of August 22. The retail tire business ordinarilv has a sharp seasonal
decline in voluiue from September 1 on, and there is no data available
as to the effect of the new reycdsi-tions on current -irice levels or
volume of sales.

' S^. TrmilllATIOII or THi: ZIvISRGLiyCI PROVIoICljS

Article XI, Section 1, of tl\e PLetail Tire G!ode read:

-175-

"Provided, hoY/ever, that section 4 of Article "VI
of this code shall cease to have effect on Octoher 1,
1934, lonless ■■rior to that date th& Code Authority-
shall have recorniaended coiitinu.ance thereof, s,nd the
Adi.iinistrator shall have approved such reconi-.endation.
In connection with any such reeoniiuendation, the Code
Authority shall suornit data to sv.o":ort the same."

On SepteiTioer 23, at a conference '-jreslded over hy the Deputy
Administrator, the Chairman of the Eettiil Tire Code Authority presented
a request that the ]?flier£ency provisions and miniraiira prices be hept in ^■
effect, tha,t the Acardnistration increase efforts to enforce them,
and that the organisation of Ld strict Control Boards proposed and
launched hy the Code Authority ue recopnised and a'o.thorised to collect
funds from the trade for enforcement.

The request was sup lorted dj'' reprsentatives of three snB,ll
manu-facturers, Dayton, Penns-'lvania, and Seitierlin;:^, ?/hG predicted
that if the Emerj;jency Provisions were allov/ed to expire, the trade
would "be thrown into a most destrn.ctive price war, resulting' in renewed
losses and m.ortadity amon.: the SDialler estaolishments .

At this conference, it vYas evident that the Code A^"Lthority
itself had few hacts at hand, either as to the prevalence of compliance
or non-conpliance, or as to the extent of the trade and the nunher of
members vrtio could be relied upon the support administration of the Code
by their contributions. The manufacturers present predicted an utter
demoralization of -jrices, were the re.?;ulations to lapse, but were vague
as to who v/oLild brin-2; a-boLit such demoralization or just what form
the attack would tahe.

The DepLity Achainistrator and the Director of Research and
Planning in the meantime had been inf or:;T32l3'- advised by responsible
officials of the Bip Pour Com"oanies, that they rers^rded any imiaediate
or considerable disturbance of the ^revailin;, price level imiprobable.

No aCjiiinistrative action on the request of the Code Authority
was talcen and the axhninistration "permitted the erner ^enc?/ provisions to
expire on October 1, 1934.

50. EPPECT OP EXPIHATIOK OP SiJERliPHGY PIT FPICS LUVZLS

Insofa.r a.s retail tire -.^irices and orices to comiiaercial users
were concerned, there was no irnr.iediate reaction from the lapse of
emergency restrictions. Shortly after October 1, the procurement
Division of the Treasury Department opened bids on a considerable
purchase of tires for pederal C-overnment 5,epartments . Several comr-
panies submitted bids materially belov/ the mininninr permitted, during
the expired emergency refjala,tions . Among these was one of the three
manufacture! s who had protested that the return to free competition
would result in ruinor.s price cutting. His bid was 17^->- per cent below
the minimum permitted prior to October 1.

As a result 'of this break, conpetitive prices to governmental

Req. No. 9685

-176-

agencies fell raiiidly to the lowest point in months. Price cutting
seemed to he confined to thpt type of accoi^nt, retail iirices remaining
fairly stationary. Retail tire sale's were at a seasonal low ebo as it
wa.s, what price cutting did occur v^rs largely in the form of trade-in
allowances on used tires.

31. SUBSrOTJEiTT TRICE TRSFDS 1/ Tl'i: I'RiDI

One month ffter the terminetion of minimiojii nrice regulations,
on Novemher 1, 19?4, tire manufacturers announced a slight increase in
the consumer list prices of tires. ''I'he amount of increase varied with
gra,des of tires but averaged roUi_,hly 5 per cent. This move was ac-
companied by a general shortening of discounts to dealers and distrib-
utors.

This m.ove was not alone an effort to increase prices charged
consumers, for the amount of increase did not reflect increased costs
of materials and la,bor since the last such readjustment on February 9,
1934. It was but one move in a ;olan to stabilize the entire retail and
dealer price structure, the shortening of de.aler discounts being intend-
ed to lessen the opportunity and incentive to price-cutting. It is not
knovra whether the large distributors of private brand tires Y/ere con-
sulted. As it v\f3.s 3. foi-egone conclusion tliat stabilization could not
be hoped for without this coo-oeration, it is reasonp.ble to assume that
some assurance of such cooperation had been received.

Because the large private brand distributors did not ad-vance
prices on tires at once, the higher retail prices were not generally
observed by the trade. For a time, however, the trend in retail selling
prices was toward higher levels 'chan were in effect under the emergency
regulations. After several we&'-s the lr:r.:e "irivate brand distributors
did advance tire trices in their retail stores, and for a brief period
retail tire prices generally orovided a normal mark-up over the average
retailers costs.

Shortly after January 1, 1935, the raarl-et broke a.nd severe
cut-price competition developed in nearly every section of the country.
Cut-'orice tire advertising v/as featured by dealers and distributors,
trade-in allowances were increased to far more than used tires were
possibly worth, and the discounts extended to commercial buyers and
corporations brought the bu^-^ing nrice of such customers below actual
costs of production and distribution. Dealers were given cut-backs or ■,
rebates to permit them to make such sales at less than their normal
purclia-sing price.

This condition continued, throughout the spring and summer
months. While executives and spokesmen for the manufacturers publicly
denounced unround practices in the industry, yet efforts to brin^, about
more orderlj^ coraoetition proved unavailing until the end of the season.
As of November 1, 193D, the aress renorted the.t the leading tire manu-
facturers had a^jreed to a truce in the price-cutting and that retail
tire prices were to be stabilised at the existing published list.

It is i^enerally conceded that profits for the industry in the
9685

year 1935 have been unsa.tisf actor;'-, des'-iite the favoi'a'ble shov/in^ made
ty one or two concerns who have displayed unusual ability to operate
very economically. At least two small ;;ir?nufacturers have entirely
suspended production, and one of the prominent s;n&.ll manufacturers has
been absorbed by one of the 31^, Fours. While increased requirements
for tires for new motor vehicles has increased, the total volume of
sales statistics now available indicate that domestic renewal sales
will not equal those of 1934.

There is at "oresent, however, a. definite feelinj^ of optimism
in the Industry as to sales increases and iii^^her marlcet levels to come.
Favorable influences cited are the advancement of nev model production
by automobile makers which increases current demand for tires, the up-
ward tre.id of crude rubber "irices, a.n.d the absorption of stochs acquired
by lare'e users and dealers at wa.r-tine prices. It is felt that these
factors may contribute to the ")ernianency of the -^rice-war truce of
November 1, a/nd may bri-.L, an era of stability and orderly competition
at liviii^, levels.

To da»te cooperative effort to improve nia,ri:eting conditions
in this IndustiY na-s either been lackin^: or ha,s failed of effectiveness,
neither by itself nor in cooperation with the emeri^ency regulations
im--)Osed by T.R.A. Ixa-s the tire industry a.-iyproached that degree of har-
mony vihich must be attained if ma^ny of its establisiiments are to endure.

D. CODE AUTIIQa I TIES

The functionin,i of Code Authorities in administration of
Codes for the Rubber Industry -oresents a^lmost every p/nase of such
o^ocration encountered in the administration of the 'Tational Industrial
Hecovery Act. The several methods of selection of personnel emqoloyed,
the use of existin;^- tra.de associations and other agencies, and the
financini^J of code authority o^Terations, -^resent a well rounded picture.
Every de,:;:ree of effectiveness and of airolication to the task confronted
is brought out.

1. SELECTION!, ■ OHGA^IZaTIOT", A1"D AGSITGIIS

(a) The Ilanufacturing Industries

The Rubber Manufacturers Association, which oecame Adminis-
trative Agency for the Rubber Tire and Rubber Manufacturing Industry
Code Authorities, had been a, going concern for some 53 years. It was
arenply financed, had an efficient executive staff a.nd was regarded as an
entirely neutra.l, coo];erative service or^,a.aization by its membership,
conprisine, the majority of both iudjastries. This association financed
all pre-code a.ctivities of the several Code Com-aittees, pla.ced its
staff a.nd offices at the disposal of the various Code and Divisional
Authorities and was prepa.red to assume the expense of Code adivdnistration
without requiring a.ny assuraaice from the Administration as to reimburse-
ment by the Industry.

Both Manufacturin,, Codes called for the election of code
authorities by vote of the Industry. One Code Authority of eight

9685

-178-

menibers v/as to he elected I'or the RuliTjer Tire I.;anuf.act'arii\_, Industry.
In the Rubber ilanufacturin^ Industry, Divisional Authorities were to
be elected for each of the nine product Divisions under each chapiter of
the Code, and the nine cha,irmen of these Divisional Authorities were
to serve as a Master Code Authority under Chapiter I, the 3asic Code.
The President and General Llenager of the Association was to serve as
Chairnian (v/ithout vote) of the tv/o inaF.t'r code authorities, and Ad-
ministration iiembers, without vote, vere to be a^xoointea by the Admini-
strator.

Promptly after the ajroroval" of the Codes, industry elections
were duly held in each division, the code authorities so elected w^re
recognized oy che Adiiu",istration, the raandatory and permissive commit-
tees and administrative agencies v.t-re a v^ointed a.nd a-o-iroved and the
Code Authorities vere prepared to carry on their duties under the Codes.

The Zubber Manufacturers Association was designated under
both codes as the agency for collection of st.atistics, reports and
information. It we^s further desi^aiated by adininistrative order (*) to
act as an impartia.1 as^,ency in connection v/ith the development of a

(*) Ref. Administrative Order 174-G, A'^jroved tferch 1, 1954

sta.nda.rd uniform system of accountin , for the P.ubber Tire 'Manufacturing
Industry.

Its duties and activities cs Administrative A^^ency included:

The naliin^; of re-^orts deslin,, with Ipbor, such e<.s employment,
wa.:,es, ho"j.rs, equitable c.djusti.ie::ts above the minimum v^a^'es, etc.

The nakin^ of reports dealing v/ith r8.w ms.terials, inventories,
production, costs and sales.

Recording; and distribatin;.:; information concerning Code
Authority and Industry a.ctivities under the Codes.

Recordin^; and distributing, filed prices, when required under
the Codes.

The develoyoiiient of a uniform system of accounting and cost
formula.

Special st^^dies, such as the studj^ of a. ma.rket stabilization
plan based upon cost control in the Tire Hanufacturin^ Industry.

The associations coo'serated wholeheartedly ¥/ith the Admini-
stration and \7as prompt a,nd thorou^-h in carrying out these assijinments.

(b) The Retail Tire and Battery Trade

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' ■? 'ationnl Tire Dealers ^ssoci; tion, vxicli p-Tonscred the
Retail Tire and jattery Code v.'ar- a loosel;" l.ii.'.it Association of some
l&O local trade groups. Its Teveivo.e iroii smcIi t_rouis ha.d been ne^-
li^ible and its exi^enses in the soonsorshio a.ri'\ x orniiilation of the
Code had been met oy subsidy from the IIauui:,cturers Association. This
Association lool;ed forwEird to the ivv^roval of u retail tire Code as an
instrui'ient v/hich would sti'en,_-then their -losition in the trade and in-
sure financial :;u^-iort thro\x. h Code assessments.

Bec8Aiss the lar,,.e nuiAber of establishaT-.-'nts in the trade,
estimated at 180,000, and the ntitional distribution of these establish-
ments ma.de the holding of an electio-n difficult, ohe Code ;orovided that
the Code Authority should be aTroointed by the Administrator. Vine mem-
bers were appoi.tted, six representing^ inde lendent dealers in desis^nated
f_,e0t,raphiccil ret,ions, one representin'^ oil com"oanies, one mail order
and cliain stores, and one re-present in;;; r.ianufacturors owning retail
tire stores. The Cjeneral Llanager of the ITational Tire Dealers Associ-
ation was to act as Chs-irman of the Code Authority without vote.

The Administra^tive Order an-'^ointin^ the Code Authority wa,s
issued May 30, 1934, after some hundreds of individual names sut^^ested
by Chose interested in the trade had received due consideration.

The Code Authority met for or.=;anizatio:i on June 4, 1934. The
Code hao yirovided that the Authority ws.s authorized to use such trade
associauions and other a^,encies as it deemed 'Yrcx>e:r for carryinp out the
activities desiL-nated in the Code. The Code, Authoi'ity was further
authorised to establish regional or tra.de area Control boards, with the
a-TprovaA of the Aininistrator , to ;":ct as "irice filinti agencies and ad-
minister otiier provisior:s of the Code in their respective areas.

At the or--,r'niEation meetin-:, held June 4 to 8, 1934, much time
was occupied in discussion of orices a.nd cilleged viola,tions of the ^irice
7;)rovisions of the Code which i::.dividua,l members of the Authority had
observed. Little time "was -.jiven to the i.iatter of organizations. The
Authori^i^y linally ;oassed a resolution authorizin,_., the Chairma,n to com-
plete and presevit to the Administration details of or^anizatio2i of
District Control Boards, approved a. ha.stily thrown tOi_,ether budget and
basis of assessiiient and adjourned. As there were but two subsequent
meetin,_,s of this Code Authority the rea,sons wdi;^ no effective ors..,aniza-
tion \7as ever completed are a,;'roarent.

T:ie Code "orovision that P".i ii.rnartial a,jency be designated
for collection of statistics re-oorts a.nd inforna.tion was never carried
out. i'he rational Tire Dealers Association had done but little in this
respect and exairanation of statements and fi^pares surolied by this
Association indicated that their information as to the extent and
characteristics of the tra.de they re''?resented W8.s very inexact.

?.. ]ri:TA:iCIAL aspects of code AITTHOSITY OFERATICil

Both Kanufacturin,.^ Codes i-irovided tlic;.t me;ibers of the Indus-
try were entitled to 'oartici-'ja.te in all L.ctivitiies of the Code Author-
ities or the Association by becomin members of the Code; further, that

3635

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meuibers of the Code- Sjiould. bear tlieir equitable share of administration
exoense either 'hy "becomiii£i' members of "c?ae Association or by -oaying to
it proportionate p.ujas es determined by 'Che Code Authority, subject to
review 'oy the Adminiatra tor .

xhe Retail Tire and Battery Code orovided for the arxiroval
of an itemized Code Authority budget a'-m basis of contribution by the
Administre.'cor , assessments upon the trad^-' after such ap-^TOval to be
mandatoi'j'.

(a) Financial Administration, Ilanufacturing Industries

Prior to Codas, the Association had collected from its mem-
bers an annual membership fee a.nd an assessment bssed upon tonnage of
crude rubber consu-raed. With the necessity for financing' various Code
Administration costs in the severe,! divisions of the Industry, acting
under a suspension of its by-laws, the Association voted for an assess-
ment of a. percentage of dollar s.'^les in ea.ch division, forecast quarter-
ly and equalized with actual exoense annually. Exceptions to this were
made for the Automobile Fabrics, Proofing a.nd Backing Division and the
Hainwear Division. In the Automobile Fabrics, Proofing and Backing
Division, the a.ssessment was based u-'on a ^ercenta^ge of production pay-
rolls. In the Eain'wear Division a separate itemized budget v/a^s sub-
mitted and aporoved by the Adj-iinistration. This was financed by the
sale of garment labels, the use of which was raandatorj^ u-^on members
of the Industry.

With considerable variation among individual divisions, Code
Authority expense in the Rubber i{anufa.ctarin ., Industry averaged about
one-tenth of one percent of sales. Contributions bein^ on a voluntary
basis there was litcle difficulty as to collection and no members were
cited to the Acbnini strati on for non-payment. Members of the Industry had
supported their a^ssociation for ma.ny years and "pa.id the ir.creased ex-
;)enses of Code administrative almost without protest. This feature of
Code administration prosenced no difficult-,- to Code Authorities or the
Administra^tion. The financial acmini strati on of the associa-tion had been
excellent, a^ccou'its were re^gularly audited Dy "oublic accountanus, and
statements presented to the Administration for review with but one ex-
ception.

In February, 19?5, an order was issued by 't.R.A. (*) requir-
ing aJl Code Authorities operating on the basis of voluntary contribu-
tions to submit deta.iled budgets, -payrolls, etc. to N.Pl.A. for npj)roval.

(*) Administr^itive Order Vo. X-13G, February 26, 19?5

providing that unless a-riroval wa.s ^-i'^^en, f-irther contributions could
not be received 7' or disbursements ma^de.

The Chair.Tia.n of the two Hanufacturing Code Authorities, Mr.
A. L. Viles, requested an ex''. e-ision of the time within which the budt-,ets

9635

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should be submitted and this request was granted by Adinini strati ve Or-
ders. This extension of time had not exiired v/hen Code Authorit7 'activ-
ities v.-ere suspended - May '?7, 1935.

The Annual Report of the Rubber Manufacturers Association for
the year 1934, duly submitted to I'T.R.A. for review showed Code Adminis-
tration expenses for that year rs follows:

Code Administration ezTenses for the year endin^,' 12/31/34
Rubber llanufacturin:. Industry - Code #156.

Automobile Fabrics-Proof in^ and Backing Division $3,3,129.33

Rubber rioorin^ 'Division 4,318.29

Rubber Tootviear Division 23,751.10

Hard Rubber Division 10,051.09

Keel and Sole Division 27,700.16 -

Mechanical Rubber G-oods Division 86,077.77

Spont_,e Rubber Division 3,027.93

Rubber Sundries Division 13,920.63

Rainwear Division 36,996.30

Total Ex-oense - Code #156 $227,972.40

Rubber Tire I.Ianufactiu-in^, Industry - Code #174
Tire Manufacturers 175.168.06

Total Exriense - Code #174 173,168.06

arand Total Expense - Codes #156 and #174 401,140.46

Grand Total Incomes - Codes #156 and #174 435,254.38

Grand Total Ex;opnse - Codes #156 and #174 401,140.46

Excess of Income over Expenses $ 34,113.92

(b) Einancial Admiriistra.tion, Retail Tire and Battery Code
Authority

Unfortunately, the record of successful and satisfactory
financial operation -oresented by the Hajiufacturin.^ Industry Code Auth-
orities is not du-ilicated in the C8.se of Retail Tire and Battery Code
Authority.

It WPS orit;:inally planned tha.t a comiTOsite budget would be
presented covering the expense of the ITationa.l Code Authority and all
of the district control Boa.rds which would be set wi under it. Pro-
posals for the establishment of district control boards of every size
and type, v/ith varyin.^ and often excessive bases of assessment on the
trade for their maintenance, were submitted. These the rational Code
Authority tra.nsvaitted to T.R.A. iTiece-mea.l rnd aiTiarentl;-- ?;ithout scrutiny
or correction. liea/nwhilc,, the ITational Authority's subsidy from the

9685

182

mamif actu.rers association Ooin^f ca?:tailecl once their code was a,p'oroved,
that organization v/e.s itself vrithout fxxnds and incurring indebtedness.

It Tfas then detemined to approve a separate "budget for the
National Code Authority and to deal with district control hoard expense
apart frou th^.t. On August 11, 1934, K.RcA= approved a budget of
$271,000 for the National Code Authority for the year May 1, 1934 to
April 30, 1935, this budget to be contributed by members of the trade
on the basis of one dollar for the first thoiisand dollars of sales
volume, and seventy-five cents for each additional thousand.

One of the IT. R. A. 's regulations. Order X~36, provided exemp***
tion for nehbers of industry coming under more than one code from liabil- .
ity for code assessments under codes applying to other than their principal
line of b\isiness, unless such code authorities had applied for the termina.-
tion of this exemption and their application had been approved by the
Administration, The Retail Tire and Battery Code Authority neglected to
apply for this termination, although advised to do so until the National
code authority budget v/as approved. Their application was noticed for a
public herring to be held on Aiigust 21, 1934,

The terraina^tion of this exemption was a very important issue
in this ccse , Census of Retail Distribution figures indico.ted that of
the estimated 180,000 establishments in the trs.de, only a.bout 11,000
considered tires sjio. batteries their principal line of business. It was
manifestly impossible to collect the funds needed from, this small
group and determined opposition to paj^ment of assessments v;as anticipated
from mail order, chain stores, and oil compe.nies retailing tires as a
side line.

On the da.y of the Public Hearing on the application of the
Retail Tire and Battery Code Authority for the right to assess all
^embers participating in the Trade, 11. R. A. issued another regulation
c on'.lthis-'siajjyoct, This n;-ao Order X-7S, which established permanent exemp-
tion for any wholesale :&f retail establishment ■■ from the necessity of
paying code assessments on any other thaji their principal line of business.

In the opinion of the Retail Tire and Battery Code Authority
this re,gulation effectively ended any possibility of their being able to
collect from the trade sufficient funds to support their activities.
In fact the Ax^'-tliority never ma.iled anj' assessment notices to the trade
until November 15, 1934. Some 30,000 notices were then mailed with a
total return in collections of slightly over $6,000, Meanwhile the Code
Authority continued opera,tions on the same scale as previously, accumulat-
ing deficits in spite of contributions from tire manufacturers paid in
anticipation of assessments to be levied on their retail stores.

The netail Tire andBattery Code Authority submitted to N. R. A.
for approval applications and budgets from 57 local organizations desiring
to be appointed as District Control Boards, The total of these budgets
was over $1,100,000. As these organizations covered only about one half
the market arep.s in the trade it was appe.rent that approval of these
applications i:.-o\ild contemplate an expense for administra,tion of this Code
amounting to at least $2,000,000. Since the experience

9685

"183-

with the national Code Authoritj^'s l^udjet indicated that the collection
of such an amount was i.-mossible as well as unadvisaule, N.R.A. v^fith-
held aTni-oval of tihese a-n-oli cations. Msny of the local .organizations
anticipatinj-; a-p-iroval, incurred oblii2.'atious and the administration
v&s subjected to much criticism.

Finallv, the national Code Authority submitted a. revised
annual bud^^et of $65,840 and a revised be^sis of assessment, members to
pay Eb2.00 for each establishment, -olus $.25 for each employee. This
was ap-oroved by IT.R.A. on Febrn.ary. 5, 1935. Meanwhile I'.H.A. by another
Order, X-131 had iDrovided that members of wholesale or retail tra.des
mifeht pay equitable assessments on Ooher thpn their nrincinal line of
business, securin_. credit at,e.inst their -orincir^al assessment for sum
so paid.

By this time the ineffectiveness of the Retail Tire and
Battery Code in establishin;_, hii.her "trices on tires, which was the
principal thin^^ that the trade had ho-^ed for from it, had discredited
the code with many of the members of the trade. V/hen assessment notices
were nailed, for the most )art they'ere i^-^norBd or protest made to
N.E.A. Some 500 u'ritten i^rotests were received by the Administration.
The tv/o reasons for protest most in evidence were that the retailing of
tires and batteries was a minor item of jusiness and that the Code had
been of no benefit.

It is true tha,t the T.R.A. regulations. Order X-36, and
X-78 seriously handicapped the Code Authority in the collection of
funds. Its oivn ineptitude in -ilannin;-, and or;;anizing for administration
of the Code, and the delay and tardiness in all its actions in this
respect v'ero even greater hai^.dica-os. The association had api5a,rently
had little sur)port within the tra.de it claimed to represent and its
chief revenue had been the subsidy received from the manufacturers
association, and ¥/hich v/as d.iscon.tinu.ed once the Code was approved.
Finally, the Code Authority closed its office in Chicas^^o and suspended
operations, havin.;: an accumulatio: of obligations and no adequate re-
venue from Code assessments.

3. EFFECTIirElIESS OF CODE AUTHORITIES

It is difficult to draw a line in this discussion between
the record of success or non success of codes as instruments for
industrial i2'0"vernment and the effectiveness of Code Authorities as in-
dustrial governing bodies. Tv'hile there may have been examples of a
code authority doinj, a good administrative job with a faulty instrument
and a recalcitrant industry, yet for the most part the three factors,
the effeciency of the code itself, the aibility of the authority, and
the attitude of the industry are inse-iarahly intermingled in the results
obtained.

(a) Code Authorities in the Rubber ivianufacturint. Industry
under Code t156.

The Rubber Manufacturiii^ Industiy Code was in reality ad-
ministered by the nine divisional authorities, each actint, for their

9685

-184-

■t'^'i^icular product groin. The master Code Authority, consisting of the
Chairiiisn of these di^iisipnal authorities, met but 6 times rnd their
actions v/ere mostly formal ratification of £ictions of the divisions.
In fact, the negotiations leading to the aTorova.l of the uniform ac-
counting manual and cost formula were between 1m. H. A. and the Industry
itself, represented by the associo,tion, rather than by the master code
authority.

The divisional authorities demonstrated various degrees of
activity c,nd effectiveness. The Automobile Fabrics, Proofing and 3ack-
inji, Division, the Heel and Sole Division and the Mechanical Goods Divi-
sion were most active in so far as number of meetings held and amount
of work done. The Hard Rubber Division, S-oonge Rubber Division, and
Sundries Division accomplished but little and conditions in these divi-
sions Yiere affected but little by code T)rovisions. In the Rainwear Divi-
sion, although the Code Authority itself held but ei„ht meetings, there
were numerous meetings of trrde Tractice complaints committees and
hundreds of individual cases of wai_,;e restitution were adjusted. This
divisional authority also handled very well the comnlex problems of
label administration and collection of fina.nces through the sale of
labels. ThroUiih the woi'k of this code authority a loosely knit and
scattered industry viras brought together in far more concerted fashion t
than ever before, and the condition of workers v-as materially bettered.

Several ^oroblems arose in the lorocesses of code administration
which are worthy of mention here, inasmuch us failure or delajr in
correcting these conditions in some cases destroyed industry's interest
in their codes rand im^oaired the effectiveness of the code themselves.

In the Automobile Fabrics, Proofing fuid Backing division and
in the Eeel and Sole Division price cutting V'/ars develOTjed, breaking
down the efficacy of the "irice filing -orovisions and in the latter case
resulting in the stayin^: of the nrovisions, themselves, practically
ending industry interest in the Code.

In the Rubber Footwear division the dispute over refusal to
file prices by four important members, and the delay following the re-
ferring of this dispute of the Federal Trade Commission destroyed any
effect the Code mi /nt heve had and all interest members had in it.

In the Rainwear Division, disputes arose over the matter of
code jurisdiction over various ty 5es of apparel. The Industry was
greatly dissatisfied with delay and the action finally taken by the
Administration in adjusting this matter.

The action taken by the Administra,tion in the case of un-
vifarranted and over-zealous activities of the Mechanical Goods divisional
authority, alread^.^ discussed, set very ill with the authority and the
Industry itself.

In the Rubber Floorin.- Division a complete and well drawn
code, a sincere and efficient authority and unusual solidarity and
com.aunity of interest among the 15 industry members contributed to
provide an outstanding case of code effectiveness and improvement in

9685

-185-

I;:jji.&tr.y conditions. Practically every member of this division addressed
letters to the Adininistrr tion duri:„ hearings hy the Senate Finance
Committee, citin^' .^oon effects of the Code and ur.,in^, its continuance.

(b) The P.ubber Tire Manufacturing- Code Authority

In the Ruboer Tire Manufacturing-, Industry the Code Authority
cannot be said to have been an effective or successfiil industrial
t:,overnin;^ body. This conclusion must be tempered by consideration of
;bhe Code itself, v»hich was. at best a compromise between conflictin;^
Industry ;)ro_^DOsals lookin., to >rice fizin;_, and the "oolicies of II. R. A.
in that respect. Furthermore, the api^arent change of ;oolic;- on the
part of the Adrainistra.tion which lorevented ap^Droval of the accounxin^
manual and cost formula as submitted, blocJced plans for market stabiliza-
tion based u")on cosl control e<n<X keenly disap;oointed both the Code
Authority and Industry.

However, the record shov/s that of the ei^ht s'Tecific assi^j^ii-
ments given the Code Authority under the Code, not one ca,n be said to
have been successfully coiicluded in tim.e to have been of any real
benefit to the Industry. To some extent the composition of the Code
Authoritj^ itself was a drawback. 'le.ibers renre^-ented four large and
four siBall establisliments. Often the diametrically opposed interests
"of large and small com-nanies so influenced view-ooints as to result in
a dead lock on the question at issue.

The Retail Tire and Battery Code Authoriuy was a singularly
ineffective body. Lack of funds to finance even individual expense in-
c-orred by members and the fact tha.t they v/ere scattered all over the
country contributed to the result'. However, even at such meetings as
were held, more time vjas consumed bickering over price regulations
than was £_dven to the real 'oroblem of effective organization for
administration of the regulations provided.

The enthusiasm and interest which accompanied the earlier
stages of code authority adm:.ni strati ve work waned in almost every
case. The difficulties encountered in applying some code provisions,
the delay in securin^ governmental action in instances requiring it,
both contributed to this situa^tion. The realization that codes as
written v/ere not a solution of all industry -oroblems and the tedious
and unselfish planning and a,dmini strati on necessary to make even codes
fulfill their -lurpose proved too much for some i;idivi duals. The de-
cline in interest is indicated to soiae extent in the follov/intJ, record
of code authority meetings held. The decline in frequency of code
authority meetiUtiS in 1935 over 1934 is ma.rked:

Humber of Meetings

1934 1935 Total

Master Code Authority Rubber !'fg. Industi-y

9685

none

7 .

8 .

none

"186"

ji..;/Gomo'bile Pa-brics Division
fiubbei' Flooring Division
Eubbei- Footwear Division
Hard Rubber Division
Pleel and Sole Division
Mechanical Goods Division
Snoniie Rubber Division
Rubber Sundries Division
Rainv7ear Division

Rubber Tire Manufacturin;^, I;idustry
Retail Tire and Battery Trade

Total Code Authority i.ieetintiS Held 102 14 116

It is evident th;:t Code administra.tion by Code Authorities
was raa-de more effective vrlien an efficient, adequately financed trade
association was availaole as an administrative p.^ency. The period of t
time codes were in effect i.-as rather short for the code authority of a
previously unor,-ianized industry or tr^de to -lerfect an or^^anization as
effective as that of a c^ood trade associa.tion.

The 'oart-time s.draini strati on members orit,inally an--)ointed on
the Code Authorities were handicaiTied by the facts that they w^re not
familiar v/ith STecific industry -i^roblems and in the time allotted they
could not iFarn enout,h of the sometimes involved Administration pro-
cedure to a,id the authority materially. Later when full-time admini-
stration members v/ere chosen from the trained sta,ff of !I.R.A,, liaison
was materially improved. Even then, the number of code authorities
assigned to each uian handica-roed him in giving enough time to all of them.

An administration member or members trained in ILR.A.
technique and requirements and with sufficient time to ^ave to the work
mii^ht have spurred the Tire Lianufacturing Code Authority to action on
some of the assi^.nments they neglected. He could -lerhaps have steered
the Retail Tire Code Authority throu^,h the financial entanglements which
resulted in their downfall. He surely could have prevented the over-
zealous actions of the iiechanical ?TOods Divisional Authority which
resulted in chart_,es being jireferred against them by 1-T.R.A.

While the effectiveness demonstrated by Code Authorities in
this Industry left much to be desired there is sufficient evidence to
indicate that in some cases' their efforts brought about real improve-
ment in Industry conditions. In those failures which resulted, blame
should be placed perha-os equallj'' uoon the Code provided, the code
authority chosen to administer it and the attitude of the Industry
.nembers themselves toward that form of cooperative effort.

If the spurt in demand for rubber ^^roducts in the fall of
1933 had continued, ?/ith accom-oanying increased activity and o^itimism
in the Industry, the record of accoiip^lislxment under codes of fair
competition might be entirely different. As it was, -oerf orraance fell
short of the announced objectives of the Fational Industrial Recovery

9685

"187-

Act in many respects.

The effect of codes woon standa.rds of labor predents the
most favorable as-oect of the record, thou^-,h even here is found con-
fusing and sometimes conflicting, evidence. Voluntar.;"' shortenir.;^ of
hours of v/ork, and the response to the President's Eeeimiloj'-ment Agree-
ment had increased the number of worJiers and raised wa^es from de~iression
low points. Under Codes, hourly '.^'ages increased steadily but employ-
ment, in man-hours, declined v/ith lack of demand and production.

Undoubtedly Codes increased v\rag,e rates for lo?/er paid
workers. To tha.t extent purchasing power was increased and the standards
of labor improved. But there vras no united action on the part of labor
and management loojiin^' to solution of common T)roblems. The two most
importr.nt cases of non-compliance involved refusals of management to
hold elections for the "ourpose of collective bargaining. Serious threat
of a general strike in the Al^-rron, Ohio district was only stayed by a
truce nending the outcome of these cases in the courts when the codes
ceased to exist. Industry took no action concerning uniform stands.rds
for safety and health of workers or the designation of hazardous occupa-
tions unsuited to minors as provided for in the Codes. As la.bor ma.de
no protest on this, evidently existing sta.te or local laws and self-
imposed standards were considered adequate.

There was some im-orovemont in organization and cooperation ,
amon^ trade grou-os. Mechanica,l Hubber Goods Manufacturers and
Rainwear Manufacturers develoTjed real cooperative industry organizations.
On the other hand, the Codal "leriod sav? the Retail Tire Dealers Associa.-
tion suspend activity a.nd the general failure of regulation in the
Tire Manufacturing^ Division left that Industry less organized than it
had been before. Since the termination of codes, im.portant m-embers
of the tiro division ha„ve withdrawn from the Rubber Manufacturers
Association.

As to tra.de j)ractice, very litcle improvement was brought
about. The few complaints as to violation of so-called Class A trade
practice provisions indicate a relatively high standard of ordinary'
business honesty in the Industry prior to codes. The unsound practices
of profit-less sellin^ and price-cutting solely to destroy competitors
continued. The attempted regulation by minimum prices in the retail
tire trade resulted merely in shifting the method of a.ttack of com-
petition, not in curbing its intensity.

To some extent lack of fa.vorable results may be chargeable
to faulty code provisions. This is -larticula.rly true of the minimum.
price regulations applied in the retail tire trade. Very evidently the
proponents of this measure did not realize the qualit,- of competition
seeking to maintain sales volume in a. declining market. Another example
of ineptitude in code formulation v-ps the provision calliiig upon the
tire manufacturing code authority to secure a^^reement of a majority of
that industry to a Plan for mrrTet stabiliza.tion and present it to the
administration within 60 days. Durin^ six mionths, this particular
industry had as^.reed upon nothing at all, even under the guidance of,
and sometimes strenuous pressure from the Administration.

9685

-188-

These v/ere but contributor^' cau'ies, however. Years of un-
profitable o;ier,"itio-.i, the burden of excess capacity and the declining
demand for products of the Industry liad -produced o condition of in-
stability and of panic. The Industry ?7as fpv fron facin^ the forces
of depression r,'ith a united- front . Le_,islative fiat could not replace
the mental attitude of every man for himself v/ith the attitude of eive
and take for the comiion ,-,ood. The oeriod of code formulation a.nd even
the period of code administration record, a lonf.; drawn out strug^^le by
factions and individuals to preserve or to out-lav: •■)ractices which they
considered to have ira^portant cora-^etitive advantat^jes or disadvantage.

If this judgement of the Industry's attitude seems unduly
harsh, it may be tempt'^red by t'le realization that throUii;hout this
period, the -pressure of comTietition within the Industrjr was not relieved
by any increase in dema.nd for its products. In fa,ct improved quality
and econoiiiy in use, due to the exigencies of depression, continued to
curtail demand.

It hps been sa.id that the chief end of education is tha,t we
learn how to learn. If the rubber industries but learned how to cooper-
ate, even though economic forces "irevented cooiTeration for the time
being, codes may lictve served their purpose to a :j'reater degree than
they have been given credit for here. Ira-nroved i^eneral business
activity and im"^roved demands from industry a,nd transioortation for
products of the Industry may oresent the onoortunity for cooperation
and united action which the Industrv must develo"i if it is to ■nros'oer.

9685

As the si^jnificant developments in. the Ru'b'ber Industry during
the period since the termination of Codes serve to indicate continuing-
prolilems of the Industry as well, this ' Cha.pt er v/ill discuss hoth topics
concurrently, under the captions of (A) Market demand and production
trends, (3) Employment and standards of Labor, (C) Raw material supply
a^nd prices, and (D) Harlceting Policies and Prof itahility.

A. liATiKST DSLLAilD AlID PHODUCTIOBT THEIIDS

Du.e to the diversit;- of uses for ruhber goods other than tires,
the production trend in that division of the Industry is inclined to fol-
lov: general "business activity closely. Here are products ranging from in-
dustrial equipment to clothinr:, household articles, toys, and novelties.
Fluctuations in prociuction of one article are counterbala,nced 'by another,
and considered as a A-ihole, the production index will rise or fall with
that of what may 'be termed genercJ merchandise.

Tires, on the other hand, enter the field of transportation,
public and individual, either as eouipment on ney/ly manufactured au.to-
mobiles and trucks, or as replacem.ents on those in use. In the first
instance, demand follows directl'-' automotive production, and in the
second it is affected "o'f the number of cars in use, the amount of driv-
ing done, the increasing life of the product in service, and other fact-
ors such as retreading.

Thus the index of production of rubber goods other than tires,
while lagging somewhat behind the previous year durin'_; the first ha.lf of
1935, has risen sharpl;.?- since then and is now at a higher point than at
any time since 1930. This has increased ra,\Y material consumption and em-
ployment in that division of the Industry.

A^^tomobile production in the first months of 1935 stiraalated
production of tires. Another factor v/as 3,pprehension of labor trouble
and the possible interruption of plant operations, should that occur.
Renewal tire sales, however, lagged behind those of the previous sea-
sons and production in June, July, and August fell off to the lov/est
point in three years.

These months, hov;ever, saw material declines in stocks on
hand so that the requirements for ecraipping new cars following auto-
mobile manufactLirers introduction of new models, and the necessity for
accumulating stocks for vdnter and spring shipments to dealers and dis-
tributors, combined to bring November and December production activity
to very high levels. ■ '

The advanced date of announcing hew automobile models means
tha^t tire requirements for that -market are but borrdv/ed against produc-
tion that vrould normallj'- come in l-9o^". It is now 'Clear that sales of
tires for renewal purposes in 1935 will not equal those of 1934. Since

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"but four manufacturers partici;oate in original equiioment "business, unit
production and sales for jnost mauuf actarers vdll have been less for 1935
than for the previous year. BTor is the present outlook for renewal of
sales in 1936 much hrighter, as we shall see.

The Euoher Manufacturers Association, in a hrief sut-nittfed to
N.R.A. in 1933 stated as follows:

heen:

"The average mileage afforded "by tires in service has

Year Average Hileage

1914 3,500

1922 8,000

1930 -15,000

1933 20 ,,000

"The present day tire "ill on the average
afford approximately 20,000 miles and rhen carefully
supervised as to inflation, proper mounting and proper
loads, frequently affords as high as 50,000 miles and
sometimes as much as 65j000 to 75,000 miles. '^

This improvement in quality and the increa^sed mileage "built into
tires is naturally dra,wn upon e-ven more "by the user under the exigencies
of depression conditions. Tires formerly discarded soon after the non-
skid tread design was worn smooth are now continued in service for thous-
ands of additional miles. T'Jie practice of retreading tires once removed
from service has increased very rapidly, Mr. £. G-. Holt, Acting Chief,
Leather and Euhher Division of the Burenu of Foreign and Domestic Commerce
in a "bulletin issued Septem"berj 1935, states that at least two million
tires will "be retreaded during 1935.

As retreaded tires will afford mileage at approximately half
the present cost of new tires, this "business will prove a considerable
deterrent to increases in tire prices and will mean further displacement
of new tire production if tire prices are raised.

¥ith the increased m.ileage delivered by tires and the present
practice of automobile manufacturers equipping all new cars at the factory
with one or often two spare tires, the length of timie before the new car
purchaser becomes a renewal tire b^oyer is increased, For the most part
cars are operated well into the second year before tire replacements are
necessary. In f acii , heavy sales of new automobiles may decrease renewal
tire sales temporarily, by retiring into dealers' used car stocks automo-
biles which would require tire replacements if on the road.

It is doubtful, therefore, if renewal tire sales in 1936 will
exceed those of 1935 and increases in tire production will depend entirely
upon increased automobile manuf a.cture.

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B. EMPLOY[.IEHT ilTD STJilffiiUDS OF Li30R

The passing of IT.R.A. codes did not see any immediate or marked
departure from existing standards as to hoiirs and wages in the Ruhter
Industry. In one respect the industrial relations situation was definit-
ely cleared "by the Supreme Coiurt decision. The United States Circuit
Court of Appeals on June 7, 1934 ruled in favor of the Goodrich and Fire-
stone companies' action seeking to restrain the National Lator Relations
Board from forcing elections at their plants for the purpose of collec-
tive hargaining. With these decisions the threat of a general strike
in the ilrron ruhber factories dissolved, at least for the time "being.

That later months saw a gradual lengthening of hours of work
in the Industry is a matter of record. The months of July, August,
September, and Gctolier 1935, provided an increase in man hours of em-
ployment in the Industry of 9 per cent over the same period of 1934.
The average number of workers given employment during that period, however,
was about 1600 less tha:i in 1934, a decline of 1.4 per cent. The decline
in employment wa.s altogether in the tire division of the Industry as other
manufact-ure showed a net increase in number of workers employed.

.Late in the fall of 1935, the Goodyear CorapaJiy announced their
intention of abandoning the 6 hcai- wcric-shift plan xfhich they had put in-
to effect' in October 1930. The management announced to employees that
this change to a basic 8 hour day was in order to provide greater flexi-
bility and a part of their general program to stabilize year-round em-
ployment on the basis of 144 hours per month at an average monthly wage
which should provide a higher living standard than existed in pre-depres-
sion days. However this monthly wage contemplated. a'red.uction in average
hourly wages then being pajd.

The workers in Goodyear 's plant objected strenuously to this
proposal. ■ The request of the company union for a factory-wide refere-
ndum V7as refused by the management,. The. workers then carried the dispute
to the Secretary of Labor, who appointed a fact-finding board to make
inquiry into the situation. The report of tlais .bpard was favorable to-
the workers' side of the argument and critical of the company's proposed
action. According to press reports the Goodyear Company has announced
that increased production has. made the change .unnecessary and that for
the presp^nt there will be no lengthening of.- hours of work in their plant.

• This controversy is significant in that it represents an effort
by one of the largest employers of la.bor in the industry to effect economy
at the expense of labor, lengthening hours of work and reducing hourly
wages despite the fact that this must increase the number of unemployed
and add to the burden of public and i^rivate relief agencies. Here is a
concrete exc-jnple of the security and return of labor being undermined as
a direct result of futile and destructive, competition in the market-place.

In his report "Labor Productivity , in the Automobile Tii® Indus-
try", Mr, Boris Stern, of the Pepartiaent of Labor, states:

"From the point of view of labor employment
the Tire Industry appears, to be 'b'urning the candle at
"both ends', reducing the total demand for tird.B by

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improving the qupiity of the tire .gnd at the same time
further reducing the dferaand for lahor "by contin-aally
increasinjf the output per man hour. There is at present
no indication of any change in this trend. Unless there
is an inforseen, enormous increp.se in the total demand
for tires, or unless defijtite steps are talcen to increase
the volume of employnent in the Industry "by shortening
the hours of work, there is houjid to he further reduction
in total req-airements for lahor and therefore further
ujieraploynent in the tire industry.

"* * * * The shorter shift nnd the shorter
week, accompanied by adjustments in the hourly wages,
ma;;'- result in an increa,se in the laDor cost of tire
production. This is not an impossiole development in an
Industry which for more than a decade has diverted to the
consumer nearly all the oenefits arising from the improved
quality of the tire a^id from the lahor savings caused by
technological changes, in terms not only of a better tire
but also of much reduced prices per tire.

"* * * By eliminating cut-throat competition
* * * * it would be possible for the tire manufacturers
to divert some of the benefits a.rising from further
improvement in the quality of tires or additional savings
in labor tow.ard the employment of a larger volume of labor
and a shorter working week. This alone will safeguard the
Industry from further increase in the ranlcs of its unemployed
workers. "

This statement was written in 1933 when the Industry was general-
ly operating on a 6 hour day and not to exceed a 30 hour week.

The Industry is deserving of credit for their voluntary shorten-
ing of hours to spread work in 1930. Equally so are they now open to
criticism for any effort to effect economies at the expense of workers,
to offset losses incurred in unsound distribution practices.

Perhaps the most pressing present problem in the Industry and
one that will continue to call for a solution, is to provide permanency
and security of employment for the workers who have been recruited to and
trained in and who now are dependent upon the rubber industries for their
livelihood.

C. EAW ivlATERIAL SUPPLY AMD PRICES.

The Rubber Industry has enjoyed a year of comparative stability
in supplies and prices of its principal raw materials, crude rubber and
cotton. In this connection, interest is naturally centered upon crude
rubber because of foreign control over that commodity and previous wide
fluctuations in supply and price, with their attendant hazards for American
Manufacturers.

While manipulation of production quotas by the international
9685

-^193-

rubter regnlation committee has not to date affected any great reduction
in world stocks of crude ruoyer, this of course is the avowed intention.
This tends to increase prices, and the _ lie w York price has risen during
the pa.st year, with "but temporary recessions. United States consumption
of rutter has accelerated sharply d'oring the last half of 1935 and domes-
tic stocks of ruhtier have declined. D-oring Octoher, November, and Decem-
her 1935, United States consuiaption has exceeded importation "by ahout
15,000 tons per month. It is now said that because of quota restrictions
upon exports in the producing countries of the Par East, our manufacturers
may soon have to purchase rubber in the London ajad Liverpool markets,
where stocks are available. This will mean further increase in price.
Unofficial estimates by officials of the Bureau of Foreign and Domestic
Commerce are that the Hew York price of crude rubber may easily reach 18
or 20 cents during 1936.

Increasing prices of raw materials have usually been accompanied
by increased profits for the Industry. This is not alone due to specula-
tive gains on inventories, but due to the salutary effect of increased
material costs upon operating and marketing policies. From this viewpoint
increased costs of crude rubber would by no means be an unmixed evil.

Increased crude rubber costs naturally stimulate the production
and use of substitutes for the imported article. At present the only
important substitute for crude rubber used in United States manufacture
is reclaimed rubber. Although the greatly improved quality of reclaimed
rubber and its increased adaptability to use in vs.rious articles of manu-
facture have rendered it less susceptible to fluctuations in price of crude
rubber, some stimulation of production would be effected. The Bureau of
Foreign and Domestic Commerce Rubber Industry Letter of May 8, 1934, states:

"It is probable that a sustained 15 cent price
for rubber would within two years result in 30 per cent
as much reclaim as of crude being used in this coiontry
and that 40 per cent might be possible of attainment with
20 cent rubber. Even a sustained price of 12 cents for
crude rubber might result in a 30 per cent use of reclaim
within three years. "

Therefore, present crude rubber price trends will stimulate
production and employment in this division of the domestic industry, an
eventuality greatly to be desired.

One large imerican manufacturer of chemicals has developed a
synthetic rubber which has most of the desirable qiialities of crude rubber
and is markedly superior to it in some respects. This product is already
used in the manufacture of hose for handling oils, gasoline, etc., for
tank car linings and for coating fabrics. Production facilities are as
yet very limited and prices prohibitive for many uses. In Germany the
development of synthetic rubber is being aggressively pushed ajid in
Russia, with their policy against importing raw materials, the production
of synthetic rubber and its use in tires and other products is already a
large-scale operation.

While the Department of A§ricuJ.ture is experimenting extensively
9685

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with the culture of rub 1)91- prodacinc plants on American soil, there is as
yet btit one commercial venture in this field. Guayule , a shrub native
to the arid areas of the southwest, is being gro^nn and rubber produced
from it. The present quality is unseat isf act ory but improvement is being
made.

Progress in the field of substitutes for imported c'2:iide rubber
has been sufficient to indicate that there are possibilities the Industry
may do well to talce into accoriit in their expenditures for plants and equip-
ment suitable only for processing the present rav; material.

D. MARKETING POLICIES ilvID PHbFITAIuLITY

At the time of the Si^preme Court decision effecting H.R. A. the
Rubber Industry was embroiled in price-cutting competition affecting a
number of important product divisions of the Industry, These included
tires, heels and soles, rubber sundries, and automobile fabrics. As the
tire situation is typical of the price policies of the Industry and is at
the same time most readily follo'.ved,— the- following discussion will be
principally concerned with it.

The efforts of the Rubber Manufacturers Association and of
leading manuf act'orers had effected a price stabilization truce as of
November 1, 1924, follovring the discontinuance of the minimum retail tire
prices fixed oy N.R.A. This xerogram had held together until shortly after
January 1, 1935, when the Industry again became involved in disorderly
price competition which soon sent quotations below cost. of .manufacture
and distribution. This was but temporarily halted on May 1 by a general
agreement based on a suggested consumers list price about 10 per cent be-
low the list prices issued on November 1st.

This time, it is said, the market was broken by the desire to
liquidate manufacturers' heavy stocks of tires b^iilt up early in the year
in anticipation of possible labor troubles, and interruptions in plant
operation. Vfhatever the cause, the price situation became thoroughly,
demoralized and continued so throughout the summer and until November 1st,
when manufacturers generally announce their programs for the season to
come.

November 1, 1935, brought another cessation of hostilities,
this time undoubtedly influenced by complaints from disgruntled security-
holders and unfavorable comment on the industry's tactics in the public
press. A delegation of sales executives of leading companies made a cir-
cuit of important cities, holding mass-meetings of tire dealers and dis-
tributors in an attempt to sell the program of more orderly competition.

In the m.eantiE?e the National Tire Dealers Association had been
reorganized and had made a request to the Federal Trade Commission that
that body formulate a code of fair practices for the Industry. The Commis-
sion has proposed to miinuf acturers, wholesalers and distributors, includ-
ing mail order houses and oil com.panies, that a conference be held to
consider such a step. It is entirely possible that most of the Industry
will welcome the chance to discuss opportunities for improvement.

Two chief executives of lea,ding companies in the Industry have
9685

-195-

recently made pulDlic statements, decrying "unso-uiid narketing practices",
and announcing that their influence vflll he thrown to^^ard stahilization
at more profitahle levels. In a hulletin to the Goodyear sales and dis-
trihuting organization, President P. W. Litclifield made this declaration
concerning 1936 operations:

"1. Positive stahility of price this year to
all classes of Goodyear customers will he insisted upon.

"2. Operations must he at a profit.

"3. Prices vjill not he sacrificed to increase
volume of production.

"4, Elimination of the special warranty -
unlimited guarantee on tires against all road hazards -
at the earliest possihle date." •

It is generally conceded that the year 1935 has heen one of
unsatisfactory earnings in the Tire Industry as a whole. Only a few
company profit and loss statements have heen published and among these
but one company. Pirestone, has reported earnings equal to those in 1934.
General Tire and Rubber Company, fifth largest in the Industry in sales
volume, reports a net loss from operations for the second time in their
history since 1915.

During the year two small companies have been absorbed by com-
petitors, two others have suspended operations. Competition of the tj'pe
existing throughout 1935 has indicated clearly a war of extermination,
intentionally destructive price cutting, no less.

Unless the Industry unites upon some program and develops a
greater unity of purpose and degree of harmony in maintaining that program
than has been shown heretofore, there is little hope of better times.
The mortality of establishments and dissipation of capital will continue
until a state of complete monopoly is reached.

9685

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APPEin^IX I

I. SCOPE OF STUDY

The Planning: Committee of the Industry Stuo.isG Section orig—
ina,lly clesi^^nated the Rather Industry Study ar^ a minor study.

In a conference held Septemher 16,1335 v'ith the staJf assigned
to the project,, the Planning Com-iittee outlined the intended oh.jectives
of the Study. The Chairman of the Committee stated that the ohject ive
was to record the determination, operation and effect of price control
provisions in the Rubher Codes, pe.rticularly the use of the Declaration
of Emergency device and the minimim price regula-tions estahlished in the
Retail Tire Trade.

To attain this ohjective and s et forth aneccoujit of price con-
trol in this Industry in proper ]3 rs^re ctive as t o t he need for such
.JB.gulation there was needed:

(a) A survey of the Industry a,s to its extent, statis-
tical and technica.l position, relationships with workers,
users and other industries, and its long continued record of
unprofitahility.

("b) The raajor and spe cial prohlems of the Industry, for-
eign domination of raw materials , over-expansion, limitation of
rae,rkets, price instability and internal discord.

2. i,3!TH0D0L0GY ' .

There were in all f o-ar approved Codes applying to divisions
of the Rubber Industry and Trade. These^ divisions ^,7ere the Rubber Tire
ManufactvJTing Industry, the Rubber I.'anufacturing Industry (other ths.n
tires) the Retail Bubber Tire a.nd Battery Trade, and- the Reclainsd Rub-
ber namjjTacturing IndListry. Only the first three divisions have been
dealt rith in this study.

The chief source of data was of course the files of the Hat—
iona.l Recovery Adjuinistration. During the formulation a,nd operation of
the Rabber Industry Codes there had been accumxilated a large amount of
information relative to conditions in the Industry, statistics, cost
and price da.ta and correspondence w ith trade bodies gjid individuad mem-
bers of the Industry.

Other sources of data, were:

United- States G-ovsrn]?ient De'pa. r.tments ani Agencies ,

'' Bureau of Foreign and Domestic Commerce, Department of Commerce,
B'ureau a£ the Census, Department of Commerce
Bureau of Labor Statistics, Depe.rtment of Labor
B'JjL-eau of Internal Revenue, Treasury Dejartm.ent
Securities ezid Exchange Commission

Private orgajiizations and agencies,

Rabber Manufacturers Association, Inc., New York
9685

-197-

. Eubber G-rowers Associaticn, Inc., London, En.^land
E-ani n,nd Brads tree t Inc., Hew .York
Standard S'tatisticG, Inc.
Professor W. ?'. Leigh, the Universitj'- of Alcron

, Publications quoted or refe rred to,

America's Capacity to Prouuce, Edwin .G-. Noiu'se, The Broolcings

Institute
Analyzing cor Industries, Prazier and Doriot
. Lahor Productivity in the Rubber Tire Industry, Boris Stern,
the Department of Lahor
Rubber Restriction imder the Stevenson Act, J. W. P. Rovie ,

Lon^l.on and C:imbrid.'3:e Economic Service
The Modern Cor^Doration and Private Property, Ac'olph A. Berle ,
Jr., and C-ardiner C. Means,

The three individuals who assembled information from these
so"UL-ces . and later wrote the text of. the re'oort have each s^?ent many
years in the Industry itself and Tirticipatod in the entire iDeriod of
Code Aujninistration under the ?Tational Recovery Administration. Evalua-
tion and interpretation of the data presented is therefore coupled with
individual experience and faiowledge . Interpreta.tionc , statements, or
opinions unsupported by fa.ctrml data, -are cidvanced only when a.greed upon
by the writers.

Because of individual. .?„cauainta,nce or exi">erience with the
subject trea.ted, Cliapter 11 of the renort was comioleted by Mr., W. H.
Cross, Clia.pter IV "oy Mr. J. H. Lenaerts, and Chapters 1, 111, V, a^nd
Section C-? of Cha:oter IV by Mr. G. S. Earseman.

In the text of the report annota.tions have been kept to the
necesSvary mi-iimjjm'. Tnis was done to make for easier reading, much
of the subject matter being, perforce, dry narra.tive of procedure in
administr.ation. All v.rork materials haVe been preserved in proper
form and. work sheets are fully documented as to source, data and
v/ritcr.

s. i:tcompl"ste aspects op the report

The report is neither a comiolete sxirvey of the Rubber Indus-
tries nor a complete narrative of their experience under Codes of Fair
Competition. The writers were under ma.ndate from, the Planning Committee
to present a complete res^jme of the Emergency minimum price device, and
of the opera.tion of other jirice sta.bilization provisions ¥;hich would
add information as to the Industry's reaction to regulation on this
point. Other problems existing in the Industry and other phases of
code administration are only treated ijisofar as they bear Uioon the price
situation or vrere affected by it.

4. 0TH5]R issues ^HIC?: MAY PROFITABLY BE EXPLORED

The tres.tment of the sitioatior of labor .and of industrial re-
lations in the Industry is very incomplete. The previously unorgan-
ized state of labor, the rapid development of company -unions following

9685

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the passage of the National Industrial J^ecovery Act, the recent for-
mation of a 5'ed.eral Union recognized 'by the A. 7 . of L. and the -oroh-
lems confronting that organization are well worthy of careful study.

The marked dis-parity betrjeen wai:"e rates in the Altron, Ohio,
district and those elsev^here in the country should he studied. Because
at least 60 pei* cent of tire /jroduction is concentrated in the JUcron
district this factor increases the differential a.lreadj'" existing
between wage rates in the tire ahd other rubber goods manufacturing
divisions. Further, .although hourly wage .rates have been comparatively
high in the tire industry and even anntial earnings have been higher than
in most other industry, the very low share of "va,lue a.dded by manu-
facture" repi'Bsented by ivages calls for more careful a.na.lysis than
could be given it here.

Certainly many a^djustraents must be m.ade before the outlook
for labor in this IndListry may be considered a favorable one. All
research and fact-finding 'which may aid in malcing these a.djustments
on an amicable basis should be furthered as much as possible.

l-Io attemiDt ha.s been made to forecast trends of demand or
production. The considerable excess productive capacity of the
Industry at present is obviously the result of bad guessing in this
respect in the past. The raiDid obsolesence of costly production
equipment such as tire molds, due to ciianges in sizes and designs,
mea.ns that much existing equipment v/ill never find use. Few in-
dustries are so fortunate as the tire industry in the wealth of sta-
tistics available as to market possibilities. The registration of
motor vehicles provides accurate data as to size, type, location, and
use. Gasoline tax data provides current information as to consump-
tion of motor fuel and therefore mileage driven and tire consumption.
Yet the industry lias obviously guessed badly again and again on market
requirements. The development of an adequate formula for forecast-
ing is greatly to be desired.

In a purely utility -oroduct such as tires, there seems to
exist an unneeded diversity of sizes, tjnies, and qua.lity lines. This
has been commented on in the report. Study which would develop
definite recommendations for standardiza.tion of product wo-old be
profitable.

Finally, the subject of cruae rubber sur-ily and price with
all the implications as to domestic development of substitute's, and
the effect on world trade , presents an opportunity for profitable
exploration. America is the largest consumer of rubber and as yet
is almost entirely dependent upon foreign sources of suoply.

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APPEIIDIX II
THE EUI!B"5?. illDUSTHY STUDY

General Explanations and Limitations of the Data included in the
Eabber Industry Study, secured from the Bureau of Internal Revenue,
United States Treasury Department: ■

(Quotations from letter dated January 27, 1935, received from the
Treasury Department. )

"Extreme caution must be exercised in the use of the date. The
definitions of the items from which ratios and percenta^;jes will he
computed must "be kept in mind, as well as the difficulty of a comparison
over a period of years. The major changes affecting the industrial and
other classifications under wnich the return were tabulated, and the
provisions of the revenue acts under which the returns were filed, which
have occurred in the years 1936 - 1933, inclusive, are listed below.

"1. The data shown in the tabulations are taken from returns as
filed and prior to any revisions or adjustiaents that may have subse-
quently been made as a, result of an audit by the Bureau of Internal
Revenue and without any analysis or adjustment of the underlying charges
and credits leading up to the fiifures on the returns, nor an adjustment
of the data reported on the returns to a common method of accounting.

"2. The statistics tabulated from the returns are limited to the
information as reported by the taxpayer and include only the data that
are available and can be definitely allocated. It frequently happens
that (a) the returns are not completely filled in, or (b) if they are
filled in, the information is reported in a manner which precludes the
possibility of allocating items to the definite minor classifications.

"3. The tabulations for each year include calendar, fiscal and
part year returns. The fiscal and part year returns are those for which
the greater part of the period falls in that particular calendar year.

"4. The industrial classification is based on the predominant
business of nonaffiliated cori^orations or of groups of affiliated cor--
porations filing a single return. The industrial groups, therefore do
not represent corporations engaged purely in the industries in which they
are classified, du.e to the diversified industrial activities of m.an;/ cor-
porations and especially to affiliated corporations filing consolidated
returns, which latter include the income, deductions, assets and liabil-
ities of the subsidiary corporations. If such subsidiary corporations
could be segregated, many might fall' in incustrial divisions other than
those in whish they are included.

"5, Strict comparability of the corporation income tax data from
year to year is not possible. Shifts in the data in the various classi-
fications are due, among other causes, to changes in the predominant
business reported in the returns and are accentuated by consolidated
returns being filed for concerns formerly filing separate returns and
the disintegration of groups of concerns filing consolidated returns.

"6. Changes in the provisions of the reventie acts under which the
returns for given years are filed also interfere with a precise

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comparability of the data over a period of years. The major chaiiges for
the years 19.25 to 1933, affectiiie; the data included in these taoulations
are as follows:

"(a) Additional rates, first imposed hy the Revenue Act of
1932, are applied to the income reported in consolidated returns.
These hi.jher rates were probahly influential- in tne reduction of
the nijmber of consolidsted retui-ns filed in 1932 and 1933.

"(b) The statutory net income is the e:cces^ of gross income over
deductions as defined by lav/. losses sustained during a taxable
year not comoensated for by insurance or otherwise, are entirely
deductible from gross income, except that for years 1933 and 1933
losses from sales or exchanges of stocks and bonds held two years
or less (other than bonds issued by a government or political sub-
■ division thereof) are allowed only to the extent of gains from such
sales. This limitation on the deduction of losses for 1932 and
1933 does not apply to banks and tinist companies. The net loss for
prior year (resulting from the operation of any trade or business
regularly carried on) which is allowed as a deduction according to
law, has not been subtracted from net income in these tabulations
because it was not considered a current year loss.

Assets and Liabilities
"7. All items of assets and liabilities, as well as 'Total assets

and/or Liabilities, ' represent einounts shovm in the balance sheets as of

the end of the taxable year.

"8. Cash - Includes cash in till and deposits in bank.

"9. Investments, tax-exempt - Includes obligations of States and
Territories or minor political subdivisions, securities issued under the
Federal ?arm loan Act, and obligations of the United States or its
possessions.

"10. Preferred and conr.ion stock - Shifts occur between years in the
amounts tabulated as ' Comiiion stock' and 'Preferred stock' due both to
variations in reporting these data and to the method of tabulation. For
balance sheets in which common and preferred stock are not reported sep-
arately, the combined amount is tabulated as common stock. For balance
sheets with no par stock and reporting capital stock value, the procedure
has been as follo-A's: For 1925 - 1931, the amoimts were tabulated iinder
'surplus and undivided profits', for 193^^ and 1933, the amounts of no par
common stock and preferred stock were tabulated under 'common stock' and
preferred stock' respectively. /For balance sheets with no par stock and
not reporting capital stock value, the' net worth was tabulated under
'surplus and undivided profits.' Your attention is called to the fact
that the amount of -creferred or corai.ion stock contains only the amount
issued or outstanding (imissued stock is not included.)

Compiled receipts and statutory deductions

"11. G-ross sales - The item 'G-i-oss sales (less returns and allow-
ances)' is really net sales because the amounts of returns and allowances
or discounts from the sale price have been deducted from the amount of
gross sales. The costs connected vrith these sales in so far as the data
were identifiable ai'id tabulated as 'Cost of goods sold' under 'Statutory

9685

-201-

deductions. '

"13. G-ross receipts from other operations - The cost of operations
has not been deducted.

"13. Dividends received froH domestic corporation s - The arjomits
tabulated for consolidated returns in v^eneral exclude inter- conroany
dividends.

"14, Interest on tax-exeupt oblis;ti.tions - Includes interest on
oblif^jations of States and Territories or minor political subdivisions,
securities issued under the Federal Farm Loan Act, and obligations of
the United States or its possessions, . . ...

"15. Total compiled receipts — Includes net profit from sale of
capital assets (real estate, stocks, bonds, etc.) but not gross receipts
from these items. Excludes nontaxable income other than interest on
tax-exempt obligations and dividends on stock of domestic corporations
as reported in Schedule L of the return,

"IS. Cost of goods sold - Tliis item represents only such amounts
as were shoim specifically amonr items on the fact of the return under
'Less cost of goods sold.' Items which m^ay be allocable to 'Gost of
goods sold' but v\?hich were reported under 'Deductions' on the facs of
the return are included under 'Miscellaneous deductions. ' As an ill-
ustration, on the 1933 return the amount tabulated as 'Cost of goods
sold' includes salaries and wages only when shown specifically in item
.2(c) on the face of the return. Salaries and wages which may be alloc-
able to item 2(c) but which were reported elsewhere on the return are
tabulated 'Miscellaaieous deductions. '

"17. Taxes paid other than the Federal income tax - does not in-
clude amounts tabulated in 'Cost of goods sold.'

"18. Depreciation and depletion - The amounts tised in the study
are allo--7able deductions reported on the face of the return. If items
of depreciation and depletion are found in 'Cost of goods sold' Cost of
operations' or 'Other deductions authorized by law,' they are removed
from these categories and tabulated as 'Depreciation' or 'Depletion. '
When such removals occur necessary adjustments are made in 'Total cost
of goods sold", 'C-ross profit from sales,' 'Total cost of operations,'
'Gross profit from operations' , and 'Total income.'

"Annual statutory depreciation is predicated on cost or value as of
March 1, 1913, of capital assets (not however including land), whereas
the balance sheet fi^gures for gross property account represents the
amount shown in the financial state nent of the corporation, and may not
be cost of property, due to adjustments and revaluation up or down. For
this reason, it is impossible to determine accurately the percentage of
depreciation sustained annually on the basis of the data contained in the
tables. The annual depletion is likewise determined by statutory pro-
visions and cannot be related to the current book value of the depletable
assets. Also, in this connection, your attention is called to the rul-
ings on depletion which are found in Regulations 77 . Income Tax, Revenue

9685

Act of 1932, Articles 221-248, pp. 50-83.

"19. ' Mi s-cel laneous ' item - The talDulation of certain items of
assets, compiled receipts and statutory deductions nas "become more
complete over a period of years, with the result that substantial
amounts have "been removed, from the 'miscellaneous' groups. Consequently,
the 'miscellaneous assets', 'miscellaneous receipts', and 'miscellaneous
deductions' a.re not coirrpara'ble throu^iiout the j''ears 1926 - 1953. Items
which were included in ' uiscellaneous ' gi'oups and not ta"bulated separat-
ely in the years shown 'jelow are as follows:

Investments, other than tax-exer-ipt 1926-1928

Hents received 1926-1923

Profit from sale of capital assets 1926-1927

Compensation of officers 1926-1927

Bad de"bts 19 26

Loss from sale of capital assets 19 25-1929

"20. Cash dividends -!:r;id - The amounts tabuiated for-^ponsolidated
returns, in ^^'eneral, exclude inter- company ddvidends-.

"In a study of statistics compiled from income tax returns, it mast
"be "borne in mind that returns are filed for tax ourposes rather than for
economic analysis and tne data are talcen from returns as originally
filed "by the taxpayer and prior to an audit "by the Bureau. Therefore,
in the finer sense it is not possi'ble to secure true indexes or ratios
"between selected items as representative of given businesses because of
these conditions.

"The statistics from the returns truly reflect, in a broad sense
and in aggregate, the economic cnfmges from year to year, 'Dut in the
refined classification by industries, by sources of profits and losses,
by assets and liabilities and related items, the above considerations
must be taken into account, together with the 2"'i"ovisions of the revenue
acts affecting income and deductions defined for statutory income tax
purposes.

"You are referred to the text in each volu:ne of the Statistics of
Income for 1925-1933 for a description of the tabulation of corporation
income tax returns in any particular year. Also, your attention is
called to the sjniopsis of Heveaiue Acts 1909 - 1933, which is contained
in the 1933 Statistics of Income . Table 'D of this synopsis, on pages
220-221, contains the corporation income tax provisions."

9685

OFFICE OF THE NATIONAL RECOVERY ADMINISTRATION
THE DIVISION OF REVIEW

THE WORK OF THE DIVISION OF REVIEW

Executive Order No. 7075, dated June 15, 1935, established the Division of Review of the
National Recovery Administration. The pertinent part of the Executive Order reads thus:

The Division of Review shall assemble, analyze, and report upon the statistical
information and records of experience of the operations of the various trades and
industries heretofore subject to codes of fair competition, shall study the ef-
fects of such codes upon trade, industrial and labor conditions in general, and
ot.ier related matters, shall make available for the protection and promotion of
the public interest an adequate review of the effects of the Administration of
Title I of the National Industrial Recovery Act, and tne principles and policies
put into effect thereunder, and shall otherwise aid the President in carrying out
nis functions under the said Title.

The study sections set up in the Division of Review covered these areas: industry
studies, foreign trade studies, labor studies, trade practice studies, statistical studies,
legal studies, administration studies, miscellaneous studies, and the writing of code his-
tories. The materials which were produced by these secti:ns are indicated below.

Except for the Code Histories, all items mentioned below are scheduled to be in mimeo-
graphed form by April 1, 1956.

THE CODE HISTORIES

The Code Histories are documented accounts of the formation and administration of the
codes. They contain the definition of the industry and the principal products thereof; the
classes of members in the industry; the history of cede formation including an account of the
sp)nsoring organizations, the conferences, negotiations and hearings which were aeld, and
the activities in connection with obtaining approval of the code; the history of the ad-
ministration of the code, covering the organization and operation of the code authority,
the difficulties encountered in administration, the extent of compliance or non-compliance,
and the general success or lack of success of the code; and an analysis of the operation of
code provisions dealing with wages, hours, trade practices, and other provisions. These
and other matters are canvassed not only in terms of the materials to be found in the files,
but also in terms of the experiences of the deputies and others concerned with code formation
and administration.

The Code Histories, (including histories of certain NRA units or agencies) are not
mimeographed. They are to be turned over to the Department of Commerce in typewritten form.
All told, approximately eight hundred and fifty (850) histories will be completed. This
number includes all of the approved codes and seme of the unapproved codes. (In Work Mate-
rials No_ 18, Contents of Code Histories, will be found the outline which governed the
preparation of Code Histories.)

(In the case of all approved codes and also in the case of some codes not carried to
final approval, there are in NRA files further materials on industries. Particularly worthy
of mention are the Volumes I, II and III which c nstitute the material officially submitted
to the President in support of the recommendation for approval of each code. These volumes
9675—1 .

- 11 -

set forth the origination of the code, the sponsoring group, the evidence advanced to sup-
port the proposal, the report of the Division of Research and Planning on the industry, the
recommendations of the various Advisory Boards, certain types of official correspondence,
the transcript of the formal hearing, and other pertinent matter. There is also much offi-
cial information relating to amendments, interpretations, exemptions, and other rulings. The
materials mentioned in this paragraph were of course not a part of the work of the Division
of Review.)

THE WORK MATERIALS SERIES

In the work of the Division of Review a considerable number of studies and compilations
of data (other than those noted below in the Evidence Studies Series and the Statistical
Materials Series) have been made. These are listed below, grouped according to the char-
acter of the material. (In Work M aterials No. 17, Tentative Outlines and Summaries of
Studies in Process , these materials are fully described).

Indus try Studies

Automobile Industry, An Economic Survey of

Bituminous Coal Industry under Free Competition and Code Regulation, Economic Survey of

Construction Industry and NRA Construction Codes, the

Electrical Manufacturing Industry, The

Fertilizer Industry, The

Fishery Industry and the Fishery Codes

Fishermen and Fishing Craft, Earnings of

Foreign Trade under the National Industrial Recovery Act

Part A - Competitive Position of the United States in International Trade 1927-29 through

■ 1934.
Part B - Section 3 (e) of NIRA and its administration.
Part C - Imports and Importing under NRA Codes.
Part D - Exports and Exporting under NRA Codes.

Forest Products Industries, Foreign Trade Study of the

Iron and Steel Industry, The

Knitting Industries, The

Leather and Shoe Industries, The

Lumber and Timber Products Industry, Economic Problems of the
Men's Clothing Industry, The
Millinery Industry, The
Motion Picture Industry, The

Migration of Industry, The: The Shift of Twenty-Five Needle Trades From New York State,
1926 to 1934

National Income, A study of.
Paper Industry, The

Production, Prices, Employment and Payrolls in Industry, Agriculture and Railway Trans-
portation, January 1923, to date
Retail Trades Study, The
Rubber Industry Study, The
Statistical Background of NRA

Textile Industry in the United Kingdom, France, Germany, Italy, and Japan
Textile Yarns and Fabrics
Tobacco Industry, The
Wholesale Trades Study, The
9675.

- iii -

Women's Apparel Industry, Some Aspects of the

Trad e P ractic e Stu dies

Commodities, Information Concerning: A Study of NRA and Related Experiences in Control
Distribution, Manufacturers' Control of: A Study of Trade Practice Provisions in Selected

NRA Codes
Design Piracy: The Problem and Its Treatment Under NRA Codes
Electrical Mfg. Industry: Price Filing Study
Fertilizer Industry: Price Filing Study

Geographical Price Relations Under Codes of Fair Competition, Control of
Minimum Price Regulation Under Codes of Fair Competition
Multiple Basing Point System in the Lime Industry: Operation of the
Price Control in the Coffee Industry
Price Filing Under NRA Codes

Production Control Under NRA Codes, Some Aspects of.
Resale Price Maintenance Legislation in the United States

Retail Price Cutting, Restriction of, with special Emphasis on The Drug Industry.
Trade Practice Rules of The Federal Trade Commission (1914-1936): A classification for

comparison with Trade Practice Provisions of NRA Codes.

Labo r S tud ies

Employment, Payrolls, Hours, and Wages in 115 Selected Code Industries 1933-1935

Hours and Wages in American Industry

Labor Program Under the National Industrial Recovery Act, The

Part A. Introduction

Part B. Control of Hours and Reemployment

Part C. Control of Wages

Part D. Control of Other Conditions of Employment

Part E. Section 7(a) of the Recovery Act
PRA Census of Employment, June, October, 1933
Puerto Rico Needlework, Homeworkers Survey

Administrativ e S tudies

Administrative and Legal Aspects of Stays, Exemptions and Exceptions, Code Amendments, Con-
ditional Orders of Approval

Administrative Interpretations of NRA Codes

Administrative Law and Procedure under the NIRA

Agreements Under Sections 4(a) and 7(b) of the NIRA .. _

Approved Codes in Industry Groups, Classification of

Basic Code, the — (Administrative Order X-61)

Code Authorities and Their Part in the Administration of the NIRA
Part A. Introduction

Part B. Nature, Composition and Organization of Code Authorities
Part C. Activities of the Code Authorities
Part D. Code Authority Finances
Part C. Summary and Evaluation

9675.

- IV -

Code Compliance Activities of the NRA

Code Making Program of the NRA in the Territories, The

Code Provisions and Related Subjects, Policy Statements Concerning

Content of NIRA Administrative Legislation

Part A. Executive and Administrative Orders

Part B. Labor Provisions in the Codes

Part C. Trade Practice Provisions in the Codes

Part D. Administrative Provisions in the Codes

Part E. Agreements under Sections 4(a) and 7(b)

Part F. A Type Case: The Cotton Textile Code
Labels Under NRA, A Study of

Model Code and Model Provisions for Codes, Development of
National Recovery Administration, The: A Review and Evaluation of its Organization and

Activities
NRA Insignia

President's Reemployment Agreement, The

President's Reemployment Agreement, Substitutions in Connection with the
Prison Labor Problem under NRA and the Prison Compact, The
Problems of Administration in the Overlapping of Code Definitions of Industries and Trades,

Multiple Code Coverage, Classifying Individual Members of Industries and Trades
Relationship .'f NRA to Government Contracts and Contracts Involving the Use of Government

Funds
Relationship of NRA with other Federal Agencies
Relationship of NRA with States and Muncipalities
Sheltered Workshops Under NRA
Uncodified Industries: A Study of Factors Limiting the Code Making Program

Legal Studies

Anti-Trust Laws and Unfair Competition

Collective Bargaining Agreements, the Right of Individual Employees to Enforce Provisions of

ommerce Clause, Possible Federal Regulation of the Employer-Employee Relationship Under the

Delegation of Power, Certain Phases of the Principle of, with Reference to Federal Industrial
Regulatory Legislation

Enforcement, Extra-Judicial Methods of

Federal Regulation through the Joint Employment of the Power of Taxation aid the Spending
Power

Government Contract Provisions as a Means of Establishing Proper Econ mic Standards, Legal
Memorandum on Possibility of

Intrastate Activities Which so Affect Interstate Commerce as to Bring them Under the Com-
merce Clause, Cases on

Legislative Possibilities of the State Constitutions

Post Office and Post Road Power — Can it be Used as a Means of Federal Industrial Regula-
tion?

State Recovery Legislation in Aid of Federal Recovery Legislation History and Analysis

Tariff Rates to Secure Proper Standards of Wages and Hours, the Possibility of Variation in

Trade Practices and the Anti-Trust Laws

Treaty Making Power of the United States

War Power, Can it be Used as a Means of Federal Regulation of Child Labor?

9675.

- V -

THE EV IDEN CE STUDIES SERIES

The Evidence Studies v/ere originally undertaken to gather material for pending court
cases. After the Soheohter decision the project was continued in order to assemble data for
use in connection with the studies of the Division of Reviev/. The data are particularly
concerned with the nature, size and operations of the industry; and with the relation of the
industry to interstate coiiuerce. The industries covered by the Evidence Studies account for
more than one-half of the total number of workers under codes. The list of these studies
follows;

Automobile Manufacturing Industry

Automotive Parts and Equipment Industry

Baking Industry

Boot and Shoe Manufacturing Industry

Bottled Soft Drink Industry

Builders' Supplies Industry '

Canning Industry

Chemical Manufacturing Industry

Cigar Manufacturing Industry

Coat and Suit Industry

Construction Industry

Cotton Garment Industry

Dress Manufacturing Industry

Electrical Contracting Industry

Electrical Manufacturing Industry

Fabricated Metal Products Mfg. Industry and

Metal Finishing and Metal Coating Industry

Fishery Industry

Furniture Manufacturing Industry

General Contractors Industry

Graphic Arts Industry

Gray Iron Foundry Industry

Hosiery Industry

Infant's and Children's Wear Industry

Iron and Steel Industry

Leather Industry

Lumber and Timber Products Industry
Mason Contractors Industry
Men's Clothing Industry
Motion Picture Industry
Motor Vehicle Retailing Trade
Needlework Industry of Puerto Rico
Painting and Paperhanging Industry
Photo Engraving Industry
Plumbing Contracting Industry
Retail Lumber Industry
Retail Trade Industry
Retail Tire and Battery Trade Industry
Rubber Manufacturing Industry
Rubber Tire Manufacturing Industry
Shipbuilding Industry
Silk Textile Industry
Structural Clay Products Industry
Throwing Industry
Trucking Industry
Waste Materials Industry
Wholesale and Retail Food Industry
Waste Materials Industry
Wholesale and Retail Food Industry
Wholesale Fresh Fruit and vegetable Indus-
try
Wool Textile Industry

THE STATISTICAL MATERIALS SERIES

Tliis series is supplementary to the Evidence Studies Series. The reports include data
on establishments, firms, employment, payrolls, wages, hours, production capacities, ship-
ments, sales, consumption, stock: prices, material costs, failures, exports and imports.
Thej also include notes on the principal qualifications that should be observed in using the
data, the technical methods employed, and the applicability of the material to the study of
the industries concerned. The following numbers appear in the series;
9675.

- VI -

Asphalt Shingle and Roofing Industry

Business Furniture

Candy Manufacturing Industry

Carpet and Rug Industry

Cement Industry

Cleaning and Dyeing Trade

Coffee Industry

Copper and Brass Mill Products Industry

Cotton Textile Industry

Electrical Manufacturing Industry

9675.

Fertilizer Industry

Funeral Supply Industry

Glass Container Industry

Ice Manufacturing Industry

Knitted Outerwear Industry

Paint, Varnish, and Lacquer, Mfg. Industry

Plumbing Fixtures Industry

Rayon and Synthetic Yarn Producing Industry

Salt Producing Industry