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(The statement referred to at p. 1387 follows:)

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I enclose herewith copy of a resolution approved recently by the Steering Committee of the National Independent Automobile Dealers Association. This association represents the interests of the independent or used car dealers of the United States. We would like to have this resolution included in record of the hearings on H.R. 71.

Encl.

Very truly yours

Robert J. McKinsey
Counsel

NIADA

RESOLVED, that the NATIONAL INDEPENDENT AUTOMOBILE DEALERS ASSOCIATION is in favor of the passage of H.R. 71, the "Automobile Finance and Insurance Act of 1961", which would prevent automobile manufacturers from financing or insuring the sales of their own motor vehicles.

AS the national representative of the thousands of independent automobile dealers throughout the United States, NIADA is a firm believer in the importance to our national economy of a truly free and competitive market in the financing and insuring of automobile sales. Such a market is possible only if the many independent finance companies have a fair chance to compete on equal terms with the captive sales finance companies of the automobile manufacturers. Unfortunately, recent years have seen a growing trend towards a monopoly in this field, a monopoly fostered and nurtured by the overwhelming financial and other support given the wholly owned financial subsidiaries by their parent manufacturing companies. Unless this trend is reversed immediately, non-factory (independent) financing sources may well be forced out

of the automobile financiang field.

H.R. 71 is a reasonable approach to this vital problem, and it should be passed.

(The statement referred to at p. 1388 follows:)

STATEMENT OF DAVID D. STEERE

My name is David D. Steere. I am president of Allied Finance

Company of Dallas, Texas, and past-president of the American Finance

Conference.

I am here to speak in support of H.R. 71 since I believe that this proposed legislation will permit automobile manufacturers to compete with one another on a more equal basis. It would force GMAC and Ford Credit Company to operate as independent finance companies, which would add financial support to other manufacturers, and all dealers could freely choose the financing service that best meets their needs.

It is the excessive pyramiding of borrowed funds on capital that has given GMAC its monopolistic power in the finance field. Referring to Exhibit I, you may readily see the effect of this leverage on retail rates. Assuming, in the illustrations, that

operating expenses as a percent of outstandings remain unchanged,

a company with no senior debt and wishing to earn 20% on its capital, to its dealers a

after taxes, would have to charge a reter rate of 41.60% to reach its goal. Now, if we borrow nine times our capital, which is a typical debt ratio for independent sales finance companies, we see in illustration two that the retal cost has dropped from 41.60% to 7.76%. The third illustration represents a leverage position enjoyed by GMAC alone with borrowings of nineteen times the common equity position.

In this illustration, the retatt rate may be 5.88%, or 1.88% below the company with a total debt ratio of 9 to 1. Thus, it is the magic of leverage, or the ability of GMAC to borrow far greater sums in relation to its net worth than any of its independent competitors, that has given it monopolistic powers in the automobile finance field. Now that we understand what leverage means in terms of competitive advantage, I would like to review with you the actual debt position of the various sales finance companies since the war.

Tables 2 and 3 show the relative debt position of finance companies, by size, from 1945 through 1959. Group 1 is composed of one company, GMAC, the largest factory owned company, which in 1959 had total capital funds of approximately $738 million; Group 2 includes two companies (Commercial Credit and CIT Financial Corporation) which in 1959 had capital funds of $416 million and $529 million, respectively; Group 3 includes four companies (Associates Investment Company, Pacific Finance Corporation, General Finance Corporation, and General Acceptance Corporation of Allentown, Pa.) with total capital funds in

1959 varying from a low of $54 million to a high of $244 million; Group 4 includes seven companies with capital funds of from $15 million to $27 million; Group 5 includes eight companies with capital funds of from $8 million to $12 million; Group 6 includes nine companies with capital funds of from $5 million to $7.5 million; and Group 7 includes sixteen companies with total capital funds of from $172,000 to $3.5 million. For the

years prior to 1959, the relative position of these seven groups, as to size, is relatively unchanged, with only a few companies changing groups as they either increased or decreased in size, These two tables, therefore, give you a birds-eye view of the relative debt position of the entire sales finance industry by

size of company.

Exhibit 11 shows the relative senior debt ratio to capital funds of each group. You will see that, since 1947, the debt ratio for GMAC, identified as Group 1, was substantially

greater than for any other group of companies.

Referring to

Exhibit IV, you will see the maximum and minimum debt ratio

for GMAC for every year since 1919. Exhibit Ill is an interesting schedule, since it shows the ratio of total risk assets divided by the common equity of the companies. You will note that GMAC has succeeded in building this ratio far in excess of its nearest competitors. For example, in 1959, this ratio was 15.5 to 1 for GMAC while the average for Commercial Credit and CIT was 6.7 to 1, and this relative position has been maintained throughout the years.

It is interesting to compare the size of GMAC with the largest bank in New York. GMAC's risk assets of $4,033,000,000 at the end of 1959 were nearly as great as Chase Manhattan National Bank's $5,326,000,000. The Chase's common equity base was more than double GMAC's -- $660,000,000 against $263,582,000. Thus, the ratio of risk assets to common equity for the Chase Bank was approximately 8.1 to 1, compared with GMAC's ratio of

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