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cluding my own elect to put preferred stock ahead of the comm.on stock in the net worth.

The CHAIRMAN. I don't know what his purpose was, but in one case he only included common stock but when it came to the General Motors Acceptance Corp. he included preferred stock as well as common stock. I pointed that out to him.

Mr. STEERE. Yes, sir.

The CHAIRMAN. And he admitted it would make a difference and that it would make the profit percentage higher, but didn't tell us how much higher.

He is going to submit new tables. I don't know what you would call it, but it certainly doesn't seem to be proper to prevent data for one set of companies limited to common stock and to include preferred stock as well as common stock for GMAC. That is sort of a deception, and I called that to Mr. Yntema's attention yesterday. They are going to submit new tables for those submitted have no value.

Mr. STEERE. Yes, sir; that is right. I believe they are going to submit tables that will show the return on common equity, which would be of interest to the common-stockholders. But to measure profitability of a corporation, I think any public accounting firm would suggest that the proper measure of earning power of the corporation is the return on total net worth as this table is captioned and without the footnote.

I remember when I was at the Harvard Business School when I took a course in statistics, the professor said, "Gentlemen, give me enough statistics and I will prove any side of any argument."

I think the purpose of presenting the figures in the manner is to show that the smaller companies did have a higher rate of return than they actually did have, by showing the return on the common equity. Mr. McCULLOCH. You will give us the figures?

Mr. STEERE. Yes, sir.

Mr. McCULLOCH. Which will be dependable and which we

Mr. STEERE. I will be glad to do that, sir.

Mr. McCULLOCH. Which we will be able to understand without reading between the lines.

Mr. STEERE. Yes, sir.

Mr. McCULLOCH. Or have to seek information from the outside. You are going to give us the whole story so we can arrive at a conclusion based upon solid facts, not upon gilded facts or half facts, is that right?

Mr. STEERE. I will give you the total return on net worth which I think is the customary way of comparing earning power of different corporations.

Mr. McCULLOCH. We will be very glad to receive that information. (The information referred to appears at p. 1599.)

Mr. STEERE. Mr. Chairman, there was one other subject I would like to just take a minute on.

The CHAIRMAN. You will not give us what Judge Arnold called "mirror talk," that you can understand

Mr. STEERE. No, sir.

The CHAIRMAN (continuing). Only by the use of mirrors.
Mr. STEERE. No, sir; I will not.

Mr. McCULLOCH. Or to use a more homey phrase, "one horse-one rabbit" talk.

Mr. STEERE. Mr. Chairman, may I address Mr. McCulloch on one point?

The CHAIRMAN. Just a minute.

Mr. Crabtree?

Mr. CRABTREE. I want to ask Mr. Steere a question at this point, which may be helpful.

Mr. Stradella on pages 19 and 21 of his prepared statement included some charts. One was a chart showing the ratio of senior debt to capital funds. The other was a chart showing the average annual interest cost per annum. He used the companies, GMAC, CIT, CCC, and Associates. Have you had a chance to examine these charts and are they correct according to your interpretation?

Mr. STEERE. Well, sir, I haven't had a chance to examine them and I would assume that if Mr. Stradella entered them in his testimony, that they would be correct.

Mr. CRABTREE. I wonder if you would examine the charts and let us know if you agree with the figures. It might save a lot of controversy if you agree with the figures that are already in the record.

Mr. STEERE. May we, for the sake of time, also do that and file

that one?

Mr. CRABTREE. I don't mean today. I mean let us know later.
Mr. STEERE. All right, sir.

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

Would you tell me what that exhibit is again?

Mr. CRABTREE. The charts are on pages 19 and 21 of Mr. Stradella's

statement.

I also have before me a copy of the 1960 annual report of your company which I would like to offer for the record. With respect to the difficulties your company may have had in acquiring money, I would like to read this portion of the report into the record. I quote:

Net earnings before taxes for the year ended October 31, 1960, increased 21 percent, from $816,640.63 to $991,032.10, despite a 31-percent increase in money costs of $382,152.

So there has been an increase in the net earnings of your company. Mr. STEERE. Yes, sir; there has been. Of course, that is an average of many crosscurrents within the company.

In prior years, we have been active expanding our insurance subsidiaries on their own through many States. We now operate in approximately 35 States with our insurance companies, and during that period of time those two companies lost substantial amounts of money in getting established. During this period that you refer to, both of those companies emerged into the black and offset a decline in earnings that took place in the automobile sales discount division. One other point. Four years before that time, we entered the small loan business which was an expensive process, and during that year we began to reap the benefits of that department.

Mr. CRABTREE. These are direct loans to the consumers, for the customer?

Mr. STEERE. Yes, sir.

Mr. CRABTREE. With respect to your insurance subsidiary, would you care to tell us the name of that company?

Mr. STEERE. Southern Insurance Co.

Mr. CRABTREE. Is it true or isn't it true that other sales-finance companies have insurance subsidiaries, that is, companies which they own and with which they place credit life insurance and other insurance! Mr. STEERE. The credit life insurance business in our company is placed with Industrial Life Insurance Co., another wholly owned subsidiary.

Mr. CRABTREE. Do you happen to know where the credit life insurance of Associates Investment Co. is placed?

Mr. STEERE. I know that they have a subsidiary. Yes. I have forgotten the name of it.

Mr. CRABTREE. Would it be the Alinco Insurance Co. ?

Mr. STEERE. That is the name of a subsidiary. I don't know if that is the one that handles their credit life or not.

Mr. CRABTREE. How about CIT Finance Corp.?

Mr. STEERE. They own both, an automobile physical damage insurance subsidiary and a life insurance subsidiary.

Mr. CRABTREE. According to my information their credit life subsidiary is Patriot Life Insurance Co.

Now, we have in the record the fact that General Motors Acceptance Corp. received a refund or rebate from credit life insurance placed with Prudential. Do you know whether or not the sales-finance companies receive similar returns on that business, that is rebates or refunds or dividends representing profits from their wholly owned subsidiaries?

Mr. STEERE. I think myself that it is difficult in a finance company to isolate one phase of their business from their consolidated operations. In looking at the profitability of a finance company, I would assume it would be necessary to look at all parts of their operation as a whole, and for that reason consolidated statements are filed in reporting to stockholders and to creditors, and the total income from all sources in relation to net worth is the measure of profitability. Mr. McCULLOCH. Mr. Chairman, I would like to ask a question there.

Do you know how the premium on your credit life insurance compares with the premiums charged by GMAC?

Mr. STEERE. I know that GMAC's rate is 0.39, 39 cents, I believe. Mr. McCULLOCH. That is right.

Mr. STEERE. Ours is $1.

Mr. McCULLOCH. Do you know what your underwriting of profit is on that basis? Is it more than 60 cents?

Mr. STEERE. I would say it would be approximately 60 cents. Mr. McCULLOCH. You think that is a good general statistical cost of insurance less refunds that GMAC makes on its borrowings?

Mr. STEERE. Well, sir, I think that you are isolating one phase of the operation from the total. It is like accusing Macy of making too much money by looking at the jewelry department on the first floor.

I think it is the overall charge, and overall sources of income as a whole in relation to net worth that measures whether a company is making a reasonable profit or not, or an exorbitant one.

Mr. McCULLOCH. That probably is a logical opinion.

Mr. STEERE. Mr. McCulloch, I might illustrate further on that.

Mr. McCULLOCH. I think I understand what you mean. That is probably a logical conclusion to which to arrive.

But I am also interested in what that overall financing charge is to the ultimate customer. Can you give us a comparison of the cost of the same kind of financing on the part of your company as compared with the same kind of total financing by GMAC!

Mr. STEERE. Yes, sir. I think I can answer that.

And, if I might, could I quote from Mt. Stradella's annual report on the question of rates? I think there is a basic confusion in the general testimony that this will clear up.

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

Mr. McCULLOCH. Anything that will clear up some of the confusion and lead us quickly to a determination of the final cost, for instance, of financing an unpaid balance of $2,000 on a Chevrolet, or some other make automobile over a 36-month period will be helpful.

You know, if we just had simple language so that even a person with an elementary education could determine what it was going to cost him without a lot of additional phrases which are difficult to understand, it would be helpful to clear away a lot of the confusion and permit us to arrive at a logical conclusion. Go ahead and give us an explanation that will be helpful, but in as elementary language as you can choose.

Mr. STEERE. Yes, sir.

On page 5 of GMAC's 1958 report to stockholders, I quote from Mr. Stradella's report:

The belief exists in many quarters that the sales-finance company sets the rate paid by the purchaser. This is not true. In the case of sales-finance companies, as in the case of those banks which purchase the concluded retail contracts from the dealer, the charge which the purchaser pays is established by the dealer. The dealer, in turn, customarily sells the contract to the sales-finance company or bank at a discount which is established by the latter, and which is generally below the charge applicable to the purchaser.

Now, it is very difficult for anyone engaged in the sales-finance business to compare retail rates, since the rate is set by each individual dealer that you do business with. Our net rate charged to a dealer for business is comparable to GMAC if we purchase the contracts under the same agreements that GMAC uses, which is usually a repurchase agreement.

Most of our paper is purchased on a without-recourse or limitedliability basis, and we, therefore, under that method, charge a somewhat higher charge to take core of the additional credit losses that we expect to sustain.

Mr. McCULLOCH. I understand that.

Mr. STEERE. I think that the rates that the independent companies charge the dealers are comparable to GMAC's net rate.

Now, the retail rate fluctuates over a broad range, depending upon what the dealer charges that individual customer.

Mr. McCULLOCH. And that is ultimately going to be regulated by competition in the automobile business, isn't it?

Mr. STEERE. Competition has regulated it. In some cases, State law has set maximum rates that can be used.

Mr. McCULLOCH. But competition is a very forceful regulator, is it

not?

Mr. STEERE. Yes, sir, that is right.

Now, touching on that element of competition, and if I may also take the liberty of predicting what might happen if GMAC were divorced from General Motors, I would think that it would be logical that they would solicit the business of all dealers; any dealer that could sell them paper at a profit would be fair game for them.

And I think that GMAC has been used effectively as a tool to tie dealers to General Motors. It is very difficult for a dealer to leave General Motors and represent another manufacturer, because when he makes a move of that type, he leaves behind considerable deferred incomes that he is currently enjoying.

Now, if GMAC were divorced, presumably GMAC would follow the dealer to the new connection, so that in making the switch, the dealer would not be forced to give up incomes that he is enjoying.

If that is possible, I think you will foster greater competition between manufacturers in Detroit, and make a climate that will permit the smaller manufacturers to more vigorously compete for the available business.

Now, if there is greater competition in Detroit between manufacturers, I think that is our greatest safeguard for reasonable automobile prices.

Mr. McCULLOCH. I certainly would agree that is one of the places where the most competition would result. Financing is another area, though, particularly in view of the installment debt of this country at this time.

Mr. STEERE. I would like to take this one step further. If my assumptions were correct, and there were greater competition between manufacturers in Detroit, there would also be greater competition at the local level between dealers representing these manufacturers and since the dealer sets the retail finance rate, this greater dealer competition would result in lower retail finance rates.

The CHAIRMAN. And you will supply, for the record, the answers to these questions that were propounded to you.

Mr. CRABTREE. Could I request Mr. Steere to submit a few things for the record at this point?

Mr. Steere, would it be possible for you to furnish us with the annual report of Associates Investment Co., CIT Finance Corp., CCC, Interstate, and Allied?

(The information referred to appears at pp. 1733-1829.)

Mr. STEERE. You are referring to the companies that were in this table?

Mr. CRABTREE. Yes, sir.

If you could furnish that information for the files.

Mr. STEERE. Could I recompute this table as a percent of return on net worth?

Mr. CRABTREE. Yes, sir.

And if you could furnish, for the files, the annual reports, that would be sufficient.

Also, and I am very interested in this, that is which one of these companies own subsidiaries which write credit life insurance, and whether or not these subsidiaries have made any refunds or rebates to these companies and/or whether or not they have paid profits back to the parent company.

In other words, we have in the record the fact that GMAC sells credit life insurance for 37 cents and receives a refund. We also have evi

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