G.M. Stumps the Senators | The Nation


G.M. Stumps the Senators

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Just as if Detroit were not having enough difficulty this year, comes now a clutch of Senators who demand that the Eisenhower Administration drag General Motors executives into federal court, there to try to find out whether they might not be guilty of some kind of crime. Their own investigation of G.M., the Senators hasten to say, yields absolutely no courtroom evidence that any crime has been committed.

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All that the majority of the Kefauver Subcommittee on Antitrust and Monopoly have to present is a bill of suspicion. They suspect that G M. seems able to:

§ Rig sales prices of new and used automobiles.

§ Corner the market in parts and raw materials.

§ Obtain preferential treatment from steel companies.

§ Drown any competitor in his last bucket of red ink.

§ Create either a boom or depression.

Again, the Senators are quick to say they don't know whether G.M. does any or none of these horrid things, but--they say--if the possibility exists that it might do any of them now or later, then the Administration ought to chop the corporation up into little bits as a public service. Therefore, they ask, would the Justice Department be so kind as at least to ease, or at worst to confirm, the Senatorial suspicions?

Legal theory, of course, frowns on such fishing expeditions as the Senators wish the Justice Department to undertake, but there is plenty of daylight between accepted legal theory and actual practice, and nimble lawyers scamper through the open spaces all the time. Moreover, G.M. itself might consent to public examination merely to maintain good public relations, on grounds that continued refusal to submit fact and figure to the Government--no matter how innocent GM; no matter how legally correct such refusal might be--cannot fail to make the public suspicious. Making the public any more suspicious than current sales indicate is not good for General Motors.

Meanwhile, there is some merit to the cynical view that the Kefauver Subcommittee's report is more of a political document than it is a legal complaint. It is difficult to imagine the Eisenhower Administration leaping at the chance to harass its big, best friend in Detroit. On the other hand, if the Administration does nothing, then even the most unimaginative Democrat will not find it difficult to locate still another stick with which to belabor a fairly dead elephant in the 1960 elections.

A more charitable view is that the Senators are neither Inquisitorial nor Machiavellian, but simply human, for the subcommittee report is more like a despairing cry of a customer sinking in quicksand than it is anything else. Here is unfolded the whole grimy story of the tortuous sales practices of Detroit and the dealers; of the repeal by GM of the laws of supply and demand; of the expensive asininty of styling, horsepower-races and lying advertising; of the fact that no manner or means of competition occurs in Detroit that could conceivably help the customer either to a better car or to a different car, much less to lower prices. All this is presented within an historical context that works as inevitably toward a hopeless conclusion as any Greek tragedy. Despite the uncomfortable prose that custom demands of The Congressional Record, the reader gets the point: the customer is inevitably done in by capricious forces beyond individual man's control.

The report begins by briefly noting that one out of every seven jobs in this country is directly or indirectly dependent upon the automobile industry, and that this chiefly means "dependent upon General Motors." In 1921, eighty-eight separate American automobile firms were in business; today there are only five, and of these, three control 90.4 percent of sales--and of the three, GM holds 50 percent of the total market. GM is the biggest corporation in the world, with sales in 1957 totaling $11,000,000,000.

In achieving this enviable position, GM has faithfully followed the precepts of its founder, WC Durant, who went about the land gobbling up as many automobile firms and related industries as he could find, candidly explaining: "I was for getting every kind of thing in sight, playing safe all along the line."

So well did GM succeed in this pursuit that, in 1923, Alfred P. Sloan, Jr., then in charge of the company's destiny could complacently face up to a momentous decision: "To determine whether we would operate under a centralized or decentralized form of administration."

"Decentralization was analogous to free enterprise," Mr. Sloan explained. "Centralization, to regimentation." He paused, and then in Augustan tones, remarked: "All, of course, within the area of General Motors."

That GM's present view of itself is still somewhat regal, if not downright Bourbonistic, was demonstrated when Harlow Curtice, at the time still GM's president, appeared before the Kefauver subcommittee:

Sen. Kefauver: "Mr. Curtice, do you regard the growth of your company from about one-third [of the sales market] in 1929 or 1930 to over one=half, and the decline by the independents from one-fourth to less than five percent, as a healthy trend in the economy and the automobile industry?"
   Mr. Curtice: "I regard that as a healthy situation as far as General Motors is concerned, yes."
   Sen. Kefauver: "Not so far as General Motors is concerned, Mr. Curtice, I am talking about the country and industry generally.
   Mr. Curtice: "I think it is a healthy situation for the country and the industry in general."

Senator Kefauver, however, while recognizing that the nation's economy is predicated on the health of its automobile industry, was not so sure that the nation should be dragged along in the wake of GM's private fortunes. He remarked:

Years ago, if an automobile manufacturer made a mistake--priced his car too high, or came out with a design which did not appeal to buyers--the result, while fatal to him, was not necessarily injurious to the automobile industry as a whole, and certainly not to the entire economy. The market, which he lost, was filled by one or the other of his many competitors...

Today however, if the Big Three [GM, Ford and Chrysler] raise their prices unduly, or put on the market models, which do not attract customers, or if there is an extended work stoppage because of a labor dispute, there is little alternative aside from foreign cars to which customers can turn. They can only buy, or not buy, and today they appear to be doing the latter in large numbers.

Thus, Senator Kefauver implied, if Detroit doesn't sell its wares, then Detroit does not order the raw materials to make more cars; then unemployment in Detroit means lower production and lower employment elsewhere; then we have what the Administration euphemistically calls recessions, or rolling readjustments--the least serious by-product of this being political belching and voter disenchantment.

GENERAL MOTORS' historic response to nagging Congressional questions has been (a) that this is a free country made great by free enterprise and (b) that the public likes what GM makes more than it likes what other manufacturers produce and (c) why could GM be penalized just because its free enterprise makes the customers happy?

This was once again the GM philosophy during the recent hearings, and while it might be difficult to quarrel with this point of view, the Senators found it not so difficult to quarrel with the end results of GM's practices. For one thing, it irritated them to learn that while GM pays no attention to its competitors in arriving at the prices of GM automobiles, the competitors feel they must pay attention to GM's prices in arriving at theirs. GM's sheer size and power have placed it in the happy situation of being able to fix prices on its own terms, and Mr. Curtice's testimony showed the terms to be these:

GM estimates the total cost of producing as many cars as may be made in a 180-day work-year (i.e., 80 percent of what's left of the year after deducting all non-work days), then adds a sum sufficient to bring in a 20 percent profit on GM's net worth, after taxes. Thus, the anticipated profit is regarded as part of the cost of production, along with the less arcane costs of overhead, advertising, tools, labor, materials, etc. Divide the grand total by the number of cars to be produced during the 180 days, and you have the wholesale unit price of each car. If G.M. works more than 180 days (or makes more cars within them), and sells more cars than this "standard volume of production," then there will be extra dividends and bonuses for corporate officers. If it works fewer days, or sells fewer cars, then, of course, profit shrinks. Testimony indicated, however, that this scheme has worked consistent wonders for GM because during the last ten years, the rate of return after taxes averaged 25 percent--not 20--ranging from a low of 19 percent to a high of 37.5 per cent.

WHAT this means to the customer is simply that the laws of supply and demand have nothing whatever to do with the price he'll have to pay for his G.M. car--but that the total size of the world's largest corporation could have. Thus, the bigger G.M. grows, the more the customer will be charged--unless Gem's car production' keeps pace with its plant expansion (i.e., net worth), which doesn't always happen. Indeed Mr. Curtice gave the following assurance when asked whether G.M. also expected to obtain a 20 percent profit after taxes on new facilities then under construction. "Certainly," he said. "We are investing the stockholders' money in new facilities, and we would certainly expect to make a continuing fair return."

At the same time, Mr. Curtice implied that the higher the rate of profit, the fairer it would seem to him. Asked whether he thought a 30 percent profit after taxes was too high, Mr. Curtice said: "No, I do not."

One consequence of Gem's dominance in the field is that Ford and Chrysler frankly admit that they slavishly price their cars within a few dollars of'G.M.'s products "to compete" as they put it, with G.M. This sometimes results in there not being a dime's worth of difference among he sales prices of G.M., Ford and Chrysler entries in the same fields. The most dramatic instance of such imitation that the Senators found occurred in 1956. At that time, word got around the industry that prices would rise between 5 and 7 percent of the 1957 models. Ford, however, announced its prices first, showing general increases from 2 to 9 percent on its models, ranging, from $1 to $104. At this time, Ford said that its increased prices exactly reflected the year's increase in "our actual costs for materials and labor."

But two weeks later, G.M. announced its Chevrolet prices, reflecting an average increase of 6.1 percent over 1956 model prices, ranging from $50 to $166 higher per car.

Ford waited one week, then raised its prices to match. The following week, the pattern now clearly set, Chrysler priced its cars, and the result was the usual startling conformity, class by class, of all Big Three cars. "This is the first time in the history of a free-enterprise economy where a company raised the price of their products in order to be competitive," Walter Reuther sourly remarked, and Mr. Reuther's skepticism was widely shared by the Kefauver subcommittee.

Ford witnesses never satisfactorily answered the Senator's questions as to why they increased the prices to match Chevrolet's, when they had already explained that their first announced price increases were designed simply to cover actual increases in costs. Nor would Ford explain what wisdom led it to match Chevrolet prices in view of the Ford Company's own stated belief that it could "probably" have increased Ford sales if it had stayed with its originally announced prices. "This is a question of all the factors in a situation you have to take into account," a Fordling said to the Senate.

THE Senate report was careful to say there was no evidence of collusion or conspiracy to rig prices on part of the Big Three. The testimony indicated the situation just developed because other 'makers are afraid to enter into-a price war a corporation that could drive all out of business. Meanwhile, as other manufacturers try to follow G.M.'s prices, sometimes they guess too low when they announce first.

The evidence suggests [the Senators said] that G.M. has used one of its makes to set the price level, but another to undercut a rival who established a competitive price on the first make. In a sense, this is a case of both eating one's cake and having it, too. For, under this arrangement, G.M. can simultaneously play the role of leader and meet or beat price competition where it develops.

The word "competition' is used in the most figurative sense in this regard, inasmuch as prices are seldom more than a few dollars apart within each class of Big Three automobiles. It is an even more illusive word as used by Mr. Curtice, who employed it again and again as his excuse for not making facts and figures on Gem's manifold operatlons available to the Senate. Such figures "I do not wish to disclose, for competitive reasons," he said.

And, again and again, Senators found it difficult to imagine what competition Mr. Curtice might have had in mind,. The whole testimony presented the picture of G.M creaming the opposition, forcing its "competitors" to follow along as best they could.

Mr. Curtice was no more enlightening when he used the word with respect to prices within his empire. For instance, he said that price plays an important role in "competition" within Gem's divisions. But then he went on to say that he and three other men set the prices for all divisions--and that such, prices were arranged to bring back that good old 20 percent on net worth. Senator Kefauver found it difficult to see just how G.M. could possibly imagine that it was involved in any kind of price competition, even within its own family, if the prices were set by Mr. Curtice and three other guys, but good answer came there none at all.

EXPLORING little fiscal jungles without a compass is apt to be mad fun, even for Senators, but the report by no means confined itself to this pursuit.

All in all, the Senate report makes fascinating reading for anyone with a taste for the macabre, explaining, as it does, why General Motors Acceptance Corporation (Gem's captive finance company) cannot be enjoined against practicing usury; why the National Automobile Dealers Association guide books to used-car prices favor G.M. cars; why G.M.'s spending of $500 million a year for model changes compels everyone else to follow suit; why G.M. runs up a $94 million advertising bill (and why this is passed on to the hapless consumer); why the prices of. all cars will continue to rise no matter whether they are actually improved next year or not, and--finally--why the customer has to hold still for all of this.

The report is most diverting when it demolishes Mr. Curtice's almost Russian insistence that G.M. invented everything; it is most challenging when it suggests that G.M. and other manufacturers could make $200 million more profit if they reduced the prices of their $2,000-cars by $100 each, and $300 million more profit if they reduced them by $200 each. While offering considerable gratuitous advice whereby Detroit could run its business to everyone's increased benefit, the report also indicated why Detroit won't accept such advice.

THROUGH it all, G.M. emerges as the principal villain--damned for its successes, damned for its failures. If today's customer winds up with an overlong, overstuffed, overpowered and overpriced monstrosity, then it's all G.M.'s fault. The Senate's report suggests that the net result of automotive progress is that the customer must spend more for exotic fuels because of the higher-powered, higher compression engine; and more for labor when things break, and more for repairs more often because today's cars are, increasingly complex and easier to get out of whack; and more for the increased weight and size of the car, because the bigger engine needs a heavier, more stable platform; and more for power-steering and power-brakes because these are necessary safely to guide and halt the overweight, overpowered car; and more because a bigger company is growing still bigger and is spending more to design a still bigger, still fancier car; and more yet because the company has to spend still more to cozen the customer into buying such a road locomotive. All this is G.M.'s fault, the report indicated, because this is the trend in automotive engineering at G.M., and what to G.M. is a trend, to Ford and Chrysler is a command.

"Any sound economic or financial study of the Big Three together, or G.M. standing alone, results in a finding of monopoly," the subcommittee reported. "However, the theory and factors constituting monopoly at law would possibly, produce a different result.

Not only was the subcommittee undisturbed that their complaints and suspicions might not add up to a lawsuit, but they were even less disturbed by their failure to find legal evidence of collusion or conspiracy among the manufacturers, nor--for that matter--of any evidence of wrongdoing by G.M. specifically. Instead, their report was simply an article of faith, of belief:

The subcommittee believes that the hard core of the monopoly problem in the automobile industry is the concentration of production and power held by GM. This concentration appears neither compatible with nor conducive to a free market in which the public must buy automobiles.

Thus, typical of the report are statements like these: "Therefore, G.M.: ...may be restricting dealers...."; "This very well may be a violation of...."; "G.M. could be practicing the squeeze...."; "Without alleging that G.M. has attempted to monopolize raw materials...the automobile...company...may have misused its power...."; and--finally--the subcommittee used the wonderful phrase,"...at least affords indications that...."

In sum, the Senatorial report merely concludes that G.M. couldn't possibly be so big without being somehow bad; that if the effect of Gem's success was to have created a monopoly, then it doesn't matter whether that monopoly was created by fair means or foul-it will have to be destroyed. Lacking legal evidence, the report uses the language of belief in its own suspicions. The subcommittee concluded :

In the general context of trying to preserve competition and prevent monopoly, it would appear appropriate that the Department of Justice consider... a thorough investigation, and, if justified, a case under Section Two of the Sherman Act against the dominant economic force [G. M.] in the industry.

In other words, we have a cry from the heart: Won't somebody, somewhere, somehow, please do something?

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