decisive of the question whether General Motors obtained the power to exclude and intended to exercise such power.

Mr. Butler, of Flxible, stated that his company was unsuccessful in an attempt to obtain diesel engines from the diesel engine division of General Motors. He claimed that General Motors did not want to furnish diesel engines to a competitor in the bus business (VI, 26702671). Mr. Butler submitted to the Subcommittee documentary evidence that high officials of the General Motors Corp. had exerted pressure through their diesel division upon dealers not to furnish diesel engines to Flxible. According to these documents, General Motors learned from a customer of Flxible that the company contemplated using General Motors diesels. The same source shows that orders came directly from a "Mr. Wilson" that the diesel engines in question were not to be delivered to the Flxible Co. "as they are competitors of ours" (VI, 2672-2674). It would appear that General Motors used its position in the manufacture of diesel engines in order to restrict the activities of a bus competitor. This incident illustrates the potential danger of bigness and the possibilities for abusing the power incident to integration.

Roger M. Kyes, vice president of General Motors, submitted a statement to the Subcommittee describing the contributions of General Motors to the motor-coach industry (VIII, 3926-3932). He vigorously insisted that General Motors has prospered because it has fulfilled the requirements of the operator more effectively than its competion. He cited several instances showing that General Motors buses were much more economical to operate than those of its competitors. National City Lines, he stated, made comparisons of operating costs in cents per mile of maintenance labor, service labor, special maintenance of overall, fuel and depreciation. These studies revealed that General Motors buses have operated from 12 to 22 cents per mile cheaper than competitive buses. Mr. Kyes listed various technical contributions of General Motors to the industry which he urged accounted for the superiority of General Motors products and explained the preeminent position of its buses. Monocoque body construction, rear-engine installation, two-cycle diesel engine, improved transmissions, hydraulic transmissions, and air suspension are among the contributions listed. General Motors also claims that it pioneered in preventive maintenance in order to assure satisfactory performance in the use of the buses being supplied.

Mr. Kyes stated that General Motors' competitors had either failed to anticipate changing trends in transportation requirements or were unable to design a product which would meet the requirements of the bus operators with the same effectiveness as General Motors. He summarized the reasons for General Motors' success in the bus industry by concluding that General Motors has:

1. Built an outstanding product;

2. Provided a product that has produced substantial economic savings to customers;

3. Contributed significantly to the ability of its customers to manage their properties profitably (VIII, 3932).

In the statement submitted by Mr. Kyes, it was asserted that General Motor Truck and Coach Division had developed a group of trained specialists who could effectively and efficiently survey the total operation of a particular company and make sound and helpful recommendations to improve its overall efficiency. He said that the group

of men elected are thoroughly schooled in transportation engineering. This survey team makes detailed studies of the needs of any operator who requests its services, and its valuable know-how is made available to the customer "without any obligation or cost on his part" (VIII, 3930). Mr. Kyes stated that to the best of his knowledge, no other bus manufacturer had an equivalent organization. The staff has made no study to determine the extent to which the activities of such survey teams have succeeded in procuring bus business for the corporation. However, it is apparent that such a service to small operators, working with limited capital, in a field requiring considerable know-how, would be of tremendous value, particularly, since it is obtainable without charge. To maintain such a skilled staff undoubtedly entails a sizable cost to the corporation. Are all such costs charged to the GMC Truck and Coach Division? Are any of the people who contribute knowledge or information associated with the diesel division or other branches of the corporation? The work of such professionally trained people has probably aided materially in the promotion of the technology in the industry.

Despite the contributions of such teams in the advancement of transportation engineering and the promotion of more efficient systems, the question remains whether the public interest is best served in the long run when a company is able to employ the advantages of its size in such a way that smaller companies cannot compete.

If monopoly is achieved, will the advantages resulting from such methods continue, and will they be passed on to the consumer? Our free enterprise system is predicated on the assumption that competition provides the spur to insure the maximum advantages to the public. Monopoly is bad because the natural advantages which flow from competition do not exist. The United States has placed its trust in competition as the greatest safeguard of our free enterprise system. In enforcing this policy, the courts have steadfastly maintained that we cannot afford to be dependent upon the beneficent monopolist, no matter how benign his policies appear to be at any given time. The hearings relating to General Motors role in the bus industry indicate the need for a prompt decision as to whether Government action is necessary to alleviate the situation.

7. ACQUISITION OF EUCLID ROAD MACHINERY CO.

As noted earlier, an important aspect of this study is the manner in which General Motors has grown. Reference has already been made to some of the more important acquisitions in the historical development of the corporation. Is the present size and strength of General Motors due in large measure to its purchase of other companies? While mergers may have played a significant role at certain stages in the past, the corporation has not depended upon such devices in its recent history. Therefore, the acquisition by General Motors of Euclid Road Machinery Co., of Cleveland, in 1953, raised some immediate questions concerning the reasons for this action and the possible effect upon competition. Furthermore, these questions had to be resolved in the light of the amended antimerger law. Because of its importance the Subcommittee devoted special attention at the hearings to this matter.

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In August 1953, a notice appeared in Standard Corp. Records announcing the proposed acquisition of Euclid by General Motors. It was in this manner that the Department of Justice learned of the proposed purchase of the company by General Motors. Shortly thereafter the Department of Justice invited General Motors to Washington to discuss the proposed acquisition. In the following month, counsel for General Motors and Euclid appeared at the Department of Justice and discussed the proposed acquisition. By this time steps had already been taken to accomplish the merger. The board of directors of General Motors Corp. approved the acquisition of Euclid on August 7, 1953, and on August 28, 1953, the shareholders of Euclid approved the exchange of stock by which ownership of all outstanding stock of Euclid was acquired by General Motors. Listing of the newly issued General Motors stock was approved by the New York Stock Exchange on September 1, 1953. Formal transfer of stock completing the acquisition occurred in October 1953. The proposed acquisition was explored at some length by the Department of Justice. The Subcommittee has investigated this entry of General Motors into the off-the-road earth-moving machinery industry and studied the circumstances under which this acquisition occurred.

The Euclid Road Machinery Co. was founded in 1931. Formerly its business had been carried on as a department of the Euclid Crane & Hoist Co. Euclid specialized in the manufacture of heavy-duty, earth-moving, off-highway equipment. Its products included extraheavy-duty motor vehicles, self-loading motorized scrapers, and loaders. In addition, it made aircraft tractors designed to tow large bombers. Its products were used in mining operations, construction of dams, airports, and in roadbuilding operations. Prior to its acquisition by General Motors, Euclid was the leading company in the field of off-the-highway, heavy-duty motor vehicles, its principal line. In its major product, the dump truck, Euclid was one of the major producers, with more than 50 percent of the market. In the market for all products connected with the earth-moving industry, Euclid's share was between 5 and 6 percent (VI, 2709). In this larger field, Euclid was a relatively small producer. Other producers were invading the dump-truck market, and Euclid concluded it did not have the capital resources to invade the larger market dominated by the producers of crawler tractors (VI, 2717).

At the end of World War II the net worth of the Euclid Co. was $3 million. Utilizing borrowed funds, the company embarked on a large expansion program. Sale of the company's product increased significantly. Net worth of the company in 1952 was $16 million. Raymond Q. Armington, general manager of the Euclid division of General Motors, formerly president of Euclid, testified that to undertake the complicated manufacturing and technological problems involved in producing the crawler tractor would have required additional capital of $30 million, almost double Euclid's assets (VI, 2717). It was also necessary to support product research and to develop a more complete sales organization.

Distribution was a major problem for a small company with this type of product. When the Euclid Co. was formed, it relied upon the dealership network of a manufacturer of tractors, the Caterpillar Tractor Co. When the Euclid Co. developed self-powered hauling units, it became competitive with crawler tractors of the latter com

pany and had to organize its own dealership network. To some extent it relied upon direct sales to users. In 1953, the average number of machines sold per dealer was 23. Mr. Armington felt that the company had a real problem in getting first-class dealers since it was only competing in a small sector of the market.

In 1952 one of the major crawler tractor manufacturers, International Harvester, approached Euclid to discuss the possibility of a merger (VI, 2718-2719). At least one other company had also expressed an interest in obtaining Euclid. Upon the withdrawal of International Harvester from merger discussions, Euclid approached another crawler tractor manufacturer, Allis-Chalmers, and also General Motors, through its Detroit Diesel Division (VI, 2718). Six months later as the result of renewed discussions, General Motors acquired Euclid.

Two markets were affected by this acquisition: first, the market for earth-moving machinery; and, second, the market for a major component, diesel engines. As noted, Euclid was a major factor in one sector of the earth-moving industry. In this specialized market, Euclid produced in excess of 50 percent of industry output. Other products in the earth-moving industry include crawler tractors, motor graders, bulldozers, tractor-mounted shovels, scrapers, and loaders. Scrapers and loaders were potentially large-volume Euclid products. The roadbuilding program in this country for the next decade would provide a tremendously expanded market for the products of this company. Expenditures of $100 billion over the next 10 years have been mentioned, a program which will increase the demand for roadbuilding machinery significantly (VIII, 4039). The export market is also, potentially, an expanding market area.

It is obvious that General Motors intends to be a major producer in the earth-moving-machinery field. In the past year the corporation staged an advertising program labeled "Powerama" for the purpose of publicizing its earth-moving equipment. The extent of this program was such that its cost was not allocated to the Euclid division but was borne by the parent corporation and allocated as overhead expense to all divisions of the company (VIII, 4053).

The second market affected by this merger was the market for diesel engines, which were used by Euclid in its self-propelled products. Euclid, as had other producers in this field, offered its customers a choice of engines. One engine was produced by General Motors' Detroit diesel division. The other was produced by the Cummins Engine Co., Columbus, Ind.

Cummins was an early developer of diesel power and is today the largest specialized manufacturer of diesel engines in the United States with sales of almost $60 million in 1954. Euclid's purchases represented as much as 9 percent of Cummins sales in recent years. Since the acquisition by General Motors, Euclid's purchases from Cummins have dropped about 75 percent. New products of the Euclid division are now designed around the General Motors engine (VI, 2728). This standardization, according to Mr. Armington, was for competitive reasons. The cost of producing for a single engine is lower-design is less complicated than if optional engines are offered (VI, 2728).

Cummins has lost other markets for its products in recent years. Allis-Chalmers, another user of diesel engines, ceased buying from Cummins after its purchase of the Buda Co. (VI, 2692), a producer of diesels.

The White Motor Co. and ACF-Brill, who formerly made buses, purchased their diesel engines from Cummins (VI, 2692). Both companies went out of the bus business within the past few years. General Motors' share of the bus business has increased significantly, as discussed elsewhere in this report, thus further narrowing the market for independent producers of diesel engines. Although the staff has made no study of the market for diesel engines, these changes in the market for diesels indicate that integration in this field is occurring. In these specific instances, diesel engines, a product which was formerly subject to competitive market tests, are now sold as an integral part of a more complex product.

The acquisition of Euclid by General Motors is reminiscent of the acquisition of the Winton Engine Co. by which General Motors made its entry into the diesel engine industry. There is added piquancy since in 1929 General Motors, in considering entry into the diesel engine field, considered acquiring Cummins (Sec. D, this chapter, supra). In each of these cases, General Motors chose to enter a new field by acquisition rather than by investment in new facilities and organization. A strong small company was acquired as a nucleus upon which a major expansion could be based.

General Motors has stated that 2 years prior to negotiations with Euclid it had begun a study of the possibilities of entering the off-theroad earth-moving-machinery industry. It had spent $2 million in design and applications. With its purchase of the Euclid Co., General Motors acquired an engineering staff, skills and know-how, and an entry into a new market by means of an established profitable firm. Although it had the capability, the capital, and the dealership organization to enter into practically any industry it decided upon, it chose entry by purchase. In this way it achieved immediate entry and the removal of a potential competitor at the same time. From the reverse point of view, a small company faced with the problems of capital requirements and inadequate dealerships solved its immediate problems by joining the giant of the American economy. The easiest way out for Euclid was to seek capital, a dealership network, and security, by becoming part of the General Motors Corp. General Motors apparently offered it a more attractive proposition than other potential buyers.

Various aspects of this acquisition are especially noteworthy. General Motors claims that 24 percent of the products shipped in the first