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Mr. ABERSFELLER. I do not know. It would have that opportunity, I suppose, but I just do not know.
STATUTORY LIMITATIONS ON AUTO PRICES
Senator HANSEN. On page 6 of your statement you refer to statutory limitations
Mr. ABERSFELLER. Yes, sir.
Senator HANSEN (continuing). On the prices the Government pays for passenger vehicles. Would you tell this subcommittee what those price limitations are and give the statutory citation ?
Mr. ABERSFELLER. Yes, sir. The limitation for sedans is $1,500 and for station wagons is $1,950. I would like to have Mr. Mollica provide the statutory citation.
Mr. MOLLICA. The statutory citation is 31 U.S.C. 638 (c).
AVERAGE PRICES PAID BY GSA HAVE INCREASED
Senator HANSEN. You indicate on page 5 that the prices you have paid during the last 3 fiscal years have shown modest increases.
Mr. ABERSFELLER. Yes, sir.
Mr. ABERSFELLER. Yes, but before I provide them, Mr. Chairman, I would like to point out that these too are averages. No one procurement is identical with another. What we have done here is set down for the fiscal years involved the first and second volume procurements where they existed and then have extended that and averaged that. I want to classify the sedan we are talking about, which is a type 2 sedan, equal to the Ford Fairlane, the Chevelle, the Belvedere, or the American Rebel type. In the 1966 procurements, the average price was $1,383. In 1967 the average price was $1,429, and in the year just finished with one volume procurement it was $1,500. So, there has been an increase of about $117 since 1966.
Senator Hansen. If I understood you correctly, you said for the last year the average price was $1,500. Is that right!
Mr. ABERSFELLER. That is for the current last procurement we made this fiscal year.
Senator HANSEN. And that is the statutory limitation.
Mr. ABERSFELLER. That is the statutory limitation, yes, sir. Now, I have it on trucks if you
Senator HANSEN. No.
STATUTORY-PRICE LIMIT MAY BE RAISED
Senator HANSEN. If this statutory limitation remains in effect, is it true that manufacturer would be unable to charge the Government any additional amount for future safety changes ?
Mr. ABERSFELLER. Not necessarily, we may have to go to type I vehicle before we would ask the Congress for release. The type I is the compact vehicle line and we are examining this matter now. If we determine that the $1,500 limitation is not enough and we are
satisfied that it needs to be raised or if we got to the point where we got no bids, we will have to ask for an increase in the statutory limits. We last asked for an increase almost 10 years ago.
Senator HANSEN. Despite the limitations in the BLS figures showed by this morning's witnesses, is not the present procedure likely to produce more information for the consumer than S. 2865 as written?
AMENDMENT TO AUTOMOTIVE DISCLOSURE ACT
Mr. ABERSFELLER. It is my view that either that technique or the technique which we recommended in our opening statement, that is, the amendment on the automotive disclosure act, would provide more accurate information for the consumer. Even if the industry provided the information and if what they provided was accurate, the cost of the safety features would, in our view, be much less than it would be to the consumer because we are buying at wholesale prices. Therefore, someone would have to interpolate that information and interpolation is at best risky. We certainly are in complete accord with the desire to provide the consumer this information. We think it ought to be as factual as it can possibly be. And interpolation in our view, does not lend itself to accuracy. We would prefer an amendment to the disclosure act as being precise or more precise than anything else, but the other alternative using BLS would certainly have its advantage, too.
RECEIPT OF ONLY ONE BID UNUSUAL
Senator HANSEN. At the top of page 7 of your statement you said,
7 and I quote: “We must call to your attention that our most recent volume procurement of passenger vehicles, a bid was received from only one manufacturer."
Has it been your experience that all the auto manufacturers usually respond or has it occurred before that perhaps only one or two respond?
Nr. ABERSFELLER. There are generally more than one, Senator, sometimes three, sometimes four. I am only referring now to sedans.
Senator HANSEN. Yes. Mr. ABERSFELLER. And station wagons, where we have four making them. But more often than not, it is either two or three. It is very seldom only one on an advertised procurement. You understand, of course, that where we negotiate with a single manufacturer, obviously we are just looking for his product.
COLLUSIVE BIDDING NOT INDICATED
Senator HANSEN. Yes. Has there been evidence of collusion on bids to sell the Government cars?
Mr. ABERSFELLER. No, sir. Senator HANSEN. If not, can we assume that the industry is somewhat competitive?
Mr. ABERSFELLER. Is what, sir?
Senator HANSEN. Is somewhat competitive? If there has been no evidence of
Mr. ABERSFELLER. Yes.
Senator HANSEN (continuing). Of collusion, can we assume that the industry is somewhat competitive?
Mr. ABERSFELLER. I have always looked at the automotive industry as a competitive industry, yes, sir.
Senator HANSEN. As being competitive.
Senator HANSEN. Is not your main concern in buying vehicles overall value? Do you not consider maintenance, dependability, comfort, durability, as well as initial cost and safety!
Mr. ABERSFELLER. Yes, sir.
QUALITY OF CARS IS IMPROVING
Senator HANSEN. Do you have any impressions as to whether the Government is getting more or less value considered in this overall sense in buying vehicles in the past couple of years as compared to earlier vears?
Mr. ÅBERSFELLER. This is a rather subjective judgment, of course, Senator, but I would say that we were getting higher quality vehicles as the years go on. I think we are getting betters cars as the years go on. I am not saying that the improvements are worth 100 some odd dollars we paid for but my answer to your question is that I think we are getting a better car.
Senator HANSEN. Thank you very much.
Mr. Peter Henle, please.
LABOR STATISTICS, DEPARTMENT OF LABOR, ACCOMPANIED BY ARNOLD CHASE, ASSISTANT COMMISSIONER FOR PRICES AND LIVING CONDITIONS
Senator RIBICOFF. You may proceed, Mr. Henle. Mr. HENLE. Thank you very much, Mr. Chairman. In the absence of Commissioner Arthur Ross, I am very happy to be here to assist the Subcommittee. I have with me Mr. Arnold Chase, who is Assistant Commissioner for Prices and Living Conditions and he, too, is, of course, quite familiar with our work in this area.
METHODS OF COMPILING PRICE INDEXES
We would like to summarize for you our experience with the pricing of safety features on new automobiles. As you know, the Bureau deals with automobile prices and safety features only in a statistical sense in compiling our wholesale price index and the consumer price index. We have no investigative responsibility or authority.
Now, the basic pricing methods utilized in compiling the two Bureau indexes are roughly identical. Commodities or services to be priced are identified by individual specifications. Every effort is made to price the identical item each month. However, it is easy to understand why for most items in the index this is not possible. New commodities come on the market or existing items are changed. Consequently, procedures must be devised to identify these changes and to distinguish changes in price from changes in quality. By changes in quality, we mean, of course, both improvement and deterioration.
As it relates to new automobiles, quality is defined in terms of safety, performance, durability, and comfort. Therefore, if a major change is made in a safety feature, or if a new safety feature is added, the quoted price is adjusted for such a change. Minor changes which would not have a significant effect on the price indexes are not considered.
DATA ON MAJOR CHANGES SUPPLIED
Each year only a few of the multitude of changes made by the automobile manufacturers are of major significance insofar as their effect on quality or price is concerned. In order to develop comparable price data for the new and old models, the Bureau requests the automobile manufacturers to provide detailed information about each major change that has been made and its production cost (including overhead). The manufacturers comply with this request on a voluntary basis under the Bureau's customary pledge of confidentiality.
The different automobile manufacturers supply the information on different bases. In some cases, the data represent option selling prices of previous option items now made standard; in others, dealer net prices of replacement parts; and in still others, producer costs marked up to f.o.b. factory or to the retail level. The manufacturers' data are subject to careful examination. Our experts evaluate the data and reach their own conclusions concerning the value of each quality change.
MODIFICATIONS FOR SAFETY AND COMFORT INTERRELATED
Allowances are made for those items which appear to be closely related to the subject matter of the Federal sa fety standards and to be conducive to automobile safety. However, it should be noted that a design change in a new automobile to accomplish a particular purpose often necessitates other related changes. It is exceedingly difficult to classify the many changes made each year according to their particular purposes. For example, some changes may be undertaken both for sa fety and for comfort. It should be understood, therefore, that a certain degree of judgment is involved in estimating the value of those changes attributed to safety features. The results, therefore, do not necessarily reflect actual production costs for individual manufacturers or the prices at which they would be willing to sell the particular feature, if it could be sold separately.
SUMMARY EVALUATION OF CHANGES
I would like now to indicate the results of our evaluation of changes made on the 1968 models when they were introduced last fall. I am sure you recognize that we can provide information about the value of safety features or other quality changes only in summary form so that the data supplied by any individual manufacturer will not be revealed.
We have not yet completed our review of the changes made on January 1 of this year. Summary information regarding these most recent changes will be presented in our price report for January to be issued late this month.
WHOLESALE PRICE COMPARISONS
To avoid confusion, let me speak first in terms of price comparisons at the wholesale level, then proceed to translate these wholesale prices into retail prices. Manufacturers' gross prices of 1968 models of the 15 domestic makes of new cars included in the wholesa le price index averaged $87.54 or 334 percent higher when the new models were introduced last fall than prices of similar makes of 1967 models at their introduction in the fall of 1966. After careful evaluation of all the major changes in the 1968 models, the Bureau concluded that $29.65 of the increase should be attributed to safety improvements. An additional $11.20 was determined as the value of changes designed to reduce the output of air pollutants. There also were a number of other changes including some which involved making former standard equipment optional at extra cost on the 1968 models. On balance, these other changes were valued at minus $0.70. After adjustment for these three factors, the remaining $17.39 represented a price increase of 2 percent.
RETAIL PRICE INCREASES
In the consumer price index, the representation of new cars is more limited than in the wholesale price index, covering only eight makes of new cars. The weighting factors also are different. In order to place the two indexes on a comparable basis, we have made a special computation of the automobile segment of the wholesale price index utilizing price data for only the eight makes of new cars included in the consumer price index. The results given by the table I have attached to my testimony, show that manufacturers' prices of 1968 models of these eight makes averaged $85 (3.6 percent) higher than similar 1967 models. This is equivalent to an increase of $116 (3.6 percent) at retail. Net improvements in quality were valued by the Bureau at an average of about $56 (safety improvements—$42; exhaust emission control-$16; other changes--minus $2) leaving a $60 (1.8 percent) average price increase at retail.
(The table referred to follows:)
DISTRIBUTION OF PRICE CHANGES IN 1968 MODEL AUTOMOBILES
Total price change...
- 2 60
Note. --The calculations relate to the following & makes of new cars: Chevrolet Impala, Chevelle Malibu, Pontiac Catalina, Ford Galaxie 500, Mustang, Plymouth Fury !II, Rebel 770, and Volkswagen.
Source: U.S. Bureau of Labor Statistics (figures have been roundedt o nearest dollar).