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COMMITTEE ON BANKING AND CURRENCY, Washington, D. C. The committee met at 10:30 a. m., Hon. Michael C. Reilly presiding.

Mr. REILLY. The committee will come to order. We will resume the hearing this morning on H. R. 5918, introduced by Mr. Kopple


Mr. Gill is the first witness this morning.

Will you give to the reporter your full name and state whom you represent?


Mr. GILL. Mr. Chairman and honorable Members of the Seventyfourth Congress, it is a privilege to appear before your committee in support of H. R. 5918, so ably introduced by Mr. Kopplemann on February 19, 1935.

So that you may be informed as to the experience and training back of the testimony I am about to present, your indulgence is asked while I recite briefly my training and experience.

Since graduating from the University of Louisiana in 1910, in the College of Engineering, I have been actively engaged in one or more branches of the automobile business, principally in the Detroit area. Since 1914 my activities have been confined to the operating end in a managerial capacity. During 1917 and 1918 I was works manager of a large aircraft plant employing 7,500. From 1918 to 1925 I was factory manager of a Detroit automobile company employing 12,500 workmen.

During the period from 1925 to 1931, I was engaged in consulting work for automobile and allied concerns for eastern capital. One of my clients, a body-building concern employing from 3 to 4 thousand workmen, was the large merchandise creditor of the AmericanAustin Car Co., Inc., of Butler, Pa. The latter finding itself in serious financial difficulties during the early months of 1931, at the request of the directors of the American-Austin and other principal creditors, I took over the management of that concern as president and general manager and a member of the board, and so forth, as of March 13, 1931.

By a series of voluntary moves on the part of the creditors, the overhanging debts were frozen so that commitment claims could be cleared by the operations of manufacturing and sale of cars.

During 1931 there were in common with general conditions at the time a lot of distressed cars in the hands of dealers throughout the country. Dealer mortality was very high; sales were slow; prices that we were able to get were considerably below cost, yet like in all circumstances of this kind, a few of the creditors would not go along, resulting in suits, attachment of funds, and so forth, so we were forced to liquidate inventories at great losses to try to save the assets as a going concern for the majority of the equity holders, pending more favorable conditions to effect a reorganization.

Even during the dark days of the spring of 1932, we made steady progress so that by the end of 1933 we had, by building 10,000 cars, satisfied approximately $1,250,000 of commitments; proved the sale of the products under the most vicious set of circumstances, only to find that credit facilities were, contrary to normal expectancy, gradually being closed to firms like ours whose working capital had been depleted by circumstances such as prevailed during the preceding years, 1930, 1931, and 1932.

The normal expectancy I have referred to, had to do with rapid and sound appearing conditions of banking situations in the Nation as a whole, but while we enjoyed a line of credit at the local bank during 1931, 1932, and 1933, this was withdrawn in the latter part of 1933, as it became evident that the restrictions placed on R. F. C. loans were such that concerns such as ours would not be able to qualify. Coupled with rising costs under N. R. A. codes, we, like a lot of small concerns, volunteered in June 1933, to meet the President's wishes in respect to minimum wages and maximum hours, and later signed the automobile code, thinking that working capital, then being rapidly depleted by rising prime costs due to the N. R. A., could be obtained from the much publicized R. F. C.

By the time we made our application, in November 1933, for a loan of $300,000 to the Cleveland office of the R. F. C. through a Pittsburgh mortgage company, our prime costs had risen 3313 percent, due to conditions and to the N. R. A. The loan was declined in January 1934 for "inadequate security."

During May 1934 we resorted to borrowing from a private banker and distributor; from the former we borrowed $20,000 and he guaranteed one of our vender accounts amounting to $28,000. We then borrowed on August 16, $35,000 from our principal distributor under a contractual arrangement for 1,000 cars; sold $10,000 in certificates of indebtedness and started operations on October 1, producing $300,000 of sales in 3 months; paid off both borrowings with a gross profit to the banker of $12,000 and $24,000 to the distributor, or at an annual interest rate of approximately 120 and 130 percent, respectively.

While we were busy paying off these loans, we learned of the liberalization of the R. F. C. and Federal Reserve loans, so we prepared a Federal Reserve application in March of 1935; we went to Cleveland preliminary to filing it, and we were told that it would cost $1,250 to make the investigation, and that it was thought the Federal Reserve Board would not consider anything but first liens as collateral; and, besides, our record of earnings would probably disqualify us, anyway.

Funds that formerly flowed through investment bankers are no longer available to us by reason of the S. E. C. and the banking laws as regards banking affiliates.

The amendments to the S. E. C. Act and the practical application of the act seem to be in the right direction, but please do not forget that the mortality of the small- and medium-sized investment bankers has been high since 1929, and the majority of those still in existence are faced with capital impairments which preclude underwriting in the real sense of the word.

Sponsorship for new issues from capitalists having ready cash or credits seems, in the face of restrictions and liabilities, involved in the new regulations, an impossibility. No matter how attractive the returns may be, they seem to prefer liquidity the same as the banks.

Now, as to relief that we might expect under H. R. 5918, if enacted.

First. It seems to be drawn to especially help those who have had no assistance from established agencies.

Second. If those appointed to administer the act are sympathetic with the underlying causes of the poor showing made during the depression years, much good should come from it.

Third. If and when the bill is enacted and we are able to obtain a loan, we can and will profitably employ a minimum of 300 men, and get by far the great majority of funds so borrowed to go into materials and labor; we can and do propose to pay back the loan on a per-car basis, much as we pay our excise taxes.

Mr. KOPPLEMANN. How many men do you employ now?

Mr. GILL. Only about 20. We are running our service department only. Operating on a short-term loan, we found it was much too expensive to do otherwise.

Mr. KOPPLEMANN. I think it would be well to advise the committee how you propose to be able to step up your employment from 20 to 300, if you get this loan.

Mr. GILL. I can cite our performance in 1933, Congressman, when we put out 4,802 cars in that year with very restricted credit facilities.

When we first started operations in 1931 this concern was in bad shape; when we took it over retail credit facilities were not available. Retail credit facilities, with the article in demand today, are available. We have proved the sale of our products; we have a considerable number of orders on our books; and we have inquiries from every State in the Union for our product, even though it is not a nationally advertised product.

The principal demand for our product is occasioned by the fact of the low operating cost, the gasoline consumption being from 45 to 50 miles per gallon.

Mr. FORD. What concern is this?

Mr. GILL. The American Austin Car Co. We have created a class of buyers not now being supplied by any other maker of motor transport.

Mr. KOPPLEMANN. In your opening statement you mentioned loans you had made at very high rates of interest, and said that you were able to pay them.

Mr. GILL. Yes, sir.

Mr. WOLCOTT. Do you make the cars yourselves?

Mr. GILL. Yes, sir; we manufacture the engine ourselves, and we assemble the bodies and chassis and paint and trim the job at Butler.

Mr. WOLCOTT. Where is your factory?

Mr. GILL. At Butler, Pa. During 1931, 1932, and 1933, during the conditions then existing, we were able to put into the community of Butler, in wages and salaries and in amounts paid for supplies, very close to $600,000.

Mr. WOLCOTT. What is the trade name of your car?

Mr. GILL. The American Austin. It is a small car patterned after the British make of car by the same name.

Mr. CROSS. What rate of interest did you say you had paid?

Mr. GILL. It amounted to 120 percent in the case of the banker and 130 percent in the case of the distributor. The distributor furnished the money and took what we would have enjoyed the use of had we had sufficient funds with which to operate.

Mr. KOPPLEMANN. In other words, the distributor was asked to make an advance on cars that would be delivered, and in order to get the distributor to advance the money you were obliged to make him such concession as would equal 130 percent on the loan?

Mr. GILL. That is right. I do not wish to mislead the committee and to say that there were not risks involved, but our working capital was depleted by that amount, or it cost us that amount, in effect. Mr. FORD. What percentage of cars do you manufacture that are used for light delivery?

Mr. GILL. About 40 percent. Unfortunately, that market has not been covered, because we were without the necessary working capital. Mr. FORD. Your car does not cost much more than a motorcycle. Mr. GILL. It costs considerably less; the first costs are less.

Mr. REILLY. Is there any other statement you desire to make to the committee?

Mr. GILL. No, sir.

Mr. REILLY. We are much obliged to you for your statement. Mr. KOPPLEMANN. Mr. Chairman, I will now ask the committee to hear a statement by Mr. Krieger.

Mr. REILLY. Will you give to the reporter your full name, your address, and state whom you represent?


Mr. KRIEGER. Mr. Chairman, my name is Marvin W. Krieger; I am manager of the Chamber of Commerce of Muskogee, Okla.

My statement will also pertain to my experience during the past 5 or 6 years in the State of Illinois.

In presenting my story, as it were, Mr. Chairman, it must necessarily be rather general, from the conversations I have had and the investigations I have made along the line of the operation of small and large business houses throughout the Mississippi Valley.

Undoubtedly, when the legislation was passed authorizing the organization of the R. F. C., an intent or purpose was set up.

As we see it, meaning the businessmen in the Mississippi Valley, the Kopplemann bill also expresses an intent to carry on that directional, so that the smaller businessmen can get the same service that the larger businessmen and larger industries are enjoying at the present time.

My story can be found in literally thousands of business houses throughout the entire Nation. I speak only generally for the Mississippi Valley. But particularly I shall refer to a specific problem, which is typical of many cases of businessmen who have talked with me about their problems.

The intent of the R. F. C. was to make it possible for industry to borrow money on long-time loans. It did not particularly name large industry, but apparently large industry has been the only organization that has found it possible to take advantage of the R. F. C. loaning facilities.

At the present time, there are throughout the entire country thousands of small businessmen fighting with their backs to the wall, who must necessarily quit business unless there is the possibility of having long-time loans extended to them.

It is purely from observation, and again coming from a discussion with businessmen, that I have found that a man making an application for a R. F. C. loan must be in such financial condition before he makes the application that it would not be necessary for him to receive the loan.

That statement has been made to me by literally a hundred or more businessmen throughout the Mississippi Valley. The statement is made by those men after they have made applications to the regional office of the R. F. C.

It seems to us that if we are really in earnest about this business of recovery, we will have to go back and see what is wrong.

At one door a department of the Government is telling the banker who goes in that he must loosen up and must extend larger and better credit, or, shall we say, more credit to the businessmen.

In another door, apparently, a Government representative who probably hails from just across the hall comes in and goes over the note case, and says, "You must take this one, and this one out ", and the condition of mind of the poor banker is one yet of fear.

So the average small businessman has as yet not been able to take advantage of the R. F. C. intent. I take it that this bill is intended to carry out that intent to make it possible for the small businessman to get a long-time loan.

If that is done, gentlemen of the committee, I believe it will be one of the greatest incentives to immediate recovery, because assistance given that great mass of businessmen now fighting throughout the country for money enough to carry on is the one thing that will help push us around the corner.

Now, I would like to mention a specific case, and I prefer not to name the man, but I will be glad to assure you that it is an exact


The representative of a business house in Miami, Okla., came to me for advice. He came to me in Oklahoma City, and we went together to the R. F. C. office to try to get some money to enable him to carry on his business. In his set-up he has machinery that is easily worth in excess of $65,000, in a printing establishment. This machinery has been recognized as being worth far in excess of that amount originally, and at the reduced prices it would be easily worth $65,000.

The business was forced into a friendly receivership on the part of four or five creditors. The business has been operated under this friendly receivership for 2 or 3 years during the depresssion.

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