SALES-FINANCE COMPANIES AND THE MARKET FOR AUTOMOBILE INSTALLMENT SALES CONTRACTS Sales-finance companies including GMAC compete in only one of the abovenoted market areas for financing the credit purchase of automobiles; namely, that area which has to do with the purchase and sale of installment sales contracts, previously originating with retail dealers. Furthermore, because GMAC confines its activities solely to the purchase of such contracts from GM dealers, its competition is restricted exclusively to the GM market. Hence, in the installment sales contract area in which salesfinance companies and banks operate, there are in reality, for such financial institutions, except GMAC, two markets, or areas of competition, for the purchase and sale of such contracts: 1. The General Motors market in which GMAC, other sales-finance companies, and banks compete. 2. The non-General-Motors market, in which sales-finance companies (other than GMAC) and banks compete. Therefore, an analysis of the competitive results in these two markets, as differentiated one from the other, becomes pertinent to a determination of the exact position of GMAC in the GM market to which it confines its competition. POSITION OF GMAC IN THE GM MARKET Tables I and II, below, show a summary analysis, of both the dollar volume and the unit volume of retail installment sales contracts purchased by various groups of financial institutions in the United States during 1960, in both (a) the General Motors market, and (b) the non-General-Motors market. A careful review of these tables will reveal that (1) During 1960, GMAC purchased 65 percent of the new-car dollar volume of retail installment sales contracts originating with GM dealers and 46 percent of the used-car volume of these dealers, making a composite total of 58 percent of the entire dollar volume of retail installment sales contracts originating with GM dealers. (2) In terms of units, during the year, GMAC purchased 64 percent of all new car installment sales contracts originating with GM dealers, and 47 percent of the used-car installment sales contracts of such dealers, for an average of 54 percent of all retail installment contracts originating with GM dealers. (3) With respect to the non-General-Motors market, sales finance companies (with GMAC excluded because it does not compete in this market) and commercial banks both get a much higher percentage of this market than they do of the combined U.S. market; again showing the handicap of these institutions in the General Motors market due to the monopoly position of GMAC. Also, at these hearings, Mr. Stradella testified that GMAC finances at wholesale "about 75 percent of the total GM shipments to GM dealers." According to the supplement to GMAC's 1960 Annual Report, its total wholesale volume in the United States during that year was $7,009,004,000. This volume among other items included the wholesale financing of 1,956,076 new cars. TABLE I. Summary analysis of the dollar volume of retail automobile installment sales contracts purchased by financial institutions in the United States during the year 1960 [Dollars in rounded millions] I. TOTAL DOLLAR VOLUME OF RETAIL AUTOMOBILE INSTALLMENT SALES CONTRACTS PURCHASED IN THE UNITED STATES DURING 1960 8,054 100.00 4,955 100.00 13,009 100.00 Percent of U.S. volume. 38.10 100.00 See footnotes at end of table. TABLE I.-Summary analysis of the dollar volume of retail automobile installment sales contracts purchased by financial institutions in the United States during the year 1960-Continued [Dollars in rounded millions] II. TOTAL DOLLAR VOLUME PURCHASED BY VARIOUS GROUPS OF FINANCIAL IN STITUTIONS IN THE UNITED STATES DURING 1960 1 Ratio of General Motors new passenger car registrations (2,869,788) to total new passenger car registra tions for all manufacturers (6,576,650) in 1960. 2 From U.S. new passenger car registrations data and supplement to GMAC's 1960 Annual Report. Data from Federal Reserve Board's monthly reports G-18 and G-20 during 1960. Source: Prepared by Thomas W. Rogers, June 20, 1961. TABLE II.-Summary analysis of the number of retail automobile installment sales contracts originating with retail automobile dealers in the United States during 1960 and purchased by financial institutions during that year [In thousands of contracts] I. NUMBER OF MOTOR VEHICLES SOLD BY ALL AUTOMOBILE DEALERS IN THE UNITED STATES DURING 1960 (UNITS) New. Used.. Total. Percent of all U.S. sales.. General Motors dealers Non-General Total for all dealer Number Percent Number Percent Number Percent 2,870 43.28 3,707 43.28 6,577 43.28 3,760 56.72 4,865 56.72 8,572 56.72 6,630 100.00 8,572 100.00 15,202 100.00 56.4 100.00 II. MOTOR VEHICLES SOLD BY AUTOMOBILE DEALERS UPON INSTALLMENT New 1,357 40.82 1,755 38.90 3,112 40.81 1,967 59.18 2,547 61.10 4,514 59.19 Total 13,324 100.00 Percent of units sold... 150.15 1 4,302 100.00 17,626 100.00 Footnotes at end of table. TABLE II.-Summary analysis of the number of retail automobile installment sales contracts originating with retail automobile dealers in the United States during 1960 and purchased by financial institutions during that year-Con. [In thousands of contracts] III. RETAIL INSTALLMENT SALES CONTRACTS SOLD BY AUTOMOBILE DEALERS AND PURCHASED BY FINANCIAL INSTITUTIONS DURING 1960 (NUMBER) 1 An estimated additional 18.5 percent of the total of all automobile dealer sales totaling 1,605,000 used units and 1,211,000 new units, were purchased on credit with funds borrowed from lending institutions. Source: data by Federal Reserve Board, monthly reports G-18 and G-20, supplement to GMAC'S 1960 Annual Report, registration data, "Automotive News 1961 Almanac," and "1960 Survey of Consumer Finances," University of Michigan. Prepared by Thomas W. Rogers, June 20, 1961. Since it is a well-known axiom in the sales financing industry, that in competition "the retail follows the wholesale," that is the company financing the wholesale is most likely to get the retail paper arising from the sales of the units financed at wholesale, this powerful monopoly position of influence for GMAC in connection with the wholesale financing of GM dealers, likewise, cannot be overlooked. CONCLUSIONS Through such domination, General Motors Corp. has been able to create and maintain effective control of its dealers and to impose upon them its will with respect to administered prices of General Motors' products sold to these dealers. This domination in turn, has created for General Motors (a) inordinate profits, (b) domination of the automobile manufacturing industry, (c) an undesirable concentration of economic power which, at will, may be used for the weal or the woe of the consumers of motor vehicles. All this, we believe, is in contravention of the spirit and purposes of the antitrust laws of the United States and requires legislative corrections. For these reasons, therefore, this writer strongly supports the objectives of H.R. 71, and urges its passage by your committee, and by the Congress of the United States. Sincerely yours, Re H.R. 71. THOMAS W. ROGERS. Senior Vice President and Economist, Associate Investment Co. Hon. EMANUEL CELLER, Chairman, Subcommittee No. 5, Committee on the Judiciary, DEAR MR. CHAIRMAN: This representation is made on behalf of the National Association of Insurance Agents, Inc., a voluntary membership association numbering over 34,000 insurance agency members. Included in this membership are approximately 100,000 individuals, duly licensed by the respective States, who are proprietors, partners, or corporate principals in our member agencies. This organization is comprised of independent small businessmen who specialize in the production and servicing of policies of fire, casualty, surety, marine and all other lines of general insurance for clients ranging from the smallest householder or automobile owner to the largest industrial corporation. The purpose of this communication is to present the views of this organization to the Subcommittee No. 5 and the House Committee on the Judiciary, with reference to H.R. 71, which proposes to supplement the antitrust laws of the United States against restraint of trade or commerce by preventing manufacturers of motor vehicles from financing and insuring the sales of their products. Members of this organization are independent businessmen who maintain insurance agency offices in every metropolis and almost every hamlet in this country. Much of the insurance activities of every agent will deal with automobile owners or prospective automobile owners. For that reason, members of this organization are especially concerned with maintaining free and open competition in automobile insurance, as well as in all other fields of insurance. Where artificial restrictions are present to that free competition, the interests of the public and the members of our organization will not be well served. Such an artificial restriction to free and open competition might well exist where an automobile dealer is constrained under pressure to also sell his principal's facilities for insurance and financing as well as the automobile itself. In actual practice, this pressure is too often exerted by some automobile manufacturers upon their local dealers, who in turn are forced to exert this pressure upon the consumer. Ample facilities are available at local levels to provide for all the insuring and financing needs of the public. This organization firmly believes that the greatest opportunity for independent competition in insuring and financing automobiles at the local level will best serve the public. Respectfully submitted. PORTER ELLIS, President. Mr. EMANUEL CELLER, KANSAS CITY LIFE INSURANCE CO., DEAR CONGRESSMAN: I have read with great interest your proposed bill regarding the insurance agents' plight in the good old U.S.A. on page 3, June 1961 issue of Insurance Guide edited in Chicago, Ill. The insurance agents of this country and there are many who will go out of business unless something is done to stop the big firms like GMAC and Sears or All-State. In the first place they do not comply with the laws insofar as agents are concerned. General Motors dealers can have one agent and then have every salesman taking orders for insurance on the cars he sells, but he has no license, whereas if an agent wants even to employ a solicitor he has to have a solicitor's license or be heavily fined for not meeting the State requirements. Then too the big fellows just want the cream of the crop, new car business, and let the local agent have the crumbs, this causes many hardships on the public because the average company cannot take all the crumbs without some of the good larger premium policies. I am 66 years old and I was forced to sell my general insurance business because I could not meet the finance plans of All-State and GMAC or Farm Bureau. I worked hard to start a new agency in 1951 of five or six good companies, mostly mutuals and when the depression hit in 1959 here in Decatur it was hard to borrow enough cash to carry so many of our accounts. So at my age I intended to stay in the business the rest of my life and would have been able to give steady employment to several other people who are now laid off. It is impossible to get a decent job in my line of work at my age, so I kept the life insurance business and it is tough to try and live on social security with a lid on your head as to what you can earn without canceling out your social security that you have paid in for since it started. I hope you will be able to get your bill through so that there will be a few things that can be done in this great country of ours without being forced out by big all-hog outfits forcing small business out of business. Yours very truly, FRED F. ALTHOFF. SCHLUTER INSURANCE AGENCY, Dubuque, Iowa, June 30, 1961. Hon. EMANUEL CELLER, House Office Building, Washington, D.C. DEAR SIR: As a small businessman; namely, a general property insurance agent, I am deeply disturbed by the ever-increasing encroachment of General Motors Corp. into practically every field of business. Their continued operation in two of these fields ; namely, auto financing and auto insurance, will certainly develop into a monopoly, if indeed it isn't already a monopoly. While the latter field is naturally close to my heart and has motivated me to action, it is not the sole reason for this complaint. It is quite generally agreed, that the small businessman is the cornerstone of the American free enterprise system, and I am fully in accord with this basic economic and philosophical tenet. However, it is certainly distressing to listen to the platforms of both political parties and hear them prate about aiding the small businessman, only to forget him completely when elections are over. Not that we ask for any aid other than the ability to compete equally in the business market. It seems to me, that now is the time to take the first step in the right direction by restraining this monster from making shambles of our free enterprise system. Thanking you very much for your consideration in this extremely important matter, I remain Yours very truly, Hon. EMANUEL CELLER, ROBERT L. SCHLUTER. DART INSURANCE AGENCY, House of Representatives, U.S. Congress, Washington, D.C. DEAR MR. CELLER: With regard to H.R. 71, a bill which would prevent manufacturers of motor vehicles from financing and insuring the sales of their products, I would like to bring to your attention how important I believe it is that this bill be passed into law. The small, independent banks and even the larger ones-along with independent insurance agents and companies, will all be a thing of the past if the trend is allowed to continue and huge monopolies like General Motors are allowed to grab off such a large chunk of the business on which the smaller, independent banks and companies exist. The smaller banks and finance companies as well as insurance agents and companies are not in the favorable position of General Motors with respect to borrowing; they cannot therefore compete with General Motors when it comes to financing and insuring automobiles. I am writing directly to you respectfully to ask that you lend every ounce of your strength to the passage of this bill into law so that the small bank and finance companies, insurance agents and companies be allowed to continue to grow by letting them handle their fair share of this business which otherwise will eventually all seep away to the large automobile manufacturing companies. JOHN H. DART. Respectfully yours, FRANK M. MCDONOUGH, INC., Oswego, N.Y., July 18, 1961. Re H.R. 71. Hon. EMANUEL CELLER, Washington, D.C. DEAR SIR: We hope that you will pursue with all possible vigor to enact into law H.R. 71. We certainly hope it will be the proper legislation to prevent automobile manufacturers and dealers from charging interest for 3 years on insurance policies issued to cover fire and theft and collision, while the car is being financed for 3 years. Because any insurance agencies and any insurance company can issue fire, theft, and collision insurance 1 year at a time, it certainly seems to be an injustice to charge people for 3 years of insurance in advance and then add interest for 36 monthly payments. Yours truly, FRANK M. MCDONOUGH. |