Mr. MALETZ. You do not? Mr. MISCH. I do not know that, sir. Mr. MALETZ. Is it not a fact that when CIT was divorced from its affiliation with Ford Motor, and when the contract fo affiliation between Chrysler and Commercial Credit was eliminated, that the cost of financing went down? Mr. MISCH. I do not know that, sir. Mr. MALETZ. Do you believe that greater competition reduces or increases prices? Mr. MISCH. Decreases prices. Mr. MALETZ. Decreases prices? Mr. MISCH. It certainly does. Mr. MALETZ. If GMAC were spun off, and sought the business of non-General Motors dealers, would that mean gerater or less competition for the sale of independent sales finance companies? Mr. MISCH. I think you have removed a very important factor if you remove the factory from the financing competition. Mr. MALETZ. I am just asking you this isolated question. Mr. MISCH. I would answer that question-you are reducing competition, I should think. Mr. MALETZ. You are reducing competition? Mr. MISCH. By taking the factories out. Mr. MALETZ. Í see. If GMAC were spun off from General Motors and then competed for the business of non-General Motors dealers as well as of General Motors dealers, is your testimony that competition would be reduced? Mr. MISCH. It is my feeling that competition would be reduced, because you are taking the manufacturer out of competition, sir. You are just adding one finance company and taking the manufacturers out of competition. Mr. MALETZ. Are you aware of the testimony of Mr. Stradella that GMAC stands completely on its own feet, has nothing to do with General Motors so far as its sales policies are concerned, and is in this respect, completely independent of General Motors? Mr. MISCH. Yes, sir. Mr. MALETZ. How is the manufacturer, then, in the sales financing business if Mr. Stradella's testimony is correct? Mr. MISCH. The manufacturer certainly is in the business in the case of General Motors, because General Motors owns GMAC. Mr. MALETZ. We understand that, but now Mr. Stradella testified that GMAC is completely on its own feet, completely. You do not agree with that? Mr. MISCH. I am not familiar with Mr. Stradella's testimony. Mr. MALETZ. If you will check, Mr. Yntema will testify before this subcommittee that Ford Motors Credit stands completely on its own feet. Are you familiar with that? Mr. MISCH. Yes, sir. Mr. MALETZ. If that is the case, would you tell this committee precisely how the manufacturer is engaged in the business of sales financing? Mr. MISCH. I would like Mr. Flaherty to answer this question, sir. Mr. FLAHERTY. Mr. Chairman, I think a distinction is in order here. I think if we were to comment on the purpose of a finance subsidiary, as contrasted with the purpose of an independent sales finance com pany, some of this difference might vanish. I was impressed by a comment in a report of one of the finance companies which one, it is unimportant unless you wish it-to the effect that part of the reason for their reduced income in a recent year was the increased sale of compact cars, and this was viewed as an adverse development. This brings to light that the aims of a financing subsidiary and a sales finance company are not the same. A finance subsidiary of a motor vehicle manufacturer or of any other manufacturer obviously must balance the advantages of increased unit sales against the market potential. A sales finance company properly seeks to maximize not the sales of units but the total dollar volume of finance credit. This is one of the reasons that has led the finance companies to seek to diversify their operations rather than to specialize, because in the earlier stages of some of these growth markets, mobile homes and boats, and so forth, the returns are very high. So the point, I think, that underlies this question is the possible effect of a divestiture of GMAC, quite apart from knowing what would happen. The objectives of an operation of that sort could be different, and to that extent competition could be reduced, and to that extent, then, prices could rise and market sales of cars limited or reduced. Mr. MALETZ. I am sorry, I do not quite understand the answer, but I would like to ask you this: Has it come to your attention that Mr. Stradella testified before this committee that GMAC stands on its own feet in all areas of its operations? Are you familiar with that? Mr. FLAHERTY. Yes. Mr. HOLTZMAN. Is there any doubt in your mind that GMAC is a subsidiary of GM? Mr. FLAHERTY. Not being a lawyer, I am reluctant to accept other than a popular interpretation. I understand that GMAC is owned by General Motors, and if that adds up to a subsidiary relationship, yes. Mr. MALETZ. Now, if there is only an apparent subsidiary relationship, but in all other respects GMAC is independent of GM, what is the justification for saying that the manufacturer is engaged in the sales financing business? That question is addressed to Mr. Misch. Mr. MISCH. Would you repeat that question? Mr. MALETZ. Would you repeat the question, Mr. Reporter? (The question was read.) Mr. MISCH. I am not sure that I said that. Did I say that? Mr. MALETZ. You have indicated throughout your testimony that the manufacturer competes with sales finance companies, and I was just wondering in what context the manufacturer does compete with sales finance companies, if General Motors' statement before this subcommittee is correct. Mr. MISCH. It is a subsidiary. We are quibbling on words, possibly, but is it not the subsidiary that competes? The subsidiary obviously is controlled by the parent. Mr. MALETZ. We understand that, but I think the thrust of your testimony is that the manufacturer is engaged in competition in the sales finance business, and here is GM testifying before this committee that GM, itself, has absolutely no influence on the policies of GMAC; that GMAC stands completely on its own feet. I cannot reconcile those two concepts. Mr. MISCH. I can't either, if those things are such as they are. However, I still feel very, very strongly that the manufacturer has to have the right to get into the financing business and be in the financing business; but, if he is going to do it, obviously he has to do it through the subsidiary. It is very obviously the kind of business that he would not enter into: that General Motors would not enter into it, as such. Mr. MALETZ. What you are saying, then, Mr. Misch, is that a sales finance subsidiary does not, as a practical matter stand on its own feet? Mr. MISCH. I think, as a practical matter, it does not stand on its own feet. Mr. MALETZ. In other words, its policies are controlled by the manufacturer completely; is that what you are saying, in effect? Mr. MISCH. I think they have to be sound policies for a finance company. Mr. MALETZ. But is not what you are saying, in effect, that the sales financing subsidiary of General Motors is, as a practical matter, subservient in every way to General Motors' wishes? Mr. MISCH. I do not know about General Motors, but I do say this: That a manufacturer of automobiles should have the right to create a financing subsidiary in order to promote the sale of his products. Mr. CRABTREE. Mr. Chairman, I want to document the record with respect to Mr. Maletz' assertion that Mr. Donner stated it is a matter of pure speculation as to whether the cost of financing would be in creased. This is the answer that Mr. Donner gave which is found on page 611 of the transcript for June 9, and it is in response to a question about the bill; specifically whether or not GMAC would continue to finance General Motors products on a wholesale basis. Mr. Donner testified, and I quote: I do not think that they could finance it for nothing whether they were indeTent or a subsidiary of General Motors. They would have no reason to finance t for nothing, but, as I understand it, that would give General Motors the right to sell those cars on a 90-day payment, and I was just going to remark on that *at the results would be that we probably would increase the price of a Chevroabout $30 if it was carried for 90 days, because it costs about $10 a month to carry it, and that was the point I was directing my remarks earlier to Mr. Vetz. I think, or Mr. McCulloch, I don't remember who now, in which I said the inefficient dealer would get an advantage and the efficient dealer would pay the freight of the others because we would have to put that in the cost of all Mr. MALETZ. Mr. Chairman, may I just direct the witness' attention, and Mr. Crabtree's attention, to page 590 of the transcript of testimony efore this subcommittee where Mr. Donner stated specifically that his conclusion that the result could well be higher finance charges for dealers and retail purchasers," and I quote Mr. Donner, "was specu laire." Mr. HOLTZMAN. The committee will recess. Adjourned for a short recess.) AFTERNOON SESSION Mr. HOLTZMAN (presiding). The committee will be in order. Mr. Misch, will you continue, please. STATEMENT OF F. W. MISCH, VICE PRESIDENT, FINANCE, CHRYSLER CORP.; ACCOMPANIED BY W. C. FLAHERTY AND J. PAUL SMITH-Resumed Mr. MISCH. I will start on the top of page 10, if I may. If automobile manufacturers were to be denied the right to participate in the financing market, then competition in that market would almost certainly be diminished. One of the main reasons is that financing, by its very nature, is a complicated and even mysterious function to the average customer. This is not the case with regard to services and products. For example, customers who buy specific objects judge them on such points as design, function, and durability-and their free choices exert pressures which guarantee competition. But financing is beyond the comprehension of average customers. Mr. MALETZ. Mr. Chairman? Mr. Misch, what you are saying here is that the purchasing public does not really understand the complexities of financing charges and requires protection by manufacturers in financing matters; is that essentially your point? Mr. MISCH. That is correct. Mr. MALETZ. Is it not correct that General Motors, Ford, and Chrysler were charged by the Federal Trade Commission with engaging in a false and deceptive advertising plan by advertising as a 6-percent plan a plan of financing that actually cost almost twice that sum in simple interest? Mr. MISCH. I think we signed a consent decree on that; yes, sir. Mr. MALETZ. Yes; you were charged by the Federal Trade Commission? Mr. MISCH. That is right, sir. Mr. MALETZ. With engaging in that practice? Mr. MISCH. That is correct, sir. Mr. MALETZ. And did not the FTC find that General Motors was engaged in false and deceptive advertising? Mr. MISCH. I do not know about the General Motors finding. Mr. MALETZ. And do you recall that Ford entered a consent order agreeing to cease and desist from this allegedly false and deceptive practice? Mr. MISCH. I do not know about Ford, either. Mr. MALETZ. In light of these circumstances, I have a little difficulty with understanding your justification for saying that the manufacturer will protect the consumer with respect to financing rates. Mr. MISCH. The manufacturer still has the main responsibility to get his product in the hands of the people at as low a price as he possibly can for the complete product. Financing is just one part of the price of the product. Mr. MALETZ. You said that the manufacturer would protect the public with respect to financing rates? Mr. MISCH. I think that is correct, sir. Mr. MALETZ. And do you think that the history of previous developments would so indicate? Mr. MISCH. I do not think history has anything to do with it. I think as of today the manufacturer would protect the customer. I think we have to in a competitive market like this. They buy an abstract financing service without fully understanding it, and therefore they do not exert the normal selective pressures found in other markets. Who, then, is left in the private sector of our economy to exert the pressures to keep financing rates and services competitive? I submit that this is one of the necessary functions of the manufacturer and we at Chrysler are, in effect, carrying out this function simply with our right to enter the financing field. The manufacturer's predominant interest in keeping his products and prices competitive makes it imperative for him to do all in his power to keep all costs, including the cost of credit, competitive, both for his retailers and their customers. Other claims for H.R. 71 go much farther and are, I believe, equally vulnerable to economic logic. One claim, for example asserts that H.R. 71 would bring full, more even employment to the U.S. automobile industry. Another asserts that the bill would maintain the United States in its leading position in the world automobile market. Mr. MEADER. Mr. Misch, what is your source of that claim? Mr. MISCH. I will have to get that, sir. The AFC testimony, I understand. Mr. MEADER. The testimony before this committee? I sat through, I thought practically all of this testimony and I had not heard that proponents of H.R. 71 claimed that H.R. 71 would result in greater employment in the automobile industry. I do not know whether that cla'm has been made or not. Mr. MISCH. Can we give you that source, sir, later? Would you like us to send you that source? Mr. MEADER. I would like to know the source. Mr. MISCH. We will do that. I must confess that I fail to see how H.R. 71 or any other single piece of legislation could achieve such sweeping results, laudable as they are. It is still true in the automobile business as in all businesses that a company makes progress by designing and building better products efficiently, by distributing and promoting them efficiently, and by pricing them fairly. These are the things that create employment. These are the things that determine arket position. FACTORY-TO-CONSUMER RESPONSIBILITY Credit also plays a dynamic role in determining a manufacturer's position in the car-and-truck market. If motor vehicle manufacturers should be prevented from having financing activities and if the car-and-truck market should become entirely dependent on nonaffiliated finance companies and banks for wholesale and retail credit, then the costs of such credits could easily rise, and the demand for vehicles could be dampened. This, in turn, could mean not just lost mies, but lost outlets in the market and lost jobs. Clearly, sound wholesale and retail financing are very much a part of the automobile manufacturer's total marketing job. Accordingly, we at Chrysler Corp. are vitally interested in financing, just as we are vitally interested in every other aspect of the automobile business. |