decision as to how much of the market it desires and the availability of capital (VII, 3049, 3090, 3100).

Witnesses pointed to the difficulty of independent finance companies in obtaining approval from General Motors to permit them to provide wholesale financing to General Motors car dealers, as evidence that General Motors uses its power and market position to assist GMAC to keep to itself the financing and insurance business of General Motors dealers. The record discloses that after a General Motors dealer has agreed to use an independent finance company for wholesale financing, necessary approval by General Motors of the finance company and its financial paper is sometimes long delayed and difficult to obtain. One witness testified on this point:

It was brought out here in the testimony yesterday that the practice in the automobile business is for the dealer to establish an arrangement with the finance company to pay for his automobiles at the factory for him and release the cars for shipment. The finance company provides that money which the dealers don't have or don't want to provide, and the dealer pays the finance company when he sells the automobiles off his floor.

Now, we have arrangements with the various factories under which we estab lish our wholesale paying arrangements for the various dealers. With the other factories such as Ford, Chrysler, American Motors, Nash-Hudson, StudebakerPackard, those arrangements work very smoothly.

We set them up, complete them in each case with very little difficulty, and very little time is required. In the case of General Motors, it is very difficult. Their policies and procedures make it very difficult for our company to establish those arrangements in the first place. There is considerable delay involved. With the other factories we can complete an arrangement in a matter of 2 or 3 days, or not over a week. Sometimes in emergencies we can even get on the phone and complete them in a matter of hours. But in General Motors it requires about a minimum of 3 weeks, and in some cases it has required months to get the arrangements established and completed and get them to accept and approve it (VII, 3114–3115).

There is testimony in the record that an effort is made by GMAC to dissuade the dealer from using the services of the independent company while the approval of General Motors to the transaction is pending (VII, 3115, 3124). If true, such activities are in violation of the spirit of the consent decree, if not of its direct prohibitions.

General Motors also provides a market for GMAC's vast and lucrative insurance business. This is comparable to the captive market furnished GMAC for its finance business. GMAC has two whollyowned insurance companies, Motors Insurance Corp. (MIC) and General Exchange Insurance Corp. (GEIC). These are respectively the largest and the fifth largest automobile insurance companies in the United States. When a General Motors dealer provides a customer with GMAC financing, the normal procedure is for the buyer also to purchase insurance through one of the General Motors controlled companies. In some 40 States, General Motors dealers are licensed agents for these GMAC subsidiary companies, and receive commissions from insurance sales. This provides one of the various forms of financial incentives offered to the General Motors dealers, at no cost to General Motors, to get the dealers to use and promote the General Motors "family." It is an example of the use of family organizations in a competitive market to achieve the domination and control of a related or nonrelated type of business activity (VII, 3127–3128). The condition was brought about in the following manner:

Some years ago, GEIC based its insurance charges on 75 percent of the manual rates used by other insurance companies, and these lower rates were the rates paid by the consumer as a part of the GMAC financing package. Beginning about 1939, when Motors Insurance Corp. was organized, General Motors began the policy of shifting coverage to Motors Insurance Corp. with full manual cost to the consumer, but with the added 25 percent going to the dealer as a commission for the sale of such insurance (VII, 3127-3128). Statistical information supplied by General Motors to the Subcommittee discloses that of 748,481 General Motors new cars financed by GMAC in 1954, 611,515 were insured by either one of the GMAC insurance companies. Insurance was written on 100,835 units sold by GM dealers but not financed by GMAC, and 1,401,154 used automobiles sold by the company's dealers were insured by the family companies. The statistical information supplied is set forth in the record (VIII, app. B, XXXIV).

This competitive situation was summed up by Thomas W. Rogers, executive vice president, American Finance Conference, in the following language:

This integrated use of family organizations permits shifts or changes in market pricing and sales practices, and tactics, such as the upping or lowering of finance and insurance charges in unison, or in various combinations which could not be done by independent or nonfactory affiliated sales financing organizations not having such integrated organization.

This manufacturing-financing-insurance combination through family corporations integrated as to sales, marketing, and policy practices, represents an economic combination difficult-and sometimes impossible-for the independent sales finance companies to compete with on a direct basis, and as we have said, permits the GM management to shift its marketing, financing, or insurance practices in the several areas to suit the overall objectives of the GM top management as of the moment of consideration (VII, 3128).

Testimony in the record discloses that should damage occur to a car during the life of the policy written by one of the General Motors insurance companies, an effort is made by the adjusters for these companies to have the car repaired by a General Motors dealer who, of course, uses only General Motors parts. This removes from the competitive market and places within the General Motors group another field of economic endeavor, namely, the repair and replacement of automobile parts damaged as a result of accidents and paid for by the insurance company.

The witnesses on this point were representing independent automobile repair shops. Their complaint was that such repair shops were foreclosed from all work arising out of accidents to General Motors cars insured by GMAC's insurance corporations. Reginald J. Holzer stated:

There is a realization that the independent auto repair shop is systematically being mowed down in a coordinated crossfire between GM and its subsidiary insurance companies (VII, 3061).

Mr. Holzer continued:

We charge that General Motors Corp. is conspiring to establish a monopoly in the automotive repair business (VII, 3062).

Darrell Blakeslee, a former adjuster for Motors Insurance Corp., discussed in an affidavit the efforts made by the insurance adjusters for the General Motors insurance companies to make sure that any auto

mobiles insured by said companies were not repaired or worked on by an independent repair shop, but were returned to a General Motors dealer. According to the affidavit, employees of the insurance companies are actually trained in

the subtleties and techniques of getting your assureds *** to take their cars back to the selling dealer for repairs-never to an independent repair shop * * * (VII, 3063).

He further stated:

In all my time with MIC, I don't think that more than one-tenth of 1 percent of the cars I adjusted wound up in independent shops, and then, only after a great lapse of time (VII, 3063).

One witness, in describing the amount of business removed from the competitive market in the manner described above, stated:

When one bears in mind that these subsidiary companies [Motors Insurance Corp. and General Exchange Insurance Corp.] received over $186,349,000 in premiums in 1953 and $168,098,000 in premiums in 1954, one can quickly imagine the impact of the removal of their claims for repairs from the competitive repair market (VII, 3064).

In a statement to the Subcommittee, L. L. Lukes, president of Motors Insurance Corp. and General Exchange Insurance Corp., denied the type of outright coercion referred to above, but he did concede that wherever possible the insurance companies do attempt to have the cars repaired by the selling dealers and stated that in a given area, out of approximately 600 claims, 73.7 percent took their damaged cars to the selling General Motors dealer, 14.7 percent agreed to have the damaged car returned to the selling dealer when the MIC-GEIC adjuster requested permission to do so, and 11.6 percent "preferred" to have cars repaired in a repair shop, not that of a General Motors dealer (VII, 3916).

Here, then, it is alleged, is another area where the power and combined strength of General Motors is effectively used to the detriment of smaller competitors in a major market area. Regardless of whether coercion is or is not used in obtaining this business initially, it is certainly clear that General Motors and affiliated companies, because of size and market position, are able to control business because of this affiliation and for reasons having little relation to superior product or service. Excessive integration may in and of itself work to the detriment of competition.

As was stated by Thomas W. Rogers, such a condition-manufacturer-financer-insurer-gives to General Motors an economic power that may be utilized at will to the extent desired in order to achieve the aims of General Motors with reference to whatever policy of manufacture and sales distribution it may desire to set up. Mr. Rogers further stated that there is no other automobile company with sufficient economic power to counteract General Motors, and that if General Motors were to decide that it wants at all costs to get on top of Ford, it has within GMAC an instrumentality that could be used to accomplish the purpose, even to the extent of putting every single independent sales finance company out of business in this country (VII, 3147-3148, 3120). The witness concluded that at the present time, insofar as the financing field alone is concerned, the independent companies have not been able effectively to compete in the General Motors market with GMAC (VII, 3151, 3153).

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Consumer automobile credit has reached an all-time level of almost $14 billion, and is a vital factor in car sales. General Motors Acceptance Corp.'s financial activities are such as to affect the entire financial fabric of the country. It has deposits and credit lines with 588 banks located in all but one State and in 289 cities (VIII, 4024). GMAC's borrowings are enormous. It is close to or at the statutory lending limits of many of the major commercial banks today. This raises the interesting question as to whether GMAC is too big. It has had to raise its medium- and long-term debt at a time when interest rates are rising because of the statutory lending limits of banks. Mr. Stradella offered a comparison of the annual interest cost burden of GMAC and other finance companies which indicated that GMAC's costs were actually higher than those of its major competitors. A reasonable inference from such a comparison would be that GMAC may be larger than optimum size-certainly its interest costs are higher because of its size. The fact that it maintains its market position despite these increased costs further fortifies the view that GMAC operates successfully because it has partially insulated itself from the competitive thrust by reason of the protected market in which it operates due to its affiliation with General Motors. We are therefore back to the major question, what is the primary responsibility of GMAC-manufacturing and sales or finance, and whether or not the problem can ever be solved short of complete separation of General Motors and GMAC.

9. GENERAL MOTORS AND ITS DEALERS

That aspect of General Motors' operation which produced the greatest number of complaints involved factory-dealer relations. When it became known the Subcommittee was making a study of General Motors, wires, letters, phone calls and personal complaints from dealers and their organizations poured in to the Subcommittee from all over the country, urging legislative action.

Among the major problems of our economy are the relationships between the large buyer and many sellers and the large seller and many buyers. The latter characterizes the relationship between the manufacturer of automobiles and the automobile dealer. General Motors as the largest manufacturer in the United States deals with about 18,000 individual dealers handling its passenger cars and trucks. A relationship in which all the economic power rests with one party lends itself to inequities.

Another subcommittee of the Senate has been set up for the specific purpose of studying factory-dealer relations in the automobile industry. Therefore, it was the original intention of this Subcommittee to concentrate upon the problems arising from or related to the size of General Motors and to give limited attention to dealer problems, leaving such matters to the special subcommittee of the Interstate and Foreign Commerce Committee. However, it quickly became apparent that the complaints of the dealers were directly related to the question of size and power and the alleged abuse of such power.

While it appeared the dealer problems were common to all the automobile manufacturers, there was evidence that the largest producers were the principal offenders. Furthermore, the current agitation of General Motors dealers was intensified by the bitter contest between Ford and General Motors for leadership. This struggle

between the two titans in the industry culminated in the vigorously aggressive sales campaigns of 1953, 1954, and 1955. The sales results achieved at the height of this struggle are truly amazing. In 1954 General Motors new passenger car registrations totaled 2,806,595. But in 1955 these results are dwarfed by an increase in sales of more than 40 percent.

The testimony adduced concerning the techniques employed to achieve market penetration and the resulting consequences to dealers, indicates the perils to dealers incident to this type of competition. This contest for market preeminence between General Motors and Ford dramatized that the "independence" of the dealer is more theoretical than real. Being completely dependent upon the factory, his position is more analogous to that of an employee.

Aggressive merchandising is a healthy sign of competition and can produce great benefits to the consumer, but when conducted within the framework of a system which gives the manufacturer a whiphand, the dealer is made to bear a large share of the burden of the competitive battle. Dealers' experience from 1950 to 1954 was a continuous decline in return on sales according to data submitted by the National Automobile Dealers Association. In 1955 there was apparently some recovery in dealers' return. General Motors' reply to the allegation that dealers have suffered was that dealer profits measured as a return on net worth indicate dealers have done well. But the Corporation's figures substantiated the fact that its dealers' return on net worth continuously declined from 1950 through 1954.

It would appear that while General Motors was aggressively seeking greater volume and surpassing its historical rate of return, this aggressiveness was displayed in the form of pressure upon dealers to offer price incentives and not in reductions in factory base prices. Dealers were being required to make the price concessions. The Subcommittee's attention was sharply focused upon the conditions which made possible such a situation. The heart of the matter appeared to be in the nature of the dealer franchise and the inequitable manner in which it permitted the manufacturer to control the dealer's economic life.

The historical relationship between the automobile manufacturer and his dealers has been fraught with friction. Competition in the industry has to a great extent expressed itself in competition among dealers on price and among manufacturers in product and dealer organization. The effect has been to reduce dealer earnings in periods of factory pressure to sell cars. Such has been the case since the changeover to buyer's market beginning sometime in 1953. Since standards of profits and of living are to some extent based upon experience, dealers with memories of lush postwar years are restive today.

In the marketing of automobiles a distinctive distributive system has been developed. The complicated nature of the product, its durability, high cost, and need for maintenance and repair meant that the automobile had to be sold as a specialty item. The manufacturer could not completely disassociate himself from the product after sale. Service guaranties and the need for replacement parts and service required a close association between dealer and manufacturer. The method of distribution developed in the automobile industry was also greatly influenced by capital requirements. Distribution