Mr. MCKENRICK. Yes, sir. The industry, according to the Department of Commerce, operated last year at 60 percent of its capacity, and this year it is operating, as near as we can find out, at very close to 50 percent capacity.

Senator GRUENING. In other words, it is declining; is it?

Mr. MCKENRICK. Yes, sir; it is declining.

Senator GRUENING. Then you do not share the view that a wave of prosperity is upon us?

Mr. MCKENRICK. That, Mr. Chairman, was a very desirable thing to think about when the year turned; however, it has not materialized in the construction industry, and basically because public construction, as I mentioned, is down 13 percent.

Senator GRUENING. To what do you attribute this decline in public construction? You know there is a marked increase in population. Why does the construction not keep pace with it?

Mr. MCKENRICK. Well, much of it has to do with the curtailment. of the Interstate Highway System, the 41,000 miles that are being built by the joint efforts of the Federal Government and the States. That has been curtailed because of moneys not being readily available, and probably will operate at a reduced speed until some long-range financing plan has been determined by Congress.

Senator GRUENING. Is the construction machinery of your association mainly roadbuilding in nature?

Mr. MCKENRICK. No, sir. We embrace everything. Ninety-five percent of the volume includes, of course, shovels, tractors, all types and kinds of equipment both for building dams, highways; they use practically the same equipment, only maybe of different sizes.

Senator GRUENING. Well, you have painted a rather bleak picture of the prospects. I hope that you prove to be mistaken.

Mr. MCKENRICK. Well, frankly, the members of the association will be very happy if I prove to be mistaken, but the long-term forecasts that are being produced now indicated continued layoffs. And, after all, we will be into the fall and winter season within a few months, which will not help our picture any.

Senator GRUENING. Your association should be in favor of a bill which I have introduced to have a road program in Alaska, where as a result of our exclusion from Federal highway aid for 40 years, we have no highways to speak of and need them.

Mr. MCKENRICK. I would be very happy to see that happen. I have had some friends that worked on the Alcan Highway, and I am looking forward to getting up there myself-driving up.

Senator GRUENING. Well, no one ever regrets taking a trip to Alaska.

Mr. MCKENRICK. I am sure they do not.

Senator GRUENING. Thank you very much, Mr. McKenrick.
Mr. MCKENRICK. Thank you, Senator.

Senator GRUENING. Now, Mr. Wilbur Schield, president, Power Crane & Shovel Association.

Is Mr. Schield here?

Mr. MCKENRICK. Mr. Chairman, may I just tell you that I talked to Mr. Schield this morning and he is unable to appear and sends his regrets.

Senator GRUENING. If he would like to submit a statement, we would be glad to make it part of the record.

Mr. MCKENRICK. He would very much appreciate that, if you would permit him to submit a statement.

Senator GRUENING. I take it that his position would be somewhat similar to yours?

Mr. McKENRICK. Yes, sir. He is, by the way, president of the Schield-Bantam Co. of Waverly, Iowa, and they are going to be hurt very badly by this.

Senator GRUENING. We will make Mr. Schield's statement part of the record at this point.

(The full text of the statement of Mr. Schield follows:)

STATEMENT OF WILBUR L. SCHIELD, PRESIDENT OF AND REPRESENTING THE POWER CRANE & SHOVEL ASSOCIATION

My name is Wilbur L. Schield. I am president of the Power Crane & Shovel Association as well as the Schield-Bantam Co. of Waverly, Iowa.

My appearance today is on behalf of the Power Crane & Shovel Association composed of manufacturers of full revolving power cranes, shovels and draglines, both crawler and wheel mounted. This association comprises approximately 85 percent of the volume of mobile power cranes, shovels and draglines between the capacities of three-eighths cubic yard and 21⁄2 cubic yards inclusive.

This industry represents an estimated 25 percent of the entire construction machinery industry in the United States.

The industry is approximately a $150 to $175 million volume industry and an extremely important segment of the American economy.

I wish to express the industry's appreciation for your committee having given me the opportunity to appear before you today and my statement is in opposition to any amendment or revision of section 402 of Public Law 152.

It is my understanding that the House Committee on Government Operations has approved and sent to the floor of the House, companion bill H.R. 9996 which would propose to amend section 402 of the Federal Property and Administrative Services Act of 1949 as amended to date.

I am appearing before you to strenuously oppose on behalf of the domestic power crane and shovel industry, any revision of section 402 by proposed Senate bill S. 3154.

The proposed legislation has been presented by its proponents under a misleading title which would indicate that such legislation was being presented to insure that foreign excess property which has been Government generated and which has been disposed of overseas would not be imported into the United States to the injury of the economy of this country.

The Power Crane & Shovel Association wishes to point out, however, that by the proposed legislation to amend section 402 of Public Law 152, one extremely important safeguard to the domestic economy has been eliminated from the wording and intent of section 402 as it now stands on the statutes. Both H.R. 9996 and proposed S. 3154 would eliminate from section 402, the provision that nonagricultural goods (which would include construction machinery) must be shown to be in shortage of supply in the United States before permission is granted to import such foreign excess property for resale within the United States. And under the present law, before such importation is permitted, proof must be presented that such importation would be beneficial to the domestic economy.

Under the proposed legislation, our domestic industry would be deprived of the opportunity that is insured to them under the present law of proving that the economic law of supply and demand is being adequately made by the domestic industry which is, at the present time, a criterion for preventing the importation of foreign government generated surplus-power cranes and shovels. The proposed new legislation merely requires that a determination be made that such importation would not be injurious to the economy of this country. At the present time, there is no domestic shortage of power cranes and shovels, nor has there ever been such a shortage under peacetime conditions. During the Second World War, approximately 90 percent of the domestic production in this country was channelled to direct military requirements and approximately 50 percent during the Korean emergency.

When the U.S. Congress prohibited the importation of foreign excess property, it said in effect that the only cases where permission for such importation would be justified would be in cases where by such importation, domestic shortages would be relieved or that such importation would be otherwise beneficial to our domestic economy.

The removal of the safeguard afforded our domestic industry, as long as that industry is more than capable of taking care of domestic requirements would undoubtedly prove dangerous to the economic health of our industry.

This is also especially true since in many areas of the world, through the force of competition from foreign nations having a considerably lower scale of economy, export trade of our domestic industry has been seriously curtailed.

We do not feel that we should be further jeopardized by having to compete in our own domestic market with U.S. Government generated surplus power cranes and shovels.

According to Power Crane & Shovel Association official figures, shipments for the first 4 months of 1960 domestically by our industry have fallen approximately 81⁄2 percent, same period 1959.

At the same time, official figures of the association on reports of inventories on hand of completed machines have increased in April 1960 over April 1959 by 48 percent. These figures represent completed inventory of machines on hand in plant inventories and in dealer inventories. The total number of machines available in inventory in this country as of the end of April 1960 represent nearly 1,000 machines in the three-eighths cubic yard through 21⁄2 cubic yard capacities.

It is to be further noted that in each month of 1960 to date, the inventories of completed unsold machines have steadily increased.

By relaxation of the safeguards of present section 402 of Public Law 152 and the permission of wholesale importation of foreign generated surplus for resale in this country could very well create an economic crisis in our important segment of the construction machinery industry.

On behalf of the Power Crane & Shovel Association, I wish to thank sincerely the members of this committee for permitting me to appear before you today and would be pleased to attempt to answer any questions that the members of the committee might have.

Senator GRUENING. Our next witness is Mr. H. J. Mayer, Associated Equipment Distributors.

Mr. MAYER. Yes, sir.

Senator GRUENING. We are pleased to have you here, Mr. Mayer. You may proceed with your statement.

Mr. MAYER. Thank you, sir.

STATEMENT OF H. J. MAYER, EXECUTIVE VICE PRESIDENT, WESTERN MACHINERY CO.; GENERAL MANAGER, OF EDWARD R. BACON CO., SAN FRANCISCO, CALIF., AND PRESIDENT OF ASSOCIATED EQUIPMENT DISTRIBUTORS; ACCOMPANIED BY JOSEPH T. KING, GENERAL COUNSEL

Mr. Chairman, my name is H. J. Mayer. I am executive vice president of Western Machinery Co. and a partner and general manager of Edward R. Bacon Co., with headquarters in San Francisco, Calif. The Western Machinery Co. also has establishments in Denver, Colo.; Salt Lake City, Utah; Spokane, Wash.; and Phoenix, Ariz. I am also the current president of the Associated Equipment Distributors, a national trade association composed of over 800 heavy construction equipment retailers.

I am appearing here today in opposition to the bill, S. 3154, which would weaken the present controls over the importation of foreign excess property.

Sitting beside me is Joseph T. King, the association's general counsel. Mr. King is from Washington, D.C., and his office is located at 1028 Connecticut Avenue NW.

At the conclusion of my remarks we would like permission for Mr. King to comment on some of the legal aspects of the legislation.

The type of equipment handled by our industry has an average useful life far in excess of most other types of personal property sold by the Government as surplus. The larger items can have a life expectancy of from 5 to 20 years. For example, cranes and shovels will have a life expectancy of from 15 to 20 years, while tractors, under normal conditions, have a life expectancy of 5 to 8 years. If, as a result of the Government disposal program, the construction equipment market becomes saturated, it will remain saturated for a good many years. The dumping of construction equipment on the west coast following World War II, and prior to the enactment of the foreign excess property law in 1949, depressed the used equipment market for several years and resulted in a serious hardship to the distributors selling and renting both new and used equipment.

Because of previous misunderstandings as to the nature of our business, I feel a clarification on the subject is necessary. Except for the types of equipment we sell and the customers we serve, we are no different from the farm equipment or automobile retailer who buys, stocks, sells, and services the products of the manufacturers he represents. Like the farm equipment and automobile retailers, we are required to take trade-ins. This puts us in the secondhand equipment market. In contracts, however, nearly one-half of our distributors are also engaged in the business of renting new and used equipment. Even those not in the rental business occasionally rent the equipment as a service to their customers.

Although we equipment dealers have probably suffered as much, if not more, than any other single segment of the economy as a result of the disposal of Government surplus property, we recognize the problem will exist so long as the country is required to maintain a strong defense. Our position with the disposal agencies is that they spread their sales of construction equipment geographically and avoid periodic dumping. Where the disposal agencies have disregarded these recommendations it has caused serious problems in the local market. In appearances before other committees, we have repeatedly taken the position that the long-term solution to this problem lies in the control of military procurement and utilization of inventories currently in the hands of the military.

The construction equipment industry's role in the economy is not always fully appreciated. This industry not only must be geared under present world conditions to serve a normal economy but also must be prepared to meet defense and wartime emergencies practically overnight. In a less dramatic way our industry is as essential to the defense of the country as those producing military weapons.

In addition to filling direct military requirements in time of war, equipment must be available for related wartime expansions, such as construction of new and the enlargement of existing production facilities, and the construction of military training bases and housing. At the same time the industry must satisfy the construction equipment requirements of the civilian economy and war-supporting activi

ties which include highways, railroads, utilities, waterways, mining, and logging operations. This industry is geared to perform this threefold function in wartime as is evidenced by the fact it currently is meeting full civilian and defense demands plus the requirements for the national highway program while operating at only 60 percent of capacity.

During World War II, while the manufacturers were producing new equipment to meet direct military requirements, the dealers were maintaining used equipment and rebuilding old and obsolete machines to fill the needs of the civilian economy, war-supporting industries and for the expansion and maintenance of utilities. Although this is no more than should be expected, this threefold function of the industry has an important bearing on the question before the committee. If the Government continues to depress the industry through the disposal of competitive products, this is bound to result in the reduction of present facilities at both the manufacturer and distributor level. Such an effect obviously would be detrimental to the overall defense program.

During my experience in the construction equipment industry I have never seen a competitive situation any worse than it is today. Net profits before taxes have been continually shrinking since 1956. The association's cost-of-doing-business survey shows that the average distributor's return on sales before taxes in 1956 was 3.37 percent. In 1957 it was 2.46 percent. In 1958-admittedly a recession year--it was 2.15 percent. The 1959 figures are currently being compiled but everything indicates that the situation has not improved. In my own company I know the situation was worse. So far in 1960, sales are off from the comparable 1959 period. Based on my discussions with other distributors around the country, apparently this downward trend in sales and profits is industry wide.

I offer the committee a few pieces of recent sales literature on used construction equipment which is further indication of our oversupply problem. First, I call your attention to the auction by Forke Bros. at Manchester, N.H., which is to be held on June 16, 1960, and the auction held by the same company at Boise, Idaho, on April 14 and 15, 1960. These are not isolated instances as this organization is continually holding auctions in different parts of the country. Your attention is also directed to an auction held by Davis Weisz Co. on May 24, 1960, at Hemet, Calif. When items like these are thrown on the auction block, it clearly indicates a strong buyer's market.

I also call attenton to the flyers sent out by the U.S. Truck Sales Co., of Cleveland, Ohio, and received by one of our members on March 24, 1960. Two of the flyers cover unused surplus equipment and the third flyer covers both Government surplus equipment and non-Government used equipment.

In addition, I call your attention to the two attached releases of the Boston office of the Small Business Administration dated April 22 and May 6, 1960. I do not know how often these releases come out, but these are only about 2 weeks apart. These releases cover only Government property declared surplus by New England installations in this very short period of time. This, as you can appreciate, is only a sample of what is being offered by military installations throughout the country.