records usually kept in an establishment the size and nature of the business affected. All industry advisory committees appointed shall continue to have fair representation of independent small business. To assure availability of full inforination and prompt handling for small business of matters under the cognizance of the Office of Price Stabilization, a senior official of each OPS regional and district office will be assigned specific responsibility for handling the problems of small business. To assure continuous consideration of problems relating to small business, there is established in the Director's Office the position of Assistant for Small Business and an intra-agency Small Business Affairs Advisory Committee composed of senior officials of each major organizational segment of the agency. 2. Standards for drafting price regulations (a) Special problems of small business will continue to be reflected to the fullest possible extent in the basic pricing policies and techniques embodied in the regulations. (b) If smallness has traditionally justified higher prices, as in the case of retail food stores, this is to be recognized in price regulations. (c) Whenever practicable, simpler pricing methods will be devised for small businesses with limited clerical facilities. (d) Special concern for small business will be taken in the form of writing regulations in the simplest language so that the small-business man may understand and comply with them. (e) Appropriate care shall be taken in writing all regulations that insofar as possible reports required will be kept to a minimum, and records required shall not be more onerous than the records usually kept in an establishment the size and nature of the business affected. (f) Insofar as is practicable, selected geographical areas will be used for a nonpublicized test of proposed regulations which will particularly affect that area with particular concern for small-business operations. FIELD OFFICES Small-business affairs representatives were appointed by the respective regional and district directors in each of the regional and district offices. The field staff now consists of 103 regional and district representatives. Under a policy enunciated by the director, the function of representative is maintained by a senior official in each office. This staff has proven adequate and effective. No need has arisen for full-time employees. Small-business representatives have made themselves available to local chambers of commerce, trade associations, and all other groups interested in the affairs of small business. They have conducted innumerable small-business clinics, spoken to interested groups and appeared on radio and television programs. Numerous indications have marked the value of this endeavor. PUBLICATIONS A Guide for Small Business Representatives, and a set of simplified instructions, were sent to all small-business field representatives. This guide contained the following information: 1. The names and addresses of all small-business representatives. 2. A statement of OPS small-business policy. 3. Instructions as to how to direct an inquiry, and how to obtain information normally required for adjustment procedures under regulations. 4. A statement of the responsibility of the small-business man in aiding in the fight against inflation. Every instruction on small business which has emanated from OPS has reiterated that OPS district offices are the points of contact for small-business problems, and that only when these normal channels are exhausted may a case be referred to a small-business representative in the regional or national office. Small business pamphlet.-A pamphlet for distribution to the general public and to small business has been prepared and is now being printed. It is expected that this pamphlet will be released during the week of June 2, 1952, to all interested organizations and field offices in sufficient quantities to care for their local needs. Directions to the small-business representative in each district office are found in this pamphlet. Special news releases.-The Information Division is at present preparing a series of special articles on small-business activities of OPS for release at national and local level. These articles will accentuate the attention small business has received and is receiving throughout the Office of Price Stabilization and how small business can aid in the fight against inflation. REPORTS Quarterly reports are received regularly from the regional and district small business representatives and are used: 1. As a guide to the commodity divisions of the national office. All reports are briefed and sent to each branch with a request for action. 2. As a source of suggested recommendations for the revising and simplifying of regulations and expediting of changes in them. 3. For a study by the committee and as a basis for recommendations for action to the Director. Reports are filed by the small-business representative of the district office on special cases that need national office action from time to time. Results are obtained and teletyped back to the respective office. Small-business representatives of field offices are requested from time to time to make reports on special cases in their districts that can best be handled in the field by the national office. SMALL BUSINESS ACTIONS CONTEMPLATED 1. A new regulation is under study by the Office of Price Operations in an effort to bring small rural general stores, now subject to multiple regulations, under one simplified regulation. 2. The Intra-Agency Small Business Committee is reviewing existing small business standards and policies issued on August 1, 1951. 3. A review of all existing regulations to be carried out by various field offices is under consideration by the Intra-Agency Small Business Committee. 4. Suspension of controls action will be taken after due consideration has been given to the particular needs and requirements of small business. NOTEWORTHY SMALL-BUSINESS ACTIONS COMPLETED BY THE AGENCY 1. Ceiling Price Regulation 7 allows a retailer with a volume of less than $60,000 to elect to price under a specific regulation or the General Ceiling Price Regulation. 2. Small-business exemptions in CPR 22 and CPR 30 allow the small manufacturer doing an annual business of less than $250,000 to price under CPR 22 and CPR 30 or to stay under the General Ceiling Price Regulation if they so elect. 3. SR 18 to CPR 22, issued November 26, 1951, provides a simplified method for making adjustments under the so-called Capehart amendment for manufacturers with net annual sales of less than $1,000,000 who wish to use the CPR 22 formula. This can be handled at field office level. 4. General Overriding Regulation 20 which was issued on November 28, 1951, allows small manufacturers, doing an annual business of less than $250,000, to take advantage of the Capehart amendment by means of a simple over-all method. This can now be handled at field-office level. 5. The nickel anode regulation was issued on April 21, 1952. The Senate Small Business Committee was particularly interested in this regulation and carried out a campaign for several weeks in its weekly bulletin calling for its issuance. 6. The steel resellers regulation, CPR 98, issued November 29, 1951, was consistently followed by the Assistant to the Director for Small Business through each step of its preparation. This helped to break the gray market in steel. OFFICE OF PRICE STABILIZATION, MEMORANDUM FOR HOUSE COMMITTEE ON BANKING AND CURRENCY OF COMMENTS ON TESTIMONY BY MR. COSTLEY OF THE NATIONAL AUTOMOBILE DEALERS ASSOCIATION The National Automobile Dealers Association has levelled a series of charges at the OPS regulations which deserve point by point answers. These charges were made without the submission of supporting evidence, were contradictory, and were in conflict with the facts. In general, the charges represent a protest against any and all attempts to limit the inflation which the extensive defense program inevitably tends to generate. It was first argued by the NADA that the demand for cars is so weak that no ceiling price need be maintained. It was next argued that OPS is holding down car prices and thereby cutting the dealers' profit margins to unreasonably low levels. If OPS is holding down car prices, as charged, certainly the market is not so soft as to justify the dealers' demands for abolition of price controls. The inconsistency of these statements reflects the general inaccuracy of NADA's charges. NADA has stated that used cars are selling below ceiling prices and that therefore price controls should be abolished. In evaluating this observation, it is relevant to note that used car prices were frozen at a time when they were extremely high, namely January 26, 1951. These ceilings have been reduced by 2 percent each quarter to allow for the depreciation that takes place in used cars. Since this rate of reduction is somewhat low and the original ceiling prices were relatively high, today's ceiling prices are quite high. Despite this situation, the current market prices for used cars, as shown in the NADA and National Used Car Market Guide Books, are on the average less than 5 percent below their ceiling prices. This indicates the relatively high prices of used cars today. Furthermore, many used cars are at ceiling while those not yet at ceiling have been moving up toward their ceiling prices. In view of these facts it does not appear to be in the interests of economic stabilization to suspend price controls on used cars at this time. It was said that production will be high enough this year to make price controls unnecessary. However, a careful analysis of the major economic factors which influence car prices presents quite a different picture. Under present NPA allotments, car production will be down 14 percent from 1951, and 32 percent from 1950. At the same time, the Federal Reserve has estimated that disposable personal income will be greater in 1952 than it was in either of the past 2 years. Furthermore, dealers' inventories of new cars have declined from 10.6 per dealer on May 1, 1951, to 7.8 on May 1, 1952, or more than 26 percent. The average age of cars on the road in 1950 was 7.8 years as compared to 5.5 years in 1941 and this is adding to the demand for new cars.2 The recent elimination by the Federal Reserve of credit controls on purchases of cars has further broadened the upward pressure on prices in this industry. Should an increase in international tensions or domestic spending take place this year, the very great weight of the inflationary pressures could casily tip the present delicate balance between supply and demand forces in favor of sharply rising prices. Since there can be no certainty that such eventualities will not become realities, it seems manifestly clear that ceiling prices on cars should not be suspended at this time. While it is true that OPS is limiting the increases in car prices, it is not true that the agency has cut the dealers' margins unreasonably. In accordance with the Defense Production Act, dealers' margins today are generally in line with those they had in effect in June 1950, with the exception of the reduction in margin that occurred on March 2, 1951, when the wholesale ceiling prices of cars were raised by 31⁄2 percent. Dealers, at that time, were not permitted to raise their retail prices by 3% percent, but were permitted to increase them by the dollar and cents amount that factory prices were increased. This resulted in a reduction of about 1.1 percent in the dealers' customary mark-up. This dollar-and-cents passthrough occurred prior to the passage of the Herlong amendment, which stated that hereafter no reductions in the dealers margins were to be permitted. Therefore, this pass-through was not a violation of the Herlong emendment. Since the factory prices of the cars have been increased on the average by over 14 percent the dealers are receiving a mark-up on the higher cost of cars and, as a result, their gross margins have increased on the average by about $50 per car since June 1950. and are at an all-time peak. The NADA stated that the elimination of Regulation W by the Federal Reserve was another reason why price controls are no longer necessary. It should be pointed out that one of the purposes of the elimination of Regulation W was to stimulate the demand for cars, and that such a stimulation of demand would tend, of course, to increase the inflationary pressures in the new car field. Since credit curbs have been suspended, it is all the more necessary to maintain ceilings on automobile prices. The NADA has also complained that OPS rolled back some dealers' customary charges. This complaint appears to be in reference to the dealers' preparation and conditioning charge which, in no case, is to exceed 5 percent of the retail price 1 Automotive News, May 19, 1952, p. 1. 2 Automobile Facts and Figures, Automobile Manufacturers Association 1951, p. 19. of the car. The car dealers' industry advisory committee recommended that dealers be permitted to levy a charge equal to, but not exceeding 5 percent of the retail price of the car. It was recognized by the industry advisory committee that some dealers had charges that exceeded 5 percent, but it was the consensus of opinion that 5 percent was a fair return for the services rendered. The agency has permitted each dealer to use his actual pre-Korean charge insofar as it was related to preparing the car for delivery, and as long as it did not exceed 5 percent of the car's retail price. In a survey made of all car dealers in the United States, the dealers' own reports show that their preparation and conditioning charge averaged less than 3 percent of the retail price of the car. In very few cases did the charge exceed 5 percent. Therefore, to have permitted all dealers to charge 5 percent, as was requested, would have amounted to a very substantial and unwarranted roll-forward of charges, whereas permitting dealers to use their actual charges, with the 5-percent limitation, proved to have been generally fair and equitable in view of the results of the survey. The dealers have stated that OPS is trying to control profits instead of prices. Any attempts to check inflation will inevitably have some effect on profits because of the very nature of a program of economic stabilization. However, OPS has carefully directed its efforts at checking inflation, and has not used the dealer's level of profits to determine what prices that particular dealer may charge. Profits depend primarily on the demand for cars, the number of cars dealers have to sell, and the allowances they grant on trade-ins. Since OPS has not tried to control any of these three factors, with the exception of requiring reasonable allowances on trade-ins, it cannot be fairly said that the Agency is primarily interested in controlling profits rather than prices. The Agency is interested solely in price stabilization and to that end it is attempting to prevent inequitable increases in dealer mark-ups. It was charged that under OPS regulations dealers' operating profits, before taxes, dropped to 1.9 percent of sales in the first quarter of 1952. This is a misleading statement because first quarter profits are normally low due to model change-overs, and the decline in demand for both new and used cars during the winter months. The entire year of 1951 is a better criterion of dealer prosperity because automobiles were subject to price controls throughout the year and there were no distorting seasonal factors. These same controls are still in effect, with the only exception that dollars-and-cents mark-ups are now higher due to the higher manufacturers' prices. In 1951, net profits before taxes were 4.9 percent of sales. This compares very favorably with profit experience in a normal market. The NADA has charged that OPS is imposing uniform charges, prices and practices on the car dealers, and is thereby eliminating competition. The uniform practices that have been imposed upon the industry are ones which were customarily followed by the bulk of the industry and ones which are necessary to the program of economic stabilization. While ceilings have been set on prices and charges, dealers are completely free to charge less than ceilings, and thereby compete with each other if they so choose. Also, they may try to market their cars more vigorously, try to improve customer relations, or take any other steps that are felt desirable to improve their competitive position in the community. It cannot be accurately charged, therefore, that dealers cannot compete with each other today because of OPS regulations. Furthermore, Mr. Costley himself argued that dealers are competing vigorously, and stated to this committee, "competition, the real price stabilizer, is at work in our industry.' The dealers have stated they do not know what the term "preparation and conditioning" means, and that the term "delivery and handling" should have been used. In a very extensive study made by the Federal Trade Commission concerning the practices in the automotive industry, the term "preparation and conditioning charge" was used. This study indicated to OPS that the term was understood by the industry. Secondly, the term has been used in OPS regulations since March 2, 1951. At no time during the three subsequent meetings of the industry advisory committee was there any objection to the term. Thirdly, in a recent survey of all the car dealers in the country, they stated what their preparation and conditioning charges were, thus indicating they understood the term. The NADA has charged that the regulations affecting car dealers were drafted by people who are wholly unfamiliar with the industry. The men who were responsible for the drafting of the regulation have spent many years in all phases of the automotive field, including the manufacturing and retailing sections of the Minutes of the first and second meetings of the Retail Motor Vehicle Industry Advisory Committee May 3, 1951, and September 13, 14, 1951. industry. These men were unanimously praised by all the members of the industry advisory committee for "the understanding manner in which the meeting had been conducted and for the many courtesies shown them. They expressed their appreciation for the sympathetic consideration which the OPS officials had given them in attempting to resolve their industry problems." The NADA stated that the recommendations of the industry advisory committee were not incorporated into the regulations which affect car dealers. A comparison of the minutes of these meetings with the Automotive Branch shows that the industry advisory committee's recommendations were incorporated into the regulation to the fullest extent possible. In some cases, for administrative or legal reasons, the Branch was required to substitute its recommendations for those by the industry advisory committee. It is, of course, not mandatory, nor would it be proper that every recommendation of the committee be incorporated into OPS regulations. However, the following are some of the committee's recommendations that were incorporated into the regulation: (a) The classification of "demonstrators" as new cars. (b) The rounding of used car ceiling prices to the nearest $5. (c) The averaging of guidebook prices for used cars. (d) Depreciating ceiling prices on used cars by 2 percent each quarter. (e) The prohibition against requiring purchasers of cars to finance through the dealer. (f) The method of determining transportation charges. The charge has been made that OPS failed to call a sufficient number of industry advisory committee meetings. The records show that three such meetings were called, one of which was a subcommittee meeting. Industry often takes the initiative in calling such meetings and, indeed, is responsible for requesting a meeting whenever it feels that there are certain pricing problems which require action by this agency. Not only have no such requests been denied by the Automotive Branch but none have been received except for the three meetings which were held. It seems apparent, therefore, that the dealers have been given as much of a hearing as they wished to have. The foregoing specific analysis of each of the charges against OPS shows all of them to be without foundation and without supporting evidence. The charges contradict each other, and contain no constructive suggestions. It appears that the industry is demanding nothing other than unreasonable increases in its profit margins, over and above those enjoyed prior to the Korean war. This Agency wants very much to work closely with the automobile dealers and to cooperate with them in every way. We need the constructive suggestions of the dealers and we appreciate all the time and help that representatives of the industry have given us in the past. It is recognized that this industry is composed of tens of thousands of small-business men who occupy important civic and economic positions in their communities. This Agency regrets the criticisms leveled at it which have arisen out of misunderstanding of the importance of economic stabilization during this period of build-up of our defense program. The Agency will continue, however, to try to remedy promptly all the legitimate complaints of car dealers and to provide the dealers with clear, workable and fair regulations. MEMORANDUM FOR HOUSE COMMITTEE ON BANKING AND Currency, May 27, 1952 RETAIL COAL CEILING PRICE REGULATION On May 7, 1952, Mr. John Schreiber, secretary of the Eastern States Retail Solid Fuel Conference, criticized before your committee the position of the Office of Price Stabilization on the applicability of the Herlong amendment to retail coal dealers. He objected that OPS was not giving retail coal dealers the benefit of the Herlong amendment, and further, that we did not have an automatic passthrough of freight increases for retail coal dealers whereas we had such a passthrough for fuel oil dealers. This witness offered similar testimony during the hearings held by the Senate Banking and Currency Committee. However, the American Retail Coal Association, a large group with members throughout the country, criticized the position taken by the eastern group and supported the OPS position. • Minutes of the Second Industry Advisory Meeting, September 13 and 14, 1951, p. 7. |