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STUDY OF AIR FORCE CONTRACT AF33(038)–18503, GENERAL MOTORS CORP.-BUICK-OLDSMOBILEPONTIAC ASSEMBLY DIVISION

FRIDAY, AUGUST 16, 1957

HOUSE OF REPRESENTATIVES,

COMMITTEE ON ARMED SERVICES,
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. COURTNEY. You are comptroller. And Mr.-

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.

2709 94763–57--11

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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 ĜM 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

(6) 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. T'he 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.

At the time the Buick-Oldsmobile-Pontiac assembly division hereafter referred to as BOP received the assignment to produce this aircraft, the F-84F was a newly designed, high-performance jet airplane a single-seat fighter-bomber. This aircraft could also be used as a fighter-escort and fighter-interceptor. Its speed was given as more than 600 miles per hour, combat radius as more than 850 miles, and ceiling more than 45,000 feet.

Powered by a Sapphire J-65 turbojet engine, the F-84F carried six .50-caliber machineguns, four mounted in the nose and one in each wing root. The Thunderstreak version of this arcraft carried heavier loads of external armaments and fuel than its Thunderjet pred

ecessor.

As already noted, when BOP assumed its production assignment, the F-84F was an aircraft of new design, not previously produced. The aircraft had not as yet been completely engineered by the design contractor-Republic Aviation Corp. Throughout the life of the F-84F contract, the rate of deliveries was subject to frequent change. Manpower, particularly trained personnel, was critically short. Machine tools were in restricted supply. Because the national defense production effort had been gaining rapidly, it was difficult to develop à satisfactory subcontracting structure.

These adverse conditions had a definite influence on BOP's ability to perform under the contract. Serious quality problems and high costs were generated which importantly influenced our thinking as to forward costs. Hence, I think it is appropriate to review these problems in somewhat more detail.

The F-84F letter contract dated December 22, 1950, as amended February 19, 1951, specified tooling for 125 planes a month by April 1953. Accordingly it was planned to attain 100 percent conversion to aircraft production at the Kansas City, Kans., plant by the end of 1951 with an accompanying decrease and final cessation of automotive production.

In May 1951 the Air Force announced its policy for broadening the industrial base to permit rapid acceleration of defense output in the event of war. This was to be accomplished through the production acceleration insurance program-or PÅIP.

The effect on BOP was that, regardless of the production rate for planes, it would have to provide plant layout, machine tools, subcontract structure, production methods, engineering designs, tool designs, and special tools of a type and quality required in order to serve efficiently under the PAIP program for a period of 2 years. The Air Force recognized that this plan would be a less efficient and more costly. operation at the lower contract-production rate. Subsequently BOP was informed that for the purposes of the PAIP production program, its rate was 236 planes a month.

Toward the end of 1951 it became apparent that F-84F program delays due to machine tool shortages, subcontracting difficulties, engineering data delays, and inadequate press capacity for large forgings called for a change in planning. In January 1952 the Air Force reduced the maximum planned production rate to 50 airplanes per month. Consequently BOP proposed, and the Air Force immediately approved, continuance of commercial production to the extent consistent with the obligation to furnish 50 planes a month.

The plan would not prejudice the PAIP program providing for a mobilization rate of 236 planes a month.

By continuing commercial production, it is estimated that the aircraft program was relieved of charges totaling $2,741,000. This amount, absorbed by automotive operations, was comprised of costs such as rentals, utilities, building maintenance, salaries, taxes, and insurance.

A tabulation showing Air Force notifications as to total deliveries, monthly rate of delivery, and initial delivery rate is attached as exhibit A. It illustrates both the frequency and magnitude of schedule changes during the life of the contract.

As appears in exhibit A, BOP originally obtained an order for 237 airplanes which was later increased by contract supplement to 1,149 airplanes. On February 5, 1954, the Air Force canceled a total of 550 planes. This reduced the total orders to 599 airplanes, the number ultimately delivered.

From an engineering viewpoint, it should be recognized that the F-84F fighter-bomber at first was regarded as an improved version of the F-84G, an efficient model with service in Korea. But as engineering developed the “F” became recognized as a new model, still on the drawing boards when BOP was awarded the contract.

In February 1951, when BOP representatives first visited Republic, there were available fewer than 100 drawings out of a total of 6,100 drawings, 3,000 revisions, and 19,950 attachments to drawings ultimately released up to June 1953, when BOP completed the first airframe. A complete set of production drawings for the first airplanes was not received until mid-1952. Mandatory changes affecting the first airplanes were released by Republic as late as December 1953.

During the early stages of the program the release of complete engineering data in the form of drawings, supplementary engineering change papers, and loft plates frequently was many weeks later than required to meet BOP's production schedule. Furthermore, because the date when received had not been proven in manufacture, hundreds of mandatory corrections in engineering data followed.

An interval of approximately 8 months was considered necessary between initial deliveries of F-84F airplanes by the design contractor and BOP in order to permit completion of final drawings and proof of engineering and production tooling prior to production of BOP's first airplane. Republic's delivery schedule was set back from December 1951 to June 1952, and eventually to December 1952. As a result of these setbacks in Republic's schedule BOP lost for some time the benefit of Republic's efforts to eliminate design troubles in production.

Other delays arose out of procurement problems. To cite several examples:

Acting upon the Air Force's direction, BOP planned to obtain the first 46 empennage assemblies from Republic's source. It was planned that BOP's regular subcontractor would begin delivery of a completely new empennage for the 47th and subsequent airplanes. This plan would save considerable tooling in the initial production of 46 planes. It developed, however, that Republic's source was unable

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