9 months of 1955 were new products that were developed by the combination of Euclid and General Motors (VI, 2739), a statement we are unable to evaluate at this time. Perhaps the economy has gained by a more rapid introduction of new products. At the same time, it has not been demonstrated that these products would not have been produced by Euclid, perhaps at a somewhat later date. Nor has it been shown that General Motors could not have produced these products by entering the field through its own facilities, personnel, knowhow, and so forth, in order to compete with other producers in the field. Mr. Armington stated in his testimony that the most he could have expected for Euclid was survival on a limited basis with the few products in which Euclid pioneered (VI, 2739). To bolster his argument, Euclid's sales and return on sales from 1946 to 1952 were reported, creating the impression that since 1947 there had been a decline and Euclid, as a small business, was finding itself in an increasingly competitive situation.

The data presented by Mr. Armington are as follows:

Sales and return on sales, Euclid Road Machinery Co.

Euclid was not losing money prior to its acquisition. Mr. Armington neglected to mention that the data he offered for 1952 were only for the first 7 months of 1952. While net income after taxes for the period was $1.4 million, there was also a profit-sharing provision of $1.1 million. More interesting, however, are the operations for the following year not mentioned by Mr. Armington. În the 12 months ending July 31, 1953, Euclid, after profit sharing and income taxes earned $2.5 millions on sales of $51,690,000, close to its all time high, with a return of 4.8 percent on sales. Furthermore, this return was equal to 14 percent on net worth. All the above data, not considered sufficiently important for Mr. Armington to include in his statement to the Subcommittee, were reported by General Motors in its New York Stock Exchange listing application which was approved September 1, 1953. Euclid had also broadened its line and had other products under development. Its scraper, a recent addition, was considered by General Motors at the time of acquisition as one of the largest sales items. Under development was a rubber-tired bulldozer for which there existed an important market according to a General Motors analysis.

One of the purposes given by Mr. Armington for seeking to combine his company with General Motors was shortage of capital. In the postwar period, Euclid borrowed from local banks for expansion (VI, 2704). As a result, its capacity increased significantly. Euclid was a company whose sales had expanded fivefold in less than a decade, earned 14 percent on its net worth after taxes, had successfully borrowed funds for capital expansion from local banks, but appar

ently did not resort to the capital markets to attempt to solve its growth problems and remain independent. Instead it sought safety in merger with the largest manufacturer in the country.

General Motors' acquisition of Euclid has been similar to other General Motors acquisitions, a means of entry into a new industry. The Winton Engine Co. brought General Motors into the diesel engine business, Yellow Cab Manufacturing Co., into the bus business, and United Motors into automotive parts, as a major producer.

The position of the acquired business is also interesting. General Motors does not buy bankrupt businesses. The quality of its product was not questioned, its business was profitable, but it was in a position where it feared its larger rivals. It sought the refuge which many years earlier was also the refuge of Hyatt Roller Bearings and its president, Alfred P. Sloan, Jr.; it joined the giant (VII, 3525).

The Department of Justice was not requested to render a decision concerning the legality of this merger under its merger clearance program. Upon learning of the proposed merger the Department invited the companies to discuss the matter. The Department undertook to analyze this merger in the light of the O'Mahoney, KefauverCeller amendment to section 7 of the Clayton Act. The nature of the merger posed certain serious problems under this act-some of them novel. There is no way of determining what the attitude of the Department was concerning these problems since its deliberations are not public and since the information voluntarily submitted by the companies is treated in strict confidence. The simple fact is that the Department of Justice, after making its study, took no action, thus enabling the corporations to consummate the merger.

The companies involved did not seek merger clearance as, presumably, they felt it was either not necessary or not prudent. General Motors acquired a company in an industry where it has not hitherto operated. At first blush it would appear difficult to see how competition could be substantially lessened when a manufacturer enters a new field by acquiring an existing company. Competition between the two companies has not been reduced since they were not in competition, and the total number of competitors in the industry remains the same. The companies contend that the acquiring company has given added strength to the acquired company's operations and, therefore, the sum total of competition has been increased. Mergers of this type, sometimes described as conglomerate mergers, have been occurring with considerable regularity within the past few years. Large companies, looking to diversify their lines and seeking to stabilize their operations, have expanded into wholly new fields of activity. Prior to the 1950 amendment, it is clear that section 7 did not apply to such types of acquisitions even if accomplished by stock purchase. Under the original act of 1914, an acquisition of stock resulting in a substantial lessening of competition "between the corporation whose stock is so acquired and the corporation making the acquisition" was illegal. The test, therefore, under the old act, was the effect on competition between the acquiring and the acquired firm. This wording was eliminated in the 1950 amendment because, by its terms, only a limited class of acquisitions were covered.

The Judiciary Committee of the House pointed out in its report that:

the test of the effect on competition between the acquiring and the acquired firm has been eliminated. One reason for this action was to make it clear that this bill is not intended to prohibit all acquisitions among competitors. But there is a second reason, which is to make it clear that the bill applies to all types of mergers and acquisitions, vertical and conglomerate, as well as horizontal, which have the specified effects of substantially lessening competition *** or tending to create a monopoly. [Italics supplied.] (H. Rept. 1191, 81st Cong., 1st sess., p. 11.)

Significantly, the House report then cites an example of a vertical acquisition forward (raw material producer buying a fabricating firm) in which competition might be adversely affected so as to fall within the interdiction of the act. However, while the report clearly states that the statute also applies to conglomerate mergers, no illustrations were given to show under what circumstances such acquisitions might be illegal. It simply states "the same principles would, of course, apply." It would appear from the examination of the legislative history that there is a dearth of information concerning the manner in which it was intended the act would be applied in the case of conglomerate mergers. Merely to state the standards by which all mergers are judged sheds little light.

If the pace toward industrial concentration continues to accelerate, the enforcement agencies will ultimately have to file suits testing the meaning of section 7 in a situation where a corporation acquires another corporation in an unrelated field. Under the law, the standard for testing legality of such mergers is substantial lessening of competition or tendency to create a monopoly, the same as in the case of any other merger. But under what circumstances can there be a substantial lessening of competition when one company enters a field where it had never before competed? Nevertheless, Congress has made clear that the act was intended to apply in this type of merger, given the prohibited effect. Since Congress has furnished no further guideposts and since the courts have not yet had an opportunity to speak, it would seem that the enforcement agencies have the responsibility to seek a proper case for exploring the reaches of the new law. The Attorney General indicated his approval of obtaining court rulings on the scope of the new statute when he declared with reference to the three recent cases filed under the amended act:

Each of these cases presents distinctive factual differences. The decision of the courts should do much to clarify the scope of the statute and point out how successful Congress has been in its efforts to strengthen section 7. (Address of Hon. Herbert Brownell, Jr., before National Industrial Conference Board, November 17, 1955.)

An examination of the legislative history of the O'Mahoney, Kefauver-Celler amendment indicates that the basic congressional concern was the increased tempo of the merger movement and the resulting economic concentration. In the words of the Committee on the Judiciary of the Senate, the 1950 Act was designed:

* to limit future increases in the level of economic concentration resulting from corporate mergers and acquisitions (S. Rept. 1775, 81st Cong., 2d sess., p. 3). The report of the Committee on the Judiciary of the House of Representatives also concluded that the bill was intended to prevent increases in concentration resulting from mergers, stating that:

The importance of mergers and acquisitions as a cause of economic concentration has increased rapidly during recent years with the acceleration of the merger movement (H. Rept. 1191, 81st Cong., 1st sess., p. 2).

It would seem, therefore, in determining what the standards should be for "substantial lessening of competition or tendency to monopoly❞ in the case of a conglomerate merger, a logical starting point should be the clear congressional mandate to avert the trend toward concentration. Various witnesses testifying before the Subcommittee suggested drastic proposals to curb mergers. Many such witnesses urged laws to prevent companies who have reached a certain absolute size from acquiring another company. How to determine such size is the problem. But it was the consensus of these witnesses that when a company had reached the size of General Motors Corp., such a law should immediately come into play. If the need for stopping excessive concentration is a basic objective of the Clayton Act, it would be difficult to imagine any more appropriate example of such concentration than where the largest single manufacturing enterprise in the world acquires another successful company.

It is also clear that section 7 does not require a finding of actual anticompetitive effects, but merely of a reasonable probability of a substantial lessening of competition or tendency toward monopoly. The Clayton Act was designed to check incipient lessening of competition before it reached Sherman Act proportions. The Senate Judiciary report stated:

* The intent here, as in other parts of the Clayton Act, is to cope with monopolistic tendencies in their incipiency and well before they have attained such effects as would justify a Sherman Act proceeding (S. Rept. 1775, 81st Cong., 2d sess., pp. 4-5).

When a company possessing the tremendous size and power of the General Motors Corp. acquires a company in another field, the potential danger to competition is not difficult to foresee. An examination of General Motors' history reveals its rise to dominance in two particular fields studied by the Subcommittee, diesel locomotives and buses, which began with the acquisition of other companies. Competition in these industries today is extremely limited. Size affords great advantages. In the case of both diesel locomotives and buses, this size was employed with marked results in General Motors' market position. The question is should public policy permit the Colossus to move by the merger route into this new field, exploit the advantage of its size, and eventually achieve market domination? Has not the pattern of the General Motors growth and behavior demonstrated the real possibility of such a development? True, very substantial and well estab lished companies now operate in the earth-moving machinery industry. So also did they flourish in other industries which General Motors entered and later dominated.

As noted above, the effects of General Motors' great size and attendant power have already been manifested in the earth-moving machinery field. The tremendous advertising outlay for "Powerama' which was designed, among other things, to exploit the products of the Euclid division will undoubtedly have its effect in the market place. These effects cannot be adequately measured. The association of the General Motors name with Euclid products in itself will contribute to customer desire and market acceptance for such products. These are advantages which stem not from superior product or technology, but

are necessary consequences of size. Must the public wait until the General Motors Euclid Division ultimately obtains a dominant position in this industry before the Government acts? As in the case of buses, irreparable damage to free competition may then have been accomplished and no amount of Government action will ever properly remedy the situation.

In the case of this acquisition, the probability of the anticompetitive effects of the merger is not visionary For one thing, Euclid was not an insignificant factor in this industry nor was it in the position of a failing corporation. As noted, it led the field in the case of certain important products it produced. Euclid's acknowledged know-how, market position, and personnel combined with General Motors' size and financial power constitutes a formidable threat to competition in the earth-moving machinery field.

The anticompetitive consequences of this merger, actual or potential, are by no means confined to these less easily defined injuries in the earth-moving machinery field. Some competition was, in fact, adversely affected when General Motors purchased Euclid. The Cummins Co., which sold over 50 percent of Euclid's requirements for diesel engines found its business drastically curtailed by the acquisition. Whether this in itself is sufficient to constitute that effect upon competition which is banned by the act only the courts can determine as the law now stands. But the combination of these actual and potential dangers to competition might be sufficient justification for instituting action to determine the validity of this merger. Such action offered the opportunity of testing the meaning of the new law in areas where little light presently exists. If the enforcement agencies seriously intend to promote the announced congressional purpose of checking concentration, it would be difficult to envision a more likely case than an important acquisition by General Motors.

8. FINANCING AND INSURANCE SUBSIDIARIES

General Motors Acceptance Corp. (GMAC) was organized in 1919 as a wholly owned subsidiary of General Motors Corp., in order to provide needed automobile financing and broaden the market for the sale of General Motors cars (VII, 3039). GMAC is today the only automobile finance company owned by an automobile manufacturing company. The corporation over the years has functioned in a manner which has broadened the market for its parent corporation and has placed the parent corporation in a stronger economic and competitive position.

At the time of the formation of GMAC in 1919, there was a real need for additional credit facilities in connection with the merchandising and sale of automobiles. During the first years of GMAC's existence, it served as a finance company, only to the extent that its services were desired by the industry and the public. In the early years, the dealers did not respond to the services provided as expected. The competing finance companies of that period were able to do considerable business with General Motors dealers (VII, 3039–40). In 1925, General Motors decided to take such steps as were necessary to compel its dealer organizations to use the financing facilities of GMAC. Accordingly, a change was made in the GMAC time sales plan. An addition was made to the regular finance charge paid by