Of course, the big item we want to get into was the question of direct labor. I didn't ask Mr. Kuhn any questions on that because I don't think he has any more to offer than he did previously. Mr. KUHN. That is correct. Everything I had is from the minutes. Mr. BATES. The time to go into that question is when we get to General Motors. Mr. HÉBERT. All right. The committee will stand in recess until tomorrow morning, at 10 o'clock. (Whereupon, at 12: 15 p. m., the subcommittee adjourned to reconvene Friday, August 16, 1957, at 10 a. m.) STUDY OF AIR FORCE CONTRACT AF33 (038)-18503, GENERAL MOTORS CORP.-BUICK-OLDSMOBILEPONTIAC ASSEMBLY DIVISION FRIDAY, AUGUST 16, 1957 HOUSE OF REPRESENTATIVES, SUBCOMMITTEE FOR SPECIAL INVESTIGATIONS, Washington, D. C. The subcommittee met at 10 a. m., the Hon. F. Edward Hébert, chairman of the subcommittee, presiding with the following members present; Mr. Gavin, Mr. Rivers, Mr. Cunningham, Mr. Bates, Mr. Hardy, Mr. Osmers, and Mr. Arends. Mr. HÉBERT. The committee will be in order. Mr. Courtney. Mr. COURTNEY. Mr. Chairman, the General Motors Corp. is present this morning. Mr. Gordon has a prepared statement. And you wish Mr. Power Mr. HÉBERT. Come forward, Mr. Gordon. Mr. GORDON. Yes. Mr. COURTNEY. Mr. Gordon, any of your aids whom you wish to have just seat them around and if they are going to speak we will identify them for the record so the reporter Mr. POWER. For the record Mr. COURTNEY. Just 1 minute. Now Mr. Gordon you know, Mr. John Gordon, Mr.? Mr. MARK. Ralph C. Mark, comptroller of General Motors. Mr. POWER. He will not be testifying. But if you want his name for the record? Mr. COURTNEY. Well, you may be seated, then. Mr. HÉBERT. Mr. Gordon, I understand you have a prepared statement? Mr. GORDON. That is right, Mr. Chairman. Mr. HÉBERT. You may read it. And I will ask the cooperation of the committee, once again, not to interrupt the witness until after he has finished his statement. And I want to express to the committee members at this time my appreciation for their cooperation yesterday. TESTIMONY OF JOHN F. GORDON, VICE PRESIDENT, GENERAL MOTORS CORP., AND A. F. POWER, ASSISTANT GENERAL COUNSEL, GENERAL MOTORS CORP. Mr. GORDON. Mr. Chairman and members of the subcommittee, my name is John F. Gordon. I am a vice president of General Motors Corp. and the group executive in charge of the automobile body and assembly divisions. This group is comprised of the Fisher Body, Buick-Oldsmobile-Pontiac assembly and ternstedt divisions. My headquarters are in Detroit, Mich. 94763-57--11 With the permission of the chairman, I would like to submit a statement directed to the subject-matter of your inquiry-the performance by General Motors under contract No. AF33 (038).-18503 for the production of F-84F Thunderstreak fighter planes at the Kansas City, Kans., plant of Buick-Oldsmobile-Pontiac assembly division. As background, it might be useful to review briefly the policies with respect to defense production consistently followed by General Motors since early in World War II. At the beginning of that war General Motors laid out certain guidelines for the conduct of its war-production operations. These guidelines were intended to point the way to the most effective possible enlistment of our productive know-how and facilities in the war effort. It is a matter of record that these policies were promptly reinstated at the beginning of the Korean emergency and, where applicable, they remain in force today. They can be summarized briefly as follows: 1. Cooperate actively with the Government in planning the production of defense products, in accepting trial orders, in rendering engineering advice and assistance when desired and in mass producing these products for which GM has or can get the necessary production equipment. 2. Endeavor to get orders for and plan to produce the corporation's share of the country's defense-production load. 3. Endeavor to obtain contracts for the more complicated defense products, in the production of which the corporation's engineering and manufacturing experience will be of greatest value to the country. 4. Concentrate GM production facilities on the most difficult parts of these products, thereby making maximum use of corporation knowhow. 5. Subcontract as much as possible of the balance of component parts of all defense products to dependable and competent subcontractors who have equipment that can be used to produce such parts. 6. Try to obtain orders for every plant city and every plant in order to protect employment in those cities and plants to the extent possible. Allot the production where it can be produced with the greatest efficiency and the least new floorspace and machinery. 7. Accept contracts of whatever type-fixed price with provision for price redetermination after cost and production experience, competitive bid, or cost-plus-fixed fee that may be mutually agreed upon with Government agencies. Operating under these policies, our facilities and organization were devoted completely to the war-production effort. General Motors during World War II assumed production responsibility for some 3,600 different items, ranging in size and character from tiny ball bearings and electric motors to complete tanks and airplanes. Another important policy adopted by General Motors early in 1942, in advance of the enactment of the renegotiation law, related to pricing of defense products. In summary, this policy was: (a) to take war-production contracts on a fixed-price basis wherever possible, and, where not possible in the first instance, to change to that basis as soon as circumstances permitted; and (b) to make price reductions, applicable, to products already delivered as well as to future deliveries, as cost reductions materialized. Our policy *to make price reductions as cost reductions materialized *** saved the Government and taxpayers substantial sums. This fact fully validates the soundness of the fixed-price approach and our judgment as to its efficiency from the standpoint of the Government and the taxpayer. This approach retains the incentives that promote efficiency in normal commercial operations. In this connection it should be pointed out that as a result of this policy, General Motors' overall rate of profit on defense materials has been, and continues to be, substantially below the rate of profit realized on commercial business under competitive conditions. Further than that, defense sales are subject to the Renegotiation Act of 1951. The act provides that in determining the reasonableness of profits, the Renegotiation Board must give favorable recognition to the efficiency of the contractor with particular regard to the attainment of quantity and quality of production, reduction of costs, and economy in the use of materials, facilities, and manpower. One of the critical needs early in the Second World War was for military aircraft of all types. The existing airframe industry could not hope to meet such requirements. General Motors played an outstanding role in helping to close the aircraft-production deficiency gap. As a subcontractor General Motors produced in quantity major subassemblies for the B-17 Flying Fortress, the B-24 Liberators, and the B-29 Super Fortress bombers. General Motors also built complete airplanes. When the Navy required an additional production source for fighter planes and torpedo bombers, General Motors organized a number of its east coast plants into the temporary eastern aircraft division which produced 13,000 complete fighter and bomber planes. The F-84F aircraft program: Undoubtedly because it was aware of General Motors' World War II performance as an aircraft producer, the Air Force early in the Korean emergency included our organization in its plans for broadening the aircraft production base. First Air Force contracts with GM executives concerning aircraft production occurred in July and August 1950. At that time Air Force planning had not crystallized as to the type of aircraft General Motors was to build, nor had the plant site been decided upon. At various stages, it was proposed that General Motors' eastern plants and the Kansas City, Kans., plant participate in the Republic F-84E, the North American F-86, and the Lockheed F-90 programs. Obtaining satisfactory airfields adjacent to General Motors' production facilities was a problem in the East. Subsequently the decision went against the eastern locations because the Armed Forces favored dispersion of war-production plants. In December 1950, the Air Force requested General Motors to build the Republic F-84F Thunderjet (later renamed Thunderstreak) aircraft at the Government-owned plant which had been erected early in World War II at Kansas City, Kans., for aircraft production and which was adjacent to airfield facilities. This plant had been leased by General Motors at the end of World War II and was being operated by the Buick-Oldsmobile-Pontiac assembly division for the assembly of automobiles. |