The price difference, however, does not reflect the full price reduction or increase for the improvement or deterioration. Attempts to develop an acceptable alternative to the cost approach in such cases are continuing. The following hypothetical examples illustrate how the BLS estimates values for quality changes. 1. DATA REPORTED BY THE MANUFACTURER The manufacturer reported that the incoming model differed from the outgoing model as follows: (a) Extra cost equipment—windshield washers, padded dash and rear seat belts offered as optional extra cost equipment on the outgoing model are now standard equipment and included in the price of the incoming model. Market retail price for the options is $40.00; wholesale price, $30.77. (b) Improvements in the incoming model included new bumpers for increased protection, improved headlights for better visibility, and improved fresh air ventilation system. Estimated wholesale value based on producer costs for labor and materials adjusted to selling price levels is $32.50. If the company had valued the changes in terms of replacement parts, i.e., reported the net dealer prices for replacement parts that constitute the assembly or component in the old ($61.76) and the new model ($100.00) plus a price deflator (.85) which adjust for additional costs such as storing, shipping, etc. that are not present when the part is utilized on the assembly line, the value of the change would be estimated as follows: ($100.00-$61.76) x .85=$32.50 2. BLS PROCEDURES The above changes were considered quality changes for which adjustment should be made according to the criteria used by the BLS for evaluating specification changes. (a) Adjustment of wholesale value for product improvement to retail list price. The value of the produce improvement ($32.50) is adjusted by the ratio of the retail list price including Federal excise tax ($2600) for the car with specified equipment to the wholesale price excluding tax ($2000). This adjustment is not necessary for optional equipment values since the company reported both wholesale and retail prices. (b) Adjustment of the value for quality difference to reflect end-of-season prices. The quality adjustments are normally stated in relation to the list price of the car. End-of-season prices are generally lower than beginning-of-season prices because of higher rebates and dealer concessions. To take this situation into account, the estimated wholesale and retail values expressed in terms of list prices are adjusted to current selling price levels. This is done by adjusting the list price of the quality change by the ratio of the list price less rebates or concessions to the list price for the automobile. I Priced as alternate to Rambler in a few cities. 2 Priced as alternate to Plymouth in a few cities. Priced as alternate to Volkswagen in a few cities. Source: U.S. Department of Labor, Bureau of Labor Statistics, Washington, D.C. EXHIBIT 5 GENERAL SERVICES ADMINISTRATION, Mr. ROBERT WAGER, Subcommittee on Executive Reorganization, DEAR MR. WAGER: In response to your telephone request of August 1, the average prices FOB factory (Detroit), which we paid for standard four-door sedans during fiscal years 1966 and 1967 were $1,383 and $1,429, respectively. The attached table shows a partial break-down of these prices and the number of sedans purchased in the respective volume procurements involved. The description used in procurement of this equipment provided for: "Sedan, 4-door, Type II of Interim Federal Specification KKK-A-00811: Item 2 of Interim Federal Standard 00122." This sedan is an intermediate class of the Ford Fairlane, Chevrolet Chevelle, Plymouth Belvedere, and Rambler Rebel type. The purchase description specified all standard equipment offered the general public and in addition, Government vehicles of this type are procured with the following items of optional equipment offered by the manufacturers: 1. Automatic transmission 2. Locking differential 3. Heavy duty battery 4. Heavy duty cooling system 5. Third rear seat belt 6. Tires conforming to Federal Standard 515 A small number of sedans are procured without all the above optional equipment, however, the number is so small that it would not materially affect the average prices shown above. If further information is requested, please let us know. Sincerely yours, LEWIS E. SPANGLER, Acting Commissioner, Federal Supply Service. COMPUTATION OF AVERAGE PRICES PAID FOR STANDARD 4-DOOR SEDANS DURING FISCAL YEARS 1966 AND [Text of letter of August 16, 1967, sent to the four major domestic automobile DEAR MR. CHAPIN: As you well know, the 1967 model year automobiles purchased by the Federal Government incorporated for the first time 17 safety standards established by the General Services Administration. During the 1965 hearings on the Federal role in traffic safety I asked officials of the General Services Administration to estimate the additional cost to the Government of these features. They replied that no cost estimates were available at that time. Accordingly, I asked them to inform the Subcommittee of the additional cost when these figures become available. The General Services Administration has now furnished me with information showing an average price differential of $46 between 1966 model year cars without this safety equipment and 1967 model year cars with these items. A copy of the report is enclosed. The General Services Administration was unable to ascertain how much of the price increase was attributable to the safety standards. All fiscal 1967 transactions relating to the purchase of passenger cars have been completed. I would appreciate your company furnishing me with information concerning that portion of the price of 1967 model cars which is attributable to the inclusion of General Services Administration required standards. Please furnish me with a price figure for all 17 standards as well as a price figure for each individual standard. Sincerely, ABRAHAM RIBICOFF. EXHIBIT 7 HON. ABRAHAM RIBICOFF, Subcommittee on Executive Reorganization, GENERAL MOTORS CORP., GENERAL MOTORS BUILDING, Detroit, Mich., September 1, 1967. DEAR SENATOR RIBICOFF: This is in reply to your letter of August 16, 1967, concerning the procurement of four-door sedans by the General Services Administration for the fiscal years 1966 and 1967. As nearly as we can ascertain from our records, the four-doors sedans for which prices are shown on your attachment are not General Motors vehicles and, therefore, we are not in a position to comment on the specific prices or the price differentials shown. We would like to point out, however, that automobiles supplied to the General Services Administration are priced on a bid basis, and the prices quoted by the automobile manufacturers are generally well below the retail or wholesale level. In regard to your question concerning the 17 General Services Administration Safety Standards, it should be noted that 14 of these items were standard equipment on General Motors 1966 models, having been added over a period of years at different times on different models. The 14 GSA Safety Standards that were met on our 1966 models are those pertaining to: Seat & Shoulder Belt Anchorages Recessed Instruments & Controls Door Hinges, Latches & Locks Standard Bumper Height Standard Gearshift Quadrant Windshield Wipers and Washers Tires and Rims Back-Up Lamps Outside Left Hand Rearview Mirror Two of the remaining three items have been incorporated as standard equipment on all General Motors 1967 models the four-way flasher, which was sold as an option on 1966 models and the dual brake system which was standard equipment on 1966 model Cadillacs but not available on other models. The third item-the emission control system including the closed crankcase vent--has been available for the California market and the General Services Administration bid specifications, and will become standard on our 1968 models. With respect to our 1967 model prices, you requested "a price figure for all 17 standards as well as a price figure for each individual standard." Our basic car prices are established, model by model, in the light of many factors but not as the sum of the "price" of the parts of each model. As a result and in view of the fact that these items have been added in different years and on different models, it is not possible to supply prices for each of the 17 standards. In addition to the GSA requirements, several other features which were sold as options on 1966 models have been incorporated as standard equipment on our 1967 models. As an illustration, the following options were added to two Chevelle models (these two models are, incidentally, of the type covered by the GSA bid referred to in your letter): Items made standard on 1967 model which were available as options on 1966 model at the list prices shown: Parking brake warning light. 230-inch 6-cylinder engine over 194-inch 6-cylinder engine. Beyond the features listed above, a number of other safety-related product improvements, not available on our 1966 models, were included as standard equipment on our 1967 models. These include the new energy-absorbing steering column which in the event of a severe front-end collision compresses at a controlled rate, passenger-guard front and rear door locks and fusible link wiring to minimize fire hazards. It can be noted from the foregoing that on the 6 cylinder model the list prices of the options added excluding the other improvements totaled $59, which exceeds the list price increase of $45 on the complete vehicle with all the improvements. On the 8 cylinder model on the other hand, the list price increase of $45 exceeded the value of the options added which, excluding the other improvements, amounted to $34. The additional features mentioned above were of course comprehended in these price adjustments. For your further information, there is attached a copy of the press release announcing the General Motors 1967 list prices. Very truly yours, J. M. ROCHE. GENERAL MOTORS CORP. Detroit, Mich., September 22, 1966. DETROIT.-General Motors announced prices on all its 1967 model passenger cars today. All 1967 cars will include as standard equipment certain items which were extra cost items in 1966 and other product improvements. The 1967 passenger car price adjustments are less than the 1966 option prices for those items made standard equipment in 1967 plus an adjustment for the cost of product improvements. Thus, the customer will benefit from the economies of mass production resulting from the increased volume of these items and product improvements. The price adjustments made on 1967 passenger cars for both the optional items and the new product improvements made standard average $53 for all passenger cars. Prices on three models remain unchanged. The price on one model is reduced as a result of the deletion of certain equipment formerly standard. The adjustments on other models range from $29 to $89. The price adjustments do not include any provision to recover increased wage and fringe benefit costs which average 6 percent above those in effect a year ago or for increased prices paid for steel, copper, and other materials. As a result, 1967 marks the ninth consecutive model year that General Motors' cars have been priced at the 1959 model levels (priced in the fall of 1958), adjusted only for equipment changes. In addition to certain former optional items now being made standard on all 1967 models, many other product improvements have been made in keeping with GM's long-standing policy of improving each year the safety, quality, performance, and attractiveness of its products as engineering knowledge and technology continue to advance. Certain former optional items are being made standard on all 1967 models, including the four-way hazard warning flasher system, non-glare breakaway interior rear view mirror, front seat belt retractors, and tire size changes to permit single inflation pressure for most normal use, as well as some convenience items. The 1966 list prices of optional equipment made standard on 1967 passenger cars range from $10 to $71 and average $37. In some instances, certain items formerly standard equipment have been deleted and prices have been reduced appropriately. In total, 29 new or improved safety items are incorporated in the 1967 model General Motors passenger cars. The new safety improvements include-the energy-absorbing steering column, the first to be announced in the industry: in the event of a severe front-end collision, the steering column compresses at a controlled rate when impact pressure is applied at either end. Also included are dual master cylinder brakes and warning light, representing a significant contribution to greater vehicle safety and reliability-one of the dual cylinders will control the front brakes and the other the rear brakes-thus two-wheel braking power will be maintained if either circuit is damaged or broken and a warning light signals failure in either system. Folding seat back latches that lock coupe |