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sales finance companies had about 70 percent of their installment credit receiv ables in auto credit. While these data include the operations of the GMAC market (and the FMCC market one year), they indicate a major role by inde pendent sales finance companies in supplying the free market.

Independent finance companies have been at some disadvantage as against the competition of banks, but they have confidence that as banks gain greater knowl edge of their true costs and meet the demands for complete dealer service, competition will become better balanced. In any event, banks do not control the business of any dealer group and therefore do not upset competitive equality as between auto manufacturers and auto dealers.

THE FUTURE: FREE MARKETS OR ARTIFICIAL MARKETS

From the patterns and conduct of automobile factory finance and insurance subsidiaries, it is evident that such subsidiaries are aimed at bypassing and subverting free markets, and substituting artificial markets.

The factory has the power to subsidize these auxiliary services as much as it pleases in order to weaken or destroy competitors in its main market. Low, subsidized prices in an auxiliary market foster monopoly power and therefore high prices in a main market.

Subsidies must be paid by someone and it is the consumer who pays. He pays in the higher, manipulated prices toward which subsidies are aimed, and he pays in the overcharges from inefficiency in sheltered competition.

The need for the legislation of H.R. 71 to secure a free market and eliminate artificial markets was summed up by the first witness at these hearings (Paul Jones):

"General Motors years ago created side incomes for its dealers from factoryowned sales finance and insurance subsidiaries that have practically no acquisition costs. These incomes round out five pockets of dealer income, all controlled by GM. Two of them are delayed and act as a pension would to hold the dealers for GM.

"These side incomes, being free of acquisition cost and requiring only simple administrative expense, were greater than dealers in non-GM cars could match from independent finance companies and insurance companies which had normal expenses.

"To increase its advantage, GM has created subsidies for its finance subsidiary. “*** GM has used the finance pack as a merchandising tool to create a monopoly in the automobile business. Through the holding power of these five pockets of income and the subsidies, GM has created a monopoly among the automobile dealers of this country.

"The auto dealer pool is frozen * * * GM dealers would be foolish to switch to non-GM franchises and endanger these special incomes and particularly the delayed incomes.

"Now what happens when GMAC is independent?

"As important as it is that GMAC's services, resting solely on their own merits, will be available to non-GM dealers, the real importance is that the log-jam in dealers will be broken.

"The GM dealer can move to non-GM franchises and take his finance source with him.

"Non-GM dealers will be strengthened. Their numbers would increase, and the non-GM factories would be strengthened by this because their lifeblood is their dealer organization.

"The benefits would not be revolutionary, but gradually all manufacturers would become strong. Competition would be on price, and administered prices would be eliminated.

"Prices then would start to go down. GM would price to make normal profits. "With our domestic market strengthened and foreign markets restored, jobs would be created in South Bend, Ind., in Racine, Wis., in Detroit, and in the tens of thousands of other towns in the land which are touched by the auto industry. "*** We are ready to stand or fall on our ability to do business in a free marketplace. We think that the automobile manufacturers should have to be equally committed to a free marketplace."

EXCERPTS FROM FORD MOTOR CO. STATEMENT TO U.S. DISTRICT COURT OF NORTHERN INDIANA, 1946

Respondent is placed at a real competitive disadvantage by its inability to acquire a finance company. This disadvantage arises from several causes, among which are the following:

(1) Respondent cannot offer to the dealers a plan of financing which it considers more satisfactory from the point of view of sales appeal and particularly from the point of view of selling respondent's own products.

The financing of the retail sales of automobiles is an integral part of the sale, one of the factors which the customer takes into consideration in determining what kind of a car he is going to buy. If, for example, he is in doubt as to whether to buy one of respondent's cars or the car of a competitor of respondent, he may be persuaded to buy the car of the competitor because he likes the financing plan offered by the dealer in that car better than he likes that offered by respondent's dealer.

If General Motors Corp. feels that the plans offered by existing finance companies do not have sufficient sales appeal or are not particularly adapted to promote the sale of General Motors products, then General Motors Corp. through General Motors Acceptance Corp. can offer, advertise, and recommend to the dealers and the public a plan which supplies the sales appeal considered lacking in the plans offered by other finance companies. Respondent is not able to do this.

Its dealers have to choose between the plans that are offered by existing finance companies. These finance companies finance all makes of cars and their plans are not particularly adapted to the sale of respondent's products. Respondent feels that it could offer, through a finance company which it owned and controlled, a plan of financing better adapted to the sale of its products, and it feels that its inability to do this in the past has resulted in the loss of sales evidenced by the decrease in the percentage of cars sold by this respondent to all cars sold by all automobile manufacturers.

(2) In order for an automobile manufacturer to sell cars, it is necessary for him to have a large number of dealers. The competition between automobile companies to obtain dealers is always energetic and aggressive.

The company which is able to offer to its dealers special financial assistance is often in a better position to obtain dealers than one which is not able to offer this assistance.

General Motors Corp., through General Motors Acceptance Corp. is in a position to extend to dealers working capital loans which are more generous and timely than similar loans made available by other finance companies and banks.

This respondent, because it does not have such a finance company, is not in a position to do this. Nor is it in a position to absorb the entire cost of floor planning new cars and trucks for its dealers while General Motors Corp., through General Motors Acceptance Corp. can do so.

This constitutes a serious handicap to this respondent in the market for new dealers.

EXCERPTS FROM FORD MOTOR CO. STATEMENT TO U.S. SUPREME COURT, 1946 These three companies manufactured about 90 percent of all cars sold and the competition of each of them with the others was aggressive.

The influence of the manufacturer on the financing arrangements of its dealers was an important weapon in this competitive battle.

About 60 percent of all retail sales were financed. A larger percentage of wholesale sales were financed.

The finance charges became a part of the cost to the purchaser. The lower the charges and the more lenient the terms of repayment, the greater was the market for cars.

The more reasonable the collection practices of the finance company chosen by the dealer, the greater was the good will of the manufacturer, under whose trademark the dealer was given a franchise to operate.

The more liberal the wholesale financing of the dealer organization, the larger were the dealers' operations.

The experience of the manufacturers had been that, in the absence of their influence in these financing arrangements, independent institutions, motivated by desire for profit from and safety in their investments rather than by desire to increase car sales and manufacturers' profit, would not by competition between themselves achieve the same results.

Because of this situation the changes contemplated by the Government had to be imposed on all three manufacturers to substantially the same extent and at nearly the same time.

Otherwise, any benefit that might inure to the public from the changes would be nullified by the injury that might result to the public from the disturbance of the equality of competitive conditions as between the manufacturers.

This would have been simple had all three manufacturers consented to a decree, but a problem arose when General Motors (manufacturing 47 percent of all cars sold) refused to consent to a decree while Chrysler and Ford (manofacturing 24 percent and 19 percent, respectively) were willing to do so.

Hon. EMANUEL CELLER,

AMERICAN FINANCE CONFERENCE, INC.,

Chicago, Ill., July 10, 1961.

Chairman of Subcommittee No. 5, Committee on the Judiciary,
House of Representatives, Washington, D.C.

DEAR MR. CHAIRMAN: In the recent hearings on H.R. 71. Mr. Stradella. chairman of the board, GMAC, testified on the practices and policies of Motors Insurance Corp. in regard to repairs of damages of insured automobiles.

The attached correspondence from Mr. Edward A. Vyverberg was sent to me after he had read the official transcripts on this part of Mr. Stradella's testimony. Mr. Vyverberg served from 1949 to 1955 as a staff adjuster, sales representative, special agent, and district office manager for Motors Insurance Corp. in Chicago. Therefore, he speaks with considerable background knowledge and experience as a former employee of Motors Insurance Corp. As such, he difers with the testimony submitted by Mr. Stradella during the recent hearings. I respectfully request that Mr. Vyverberg's letter be included in the record of the hearings after Mr. Stradella's testimony.

Sincerely yours,

MICHAEL B. DEANE

My name is Edward A. Vyverberg. I am a native Dubuquer and serve as assistant vice president of Interstate Finance Corp., Dubuque, Iowa.

My duties include the supervision of the physical damage and casualty sections of Interstate Finance Corp.'s insurance programs.

From 1949 to 1955 I served as a staff adjuster, sales representative, special agent and district office manager for Motors Insurance Corp., insurance affiliate of General Motors Acceptance Corp. This was in the Chicago and northern suburban area of same.

Having read Mr. Stradella's testimony before the Anti-Trust Subcommittee of the House of Representatives, I wish to voluntarily reply to several of his statements. These replies are based on actual operating procedures followed by myself while employed as stated above.

(1) On pages 419 and 420 Mr. Stradella states, "The facts of the matter are about like that. Approximately 65 percent of the cars that are damaged that are returned are in the hands of the dealer who is fixing the car before our insurance company knows anything about it. That is No. 1. Now, if the adjuster is asked or if anybody in the company is asked for a suggestion as to where the car might go, it is suggested, if convenient, that it be returned to the dealer agent who originally sold him the car. If the purchaser wishes to do it somewhere else, that is perfectly all right, too."

It was considered poor control and strongly resisted by Motors Insurance Corp. adjusters to allow General Motors dealers to start repairing an insured's automobile before the MIC adjuster assigned to the claim had prepared his own independent estimate of repairs, and had signed with the GM dealer's body shop foreman on an agreed price to repair such. GM dealers were allowed to tow in MIC insured cars, dismantle damaged parts, but MIC firmly resisted replace ment of parts or straightening of damaged ones where feasible until the above inspection and agreed price were consummated. In practice MIC adjusters strongly suggested to MIC customers having claims that the selling GM dealer,

if in the vicinity, be allowed to repair car; if not feasible, because of distance involved, another cooperating GM dealer in the close vicinity was recommended. If the adjuster could not convince the MIC customer to allow the above, MIC supervisors or selling dealer personnel were called in to contact the customer to again try and persuade the customer to have repairs made by the selling or close GM dealer.

Upon field reviewing an adjuster claim, a claim supervisor would strongly pretest an adjuster's inability to convince an MIC insured to have repairs made at the selling GM dealer. He would search for a means to have any future customer in a similar situation persuaded to take his car to the GM repair shop. In my 5 years of experience with MIC, I feel either myself or supervisor or dealer personnel were successful in returning 85 percent of damaged cars to GM dealers or shops of the dealer's choice if body shop facilities were not run by the GM dealer. Of this 85 percent, it would be my thinking that 20 percent of this group really had strongly wanted repairs made at another repair shop, but heavy selling by MIC or GM dealer personnel made it uncomfortable for them to do as they wished.

On the 15 percent that went to non-GM dealers or independent shops, adjusters were required to clear in the chronological section of the claim pocket, that they had tried and allowed their supervisor and selling dealer also to try and sell MIC customers on returning car to dealer for repairs.

A sublet profit was allowed a GM dealer on repairs he could not perform in his shop. On repair jobs when MIC insureds demanded repairs in an independent job, all releases were drawn up for a dollar amount-additional orders on overlooked damage were verboten. In contrast, releases involving repairs at GM dealers were worded, "agreed repairs and/or replacements," leaving additional orders for overlooked damage easily authorized.

(2) On page 421, Mr. Stradella states, "You have," in answer to Mr. Roger's question, "Did I understand you to say that if I had a policy with MIC and the car was damaged and needed repairs, that I have the privilege of selecting the man who would do the repair work?"

As previously stated should an MIC customer have a claim, his chances of having an independent repair shop or other nondealer repair his car were about 7 to 1 against.

(3) On page 422 Mr. Stradella replied, "No; I mean that the price for labor, for example, has got to be the going price for labor and the price for parts has got to be the going price for parts," in answer to Mr. Roger's question, "Well, now, it has to be reasonable. It has to meet with the specification of your adjuster is what you mean, does it not?"

In actual practice an independent shop would have to cooperate to the hilt with the MIC adjuster's estimate or the MIC adjuster would not OK repairs there. In contrast many concessions were made to GM dealers in form of overpayments over the MIC estimate in order to allow the repairs to be authorized at the GM dealer.

(4) On pages 424 and 425 Mr. Stradella stated in reply to Mr. Maletz's question, "Does not this pattern of activity by MIC with its adjusters operate to the competitive detriment of independent auto repair shops seeking to compete with the General Motors dealers?" "In 1961, 10,000 claims reviewed. Automobile located in the dealer's shop or the dealer in process of getting it when the loss was reported to MIC, 6,351. That is 63.5 percent that was already in there being worked on practically when we found out about it. It had nothing to do with it. Automobiles not located in dealer's shop, nor dealer in process of getting it when loss was reported, but repaired by the General Motors dealer eventually with the insured's approval, that is another 15.6 percent. Automobile not located in the dealer's shop, nor dealer in the process of getting it when loss was reported to MIC and repaired finally by the general repair shop, 20.9 percent. Those are the figures for 1961, bringing Mr. Lukes' figures up to date."

Mr. Stradella infers that it was the insured's wish to have the selling dealer repair his damaged car and repairs on 63.5 percent were practically being worked on when MIC learned of loss.

I state that this would have to be a complete reversal of MIC policies in effect from 1949 to 1955 when I worked with MIC. My experience was that only 1 out of 20 or 5 percent of claims assigned me had repairs authorized by MIC insureds before my adjuster contact which would be 1 day, 2 days, or 3 days after MIC learned of the loss. GM dealers, as a whole, while they made an adjuster's life tough in many respects, very seldom started repairs on customer's authorization without MIC's approval.

(5) On page 426 Mr. McCulloch stated, "Do you use any coercive means of any kind whatsoever, subtle or otherwise, other than you have testified to this morning, in order to have these automobiles which you have financed repaired by the dealer?" Mr. Stradella replied, "We do not."

Phrases suggested by MIC supervisors for adjuster use to convince and coerce MIC insureds to have repairs made at GM dealers ran like this:

(1) Will the shop you wish repairs to be made at lend you a car to use when making repairs? Your GM dealer will.

(2) Do you want a beat-up repair job, when your GM dealer will use new genuine GM parts?

(3) Your frame is bent, do you want any old frame shop to use a torch in straightening the frame?

(4) Do you understand that the amount of repairs we agree on now with this independent repairer is it—no add orders for overlooked damage? Our loss or damage agreement will be drawn up for a cash amount and this amount is final.

These coercive methods were effective in convincing many an insured to change his mind about letting a non-GM shop repair his car.

EDWARD A. VYVERBERG.

AMERICAN FINANCE CONFERENCE, INC.,
Chicago, Ill., July 17, 1961.

Hon. EMANUEL CELLER,

Chairman, Antitrust Subcommittee, Committee on the Judiciary,
House Office Building, Washington, D.C.

DEAR MR. CHAIRMAN: Dr. Thomas W. Rogers has asked me to submit the attached letter to you for insertion in the record of the hearings on H.R. 71. In his letter, Dr. Rogers clarifies the GM-GMAC "market" issue.

I respectfully request that this letter be inserted in the records on hearings on H.R. 71.

Sincerely,

MICHAEL B. DEANE

NASHVILLE, TENN., July 14, 1961.

Hon. EMANUEL CELLER,

Chairman, Antitrust Subcommittee, Committee on the Judiciary,
House Office Building, Washington, D.C.

DEAR CONGRESSMAN CELLER: At the hearings before the Antitrust Subcommittee of the House Committee on the Judiciary, June 7, 8, and 9, 1961, on H.R. 71, there was much discussion, and not a little confusion, regarding the “market” or "competitive" areas in the sale of retail automobile sales contracts originating with GM dealers in the sales of GM passenger cars.

At these hearings, statistics by the Federal Reserve Board, and others, were presented by Charles G. Stradella, chairman of the board of General Motors Acceptance Corp., which purport to show that GMAC's volume of business repre sented from 18 percent of total automobile financing in the United States to 42 percent of the volume of General Motors' dealers credit sales.

Mr. Stradella's analysis did not describe fully, nor reveal in their entirety, all of the characteristics and ramifications of GMAC's competitive market. Like wise, his data tended to obscure the real position of GMAC in the market in which it competes directly, because the comparative data presented included the volume of loans procured by credit purchasers from noncompeting lending institutions. Consequently, to bring the discussion more clearly in focus, there is need for further information and analysis of GMAC's position with reference to(1) A breakdown of GMAC's volume, both by units and dollars, within the controlled market in which it operates; and

(2) A measurement of the noncompeting financing services used by some of the credit purchasers of General Motors passenger cars from GM dealers. Such an analysis will be helpful in determining the exact position of GMAC in relation to installment sales financing of General Motors cars, and a full description of the dominant position which it occupies in the area in which it actually competes.

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