Mr. IACOCCA. If you have policies that are that narrow, you lose all the radio business in this country, you lose most of the T.V., we are losing only 20, 25 percent of steel and autos.

You are projecting what if we go to 100. So be it. If our policies are that narrow under any administration—this one hasn't done too well in my opinion. If we are saying so be it, you are trying to hang in there to keep as much of that industry and jobs as you can. Autos are the biggest employer, steel is second, electronics is third, aircraft is fourth.

Those are where the jobs are. I did not create that. So let's get a policy to save them.

That is the way you answer them. We are just a little piece of this. And you can go back and say I don't know, do you think that saving Chrysler and those 600,000 jobs at that time was a good deal or not? We got a lot of converts in the last year.

Why? We paid them back. But I don't know what the policy is. I know under the last administration they had a big-it was the right track-under the Department of Transportation, to look at a composite policy for the auto business that would take regulation and the energy problem, and R&D moneys, and the tax structure, and try to work out something, because they said, if not, the auto industry is going down the tube.

In 4 years I haven't seen anything addressing that. They say you cannot do that-let the free market work its wonders. It is working wonders all right. I think we are kidding ourselves.

We are making billions this year, and believe me, we will pay the piper down the road.

Mr. TAUZIN. I tend to agree with you. That is my big concern. If they don't address the very serious bedrock issues—

Mr. IACOCCA. These are bailing wire.

Mr. TAUZIN. The concern I have is if we are not addressing the bedrock issues, it will also hamper the ability of one of the major auto makers in this country to come out of it through whatever joint ventures they put together, will we not be cutting our nose to spite our face.

Mr. IACOCCA. We will erode our industrial base. That is what is happening right now. We are eroding it.

Mr. TAUZIN. Thank you, Mr. Chairman.

Mr. FLORIO. Mr. Iacocca, we appreciate your participation today. Thank you very much for being a very helpful witness.

Mr. IACOCCA. Thank you, Mr. Chairman.

Mr. FLORIO. We now call our next witness, Mr. Ralph Nader, Congress Watch.

Welcome to the committee. Your prepared statement will be made a part of the record. Proceed.

STATEMENT OF RALPH NADER, PUBLIC CITIZEN'S CONGRESS WATCH, ACCOMPANIED BY JAY ANGOFF, STAFF ATTORNEY Mr. NADER. Thank you very much, Mr. Chairman. With me is Jay Angoff, an attorney with Public Citizens, formerly an attorney at the Federal Trade Commission.

I would like to describe in a more general way, first, and hope that the committee members, if they wish, would like to refer to

our 38-page statement for any details, the general thrust of the General Motors joint venture agreement with Toyota.

For years, General Motors, as many economists have demonstrated, had an administrative-administered price control over the domestic market. And what Mr. Iacocca said about the price leadership of General Motors was certainly the case up until the major entry by the Japanese led by Toyota and Nissan, which began to manifest itself over 10 years ago.

That is, there was a tight oligopoly in this country dominated by General Motors which basically set not only the price leadership, but also the product design parameters.

When the Japanese came in, they destabilized this situation. General Motors began to lose control. It began to look at the Japanese competition under the motto-if you can't beat them, buy into them. And a number of years ago, it did buy into Isuzu and to a lesser degree, Suzuki.

Now, of course, the General Motors has a grand historic opportunity to reinstate its tight oligopoly strategy over the entire world automobile industry outside, of course, of the socialist countries.

The agreement with Toyota in one fell swoop puts into operation the oligopoly shock that Mr. Iacocca described. Parenthetically, I think future scholars will look back at Mr. Iacocca's testimony today as the most penetrating, forthright analysis of the auto industry's competition policies since George Romney, the Chairman of the Board of American Motors Corp., testified in the fifties before the Senate Antitrust Committee.

And what he said today was absolutely right in terms of its repercussive effect. This is not just 250,000 cars a year. It is the wedlock of the two giant auto companies, a wedlock which will lead to damaging anticompetitive consequences for other companies not so large and not so fortunate in receiving the blessings of a majority of the Federal Trade Commission.

What is important about this entire operation, of course, is its impact on consumers. That is what an economy is all about, and that is the standard of judgment that we should measure the joint venture proposal by.

There is very little doubt that General Motors pricing strategy has moved into the realm of high price, lower volume profit calculation. It has made an all-time record profit last year of $3.7 billion on $75 billion worth of sales, and it has done it on a lower volume than comparable profitable years.

Its average price of a car is now over $10,000, and the question is will the joint venture between Toyota and GM lead to a contradiction of this already established high price, lower volume pricing strategy of GM-of course not. GM certainly is not going to go into business with Toyota in order to contradict and roll back what has proven to be an extraordinarily successful pricing strategy.

So in modern garb, it is the old story of target pricing, administered prices, so well documented by the Senate Antitrust Committee in the 1950's and 1960's.

Now, if we look at this joint venture from Mr. Smith's own words-and I find myself once again deploring the inability of congressional committees to turn out top executives of the auto compa

nies when such important issues are at stake. But Mr. Smith did testify yesterday, Congressman Florio.

He testified before the National Press Club, and he didn't hold over in order to come here and testify. But in answer to two questions on the joint venture with Toyota, one on the confidentiality of information, trade secrets between the two companies, and on why are you doing this, he gave the following answers.

On how is the agreement to enforce the confidentiality provisions going to be enforced, and he said, GM and Toyota will self-enforce. That is, neither company has any desire to share our trade secrets with one another. He neglected to point out that the trade secret interface goes to other competitors as well as to consumers.

And what is at issue is not what they are going to-what is at issue is what they together are going to keep away from the rest of the economic arena. And there simply is no way, once the wedlock moves into operation, for there to be any Federal Trade Commission restraints or any other restraints on what kind of collusion, what kind of joint product design restraint, what kind of pricing strategies they are going to change and deliberate and decide upon worldwide.

It was in his second answer, however, that the intriguing real reason for this joint venture, apart from the ricochet of price increase, comes into play. He was asked-what could the largest auto company in the world learn from Toyota. First of all, whatever they want to learn-whatever GM wants to learn about Japanese management techniques, they are into two companies over there already, and they can observe Japanese-built factories here in the United States.

And this is where Mr. Smith gave away his hand. He said, “we know about Japanese management techniques in Japan. We don't know how they will work in the United States with an independent style labor force."

And what is quite clear here-and he did not give any other reason as to how GM would benefit from this joint venture. No reason whatsoever. That was his main answer and only answer. What is clear here is not only a price ratchet upward to consumers in the small market sector, what is clear is that he wants to crush the labor movement in terms of organized unionism.

And the fact that the UAW does not stand up at all on this issue is a clear illustration of how totally intimidated it is, and how shortsighted it is in this particular conflict, because if you talk to people inside the UAW, there is no question in their mind that GM wants to spread in this country Toyota Corporation's labor practices.

Now, before Mr. Angoff discusses the pricing formula, I would like to point out that the leading joint venture articles in law journals-one by Prof. Robert Pitofsky, who used to be a Federal Trade Commission Commissioner, and another in the Columbia Law Review of 1982, Prof. Joseph Brodley. If you look at their criteria for permissible joint ventures, this joint venture violates all of them.

In fact, if there was to be put forward a more illicit joint venture than the Toyota/GM joint venture, one could not find it.

It is a joint venture that violates the following criteria. A-let me just cite you briefly Prof. Pitofksy's criteria of inevitably anticompetitive joint ventures. One, if it is a 50/50 joint venture. The GM/Toyota is a 50/50 joint venture.

Two, if it is selling a standardized product. The joint venture between Toyota and GM sells a standardized product, a modified Toyota Corolla.

Three, if it competes directly with products sold by both the joint venture partners. The modified Toyota Corolla sold by the joint venture will compete directly with Toyota Corolla and GM's Chevette, until the Chevette is phased out of business because of this joint venture.

Fourth, the joint venture parents must account for a sufficiently substantial share of the market so that each must take into account pricing decisions of the other in establishing its own price.

The parents of the GM/Toyota joint venture easily account for a large enough market share-GM for 44 percent, Toyota for 6 percent of the total domestic U.S. car market. So that each must consider the other's pricing decisions in establishing its own price.

Prof. Joseph Brodley, in his article, in Columbia Law Review, notes that there are two characteristics that are anticompetitive and the GM joint venture with Toyota meets them. That is, the U.S. auto market has a Herfendahl index of 2413, which is well over the new Justice guideline threshhold of 1800 for a highly concentrated market.

Second, GM and Toyota are actual competitors, as I mentioned before.

So, it is a horizontal joint venture, a pure joint venture, in contrast to a research or research and development joint venture. And it makes nothing innovative.

You see, one could say, well, this joint venture has all kinds of anticompetitive consequences except that it is going to produce a different kind of car, a really innovative car, a crash-worthy car, a superbly fuel-efficient car, bringing the best engineering minds of Toyota and GM together.

What is coming out of this joint venture? Essentially, the Toyota Corolla, just another one of the non-crash-worthy Japanese lanterns which have been flooding this market, a literally unsafe car.

Now, I would like to have Mr. Angoff briefly discuss the pricing formula, and then I want to discuss the behavior of the Federal Trade Commission which is one of the two major issues you are holding this hearing for.

Mr. ANGOFF. The question in analyzing this joint venture or any joint venture is whether it is going to lessen competition substantially. And I think in a lot of this discussion that has really been lost sight of.

If you go through the 1,385 pages that were released by the Federal Trade Commission, you find that just about everybody at the FTC, including the lawyers, many of the economists, and even Chairman Miller himself, admitted that there are two things that really do pose substantial competitive problems. Now, the firstand I think Mr. Iacocca put this the best-I just-is the virtual certainty that confidential information is going to be exchanged.

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The consent agreement expressly provides that the parties can exchange information about price. It expressly provides that.

More important, though, to the extent that it doesn't provide that, it can exchange certain information, there is really, as a prac tical matter, no way to enforce it. I think when Mr. Iacocca said you don't even have to say anything, two guys can just pass each other in the hall, and one will agree not to step on the other guy's toes, he is in the auto industry, he said, that, I think that is very significant.

The consent ageement expressly allows that.

The second thing that again makes it virtually certain that prices are going to go up is the pricing formula. The pricing formula says that the price of the joint venture car is going to depend to a large extent and to a somewhat lesser extent on the price of the GM Chevette and most importantly on the Toyota Corolla. Both of those companies are price leaders, that is, they raise their prices and the others follow.

It doesn't mean they can raise their prices indefinitely. So they both have an incentive to raise their price. Most importantly, Toyota has a particularly strong incentive to raise their price because of the quotas.

Toyota even theoretically could not possibly follow a strategy of lowering price in order to sell more cars because they are prohibited by law from selling more than a certain number of cars.

So the only strategy for Toyota to make sense is to raise its price. Now, when we talk about raising prices, it is not just the small cars, it is not just GM and Toyota, but it is all makes of all cars. And the reason is that the way the auto industry works-and, again, you heard Mr. Iacocca talk about it; the subcompact is under a compact and the mid-size above a compact, the large cars above a mid-size-there has to be a price differential between all those different makes of cars.

To the extent that subcompacts are raised, then the prices of all cars are raised. It doesn't mean without limit. But there is certainly a great deal of latitude that this joint venture will give Toyota and GM to raise their prices under the pricing formula.

Mr. NADER. Thank you.

In line with some of the witnesses' concern that this is really a watershed issue, in the history of antitrust enforcement, and that the repercussions for concentration in the auto industry worldwide are very serious, I think it is important for us to talk about the Federal Trade Commission in ways that the two Commissioners could not because they have to deal every day with their fellow Commissioners.

I consider the way the Federal Trade Commission majority arrived at its decision to be a classic display of contempt for the antitrust laws, larded with some measure of appearance of impropriety. The Federal Trade Commission is a law enforcement agency, Mr. Chairman, but in its analysis of the GM/Toyota joint venture, both the Commission and its staff have treated the law, whether made by Congress or the courts, with contempt.

This is not a shade of gray legal issue. Congress has declared unlawful joint ventures where the effect "may be substantially to lessen competition."