It is an amazing fact that two of the largest builders of locomotives, each having been in the business more than 100 years and between them having 80 percent of the business, should have been supplanted by a newcomer with a new product. The significance of their position at any time during the continued growth of the newcomer could not have been obscure to them. It would seem that these old steam-locomotive suppliers, with their intimate railroad associations, existing over scores of years, at the outset would have properly analyzed the requirements of the railroads, and the merits of this new revolutionary type of motive power.

Certainly, as time passed they were in a position to evaluate the growing trend toward diesels by the railroads and to take proper action to protect the preferred position they occupied.

In fact, their position at the time General Motors entered the railroad motive power field with their diesel locomotives was so secure that they virtually enjoyed so-called captive markets with individual railroad accounts. At that time each railroad standardized on one builder's locomotive to such an extent that railroads were identified as accounts of specific locomotive suppliers.

For example, the Union Pacific was recognized as an Alco account and the Pennsylvania Railroad as a Baldwin account * * *.

In fact, the working relationship between these companies was so close that in one instance (in 1939), one locomotive builder designed a new Mallet locomotive, advertised as the most powerful of its time, called the Yellowstone type. One demonstration unit was built and sold to a railroad which was one of the design builder's historical customers. When a followup order for 11 units was indicated, all the design drawings, patterns, and so forth, were handed over by the design builder to another locomotive builder, who delivered the 11 locomotives to the historical customer of the design builder (VIII, 3953).

General Motors' description of the locomotive industry prior to its entry undoubtedly is more accurate than its competitors would care to admit, but does not tell the whole story. The established companies were carrying on research, but it would have required monumental courage for an established firm to disassociate itself completely from steam. General Motors was not completely new to the industry. The Electro-Motive Co. had sold cars to the railroads for a number of years and was a successful firm. The railroads had been looking for a new product particularly for switching purposes, and the diesel engine fulfilled this need. Many established firms had been experimenting with the diesel engine for locomotive traction. General Motors succeeded in producing a lightweight diesel engine. The problem of power transmission had been studied and solved by ElectroMotive prior to its acquisition by General Motors.

Nor did established business relationships present as formidable an obstacle as implied. The adaptation of the diesel engine designed for switchers to passenger trains was actually requested by the railroads. One road sought out General Motors for a gasoline engine, and another requested a display diesel engine for a train of its own design. It would appear that railroad orders at this early stage preceded General Motors' belief in the reliability of its own product. Once begun, the building of diesel locomotives advanced rapidly.

General Motors' entry into this field was largely made possible by its capital resources. It purchased strong companies in Winton and Electro-Motive. It had the resources to build the product it designed for a market which was notoriously weak financially. The railroads, many of them bankrupt or in receivership, had only meager funds at their disposal. General Motors was able to finance the sale of its product through its subsidiary, GMAC.

General Motors was prepared with a full line of locomotives at the time of the outbreak of the war. The closure of a part of this market

73185-564

to other producers gave it a tremendous competitive advantage. It is true that the great dieselization of American railroads did not occur until after the war, but it seems only reasonable to suggest that the experience with diesels during the war, the purchase by many major railroads of the General Motors product, and the public acceptance of General Motors as the innovator, helped insure its success in the postwar period. General Motors was instrumental in revolutionizing an industry in a relatively short period. It would appear that its size was of paramount importance in accomplishing this result.

6. MOTORBUSES

General Motors is by far the largest producer in the United States of motorbuses used both for local transportation and for transporting passengers between cities. The last few years have witnessed the disappearance of certain old, well-established bus producers and the progressive increase in General Motors' relative market share until it now dominates the industry. The Subcommittee undertook to determine the reasons for this domination It is significant that none of the other passenger car producers manufactures buses. Ford at one time produced buses, but went out of the field in 1950. The question is: has General Motors achieved its position solely through its superior product, better management, and technical proficiency, or has it employed restrictive practices and otherwise abused its power in gaining market prominence? In what way has competition been affected by General Motors' rise to power in the industry, particularly within the past few years? Witnesses representing the industry, government, and General Motors gave testimony on this aspect of the study.

It would appear that General Motors' rise to prominence in the bus industry did not stem wholly from internal growth. As in the case of diesel locomotives, General Motors obtained an initial foothold in the industry not by the utilization and expansion of existing facilities but by buying out a competitor. In 1925, General Motors merged the manufacturing facilities of Yellow Cab Manufacturing Co., a motor coach and taxicab manufacturing concern having plants at Chicago and East Moline, with certain of its own facilities into a new corportion known as Yellow Coach & Manufacturing Co., in which General Motors owned 57 percent of the common stock. From 1925 until 1943, General Motors owned the controlling interest in the stock of this corporation. In 1943, General Motors acquired the minority stock interest and the company became a division of General Motors, now operated as GMC Truck and Coach Division.

In a statement submitted to the Subcommittee, General Motors admitted that it entered the motor coach industry by buying out another company because of the desire to obtain the services of the able personnel of this company with its manufacturing and operating experience in the field. It noted that the principal owner of Yellow Cab Manufacturing Co. had been in ill health for almost a year and was interested in relinquishing the burden, but went on to say:

General Motors was interested because of its close connection with its truck and heavy vehicle operations in getting into the manufacture of taxicabs and motor coaches (General Motors had been making chassis for coach builders), and particularly desired to obtain the service of the able personnel of Yellow Cab with its manufacturing and operating experiences in this field. It was felt that

the merger of the two interests would result in achieving the needs of each (VIII, App. B, II (42)).

In 1928, Yellow's manufacturing and administrative offices were transferred to a new plant constructed at Pontiac, Mich., for the manufacturing of buses, trucks, and taxicabs. It was reported that the properties in Chicago and East Moline of the old Yellow Cab Manufacturing Co. were sold, and in 1939, the manufacture of taxicabs was discontinued.

Here again is an instance where General Motors made its entry into, and initial progress in, an industry via the merger route. Information submitted to the Subcommittee indicates that at the time of this acquisition, Yellow Cab Manufacturing Co. was the largest manufacturer of coaches in the United States. The merger, therefore, was not just of incidental importance but represented a significant step by General Motors in this field.

Beginning with the acquisition of Yellow Truck & Coach, General Motors progressed at a steady pace until it acquired the commanding position which it occupies today. Exhibits were introduced by witnesses from competitive bus manufacturers showing the continued increase in General Motors' market position.

According to one chart, in the 27-year period ended in 1951, General Motors manufactured 34 percent of all buses made in the United States (VI, 2628). From 1924 to 1926, this chart showed that General Motors produced 20 percent of the buses while the next largest classification of manufacturers comprising the four principal companies manufactured 40 percent. General Motors most significant increase during the period was from 1947 through 1951 when it produced 43 percent of the buses made. From 1947 to 1951, the next four largest manufacturers increased their market share from 23 to 34 percent. The chart reflects the tremendous growth of General Motors from 1952 to 1955. By 1955, the corporation's market position mounted to over 80 percent.

This increase in General Motors market position was also verified by a chart furnished the Subcommittee by Thomas P. Butler, vice president of the Flxible Co., Loudonville, Ohio, dated November 11, 1955 and entitled, "Percent of Buses (Inter-City and City) built by Various Bus Manufacturers 1950-1955" (VIII, app. B, XXXII). The market in question includes buses for transit or city use and buses for intercity travel. The transit type bus is sold to transportation companies which are either privately or municipally owned. The intercity bus is generally a larger and heavier bus for transporting passengers for longer distances between cities in the United States.

An analysis of the statistics obtained from the Automobile Manufacturers Association for 1955 indicates that General Motors is now producing in excess of 80 percent of city and intercity buses made in the United States. In its statement submitted to the Subcommittee, General Motors did not attempt to deny or rebut the claim of the other bus manufacturers that General Motors' market position was now in the neighborhood of 80 percent.

It is noteworthy that during the period when General Motors was making its deepest inroads into the market, there was a very high mortality rate among competitive producers. Not only the relatively small companies, but also older, well-established firms found the going too tough and had to abandon the business. ACF-Brill of Phila

delphia, the best known name in streetcars and for many years a leading producer of buses has entirely transferred its activities to the totally unrelated retail food field. Frank R. Fageol, chairman of Twin Coach Co., Kent, Ohio, stated he went into the safety coach business in 1921 (VI, 2624). Twin Coach remained one of the leading manufacturers of buses until 1953 when it transferred its bus business to the Flxible Co. It now manufactures automobile vehicles, engines and engages in aircraft assembly. In a progress report to employees on October 27, 1953, concerning the financial position of the company, Mr. Fageol explained his reason for going out of the bus business and, among other reasons, stated:

*. * Further, one big company, through its great economic power, has been able to secure a total of over 75 percent of the bus business *** (VI, 2636). White Motor Co., Twin Coach and ACF-Brill went out of the bus business in 1953 leaving only Mack of the four companies in the group which Fageol had described as the principal competitors of General Motors. Among the smaller companies which Mr. Fageol said have also abandoned the business within the past few years were: Beaver,. Pony, Reo Bus Co., Checker Cab Transit and General Car (VI, 2630). Since General Motors had been a defendant in a civil and a criminal antitrust suit involving the sale of buses, the Subcommittee sought to learn whether the conduct involved in these suits had any substantial effect upon competition, or whether it contributed to General Motors strength in the industry.

On April 9, 1947, a Federal grand jury sitting in the southern district of California, returned an indictment against the National City Lines, Inc., and several other companies, including General Motors Corp., charging them with conspiring to restrain and monopolize the manufacture of buses, tires, and petroleum products in violation of sections 1 and 2 of the Sherman Act. A companion civil case was also filed (VI, 2595). After an extensive jury trial, the defendants in the criminal cases were found guilty on March 11, 1949 of violating section 2 of the Sherman Act. The Court of Appeals for the Seventh Circuit unanimously affirmed this conviction on January 3, 1951. The Supreme Court denied the defendants' petition for certiorari on April 3, 1951 (VI, 2602, 2611). Various proceedings thereafter followed in the civil case. Some of the defendants abandoned the contracts and other practices which the Government charged were at the heart of the illegal conspiracy in the criminal case, and on December 14, 1954, a consent judgment was entered against the National City Lines defendants, requiring, among other things, that National City purchases of certain of the items other than buses, be purchased upon a competitive bidding basis, in an attempt to open this market to competition. The defendants contended that the issues had become moot, making judgment unnecessary, as the contracts and the practices involved were no longer engaged in and there was no reasonable likelihood that they would be resumed. The suit was continued as to General Motors and the Government sought to enjoin General Motors from engaging in this or similar conspiracies, from renewing the requirements contracts, and from making similar investments in other transit companies. The Government also felt that certain relief was still needed with respect to the supplier-defendants and, accordingly, pushed the civil case to trial. On September 15, 1955, the court

entered a final judgment holding that the relief sought by the Government was no longer needed. The order dismissing the case against General Motors without prejudice was entered on October 31, 1955, and no appeal was taken by the Government.

In connection with these cases, the Subcommittee heard the testimony of William C. Dixon (VÍ, 2594–2621), an attorney of Los Angeles, Calif., who had been chief of the west coast office of the Antitrust Division and who personally conducted the grand jury proceedings leading to the criminal indictment. Mr. Dixon testified that the investigation resulting in the filing of these cases was prompted by numerous claims to the Antitrust Division by various suppliers of buses, petroleum products, and tires to the effect that they had either lost business which they had theretofore enjoyed with National City Lines, or had found it impossible to sell local transit systems controlled and operated by National City Lines because of the apparent closure of these outlets to their products. Mr. Dixon described National City Lines Corp. as a holding company established in the thirties for the purpose of purchasing and operating local transit systems throughout the various cities of the country. The National City Lines cases dealt solely with the transit or urban-type bus.

According to Mr. Dixon, the indictment charged that beginning on or about January 1, 1937, the defendants, including General Motors, engaged in a conspiracy to exclude all competition in the sale of motorbuses, petroleum products, tires and tubes from the business of the local transportation companies then or thereafter owned or controlled by National City Lines or any of its subsidiaries. Count 2 of the indictment charged the defendants with conspiring to monopolize the sale of motorbuses, petroleum products, tires and tubes used by local transportation companies in which National City Lines owned or controlled, or in which it might thereafter acquire a substantial financial interest. The indictment particularized the conspiracy charged by reciting that General Motors and other supplier-defendants furnished money and capital to National City Lines, Inc., to be utilized by National and its subsidiaries to purchase or secure control of local transit systems located in various cities of the United States. In return, National City Lines and its controlled local transportation companies agreed that they would not renew any of their then existing contracts to purchase buses, tires, tubes, and petroleum products with companies other than the supplier-defendants without their consent, and that they would not dispose of any interest in any operating company without requiring such company to assume the obligation of continuing to purchase its requirements from the supplier-defendants, including General Motors. The defendants received stock in National City Lines and, according to the indictment, National City Lines received about $9 million of which General Motors furnished over $3 million. The indictment further stated that the total sales of motorbuses by General Motors to the National City Lines operating companies from 1936 to 1946 exceeded $25 million. Mr. Dixon testified that, pursuant to the illegal conspiracy charged, General Motors entered into requirements contracts with National City Lines under which General Motors was to furnish 85 percent of all the buses required by National and operating companies it owned as of August 2, 1939. General Motors and another supplier-defendant, Mack Manufacturing Corp., were each to furnish 4212 percent of all new motor