not manufacture? If our objective is to maintain a system of free competitive enterprise where the door of opportunity is always kept open to individual incentive and initiative, it may be necessary to place such limits on giant corporations to avoid the coercion and stifling of incentive which sometimes result from great concentration of economic power.

In the field of dealer relations the Subcommittee encountered the greatest resentment against the General Motors Corp. and its policies. The company distributes its products through its 18,000 franchise dealers. Because of the one-sided nature of the franchise agreements these dealers are particularly susceptible to factory pressure to sell more cars and automotive parts, and to manage and conduct their business in accordance with factory requirements. It is evident that the corporation has exercised its control over its dealers upon many occasions in a highhanded and arbitrary manner. Aggressive merchandising is a healthy sign of competition and can produce great benefits to the consumer, but when conducted within the framework of a system which gives the manufacturer a whip hand, the dealer is made to bear a large share of the burden of the competitive battle with its high casualty rate. 1955 witnessed an amazing expansion of the passenger car market with General Motors maintaining its proportionate increase. During this time the corporation's profits exceeded its traditional rate of return on investment while many dealers were experiencing financial difficulties. While volume selling on lower unit costs is highly desirable, it would appear that the principal benefits of this sales campaign redounded to the benefit of General Motors.

The heart of the dealer problem lies in the practically unrestricted rights of the manufacturer under the franchise to terminate or not renew. Harlow H. Curtice, president of General Motors, announced during these hearings that General Motors was extending the duration of all its dealer franchises from 1 to 5 years. This is an improvement but by no means cures the basic inequity of the selling agreement. The widespread discontent voiced at the hearings by former and present dealers caused the corporation to undertake its own study which resulted in a public announcement in the early part of this year that the franchise would be completely overhauled to meet dealer objections. This is a heartening development, but it remains to be seen whether the revised selling agreement achieves all the necessary reforms.

The plight of the dealers is a notable example of the effects of too great concentration of economic power in the hands of a few corporation managers. A single decision by the president of General Motors may vitally affect the business of over 18,000 small business men in every city, town and village in the country. The corporation directs almost every action of the dealer, as though he were an agent or employee, but lets him bear all the burdens and risks entailed by so-called independence. In addition to the continuing problem brought abit by the unequal bargaining positions of the factory and the dealer, they have been caught between two giants battling for the favor of first place in sales. Whether or not the judgment of the two contestants, Ford and General Motors, was correct as to the ability of the market to absorb their increased production, the dealers, who were close to the

market, and essential participants in the race, were given no opportunity to express their views or to protest. The economic power of the giants is such that if their judgment is wrong, the principal burden is borne by the dealers.

The problems of the General Motors dealers under the franchise are, in the main, common to all dealers in the industry. The Special Automobile Marketing Subcommittee of the Senate Interstate and Foreign Commerce Committee is presently reviewing the whole complex of automobile marketing problems. The study of this Subcommittee of the relationship between General Motors and its dealers was concerned primarily with the manner in which the superior power of the factory was exploited to the detriment of the dealer.

It appears that legislation is needed to equalize the balance of power now heavily weighted in the manufacturer's favor, although we recognize that this will not answer all dealer marketing problems. It is felt that automobile dealers should be guaranteed by law, apart from the terms of the selling agreement, the right to file suit in court. when the manufacturer, arbitrarily and not in good faith, terminates or refuses to renew the franchise. The threat of court review will be a constant reminder to the factory that coercive practices and arbitrary use of power will be subjected to public scrutiny. Such legislation will guarantee to the dealer the right to secure impartial settlement of his basic grievances in a court of law.

3. MERGERS AND OTHER ECONOMIC PROBLEMS IN THE AUTOMOBILE INDUSTRY

One of the developments directly affecting competition in the automobile industry has been the consummation of 3 major mergers, reducing the number of domestic automobile manufacturers from 9 to 6. It was decided to examine the nature of these mergers, their effect upon competition, and their possible illegality under the 1950 O'Mahoney, Kefauver-Celler amendment to section 7 of the Clayton Act. Representatives of the six automobile companies were invited to testify to furnish economic information about the industry which would aid the Subcommittee in understanding the action of the executive branch in approving these automobile mergers. In this connection, it was necessary to make an analysis of the structure of the automobile industry to determine its competitive problems, and to learn whether its present competitive situation best serves the public

interest.

In 1953, the Federal Trade Commission approved the acquisition of Willys-Overland by Kaiser Motor Corp. In 1954, the Department of Justice, through the Antitrust Division, gave its approval to two other mergers in the automobile field: Nash-Hudson and StudebakerPackard.

George A. Romney, president, American Motors Corp., described the considerations leading to the establishment of his company by the merger of the Hudson Motor Car Co. with the Nash-Kelvinator Corp. in May 1954. Hudson was merged into Nash-Kelvinator by an exchange of stock and the name of the latter changed to American Motors. The Department of Justice gave its approval to the merger in advance of its consummation.

American Motors now manufactures the Hudson, Nash, and Rambler automobiles and Kelvinator and Leonard household appliances. The company is also a major producer of injection-molded plastic parts, thermostatic and pressure controls for automobiles and appliances.

In its last fiscal year prior to the merger, Nash-Kelvinator enjoyed net sales of more than $480 million and earnings after taxes of more than $14 million. It had total assets of more than $230 million. It was a highly integrated manufacturing company with facilities for forgings, castings, stampings, transmissions, axles, engines, and bodies as well as for the manufacture of refrigerators, ranges, and other major appliances. In 1953 it ranked fifth in volume of automobiles produced and accounted for 2.2 percent of total passenger car sales in the industry. A year earlier its percentage of the industry total had been 3.5 percent.

The Hudson Motor Car Co. in 1953 had net sales of almost $200 million and assets of more than $120 million. In that year its proportion of total passenger car sales was 1.2 percent. In the preceding year it had been 1.7 percent.

The slump in passenger car sales had been felt particularly by the smaller companies. Some of their dealers were forced out of business while others lacked adequate credit for normal operations. With fewer dealers, both Nash-Kelvinator and Hudson experienced sharp reductions in their volume of sales. Mr. Romney pointed out that the smaller companies in the industry were at a competitive disadvantage in terms of size and volume operations compared with the major producers

The outstanding example of the advantage of size is body-tooling cost-the largest single cost in an automobile. Since World War II body-tooling costs have increased 4 or 5 times from prewar. Today, to tool a complete body for single-plant production costs in the area of $20 million.

Of course, the cost of tooling a body in a multiplant company is many times even this figure. Since this outlay of money has to be written off over the number of cars produced by the tooling, it is obvious that the larger the number of cars the lower is the tooling cost per unit. With the sizable amount of money involved, this is a most significant factor.

It is a well-known fact that the Big Three operate with relatively few basic bodies. For example, Ford has 2 and General Motors has 3, and Chrysler has 2. Before the merger, Hudson had two and Nash had two. So Hudson and Nash together used more basic bodies than either Ford or General Motors or Chrysler.

While the reasons for the merger were many, the paramount one was this: Because of the compatability of Nash and Hudson bodies-they were the only 2 American companies using the advanced monocoque body, or single-unit type, body construction-we saw an opportunity to take swift advantage of building the 2 lines of cars with one basic body. This use of common tooling for more than one make of car was perhaps the biggest single manufacturing and tooling advantage enjoyed by the Big Three and our ability to adopt this approach with Nash and Hudson would enormously improve our ability to compete (I, 447-448). Under the terms of the merger the automobile dealer organizations were maintained intact. Mr. Romney stated that most of these dealers were making substantially more profits than the year before, when many had operated in the red. During the first 5 months of 1955, American Motors accounted for 2.46 percent of factory sales for the entire industry, as against a combined Nash-Hudson total of 1.69 percent in the same period in the preceding year.

Within 6 months of the merger, several important manufacturing and distribution economies had been achieved. About $15 million was saved in 1955 model tooling; car manufacturing and assembly operations and parts production were concentrated, to provide more efficient utilization of existing capacity; and the pooling of advertising funds enabled the new company to increase markedly the effectiveness of such expenditures.

While our advertising budgets still are modest compared to Big Three totals *** Hudson and Nash dollars *** are working harder, and getting more results, than comparable sums spent individually by Hudson and Nash on a sporadic basis in the past (I, 451).

Mr. Romney was frank in pointing out that the results of the merger were not all on the plus side. Consolidation of automobile manufacturing operations resulted in substantial employee dislocation and the idling of certain facilities, and substantial losses were experienced in the early months following the changeover. The net result, however, has been to strengthen the financial position of the company, which is now operating in the black, thus making American Motors a more significant competitive factor in the industry.

Mr. Romney expressed the judgment that the automobile industry is highly competitive:

To an unparalleled extent-I do not say to a complete extent, but to an unparalled extent-the larger companies have not reached their present positions through practices or policies that are, in and of themselves, subject to criticism of competitors or customers (I, 454).

He observed, however, that the present size of General Motors, Ford and Chrysler creates certain marked competitive advantages such as in their ability to influence consumer preference and in substantial degree shape consumer preferences for passenger-car styling.

In an industry where style is a primary sales tool, public acceptance of a styling approach can be achieved by the sheer impact of product volume. Familiarity helps shape styling preferences. * * *

Styling or product innovations, undertaken by a company doing 50, 30, or 20 percent of the business, are more certain of public acceptance than equally good or better innovations by smaller firms. ***

Only in the passenger car do people still have the misconception-and it is a misconception-that weight and bulk are an advantage, and that you have got to have weight and bulk in order to have American standards of comfort, spaciousness, and safety. ***

The smaller company faces a tougher job of building customer familiarity with its product improvements because of its smaller relative volume and lesser advertising, sales and promotion expenditures (I, 455-456).

Mr. Romney expressed the belief that sheer size is also an important competitive factor in the area of labor contracts and labor costs. He contended that while "pattern bargaining" was not an element in the decision of Nash and Hudson to merge, it has been "an important factor in the recent trend toward mergers and liquidations of industrial enterprises" (I, 459).

Edgar F. Kaiser, president, Kaiser Motors Corp., summarized for the Subcommittee the circumstances leading to the acquisition by his company of the automotive assets of Willys-Overland, Inc., in April 1953, for a purchase price of about $60 million, which was paid in cash either directly to Willys-Overland or to creditors of that company. No securities were issued to Willys-Overland or its stockholders in connection with this transaction. The acquisition was cleared in advance by the Federal Trade Commission.

Kaiser Motors had been organized under the name of Kaiser-Frazer Corp. in 1945. Immediately prior to the 1953 acquisition Kaiser Motors had been operating at a substantial loss. In acquiring Willys, Kaiser obtained an earning asset against which such losses could be offset for tax purposes. Mr. Kaiser stated that this was not a basic factor in the decision to merge Kaiser and Willys; Kaiser was primarily interested in diversifying its operations, and Willys, whose production was largely in the military and commercial field, offered such an opportunity. In 1952 Willys had produced about 116,000 commercial and military vehicles, approximately 10 percent of the national total, as compared with about 49,000 passenger automobiles, which represented about 1.1 percent of the national total. Kaiser was already established in the passenger-car business and had a distribution organization in this field which could be supplemented by the established distribution position of Willys in the commercial field.

Within a few months practically all the activities of the two organizations had been integrated and were being carried on as a single business. Mr. Kaiser expressed the judgment that acquisition of the Willys assets had made the combined companies more competitive than if both had continued to operate individually. Sales of the expanded company and its subsidiaries in 1954 totaled about $212 million. During that year it sold about 23,000 passenger vehicles, or 0.41 percent of the total factory sales for the industry, and about 75,000 commercial and military vehicles, or 7.3 percent of the national total. James J. Nance, president, Studebaker-Packard Corp., described the background of the merger of the Studebaker and Packard companies which had been accomplished by an exchange of stock for assets. He pointed out that although Studebaker-Packard has one of the smaller shares of the passenger-car market, the word "small" is a relative term as it applies to this industry, and that, by standards of industry generally, there are no small companies in the automobile manufacturing business. Studebaker-Packard Corp., for example, ranks among the hundred largest corporations in the United States. Furthermore, "the automobile market is so huge that a company securing only a relatively small percent of the total business can operate profitably and soundly, assuming that its whole operations are basically efficient (II, 860).

Mr. Nance laid considerable stress upon the substantial postwar increase in the costs of tooling for new models. Such costs had increased more than 200 percent over the immediate postwar period, as compared with increases of about 35 percent in gross labor rates and about 15 percent in automobile prices. The cost of tooling in the automobile industry is so large a factor that the sharp increases in such costs were disproportionately higher for the single-line producer and worked to the competitive advantage of the multiple-line producers.

In about August of 1953, when the backlog of pent-up postwar demand for automobiles was satisfied, the industry entered a market which many have said was, and still is, the most highly competitive in its history. The buffeting of this furious competition brought into sharp outline any competitive deficiencies of any producer in the industry (II, 864).

At about this time the economic position of both Studebaker and Packard, which had been important prime contractors in the production of jet engines, was seriously aggravated by the virtual elimination of defense business. Traditionally, Packard had competed in the