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Does any manufacturer give you the unit cost of producing the item, that is, the assembly line cost?
Mr. HENLE. I am not certain of that.
Mr. CHASE. Where we get what we call producer cost marked up to f.o.b. factory, this is based on the assembly line cost to the manufacturer. Now, we do not get a breakdown in terms of materials, labor and overhead, if that is what he is interested in.
Senator RIBICOFF I assume that no one gives you cost items of safety features built in and which are not optional, such as collapsible steering wheels or wider windows, is that right?
Mr. CHASE. The sizes of windows are structural changes which generally are not optional items except as between different makes of cars in the same line. So that we get no figures on that.
ELEMENT OF JUDGEMENT IN MAKING COMPARISONS
Senator RIBICOFF. You get no figures. Do these distinctions make it difficult to calculate effectively the relative cost each manufacturer assigns to safety standards? How do you get comparisons given the disparity of these answers?
Mr. HENLE. Well, this is the tough one. You may recall in my statement I did not try to indicate that the Bureau's answers were necessarily, definitive for all time. I indicated that there is clearly an element of judgment in making this analysis. But I might say, Mr. Chairman, that this entire issue is one that has consumed intensive efforts by the Bureau staff to make sure we were doing what we thought was the right thing. But, we cannot guarantee it.
Senator RIBICOFF You tell us on page 3 that the results do not necessarily reflect actual product cost for individual manufacturers. Do you think that such data would be burdensome or impossible to get?
Mr. Hexle. Well, here again, we are not really in the best position to evaluate that. Obviously, they could furnish the type of information that they have been furnishing to us but whether this could be altered to provide this type of production cost information, I would not know.
Mr. Chase. I might add, Mr. Chairman, that in effect what we were saying there is that because of the fact that the data are not accepted as they are submitted in most cases, that after we have exercised our own judgment on these figures, they do not represent that
kind of cost.
INDEPENDENT MEANS OF OBTAINING INFORMATION
Senator RIBICOFF. Well, I would say because of the confidentiality feature the Bureau of Labor Statistics gets what anybody wants to gire rou and that you do not seem to have any independent ways of getting what you need. Would that be a correct statement ?
Mr. HENLE. I do not think I could subscribe to that that, Mr. Chairman.
Mr. RIBICOFF. Well, I mean as I listen to this very fascinating testimony, it seems you have no clout-You do not seem to have any in
dependent means. Anything they give you is confidential, so you want to make sure that you stand well with whoever gives you the information. Whatever they give, you are grateful for and you do not seem to go independently to procure what you might want or should have. I am just curious as I listen to this testimony. This is what I am struck with.
Mr. HENLE. Well, let me say, Mr. Chairman
Senator RIBICOFF. Maybe you have no alternative, I do not know, but I wonder if that is a fair statement.
Mr. HENLE. I think you are kind of weighting the odds here. Your statement neglects the fact that just because information furnished to us is confidential does not mean we have to accept it as given. We do not have to take it. We can go back to them. We do go back to them. If they do not furnish us something on a particular item, te can substitute our own judgment. You might even say we were perhaps even in as good a position if we-as if we had powers of compulsion. Once we received information under powers of compulsion, we might have to take it.
Senator RIBICOFF. Yes, but how many men or women—what is the size of your staff that spends its time gathering and analyzing statistics and information independently of that information given to you?
Mr. CHASE. Well, of course, there is not a separate group that does this. The people who work on prices of automobiles analyzing the data received from the manufacturers are the same people who check with any other possible source of information about automobile prices, and the same is true in all other fields. Actually, there has been very little information available from any other source on prices of automobiles, so we have not had to spend much time trying to analyze it.
MANUFACTURERS ARE PRIMARY SOURCE OF DATA Senator RIBICOFF. But basically, then, you rely on the manufacturer for all basic data that you need. The basic data is theirs. And if you do not get it or if it is inaccurate, there is not much you can do about it.
Mr. HENLE. Well, of course, I think that is essentially correct and anyone's figures, anyone's analysis of automobile costs would have to start with something from the automobile companies, would it not?
Senator RIBICOFF. I am asking you. I am not a statistician. You people are.
Mr. CHASE. I would like to say, Mr. Chairman, that this question of compulsory reporting has come up from time to time and there have been proposals that there ought to be legislation giving us compulsory reporting authority. We generally have not supported this legislation because we think we get better information without compulsion. And, I might cite as an example that during World War II when there were price controls we on a number of occasions got reports of prices which were over the legal ceiling. Senator RIBICOFF. I have no further questions.
The subcommittee will be in recess until further call by the Chair. Thank you very much.
(Whereupon, at 3:40 p.m., the hearing was adjourned, subject to the call of the Chair.)
PRICES OF MOTOR VEHICLE SAFETY EQUIPMENT
FRIDAY, MARCH 29, 1968
Washington, D.C. The subcommittee met, pursuant to notice, at 11.04 a.m., in room 3110, New Senate Office Building, Senator Abraham Ribicoff (chairman) presiding.
Present: Senator Ribicoff. Also present: Paul Danaceau, staff director; Robert Wager, general counsel; E. F. Behrens, minority consultant; Pamela Gell, chief clerk; and David Vienna, professionastaff member.
Senator RIBICOFF. The subcommittee will come to order. We will put into service our own stenographer since the official reporter has not yet arrived.
Unfortunately, the schedule of the subcommittee always is subject to change and often because of the business before the Senate. The Senate is currently debating and voting upon the excise tax bill. Late last night permission was denied to all Senate subcommittees to sit today because the Senate went into session at 9 a.m. Because of this some representatives of the manufacturers left the city early this morning. Since then, we did receive permission to hold this hearing. But inasmuch as all the companies are not here I felt it would be unfair to have the remaining companies present their testimony and submit to questions.
Instead, we will accept the written statements and include them in the record so they may be available to the press and the public. We will call the witnesses at another time. At this point we will place in the record the statements of Richard C. Gerstenberg, executive vice president of the General Motors Corp.; Arjay Miller, vice chairman of the Ford Motor Co.; Philip Buckminister, vice president in charge of corporate staffs of the Chrysler Corp.; John C. Secrest, vice president of finance, American Motors Corp. (The statements referred to follow :)
STATEMENT BY RICHARD C. GERSTENBERG, EXECUTIVE VICE PRESIDENT, GENERAL
MOTORS CORPORATION Mr. Chairman and Members of the Senate Subcommittee on Executive Reorganization : I am Richard C. Gerstenberg, Executive Vice President-Finance and a member of the Board of Directors and the Executive and Finance Committees of General Motors Corporation. I am accompanied by Ross L. Malone, General Counsel, and Thomas A. Murphy, Comptroller, of General Motors Corporation. I am here in
response to your invitation to General Motors to give you our views concerning S. 2865. This proposed legislation would require automobile manufacturers to supply an itemized statement of the price of each system or item of safety equipment required by federal Motor Vehicle Safety Standards which is included in the aggregate price bid for the furnishing of motor vehicles to executive agencies of the federal government.
INTRODUCTION AND SUMMARY
This bill reflects two important concerns which you have expressed, Mr. Chairman. We can understand these concerns and we welcome the opportunity to discuss them.
First, it reflects a concern that federal requirements for safety standards might be used by the automobile industry as an excuse for unjustifiable price increases. Any such increases could reduce automotive sales and delay the benefits of safety equipment to the public. Clearly, neither is in our interest. I can assure you that the prices of General Motors automobiles, responding to the rigorously competitive conditions in our industry, have not reflected unjustified increases.
This is shown by our cost and price trends in recent years. We have used the 1965 model as a base for examining these trends for our 1966, 1967 and 1968 model cars. This covers the period since the first General Services Administration safety standards were applied to our cars in the 1966 model year. Over this period, General Motors has incurred cost increases in the following four areas: (1) to meet increased payroll and material costs, (2) to improve vehicle comfort and performance, (3) to meet emission control standards and (4) to improve vehicle safety.
We have never suggested that safety did not cost money. However, because the payroll and material costs of a composite General Motors car increased during this period by an amount greater than the increase in the wholesale price of the car, I think that it is clear that General Motors has not made unjustified profits or price increases based upon the additional costs incident to safety standards.
Our financial performance for the period 1964–1967 provides further evidence of that fact. Even though our sales in 1967 increased by more than $3 billion, or 18%, in comparison with 1964, our net income declined by $108 million, or about 6%.
The second concern reflected by this bill is that the government and the automobile-buying public should be informed about the price of automobile safety. We have worked toward this objective. In our news releases announcing the 1966, 1967 and 1968 models, we focused attention on all of the improvements made in our products. Safety features, many of which are now mandatory, were prominent among these improvements.
While our December 28, 1967 news release was clear to us at the time, comments made since then indicate that it may have been misunderstood to mean that the price increase announced was due only to the new regulation requiring shoulder belts as standard equipment. Actually, we cited the fact that the price increase for a car equipped with shoulder belts was no greater than the optional price of such belts only as a measure of the increase, not as its cause. Our intention was to point out that the price of a car equipped with shoulder belts after January 1st would be the same as the price to a customer who had purchased his car with shoulder belts as optional equipment on or before December 31st. We had incurred substantially increased costs in both labor and materials since the 1968 models were introduced, wholly apart from the cost of the shoulder belts. Had costs been the only consideration, these cost increases alone under normal circumstances would have justified a price increase considerably higher than the increase actually made. I regret any confusion on this score resulting from the news release, but I want to make clear that the January 1st price adjustment only recovered a part of these additional costs,
General Motors will continue to do its best to cooperate with the GSA and all other government agencies. We want it clearly understood that we want to continue to sell vehicles to the federal government. General Motors is actively engaged in bidding for federal government business and since September 1, 1967 has responded in whole or in part to GSA requests for bids on 83 out of 115 government automotive procurement requests. It is our policy to seek business on both a negotiated and competitive bid basis whenever our vehicles meet the specifications and we can be competitive within the statutory price limi
tations. In those cases where General Motors did not submit a bid, the reason was either inability to meet product specifications notably for certain special purpose trucks or an inability to meet the statutory price limitations.
Our question regarding S. 2865 relates neither to its motivation nor its objective. Rather it is a question of whether the information which it would require would be meaningful or useful to the government or the public or whether, on the other hand, it might result in erroneous impressions.
PASSENGER CAR MARKETING AND PRICE
Our entire business rests upon a decision made by a car buyer with many choices before him. He can keep his old car. He can buy any one of the more than 370 domestically produced new cars. He can buy an imported car. He can buy a used car. This wide product choice puts each carmin relation to its price to the ultimate test of market acceptability. To state it another way, the customer makes his own judgment as to which product, in relation to its price, suits his needs and pocketbook. No automobile manufacturer can escape this market test.
There are separate prices for certain items sold as options and accessories which are marketed separately, and the customer can exercise his free choice as to whether he wishes to purchase them or not. However, it is the car itselfas an integrated, functioning unit—that constitutes the product. From the man. ufacturer's point of view, its components must be structured into the car, and this includes safety performance features required by law. The customer must also be willing to accept these as an integral part of the car and its price; otherwise he may not buy. The approximately 14,000 individual parts of the car are integral parts of the complete vehicle and have no separate price identity.
With the passage of time many components, including safety-related features, further lose their identity as they become structured into vehicle systems and designs. As you, Mr. Chairman, observed to Senator Cotton in the March, 1966, hearings before the Senate Committee on Commerce : “My feeling is that before this runs its course and we get through, that much of what will be advocated and done will go right into the structure of the car. And it will be so basic to the very structure of the automobile that it will be difficult to sift out."
This is true even now with respect to most of the current standards. If you will review the current list of safety standards, you will see how difficult such a sifting out process would be. FUVSS No.
Requirement of Standard 101...--
Requires identification of essential controls and specifies
that certain controls be located within the reach of a
driver wearing a shoulder belt. 102
Specifies the requirements for the transmission shift lever sequence, a starter interlock, and for a braking effect
of automatic transmissions. 103..
Requires that passenger cars and multipurpose passenger
vehicles be equipped with a windshield defrosting and
defogging system. 104.
Requires that windshield wiping and washing systems he
provided. Performance requirements are established for
both features. 105
Specifies requirements for the hydraulic service brake,
emergency brake, and parking brake systems. The service brake system shall meet specified performance requirements; the emergency brake system shall be designed so that a failure of a single pressure component will not result in complete loss of function of the vehicle brakes; an electrically operated emergency brake system effectiveness indicator shall be provided; and the parking
brake system shall hold the vehicle on a 30% grade. Specifies strength and performance requirements for hy
draulic brake hoses. Specifies reflecting surface requirements for certain vehicle
components in the driver's field of view,