them. One solution may very well be to fill the financing gap with adequate retail financing, not just on single items like the stove or the refrigerator, but if necessary on all the items as a marketing package on the complete kitchen. The results can be and often are satisfied customers enjoying needed purchases as they pay for them, increased sales for the retailer, humming factories, and jobs. I have included as an appendix to this statement a list of 82 prominent manufacturing companies engaged in financing activities. Apparently all of them regard financing as an essential marketing tool. The automobile manufacturer has the same tremendous stake in the marketing success of his dealers. Obviously, specialized financing plays an even more dynamic role in marketing automobiles than it does in marketing other kinds of goods. The automobile manufacturer, therefore, should also remain free to provide his dealers and their customers with specialized sound financing, whether it be installment-purchase financing of the kind I have illustrated or some other kind of credit service. What are some of the conditions which create special financing needs in the automobile market? The more important ones include the high working capital requirements, the seasonal patterns of demand, the role played by used cars, the high percentage-over 60 percent of all new-car sales which are financed, the rapid turnover of new-car inventories, and the wide price range. Mr. MALETZ. Mr. Chairman? Mr. Misch, do you think it is sound public policy for the Congress to exercise restraint and legislate only in areas where abuses have been found to exist? Mr. MISCH. I certainly believe in a free economy, s sir. Mr. MISCH. Where there are no abuses, I see no reason why we should legislate. Mr. MALETZ. In other words, you do agree, then, that Congress should legislate in areas where abuses have been found to exist; is that correct? Mr. MISCH. Many of these things, of course, cure themselves. I am no philosopher on government. I cannot tell what Mr. MALETZ. You believe that Congress should exercise restraint? Mr. MISCH. Certainly. Mr. MALETZ. And should, if it does legislate at all, legislate only in areas where abuses have been found to exist; is that right? Mr. MISCH. And where they are not curing themselves over a period of time. You know, many abuses cure themselves in a free economy. Mr. MALETZ. I think you would agree, would you not, that in the past there were abuses in the automobile industry resulting from the affiliation between manufacturers and their affiliated sales finance companies? Mr. MISCH. We, of course, signed a consent decree and we have discussed that this morning, and, on the other hand, I do not agree that the abuses were completely out of hand in the automobile business. Mr. MALETZ. But there were abuses, were there not? Mr. MISCH. There may have been some abuses. Mr. MALETZ. Were there abuses? Mr. MISCH. I do not know, sir. Mr. MALETZ. Are you familiar with the conviction of General Motors and GMAC by a jury? Mr. MISCH. That is correct. Mr. MALETZ. The jury found there were abuses; is that not correct? Mr. MISCH. That is their privilege. Mr. MALETZ. And the conviction was sustained by the appellate courts, was it not? Mr. MISCH. That is correct. Mr. MALETZ. Are you familiar with the testimony of Judge Loevinger before this subcommittee that as a result of the coercive tactics of General Motors, GMAC obtained and still has a dominant position? Mr. MISCH. I do not know if it is a result or not. I am familiar with the fact that he testified on that. Mr. MALETZ. Are you familiar with the testimony of Judge Loevinger on that point? Mr. MISCH. I understand that he testified that way, yes, sir. Mr. MALETZ. Do you know of any similar past abuses in other industries where a manufacturer has a sales financing subsidiary? Mr. MISCH. Not to my knowledge. Mr. MALETZ. Do you know specifically of any other industry where the manufacturer had exercised coercion on his dealers to require them to finance through a subsidiary of the manufacturer? Mr. MISCH. There may be such cases. I do not know of them. Mr. MALETZ. Do you know of any other industry where, as a result of coercive practices, the sales financing subsidiary of one manufacturer has obtained a dominant position? Mr. MISCH. I do not know of any, sir. Mr. MALETZ. In light of these considerations, what would be the justification for Congress to extend the present legislation to cover other industries? Mr. MISCH. I do not think there is any need for any of this legislation, sir. Mr. MALETZ. Yes, but what would be the justification for Mr. MISCH. I cannot see the justification for this Congress considering this legislation. Mr. MALETZ. Yes, we understand that. But in the event the Congress does decide to legislate with respect to the automobile industry, is there any justification for extending such jeslation to cover other industries? Mr. MISCH. I cannot go along with the first assumption, because I think it is absolutely unjust to have this legislation to start with. Mr. SMITH. If I may comment on that, Mr. Maletz, I think there are two things here that might be brought out. No. 1, you are talking about conditions which were alleged to exist in the 1930's, 30 years ag and applying them to conditions today. There has been no showing, to my knowledge, that the alleged abuses that were spoken of in the 1930's exist today. Secondly, I think it is possible that the automobile industry, if this kLd of legislation is passed, could suffer competitive disadvantage L competing for the customer's dollar with other industries which are permitted to do a better marketing job by virtue of being able to finance their goods. Mr. MALETZ. I made reference to Judge Loevinger's testimony before this subcommittee. You recall, and I will quote his very testimony on this point, that he was asked this: Now, these coercive activities of General Motors on its dealers, did they result, in part, in GMAC obtaining a dominant position in the automobile sales financing industry? And Judge Loevinger responded, as follows: Well, from reading the report of the case and the facts as set out in some de tail in the citation I gave of the opinion of the Court of Appeals in the Seventh Circuit, I would believe that a substantial part of GMAC's dominant position was that result of the exercise of the coercive tactics of GM. At one point in the opinion it is pointed out that in Los Angeles General Motors dealers started to deal with other financing companies because, in dealing with the other financing companies, although the rates were no more favorable, the purchasers were able to purchase with a lower downpayment and a longer period of repayment, thus making easier terms available to the purchasers. And, furthermore, the other financing companies did not require the dealers to sign a recourse agreement. I will skip the next paragraph in the interests of expedition. As a result of such tactics, which are laid out in considerable detail in the opinion of the court, GMAC was established in its position as the dominant financing agency for General Motors cars and General Motors dealers. I think this is quite clear in the record. Now, in light of that consideration, do you think that Congress should disregard the situation in the automobile industry as it presently exists? Mr. MISCH. Those are Judge Loevinger's opinions. Mr. MALETZ. Yes. Mr. MISCH. Which you have just read. Mr. MALETZ. Yes. Mr. SMITH. Mr. Maletz, I would like to ask you a question because you said that Judge Loevinger said that those conditions exist today. Mr. MALETZ. Would you read the question, Mr. Reporter? (The question was read.) Mr. SMITH. What conditions are you talking about? Mr. MALETZ. Will Mr. Misch answer the question, please? Mr. MISCH. What is the condition that we are talking about now? Mr. MALETZ. That a dominant position was obtained by GMAC in the sales-financing business as a result of coercive tactics in the past of GM and GMAC. Mr. MISCH. In the first place, I am not sure that we have those coercive tactics today. I am not sure that the coercive tactics in the past have anything to do with GM's position today. But I want to point out to you that GM is a good competitor in many, many, many areas other than the finance business. Also, I want to point out to you that Ford Motor Co., without a finance subsidiary, has increased their percentage of the business very substantially in recent years. So I do not think you can come to the assumption that the divesting of GMAC by GM is going to cure any ills, if there are such ills. Mr. MALETZ. Let me ask you this Mr. MISCH. I do not suggest to you, certainly, that GM will wind up with anything less than 45 percent, or whatever the percent of their business is today, if you divest GMAC. I think, rather, you will probably have higher prices of automobiles to customers. Mr. MALETZ. Just assume now, if you will, that General Motors or GMAC has a dominant position in the sales-finance industry as a result of past coercive tactics, exercised by GM on GM dealers. Mr. MISCH. I cannot assume that, sir. Mr. MALETZ. Just a second, now. Mr. MISCH. I cannot assume that. Mr. MALETZ. And assume further, if you will, that at the present time GM, as a result of its affiliation with GMAC, has a competitive advantage over other automobile manufacturers and over non-GM dealers. Do you believe that Congress should, under those assumptions, take no action? Mr. MISCH. I certainly do. I think competition will take care of the situation. It has taken care of this business right along, and I think it will continue to take care of the business. Mr. MEADER. Mr. Chairman, might I make a comment on this point. The opinion of the Circuit Court of Appeals to which counsel has made reference is dated May 1, 1941, rehearing denied July 2, 1941, on a case which was commenced, the trial commencing on October 9, 1939. I would like to ask Mr. Misch, during the early 1940's, while we were in World War II, how many cars did Chrysler and GM produce? Was there practically a cessation of the production of automobiles during World War II? Mr. MISCH. That is correct. Mr. MEADER. And, of course, then the dealers would have had no new cars to sell, is that correct? Mr. MISCH. That is correct. Mr. MEADER. That if there was an advantage found in the trial which commenced in 1939, on which rehearing was denied in July of 1941, any dominant position gained by General Motors would have had to survive the drought of the war years in relations between General Motors and its dealers, is that correct? Mr. MISCH. I think that is correct. Mr. HOLTZMAN. Just like any other finance company handling automobiles, is that correct? Mr. MISCH. I think that is correct. Mr. McCULLOCH. Mr. Chairman? In connection with my inquiry of Mr. Misch as to the coverage of this bill. I wish to say that I am concerned about the possible overage in this bill because in the Fourth District of Ohio we have ndustry engaged in the following activities: We have truck manufacturers, we have trailer manufacturers, we have bus manufacturers, weave ambulance manufacturers, we have flower cart manufacturers, we have self-propelled electric generating equipment manufacturers. While I am not sure that those manufacturers, in every instance, fice their own credit sales, in a number of instances I am sure that they do. And, further, in view of the fact that I mentioned the Caterpillar Tractor Co., I should like to read into the record at this ple, Mr. Chairman, an unsolicited letter from the treasurer of Caterpillar Tractor Co. which is of great concern to me. I quote the letter in its entirety, although it will take some time to read it. DEAR MR. MCCULLOCH: As you know, the Antitrust Subcommittee of the House Committee on the Judiciary, of which you are a member, is presently conducting hearings on H.R. 71. This bill would make it unlawful for any corporation (including its subsidiaries) engaged in the manufacture and sale of motor vehicles to own or maintain any facilities for financing the sale at wholesale or retail of motor vehicles manufactured by it. The term "motor vehicle" is defined to include passenger cars, trucks, buses, and station wagons. Caterpillar Tractor Co., which manufactures earthmoving equipment, does not at the present time manufacture and sell any products that would come within the scope of this bill. However, heavy-duty, off-highway trucks, which are literally within the bill's coverage, would constitute a logical addition to our line and could prove to be attractive to us in the future. Such trucks would represent a very natural evolution in our business of manufacturing and selling construction machinery. For this reason we have a direct interest in H.R. 71 as now worded. Trucks of the heavy-duty, off-highway type are used for mining and construction purposes and are never used on the public roads. They are quite different in nature and function from passenger cars, buses, and station wagons, as well as from on-highway trucks. The latter are a part of the transportation industry, the off-highway truck is not. In view of the nature and purpose of H.R. 71, we are confident that it was intended to cover only on-highway trucks. However, the bill speaks simply of "trucks," without qualification, and thus, if enacted in its present form, would include off-highway trucks as well. It would accordingly bar Caterpillar Tractor Co. (or its finance subsidiary, Caterpillar Credit Corp.) from financing at wholesale or retail off-highway trucks sold for mining and construction purposes. And now, Mr. Chairman, I interpolate this statement. The next paragraph of this letter relates to financing sales in foreign markets, which should be of great interest to this country at this time. I resume the quotation of the letter: Caterpillar is one of the Nation's largest exporters. In the sale of products in foreign markets, the extension of credit is often a determining factor in making the sale. Competition abroad— and, I interpolate, I understand that foreign competition is getting more and more intense is intense and we find that credit must be extended to purchasers at times for as much as 5 years. Some of the notes received as a result of extension of credit on foreign sales can be sold to banks in the United States and the Export-Import Bank, but much of this paper will not be taken by such financing institutions and must be carried by Caterpillar. If we should extend our line of products to off-highway trucks, H.R. 71 would limit our ability to sell such trucks in foreign markets, with a resulting reduction in U.S. exports. Undesirable results would also be produced in domestic markets. Many banks and public sales finance companies will not grant credit to dealers to carry inventory. They believe that this type of financing, which is commonly known as wholesale financing, represents more of a credit risk than they are willing to assume. The same is true in the financing of certain retail sales. Thus, in order for our dealers in some areas to carry an adequate inventory of our products, financing must be supplied by us or our finance subsidiary, and such financing assistance is also needed by our dealers in order to conclude certain retail sales. We therefore urge that if H.R. 71 is to be enacted, it be modified so that it will exclude off-highway trucks from its coverage. This, we believe, can be accomplished by inserting "on-highway" immediately before the word "trucks" in the definition of the term "motor vehicle." Of course, the last paragraph of the letter is a welcomed recommendation to us, but the letter raises serious questions that can be carried over to the problem of financing a number of other motor |