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(The statement referred to at p. 1141 follows:)

STATEMENT OF HAROLD T. HALFPENNY

My name is Harold T. Halfpenny, and my address is 111 West Washington Street, Chicago. I appear here today as counsel for the Independent Garage Owners Assoication, and as an attorney who has had many years of experience advising clients and trade associations in the automotive replacement industry, particularly the repair and replacement parts fields. In that capacity, I shall confine my testimony to an analysis of the Celler bill in connection with existing antitrust laws, and to the effect which it would have on the independent garage owners whom I represent here today.

The proposed bill is well summarized in its introductory clause which reads: "To supplement the antitrust laws of the United States against restraint of trade or commerce by preventing manufacturers of motor vehicles from finaneing and insuring the sales of their products."

Note that the first few words declare that the purpose is first to "supplement the antitrust laws of the United States against restraint of trade or commerce." This primary purpose, preventing restraints on commerce, has a long and honorable history in the United States, which is too often disregarded or forgotten.

Our economy has always been based on the ideal of free competition—a goal which has often been difficult to achieve. It may in fact be impossible, but the elected representatives of the people in both Congress and the various States have persistently aimed at it. Basically, what they have sought to insure is that competition shall be unhampered by artificial restraints; that purchasers shall make their decisions after comparing price, quality, and service, uninfluenced by other considerations. It was in an attempt to guarantee this state of affairs that the various antitrust laws were adopted; they are indeed bulwarks of our free enterprise system.

The first of the Federal laws, the Sherman Act, was adopted in 1890, at a time when monopolistic interests openly sought to control the marketplace by the suppression of competition. An aroused public opinion demanded that this be prevented, and free competition maintained. The Sherman Act accordingly prohibited combinations and conspiracies in restraint of trade. It provided both civil and criminal sanctions as remedies for the prohibited conduct.

The Sherman Act, as interpreted by the courts, is aimed at the restraint of the exercise of sheer economic power to suppress or restrict competition. The Court of Appeals for the Fourth Circuit, in a 1960 decision in Osborne v. Sinclair, held that the Sherman Act prohibits the exercise of great economic power by a major oil company to coerce its retail gasoline station dealers, by threats of lease cancellation, to purchase company-sponsored lines of tires, batteries, and accessories. In other words, as the court apparently saw it, the dealers should be free to purchase those products on the basis of a comparison of price, quality, and service, uninfluenced by threats. Fear of economic reprisals is not a legitimate influence in the marketplace.

The Sherman Act was only the first step; it was reinforced in 1914 by the Clayton Act, which provides that it is unlawful for any person to sell or lease goods on the condition that the lessee or purchaser shall not use or deal in the goods of another. The same act, as amended in 1936 by the Robinson-Patman Act, prohibits discrimination in price between different purchasers of commodities of like grade and quality. These laws are further complemented by the Federal Trade Commission Act, which empowers the Commission to prevent any person from using “unfair methods of competition."

The evils at which the antitrust laws are directed are illustrated by the famous Du Pont case, which involved section 7 of the Clayton Act, prohibiting the acquisition of stock in one corporation by another when the effect of the purchase will be to substantially lessen competition or tend to create a monopoly. The Supreme Court in its original opinion found that the acquisition by Du Pont of 23 percent of the voting shares of General Motors violated this section. It said that "Du Pont purposely employed its stock to pry open the General Motors market to entrench itself as the primary supplier of General Motors' requirements for automotive finishes and fabrics."

Congress and the courts have thus demonstrated their determination that free competition shall not be restrained. The bill considered here today is in harmony with that philosophy, and would take its place with the other antitrust laws which seek to achieve that result. It has been made clear by the testi mony of the witnesses who have appeared here today that economic power is being used to stifle free competition. In the automotive industry, as Mr. Grindle

of Ohio testified at previous hearings, and will testify at a subsequent date be fore this committee, has stated, the business of repairing automobiles is being dictated not by considerations of price, quality, or service, but by an arrange ment between two economic giants which prevents others from entering a large share of the market. In my travels and discussions I find this to be so.

The nature of this arrangement is succinctly described in the introductory clause to H.R. 71, stating that the act will prevent "manufacturers of motor vehicles from financing and insuring the sales of their products." It is this combination of manufacturing, financing, and insuring which sets the stage for the manipulation of collision-repair business, and allows it to be channeled to manufacturer-dealers.

In discussing this problem we are not in any manner attacking the car dealers, who also require your aid and assistance. They are also the victims of the present monopoly power of the vehicle manufacturers. It is apparent that the dealers do not make substantial money out of their operation. According to national figures furnished National Automobile Dealers Association the dealers last year only made one-half of 1 percent on their volume. Recent figures show the average dealer had a loss of $11 for every new vehicle sold in the first quarter of 1961. Thus, to make up for the loss, they must have the insurance income and repair income. The foundation for this practice was started by General Motors in 1925 when they organized their insurance company, General Exchange Insurance Corp., which has been succeeded by Motors Insurance Corp.

It is apparent that Generel Motors firmly believes that because it makes the car it has the exclusive right to finance it. If it finances the car it has the exclusive right to insure it. If it insures the car it has the exclusive right to repair it, and if it repairs the car, its parts, not the part of any other manufacturer, are to be exclusively used. Finally, if the car is a total loss, a General Motors manufactured car must replace it.

Independent garage owners are the victims of a circular arrangement which runs from the manufacturer of motor vehicles to its wholly owned insurance company and from there to its franchised dealers. General Motors and Ford manufacture the cars, their affiliated companies insure them and direct repair work on them to General Motors and Ford dealers.

This amicable and profitable understanding is executed by methods more subtle than open threats of coercion, as it must be because the owners of the motor vehicles must be used as unwitting and sometimes unwilling allies. The easiest execution of the arrangement comes into play when an owner insured by the manufacturer's affiliate is unsuspecting and does not particularly care where his repair work is done. In this event, the adjuster simply refers him to the manufacturer's dealer nearest his home, and promises that the repairs will be made and the dealer paid directly by the insurance company. If the insured has a favorite garage, however, and is stubborn enough to insist on what he fancies to be his rights under the insurance policy, things become more complex. In that event the adjuster is likely to require the owner to get two or more estimates, and one from a manufacturer's dealer. Not by coincidence, the dealer's estimate will probably be slightly less than that of the lowest of the other bidders; but even if it is not, the adjuster will direct that he do the repairs.

The size of the market affected by these practices can only be estimated. There is of course no accurate way of finding out how often, or how persuasively or insistently, tactics such as this are used. Subsequent witnesses will give this committee the benefit of the results of a comprehensive survey. Something may also be indicated by the number of vehicles involved. In 1960, General Motors sold 2.869.799 passenger cars, or 47.2 percent of the total, and Ford sold 1,749,302, which was 30.5 percent of the total sales. Of course not all of these vehicles were insured by the manufacturer-controlled insurance companies. However, in 1959, Motors Insurance Corp. filed reports showing gross premiums written and earned on direct business for that year of $173,037,000. shall make no attempt to guess as to how many vehicles this represents; but it must be a good many.

I

Whatever the exact figures may be, it is apparent that a large collision-repair market is substantially closed to independent garage owners--and the independent manufacturer and wholesaler of replacement parts; that is, businesses not associated with General Motors and Ford. Further, the tactics used to divert that business are extended even to the business of replacement of small automobile parts such as mirrors, aerials, and hubcaps. For example, a gaso

line station or garage may sell GM mirrors, so that the insured would receive exactly the same product from him as from a GM dealer. Nevertheless, the manufacturer-controlled insurance company frequently insists that the part be replaced by a GM dealer.

In a consent decree some years ago, major car manufacturers agreed not to exert pressure on their dealers to use manufacturer-controlled finance companies in preference to others. This has proved to be an inadequate remedy. The testimony before this committee has demonstrated not only these restraints on trade, but restraints in other fields as well. It has shown that they violate our philosophy of free competition, and that a remedy is required. It is further apparent that there is no way of stopping these practices short of prohibiting automobile manufacturers from financing or insuring the motor vehicles they sell. This is the simple and direct remedy provided by H.R. 71. It not only remedies a widespread abuse of power in several fields of industry. It is also perfectly consistent with the time-honored antitrust laws already on the books. I am happy to recommend it.

AUTO FINANCING LEGISLATION

FRIDAY, JUNE 30, 1961

HOUSE OF REPRESENTATIVES,
ANTITRUST SUBCOMMITTEE

OF THE COMMITTEE ON THE JUDICIARY,

Washington, D.C. The subcommittee met, pursuant to recess, at 10:10 a.m., in room 346, Old House Office Building, Hon. Byron G. Rogers, presiding.

Present: Representatives Celler (chairman), Rogers, McCulloch, and Meader.

Also present: Herbert N. Maletz, chief counsel; William H. Crabtree, associate counsel; and Herbert Fuchs, assistant counsel.

Mr. ROGERS. The committee will come to order.

We will proceed with Mr. Gossett.

STATEMENT OF WILLIAM T. GOSSETT, VICE PRESIDENT AND GENERAL COUNSEL; ACCOMPANIED BY THEODORE 0. YNTEMA, VICE PRESIDENT AND CHAIRMAN, FINANCE COMMITTEE, FORD MOTOR CO.; AND J. B. LACKEY, VICE PRESIDENT, FORD MOTOR CREDIT CO.

Mr. GOSSETT. Thank you, Mr. Chairman. I think I can complete my statement. very quickly.

I would like to remind the committee that when we closed last night, I was making the point that the mere fact of a prospective delay in litigation under the present antitrust laws or difficulty of proof in the courts was not a sufficient basis for such a drastic law as H.R. 71 would be if enacted, and that if H.R. 71 were enacted, it would be bound to set dangerous precedents for ad hoc legislation for every special purpose situation that occurred in the economy; that neither the Public Utility Holding Company Act nor the Bank Holding Company Act was a precedent for H.R. 71, because they were parts of regulatory schemes to protect the public interest against high rates in regulated industries; and that in the Bank Holding Company Act the situation permitted rentention of activities closely related to the banking business contrary to H.R. 71, which would unceremoniously, summarily require that we, the manufacturer, dispose of any finance business that they might have; and that I saw no precedent for H.R. 71 in Anglo-American jurisprudence, and that whenever Congress has enacted a statute to exclude members, of an industry from entering a field it has been pursuant to a larger regulatory scheme. Then Mr. Maletz and I had a discussion on that,

73326 0-61-pt. 2-24

and I was about to read the last paragraph on page 12, which I will proceed with now if agreeable:

H.R. 71 would mark an abrupt departure from these fundamental policies. For the first time it would impose a barrier to entry into an important business function, not dictated by the needs of a regulatory scheme. The validity of this novel legislative proposal cannot be defended on the ground that it serves antitrust objectives. On the contrary, the bill would mark a deep inroad into antitrust tradition, all in the interest of protecting unaffiliated finance companies from the rigors of competition, contrary to the interests of the consumer.

THE

ASSERTED ADVANTAGES TO MOTOR VEHICLE MANUFACTURERS OF
OWNING FINANCE AND INSURANCE COMPANIES

It is asserted by the proponents of H.R. 71 that motor vehicle manufacturers with affiliated finance and insurance companies have unfair advantages over manufacturers that do not have such affiliates; and that if the manufacturers were deprived of these affiliates, competition in the motor vehicle industry would be increased, to the benefit of the consumer. So the arguments go.

Obviously, we would not have established our new finance company had we not concluded that they would help us by making available to our dealers and their customers lower rates for credit and insurance. We have no other reason for owning finance and insurance affiliates, although we do expect to make a reasonable profit in that business. As Mr. Yntema has shown the unaffiliated finance and insurance companies simply would not give our dealers and their cus tomers competitive rates across the board. If they had done so, we would not have reentered the field, and so the default was on their part.

And now that we have established our own credit and insurance companies, and where we have done so, the rates generally have come down, not only to our dealers, but to the dealers of other manufacturers as well, we are told. If our motor vehicle competitors are suffering any disadvantage by not having finance and insurance affiliates, they have the right to enter the business whenever they feel the need to do so. There has been no showing that they could not do so successfully if their dealers and customers were not receiving adequate service and competitive rates. This alone has had and will continue to have, we think, a salutary effect on the costs of financing and insurance to the public. But if by legislative action the manufacturers are prohibited from entering the field, then the manufacturers will be without remedy to correct any situation that might exist where the rates are too high, the rates of the independent unaffiliated finance companies.

In any event, the public interest in free competition could not possibly be advanced, we think, by restricting competition in financing the sale of motor vehicles. The only way to compete is to compete. Our finance and insurance affiliates help us to compete, both in our indus ry and against the products of other industries, by reducing the cost of distributing our products. This cost reduction serves the interests of our dealers and our customers as well as our own interests. In addition, these affiliates help to reduce the price of automobile credit and insurance to the consumer. The unaffiliated finance and insurance companies, on the other hand, have no direct interest either. in reducing the cost of credit and insurance, or in the state of compe

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