Mr. BREECH. Yes; if you want to put in nontire, but Goodyear and some of those other fellows are big competitors in the business. Why exclude them?

Mr. TOLAND. Let me take that in time. Isn't it a fact that in 1938 the Hayes Co. thought it was best that they get together with you and work out a scheme to keep the tire companies out of the wheel business?

Mr. BREECH. I know nothing about it.

Mr. TOLAND. I show you a photostat copy of a letter from the Hayes Industries, Inc., to Mr. Cautley, dated October 14, 1938, and ask you if you have any knowledge of it or if it was ever brought to your attention?

Mr. BREECH. No knowledge of it.

Mr. TOLAND. I offer it in evidence.

(The letter was received in evidence, marked "Exhibit No. 161" and is printed in the appendix of this volume.)

Mr. TOLAND. I assume you haven't seen this letter either. This communication, dated October 24, 1938, signed by Cautley, to the Hayes Industries, Inc., is in answer to the previous exhibit. Cautley

states:

So far as keeping the tire companies out of the business, I am just afraid we are not going to be able to do it, except by taking advantage of greater knowledge of manufacturing and whipping them in that way.

As I have told you, we have had a cross license agreement with Goodyear which has kept them out of the streamline, smooth contour and high pressure wheels so far. They are now showing signs of restiveness and I do not believe we can prevent them from going further into this business. I am, therefore, negotiating with them now to see just how little it will be necessary to give them. I had some concrete ideas but have none, aside from the fact I do know the Air Corps is not in the least anxious to have more people in the business.

I wish

I would be glad to have you and any other of your cohorts drop in on me in the near future to discuss this matter, or if this were impossible I might be able to hop up to Jackson for a day.

I offer that in evidence.

(The letter was received in evidence, marked "Exhibit No. 162" and is printed in its entirety in the appendix of this volume.)

Mr. TOLAND. Then Mr. Cautley again writes on November 3, 1938, confidential to Mr. Ferguson. Now will you state for the record who Mr. Ferguson is?

Mr. BREECH. General manager, Bendix Products Division, South Bend.

Mr. TOLAND. He says:

My visit to Jackson yesterday was to cover with Hayes wheel organization on the matter of increasing and irresponsible competition on the part of the tire companies

* *

I believe this is a matter which calls for concerted action and all the assistance we can get. I believe the first thing we should do is to have a further conference with the Hayes organization. We know the Air Corps does not desire more than two sources of supply and the business will not allow of more than two major sources if development is to be continued. Furthermore, the Air Corps is much opposed to the tire companies going into the wheel business. We have every reason, therefore, to see what can be done not only for our own benefit, but for that of our military and naval customers.

Mr. Hayes and his associates have expressed their entire willingness to come here almost any Saturday we desire and I am wondering if it would not be possible for us to set Saturday, November 26, as a date. * * I regard the matter as quite urgent

*

*

I am sending a copy of this to Mr. Hayes with the request that he read and destroy and would like you to do the same, as I am making no other copies. The last sentence he underscored.

Mr. BREECH. What is the date, sir?

Mr. TOLAND. November 3, 1938. I offer that in evidence.

(The letter was received in evidence, marked "Exhibit No. 163" and is printed in its entirety in the appendix of this volume.)

Mr. TOLAND. Was that ever brought to the attention of any of you gentlemen?

Mr. BREECH. No.

Mr. TOLAND. Then he writes another confidential communication to Mr. Ferguson on November 3, 1938, and I will quote a part of it. In discussing Hayes' prices

Hayes is using a 200 percent overhead on their labor and a 10 percent administrative charge on labor, material, and overhead to arrive at cost. Their selling margin is obviously what the traffic will bear, except they are being very careful not to put in too large a margin on Air Corps orders. However, their Air Corps prices unless under special circumstances, are more than their civilian prices, which is sound.

Was that ever brought to any of you gentlemen's attention?

Mr. BREECH. Very interesting in view of the fact they did nothing but lose millions of dollars in that department.

The CHAIRMAN. Also very interesting in view of the fact that this committee has already gone on record not to make any recommendation to Congress for profit limitation.

(The letter was received in evidence, marked "Exhibit No. 164" and is printed in its entirety in the appendix of this volume.)

Mr. TOLAND. We are coming to that. I show you a letter dated May 23, 1939. I will read a part of it:

We recently sold 580 flares to the French Government at $60 each, whereas we paid $40, equaling 50 percent net profit on our cost. On this 1 order we received a gross profit of 17,400 for handling the paper work of accepting an order and passing it on to the manufacturer for direct shipment.

These flares are manufactured by the N. G. Fulgent Co. under patents controlled by the Pioneer instrument division of Bendix, which handles the selling and passing of orders on to the manufacturer for direct shipment.

(The letter was received in evidence, marked "Exhibit No. 165" and is printed in its entirety in the appendix of this volume.)

Mr. TOLAND. Now, did the Eclipse Machine Division get any Government contracts?

Mr. BREECH. The Eclipse Machine Division builds 20 mm. guns and time fuzes.

Mr. TOLAND. In that connection, I show you a memorandum as to what you were to do with the Government in the event you got the contract, and ask you if you have seen it, if you approve it or reject it? (The memorandum was received in evidence, marked "Exhibit No. 166" and is printed in the appendix of this volume.)

Now, Mr. Chairman, we will be shortly down to the Vinson-Trammell Act.

Mr. BREECH. Mr. Counsel, may I make a statement, since you offer this on the Eclipse Machine Division?

Mr. TOLAND. Right.

- Mr. BREECH. Mr. Chairman, as I told you I became presidentThe CHAIRMAN (interposing). Is that memorandum something that should not be read?

Mr. BREECH. I think not. Some of the information I have or what I was about to give you was some prices on 20-mm. guns. Maybe I had better not do that.

Mr. TOLAND. We would rather not have that.

Mr. BREECH. At any rate

The CHAIRMAN (interposing). Profits are not of much concern up here right now.

Mr. TOLAND. They still are to me, Mr. Chairman.

Mr. BREECH. Since this was put in and since the reference was made apparently by Mr. Cautley at South Bend, Bendix Products, I would like to make the statement that I have been quite familiar with the general policies of this company for some time. They saw fit to ask me to become president on February 24, and someone else saw fit to consent to it, and I became their president. I go back to November 7 in Philadelphia when they had a meeting of the executive and finance committees, and at that meeting I brought up for discussion the matter of prices and I said, "Now you fellows have been falling over yourself here doing just one job, getting production, and you are getting production according to demands, then, of the O. P. M. You have done a magnificent job. You have done a job I didn't think could be done," because at one time when I presented some statistics to the president of General Motors Corporation on what the Bendix job was to be done, in front of 200 people who happened to be at a dinner that night, he said, "They can't do it; I know they can't do it, so why show us those figures on what their job is? They can't do it."

Well, they did do it and I would like to point out to you that, going back a little bit, in 1938 the total dollar sales of the Bendix Aviation Corporation were $30,700,000. In 1939 they were $40,000,000, and then comes an effort to get up production for the Government, the O. P. M., Mr. Knudsen and his men putting on a lot of pressure. I was quite familiar with that pressure. In 1940 the sales jumped to $69,800,000. Now back in prior years about 50 percent of those sales, or more, were automotive, 50 to 60 percent. In 1940 the swing goes the other way; they become war products, aviation mostly.

In 1941 the calendar year-the company has a fiscal year ending September 30-for the calendar year 1941 they got the production up to $202,000,000, representing practically all defense products at that time, now war products. And for 1942, calendar year, the schedules are for $606,000,000 production.

I only give you that to show you the fact that men like Marcus and Lansing and Ferguson and those fellows have had to work around the clock, how they have located these factories, trained employees, and have done things; they have done much better, in my opinion, than many other companies have done. For example in employees, they started off in 1938 with 7,400; at the present time they have 47,800, but that doesn't represent the effort. They are going to have 53,600 by the end of this year.

Now that doesn't represent the sole effort because being a member of the board I have had to see the subcontracts that they have made. I think you would be interested in knowing that with the stress put

on subcontracting by the O. P. M. rather than spending the Government's money to get more plants, more machinery and start anew, they located subcontractors and they had to train those subcontractors; they furnished them machinery that was needed. True they got that machinery mostly from the Defense Plant Corporation that they furnished subcontractors, but they had to train those subcontractors, give them their drawings, give them our operation sheets so that probably represents-and you would be interested in knowing thatthe average is 35 percent subcontracted as the low point of any plant (or any one of the main divisions) up to 75 percent in some of the divisions subcontracting.

Now that represents hundreds of subcontractors, all the way from a little machine shop in a garage to the biggest producers of automobiles and the biggest producers of office equipment, typewriters, and so forth. I only offer that to tell you that I personally have a knowledge of what the tremendous task was before them.

Now when you prepare a plant, get a plant ready for production, there is a tremendous loss involved before anything is coming back. Just to give you a good example, the other day we had one submitted to the board of directors where it was going to cost $600,000 just to get an old plant in shape for further expansion because this expansion hasn't started yet. They still have to do it, so these boys-I want to say for them and say in all sincerity and honesty-these executives just had one thing in mind, "we have to meet this war program," and they have done it.

Now I come into the picture. Last November I gave them a talk and a bawling out. "You have to slow down and you have to investigate your costs now. You are working on old prices; you are getting increased volume; costs are coming down; you have to pass that benefit along to the Government."

Mr. TOLAND. May I interrupt you there?

Mr. BREECH. Yes, sir.

Mr. TOLAND. Have you had your company at any time renegotiate or attempt to renegotiate any contracts with any of the Government representatives?

Mr. BREECH. Mr. Counsel, you ask me a very important question at a very opportune time. Due to the fact that I had these fellows, since November, working on this, when I became president, I said, "Boys, you know the first job you have to do for me, don't you?" They said, "What?"

I said, "We have to get this profit thing right. We don't want to be criticized for making too much profit on Government business. Unless industry takes the lead, then industry has itself to blame." I believe that. I was brought up in that school. And I would like to tell you that had it not been for the fact, Mr. Counsel, that I had been subpenaed to appear down here, the news would have been released as to what we had done. I didn't think that was doing the right thing.

Mr. TOLAND. I wish you would release it right now.

Mr. BREECH. So I would like to tell you that prior to this study's being made, but subsequent to the November 7 meeting, that new contracts were negotiated putting into effect that policy with a reduction of $16,890,000 on the prices of the quantities issued.

The CHAIRMAN. That was after your questionnaire was sent in?

Mr. BREECH. That was after November 7.

The CHAIRMAN. That was subsequent to the questionnaire you answered.

Mr. BREECH. I don't know.

Mr. TOLAND. We have the profits as reflected by the questionnaire. Mr. BREECH. I am the one that brought it up. I never knew they filed a questionnaire, I will have to say that, Mr. Chairman.

During the past month, and mostly since a board of directors meeting which I advised you I had on April 16, the various divisions have written letters (I have the letters here), on the original $16,900,000. These letters were written to all departments-Navy, Army, and all Departments concerned; and by the way it is mostly Army.

Mr. TOLAND. Would you put those in the record?

Mr. BREECH. I would be glad to put them in the record.

(The letters were received in evidence, marked "Exhibit No. 167" and are filed with the committee.)

Mr. BREECH. The total reduction since that date, most all of which has been put into effect recently, aggregates $73,354,000, and we are not through. We have got products yet to study. We have men studying them, but of course the men that have to make the final decision are the fellows that have to build these plants. We have one going up for aircraft carburetors, fuel injection carburetors. (A file of contract reductions and price adjustments was received in evidence, marked "Exhibit No. 168" and is filed with the committee.) The CHAIRMAN. So you are advising the committee here today that there has been a renegotiation of some $73,000,000, is that it?

Mr. BREECH. Mr. Chairman, they have not been renegotiated. We wrote letters to them and said, "Effective April 15"-or April 1, and so forth "your price is reduced so much on outstanding contracts, and the aggregate is so much money.

The CHAIRMAN. Was that your reduction in price?

Mr. BREECH. That is our reduction in price. We haven't called on them. We haven't talked to them. Why call on them? I said, "Write them a letter and give them the reduction."

The CHAIRMAN. Over in Jerusalem they have a famous wall known as the Wailing Wall. That witness table is now going to be known as the "mourners' bench."

Mr. BREECH. Having been raised an Ozark Baptist, I appreciate that.

Mr. TOLAND. I don't want to shut you off, Mr. Breech

Mr. BREECH (interposing). I want to make one more point. I don't want to detain you, but I don't often have the opportunity to appear like this. I do want to point out one of the problems that industry has had, not just the Bendix Corporation, so I am doing this, so to speak, for industry. I want to point out the problems of starting a new plant, as I mentioned-let's take, for example, the Wayne plant at Wayne, Mich. Now that is an auxiliary to the South Bend plant, building fuel-injection carburetors and the famous landing gear you have referred to, this oleostruts, gears, and brakes.

To start the plant up and get an organization rolling, tool it up and get it started-you would be interested in knowing that plant started in business in December 1940, having started a year previously to plan the rearrangement of the plant. It was the old Graham automobile plant. From that time, through September, that plant