CONTENTS Opening statement of the chairman___ CHRONOLOGICAL LIST OF WITNESSES White, Sam H., director and chairman of the governmental relations Slack, Lyman W., first vice president, National Automobile Dealers Winterrowd, Charles R., Vandenberg Motors, Sacramento, Calif Fette, Henry, owner of Fette Ford, Clifton, N.J. Cohen, Raphael, chairman, executive committee, Metropolitan Independent Dodge-Chrysler Dealers Association, Inc., Ridgewood, N.J... Ads from the Daily News: ADDITIONAL INFORMATION Thursday, July 25, 1963. Monday, March 23, 1964.. Articles from the Automotive News: Missouri Dealers Irate: Factory Retailing Blasted_ Three Maker Practices Fought in Virginia_- Nebraskans Deliver Ultimatum on Fleets and Factory Stores.. 51 North Carolina Dealers Hit Factory Subsidies____. 52 Articles from the Car Dealer Newsletter: Federal Judge Rules Chrysler Sales Quota "Arbitrary, Unfair, and Madsen Resigns Franchise_ Dealer Sues Chrysler Under "Dealer Day in Court" Act_. Four Ford Dealers Sue Company for $80,000,000; Ex-AM Dealer Find Warranty Cost as High as $11.08 Per Hour Bernkopf, Penno: A facsimile of a check. Profit comparison (a table) General Motors Corp.: Retail and warranty labor rates on three Dodge dealers in Bronx, N.Y. (a table). Crawford, H. E., vice president: Letter, dated September 23, 1968, 68 Statement.. Attachments to statement. 68 72 888283 (III) UNFAIR COMPETITION AND DISCRIMINATORY AUTOMOBILE MARKETING PRACTICES THURSDAY, JULY 25, 1968 U.S. SENATE, COMMITTEE ON COMMERCE, SPECIAL SUBCOMMITTEE ON AUTOMOBILE MARKETING PRACTICES, Washington, D.C. The subcommittee met at 10:30 a.m., in room 6202, New Senate Office Building, Senator A. S. Mike Monroney presiding. Present: Senators Monroney, Moss, Cotton, and Scott. Also present: John M. Burzio, staff counsel. Senator MONRONEY. The Automobile Marketing Practices Subcommittee of the Commitee on Commerce will be in session. I apologize to our witnesses and to members of the committee for being late but I attended a banquet where I made a speech and I cannot be two places at once. The Automobile Marketing Practices Subcommittee of the Committee on Commerce will begin its investigation today of serious allegations made by the Nation's automobile dealers regarding unfair and discriminatory marketing practices of automobile manufacturers. I am especially grateful to the chairman of the committee, Senator Magnuson, for reactivating this subcommittee so that another close look can be taken at the relationship between the Nation's automobile dealers and the automobile manufacturers. Briefly, for those who are not familiar with the history of this subcommittee, it was originally established to investigate the serious situation that had developed due to the imbalance of power between the manufacturers and the dealers, which had resulted in abusive and coercive marketing practices against the dealers. The subcommittee, in conjunction with the Judiciary Committee, worked on the dealers' day in court legislation, which is generally considered the Magna Carta of dealers' rights. The subcommittee was responsible for the Automobile Labeling Act, which was of great benefit to the general public by requiring a disclosure of the factory suggested price. As a result of the subcommittee's investigations, the automobile manufacturers offered contracts more favorable and fairer to automobile dealers than they had previously agreed to. Phantom freight was eliminated from the sales price of automobiles and an investigation into the connection between major automobile financing and insurance companies resulted in the refunding of over $20 million in overcharges by insurance companies. Not all of the problems have been solved, however. In recent months I have received numerous and serious allegations from automobile dealers about marketing practices engaged in by the manufacturers that are detrimental to the automobile retailing industry and indirectly to the general public. One complaint concerns the practice of manufacturers in opening and operating retail stores in competition with their existing franchise dealers in the major metropolitan areas. By providing their own direct dealerships with special services, financial aid, and other benefits not accorded to the franchise dealer, the automobile dealers allege that the company store competes unfairly with them. Another practice by the manufacturers that the subcommittee will investigate is the selling of vehicles directly to customers at lower prices than they are sold to regular franchise dealers. Volume sales to Government agencies and to fleet and leasing companies at lower prices than to franchise dealers is a practice which the committee will go into in depth to determine where the true public interest lies, as well as the private interests of the manufacturers and the dealers. The subcommittee is beginning its investigation late in this legislative session and will hear testimony from representatives of the Nation's automobile dealers. The manufacturers will be afforded an opportunity to testify, should they care to do so or should the subcommittee decide after hearing the dealers that they should appear. The testimony of the dealers will provide the basis for a staff study and investigation to develop full and complete information and an analysis of the problem for the subcommittee's consideration. This will probably occur after adjournment because of the short time available and will give us ample time to give all sides of this question so the committee in the next session will have a chance to fully analyze the data that have been collected. Senator COTTON. May I add one thing? Senator MONRONEY. Yes. Senator COTTON. I would like to say, unfortunately, I have to leave shortly for a Senate conference on appropriations. One point that I trust will be covered, because the chairman will remember I was one of the small group on this committee when we set up our automobile safety standards and fought and succeeded in having the dealers represented on the advisory council, or whatever the term is. I have had the impression that that representation by the dealers has been more in name than in fact and has not worked out as effectively as some of us had hoped when we insisted on the dealers representation. I hope some of the witnesses will cover that point and I trust I will be back. Senator MONRONEY. Thank you very much, Senator Cotton. I appreciate it so much your being here and I apologize again for being late. Our first witness today is Mr. Sam H. White, director and chairman of the governmental relations committee of the National Automobile Dealers Association. He is owner and president of the Sam White Oldsmobile Co. at Houston, Tex. Mr. White, we appreciate very much your being here. We are happy to have your statement and you may proceed as you wish. STATEMENT OF SAM H. WHITE, DIRECTOR AND CHAIRMAN OF THE GOVERNMENTAL RELATIONS COMMITTEE, NATIONAL AUTOMOBILE DEALERS ASSOCIATION Mr. WHITE. Mr. Chairman and members of this subcommittee, my name is Sam H. White. I am an Oldsmobile dealer in Houston, Tex., and I am appearing here in my capacity as the chairman of the governmental relations committee of the National Automobile Dealers Association. Our association appreciates the opportunity to present its grievances to this subcommittee today. In 1956, a subcommittee studying automobile marketing practices, chaired by you, Senator Monroney, conducted hearings which spotlighted certain unfair competitive practices by automobile manufacturers against their franchised dealers and lead to the correction of many abuses of that day. We believe these present hearings will once again show the necessity for relief against certain unfair competitive practices of automobile manufacturers in 1968-the continuation of which, we believe, threatens the economic survival of our members and the welfare of the car-buying public. The National Automobile Dealers Association is a national trade association representing some 22,000 franchised new car and truck dealers engaged in the retail sale of all makes of new cars and trucks, both domestic and foreign. The franchised automobile dealers of this country are a significant factor in the American economy. Numbering some 31,100 with an average investment of approximately $163,000 each, the total net worth of dealers is estimated to be in excess of $5 billion. These dealers employ an average of 23 individuals per dealership for a total estimated employment of over 700,000 people. The average annual payroll of these dealers exceeds $4 billion. The average dealer spends more than $12,000 per year in local advertising, and the total annual advertising budget of all dealers is nearly $400 million. The total annual dollar volume of sales of the franchised automobile dealers approaches $50 billion. These figures do not include statistics relative to truck sales. While there is some overlap, there are approximately 24,500 truck dealers holding franchises from truck manufacturers. Simply put, the franchised automobile dealers market most of the products of what is this country's most important manufacturing industry. The franchised dealer serves many vital functions in this industry. In addition to selling most of the new automobiles and trucks, these 1 dealers are responsible for a large percentage of the used vehicle sales. Most of the major automotive servicing is done by franchised dealers. In the process of rendering this service, these dealers serve as the warehouses for the replacement parts essential to keeping the motor vehicles of the Nation moving. With the advent of the 5-year or 50,000-mile warranty by the manufacturers, the responsibilities of the retail franchised dealer have been greatly increased. In other words, the franchised dealer is the essential instrument of the manufacturer in implementing the warranty system, as he always has been. With this summary of the vital role of the dealer in this industry as background, let me now point out that NADA's policy is to seek the |