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Requirement of Standard No. 108*
Specifies requirements for lighting equipment including the
Vehicular hazard warning signal flasher 109/110--
Specifies tire dimensions and laboratory test requirements,
defines tire load ratings, specifies labelling requirements,
and tire selection requirements. 111.
--. Specifies requirements for rearview mirrors, their mounting,
field of view, and construction, 201.
--. Specifies requirements to provide impact protection concern
ing instrument panels, seat backs, sun visors, and arm
Specifies load limit requirements for the steering control
system to provide impact protection for the driver. 204.
Specifies a limit for rearward displacement of the steering
control into the passenger compartment. 205.
Specifies requirements for glazing materials. 206_
Specifies load requirements for door latches and door hinge
Specifies requirements for seats, their attachment assem
blies and their installation. Hinged or folding seats shall
be equipped with a locking device. 208_
Establishes the number of lap belts and shoulder belts to be
Specifies physical and strength requirements for seat belt
Specifies strength requirements and locations for seat belt
Prohibits the use of wheel nuts, wheel discs, and hub caps
which incorporate winged projections, 301.-
Specifies requirements for the integrity and security of fuel
tanks, fuel tank filler pipes and fuel tank connections. Fuel loss following an impact shall not exceed the specified amount.
for hydraulic brake fluid. Brake Fluid------- Specifies physical properties and performance requirements
*This standard is not applicable to passenger cars and station wagons until Jan. 1, 1969.
It should be kept in mind that requirements of the standards cannot, in many cases, be related to items or equipment. Instead, they relate principally to features, functions and systems.
The difficulty is in assigning prices to features which cannot be purchased separately and therefore are not subject to the test of a competitive market. In nearly every case, these features are now either well integrated into existing systems or are a part of the total vehicle.
For example, Standard Number 102 requires the engine starter to be inoperative when the automatic transmission shift lever is in a driving position. Such a safeguard, along with the associated mechanical linkage, has been an integral part of General Motors automatic transmissions since 1941. This assures that a vehicle is not inadvertently set in motion when the engine is started. Assignment of a meaningful "price" to this standard would be most difficult.
The rear view mirror illustrates another type of problem. As a result of the performance requirements of Standard Number 111, some mirrors were made larger all were mounted on a breakaway base and all prior design considerations had to be reviewed to assure that the mirrors would in fact meet the require
ments. What should be "priced”--the mirror and mounting considered as a component, or, instead, the changes made from prior mirror designs so as to meet the new requirements? Questions of this type are relevant to many, if not most, of the existing standards.
Instrument panel impact performance covered by Standard Number 201 is another example. Instrument panel design is also involved in control location and identification as covered by Standard Number 101, and elements of other standards, such as 103, 104, 105, and 204. In meeting the instrument panel impact requirements, the padding, its sheet metal support and the underlying structural members all become involved. All must be developed in unison to provide the necessary energy absorption. The "sifting out" process in these and other instances would be very crude, at best. If it could be done at all, it is doubtful that a "price" of safety compliance in any meaningful sense could be calculated.
It is already evident that this continuing integration of features is affecting almost the entire vehicle. This is inherent in the dynamics of our industry. As in the past, manufacturers will find, with the passage of time, better ways of improving overall vehicle safety, including meeting and exceeding established standards and doing these more efficiently through improved design, component integration and the advance of technology. Innovation with respect to the product, its manufacture and distribution has been the cornerstone of success in the automotive industry.
Compliance with a standard also may require a number of related modifications in the structure of the vehicle. The energy-absorbing steering column provides an excellent illustration. General Motors went through on intensive development program over a six-year period that culminated in the incorporation of the energy-absorbing steering column in its 1967 model cars-one year before a safety standard related to displacement performance of the steering column became effective. The General Motors energy-absorbing steering column and the vehicle's associated front structure meet successfully the displacement requirements of this standard and, as an important added feature, absorbs some of the energy of impact of the driver. Many people, including government officials, regard this development as an accomplishment of great importance both to the industry and to the public.
Less widely understood than the mechanics of the steering column itself have been the considerations related to the whole front end of the vehicle to allow this equipment to yield maximum protection. The design and construction of different models may produce different amounts of front-end crush-and differing degrees of driver safety--in a severe impact. Many factors are involved, ranging from mounting devices to complex design factors. As a result, the whole front end must be considered. For example, the lower attachment of the steering column holds it in place, and the upper attachment keeps it from being pushed back into the driver until the critical point in a front-end collision when the driver strikes the steering wheel and causes the column to compress and release. All of these structural elements of the vehicle have little inFolvement with the compression mechanism of the column, but they have a key role in its complete performance. Thus, the entire front end of the vehicle, including the steering column and its mountings, could be involved in the calculation of a "price" related to the standard.
Because of some of these difficulties which would be encountered in achiev. ing the purpose of the proposed legislation, we were pleased to read the statement of the Administrator of the Federal Highway Administration, Mr. Lowell Bridwell, at the February 2nd hearings of the plan to establish an Office of Product Cost and Lead-Time Analysis. We believe that careful evaluation of a proposed vehicle safety standard in advance of its adoption will provide government agencies and the public as a whole with the best assurance that the benefit expected from the standard is commensurate with its probable impact on vehicle cost. General Motors will cooperate with this new Office to the full extent of its ability.
BID PROCEDURES TO FEDERAL GOVERNMENT AGENCIES
Finally, let me comment on our government bid procedures, particularly as they apply to the General Services Administration (GSA). Again, let me emphasize that General Motors expects to do business with the government. We are proud of our long history of cooperation which we consider to be good corporate citizenship as well as good business.
General Motors' long-standing policy is that bid prices on all vehicles for the GSA are established at amounts which are in all instances lower than the lowest price charged to any commercial buyer. We sell directly to the GSA rather than through dealers.
Our bid price in response to GSA vehicle procurement requests must be competitive within the stautory price limitation and does not cover our total cost for the vehicle. Specifically excluded are advertising and distribution costs, which do not apply to GSA sales, and even some of our fixed costs. As a result, a GSA bid price has no direct relationship to the wholesale price of the vehicle to our dealers or their retail transactions with their customers. It is a price available only to the United States Government under the special circumstances existing when the bid is submitted.
Since 1957, GSA purchases have been limited to an allowable price, including federal excise tax, of $1,500 on most types of passenger cars and $1,950 on station wagons. We believe that the statutory limitation on vehicle prices should be reviewed by the Congress. The statutory limitations have an obvious sig. nificance in the light of the substantial cost increases which have affected our industry in the last ten years. Since the fall of 1957, our hourly labor costs have increased 74 percent. The price of steel has gone up 14 percent. The price of nickel has gone up 27 percent. The price of zinc has gone up 35 percent, and copper has gone up 41 percent.
In addition, there have also been many improvements in product quality. Many items of new and additional equipment also have been added-including, very importantly, safety and safety-related improvements and emissions control systems required by law. As I have indicated, all of these represent new costs to the manufacturer.
During the same period, GSA bid specifications themselves have called for new and additional equipment. However, the GSA price limitation on passenger cars has remained at $1,500 since 1957. Inasmuch as the excise tax on a $1,500 car sold to a federal government agency is currently just over $100, the effective statutory maximum price to the vehicle manufacturer is really about $1,400.
This competitive bid procedure, with its statutory limitations on price, bears directly on the legislation being considered by the Subcommittee. Suppose a manufacturer arrives at a vehicle bid price of $1,450, including the excise tax, in the hope of making a sale to the government. Clearly, this specially reduced price is applicable to the entire vehicle, including all safety features. But how much of this special vehicle price is to be allocated to the safety features? And how will the price be allocated as among safety features? How is it to be allocated among safety features put on the car last year as against those this year? How as between those which have been built into the car and those added on?
It seems obvious that this kind of arbitrary prorating and “pricing” of components in an automobile purchased at the government's special price would have no meaning or relevance whatsoever to the government or the automobile buying public.
If S. 2865 is enacted, General Motors will continue to submit bids in response to all federal government procurement requests on which we can meet the vehicle specifications and price limitations. If “prices" on mandatory safety features are required, we will supply them to the best of our ability. I cannot emphasize too strongly, however, that these prices will of necessity be arbitrary and without real significance. An assigned price for safety features submitted under a statutory price ceiling can have no real meaning to the Government and would be misleading insofar as the general public is concerned.
Thank you for this opportunity to present General Motors' views on this proposed legislation.
STATEMENT BY ABJAY MILLER, VICE CHAIRMAN OF THE BOARD OF DIRECTORS,
FORD MOTOR COMPANY
I am Arjay Miller, vice chairman of the board of Ford Motor Company.
We welcome this opportunity to comment on S. 2865 and on the broader question of the impact of the Federal Motor Vehicle Safety Standards on car prices.
Let me say, first, that we recognize the importance of public understanding of the price implications of improved vehicle safety. We are, therefore, in sympathy with what appear to be the broad aims of S. 2865. As we will explain, however, we believe that the public interest in having information about the price of safety can be served more effectively by other means.
Before commenting more specifically on the bill, it might be helpful if I were to discuss the relationship between the safety standards and the price increases that have been made on our 1968 models. In developing our 1968-model pricing plans, we recognized two factors. First, it was certain that our costs would be much higher, for many reasons, than they were during the 1967-model year, and we felt, therefore, that we had to raise our prices. Second, we recognized, as always, that our prices would have to be competitive.
Because of the constraint of competition, the prices we announced last September had to be set at levels too low to cover all the cost increases known at that time. Our September price announcement made this clear and listed many developments that had contributed to higher costs. Safety improvements were mentioned, but not emphasized, and there was no mention at all of the Federal safety standards.
After Sepetember, our costs rose sharply-for steel, tires, medical and hopsital insurance, Social Security taxes and many other items. Moreover, we settled a long and very costly strike by agreeing with the UAW on a wage and benefit increase some 60% greater than we had offered before our 1968-model prices were announced.
Because of these factors, we faced a very serious profit squeeze, and it became obvious that we would have to raise our prices again, competition permitting. After our competitors raised their prices when shoulder belts became standard on January 1, we took similar action, raising our prices by the approximate amounts of our shoulder belt option prices. This increase was not large enough to offset the cost increases experienced during the last quarter of 1967, much less the shortfalls we faced in September.
It is a fact that our January 2 price increase was associated-in its timing, in its amount and in the words of your announcement—with the mandatory installation of shoulder belts under the Federal safety standards. I wish to make it entirely clear, however, that the safety standard was not the only reason we raised our prices to dealers by an average of $17 per car. We should have made all our reasons clear at the time. It is evident that our announcement did not do so. We did not then and we do not now have any desire to mislead the public, discredit the safety standards or embarrass members of the Congress or the Department of Transportation.
It seems to us that S. 2865 is not the best way to make sure that the government and the public receive meaningful information about the relationship between safety standards and car prices.
The basic problem is that the bill would require disclosure of prices for "systems or items" that, under the law, have become integral elements of a standard vehicle. These systems or items, therefore, are not offered for sale separately, and, in most cases, never have been sold separately. Many of the standards require fundamental changes in the basic design of the car. For example, Standard 203, on impact loading of steering wheels, sets the maximum loading at 2500 pounds when impacted at a relative velocity of 15 miles-per-hour. Standard 204, on steering column displacement, permits no more than five inches of displacement in a 30-mile-per-hour barrier collision. To assure that our cars would meet the technical requirements of these standards, we had to change major components such as the steering column, front struoture and body-to-frame attachments, rather than simply add a few new parts.
The design and specification changes required to conform to the standards are not optional; the customer can't decide whether or not to buy the changes required to meet Standard 204 by weighing their value to him against a "price." In the absence of such a market test, there is simply no accepted way to determine what a price ought to be. We price complete cars; we do not determine and then add up prices for all their components. If the law should require us to show "prices" for things that have no price in the usual sense, we could no doubt produce some numbers, but they would necessarily reflect our own subjective judgment.
Another problem with this bill is that, even if the prices paid by the government for safety "systems or items" could be determined in a fully rational and objective manner, those prices would not be representative of normal commercial prices. The reason is that the government does not buy motor vehicles at retail prices or even at wholesale prices; it buys at prices far below wholesale. During the 1967-model year, Ford sold 4,672 cars to the Federal government at prices averaging 43% below retail and 28% below wholesale.
In this connection, it has been suggested in these hearings that the industry is refusing to sell cars to the government, or might refuse to do so in the future if such sales should require us to specify the prices of safety features.
I can speak only for Ford, but in our case this is not true. We did withdraw from the government market briefly last fall because of severe shortages of vehicles caused by the two-month strike we suffered at that time, but we are not boycotting the government. In fact, we have submitted bids on more than 3,200 government cars since the end of the strike.
There is, however, a continuing and increasingly serious problem affecting our willingness and ability to bid on sales of cars to the Federal government. Under the present statutory price limitations, which have remained unchanged for ten years, we lose money on sales to the Federal government. As costs continue to rise, this will become a much more acute problem for us unless the limits are raised or eliminated. We hope they will be.
We think there is a better way than S. 2865 for the public to be informed on the relationship between safety and car prices. This method was used last fall. It resulted in a quantification, by an agency of the Federal government, of the value of safety changes in 1968 cars. The agency-the Bureau of Labor Statistics—has of course perforined similar analyses on cars, and on a wide range of other goods and services, for many years. Indeed, the Bureau could not fulfill its responsibility for measuring price movements without looking behind published price lists for changes in product content.
In November, the Bureau announced its evaluation of safety-related price changes on the average 1968 model car as $29.65, wholesale. On February 29, it released a wholesale value of $8.20 for shoulder belts. It seems to us that such specific and well-publicized findings serve the same purposes that S. 2865 is intended to serve, and do so in a more satisfactory manner.
The Bureau, of course, faces the same problems that the manufacturers would face in establishing prices for required systems or items of safety equipment. Because these safety systems often involve basic changes in the car and are not sold separately, any price or value assigned to them involves subjective judgment, no matter who does the assigning. The advantage the Bureau has over the manufacturers is that it is an independent statistical agency with no special interests that might tend to bend its conclusions in one direction or the other. It is difficult for me to see why the figures it produces should not be preferred over any comparable figures that might be produced by the manufacturers themselves.
Basically, the Bureau obtains, on a confidential basis from the manufacturers, information that could not be released publicly without anti-competitive consequences. The Bureau then audits and compares the data submitted by the various manufacturers. On several occasions, the Bureau has valued product improvements at prices lower than we have believed appropriate. We are not, however, challenging the usefulness of the Bureau's work on automotive prices. In my opinion, the concept of an independent governmental statistical agency passing on matters of this nature is in the public interest.
Some of the reluctance to accept the BLS approach may be based on the fact that the Bureau's index of new car prices is now lower than it was a number of years ago. It would therefore seem appropriate for me to comment briefly at this point on prices and profits in the automobile industry and in Ford Motor Company. It seems to me that the facts speak for themselves, and what they say is that competition in our industry provides effective disclipline over prices and profits.
Since 1959, retail new car prices have declined almost 20% relative to consumer prices as a whole, despite the increases on 1967 and 1968 models. The BLS index of the prices for typically-equipped new cars includes allowance for the value of product changes. This index declined by 2.4% from the introduction of 1959 models through the introduction of 1968 models, while consumer prices as a whole increased 16.9%. This relative reduction in car prices was achieved despite steady increases in costs. Our average labor costs per hour, for example, increase 53% between 1959 and 1967.
The result of competitive pressures on prices and product offerings, together with sharply rising costs, has been a reduction in our profit rates. Our dollar profits in the first half of 1967, before the strike, were off 37% from the same period of 1966, although our sales were down only 7%.
Our profits as a percent of sales declined from 81,2% in the first half of 1959 to 6.6% in the corresponding period of 1966 and to 442% in the first half of 1967.