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channel the paper through GMAC. Whether this is because the dealer shares in the charges or because of alleged pressure, or both, such placement of installment paper goes on.

If I mention the General Motors-owned finance company mainly in this testimony and do not refer to other similarly owned companies, it is because (a) in some communities other companies are not presently a factor, and (b) only one or two of my banker friends mentioned other companies in our conversation.

It is my opinion that the relationship between finance companies wholly owned by automobile manufacturing companies naturally tends to be monopolistic. It would run contrary to human nature for the two not to have some kind of alliance for getting business, one for the other.

If I might interpose my personal feeling about monopolies, I would say that it is unfair to just categorically say that everything big is bad; and, of course, everything that is big is certainly not monopolistic. However, I do feel that when big business gets to be giant business, and sometimes even before, it will bear watching. Sometimes it needs to be curbed. Vast accumulations of money, enormous sales volumes, and/or the exchange of tremendous amounts of money (as in the purchases of supplies for a war effort)-all these things are an invitation to abuse. Management of big enterprises become enamored or enchanted with bigger sales figures, more return on capital investment, bigger general ledger figures, a better record for the board of directors; and in the rat race to become the biggest, or to show higher and higher gains each year, men sometimes fall into error. I believe that this was demonstrated recently in the unfortunate price-fixing scandals in the electrical manufacturing business. I cite the incident to illustrate the pressure under which men associated with big business sometimes operate and which colors their thinking. Some of these men, I am sure, felt that they just had to do the thing they did in order to stay in the swim and make the grade. Their acts might be said to be part of a feeling that they must retain a kind of status within their industry, at all costs. The cost, of course, turned out to be heavy.

I am certainly not qualified to say whether there is a parallel between the relationship between the Du Pont interests and General Motors, and the relationship between General Motors and General Motors Acceptance Corp. However, as a layman, I attach no little significance to the recent decision of the Supreme Court relating to the divestiture of GM stock by the Du Pont interests. If there is a parallel situation, then the time would seem opportune for the enactment of H.R. 71. If the situation is not parallel, it is still much-needed legislation.

I shall be glad to go more into detail orally concerning my conversations with the various bankers when I called them in preparation for my appearance here or to clarify any statement I have made herein.

To conclude, individually, and as spokesman for the Independent Bankers Association, I support H.R. 71. I feel that both General Motors and General Motors Acceptance Corp. are big enough by this time to stand on their individual feet and compete for business with local banks, local insurance agents, and smaller finance companies without assistance or pressure of any kind. I believe that the connection between any automobile manufacturer and its wholly owned finance company tends to restrain free and open competition for automobile installment financing and the insurance of automobiles purchased on time, and is against the common interest.

The CHAIRMAN. I will offer for the record a statement submitted by the National Automobile Dealers Association in opposition to H.R. 71.

(The statement referred to appears at p. 1466.)

The CHAIRMAN. I will also offer for the record a resolution of the National Independent Automobile Dealers Association.

(The document referred to appears at p. 1477.)

The CHAIRMAN. Our next witness is Mr. David Steere, president of Allied Finance Co., Dallas, Tex.

Mr. Steere.

STATEMENT OF DAVID D. STEERE, PRESIDENT, ALLIED FINANCE CO., DALLAS, TEX.

Mr. STEERE. I understand time is short.

The CHAIRMAN. We will accept your entire statement for the record.

(Mr. Steere's statement appears at p. 1479.)

Mr. STEERE. Mr. Chairman and members of the House Antitrust Subcommittee, my name is David D. Steere. I am president of the Allied Finance Co., Dallas, Tex., and I am past president of the American Finance Conference, the National Association of Independent Sales Finance Companies.

I would like to make a brief preliminary statement to my detailed text so as to point up the importance of my testimony before you today.

I want to emphasize in no uncertain terms that I believe General Motors Corp.'s domination of the automobile market could mushroom into a complete monopoly with ever higher car prices to the consumer unless Congress passes legislation to prevent motor vehicle makers from engaging in the business of financing and insuring the installment sales of their motor vehicles.

I believe there can be no question that the general public will be benefited tremendously by H.R. 71.

It seems that my entire text has been labeled a red herring by other witnesses. The force of my argument has been to show the advantage that GMAC has had because of leverage. I admit that the rates finance companies pay for their borrowed funds are comparable. In the case of CIT or Commercial Credit the rate that they would pay for commercial paper and bank money and long-term debt is very similar to what GMAC would pay.

For a company of our size, the differential in costs of money would vary from a quarter of 1 percent on short-term borrowings to as high as three-fourths of 1 percent on long-term debt.

But the advantage that leverage gives GMAC is far greater than any differential in money costs.

Without going into the detail of my text-and this has been covered before-assuming money costs being identical, assuming equal efficiency in controlling operating costs, assuming an equal rate of credit losses, a company borrowing 20 times its capital has a 1.88 percent simple interest advantage over another company with a 9 to 1 debt ratio.

The CHAIRMAN. And GMAC is one of the former?

Mr. STEERE. Yes, sir. Now, that is what Mr. Yntema called a red herring, and I think it is anything but. I think it is a very important factor in this whole situation.

The CHAIRMAN. Of course, they indicated that there was a modification of the subordinated debt agreements under which GMAC's borrowings are no longer dependent upon its affiliation with GM.

Mr. STEERE. That is true. Between the testimony submitted to the Senate in 1959 and today that was cleaned up.

The CHAIRMAN. The modification of the subordinated debt agreement

Mr. STEERE. Yes, sir.

I believe it was modified to equal 1.5 times the liquid net worth which compares to, I think, 1.25 times for the largest independent company, CIT.

Now in addition to its subordinated debt, which together with the net worth equals its capital funds, a finance company borrows substantial sums of senior debt which is far and away the greatest portion of its borrowing.

I think that GMAC in the statistics that we have supplied has, with very few exceptions, borrowed substantially greater sums of money than any of the independent finance companies.

Mr. McCULLOCH. Mr. Chairman, I would like to interrupt at this point.

Mr. STEERE. Yes, sir.

Mr. McCULLOCH. To your knowledge, have the independent sales finance companies had any difficulty in borrowing funds that are need in their business, any of the major finance companies?

Mr. STEERE. Yes, sir. We are talking about CIT and Commercial Credit.

Mr. McCULLOCH. Yes.

Do you know whether or not they have had any difficulty in borrowing in order to carry on all of the activities in which they wished to engage in this field?

Mr. STEERE. Mr. McCulloch, I think they have been forced to have a greater margin of net worth in their business than has GMAC.

To support that statement of mine, I brought this along with me. It is a monograph prepared by the American Finance Conference for the Commission on Money and Credit of the CED and is the most exhaustive and complete research job that I know of that has ever been done in the sales finance business.

Mr. McCULLOCH. It looks like a formidable project, and since I do not know too much about those things

Mr. STEERE. I would like to offer this study as a reference work.
The CHAIRMAN. We will keep it in our files.

Mr. STEERE. Yes, sir; that is what I mean.

The CHAIRMAN. They are accepted for that purpose.

Mr. STEERE. Yes, sir.

Mr. McCULLOCH. But I would like to pursue this elementary approach for just a moment. From the evidence in the record, as I understand it, neither GMAC nor its major competitors have had any difficulty in borrowing the necessary money to carry on the activities in which they wished to engage.

Furthermore, as I recall, the record shows that the cost of money to the major competitors of GMAC is substantially identical, if not identical, to the cost to GMAC.

In other words, the money market for this purpose is competitive at the highest levels in Wall Street or elsewhere.

Now if that be the case, is there really much that is effected by these things about which you have been trying to tell us, which are not elementary?

Mr. STEERE. Well, sir, I guess if you would care to go into the arithmetic of this with me, it will take us about 5 minutes, I think I could show you that, assuming the same cost of money (and that is not quite accurate since GMAC does have a slight edge, but it is

nominal), and assuming the same operating costs, then the amount of borrowings in relation to the net worth results is an advantage to GMAC in the range of about 1.8 percent simple. I can file this supplemental study for the record in further explanation of the effect of leverage.

Mr. McCULLOCH. If I might interrupt because both the chairman and I have a deadline later in the afternoon

Mr. STEERE. Yes, sir.

Mr. McCULLOCH. If you will put it in the record, it will be easier for me to read and understand than to listen to your explanation, because then I can read and reread it.

Mr. STEERE. This is an important point to me, because I think Mr. Yntema made quite an issue of the fact that the large independent companies paid approximately the same money cost as GMAC. That is accurate. But he did call this advantage of leverage a red herring, and I disagree with him in this area.

Mr. McCULLOCH. And you are going to submit the detailed ele mentary explanation?

Mr. STEERE. Yes, sir.

(The information referred to appears at pp. 1597, 1600 and following.)

Mr. McCULLOCH. In order that we can read and understand it. Mr. STEERE. Yes, sir. The first three pages of my detailed text cover that, and I have supplemental charts that will also bear on the same subject.

Mr. McCULLOCH. I would like to ask a few more elementary questions.

Your company is the Allied Finance Co., of Dallas, Tex.?
Mr. STEERE. Yes, sir.

Mr. McCULLOCH. When did you begin business?

Mr. STEERE. 1939.

Mr. McCULLOCH. What was the actual cash capital contributed to the commencement of business in 1939 ?

Mr. STEERE. Republic Insurance Co., a fire company that does a nationwide business, domiciled in Dallas, Tex., paid a cash dividend to its stockholders, amounting to $500,000 to create this finance company.

Mr. McCULLOCH. So the answer is you started business with cash in the amount of $500,000?

Mr. STEERE. Yes, sir.

Mr. McCULLOCH. In the meantime how much cash outside and be yond earnings has been added to the capital?

Mr. STEERE. How much beyond plowed back earnings?

Mr. McCULLOCH. Yes.

Mr. STEERE. And including borrowed funds as part of our capital funds of subordinated debt, or just the net worth.?

Mr. McCULLOCH. No; I am not interested in borrowing. We will get that.

What capital has been paid into this corporation since it was organized in 1939 with a beginning net worth of $500,000 that was paid into the treasury?

Mr. STEERE. I wish I had a statement here with me, but our net worth

Mr. McCULLOCH. You can give me a rough figure.

Mr. STEERE. This is a rough figure. Our net worth is approximately $6,700,000, and I carry in mind that our undivided profits are approximately $2.7 million.

Mr. McCULLOCH. And how much in dividends has been paid out by the company in that time, roughly?

If you do not have it, please furnish it for the record.

Mr. STEERE. May I furnish that?

Mr. McCULLOCH. I am trying to find out how you fared in competition during the time you have been in business. That will tell me much about the competition in the industry, the profitability of the business, the losses, and all the other matters concerned with this important business activity. In this regard I would like for you to furnish for the record, or for the appendix to the record, your annual statement for each year since you have been in business.

(The information referred to appears at pp. 1601-1731.)

Mr. STEERE. All right, sir.

The CHAIRMAN. May I ask at that point, does your company finance other articles or other instrumentalities than automobiles?

Mr. STEERE. Yes, sir; we do, but most of our business is the automobile sales discount business.

The CHAIRMAN. What are the other lines you cover?

Mr. STEERE. We purchase appliance sales paper, furniture sales paper, and we make personal loans.

Mr. McCULLOCH. Which division of your business is the most profitable?

Mr. STEERE. In relation to the outstandings?

Mr. McCULLOCH. Yes.

Mr. STEERE. Or in dollar amounts?

Mr. McCULLOCH. Outstandings.

The CHAIRMAN. What percentage of your business is personal loans, automobile financing, and furniture loans of your business?

Mr. STEERE. I will also file that with you, but roughly the automobile sales discount end of our business is approximately 60 percent of the outstandings.

Mr. McCULLOCH. Percentagewise, what will that represent in profit, if you can break it down in that way?

Mr. STEERE. Roughly 40 percent of the profit.

Mr. McCULLOCH. It is less profitable than your other business. Mr. STEERE. Yes, sir. As to the profitability of our company, I think the measure of profitability that should be used in any business concern is the return on net worth. Our return on net worth has fluctuated between 8 and 11 percent during the postwar years.

The CHAIRMAN. How does that compare with GMAC?

Mr. STEERE. Sir, GMAC has earned-there, again, it is in my detailed text, but I think it varies between 14 and 21 percent during the last 10 years (1950-59 inclusive).

Now, I would like to point out that-and I think in Mr. Yntema's statement he referred back to testimony that he made in the Senate, which is pages 194 and 195 of the Senate hearings, and I would like to point out that the tables included in that testimony purport to show the percent of profit on net worth, but you have got to read a small footnote to find out that what he is really doing is showing the profit on the common equity. Now, some of the small companies in

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