Act of 1935 and the Bank Holding Company Act of 1956 (especially the latter) provide precedent for the special legislation now under consideration (transcript, pp. 559-570). This we dispute. Mr. Maletz seems to have overlooked the fact that the limitations on competition in each of those acts flows from an effort by the Congress to erect a regulatory scheme for an industry traditionally regulated by legislative acPublic utilities and banking are industries in which franchise

rights and competition are regulated by law.

The Public Utility Holding Company Act was justified, of course, by the necessity for protecting investors, consumers, and the general public against the abusive practices of an industry with a naturally monopolistic position-an industry in which competition would not serve as a natural corrective. Super-empires of services and accounting companies enabled the holding companies to charge consumers excessive prices for public utility service, and the complicated corporate structure of multilayer holding companies made it possible for public utility companies to issue stock at prices having no fair relation to the sums invested in or the earning capacity of the properties. There, the public had been suffering from oppressive practices and high rates. By contrast, in the automotive industry the effect of the activities that would be barred by the proposed legislation is to reduce the costs of financing the purchase of motor vehicles.

The Bank Holding Company Act represented the culmination of many years of legislative effort to devise a regulatory scheme applicable to the banking industry. And while that legislation required bank holding companies to divest themslves of other business interests, there were numerous exemptions that permitted those companies to retain activities "closely related to the business of banking." (12 U.S.C.A. 1843 (c) (6)). Manifestly, financing and insuring the sale of motor vehicles are closely related to the automobile business. Thus, the Bank Holding Company Act, far from providing a precedent in support of H.R. 71, has the opposite effect, we think.

I would like to interpolate there and say this. Under the Public Utility Holding Company Act, there was no provision that there should be, that any company should be compelled to divest itself of subsidiaries willy-nilly. There was provision in the act for a hearing before the Securities and Exchange Commission before any company could be divested of a subsidiary, and there was a right to judicial review based on that hearing, from that hearing, and a determination to be made by a court as to whether the action taken was fair in all the circumstances.

Similarly, in the Bank Holding Company Act, there was a provision for presentation of evidence, cross-examination of witnesses, and a full right to present all of the facts and circumstances to the Federal Reserve Board, and a right to appeal from that Board from any determination made to divest.

H.R. 71 apaprently would simply say that if any manufacturer were in the finance business, its finance company would be divested. There would be no hearing, no right to cross-examination, no right to have facts presented to a court of law, no right to appeal.

It would be something that would violate every concept of AngloAmerican jurisprudence as I know it from the time of the Magna Carta, and I know of no counterpart in the law today to this proposed legislation.

Limitations on entry into an industry are imposed by a substantial number of regulatory statutes.

Mr. MALETZ. I didn't want to interrupt your statement except that one point has come up. As I read the Bank Holding Company Act, it is provided that within a period of 2 years after its enactment, bank holding companies are required to divest themselves of investments in businesses extraneous to banking.

Mr. GOSSETT. Extraneous to banking. There were exemptions. Mr. MALETZ. I don't find in the act itself provision for

Mr. GOSSETT. There were many exemptions, many exemptions. Mr. MALETZ. I understand that, but I don't find in the act itself any provision for hearing.

Mr. GOSSETT. I think you will find such provisions. I think that a determination had to be made whether the exemptions were applicable, whether the exemptions applied.

Mr. MALETZ. Yes, but assuming the exemption was not applicable, what provision is there in the Bank Holding Company Act for a hearing on the question of divestiture?

Mr. GOSSETT. For instance, there is an exemption

Mr. MALETZ. I am not talking about exemptions. As I understood your testimony, you said provision was made in the Bank Holding Company Act for a hearing on the question of divestiture, and I am unaware of such a provision in the Bank Holding Company Act.

Mr. GOSSETT. There had to be a determination as to whether the exemptions applied and some facts had to be presented to the Federal Reserve Board as to whether the exemptions were applicable. The companies were permitted to present evidence and there is appeal from that to the courts.

Mr. MALETZ. Yes, but now suppose a bank holding company controls a company which was admittedly engaged in a business extraneous to the banking business. What provision in the Bank Holding Company Act authorizes a hearing proceeding?

Mr. GOSSETT. I am not sure that there was a hearing in that case. But you see we are in a situation here where we have a subsidiary that is in a business related to ours, and with respect to that there was a hearing provided for the Bank Holding Company Act, and, there, contrary to this bill, we could have kept our subsidiary. And we would have had to divest it only if the court found that it was fair and not within the exemptions.

Mr. MALETZ. For example, Transamerica Corp., a bank holding company, controlled the stock of the Occidental Insurance Co. Is any provision made in the act itself for a hearing with respect to whether or not Occidental Insurance Co. should be divested from Transamerica?

Mr. GOSSETT. I think not, but there it was a totally unrelated business and the policies of Congress after 17 years of consideration of the matter was that banks should not engage in businesses unrelated to the banking business.

Here we have a situation where we have a business clearly related to the automobile business, but this bill would require us, if enacted, to divest ourselves of that business willy-nilly, without a hearing, no presentation of evidence, no appeal to a court.

Mr. MEADER. Mr. Chairman, might I ask one question at this point? Excuse me, Mr. Gossett, for interupting.

Is there anything in the law that would prevent a motor vehicle manufacturer from being a dealer itself if it wanted to be?

Mr. GOSSETT. No, sir.

Mr. MEADER. In fact, I believe I recall that Firestone at one time did have stores which it owned around the country; didn't it?

Mr. GOSSETT. Yes; I think it is common knowledge that General Motors owns a number of dealerships in the large metropolitan areas, and we are finding these days that in those areas we must own dealerships in order to have our products sold. The dealers find difficulty in making profits in the large metropolitan areas with keen competition, particularly down in the business area, Manhattan, N.Y., for example, most of the dealerships there are owned by the factories.

Mr. MEADER. Let me ask you if Ford or General Motors did have a dealership, say, in the city of Washington, under H.R. 71, if it became law, that dealership could not engage in the financing of its own paper; could it?

Mr. GOSSETT. I think that is right, sir, and also we would have, as Mr. Yntema pointed out, difficulty in financing our dealers in connection with wholesale sales.

The only thing we could do would be to sell them our products on credit without any interest. We couldn't finance them in wholesale transactions, even if it were necessary in order to give the dealer an inventory, an adequate inventory. I think this is sort of comparable to the situation that would exist if we came in here and said to you: "We don't like this competition from the foreigners, it is unfair. Their labor rates are too low. We can't compete with them. Cut them out, eliminate them."

That is the kind of sanctuary that the finance companies would like this committee, the Congress to build up for them. "We want to be rid of the competition of these manufacturers. They are too damned efficient." Excuse me. "They are too efficient. We want to be free to compete without being bothered with those fellows."

Mr. MALETZ. Mr. Chairman?

Mr. Gossett, is the automobile insurance business integral to the manufacturing business?

Mr. GOSSETT. I am sorry. Would you repeat that?

Mr. MALETZ. Is the automobile insurance business integral to the business of manufacturing or selling business?

Mr. GOSSETT. I think it should be; yes.

Mr. MALETZ. Are you familiar with the Ohio statute designed to prevent automobile dealers from acting as insurance agents?

Mr. GOSSETT. Yes, I am familiar. I think there is such a statute. There are a lot of unwise laws on the books.

Mr. MALETZ. What is the conceptual distinction—

Mr. HOLTZMAN. You say there are a lot of unwise laws. Do you think it is a wise procedure, Mr. Gossett, for a dealer not licensed to sell insurance to participate in fees or commissions as a result of the sale of an insurance policy?

Mr. GOSSETT. I think he should be licensed.

Mr. HOLTZMAN. Do you think it is an unwise program?

Mr. GOSSETT. No, I don't. I think the dealer should be licensed.

Mr. MALETZ. Is there any conceptual distinction between the Ohio statute and the pending bill?

Mr. GOSSETT. I don't think I could answer that one, sir. I'd have to study that statute. I am not sufficiently familiar with it to give

you a judgment on it.

Mr. MALETZ. You said that this bill is unprecedented. I would like to ask you a few other questions. Are you familiar with the so-called commodities clause of the Interstate Commerce Act?

Mr. GOSSETT. What clause, the commodities clause?

Mr. MALETZ. Commodities clause.

Mr. GOSSETT. Generally.

Mr. MALETZ. Does not the commodities clause prohibit a railroad from transporting any commodity which it has manufactured, mined or produced prior to transporting?

Mr. GOSSETT. Now, I think I'd have to refresh my recollection on

that.

Would you read the language?

Mr. MALETZ. I have the provision; 49 U.S.C. 1 (8) provides as follows:

It shall be unlawful for any railroad company to transport any article or commodity other than timber and the manufactured products thereof manufactured, mined, or produced by it or under its authority or which it may own in whole or in part or in which it may have an interest direct or indirect except such articles or commodities as may be necessary and intended for its use in the conduct of its business as a common carrier.

Mr. GOSSETT. Is that the Hepburn Act that you are talking about, commonly known as the Hepburn Act?

Mr. MALETZ. Yes.

Is it not the purpose of the commodities clause to divorce the business of transporting commodities from their manufacture or production?

Mr. GOSSETT. That may well be the purpose. I think it is. I don't think it provides a precedent, however, for this bill, because this has to do with the distribution of the products of our own manufacture which we should be free to do.

Mr. MALETZ. Was it the objective of the commodities clause to eliminate the opportunity for a railroad to obtain preferential advantage as a shipper?

Mr. GOSSETT. Yes; as I recall it, that was the purpose of it.

Mr. MALETZ. And isn't the purpose of the pending bill to prevent automobile manufacturers from having preferential advantage as suppliers in financing and insurance?

Mr. GOSSETT. I understand that to be the stated purpose of the bill. Mr. MALETZ. Yes.

Mr. GOSSETT. And I think that the existing law is ample to protect the finance companies against any unfair competition, as I have said. I don't think this bill is necessary if there is any unfair advantage due to the relationship, as I have said.

Mr. MALETZ. What I am trying to get at is what is the conceptual distinction between the commodities clause of the Interstate Commerce Act and the pending bill?

Mr. GOSSETT. I am afraid that without studying that act, I can't give you a judgment. I am not prepared. I remember vaguely the

Hepburn Act and the basis of it, but I want to point out that this bill (H.R. 71) would simply say today you are in the finance business and tomorrow you are out, and that is pretty rough.

Mr. MALETZ. The commodities clause is pretty rough too, isn't it? Mr. GOSSETT. I don't think so. I think there was a good public

purpose.

I think the public was benefited. Here the public would not be. Mr. MALETZ. Isn't it correct that automobile sales finance companies, commercial banks, and small loan companies are in substantial degree regulated by the various States?

Mr. GOSSETT. I understand so, yes. I don't think that installment purchase interest rates are regulated. They are exempt.

Mr. MALETZ. If that is the case, I was a little curious as to

Mr. GOSSETT. Insurance company rates are, of course, but the rates of interest charged on installment purchases the term used I can't think of at the moment-but those are accepted.

Mr. MALETZ. In view of the fact that these activities are now in substantial part regulated by the States, I was a little curious about a statement of yours at page 11 where you say that—

Mr. Maletz seems to have overlooked the fact that the limitations on competition in each of those acts flows from an effort by the Congress to erect a regulatory scheme for an industry traditionally regulated by legislative action.

Mr. GOSSETT. I have just said, I think, Mr. Maletz, that these sales are not regulated. These are what are called time sales purchases, and they are not regulated by State statutes generally.

Mr. MALETZ. What about insurance sales?

Mr. GOSSETT. The insurance is regulated but not the financing charges.

Mr. MALETZ. So, in other words, your statement at page 11 would not be applicable to that part of H.R. 71 which would divorce the business of manufacturing automobiles from the business of insuring automobiles, is that correct?

Mr. GOSSETT. Oh, no; I do not say that.

Mr. MALETZ. I am just trying to follow your logic.

Mr. GOSSETT. I want to draw a distinction. Even the insurance regulation statutes of the States are imposed, have been enacted, for the benefit of the public-to protect the public.

They are not drawn to protect the insurance companies from the rigors of competition of the manufacturers. They are drawn for the benefit of the public.

Mr. HOLTZMAN. Do dealers in New York State sell a package that is composed of insurance, too?

Mr. GOSSETT. I think I should call on the finance people for that question. I think they do. I think they sell a package.

Mr. LACKEY. We opened our branch, the only branch we have in New York, early this month. We have one office. It is located in the Greater New York area.

Mr. HOLTZMAN. I am talking about your dealers. You have many dealers in New York.

Mr. LACKEY. You are talking about dealers insuring through us? Mr. HOLTZMAN. You have many Ford dealers?

Mr. LACKEY. Yes, sir.