EXHIBIT 4 U.S. DEPARTMENT OF LABOR, OFFICE OF THE SECRETARY, 1966. HON. ABRAHAM RIBICOFF, DEAR SENATOR RIBICOFF: This is in reply to your letter of April 12 requesting information on the adjustments made by the Bureau of Labor Statistics in list prices of new cars to allow for quality changes. The figures quoted in your letter from the testimony of Mr. John S. Bugas do represent the findings of the BLS, except that a part of the price decline should be attributed to larger concessions being offered by new car dealers. After adjustments for quality differences and increased dealer concessions, the retail index of new car prices declined 3.1 percent from the 1959 average to April 1965. During the same period the all items Consumer Price Index rose 7.7 percent. The adjustment of prices for quality changes in new cars is a complex operation involving a detailed examination of all significant changes made from one model year to the next for each major make of car. I am enclosing a list of major changes considered by the Bureau of Labor Statistics for each model year from 1959 through 1966, as you requested. (Enclosure B). Much of this information is readily available to the public from the automobile manufacturers. In fact, those changes regarded as improvements are often mentioned in advertising. Obviously, this does not apply to changes involving a possible deterioration in quality, which BLS also considers insofar as possible. Enclosure C is a listing of those models considered. The value of these changes, which are used to adjust prices, are derived from data supplied by the automobile manufacturers. They include production costs for the parts or components involved, specially discounted prices of replacement parts, and markups from wholesale to retail. The methodology is described in Enclosure A. These data are supplied to the BLS on a very confidential basis by the automobile manufacturers, with the explicit understanding that they will be used for statistical purposes only and not revealed to anyone outside of the Bureau. I'm sure you can understand the relationships questions involved in maintaining this understanding. It has application not only to the automotive industry, but to all other businesses providing us with information on a confidential basis. If I can assist the Committee in any other way, I shall be happy to do so. Sincerely, W. WILLARD WIRTZ, U.S. DEPARTMENT OF LABOR, BUREAU OF LABOR STATISTICS, MAJOR CHANGES IN QUALITY OF DIFFERENT MAKES OF AUTOMOBILES CONSIDERED BY BUREAU OF LABOR STATISTICS, 1959 TO 1966 MODELS 1960 Models: Trim package made standard New type carpeting, deluxe upholstery and interior trim made standard Modified frame assembly Modified brakes Redesigned oil filter Permanent anti-freeze made standard Redesigned brakes Redesigned opening device for vent windows Redesigned door latches Redesigned suspension system Motor-operated rear window made standard Substitution of alternator for generator Increase in needed chassis lubrication interval Increase in fuel filter replacement interval Self-adjusting brakes installed Substitution of hydraulic valve lifters for mechanical Increased corrosion resistant muffler and tail pipe Reduction in capacity of battery Increase in capacity of battery Modified front end suspension Redesigned automatic choke system Simplification of voltage regulator assembly Reduction in tire size 1964 Models: Substitution of alternator for generator Reduction in warranty period on ceramic muffler and tail pipe Increased horsepower engine Decreased horsepower engine Design changes for more comfortable riding Increase in tire size Reduction in tire size Redesigned door latches Wheel covers made optional Modified seat belt attachments Modified heavy duty rear axle Seat belt attachments installed Redesigned springs Installation of front stabilizer bar Redesigned brakes Redesigned air filter Harmonic balancer provided Generator capacity increased Smaller horn size Reinforced front fender Redesigned automatic choke Redesigned propeller shaft gear Substitution of perimeter type frame for X-frame Redesigned steering gear Redesigned exhaust system Modified speedometer Molding trim package made standard Lower horsepower engine Decrease in diameter of stabilizer and in spring rate Redesigned tie rod and ball joint Nylon insulation added to secondary spark plug wires 1965 Models: Closed crankcase ventilation system made optional Increased horsepower engine Heater made standard Permanent anti-freeze made standard Backup lights made standard Rear seat foam cushions made standard Lower horsepower engine and different transmission system Positive throttle return added Wheel covers made optional Rocker panel molding made standard Padded instrument panel made standard Redesigned hood insulation fastener Redesigned strut rods Substitution of cast housing for stamping for rear axle Redesigned exhaust and tail pipe assembly Redesigned rear suspension Substitution of alternator for generator Redesigned steering linkage Redesigned hydraulic valve lifters Redesigned exhaust system Modified starter motor Redesigned windshield wipers 1966 Models: Electric clock made standard Rear seat belts made standard Backup lights made standard Manual outside mirror made standard Padded instrument panel made standard Rear seat foam cushion made standard Ash tray light and cigar lighter made standard Glove box light made standard Parking brake warning light made standard Instrument panel courtesy light made standard Heavier laminate windshield 25 percent added brake lining life Redesigned sealing and weather stripping Redesigned door handles Larger tail lamps with increased side and rear visibility Modified ventilation system Greater use of corrosion resistant materials Redesign of front suspension for broader distribution of loads Redesign to reduce drive-train vibration Redesigned piston rings Redesigned power brakes Rear-door dome light switches added Emergency flasher added Substitution of open for closed crankcase emission system Strengthened rear wheel drive attachment Redesigned rear engine mount Redesigned steering column and knuckle Redesigned hydraulic brake lines Redesigned water pump Redesigned body mountings Redesigned frame Larger bumpers Redesigned front and rear suspension systems Larger rear axle shafts Larger rear wheel bearings Increased horsepower engine Larger radiator Redesigned exhaust system Redesigned air cleaner element U.S. DEPARTMENT OF LABOR, BUREAU OF LABOR STATISTICS, WASHINGTON, D.C. BLS PROCEDURES FOR ESTIMATING THE MARKET VALUE OF A QUALITY CHANGE IN NEW AUTOMOBILES In recent years the automobile manufacturers have provided the BLS, on a strictly confidential basis, a considerable amount of information relating to changes in new model automobiles. The changes listed by each company are evaluated by the BLS to determine whether a change in physical characteristics represents an improvement or a deterioration. Guidelines which consider all the attributes of an automobile are used to determine those changes for which adjustments should be made. Reported claims of product improvement may be accepted in full, partially accepted, or rejected depending upon whether the change is considered acceptable under our criteria for judging quality. The types of changes for which price adjustments are made are: (1) adjustments for changes in physical characteristics that affect safety, performance, durability, comfort or convenience, and (2) adjustments for changes in the list of accessories and equipment included in the price of the equipped car specified for pricing. Generally, adjustments are not made for changes in appearance or style features that serve no function other than to make the car appear new and different. The Bureau uses three types of data for approximating the market value of a quality change. The type used in a particular situation depends upon the nature of the change and the method used by the company to estimate the value of the change. Established market prices for factory installed options are used to adjust for changes in accessories and equipment included in the selling price. "If a feature was offered at extra cost one year and became standard equipment the succeeding year, the procedure is to adjust the price for the previous model to include the cost of the optional feature so that the models priced are comparably equipped in both years." Two types of data are used to estimate market values for structural and engineering changes. In a particular situation, it depends upon the method used by the company to estimate the value of the change. Whenever available, producer costs for labor and materials adjusted to selling price levels are used. These values represent that portion of the total price of the fully assembled vehicle accounted for by a change in specifications. When producer costs are not available, the dealer net prices for replacement parts deflated for additional costs such as storing, wrapping, and shipping, are currently used to estimate the values. In this case, the difference in the deflated price for replacement parts that constitute the assembly or component in the old and new model is taken as the estimated value of the change. In the BLS measurement of price changes for automobiles, changes in warranties are also taken into account. Replacement or repair-of-parts warranties are considered part of the service provided to consumers as part of the terms of sale, and adjustments are made to reflect these changes in service. Costs to producers for replacement parts and repairs are used as estimates of the value for the change. With the exception of prices for optional equipment, the companies generally report only wholesale values for quality changes. When retail values are not reported, the BLS adjusts wholesale values to retail. This is done by adjusting wholesale values by the ratio of the factory suggested retail delivered price, including Federal excise 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 tax. These estimated retail values, which are expressed in terms of list prices, are then adjusted to selling price levels, i.e., list prices less concessions. This is done by adjusting the list price for the quality change by the ratio of the selling price to the list price for the automobile. There are situations also where the cost approach does not provide a satisfactory basis for valuing quality changes. This approach fails as an estimator when higher quality is reported at the same or lower cost, or when lower quality is reported at the same or higher cost. Lacking any other estimator, prices are compared directly since this procedure gives "credit in part" for the quality change. |