makes him the authorized sales and service dealer for the lines of equipment he handles in his trade area. Under such agreements, manufacturers make the equipment and repair parts available to the dealers and assist in training programs for their personnel. The dealers usually send their personnel periodically to the plants of the manufacturers for training periods. During World War II, and again during the Korean period, new farm tractors and various items of mechanized farm equipment were many times in extreme short supply. There developed during these periods, because of the supply and demand situation, a type of marketing completely contrary to the service dealer concept. These marketers, referred to during the emergency periods as "black market" operators, traveled from place to place purchasing new equipment and parts from dealers and farmers with a view to immediately reselling in the same or other territories at a quick profit. No attempt was made by these marketers to grant any warranties or to provide any service either in the form of available repair parts, service shop facilities or trained mechanics. Furthermore, they completely ignored Government price regulations in effect at that time. This marketing practice has continued until at the present time the service farm equipment dealer finds himself in competition with an individual or agency which has no adequate place of business, no adequate stock of repair parts and no service shop facilities. These practices have in many areas completely demoralized the retail farm equipment business. Established authorized dealers have been required to shorten their inventory investment and to contract their service facilities and personnel in order to meet this type of competition. This has been necessary in many areas in spite of the fact that it is common knowledge that service and parts should be expanded rather than contracted insofar as the needs of the Nation's agriculture are concerned. From time to time individual dealers have reported to us that they have contacted their suppliers who furnished the parts, attachments, and equipment to determine the policy of the company with respect to warranties and service. The manufacturers have informed these individuals in all cases that have been brought to our attention that they desire and attempt to market their tractors and other items of power farm equipment through dealers who will furnish warranties to farmers, provide adequate repair parts at the local level, and furnish immediate repair service as needed. They have stated, however, according to these reports, that they are prevented from strictly enforced requirements on their dealers to adhere to these policies by contract provisions within the present antitrust act framework. They further indicate that they are not permitted to cancel contracts because dealers channel their goods through marketing operators who do not provide adequate parts and service. We firmly believe that, in order to enable the industry to maintain the needed quality of service to the Nation's farmers, manufacturers and dealers should be permitted to enter into contracts or a franchise authorized dealer arrangement which would set up certain standards and require sales to be made to farmer users accordingly. In order to make this arrangement effective, the manufacturer must be permitted to cancel the franchise of any dealer who fails to sell the equipment to farmer users or through approved channels as intended by the manufacturer-dealer relationship agreement. We have noted the provision of S. 3596 applying to the automobile industry which we believe provides a sound approach to this problem. Such an enabling statute, if applied to the farm tractor and power farm equipment industry, would make it possible for the industry to assure a sound service program for the Nation's agriculture. We believe that all segments of the farm-equipment industry are in complete accord that such enabling legislation is necessary for further growth and expansion of farm-equipment service in all agricultural areas. State fair-trade laws which have been enacted in some 45 States are entirely inappropriate to accomplish this objective. They were designed for an entirely different purpose and, because of varying freight costs and trade-in problems, are not adaptable to such items as tractors and power farm machinery. We suggest that S. 3596, the language of which is now confined to automobiles and trucks, be expanded to include farm tractors and power farm machinery and equipment. Sections 6 and 7 of this proposed bill would make it clear that, within the framework of the antitrust acts, manufacturers and dealers could, if desired, enter into agreements necessary to provide new equipment, attachments, and parts with the service which should properly accompany them. We, Senator PURTELL. Before we recess, without objection, there will be inserted in the record at this point a letter from Mr. Paul M. Mulliken, executive director of the National Retail Farm Equipment A-50ciation. (Letter dated July 20, 1954, from Paul M. Mulliken, executive director, National Retail Farm Equipment Association, to Senator William A. Purtell, chairman, is as follows:) NATIONAL RETAIL FARM EQUIPMENT ASSOCIATION, Senator WILLIAM A. PURTELL, Chairman, Subcommittee on Business and Commercial Interests, Washington 25, D. C. MY DEAR SENATOR PURTELL: Enclosed are three copies of a statement relating to the proposed bill S. 3596, to amend the Federal Trade Commission Act with respect to certain contracts, agreements, or franchises to enable manufacturers of automobiles and trucks and their franchise dealers to protect their goodwill in the business of manufacturing and distributing automobiles and trucks made or sold by them by restricting franchise dealers from reselling to certain unauthorized persons. In accordance with arrangements made with Mr. L'Heureux of your staff this statement is submitted to you for incorporation in the record of hearings on this proposed bill. We are submitting this statement for the record rather than making a persona: appearance in view of the fact that this proposed bill as presently drafted is confined to the automobile industry. Time has not permitted us to give this proposed legislation full and complete study. We shall appreciate an opportunity to discuss this matter with you personally prior to formal action by your committee on this bill. Mr. W. R Noble, 1028 Connecticut Avenue, Washington 6, D. C., who is our Washington counsel, will be available to discuss in detail our views with respect to this legislation at your convenience. Sincerely, PAUL M. MULLIKEN, STATEMENT RELATING TO S. 3596 BY PAUL M. MULLIKEN, EXECUTIVE DIRECTOR, NATIONAL RETAIL FARM EQUIPMENT ASSOCIATION This statement relates to a proposed bill (S. 3596) to amend the Federal Trade Commission Act with respect to certain contracts, agreements, or franchises to enable manufacturers of automobiles and trucks and their franchise dealers to protect their goodwill in the business of manufacturing and distributing automobiles and trucks made or sold by them by restricting franchise dealers from reselling to certain unauthorized persons. This statement is submitted on behalf of the National Retail Farm Equipment Association at the direction of its board of directors. The association is composed of more than 16,000 farm equipment retailers located in rural communities throughout the United States. The membership includes dealers located in every State and every sizable agricultural area of the Nation. The farm equipment retailer sells and services farm tractors and power farm machinery and equipment for the farmers in his local trade territory. The dealer must keep in stock an adequate supply of new machines, attachments, and repair parts necessary to render immediate service to farmers. It is essential that the farm equipment retailer maintain a repair shop adequate to make immediate repairs on tractors and other power machinery, particularly during planting and harvesting seasons. The typical farm equipment retailer has an investment at all times of mily thousands of dollars in new machinery, attachments, and repair parts with a modern place of business including a fully stocked parts department and a rejar shop completely equipped with modern machine tools. He maintains tried personnel in the parts department and trained mechanics to service and requir the equipment. It has historically been the practice in this industry for the retailer to operate his establishment through franchise agreements with manufacturers which makes him the authorized sales and service dealer for the lines of equipment he handies in his trade area. Under such agreements, manufacturers make the equipment and repair parts available to the dealers and assist in training prograus for their personnel. The dealers usually send their personnel periodically to the plants of the manufacturers for training periods. During World War II, and again during the Korean period, new farm tractors and various items of mechanized farm equipment were many times in extreme short supply. There developed during these periods, because of the supply and demand situation, a type of marketing completely contrary to the service dealer concept. These marketers, referred to during the emergency periods as "black market" operators, traveled from place to place purchasing new equip ment and parts from dealers and farmers with a view to immediately reselling in the same or other territories at a quick profit. No attempt was made by these marketers to grant any warranties or to provide any service either in the form of available repair parts, service shop facilities or trained mechanics. Furthermore, they completely ignored Government price regulations in effect at that time. This marketing practice has continued until at the present time the service farm equipment dealer finds himself in competition with an individual or agency which has no adequate place of business, no adequate stock of repair parts and no service shop facilities. These practices have in many areas completely demoralized the retail farm equipment business. Established authorized dealers have been required to shorten their inventory investment and to contract their service facilities and personnel in order to meet this type of competition. This has been necessary in many areas in spite of the fact that it is common knowledge that service and parts should be expanded rather than contracted insofar as the needs of the Nation's agriculture are concerned. From time to time individual dealers have reported to us that they have contacted their suppliers who furnished the parts, attachments, and equipment to determine the policy of the company with respect to warranties and service. The manufacturers have informed these individuals in all cases that have been brought to our attention that they desire and attempt to market their tractors and other items of power farm equipment through dealers who will furnish warranties to farmers, provide adequate repair parts at the local level, and furnish immediate repair service as needed. They have stated, however, according to these reports, that they are prevented from strictly enforced requirements on their dealers to adhere to these policies by contract provisions within the present antitrust act framework. They further indicate that they are not permitted to enncel contracts because dealers channel their goods through marketing operators who do not provide adequate parts and service. We firmly believe that, in order to enable the industry to maintain the needed quality of service to the Nation's farmers, manufacturers and dealers should be permitted to enter into contracts or a franchise authorized dealer arrangement which would set up certain standards and require sales to be made to farmer users accordingly. In order to make this arrangement effective, the manufac turer must be permitted to cancel the franchise of any dealer who fails to sell the equipment to farmer users or through approved channels as intended by the manufacturer dealer relationship agreement. We have noted the provision of S. 3596 applying to the automobile industry which we believe provides a sound approach to this problem. Such an enabling statute, if applied to the farm tractor and power farm equipment industry, would make it possible for the industry to assure a sound service program for the Nation's agriculture. We believe that all segments of the farm-equipment industry are in complete accord that such enabling legislation is necessary for further growth and expansion of farm-equipment service in all agricultural areas. State fair-trade laws which have been enacted in some 45 States are entirely inappropriate to accomplish this object ve. They were designed for an entirely different purpose and, because of varying freight costs and trade-in problems, are not adaptable to such items as tractors and power farm machinery. We suggest that 8. 3596, the language of which is now confined to automobiles and trucks, be expanded to include farm tractors and power farm machinery and equipment. Sections 6 and 7 of this proposed bill would make it clear that, within the framework of the antitrust acts, manufacturers and dealers could, if desired, enter into agreements necessary to provide new equipment, attachments, and parts with the service which should properly accompany them. We, 50416 54-2 therefore, urge your consideration to a revision of S. 3596 to include the business of manufacturing and distributing farm tractors and power farm machinery and equipment. (Whereupon a short recess was had, after which the proceedings were resumed as follows:) Senator PURTELL. Our hearings will reconvene, please. I would like to ask Mr. Kintner one more question before I ask Senator Schoeppel if he has any questions. We have heard a great deal about the railroad release procedure. I wonder if you would mind explaining what the railroad release procedure is, and cite the specific instances where it has been used, and then I would like to ask you at that time, why does not the railroad release provision apply in this situation? Mr. KINTNER. The so-called railroad release procedure is, as I understand it, a procedure used at the Department of Justice. Under this procedure a person or a business may present the Department of Justice with a state of facts and ask whether or not on those facts the Department detects a violation of law, or anticipates that the facts as presented may violate the antitrust law. The Department, according to my understanding, will then examine those facts and perhaps hold additional conferences thereon, examine such information as it has at hand, and then, in appropriate instances, will advise the businessman whether or not on the basis of those facts the Department would contemplate taking criminal action. It is my understanding that the railroad release procedure applies only to criminal actions and is without prejudice to the filing of a civil antitrust suit. The latter statement perhaps answers the whole question. Senator Schoeppel, have you any questions to ask our witness? Senator SCHOEPPEL. I do not have many because we are pressed for time here. You say that your department made an extensive survey or investigation, I think it was in 1939-or the 1939 report was a result of that? Mr. KINTNER. Yes, Senator Schoeppel, and there was a further investigation which consisted mainly of a summarization of the 1939 report in 1944. Senator SCHOEPPEL. Yes. Now, I want to keep this in character here. We have a bill before us, which is S. 3596. Mr. KINTNER. Yes, sir. Senator SCHOEPPEL. That is what we are called upon to pass on now from a committee angle, recommending it or modifying it or changing it or rejecting it. Your testimony, as I understand, is to the effect that we don't need the bill; the bill is piecemeal legislation; and I take it from that, you have given pretty careful thought and study to it with reference not only to the present measure but in the light of your 1939 investigation and your 1944 summary. Is that the case? Mr. KINTNER. Yes, sir; except that we are not aware of whether or not the facts that existed in 1939 exist today; additional investigation would be necessary. Senator SCHOEPPEL. Well, are there any facts that you have determined to be somewhat similar to those which you previously checked and found to exist? Mr. KINTNER. Some, sir. We have had sporadic complaints as to this so-called bootlegging practice. Of course, that is perhaps a relatively new practice. It may, however, have existed to some extent in 1939. We have had a few complaints that manufacturers were forcing upon their dealers too many automobiles, more automobiles than could be sold to the regular trade at regular dealer prices. We have not had those complaints from dealers, for obvious reasons. One of them, I believe, came from a Member of the Congress. So we might infer from the complaints that some of the same situation that existed in 1939 might exist today. We could only say that it does exist, after a rather complete investigation. Senator SCHOEPPEL. Well, if it exists, do you consider that practice harmful, as representing counsel for the Commission? Mr. KINTNER. That is very difficult to answer. Senator SCHOEPPEL. Well, why? Mr. KINTNER. A consumer might find no harm, because a consumer can secure from a so-called bootlegger a car at a much lower price. From the standpoint of many of the dealers, looking at it from their standpoint, it certainly appears to be harmful. Senator SCHOEPPEL. Well, would not the general public be harmed to this extent: Suppose that the bootlegger of cars was operating without a fixed place of abode, without a repair shop, without a service shop, without enforcing, or at least providing a guaranty that has been passed down from the manufacturer which an authorized dealer would, in good faith, assuming he was in good faithand I presume most of them are-in faithfully living up to that guaranty, wouldn't that be a matter of concern to the user of that car or to the general public? Mr. KINTNER. Yes, sir; there are certain equities on both sides. It might also be mentioned that many of these dealers who have established businesses in your State and in my State of Indiana employ many people; they pay fairly high taxes; they contribute in many ways to the community; and we recognize that they are small-business men, and that their continued existence is essential for this country to live and prosper as it should. We recognize that a very difficult problem exists, sir. Our objection, basic objection, here is that the proposed legislative solution deals with only one facet, one result of the problem, which we think has many basic causes. Senator SCHOEPPEL. All right. Now, right on that point, because your Commission has gone into this; you have had some sporadic complaints before, your 1939 situation and the related situation in 1944, and you have investigated and you have checked this measure. Now, if it is segmentized legislation, it is bad. Do you have some suggestions to make to this committee and to the Members of the Senate as to how it should be broadened and still be fair to all parties concerned, and plug some of these disastrous practices? Mr. KINTNER. I regret to say, sir, that I have no suggestions, no specific suggestions with respect to the legislation. |