Mr. FLORIO. Our next witness, and we are very pleased to have our next witness, who happens to be a former resident of the district of one of our members, and therefore I am going to ask Congressman Ritter to formally present our next witness.

Mr. RITTER. I thank the chairman and would like to welcome Chairman Lee Iacocca to these proceedings today.

Lee Iacocca and I share a couple of common grounds, not that many actually, but he was born and raised in the city of Allentown, in the Lehigh Valley of Pennsylvania, which I am proud to represent.

I might add that his father, who came here from Italy earlier in the 20th century, eventually built a small auto rental business in Allentown. As some of you may know, they were not building Chryslers. I think he had 33 cars, mostly Fords.

Lee Iacocca and I both graduated from Lehigh University in Bethlehem, Pa., and he went on to Princeton to get a master's in Engineering.

Some of his detractors say by going into the Ivy League it ruined him forever, but Ivy Leaguers will never believe that.

His political career has been far more successful than mine, not to say anything about his status as one of the leading TV personalities in the country.

With no more ado, I would like to welcome on behalf of my colleagues on the committee, perhaps the primary spokesman for a resurgent industrial America, Chairman Lee Iacocca.

Thank you, Mr. Chairman.

Mr. FLORIO. Mr. Iacocca, we are very pleased to have you before the committee. We thank you for your testimony. Your statement will be made a part of the record in its entirety. You may feel free to proceed as you see fit.

STATEMENT OF LEE A. IACOCCA, CHAIRMAN, CHRYSLER CORP., ACCOMPANIED BY RICHARD GOODYEAR, VICE PRESIDENT AND GENERAL COUNSEL

Mr. IACOCCA. Well, thank you, and good morning, Mr. Chairman and members of the committee.

Thank you, Mr. Ritter, for your kind words.

I want to start off by saying with me at the witness table is Mr. Richard Goodyear. He is a vice president and general counsel of Chrysler.

After that exchange between Mr. Lent and Mr. Pertschuk, I am sure glad I brought him with me. I am going to go home—I thought I was well briefed-and find out what Pillsbury is all about.

I thought it was a bake-off of some kind. I commend you for holding these oversight hearings concerning the General Motors/ Toyota joint venture, and I thank you for inviting me here today to give my views on why this deal is bad for America and bad for the American people, and bad for the American auto industry and its employees.

Frankly, I have had to ask myself a few times lately, "Why take the trouble? Why come down here and beat my head against the establishment?" I am beginning to feel at hearings like this it is

the only place in town where you can really be heard. Just look at the way this particular venture is starting to unravel.

GM and Toyota signed a joint venture agreement in California 12 months ago. The FTC took jurisdiction and has refused to hold public hearings. Then, after a long secret investigation, it rules three to two in favor of the simple joint venture.

We petitioned for release of the documents that the FTC reviewed in arriving at this decision. Ultimately the Commission released 1,385 pages of highly expurgated material, which I will refer to later.

We sued GM and Toyota in order to get the facts into the open for the public to see and now the Justice Department has come in and challenged Chrysler's right to sue.

I have to ask, what is going on here?

GM says to me, "How can you complain? You haven't seen the contract.'

The Justice Department says to me, "You shouldn't see it. It's none of your business."

And the FTC says to me, "You can see some of it," and then gives me this book to read, with the juicy parts left out.

I submit that what appears to be going on is that GM, Toyota, the FTC and the Justice Department are saying Chrysler is not entitled to its day in court and I submit that that is just not the American way and that is the only reason I am here today. Somebody has to try and start airing this whole thing out.

Now, I am not a lawyer, but I can read. And I have read section 7 of the Clayton Act and sections 1 and 2 of the Sherman Act, and what they tell me is that this deal is patently illegal. If it isn't, then our antitrust laws have just lost all their meaning, or else they have just been rewritten. Take your pick.

What, really, is the issue here? Size and power. GM's sales are bigger than the GNP of all but 25 countries in the world; add Toyota and their combined sales are bigger than the GNP of all but 20 countries.

In the U.S. market, which is the one at stake, they are bigger than all the other automotive companies in the world put together. But you know that, and so does the FTC and the Justice Department. But they continue to feel that this combination will increase, not diminish, competition in the U.S. market, and I say that they are standing the world on its head when they come to such a conclusion.

Why?

One reason is prices. Everybody knows-even the FTC figured this out, by the way-that GM is the domestic price leader and Toyota is the import price leader.

Ford and Chrysler target their domestic prices on GM.

Chrysler, by contract with our Japanese partner, Mitsubishi, targets imported vehicle prices on Toyota. It has been the head-tohead competition between Toyota and GM that sets the pricing pattern for the entire industry.

Do you think that pattern is going to stay the same when GM and Toyota sit down together and set prices, as they already have, and when this competition disappears, do you think the American consumer will have lower prices? I don't.

A second reason is product. If GM can save itself one or two billion dollars by taking a ready-made Toyota, which Toyota will sell here whether or not it does the deal with GM, from the silver platter that the FTC is serving up, do you think GM will go out and develop its own small car, which it still calls the "No-year car?" I don't and, if I am right, will the American consumer have more small cars to choose from?

A third reason is collusion. If GM and Toyota can meet every day for 12 years to discuss prices, products, marketing strategies, advertising, dealer networks, suppliers, R&D, manufacturing techniques, labor relations and any other subject that comes into their heads, do you think they won't?

Do you think they will be able to resist that kind of temptation? I doubt that I would.

I submit that GM and Toyota can't wait to get started on trading information and coordinating strategies. In fact, they haven't waited, as even the FTC has figured out. How can that be good for competition? How can it be good for consumers?

Neither Commissioner Pertschuk nor Commissioner Bailey felt it would be. Their dissenting opinions were very, very strong.

Commissioner Pertschuk said:

"This joint venture is a plain and unambiguous violation of the antitrust laws. It is bad news for the consumer."

Commissioner Bailey said the deal "assures an ascending spiral of lockstep pricing," and asked, "If this joint venture between the world's first and third largest automobile companies does not violate the antitrust laws, what does the Commission think will?" Comissioner Bailey went on to say:

The auto industry is clearly undergoing a concentration trend; the question is whether the Federal Trade Commission should accelerate that process by an action which will almost inevitably touch off a reactive pattern of strategic pairing between car manufacturers.

That is especially a troubling concern since the purpose behind these cooperative ventures would not be the creation of a new competitor, but rather a decrease in the overall number of market participants, leading to increased likelihood of tacit, if not actual collusion.

Adam Smith, the Commission's patron saint, had something to say on this subject when he stated that it is not possible for the law to prevent people of the same trade from ever getting together, but that the law shouldn't facilitate their getting together.

That is Chrysler's position in this case. Because be believe that competition will be diminished in this country, and we remain dumbfounded that anybody could really draw a different conclu

sion.

Chairman Miller and the other two Commissioners in the majority go on to say, in effect, that GM needs Toyota's help if it is to compete effectively in this market, that GM needs 12 full years to learn how to lay out a plant.

I submit that is ridiculous. GM just announced earnings of $3.7 billion for 1983-$10 million per day. That doesn't look to me like a company that needs help on anything.

It is down here trying to change the fuel economy standards so it can continue to build large cars and make even more money.

It lobbied for an increase in quotas so that it could pick up 300,000 small cars from Suzuki and Isuzu and, in the real world, lay off its small-car production base to Japan.

And now, on top of that, it says it needs to go with the second largest car and truck producer in the world in order to remain competitive?

No way. It wants to get rid of the Chevette, which contains 95percent domestic content, and substitute a car that has 40- to 50percent domestic content. That is too little too late for the car to be counter for CAFE purposes, by the way, which requires 75-percent domestic content.

But mark my words, they will be back any day now, if they haven't been down here already, to change the CAFE standards. Believe me, GM's purpose is not to learn Japanese management systems. Chairman Smith has already said, less than 3 weeks ago, "I know what the Japanese management system is." And he added, "We have had a 34-percent interest in Isuzu for 12 years. But ĺ don't know if the Japanese management system will work in the United States.

They could go visit Honda at Marysville.

If they really need that kind of help, which I doubt, why don't they get it from Isuzu? Or from GM's other Japanese partner, Suzuki, the company that is generally recognized as the most costefficient of any Japanese automaker?

We have said repeatedly that a GM joint venture with either Isuzu or Suzuki would give us no problem; that what we object to in GM/Toyota is a function of their size and market power.

People say, why don't you quit complaining and do a deal just like GM/Toyota?

I

say, "Fine, but how?"

If every other player in our market were to join up with Chrysler-I mean Ford, AMC, VW, Honda, Nissan, Mazda, Peugeot, Volvo, Mercedes, Rolls Royce and every other car maker in the world, we still wouldn't have as much U.S. market share as GM and Toyota do.

Chairman Miller and two other FTC Commissioners, while acknowledging the joint power of GM and Toyota, point to the "small size" of the joint venture, and say that, quote: "The areas of continued competition between the companies will dwarf the limited area of cooperation represented by the joint venture.'

Some dwarf. At $6,000 a copy, these 250,000 cars will have a retail value of $1.5 billion that would put the Fremont plant, all by itself, in the top half of the Fortune 500 list, and this model would be the third best selling nameplate in America, outselling all the cars that American Motors sold last year.

But, Mr. Chairman, even after I have said all that, I have not touched on the core issue in this matter. That issue is jobs.

I have already pointed out that a trade of the Chevette for the Fremont vehicle will result in a net loss of jobs because of a 10-or12-fold increase in imported components.

I have already noted that GM tried to get another 300,000 cars from Suzuki and Isuzu added to its own quotas beginning with the 1985 model year. GM's top management has gone further, and stated that their aggregate need, until the "No-Year-Car" gets a

year, is for 1 million small cars. Pontiac has said it is looking at importing cars from Daewoo in Korea. If all that comes to pass, and by the time the rest of us get through following their lead just to stay alive, U.S. auto plants are going to fall like dominoes.

I hope you do not have one in your district, but they are. Right now, I have got to face a decision on whether or not to build a small car in Belvidere, IL. Before I put up $600 million to tool that car, I have got to know if GM is going to be allowed to get away with its Japanese strategy: I need to know what the rules are. If GM is given carte blanche to carve up the market, and if our Government says forget about restraints, which they could, and forget about a level playing field so far as export tax rebates and the yen/dollar problem is concerned, then I have got to go overseas too. I have no choice. Neither do the other domestic manufacturers. The net result of this mass exportation will be the loss of another 300,000 American jobs. I have submitted a chart to the committee showing how that is going to happen: the United States is going to lose 300,000 jobs as a result of GM's Japanese strategy.

You know, Mr. Chairman, it is kind of ironic. I fought for restraints on Japanese imports to this country because I knew, I think, in my head but I knew in my heart that unrestrained imports could and would flatten the American economy and kill the infant recovery in its crib. And now, I am here testifying against a proposal that some believe will add a small measure of employment in a town in northern California. Their rationale is, "half a loaf is better than none."

Well, I see it this way: If GM is allowed to proceed with its entire game plan, we are not only going to lose half a loaf today, we are going to lose the whole loaf tomorrow.

And I say to Toyota: Why do you not stop dipping your toe in the water? Take the plunge. Come build cars here on your own, instead of on the cheap. Honda put $300 million into Ohio, and is now going to put in $250 million more. Nissan put $600 million into Tennessee. What makes Toyota-big, debt-free Toyota-the second biggest car and truck maker in the world—think it should only chip in with $150 million in California?

Mr. Chairman, I submit that when you put it all together, the Fremont proposal flunks the test of commonsense on every count: legality, economics, employment, and benefit to the consumer. Perhaps most of all, it represents industrial policy, an ad hoc policy, at its worst, made in secret, without a single public hearing... followed by an effort to disqualify Chrysler's attempt to get at the facts in court. Is that the democratic process? If it is now, it was not 4 years ago.

What a contrast to the spotlight that Chrysler endured, here in Congress, during the loan guarantee debates. We had public hearings here every day, in this very building, and then went on television, night after night, defending what had been said here. The American people heard the facts and, through their elected representatives, got to vote on those facts.

But the FTC's GM-Toyota decision-which is even more important to the future of the auto business and of this country than the Chrysler loan guarantees-was made under a gag rule so tight that two of the Commissioners choked on it, and said so.