MONOPOLISTIC AND UNFAIR TRADE PRACTICES MONDAY, SEPTEMBER 20, 1948 HOUSE OF REPRESENTATIVES, SUBCOMMITTEE No. 2 OF THE SELECT, COMMITTEE ON SMALL BUSINESS, Minneapolis, Minn. The subcommittee met in the United States district courtroom, Federal Courthouse Building, Minneapolis, Minn., at 9 a. m., Hon. William H. Stevenson presiding. Present: Representative William H. Stevenson. Also present: James W. Foristel, executive director, and Willis J. Ballinger, economic counsel. Mr. STEVENSON. We are very glad to be with you. We bring to you the House of Representatives of the United States; we bring to you, so to speak, the Congress to your very doorstep instead of asking you to come to Washington and putting you to that trouble and expense. This hearing will be conducted the same as hearings are conducted in our Nation's Capital. The procedure of House committees going to various cities in our land is what may be called democracy in action. It brings the representatives of the people to you. We listen to your complaints, your problems; we ask you to give us your suggestions, your ideas, and your advice as to how these problems may be remedied and how the wrongs that have crept into our economy may be corrected. The hearings we have been conducting for the past few weeks have been limited entirely to what people in those particular States considered monopolistic practices. So at this hearing today we will limit the discussion and the testimony to monopolistic tendencies or practices such as the witnesses who are here to testify have seen carried out in their particular line of business. STATEMENT OF NORMAN WHITE Mr. BALLINGER. Give your full name for the record. Mr. WHITE. Norman White. Mr. BALLINGER. Your business? Mr. WHITE. Automotive Service Industries. Mr. BALLINGER. Are you an official of the company? Mr. WHITE. Yes; secretary-treasurer. Mr. BALLINGER. You have a statement that you wish to make to the committee? Mr. WHITE. Yes, sir. Mr. BALLINGER. A complaint? Mr. WHITE. Yes. We are engaged in the business of reconditioning automotive parts. These parts consist of units such a clutch assemblies, distributors, carburetors, fuel pumps, and shock absorbers. First. We have one definite thing that constantly faces us, which I believe is of interest to this committee. That is, there are definite practices today whereby certain large manufacturers through various ways force the destruction of these rebuildable units. In other words, they are manufacturers of new units and they want the old units off the market. Mr. BALLINGER. Do these units involve materials that are critically short? Mr. WHITE. Very definitely. Mr. BALLINGER. Such as what? Mr. WHITE. Steel, cast iron, aluminum, zinc, and die-castings. Mr. BALLINGER. Is there a considerable saving to a consumer who buys a rebuilt automobile part as compared to the purchase of a new part? Mr. WHITE. Very definitely there is a saving. I have a few instances down here. I wish to make clear that these are only general figures, and, of course, I bring them out merely to show the ratio. For example, one number of a new distributor today for an automobile lists at $14.35. The same distributor reconditioned and carrying the same guaranty lists at $5.35. One of the models of a new shock absorber lists at $14.95; a reconditioned shock absorber with the same guaranty as the new one at $9.75. In carburetors the difference is approximately $20 as an average for a new one as against an average of $9.75 for a rebuilt. Mr. BALLINGER. Does a new one cost $20? Mr. WHITE. There are some that cost as high as $40 new. same carburetor would be approximately $20 reconditioned price. Mr. BALLINGER. A saving of $20? That Mr. WHITE. Approximately. Clutch assemblies, the same thing holds true. A new clutch averages about $12.50 new as against about $7 list on the rebuilt. Of course, that is probably one of the reasons why the larger manufacturers the manufacturers of new parts-are trying to keep this thing off the market. But we know definitely that they do not all disagree with the rebuilding practice. Some of the large manufacturers of which I am speaking actually operate through an authorization to certain people a rebuilding set-up. Mr. BALLINGER. What companies do that? Mr. WHITE. Some of the large car manufacturers do that. Mr. WHITE. General Motors does it in some cases. Ford does it quite extensively. That is well known. One particular manufacturer I am thinking of right now does not rebuild any units. They produce nothing but new ones, yet they require their distributors or wholesalers to return to them an old unit. When it is returned to them, it is merely destroyed, either by knocking a part of the casting off or something like that to make it unusable for rebuilding. While they claim it is not feasible to rebuild these particular units, they themselves put out a parts kit for the purpose of rebuilding these units. In other words, they either want to sell the thing new or else they want to get the parts business if it is going to be reconditioned. Mr. BALLINGER. Is it your claim and contention that the car manufacturer forces his distributors, the car dealer distributors, to turn in this part rather than giving him the freedom to purchase a rebuilt part fom a wholesaler? Mr. WHITE. That is very true. This morning I had one of our salesmen actually cite a case to me where he, in company with a jobber salesman, went to a Chevrolet dealer right here in Minnesota with the intention of buying old Chevrolet shock absorbers and Chevrolet parts. He told them he would be unable to help them inasmuch as they were required to destroy these units after the fieldman from that motor company had O. K.'d the credit of approximately $1.80 apiece for them. Then he was compelled to destroy them and he could sell them to the junkman at the junk price on the castings of so much a ton. Mr. BALLINGER. What would be the junk price? Mr. WHITE. The junk price on that would be around 28 cents. I think they allowed this man approximately $1.80 or $1.88, somewhere in there. Mr. BALLINGER. Is there any shortage of automobile parts on the market now? Mr. WHITE. Very definitely. Mr. BALLINGER. Do you have difficulty in getting parts? Mr. WHITE. Yes; certain parts, certain automobile parts are still very critical. Carburetors are critical, shock absorbers are critical, clutch assemblies are critical, distributors are critical. Mr. BALLINGER. Do you feel that the destruction of these parts so that they cannot be rebuilt is contributing to this shortage or aggravating it? Mr. WHITE. Definitely, because when they destroy one of the old units that can be rebuilt, it means a new unit must be manufactured out of materials which we know are in very short supply, whereas during the war we had legislation to prevent that, the destruction of those old units. If we had not had that we would not have been able to operate. The rebuilding industry was called upon during the war by the various Government agencies to rebuild these units to keep the passenger cars and the trucks in the country rolling. We have other cases where some of the companies, as I said before, are sanctioning certain rebuilding practices. Then they have fieldmen who tell their distributors or dealers, "you cannot buy this at this price; you must buy it from this fellow who has our blessing or sanction," or whatever yo ucall it. Definitely, in my estimation, that is coercing the dealer to buy his products. Mr. BALLINGER. Have you any suggestion as to how the situation could be relieved or improved? Mr. WHITE. Well, I think that we need some legislation that will definitely outlaw the practices of larger companies telling the smaller distributors they have to buy here; they have to do this or that. I realize that there is something of that nature on the books today, but it certainly is not enforced. We have either got to have stronger legislation with more teeth in it, or else we've got to get some enforcement of the present cease and desist order that does exist. Mr. BALLINGER. Do you think we ought to have stronger penalties in the law? Mr. WHITE. Yes; there should definitely be stronger penalties. In other words, the stronger the penalty, the more likely they are apt to think about it before they do something. Mr. BALLINGER. No further questions. Mr. STEVENSON. It is not against the law to ask a man to destroy certain used distributors or shock absorbers and not sell them, is there? Mr. WHITE. I do not understand your question. Not reselling. Mr. STEVENSON. Your complaint is that the manufacturer will not let certain dealers rebuild say a distributor or a shock absorber or a clutch when that clutch is turned in by the owner of the car for a new clutch or a new distributor. He gets a new one in its place. Mr. WHITE. He may get a new one or he may get another reconditioned one, depending upon the availability of the supply of that particular dealer. Mr. STEVENSON. I understood you to say he could not get a reconditioned one, that was your complaint, because they compelled the dealers to destroy these old ones. Mr. WHITE. It does not matter that they cannot get it. It makes the market that much shorter of the units. In other words, today we are compelled to buy from wrecking yards these old units where they buy the automobile and wreck it. Then they can do what they want to. If we were to go into a car dealer or some place like that—not necessarily just a car dealer, but any of the distributors of these large manufacturers that are operating under this practice-and offered to buy from them the old unit, whether it was to replace it with a rebuilt unit or a new unit, they would tell us, "We cannot sell it to you; we have to send it back to the factory." Now that factory does not engage in reconditioning units, so the supposition is that they would simply destroy them. It is a fact that they are taking a lot of these castings that could be put into use today at a considerable saving to the public, they are taking these castings and removing them from the market. Mr. STEVENSON. That is not illegal, is it? Mr. WHITE. It is illegal in this sense of the word-at least I would think so for them to come out and tell a man-that is, a smallbusiness man-he has to do this and he has to do that. I suppose we would have to be able to prove where they said, "If you do not do that this way, we will take away this or that." Nevertheless, that inference does exist, that idea they will operate the way they want you to, or they will lose the franchise. We go in to sell a wholesaler, and while we have a product in our line that he would like to buy, he will say, "Well, if I buy that, this fellow will come along and he will kick out the whole thing or else I got to get rid of your stuff." Mr. STEVENSON. That is a different matter. Mr. WHITE. That is illegal, in my estimation. Mr. STEVENSON. That is a different matter. What is your idea as to remedying the situation as to the replacement of these used accessories or parts? Mr. WHITE. As far as old units are concerned, it would be my idea to prevent any factory from dictating as to the disposition of those old units by their wholesalers. Once they sell the new unit, they are done. They should have no recourse upon the old unit that the man gets back. Mr. FORISTEL. In line with seeking a remedy, at some other hearings held, we have noted the point of view of some witnesses who would like to see divorcement between manufacture and distribution, especially in the basic industries. That might go as far as to include automobile parts manufacturers. Would that remedy the situation? Mr. WHITE. You mean where the actual manufacturer has nothing to say about the distribution of the material? Mr. FORISTEL. Yes. Mr. BALLINGER. In the automobile industries the manufacturers do not own their car outlets? Mr. WHITE. That is right. Mr. BALLINGER. That is different from industries that maintain and own all of their outlets. Mr. WHITE. The question I have in mind with regard to that is this: It is a well-known fact that car manufacturers only manufacture a very small portion of the parts which they use. Now, your question there brings up this point: Might a manufacturer who makes that for the car manufacturer be able to say how that thing should be distributed? In other words, then, the car manufacturer becomes the sole distributor, which would put the thing right back where we do not want it. Mr. FORISTEL. Your parts manufacturers are, I suppose, selling also to other wholesalers besides the car manufacturers? Mr. WHITE. That is right; and that is why I should say the car manufacturer should retain some voice in the distribution. Mr. FORISTEL. He does not control his outlets by ownership? Mr. BALLINGER. He controls them by means of franchise. Mr. WHITE. Yes. He can revoke this franchise, I imagine, by saying, "If you do not do this, you will lose this." Mr. BALLINGER. That is all. Mr. STEVENSON. We thank you. (Witness excused.) STATEMENT OF A. PAULIOT Mr. BALLINGER. State your name. Mr. PAULIOT. Aime Pauliot. Mr. BALLINGER. Your business? Mr. PAULIOT. Automotive wholesaler. Mr. BALLINGER. Partnership, corporation, or what? Mr. PAULIOT. All separate corporations. We have 10 stores in the State of Minnesota, all separate corporations. Mr. BALLINGER. You are the president of the company? Mr. PAULIOT. Yes, sir. Mr. BALLINGER. Do you have a complaint you wish to make to the committee about certain practices? Mr. PAULIOT. Well, a general one. We are distributors of automotive equipment, supplies, and parts. Our salesmen have an extremely difficult time in selling some materials, supplies, and accessories to some oil companies' controlled units in that our salesmen are told they are forbidden by their company to buy our merchandise, |