average rate of return on investment for an extended period regardless of business ups or downs in any 1 year.

In testimony before the Subcommittee, General Motors has indicated that it seeks to attain over the long run an average profit after taxes of 15 to 20 percent on the amount of capital invested. In each of the last 8 years profits after taxes have exceeded the target figure cited by the company and for the period as a whole have averaged more than 25 percent.

It is recognized that the large expansion program of General Motors has been financed to a large extent by the reinvestment of earnings. It is also recognized that earnings must be used to pay reasonable dividends to stockholders. Funds for expensive retooling for new models and to provide for increased operating costs including wage increases must also be available. At the same time it is felt that in view of the extremely high level of profits sustained over such a long period the interest of the consumer should receive stronger recognition by the company in lower prices.

Consumers have apparently found General Motors products satisfactory from the standpoint of both quality and price, as evidenced by the sales success achieved by the company. At the same time it was noted that General Motors, as the dominant producer of automobiles and other products, is in a position not merely to vie for consumer acceptance but in significant degree, whether alone or in conjunction with other leading producers, actually to mold consumer preferences. Such an advantage is attributable in part to the paramount position already enjoyed by General Motors in many markets which helps, in and of itself, to induce consumer acceptance. The great financial power of the company also enables it to widen this advantage by undertaking advertising expenditures which no competitor of lesser size can afford. In addition, the vast consumer good will built up by General Motors over a considerable period of time as a result of this advertising investment, as well as a record of successful performance, provides the company with a definite advantage over smaller competitors which is not necessarily based upon considerations of quality, price, or service.

The efficiency of General Motors as an economic unit is of major importance. The staff was interested in determining the relationship of its efficiency to its size, and what effect divestiture would have upon the efficiency of the corporation. In facing this problem the subcommittee was interested in General Motors' concept of efficiency. Efficiency to General Motors is apparently its ability to achieve its planned return on investment. This is not economic efficiency and General Motors' return is more a reflection of its market power than its economic efficiency. In the only aspect of General Motors' operations in which costs were discussed, automobile financing, General Motors stated that its cost of borrowing money is actually higher than that of its major competitors. The reason for this higher cost is specifically the size of the corporation. It is so large that within the institutional structure of our banking system, it has reached the lending limits of the hundreds of banks with which it does business. Here is an obvious example of higher cost due to size.

The president of General Motors stated to the Subcommittee that "it is necessary for the corporation to be as large as it is because we have grown through technological development." The acquisitions

of General Motors studied by the Subcommittee represent growth unrelated to technological development. In studying the relationship between General Motors' size and efficiency, a careful distinction must be drawn between technological efficiencies due to the economies of large-scale production and nontechnological advantages due to size. Technological advantages may accrue to the single or multiple product firm. The firm with unrelated product lines, referred to as a conglomerate firm, may secure its major advantages for nontechnological reasons. It is possible that these nontechnological advantages may be to the detriment of competitors or to the economy as a whole. General Motors is an example of conglomerate structure. The usefulness of a finance company to General Motors, for example, has been proven but whether this ownership is beneficial to the economy has not been demonstrated.

General Motors is a conglomerate enterprise engaged in a wide variety of business activities, some related and some unrelated. The company conceded that the efficiency of its automotive divisions would not be adversely affected if the noncompetitive divisions such as locomotives, household equipment, or road-building machinery were separated from the General Motors Corporation and operated independently. The company pointed out, however, that the division separated would thereby lose important advantages which are now obtained from the efficient and experienced central management and the large-scale research, engineering, and styling activities of the parent company. General Motors also contended that for the same basic reasons the efficiency of any of the passenger car divisions would be impaired if it were separated from the company and operated under independent ownership. Using the Chevrolet division for purposes of illustration, however, the company failed to make clear why an enterprise which last year produced almost 2 million passenger automobiles, equivalent to several billion dollars of sales and about one-fourth of the production of the entire industry, would not be in sufficiently strong position from every standpoint to afford and obtain efficient and experienced management as well as effective research, engineering, and styling.

The Government in approving mergers among the independent producers which reduced their numbers from 6 to 3 believed that it was contributing to competition in this industry by allowing the smaller firms to become larger through the merger route. An unanswered question is whether competition could also be served by critically reviewing the size of the larger firms to determine whether divestiture would not be even more conducive to competition.

The Subcommittee topically treated General Motors' role in diesel locomotives, motor buses, off-the-highway earth-moving machinery, wholesale and retail car financing, automotive parts, and new car distribution through franchise dealers.

The historical study made of General Motors growth in the production of passenger cars revealed a record, in the early days of the company, of putting together various competing producers of cars to form the nucleus of the present corporation and readiness to expand its market share by purchase. Subsequent acquisitions in the automotive field were devoted mainly to purchasing producers of component parts. General Motors entered the bus, diesel, and earth-moving machinery industries by the acquisition of existing successful firms. Entry by acquisition is particularly advantageous. It provides an assured im

mediate entry and simultaneously eliminates a competitor-but it is an option only available to the firm possessing the financial resources. The diesel locomotive industry was a special case. The product previously manufactured was unsatisfactory and General Motors, through its research and development, made important contributions to transportation progress. The company contributed significantly in revitalizing an industry which had become moribund. Nevertheless, General Motors' success in this industry had its origin in the acquisition of two independent firms, one making diesel engines and the other designing motor-driven railroad cars. In the case of buses, the corporation elected to enter the industry, according to its own statement, by purchasing a highly successful operating company.

In the acquisition of the Euclid Road Machinery Co., General Motors most recently utilized its financial ability to enter an industry by purchase, even though it was capable of doing so by internal expansion. The Euclid purchase occurred after the passage of the O'Mahoney, Kefauver-Celler amendment to section 7 of the Clayton Act which by its terms was made applicable to conglomerate and vertical integration by merger, both of which were involved. Although competition was affected by the vertical acquisition of a market for GM diesel engines, the conglomerate aspect of the merger raised the more serious questions.

If there was any doubt as to the circumstances under which conglomerate mergers came within the law, the Department of Justice, which looked into this acquisition, missed an excellent opportunity to test the law, to determine whether General Motors, the largest manufacturing company in the world, should be permitted to grow larger by acquisition, in a field which promises to be of tremendous importance as future road building plans get under way. The intention of Congress to check the trend toward concentration would indicate that such a suit would have properly tested the action of General Motors in using its financial strength to attempt to acquire dominance in another field.

It is obvious from the history of the company's activities in other industries that it has the intention of assuming a major role in the earth-moving machinery field. The ability of General Motors to employ its financial strength to secure a dominant position in the bus and diesel locomotive fields forecasts the company's intention and methods in any field it enters. In both buses and diesel locomotives it was shown that General Motors was able to give liberal financing terms through its financial affiliates, General Motors Acceptance Corp. (GMAC) and Yellow Manufacturing Acceptance Corp. (YMAC), which was of inestimable advantage in securing a favored market position.

General Motors today manufactures more than 80 percent of all buses used for both transit and intercity transportation. Its greatest strides in this market occurred within the past several years, during which 3 of its 4 principal competitors-old and well-established firms found it necessary to get out of the business. Competition was seriously disadvantaged by the ability of General Motors to make capital investments in bus purchasers-both transit and intercity-and thus secure certain preferences. Various types of exclusive contracts have apparently been utilized by the corporation in its climb to power. Some of these, which gave it advantages over its competitors were

held by a court to be part of a plan in violation of the antitrust laws. The financial strength attendant upon its great size has been demonstrated in two other ways. Through its wholly owned financial affiliate granting more liberal financing terms, and through the technical knowhow and advice of its highly skilled transportation experts which is offered free to customers, General Motors has been able to obtain bus business not available to its less financially able competitors. The history of General Motors' activity in this industry raises the basic question of whether the utilization of such methods by the big corporation-in some cases with great benefit to industrial technology and the buying public-is to be countenanced where the result is market domination and elimination of competition. The hearings and study relating to General Motors' role in the bus industry indicate the need for prompt decision by the Department of Justice as to whether antitrust action is necessary.

Railroads which were purchasers of buses and locomotives were also beneficiaries of General Motors' freight shipments. It was claimed that railroads "naturally" favored such a good freight customer in making their own purchases. The tremendous financial resources of both General Motors and GMAC, which were deposited in banks in 157 cities throughout the United States, gave it great influence. GMAC is also a good customer of banks, having borrowed up to the legal limit from almost every major bank in the country. It was claimed that directors of banks who also served on the boards of bus purchasers were inclined to favor General Motors over its competitors. Both in buses and diesel locomotives, there was evidence that reciprocity gave General Motors advantages.

General Motors has undoubtedly facilitated the sale of its products. through its financial affiliates, GMAC and YMAC. None of its competitors are so situated. Thus, General Motors has at its disposal the means, through its financial affiliates, of underwriting market expansion, a method not available to competitors. Because of the fact of affiliation, and because of the captive market provided by General Motors franchised dealers, GMAC has been tremendously successful. Independent finance companies complain they are virtually foreclosed from the General Motors car financing market, representing approximately 50 percent of total car sales, and that the market can be opened to competitive forces only by a complete separation of General Motors and GMAC. The ineffectiveness of the antitrust laws and enforcement is evidenced by the fact that although General Motors and GMAC were found guilty of violation of the antitrust laws in 1939, nothing was done to separate them so as to deprive General Motors of this competitive advantage.

The result of the use of credit through a sales finance company by General Motors has been to consolidate its position to the detriment of its competitors. The usefulness of a finance company to General Motors is obvious, but the benefit of this ownership to the economy has not been demonstrated. With the greater availability of retail sales financing institutions today in comparison with the depression period, the divestiture of General Motors' financing affiliate will not be to the detriment of the economy but may strengthen competition in those fields where sales financing is a competitive weapon.

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It is more difficult to assess General Motors' position in the replacement automotive parts and accessories market because of the complexities of the distribution channels, among other things. Estimates vary widely as to the size of this market but total dollar sales by any estimate are tremendous. The corporation claims that in the overall market for replacement parts and accessories, its share in 1954 was 23 percent and considering the many and varied facets of this overall market, this represents an enormous market share. Competitive distributors contend that General Motors' position actually is much higher, and through various programs and policies it is making such significant advances that independent producers and distributors of parts and accessories are fearful of their ultimate extinction. Certainly the General Motor franchise dealership represents a protected market for General Motors sales. The unequal position of the car dealer under a franchise which makes him particularly susceptible to any kind of factory coercion, pressure, or threat, enables General Motors and its parts and accessory distributors to obtain access to a market from which independent producers and jobbers are partially precluded. The wholesale parts plan introduced by General Motors in January 1954, if successful, may substantially exclude independent jobbers of parts and accessories from access to the market represented by the 18,000 franchise General Motors dealers. It is too early to gauge accurately the effect of this plan but it behooves the enforcement agencies to maintain a careful scrutiny over its future operation. The Federal Trade Commission because of a long-standing cease-and-desist order has a continuing interest in safeguarding competition in this area. Because General Motors purchases from independent producers for original equipment at low prices and for replacement purposes at higher prices, the real danger exists that goods purchased for original equipment are being diverted into the replacement market, thus enabling General Motors to undersell independent distributors and increase its market share. Whether this has been done as charged and whether it substantially affects the corporation's market share, the staff has not been able to determine.

The effect of General Motors' ability to use its economic power to expand into any market it desires was evidenced in this replacement parts field. Approximately 12,000 wholesalers and jobbers have been distributing automobile parts, accessories and equipment to automobile dealers, garages and service stations. They are fearful that the General Motors wholesale parts plan recently introduced may destroy their business. They feel that it is unfair to permit a giant corporation to destroy them at its will. They contend that a corporation with such tremendous economic power should be limited to the activities which are its primary concern. Involved in this problem is the question whether the public interest may not be better served by keeping hundreds of independent jobbers and wholesalers in business, rather than have a few giant corporations take over entire industries.

The question is, Should a limit be placed upon the growth and expansion of a corporation when it reaches the point where its activities are detrimental to the public interest? If the present General Motors policy may result in eliminating thousands of independent businessmen-wholesalers and jobbers-would the public interest be served by prohibiting General Motors from wholesaling parts it does