major component is accompanied by design changes in other components which partially offset the cost of the major change. In order to provide the information needed to evaluate quality changes, the companies are asked to report in detail : 1. Significant basic changes (if any) in the physical characteritsics of each important component. 2. Related changes, i.e., other changes that had to be made in the same assembly component or other components as a result of the principal change, and why these changes had to be made. 3. Other changes not related to major component changes. Evaluating structural and engineering changes Related changes should be grouped before any decisions are made concerning quality changes. If not grouped by the companies, the Bureau staff will combine related changes insofar as knowledge permits. Associated changes and/or additional parts required to accommodate the principal change in a component assembly are considered part of the overall quality change when the improvement can only be had in combination. This procedure has two advantages over a part-by-part review. First, it provides a better basis for deciding when changes in one component are offset by changes in another. Secondly, redesigned parts necessitated by the principal change in a particular component regardless of whether a change in quality is involved may result in savings that offset part of the cost of the principal change. Estimated values for quality change Three types of data have been available to estimate the value or price for quality change-option prices, production costs adjusted to selling price levels, and replacement parts prices. 1. Option prices.-Market prices for factory installed options will be used when available to adjust for changes in accessories and equipment included as standard equipment if the option was sold on 50 percent or more of the same make and model of car in the previous year. If the option made standard is included on less than a majority of cars, producers cost (or an estimate of cost) will be used. 2. Producer costs.-Producer costs for labor and materials adjusted to selling price levels will be used to estimate values for structural and engineering changes whenever available. These values are preferred since they represent that portion of the total price of the fully assembled vehicle accounted for by the change in specifications. 3. Replacement parts prices.-Prices for replacement parts, deflated for additional costs such as storing, wrapping, shipping, and extra margin usually applied to replacement parts, will be used to estimate the value of quality change only when producer costs are not available. Costs for associated changes will be combined and the net total used as a measure of the value for quality change for an assembly component, or components when the changes are related. 4. Retail prices for quality change.-The companies generally report only wholesale values for structural and engineering changes. When retail values are not reported, BLS will continue to adjust the wholesale value to retail. This is done by adjusting wholesale values by the ratio of the factory suggested retail delivered price, including Federal tax, for the basic car with standard equipment and with a specified engine to the price paid by the dealer for the same car without Federal tax. Warranties.-No adjustments will be made for changes in warranties on 1968 models. Quality changes for which adjustment techniques or data are not available There are three situations where the guidelines still provide no acceptable basis for operation. First, the company cannot or does not furnish adequate information concerning quality changes or is unable to estimate the value of the change. If the quality change is minor, prices will be compared directly and the quality change taken as a price change. If it is a major change, one of two procedures will be used: The new model will be linked into the index by assuming no price change except for the change in dealers' concessions, or the price change will be estimated. Second, improved quality is reported at the same or lower cost or lower quality at the same or higher cost. The procedure will be to compare the prices directly since this procedure gives "credit in part" for the change in quality. Third, incoming and outgoing models are so dissimilar that they are, in effect, two different items. Adjustments to achieve comparability would be practically meaningless under currently available measurement techniques. In this situation, the new model will be linked into the index by assuming no price change except for changes in dealers' concessions, or the price change will be estimated. Mr. CHASE. This tells the company-this is with respect to the 1968 models issued August 8, 1967-it tells them what we want. We specify in some detail exactly the kind of information we want. Now in general they comply with this. There are times when we have to go back, well, many times. Senator RIBICOFF. You say in general they comply. Are there occasions when they refuse to give you information? Mr. CHASE. Yes, sir; there are Senator RIBICOFF. What do you do when they refuse to answer a specific question? PRODUCTION COST BREAKDOWN DATA NOT AVAILABLE Mr. CHASE. Well, we say in the guidelines that if for some reason they cannot supply it or are not willing to supply it, that we will estimate the value of the changes that they have made. Senator RIBICOFF. What kind of information do they usually refuse to give you? Now, that is not confidential what they refuse to give you if they have given you nothing. Mr. CHASE. It is only with respect to any specific breakdown of production costs, generally. Senator RIBICOFF. Does this include the safety features? Mr. CHASE. I think there have been some of the safety features where we could not get detailed production cost information from one or more companies; yes. Senator RIBICOFF. Were some of these safety features major in nature? INFORMATION ON SAFETY FEATURES REFUSED Mr. CHASE. Well, I think all of the-all of those that are required by the 20 Federal standards are major; yes. Senator RIBICOFF. Which features did they refuse to give you' the price on? Mr. CHASE. I do not have that information here with me, Senator. Senator RIBICOFF. Will you get that information for us as to-on which ones they refused to give you. Mr. CHASE. We might be able to specify that one or more companies did not supply information on a particular standard. Senator RIBICOFF. That is right; yes. (The information referred to follows:) EXHIBIT 18 One company refused to report the details of quality changes for 1967 models except for options made standard. The company furnished only a breakdown between body and chassis changes. The most important change in the body, except styling changes for which no adjustments are made, was a larger passenger compartment. The most important chassis change was an energy-absorbing steering column. The value of these changes was estimated by the Bureau based upon similar changes by other companies. Two companies refused to furnish producer costs of several items which had been optional, but were made standard on the 1967 models. Since these items had low rates of installation as options on the 1966 models, the Bureau did not consider option prices as valid bases for evaluation of the items. The options involved were a day/night rear view mirror, emergency warning lights, parking brake light, 2-speed wipers, retractable feature of front seat belts, and tire size changes. Estimates of producer costs were made by the Bureau for all of these items, except tires, for which differentials shown by the Federal Supply Schedule were used in calculating the adjustments for quality changes. QUALIFICATIONS OF BLS ECONOMISTS Senator RIBICOFF. You say in your statement that once you receive the data from the automobile companies your own experts evaluate that data and reach their conclusions concerning the value of the various quality changes. Now, who are your experts? What are their backgrounds? You say they are not engineers. Are they consultants, full-time employees? Mr. HENLE. Mr. Chase may want to elaborate, but there are a number of longtime employees of the Bureau in Mr. Chase's Office of Prices who have been involved in this type of work for a number of years. If you wish to have a little summary of their background we would be glad to Senator RIBICOFF. I think it would be good to put it in the record. (The information referred to follows:) EXHIBIT 19 There are three senior economists and one price economist on the BLS staff charged with responsibility for quality adjustments in new automobiles in addition to other duties. Collectively they spend an average of more than 200 mandays annually, mostly at the time of new model introduction, studying specification changes for the new models, evaluating information obtained from manufacturers, parts suppliers and other sources, and determining the recommended adjustments in automobile prices for quality changes, both improvements and deterioration. The three senior economists each has had from 20 to 25 years of experience with price measurement problems for automobiles, machinery, metals and other similar products. There is made available to these senior economists, in addition to materials supplied by automobile manufacturers, a great deal of information of an engineering nature from other sources describing changes in basic metals and in automotive and machinery products from an engineering standpoint. It is the responsibility of these senior economists to study and understand this information as it applies to an evaluation of the end-use performance of these products. One or more of the senior economists also has had experience in the measurement of productivity in various industries, including the automobile industry. This experience is essential background in evaluating labor cost data supplied by the manufacturers. All of the economists except one engaged in this work have had university training in the basic physical sciences which underlie engineering training. They also have done field work in the company of graduate engineers to examine in some detail the engineering changes that have been made in new models of automobiles. Senator RIBICOFF. But definitely they are not engineers. Mr. CHASE. They are not professional engineers-graduate engineers. QUALITY CREDITS AND DEBITS Senator RIBICOFF. I understand as part of the consumer price index you assign quality credits to improvements made in automobiles. Do you assign quality debits, too? Mr. HENLE. Yes, indeed. Senator RIBICOFF. Give us examples of improvements you credit and example of items to which you have assigned debits. Mr. HENLE. Well, Mr. Chase probably has quite a number, but the one example that sticks in my mind from discussions of this subject involves the question on a particular model or two of a taillight where one year the taillight assembly was so arranged as to provide a light from the side as well as the back. This was considered a safety advantage but the next year the taillight went right back to where it had previously been. So, in other words, what quality advantage was added the first year was substracted the second. CONSUMER'S RIGHT TO KNOW PRICE OF SAFETY ITEMS Senator RIBICOFF. Do you believe that the Government and the public are entitled to know what they pay for safety standards in automobiles? Mr. HENLE. I might have a personal opinion. Senator RIBICOFF. Personal; yes. What do you think? Mr. HENLE. Well, I would rather not, Senator. I do not think this is a matter that the Bureau should pass judgment on. Senator RIBICOFF. Not that you give, but do you think as a public official that the public should have the right to know what the price is of safety standards, a safety standard in an automobile? Mr. HENLE. I certainly think it is a reasonable issue. Senator RIBICOFF. Do you not have a personal opinion? As a bureaucrat, are you foreclosed from giving a personal opinion? Do you think your job is in jeopardy, as a human being, as a consumer? Has bureaucracy gone that far that you cannot even give a personal opinion without jeopardizing your position? Mr. HENLE. I am sure that my personal opinion would not jeopardize my position. Senator RIBICOFF. All right. Do you not have Mr. HENLE. I will be happy to give you my personal opinion. Mr. HENLE. I think it is quite a legitimate issue to raise. I think that as you perhaps have found from the discussion here today, it is not necessarily such a simple matter to be able to carry through to get the information. Senator RIBICOFF. It is not-in other words, you are saying it is a legitimate issue to raise. But every other government official who came here did not hesitate to say he thought it was in the public interest to know. You just say it is an issue, but you would not make a statement as to whether they ought to know or not. Mr. HENLE. I certainly think that it is a question that should be raised and should be considered in the form in which it is being considered. I myself would want to weigh the obvious advantage of providing this to consumers with whatever cost might be involved in obtaining the information and I would want to make certain that the information that I would be obtaining would actually reflect what I was seeking. Senator RIBICOFF. Well, let us put it this way. You as an individual, if you went out tomorrow to buy an automobile, would you personally like to know what the cost of safety standards on automobiles amounted to, what you are paying for? Would not you like to know this personally? Mr. HENLE. I certainly would and certainly if I was doing that, I would use the figures that I presented here today as a guideline in talking to the automobile salesman about any changes in price that have taken place. PRICE INFORMATION COULD BE PROVIDED Senator RIBICOFF. From your experience, do you think the automobile industry has the ability to provide the information? Mr. HENLE. Well, certainly it has ability to provide the type of information that we have been receiving. Whether this could be rearranged to fit exactly the requirements of individual safety standard items I am not qualified to say. Senator RIBICOFF. Well, how long have you been receiving information from the automobile industry as to these price indexes that you make up? Mr. CHASE. In its present form, Mr. Chairman, since 1959. Prior to that time the work that was done was confined to really quite major changes as, for example, from a six cylinder engine to an eight cylinder engine, and major chtnges in size, and so forth. But, since 1959 a great deal more detailed information has been obtained and used. Senator RIBICOFF. Were you here when Mr. Nader testified? Were you two gentlemen here? Mr. HENLE. We were not here this morning. Senator RIBICOFF. You were not here this morning. Well, from your experience, is there any question in your mind that the automobile industry knows the cost and the price of every single item that goes into their automobiles? Mr. HENLE. I think the automobile companies have a pretty effective cost accounting system. I think that could be presumed. Senator RIBICOFF. In other words, they probably have about as good a cost accounting system as any industry in America, do they not? Is there a bigger industry than the automobile industry? Mr. HENLE. In terms of statistics I am not certain. Obviously, the automobile industry is one of the biggest, if not the biggest. Senator RIBICOFF. And, there is no question in your mind that they know what everything costs them, what is a nut or cotter pin or seat or light or steering wheel or gasket. Any question in your mind about that? Mr. HENLE. Not really, Mr. Chairman. ASSEMBLY LINE COSTS MAY BE SUPPLIED Senator RIBICOFF. Senator Kennedy has a few questions that he would like me to ask you. Mr. Henle, I know the Bureau regards integrity of its statistics with great pride and in my discussions of the state of this nation's health economy and social conditions, I have used your findings repeatedly, so I know you will want to clarify just how some of these calculations are made. Now, in discussing the differences in manufacturers' price, you say some give you option selling prices, some give you dealer net prices on replacement parts, and some give you producer cost marked up to f.o.b. or retail levels. |