It is a simple matter to demonstrate that the legal

theory advanced by Mr. Arnold is not supported by the authorities he cites, and that it is based on an erroneous statement of fact.* Indeed, the entire Arnold theory rests on sand.

The Ford Case

company.

Under the terms of its consent decree entered into

in 1938, Ford was prohibited from affiliating with a finance The decree provided, however, that the prohibition would cease if, by January 1, 1941, General Motors was not similarly prohibited by court order. The Government's suit against General Motors for divestiture of GMAC was not filed until the fall of 1940, and it was then too late for a decree to be entered against it before the prohibition against Ford would lapse. Ford consented to several successive extensions of the prohibition while the General Motors suit was pending. Ford refused to consent, however, to the Government's motion of December 1945 for an extension until January 1, 1947. Instead, Ford moved that its decree be modified in certain respects. The Ford motion included a request

Mr. Arnold made precisely the same argument before the Senate Antitrust and Monopoly Subcommittee, about two years ago, in support of S. 838 and S. 839, both of which died in the Subcommittee.

Those bills, like H.R. 71, would have prevented motor vehicle manufacturers from financing or insuring sales of their products. In spite of the fact that we took the trouble to correct for, the record each of his errors of fact and law, he persists in repeating them in these hearings, presumably because without them his argument in support of legislative action would not hold together.

decree shall preclude the Manufacturer [Ford] from acquiring and retaining ownership of and/or control over or interest in any finance company. . ." The District Court for the Northern District of Indiana denied Ford's motion and granted the Government's motion for extension of the prohibition.

Ford appealed to the Supreme Court of the United States, which during its October 1948 term reversed the District Court's decision and held that Ford was entitled to have the prohibition lifted. In the opinion of the Court, written by Mr. Justice Frankfurter, it was concluded that Ford was subject to a competitive inequality by virtue of being barred from "pursuing conduct which, in the absence of an adjudication that it was illegal, they Ford were otherwise free to pursue and which General Motors has always been free to pursue." (335 U.S. at 322)

Mr. Arnold has the temerity to argue that under this decision, ownership of a finance company by General Motors is a substantial and unlawful handicap to competition (Tr. 1111). The fact is, however, that Mr. Justice Frankfurter denied in explicit terms that this was the basis of the Court's decision. The opinion of the Court contradicts Mr. Arnold in the following terms:

" . . The crucial fact now is not the degree
of actual disadvantage but the persistence of
an inequality against which the appellants had
secured the Government's protection. Yet the
Government seeks a change in the express terms
of the decree which would perpetuate that
inequality. .

(emphasis added)

itself, violates the antitrust laws. And the Court merely held that "If the Government seeks to outlaw possible arrangements by Ford with a finance corporation, it must establish its case in court against Ford as against General Motors and not draw on a consent which by its very terms is not available." (335 U.S. at 322). Thus, it is clear that in 1948 the Government evidently believed, for it made no contention otherwise, that ownership of GMAC by GM was not, in itself, unlawful in the absence of coercion of dealers. And the Supreme Court did not in any way pass upon

the question.

The Court did hold that ownership of a finance company by General Motors resulted in an unjustified competitive inequality vis-a-vis Ford and Chrysler. In view of the existence of the Ford consent decree, we agree with Mr. Arnold and the Supreme Court on this point. Indeed, we urged the Supreme Court to find that such a competitive inequality would exist as long as General Motors was allowed to own a finance company while Ford was not. The inequality was compounded by the fact that the unaffiliated finance companies would not offer to Ford Motor Company dealers and customers finance rates competitive with those available from GMAC.

We do not agree with Mr. Arnold, however, in the inference that he draws from the Supreme Court finding of competitive inequality. The Court did not find that the inequality in any way violated the law. The basis of the elimination of the inequality was that it violated the terms of the decree, not the law. It was, in fact, no more unlawful than the inequality that presently exists between Ford and General Motors by virtue of

Ford's owning an integrated steel mill and glass plant, while General Motors purchases all of its steel and glass requirements from others. On the other hand, General Motors has some manufacturing facilities that Ford does not have. These are competitive inequalities, as the Supreme Court properly found in the Ford case; but they are not inequalities that result in substantial lessening of competition, illegal under the antitrust laws. And they would be subject to judicial action only if one company had the right to own such facilities and another, competing company were under some legal disability to do so.

Obviously, the issue in the Ford case was not the GM ownership of GMAC, as Mr. Arnold contends, but the Government's attempt to continue the ban on Ford.

Mr. Arnold did not mention in his testimony before this Subcommittee that the legality of GM's ownership of GMAC was considered in the General Motors criminal trial, back in 1938, and was ruled to be perfectly lawful. The Federal District Judge charged the jury as follows (Record, p. 98, in Ford Motor Co. v. United States, 335 U.S. 303 (1948). See also, footnote 3, 335 U.S. at 316-317):

.. They

"It is not unreasonable for the General Motors
Company to have a finance company.
have a perfect right to have a finance company
and to recommend its use.

11

The Government took no exception to this portion of the Judge's charge and, of course, did not raise any question with respect to it on General Motors' appeal from its conviction. See United

States v. General Motors Corp., 121 F.2d 376 (7th Cir. 1941), cert. den., 314 U.S. 618, rehearing denied, 314 U.S. 710.

In 1952, the Department of Justice manifestly believed that ownership of GMAC by GM was not unlawful in the absence of coercion by GM of its dealers. Having been unable to find persuasive evidence of any coercion by GM or GMAC, the Government concluded that there was no basis upon which to go to trial. It therefore determined to accept decrees that would permit GM, through GMAC, to continue in the finance business and Ford and Chrysler to reenter it should they so desire. This was confirmed by Holmes Baldridge, who was in charge of the litigation for the Government, in his testimony before the Senate Antitrust and Monopoly Subcommittee on November 28, 1955. He said:

"We did not secure divestiture, nor did we find
sufficient evidence of coercion after resumption of
manufacture in 1946 and 1947 to justify that
type of relief; and when I say 'to justify that
type of relief,' I am talking about the type of
relief that, in the Department, and in the judg-
ment of the Department, the courts would grant."*

Mr. Arnold relies upon the Ford case, to support the proposition that Ford, GM and other automobile manufacturers have a "power of life or death over dealers" which, when coupled with ownership of a finance company has the effect of substantially lessening competition in violation of Section 1 of the Sherman

Hearings on S. Res. 61 Before the Subcommittee on
Antitrust and Monopoly of the Senate Committee on the
Judiciary, 84th Cong., 1st Sess. 3045 (1955).