isolation of the total financial effect of such changes is considerably more complex. For example, when it was required to incorporate the door latches and door hinge system standard for 1968, we made concurrently a number of additional changes in the area of exterior door handles, interior handles, locks and linkages and arm rests. These changes reflected our styling and engineering preference for a coordinated solution having regard to safety performance requirements, other engineering criteria-such as effort requirements and customer convenience and aesthetic considerations. For instance, this included a design change from a conventional exterior mounted door handle to a new "flush type" door handle. We think this is very pleasing from a styling standpoint, and it also provides a safety benefit beyond Government safety standard requirements by eliminating an area of exterior protrusion, and decreased chances of door opening during rollover. Although we could have found a solution that did not involve the flush door handles-perhaps at less cost-this was our preferred overall design direction. As another point of complexity, on any safety item that is to be incorporated in a new model, or the particular portion of a model where it is already planned to make a major redesign for other reasons, the safety standard will be included in the new design development integrally with other design actions directed toward achieving the original objectives of the planned change. It is not practical to design and cost an alternative item or system as it would be if it were not necessary to adopt this standard. Thus the specific cost penalty of the safety standard would not be determinable in this frequently occurring circumstance without unwarranted expense. As an example, we designed the front end structure of our new 1968 Javelin to incorporate the required strength to meet the safety requirements of the rearward displacement of the steering column under impact. We had no reason to design and cost a front end structure that would not meet this standard, so we cannot define the increased cost involved. Furthermore, the proposed Amendment does not specify requiring definition of the price of the proposed safety standard in the first year of incorporation only, but presumably requires continuing tracking and disclosure of such item or system in succeeding years. It will be next to impossible to continue to trace safety items through the gradual design evolutions, as well as labor and material cost escalations, that cars undergo over a period of years. Whenever new designs are contemplated, the safety standard will be included as an integral part of the total design conception with optimum effort toward blending passenger comfort or convenience, improved styling, and cost reduction, as well as fulfilling the particular safety performance requirement involved. As an illustration, in 1965 a padded instrument panel was a part of an option package on our Ambassador vehicle, with reasonably determinable costs. In 1966 it became part of the vehicle specification as a safety improvement but without any significant major redesign of either the pad or the related vehicle. In 1967, however, the entire vehicle was redesigned with a completely new size, configuration and style of instrument panel designed-inter alia-to comply with safety regulations. This design is an integral whole-you cannot delete the pad, as was the case in earlier years. It would be improper to consider all of the cost increase as safety-some of the cost, for example, is attributable to the size and contour of the padding which is, at least in part, a function of styling preference. We do not know the cost of the safety protection per se, nor do we have a valid reason to develop duplicate design without the safety feature and cost this out so as to isolate the "cost of safety." 2. RELATED ADMINISTRATIVE COSTS ARE NOT WARRANTED ON GSA BIDS The second reason why we do not believe it is practical to itemize safety costs in GSA bids relates to the additional administrative costs. The procurement of passenger cars by the GSA represents a very small proportion of output, yet is executed at extremely low prices. It is not feasible for an automobile company to incur the substantial additional administrative expense that would be inherent to any attempt to develop accurately all of the above cost factors comprising the financial effect of such safety standards, even if this could be physically accomplished. The GSA has been spending the taxpapers' dollar very prudently in this area. The statutory limitations on GSA expenditures for passenger cars have been frozen during the past decade while there have been constant upward cost pressures on automobile manufacturing costs. In view of this, we believe there is need for immediate revision of these statutory limitations, augmented by a mechanism whereby the statutory limitation would be adjusted more frequently by relationship to appropriate pricing indices. As the Committee knows, American Motors was the only bidder on the major portion of the GSA procurement bid conducted in December, 1967, and our bids on different models were made at the statutory limitation ceilings. We bid at these particularly low price levels because we very much desire to continue to supply cars to our Government. Quite frankly, securing this business also assisted in ensuring employment stability in our plants in what had started out to be a slower-than-expected sales year for the automobile industry. This business which we obtained did not provide any financial contribution, even toward our fixed costs. As an economic fact of life, American Motors cannot continue to be a bidder on GSA contracts unless the GSA statutory limitations are substantially increased. This problem exists regardless of whether legislation is passed which would require us to incur the important additional costs of organizing to track the financial effect of each safety standard. We would now like to address ourselves to the broader question of attempting to be helpful to the Department of Transportation by supplying cost guidance information on proposed safety standards while these are under consideration. We believe we can and should provide substantial assistance in this respect. When proposals are under consideration on individual new safety standards that have undergone preliminary evaluation by the National Highway Safety Bureau and appear to offer distinct benefits in safety improvement, we will be available to discuss the design direction implications of performance standards, and to the limits of our ability to furnish the best possible approximation of the total cost involved. As in our own forward product development, these would be cost estimates and approximations for guidance purposes for the agency in appraising the safety merits versus the approximate cost. In some instances these cost estimates should be reasonably accurate. Where uncertainty exists as to the particular design that might accomplish the required performance levels, the estimates would necessarily be range estimates or "ball park" estimates. As in our own forward product development studies, cost estimates at this stage would not ordinarily be made with the precision that actual standard costs of a car are compiled at model introduction time. We would expect, and must have assurances, that these cost estimates would be treated in a confidential manner by the Bureau, and not divulged to our competitors or made public information. It is our belief that the Bureau plan indicated by Mr. Bridwell to form an Office of Product Cost and Lead-time Analysis is a constructive step. If this Office is staffed with professional cost estimating personnel, familiar with automotive production techniques and knowledgeable of possible facility implications of proposals, it should be able to serve these two useful purposes in relation to defining the cost of safety standards: 1. Give cost guidance to the Bureau's Motor Vehicle Safety Performance Service in its appraisal of the many safety proposals and alternatives that will come under its evaluation. 2. Provide the Bureau with the independent capability to evaluate the reasonableness of cost estimates furnished by the automobile companies. With the assistance of this group of professional cost estimating personnel, we believe the Bureau would be in position to weigh meaningfully projected safety benefits versus the approximate total costs of proposed safety standards and thereby effectively perform its basic responsibilities. The cost of the installation of specific safety items will of course vary between car lines of indivdual companies as well as between companies in many instances, for the reasons cited earlier. This product cost analysis group, utilizing its own studies plus the information furnished by the various automobile companies, could develop a composite, estimate of the representative total cost of safety standards specified by the Bureau. The development of a composite estimate avoids a confusing welter of predominantly minor differences in cost estimates for individual models, and also serves to protect the confidential cost data of the individual companies. It would appear to us to be reasonable to expect that conclusions reached by the National Highway Safety Bureau concerning the approximate composite total cost effect of new safety standards would be made available to the B.L.S. These safety cost approximations could be prime imput data to assist the B.L.S. in its development of evaluations of the pricing effect of quality changes related to the wholesale and consumer prices indices for new automobiles. This more accurate evaluation of safety costs combined with the B.L.S. development of the total cost of changes in performance, durability, and comfort should help to make increasingly valid the B.L.S. assessment of total quality changes. To summarize, we are opposed to the passage of S. 2865 requiring the disclosure of the cost of safety items in the submission of GSA bids because of the impracticability of development and the substantial administrative costs involved in attempting to comply. We are, however, willing and able to assist the Department of Transportation in the evaluation of proposed safety standards by furnishing the best estimates we can provide of the related total cost effect. These efforts would supplement the work of the cost estimating activity to be installed within the National Highway Safety Bureau. The Department of Transportation would thus have a reliable appraisal of the approximate total costs of newly required safety standards for representative or composite cars. These cost conclusions on safety standards can be made available to the Bureau of Labor Statistics as basic imput data toward their development of the total price effect of quality changes on the wholesale and retail price changes on new automobiles. Senator RIBICOFF. Naturally when the automobile companies are invited to answer questions they will have the opportunity if they choose to make any additions to their testimony. They are entirely free to do so. All members or the subcommittee will have the opportunity to read these prepared statements, and if there are no objections we will begin with the questions when we reconvene. Is this satisfactory to all the parties? Mr. MALONE. This is satisfactory and thank you for your fairness. Mr. WILLIAMS. It is satisfactory. Mr. TRAINOR. That will be satisfactory. Mr. CONNORS. That is satisfactory. Senator RIBICOFF. The meeting is adjourned subject to the call of the chairman. (Whereupon at 11:13 o'clock a.m., the subcommittee recessed subject to the call of the chair.) PRICES OF MOTOR VEHICLE SAFETY EQUIPMENT WEDNESDAY, MAY 1, 1968 U.S. SENATE, SUBCOMMITTEE ON EXECUTIVE REORGANIZATION, Washington, D.C. The subcommittee met, pursuant to call, at 10 a.m., in room 3302, New Senate Office Building, Senator Abraham Ribicoff (chairman), presiding. Present: Senators Ribicoff, Javits, Hansen, and Baker. Also present: Paul Danaceau, staff director; Robert Wager, general counsel; David Vienna, professional staff member; E. F. Behrens, minority consultant; and Pamela Gell, chief clerk. Senator RIBICOFF. The subcommittee will be in order. Today we resume hearings on S. 2865. Last month we received testimony from Government and private witnesses on this legislation. This morning we will hear from representatives of the four major domestic automobile producers. PURPOSES OF S. 2865 At the outset, let me restate the purpose of these hearings and the legislation before the subcommittee. The legislation requires manufacturers to specify in their bids to the Federal Government the price of each individual safety standard. The bill is designed to serve two main purposes: First, it will help the Congress in its job of assuring that the taxpayer's money is wisely spent, a task that is important, whether we are purchasing spacecraft or automobiles. Second, it will help shed some light on what private citizens are paying for automobile safety. We agree with a leading executive of one of the automobile companies when he said last year: We believe customers are increasingly willing to pay for safe cars, but we also believe they want good value for their money. If the price we have to charge to cover the cost of making cars goes up faster than their value, people are going to buy fewer new cars and hold onto their old cars longer. He also warned, and I quote: If anybody thinks that increasing the average age of the cars on the road is a contribution to safety, he had better think again. This is our aim today to ascertain the value the Government and the American people are receiving for their safety dollars. In the statements already filed with the subcommittee, the four companies have told us that they cannot give us in a meaningful way the information we are seeking. This morning we will try to examine into that claim. The first witness is Mr. Richard C. Gerstenberg, executive vice president of General Motors Corp. Mr. Gerstenberg, you may bring to the witness table with you any of your associates. Mr. Gerstenberg, why don't you proceed as you would like concerning your statement? STATEMENT OF RICHARD C. GERSTENBERG, EXECUTIVE VICE PRESIDENT, GENERAL MOTORS CORP., ACCOMPANIED BY ROSS L. MALONE, GENERAL COUNSEL, AND THOMAS A. MURPHY, COMPTROLLER, GENERAL MOTORS CORP. Mr. GERSTENBERG. We would like the opportunity of reading our statement, if we may, Mr. Chairman. 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 Corp. I am accompanied by Ross L. Malone, general counsel, and Thomas A. Murphy, comptroller, of General Motors Corp. 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. 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. SAFETY STANDARDS AND PRICE INCREASES 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. COST INCREASES INCURRED 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, |