car purchasers, called a dealers reserve, and paid out at stated intervals to dealers. The ostensible purpose of such reserve was to reimburse the dealer against losses occasioned by repossessions by reason of GMAC operating as a recourse company. General Motors felt that this would meet competition of other companies in the finance business who were offering service on a nonrecourse basis. This reserve was increased over the years until it reached 20 percent of the total finance charge on new cars and 30 percent of the total finance charge on used cars. This reserve was not calculated on an actuarial basis, but rather was based upon the experience of the subnormal dealer, and constituted a profit to the average dealer which was paid for by the car-buying public. The real purpose of such reserve, according to the testimony, was to induce General Motors dealers to use the recourse financing facilities of GMAC rather than plans of competing finance companies (VII, 3040).

The success of the plan instituted by the General Motors group, including the cash payments and coercion of dealers (VII, 3040–41), to obtain all or as much as possible of the financing on General Motors products is demonstrated by the results. In 1924, the year before General Motors decided to change its financing policy from one of persuading to one of coercing its dealers to use the financing facilities of GMAC, this company secured a relatively small percentage of the total financing business of General Motors dealers. As a result of the programs and policies inaugurated, GMAC eventually received approximately 75 percent of the retail time-sales finance business of General Motors dealers. In 1925, GMAC secured 17.6 percent of the wholesale financing of General Motors dealers as compared to 62.5 percent of such business in 1938 (VII, 3041-42, 3148).

On May 27, 1938, a Federal indictment was filed against GMAC and certain other associated corporations and individuals, charging these defendants with violating the antitrust laws and conspiring to monopolize the business of financing the sale of automobiles, both new and used, by forcing and inducing General Motors dealers to use the financing facilities of GMAC. The financing referred to was both at the wholesale and retail level. Because of the General Motors requirement that all cars sold to dealers be paid for in cash before shipment to dealers, large sums of money were required to finance purchases by dealers at wholesale. When the cars were retailed to the ultimate purchaser, GMAC provided cash for such purchasers to buy on a time-sales basis (VII, 3034).

The indictment brought against General Motors alleged, among other things, that the General Motors dealers were being coerced in various ways to use the services of GMAC to the exclusion of other automobile finance companies and other means of financing. Among the means alleged to have been used to compel the dealers to use the GMAC facilities were: The cancellation or nonrenewal of dealers' 1-year selling agreements and threats to cancel such contracts; conditioning the making of such contracts on the dealers' promise to use the facilities of GMAC; discriminating against noncooperative dealers by shipping cars which were not ordered during the periods of overproduction, and many times during the periods of normal production, and refusing to ship cars during the periods of short supply or normal supply; shipping cars of different type style and design from those ordered; shipping excessive quantities of parts and accessories; adver

tising by the factory recommending and promoting the financing facilities of the factory affiliated finance company; and using any and all means deemed necessary by the factory to force the General Motors dealers to use the financing facilities of GMAC (VII, 3034). There were various other matters alleged in the indictment going to the discrimination against independent finance companies and in favor of GMAC insofar as the General Motors product was concerned (VII, 3035).

According to the charges, the combined result of the coercion imposed upon the dealers, and the discrimination directed against the independent finance companies, was to give GMAC a substantial monopoly of both the wholesale and retail sales finance business for General Motors cars (VII, 3035). On November 16, 1939, after trial, a general verdict of guilty was returned against General Motors Corp. and three of its affiliated companies (VII, 3036).

The criminal case resulted in a fine only amounting to $20,000 (VII, 3038). To obtain injunctive relief against the practices and methods of operation, and the monopolization of the market as described, the Department of Justice on October 4, 1940, filed a civil suit seeking primarily to divorce GMAC from General Motors Corp. (VII, 3036). This case was settled by consent decree on July 28, 1952. Under this decree divorcement was not obtained. Injunctive relief, prohibiting General Motors from coercing and otherwise inducing dealers to use GMAC, was contained in the decree (VII, 3038). Previous litigation against Ford Motor Co. and Chrysler Corp. and affiliated companies and individuals had resulted in a complete separation of these concerns from their finance affiliates (VII, 3033-36). Hence, years of antitrust litigation aimed at freeing the market from monopolistic control resulted in the largest company in the business ending up in a stronger competitive position than it had ever enjoyed. It would appear that these antitrust cases have had little, if any, substantial effect upon the volume of business being obtained by GMAC, or the opening up of the General Motors market to competing finance companies.

In 1925, the income of GMAC was $2,356,000; by 1937, it had increased to $14,592,000 (VII, 3042). According to the 1954 annual report of GMAC the company had total current assets of $2,617,256,371, and total assets, including investment in Motors Insurance Corp. at book value, of $2,651,691,802. In 1954, gross income of $215,232,197, and net of $33,833,771 was reported. The same annual report shows a cash dividend paid of $20 million; number of accounts outstanding as 3,485,000; number of GMAC employees 9,407, and number of GMAC branch offices as 287.

GMAC is by far the largest automobile finance company in the automobile time finance sales business and is as large as 375 of its competitors combined (VII, 3125-3126, 3136, 3143, 3149). Its total overall market position, including both the General Motors product and the product of all other automobile companies, amounts to about 34 percent of all of the automobile time financing business done by finance companies, as distinguished from the automobile finance business done by banks, credit unions, etc. (VII, 3073, 3075, 3129, 3130). Thus, it has approximately 34 percent of the entire business done by all automobile finance companies, whose total business equals about 53 percent of the total automobile finance market. According to a statement of

Charles D. Stradella, December 9, 1955, the balance of the finance market is handled approximately as follows: 37 percent by banks throughout the United States and 10 percent by credit unions, small loan companies, and automobile dealers who have their own funds and do not need financing provided by a finance company.

The record clearly shows that insofar as financing is concerned, there is a General Motors market and a non-General Motors market, and that GMAC effectively controls the General Motors market to the exclusion of other finance companies and banks (VII, 3090). None of the competing finance companies has been able effectively to operate to any large extent in the General Motors market, either at wholesale or retail (VII, 3072, 3149-3151).

The competitive condition, or lack thereof, thus created must be approched from two points of view:

(a) The competitive advantages over other car manufacturers accruing to General Motors Corp. by reason of its ownership and control over the financing of automobiles through GMAC; and

(b) The competitive advantage of GMAC over other finance companies by reason of the ownership of GMAC by General Motors and close affiliation with General Motors.

General Motors is primarily an automobile manufacturing concern, the largest in the world. GMAC is a method of underwriting the sale of General Motors cars, and in so doing passing much of the risk of nonpayment on to the selling dealer. Where other finance companies have primary responsibilities to their stockholders who do not manufacture cars, GMAC is wholly owned by a stockholder whose major aim is to sell automobiles.

In June 1954, according to Mr. Stradella, president of GMAC, an analysis of GMAC's receivables indicated downpayment under onethird of the purchase price constituted 17 percent of new car retail transactions. By October 1955, this had increased to 30 percent. The average term of the financing increased from 24.4 months to 28.5 months between these two periods. In March 1954, GMAC in a policy announcement declared:

GMAC's current experience shows that where downpayments on new cars are less than one-third, repossessions are disproportionately higher, as dealers are well aware (VIII, 3999).

Yet, within a relatively short time thereafter, GMAC's policies were changed so that the number of transactions within this one-third downpayment category almost doubled percentagewise. General Motors either was losing a share of its market and was forced to offer more liberal terms, or GMAC's policies were suddenly changed to adjust to the parent corporation's policy of forcing cars onto the market. Whichever was the reason, GMAC has indicated flexibility in policy and this flexibility is at the convenience of the parent corporation, to be used as seen fit.

As noted above GMAC operates primarily as a recourse company. This means that although the financing is supplied to the purchaser by GMAC the selling dealer has ultimate responsibility for payment to GMAC. In other words, if the purchaser does not make his time payments the car is repossessed by GMAC and returned to the selling dealer who must pay GMAC the balance due. Thus the General Motors-GMAC combine can lower credit terms, dispose of a greater

number of automobiles, reap a larger manufacturing profit, and pass the greater credit risk directly to the selling dealer.

M. H. Yager, a dealer-witness who appeared before the subcommittee pointed out that:

By far the most dangerous sand that current automobile volume has been building on is the outright misuse of credit (VII, 3453).

Mr. Yager continued:

The vulnerability of our (the dealer) position is increasing and until such time as these cars are fully paid for, which is up to 3 years from the time of sale, we cannot with certainty determine what our profit, if any, is on a certain *. Contrasted with our problems, GM does all its automobile business with dealers on a strictly c. o. d. basis (VII, 3455).

car

During the 6 months ended June 30, 1955, GMAC provided $2,767,504,737 for wholesale financing of General Motors automobiles. The figure for the whole of 1954 was $3,606,119,054. At retail, the dollar volume for the 6 months ended June 30, 1955, was $1,012,305,460 for new automobiles, and $487,661,208 for used automobiles. For 1954, the figures were $1,387,223,097 for new automobiles and $770,502,089 for the used product (GMAC's answer to Subcommittee questionnaire October 10, 1955). The importance of such controlled financial facilities cannot be overemphasized. As M. B. Casler, a Chrysler dealer, stated, the public "will buy where they can get the terms that will fit their pocketbook" (VII, 3104). The witness noted: "Many people feel that one make of the Big Three, anyway-is as good as another," and the financing terms are all important. The witness said that as a result of a slight relaxing of terms by GMAC in the early part of 1955, he, as a dealer for a competitive make of car, was placed at a disadvantage and was unable to make sales that he would otherwise have closed (VII, 3104). Mr. Casler saw the problem this way:

A man will come in with, say, a 1950 model used car to trade in, and he has no cash; that has got to be the downpayment. And so, if we can find a finance company that will take that as a downpayment, then we can make a sale; if we can't, we have to miss the sale.

The witness was asked:

Generally speaking, are the terms in your area provided by CIT, whom you said provided most of your financing, and the GMAC through dealers, comparatively competitive?

Mr. Casler:

They always have been, until, I would say, the early part of this year. And at that time, my salesmen kept coming to me and telling me that they weren't competitive, that they were losing deals beacuse they couldn't finance them. And at first I didn't believe it, and then I checked into it and found that we were losing some deals to GMAC, to General Motors dealers, who were taking terms that we were unable to take through CIT or through Associates, or any of the other finance companies with which we did business.

I checked then with other dealers, found that the same was happening to them, and so I talked to some of the General Motors dealers to find out about it, and they had noticed it-I mean, there had been a marked change in the attitude of GMAC, and they were taking paper that in the past they haven't taken.

Now, that coincides with the date that Ford outsold Chevrolet, or at least Ford outsold them last year. And this year, of course, Chevrolet overcame that And some of the dealers*** told me that their factory aimed at doing just that.

Hence, as a competitive weapon, GMAC places General Motors in a position unique in the industry, and gives it an advantage over all of

its competitors, not the least of which is the substantial profit turned into the General Motors coffers by this very useful subsidiary.

The competitive advantages of GMAC over other finance companies by reason of GMAC's affiliation with General Motors would appear to be obvious. One witness stated that because of the relative economic position occupied by the dealer as compared to that of the General Motors factory, the slightest suggestion on the part of the factory would be effective in getting the dealer to use the financing facilities of GMAC, to the exclusion of all independent finance companies in the business (VII, 3045). It would seem that by the very nature of the relationship, GMAC has a tremendous advantage with the General Motors dealers insofar as promoting the GMAC financing is concerned. Considerable emphasis is placed on the family relationship of all components of the General Motors group, and the desirability of close association of its members.

The ability of GMAC to sell financing at a lower rate, if it so desires, by reason of its affiliation with General Motors is an additional and real competitive advantage in the financing field. On this last point, a number of witnesses testified that GMAC, by reason of its affiliation, did have many cost-saving advantages over independent finance companies (VII, 3045, 3076-77, 3079-80, 3099, 3114, 3119, 3141-42, 3146, 3152).

R. Walter O'Keefe, president, Southwestern Investment Co., stated: Due to their money cost, because of their tremendous borrowing power, strength, influence, they can operate much cheaper than we can (VII, 3114).

In answer to Mr. O'Keefe's testimony, GMAC submitted figures to show that the interest rates which it paid on borrowed funds were, in some instances, higher than paid by its principal large competitors. However, Mr. O'Keefe was describing total money costs in relation to the return on invested capital.

Since GMAC is able to obtain money by public borrowings on a basis of approximately $95 of borrowed money to every $5 of GMAC's equity because of its affiliation with General Motors (VII, 3106), while independent finance companies have to obtain funds with which to compete on a borrowing basis of approximately $30 to every $5 of invested capital (VII, 3131-35), it is apparent that GMAC can operate on a lower money rate of return and still make the same yield on its equity capital as any of its competitors. Money is the inventory of the financing business. The higher the borrowing ratio the better the competitive position of the company able to obtain such ratio. It would appear from this that GMAC's advantage on this point is directly attributable to its affiliation with General Motors (VII, 3119).

Having a lower money cost by reason of affiliation obviously places GMAC in a better competitive position. Mr. O'Keefe testified that GMAC is always in a position to fix industry terms and conditions under which sales on a time basis are made to the public and the competitive areas within which independent finance companies must conduct their business (VII, 3120). As another witness stated:

In the market place you have to meet the terms that are established by the bigger companies (VII, 3083).

For the reasons enumerated, it was asserted that the only limitation on GMAC insofar as market coverage is concerned is its own