Hon. EMANUEL CELLER, NATIONAL ASSOCIATION OF MANUFACTURERS Chairman, Antitrust Subcommittee, Committee on the Judiciary, DEAR REPRESENTATIVE CELLER: On behalf of the National Association of Manufacturers, I am submitting herewith a statement representing the viewpoint of our association relative to the bill, H.R. 71, relating to the financing and insuring operations of the automobile industry now before the Antitrust Subcommittee of which you are chairman. We respectfully request that the statement be accepted for the record by your subcommittee and that it be made a part of the transcription of the hearings, which we understand are to be in progress June 28, 29, and 30. Sincerely yours, D. BERYL MANISCHEWITZ, Chairman, NAM Marketing Committee. STATEMENT ON BEHALF OF THE NATIONAL ASSOCIATION OF MANFACTURERS RELATIVE TO AUTOMOBILE FINANCING AND INSURING (H.R. 71) This statement is submitted on behalf of the National Association of Manufacturers, a voluntary membership association of more than 18,000 business enterprises engaged in the manufacture and marketing of consumer and industrial goods of all description. The association membership includes manufacturing firms of every industry classification, and is additionally supported by many cooperating service establishments, including financial institutions. Our membership further includes, and our policies are formulated by, companies of all sizes from the smallest to the largest, and 83 percent of our membership employ fewer than 500 employees and fall within the category customarily defined as small business. We are continuously advised by large policy committees equally representative of business, and our interest in the proposals submitted to this Antitrust Committee has been actively guided by a committee of outstanding marketing executives, responsible for the efficient distribution and servicing of goods in many business fields. The generally acknowledged objective of H.R. 71 is to bring about the separation of a particular automobile manufacturer from its sales financing subsidiary on the ground it has an unfair advantage over independent sales financing firms, and other automobile companies. In presenting our views on this proposal, we are concerned not so much with the defense of any particular enterprise or business class, or with their relative competitive status, but with the fundamental issue of the propriety of action by the Central Government to prohibit any company from the normal and ofttimes necessary marketing function of financing sale of its own products. It should not be necessary to do so, but to reassure the Congress as to our position on this matter, we wish also to indicate our longstanding and complete agreement with national policies against monopoly and restraint of trade in any form. As the chief spokesman for industry, our association has specific policies opposing monopoly and we have actively conducted national educational campaigns on this issue within industry through the years. We have not, and would not, approve monopolistic actions or unfair or deceptive practices by any enterprise. We may disagree vigoroulsy, however, with many current and changing interpretations of the basic statutes by administrative agencies and the courts, where we believe these interpretations exceed, contravene, or, in many instances, work to reverse the original intent of the statutes. The issue to which we speak is whether the Congress should pay heed to efforts of one segment of an industry to gerrymander the antitrust laws-by patently class legislation to lessen the efficiency of a major competitor. The stated purpose of this measure is to prohibit absolutely makers of automobiles "from engaging in the business of financing and insuring automobiles purchased by consumers, and for other purposes." The bill would make it both a crime, and a civil offense, for such manufacturer to extend credit or to provide insurance to automobile buyers, either directly or through his dealers. Although the bill applies solely to automobile manufacturers, of which there are only five in the Nation, its sponsors and promoters have not denied, and in many instances made surprisingly clear, their hope that ultimately the right to finance the sale of the products will be denied to all makers, processors, assemblers, and other manufacturers of the country. It also has been conceded that the bill is directly intentionally toward breaking off of a single manufacturing company, the General Motors Corp., from its financing subsidiary, the General Motors Acceptance Corp. The basis on which Congress has been asked to adopt the bill is a series of charges against the automobile industry, but particularly against a single company that, by assisting its own dealers in the financing of their inventories and by discounting the loans extended by the dealers to the general public, the subsidiary has enabled the manufacturer to market its automobiles more effectively than its competitors, with lower carrying charges to automobile buyers. It is contended that the combined ability to build and finance sale of its product inherently gives its dealers a market advantage over its competitors which, if continued, will lead to a monopoly within the meaning of antitrust statutes. In the background, and frequently referred to by sponsors and promoters of the legislation, is the recorded history that the company at one time was found guilty, criminally, of an abuse of its financing functions by directly coercing its dealers to use the services of the finance affiliate. A further fact is that the company has been operating for many years under a consent decree of the Justice Department, amicably agreed upon by the company, to refrain from any such coercive tactics. Under provisions of this decree, the Federal Government discontinued the then pending civil suit. The revival of efforts to accomplish this divorcement by legislation, rather than through administrative or judicial procedures, has been accompanied by many public innuendos concerning this relationship. However, a search of the hearing record thus far impresses the observer with these facts: No specific charge is made that any existing statute is presently being violated by the subject company or by other automobile manufacturers. No charge of specific wrongdoing or misuse of marketing arrangements, or violations of the decree under which it is operating, has been made or contended. No evidence has been introduced that the financing of sales has lead to excessive interest charges. Indeed, the complaint is to the reverse that the charges upon the automobile consumer are usually the lowest in the entire financing field. No evidence has appeared that the chief complainant and proponent of the legislation is being competitively injured by the arrangment. To the contrary, evidence in the form of Federal statistics demonstrates that the complaining competitor's loss of auto financing business in recent years has been the result of increasing business by a third competitor, namely, commercial banks. No evidence exists that the particular company and its subsidiary are constantly increasing their shares of the automobile financing industry such as might be expected to suggest any charge of incipient monopoly. This bill, if adopted, could thus well become the classic example of class legislation. No secret has been made by either its proponents or sponsor that it is directed at a single business enterprise. In the words of the committee chairman, Representative Celler, who introduced it: "The thrust of the bill principally affects General Motors Corp., the Nation's largest manufacturer, and its wholly owned financing subsidiary, General Motors Acceptance Corp." The testimony of the proponents has dealt almost exclusively with the business operations of these firms, and their own competition with it. There has been recognition in the testimony that the Congress is treading on dangerous constitutional grounds, and there has been read into the record the fact that the Justice Department historically has stood against class legislation. Judge Stanley Barnes, in July 1956, as Assistant Attorney General, testified to Congress that, "As a general rule, we continue to oppose special legislation applying to any one industry." It is significant that the measure has not been supported in the past by the Federal Trade Commission, and has no official endorsement from the present Commission. Although successful efforts were made in the course of the hearing to elicit the personal support of the FTC Chairman, Mr. Dixon, he was unable to endorse the bill on behalf of the Commission. Before proceeding to an examination of other defects apparent in the proposals, our association asks the Congress to consider thoughtfully two disturbing elements which lie beneath the surface of legislation of this nature. First, Congress should be aware of the source of major stimulus for this proposal. It is being pressed primarily by the American Finance Conference, an organization of 244 finance firms, comprising all but a handful of such companies who compete with the automobile affiliates for the lending of funds to consumers, and also compete with commercial banks, small loan companies, credit unions, and other lenders. Industry generally is disturbed over the growing trend of business groups to appeal to Congress and to Federal agencies for protective measures of advantage to them in the marketplace. The record seems clear that, if adopted, the consumer is likely to be injured through an increase in carrying charges on automobile loans. While the fundamental right of a seller to finance his own sales is a greater issue than the question of whether interest rates will rise or fall in a particular company, Congress is justified in weighing the implications in this situation. In our economy, business companies faced with rugged competition in a given area have many alternate roads to travel. A company may direct its energies toward increasing its own efficiency to reduce its costs and hence its charges upon the public; or an aggressive firm may look for new markets to expand its volume, rather than appealing to government to destroy the efficiencies developed by competitors. It is interesting to note that some automobile sales financing firms already have exhibited such initiative. For example, the Wall Street Journal of June 16, 1961, reports that a growing number of sales and consumer finance companies are reaching out for new moneymaking activities. These moves, it was reported, "include the leasing out of equipment, ranging from machine tools to trucks and office furniture; the entry of more finance firms into insurance underwriting, and the offering of special plans for financing such intangibles as college educations and foreign travel. The companies are invading other lenders' traditional territory; for one thing, they are now financing home purchases; they are setting up lending operations as far away as Australia and West Germany." (Emphasis added.) Second, we believe it is time for the Congress to challenge the growing looseness in the usage of "monopoly," which is repeatedly proffered in administrative and legislative actions to justify intervention into successful business operations. We believe that monopoly, as considered by the original framers of our antitrust statutes and as generally understood by most Members of the Congress, is being employed unfairly to harass and destroy large industrial enterprises which are essential to the forward progress of our economy. The Congress has consistently declined to declare that there shall be limits upon the growth of an American business, and the record of the Congress is replete with declarations that size alone is not in violation with the statutes, or with American ideals. Yet, there is implicit in this bill the concept that "bigness is badness and we shall have none of it." We submit that persons urging such concepts evince little faith in the flexibility of the competitive market system. A leading proponent of the bill has declared, "We will show that GM has used the finance pack as a merchandising tool to create a monopoly in the automobile business." Such a dire prediction presumes continuous, uninterrupted growth of a particular business on the basis of competition existing at the moment. It presumes that such growth will take place in an economic vacuum without reaction of any competitive elements. If proponents are so quick to predict confidently the increasing domination of a market by a particular seller, they should be equally willing to look ahead and recognize the prospects for counteraction of competitors to meet the situation. Business history abounds with examples of the effectiveness of free competition as a check against monopoly. In his authoritative study of large enterprise for the Brookings Institution in 1954, A. D. H. Kaplan concluded that, in the 40-year period from 1909 to 1948, "Positions of leadership as reflected by a place among the 100 largest industrials appear from the record to have been, on the whole, unsure and maintained with great effort." He found that of the 100 largest industrials doing business in 1909, only 36 remained on the list in 1948; that the place of the remaining two-thirds had been taken by dynamic companies, often in new industries. This phenomenon is well known to businessmen. It is such resiliency that is the strength of the free market system; it is a continuing demonstration of competition at work, and, if upset by unequal forces of government, the process will be frozen to the benefit of some businesses and to the detriment of others. Certainly, it will not be to the benefit of the public. Among the surprising disclosures of the hearings to date has been evidence that the sales finance companies have been losing business, not to the automobile subsidiaries, but to the commercial banks. Attempt is made to redefine the area of competition to the narrow field of sales finance companies only, excluding banks, credit unions, and other lenders. To any responsible person, this is a weak and specious effort for it presumes that a line of commerce may be distinguished by the method of operating a business, rather than by the product or service offered. It is apparent that all firms which have money to lend to consumers to buy automobiles offer a comparable service, and whether they call themselves finance companies, or banks, or credit unions, has little relevancy. It is questionable whether the finance companies are doing themselves a disservice, for, if successful in this effort to define their own type of operations as an exclusive line of commerce, they may be opening the door to Government actions against the largest members of their own industry. One wonders, too, what the promoters will have gained by forcing the divorcement they seek. GMAC, as an independent sales financing company, now will be released to enter into vigorous competition for dealer paper of old and new cars of all makes, rather than those of its parent company alone. It may increase its share of the market in some areas, lose it in others. Certainly, in this new situation, it is inevitable that some of those firms most anxious to bring about the separation will face loss of business, or even extinction. Moreover, these firms still must compete with the increasingly successful operations of the commercial banks. Beyond all this, it is pertinent to ask how a single company has precluded competitors from a market in an industry as diverse and fiercely competitive as the credit system of this country. Latest information on sources of potential personal credit shows the following: Not all of these credit agencies buy "dealer paper," or lend directly to consumers for automobile purchases, we understand. But each one is a potential competitor of the sales finance firms. Commercial banks already account for 46 percent of automobile installment credit; automobiles undoubtedly are high on the list of purposes for which credit union funds are employed; possibly a third of the personal loan companies are said to assist in automobile financing. Surely, it would be hard to find an industry in which a charge of potential monopoly by a single organization would be more inappropriate as a basis for legislation. In our appearance before the Senate Antitrust Monopoly Subcommittee on March 5, 1959, on a similar proposal, our association developed at length the complexity of modern marketing functions and noted the integral relationship between all parts of the marketing process, of which financing is one. We pointed out further the normal and desirable development of manufacturerdealer relations under which the ability of the manufacturer to provide the strongest possible support to his dealers and distributors is also a major factor în competitive marketing today. Manufacturer-dealer-distributor contracts in any field may call upon the manufacturer to provide such services as window signs, sales helps, guarantee tags, technical and other informational literature, sales training courses for employees. The contracts cover such other areas as discounts, collection of unpaid accounts, selling procedures-in fact, the whole distribution process from receipt of the product to servicing after delivery to the final consumer. Financing, we believe, is one part of this whole sales relationship, and it is an integral part. If Congress may, by fiat, eliminate one feature of these business relationships, it may with equal logic limit the scope of other marketing agree ments. Shall proponents of these bills next call upon the committee and Congress to forbid manufacturers from printing or constructing point-of-purchase display materials for dealer use? From offering to sell or provide consumer literature or other advertising helps? From providing sales or service training courses for dealers and their employees? Conceivably, any one of such services may be abandoned by the supplier to private, competitive firms specializing in these arts, just as suppliers now are asked to abandon their financing services. We believe that such services, however, are proper functions of the corporate marketing structure and, further, that the Federal Government should no more have power to dictate the credit or insurance arrangements of manufacturers, dealers, and consumers than to dictate such other terms and conditions of sale as the date of delivery of merchandise or the repair and maintenance clauses of contracts. Efforts have been made by the leading witnesses before this committee to picture the excellent manufacturer-dealer relations established by automobile companies as unfair, and even evil, instruments for monopoly. There is further reference to retail automobile dealers as the "sole market" for the manufacturers. The concept that a manufacture is competing unfairly through the development of every possible sales service for its own dealers is indeed a novel challenge to the marketing profession, and to industry as a whole. Carrying our analogies further, if programs for good dealer relations, including credit, insurance, dealer helps and other services, should be defined as unfair competition, then other programs to develop good relations with other segments of the enterprise may be logically examined. Manufacturers, for many years, have poured millions of dollars into creating special services and benefits for its labor force. Are we next to consider that superior working conditions, group insurance programs, vacation schedules, pension plans, training programs, and the like-all of which may tend to reduce labor turnover, attract higher grade employees, and thus increase working efficiency-are to be considered as unfair practices bound ultimately to lead to monopoly of a line of commerce? Similarly, it may be fair to ask whether any other companies with weaker dealer organizations should be encouraged to appeal to the Congress to destroy the special dealer benefits of their competitors. The There is a contention by the leading proponents that the low rates of the major financing affiliate must be illusory because the company sets a high profit goal for all of its operations. The statement is easily recognized as an absurdity. whole object of our industrial economy is to produce goods at the lowest cost, either for the purpose of providing the lowest price to othe consumer, or the highest profit to the owner. In practice, under effective competition, both purposes may be accomplished. In this particular case, both purposes have been accomplished in fact. The company in question apparently has achieved high profit margins, while maintaining competitive prices on its product and financing them at even lower terms than available to the consumer from its finance competitors. This has been accomplished through superior efficiencies-efficiencies which this bill would designate as an "evil" and a per se violation of the antitrust laws. The contention is made that the sole "market" of the manufacturers is their own dealers, or, in the words of the witness, "Now, mind you, the only people that automobile manufacturers sell to are automobile dealers, and there is no mobility in that market today and there will not be." This also would astound marketers in any product line. The market to which any manufacturer must sell his product, to be successful, is the final consumer or user, and his whole energies must be concentrated upon that person. The dealer is the arm and the eyes and the voice of the manufacturer, and his efforts are coordinated to that final sale. In the case of the franchise dealer, universal in the automobile business, that relationship is at a maximum. The market for the manufacturer, however, is the whole American public for whom automobiles are designed and built, not the intermediary distributors. There is no more validity to charging "monopoly" because of the recruitment of a superior dealer force than of a superior sales force. As we have asked earlier, is a charge now to lie that monopoly may be ascribed to more highly skilled, scientific, engineering, legal, advertising, or other personnel? Automobile sales, like any other product, may be enhanced by the quality of its salesman, financing arrangements or any other factor, but fundamentally the volume must depend upon the product itself. In the automobile business, this has been readily demonstrated by the failure in very recent years of at least two new ventures into the field by both new and established companies. It is demonstrated conversely by the successful introduction into the American market of foreign made passenger cars with presumably new and untried dealer organizations. In short, if the automobiles of the company in question here are sold in high volume, it is because the product has been tested in all its features by the consumer and found acceptable through the years. An issue has been created here that an unfair commercial practice exists because the financing subsidiary acquires its loan paper with less effort and |