This 42% return-in the period before our strike-was lower than in any similar period since the recession year of 1958. Further, it was far below the 7.1% average return on sales achieved during the same period by the 30 companies in the Dow-Jones industrial grouping. Our profitability was also below the average for the Dow-Jones companies when other measurements, such as return on net worth, are used. This condition is of great concern to us, and our organization is dedicated to the task of improving our profitability.

The profit squeeze in the auto industry is not confined to Ford. Each of the four domestic producers showed a substantial reduction in profits and returns during the first half of 1967. The composite rate of profit on sales, for the four companies, also was below the average rate earned by the 30 Dow-Jones industrials.

This is hardly the picture of an industry that is free to set its prices and profits as high as it wishes. The consumer's interest in getting good value for the money he spends on cars is effectively protected by the strongest kind of competition among some of the most efficient manufacturing companies here in the U.S. and abroad as well. The establishment of Federal Motor Vehicle Safety Standards in no way changes this fact. The consumer's best assurance that he is not being over-charged for product changes required by the standards lies in the competitive pressures which make the automobile one of the best buys in the American market.

On the other hand, without some knowledge of price effects, it is impossible for the Congress or the public to judge accurately whether the standards are reasonable, practicable and apropriate, as the law requires.

The Bureau of Labor Statistics is already providing the kind of information needed for this purpose. We pledge our continuing cooperation with the Bureau in its efforts to refine and improve its evaluations of product changes, including those required by the safety standards.

The BLS figures, of course, refer to safety changes that have already been made. Any price disclosures that would result from S. 2865 would have the same limitation. Of greater importance, in my opinion, is the ability of the government to evaluate future safety standards as early as possible. Once a standard is promulgated officially and made a matter of law with an established effective date, the economic consequences become locked in. If subsequent analysis shows that a standard is not effective, or that it was poorly drawn, correction is unlikely until after much unnecessary cost has been incurred. Such costs, like all others, will eventually need to be covered in the price of the product. Obviously, therefore, the best time to assess a standard is before it is promulgated officially. In order to carry out this function, the Safety Bureau needs to have a variety of information at an early stage. Judging the probable future cost implications of a proposed standard is, however, a much more complicated task than it might seem. Before reasonably firm economic data can be developed, product and facility changes necessary to meet the standard must be analyzed; design, test and development work must be completed and specifications must be established.

All of this takes time, and it may not be possible to provide more than a "best-guess" estimate until the standard is spelled out in more detail than is usually available when the Bureau requests comments on proposed standards. Even during later stages, it may be no easy matter to develop accurate advance information. Projections of piece costs for changed or added parts are uncertain enough in themselves, and, in addition, engineering, tooling, facility and equipment costs are often involved.

The total future cost of a standard may be much higher to one company than to another, or much higher at one time than at another. This depends on such factors as the manufacturer's plans for replacing existing models, and the extent to which existing components and facilities can be adapated. Probably the most useful thing the manufacturers can do is to inform the Safety Bureau when such unique factors would cause wasteful expenditures, and to suggest changes in timing or technical features to help the Bureau achieve its goals. We have done just that in a number of instances since the Safety Act was passed. We pledge our continuing determination to cooperate with the Bureau's efforts to develop reasonable, practicable and appropriate standards. To this end, we shall do our part to maintain effective working relationships and full and timely communications.

Thank you.

STATEMENT OF CHRYSLER CORP.

Mr. Chairman, my name is Philip Buckminister. I am Vice President-Corporate Staffs of Chrysler Corporation. Seated with me is Mr. Paul Heinen, Associate General Counsel of Chrysler Corporation.

This statement of Chrysler Corporation's views regarding proposed Bill S. 2865 is made in response to your letter dated January 29, 1968 to Mr. Lynn A. Townsend, Chairman of the Board, Chrysler Corporation. In your letter, you stated that "the views of officials of the automotive industry are essential to consideration of the proposed legislation." We would also like to use this opportunity to clarify our position on other related questions that some persons have raised in connection with the general subject covered by S. 2865.

As we understand S. 2865, it would require those who sell motor vehicles to the Federal Government to disclose the "unit price" of each item of motor vehicle safety equipment that has been prescribed by the Secretary of Transportation. Any executive agency of the government purchasing motor vehicles and receiving such information would be required to forward it promptly to the Administrator of the General Services Administration. The apparent purpose of such legislation would be to permit the federal government to know what it, and therefore the public, is paying for such motor vehicle safety equipment.

The pricing of most products, including the automobile, is a highly complicated and not too well understood subject. We believe it would be helpful, therefore, before commenting on the specific proposals of S. 2865, to review the logic and methods Chrysler Corporation employs in pricing its automobiles, whether to its dealers or to others such as the federal government.

When we price our products in the Fall of any given year, we take into account a number of factors. Initially, we attempt to establish what our total costs will be for the ensuing model year. These costs, in addition to direct labor and material costs, include estimated costs for administration, research, selling expense, amoritization of tools and depreciation of facilities, taxes, and all other factors that are involved in the running of our business.

Following this, we arrive at our initial tentative prices based on the value offered, including feature changes made by model. Having arrived at these tentative prices, we then review each such price in line with our appraisal of competitive conditions and the value offered by our competitors in each segment of the market. As a result of this appraisal of anticipated competitive conditions, we normally make a number of adjustments, decreasing the price of some models and increasing the price of others. If our competitors publish their new car prices after we do, we may have to make further adjustments in our prices, as we did in 1966 and 1967.

Since car prices are based on the total value offered in each car, adjusted for market conditions, and not the sum of the pieces, it is impossible, short of being highly arbitrary, to attribute any part of the total car price to any part of the car, including those parts relating to the Safety Act. Obviously, our total prices have to cover our total costs sufficiently to provide a profit return that will enable us to continue in business. It is true that cost increases will add upward pressure on prices, but prices of particular models can vary upward or downward independent of any particular item of increased cost because of competitive conditions.

Insofar as cost is concerned there is no great difficulty in determining the approximate cost of a part that is solely the result of a safety requirement, such as a rear view mirror. However, in those instances where safety requirements are only one of many considerations affecting the design of a part, it is impossible to attribute any part of the final total cost of the part to any one of the design considerations, including those identified with safety. For example, if the configuration of an instrument panel must meet certain safety requirements, along with other functional and aesthetic requirements, it is not possible to isolate meaningfully and identify any part of the resulting cost of the instrument panel with any of those requirements, including those related directly to safety.

From the foregoing we believe you will see why we cannot accurately ascribe any part of price to a particular item of a total car except in those rare circumstances, which we will deal with later, when a formerly optional feature is added as standard equipment to a car after prices are set. And even here, if a vehicle is later sold at a lesser price than the published wholesale or suggested retail price, the particular component's price is lost in the whole. For example, if we sold a vehicle to the federal government for $1500 that we might sell to a dealer for $1800, what was the "price" of the shoulder harness in that sale? It

could be argued that it was fifteen hundred eighteen hundredths (1500/1800) of the price when shoulder belts were optional equipment. The use of this approach would cause the price assigned to safety items to vary from bid to bid because each bid is different. Using another example, what is the "price" in the foregoing example of an energy-absorbing steering column, which we have never priced separately? And how much should be attributed to that part of the column that has been redesigned to meet the safety criteria?

Notwithstanding the above, however, if S. 2865 is passed into law, we would naturally expect to comply with the law. In this event, we would probably have to examine our cost for the entire vehicle involved and the cost of those particular safety items that could be identified, and develop a ratio between the two. The ratio thus developed could then be applied to the negotiated or bid price submitted for the particular vehicle and an estimated "price" developed for the safety items. Since each transaction would probably differ from its predecessors, the "price" of safety items in cars the government purchases would vary from purchase to purchase, but we see no other way of developing a "price" for safety items.

In addition, one should bear in mind that the retail price a customer pays is determined between the dealer and his customer and two identical cars may therefore be sold at quite different prices. In the end, for the reasons already stated, the customer would not know what he paid for safety items any more than he would know what he paid for the seats or the bumpers.

S. 2865 would, therefore, have the following effects:

1. The "price" disclosed for safety items would be at best an estimate and, because it could not include those items for which costs could not be isolated, it would always be an understatement.

2. The "price" disclosed for safety items would vary from bid to bid on sales to the federal government and prices developed for safety items under these circumstances would be much lower than prices developed in a similar fashion for retail sales.

3. Our competitors would possibly gain some insight into our costs, which would be to our disadvantage.

4. Retail customers of our dealers still would not know what they paid for safety items.

If the primary objective of this Committee is to keep informed as to what effect safety requirements have on car prices, it would appear from our knowledge and experience that development of this kind of information falls within the basic mission of the Bureau of Labor Statistics. It has the best means of doing this and has done it already for 1967 and 1968 model cars. For instance, the BLS has concluded, after considerable analysis, that of the average car wholesale price increase of about $87 in September of 1967, $29 can be identified with safety requirements and $11 with the exhaust emission control requirements, leaving a balance of $47 to cover additional value added and increased costs of labor and material.

By BLS developing and publishing annually a single industry average value for safety requirements the following advantages would result:

1. The best, most consistent and representative value would be assured.

2. The public would be adequately informed and more likely to remember the value involved.

3. No additional Congressional action or administrative cost would be required to serve the public interest in this regard.

4. The confidential nature of industry data would be adequately guarded, as it is now.

5. Unnecessary paperwork, extensive calculations and record-keeping that other proposals would require would be avoided.

We can attest to the fact that BLS does not accept figures from the industry on any changes in value and economics without extensive analysis and challenge. This is confirmed in the Bureau's February 2nd testimony in these hearings in which the BLS stated that the information furnished by the automobile industry made up only 5%-10% of the information it used in arriving at the value of changes that have taken place on car pricing. While we do not hesitate to admit that in some cases we strongly disagree with the position that BLS takes on the value of changes, and this ranges from full acceptance to complete exclusion of many values we submit, we cannot in good conscience fault its intentions and great effort to arrive at the best, most consistent and representative values for the changes that take place in cars from year to year. As a result

of the general high regard for the quality of its work, the final product-the BLS Consumer Price Index-has become one of the key points of reference for the government, the public, and industry. It seems to us, therefore, that the public and Congress already have the best tool to appraise price changes attributable to safety and that S. 2865 is unnecessary.

We would like at this point to touch on three subjects which have come up at these and other hearings, and which have received a great deal of attention in the news media.

The first is the often repeated statement that the automobile industry in its public statements has singled out safety for most of the price increase it found necessary to make on 1968 model cars. In answer to this charge, we would like to read a direct quotation from Chrysler Corporation's press release of Monday, September 11, 1967:

"In predicting a price increase to a national press audience earlier this month, Chrysler Corporation board chairman Lynn Townsend said, 'After applying all the operating improvements and cost-cutting methods we know, we have fallen short of offsetting the increased cost of doing business by a substantial margin.' "He cited increased costs of materials and labor and the added cost of safety equipment and exhaust emission control systems required by new federal laws." (Emphasis added)

As the Committee can see, the safety items were only one of a number of items which were mentioned in this statement as increasing our costs and forcing Chrysler to increase prices on our 1968 model cars.

In this connection, statements have been made that we spend millions for new styling, new engines and other items necessary to maintain our competitive position without raising prices, but do raise prices when safety items are added. What is overlooked is that the annual cost of competitive styling, competitive engines, and many other continuing competitive product improvements has already been figured into the cost of our cars year after year. Many safety items, however, are entirely new features, not previously included in the cost of a car, and therefore are sudden and out of the ordinary increases in its cost. This is no different than if we should add an entirely new feature that would increase the total cost of the car, and probably the price.

The second item we would like to touch on is the criticism that has been leveled at the industry in connection with the price rise associated with making shoulder harnesses standard equipment. Chrysler Corporation increased its average car wholesale prices $18.81, the same amount previously charged for this item as an option. Comment has been made before this Committee that the cost to us of adding shoulder harnesses might have been as low as $1.50 to $2.00, and that therefore we are making an unreasonable profit on this item. However, these comments have been based on a comparison of what was thought to be the manufacturer's purchase cost of the bare belting with our suggested retail price of $25 not only of the belting but also of installation costs and some rather substantial redesign, re-engineering, and retooling costs for the roof rail of our automobiles together with anchorage points, color keying for the belts, extensive testing procedures and many other items, to which of course the dealer's margin must be added.

The redesign included modifications and improvements to lap belt systems as well as shoulder harness. The major feature of the system is storage brackets for the buckles of seat belts for unused seating positions. When properly used, these brackets minimize the danger of injury to passengers from flying buckles in case of accident. An added benefit of this system is that it improves the appearance and stowage of previous seat belt systems and should therefore assist in overcoming consumer objections and lead to increased use of all the belts by automobile drivers and passengers.

If you deduct the dealer mark-up from the $25.00 retail price, the wholesale price, as stated above, is $18.81. If you then deduct all of our direct labor and material costs plus research, engineering, styling, tooling, testing and other costs for the proper installation of the harness, the profit that Chrysler Corporation is making on shoulder harnesses is very modest indeed.

Finally, we would like to touch on the inference that the automobile industry is "gouging" the public on safety items and that as a result it is making unreasonable profits. Speaking for Chrysler Corporation, I can say that our net profit as a percent of sales in 1967 came to approximately 3.2 percent. This was a decline from the 3.4 percent ratio we achieved in 1966. In other words, we made a profit of about 3 cents for each dollar of sales, which would hardly

suggest that we are “gouging” the public in any respect. By way of comparison, FTC-SEC figures for 9 months of 1967, the most recent figures available, indicate a 4.9 percent return on sales for all manufacturing. As a further comparison we paid 87 cents for labor and material and 5 cents in taxes for each dollar of sales.

In conclusion, while we believe that the objectives which S. 2865 is designed to accomplish are already being better served and accomplished by the BLS, nevertheless, if the Congress should find that S. 2865 is desirable legislation, we would suggest two amendments be made. The first would be to amend the bill to permit estimated price figures, since that would be the only way in which we could respond. The second would be that the individual figures of individual companies be kept secret by the Administrator and that only such figures be publicly released as an industry average as would not enable a company to ascertain a competitor's costs.

We appreciate the opportunity to appear today and explain our views with respect to this proposed legislation.

TESTIMONY OF JOHN C. SECREST, VICE PRESIDENT (FINANCE) OF AMERICAN MOTORS CORP., CONCERNING S. 2865

Mr. Chairman, my name is John Secrest and I am the financial vice president of American Motors Corporation, on whose behalf I appear. We appreciate the opportunity to express our views on the proposed bill and related implications. At the outset, we want to emphasize that American Motors has been giving and will continue to give its full support to the Government toward an effective and orderly execution of the safety improvement program. We are in accord with the general objectives of this program. We believe that with appropriate coordination and cooperation between the automobile companies and the National Highway Safety Bureau a program can be evolved that provides maximum safety performance benefits in relation to need, design practicality, and cost of implementation.

First, we would like to discuss the specific proposal for disclosure in bids to Government agencies of the price of each safety item or system required in motor vehicles to comply with the safety standards set by the Secretary of Transportation. Secondly, we would like to give our views on the broader question of providing cost information that would be helpful to the Department of Transportation in evaluating the safety benefits of proposed safety standards versus the related total cost of the initiation of these standards.

There are two principal reasons why we do not believe it is practical to itemize safety costs on GSA bids:

1. IMPRACTICALITY OF DEVELOPMENT

The first reason relates to the complexity of the problem and the impracticality of continued development of meaningful and authentic data. It is assumed that the proposed required evaluation of the financial effect of the incorporation of Government safety standards would necessarily have to be developed in a precise manner, with extensive detailed support that is sufficiently documented that it might be subject to certification by the manufacturers and/or audit by Government personnel as to both the method of development and content. There are four major areas of cost involved in meeting safety standard requirements. These are the special engineering and product development costs incurred, any necessary tooling costs, costs of purchased or manufactured parts affected, and the related assembly plant costs. For individual safety standards, there are wide differences in the degree of difficulty in estimating these elements of costs, which together represent the total cost of incorporating new safety standards.

On certain product changes these costs are readily determinable within reasonable limits of accuracy. As for example, when seat belts or head rests, which were previously engineered and released as options, are made standard equipment. The cost in such instances is essentially the total product cost of the option, less any economies of scale in larger volume procurement or assembly.

For other safety standards, such as the control of the rearward displacement of the steering control system under impact, safety padding and locking mechanisms for seat back assemblies, and the door latches and door hinge system, the