It should be emphasized, however, that in its negotiations with the members of the tire and tube industry, the Office of Price Administration has relied on the cooperation of the industry in obtaining necessary factual data and in avoiding inflationary price increases. Although the Office believes that it has been successful thus far in carrying out its objectives with respect to the prices of tires and tubes, it should nevertheless be realized that the general work of the Office would be greatly facilitated by the passage of the statute providing it with adequate enforcement machinery.

IV. ANALYSIS OF PRODUCTION COSTS OF THE TIRE AND TUBE INDUSTRY"

A. Crude rubber.—The average price per pound of crude rubber charged to tiremanufacturing costs during the first 6 months of 1941 ranged by companies from a low of 18.10 cents to a high of 20.81 cents per pound. The bulk of this rubber was purchased during the last half of 1940. During the spring of 1941, the price of crude rubber advanced sharply, reaching a peak of 25 cents per pound. Following a decline to 22 cents, the price rose again to slightly above 23 cents in mid-July..

On June 23, 1941, Rubber Reserve Company became the sole buyer of crude rubber in the Far East, and on August 6, 1941, it announced that it would sell crude rubber to manufacturers at a base price of 221⁄2 cents per pound for No. 1X ribbed smoked sheets, f. o. b., New York. Including freight to companies' factories and other handling charges, this means a cost price of approximately 23 cents per pound for No. 1X ribbed smoked sheets Some companies have already consumed the crude-rubber inventories which were purchased at somewhat lower prices. All of the others will be in this position shortly after the end of this year. On the average, allowing for the fact that some lower-grade rubber is used in tire manufacture, a price of 224 cents per pound for the period ahead represents a fair basis for calculating increased rubber cost over and above the first half of 1941. The ratio of crude-rubber cost to manufacturers' net sales of tires during the first half of the year varied by companies from 27.4 to 43.4 percent. The product of the increase in rubber price incurred by each company times the ratio of rubber cost to net sales during the first half of the year for that company gave the increase in that company's selling prices necessary to cover the increased per unit cost of crude rubber. These latter increases ranged by companies from 4 to 6% percent.

B. Cotton fabric.-Although there are various types and qualities of cotton fabric used in automobile tires, the prices of the various constructions move together, percentagewise. In the table below there is set forth for the most widely used passenger tire fabric (12/4/2 16'') the average monthly price from July 1940 to October 1941. For the purpose of comparison, the corresponding price for raw cotton is also shown, along with the gross cotton mill manufacturing margin prevailing in each month.

A policy of covering cotton fabric requirements from 3 to 6 months ahead has in the past been common in the tire industry. Cotton bought during the last half of 1940, for example, went into tire production during the first half of 1941. The average of the monthly prices for fabric (12/4/2 116") for the last 6 months of 1940 was 27 cents per pound, as shown by the table. This average is representative of the cost charged to operations per pound during the first half of 1941.

A number of the medium-sized and smaller tire companies are already putting into production cotton fabric that was purchased at the high prices that have prevailed since early last summer, averaging about 39 cents per pound for the 12/4/2 16' fabric, or 45 percent above the 27-cent cost price for the first 6 months of 1941. Other companies will exhaust their inventories of lower-cost fabric sometime before or shortly after the end of the year. We have selected as the cost price representative of the period immediately ahead the average of monthly market prices during the 6 months from April to September, which is 35 cents per pound, or 30 percent higher than the cost price for the first half of 1941. This 30 percent advance has been used in calculating the increase in costs of all types of fabrics, since, as stated above, the prices of all move closely together.

During the first half of 1941, the ratio of total fabric, cost to net sales varied among the individual tire companies purchasing their fabric requirements

Unless otherwise specified, the figures are based upon data furnished to the Office of Price Administration by the tire and tube companies.

from 12.60 to 18.90 percent. To cover the 30-percent increase in per pound cost would therefore require increases in net selling prices ranging from approximately 3 to 5 percent."

TABLE 93.-Price of raw cotton, gross mill manufacturing margin, and price of a principal tire fabric monthly, July 1940 to October 1941

14

14 The prices shown for raw cotton are for the standard 15/16" staple. To obtain the equivalent price per pound for. 116" staple cotton, which is required for this tire fabric, a differential of 2 cents must be added. To allow for the normal 20 percent wastage, the price for 16" staple raw cotton must then be divided by 0.80. The result is the price for clean cotton. The sum of the price for clean cotton, 18" staple, plus the mill margin gives the price per pound for tire fabric.

15 The spot prices of raw cotton are monthly averages from the Survey of Current Business; the prices for Sept. 15 and Oct. 15 are prices for the nearest future at the middle of the month taken from the Journal of Commerce.

16

C. Other materials. In order to cover increases in the cost of miscellaneous materials other than rubber and fabric, an advance of approximately threefourths of 1 percent in selling prices would be necessary.

D. Labor cost.-The latest available report by the Department of Labor shows average hourly earnings in rubber tire and tube factories for August as $1.062. The figure for January 1941 was $0.975. The increase indicated between January and August amounts to 8.9 percent. Our information is that a comparison of current wage rates with those prevailing on the average during the first half of 1941 would show an increase of close to 10 percent. Since the ratio of direct labor cost to net sales for tire companies during the first half ranged from 6 to 12 percent, increases of from one-half to 1 percent in net selling prices would be necessary to cover the increased direct labor cost per unit of output.

E. Summary. As noted above, the total increase in selling prices required to cover the above increases in the unit cost of manufacturing tires amounts to from 9 to 14 percent, as set forth below:

Crude rubber_.

Cotton fabric__.

Percent

4 to 62

34 to 54

In determining on October 11, 1941, not to interpose an objection to increases in wholesale prices ranging from 11 to 13 percent, the Office of Price Adminis

18 It has not been possible to calculate accurately the required increase in selling prices necessary to cover the increased cotton cost incurred by the 5 companies which produce the bulk of their fabric requirements in their own mills, but it would be approximately 3% to 4 percent. 16 Included are a wide variety of materials such as carbon black, sulphur, etc.

tration considered, in addition to these cost figures, the earnings positions of the companies as set out in section V below.

V. EVALUATION OF THE INCREASE IN TIRE AND TUBE PRICES

A. Comparison of current prices for tires and tubes with prices prevailing in September 1939.-Present consumer list prices for automobiles tires and tubes, adjusted to include not only the recent advance in prices but also the increased excise taxes, are still below the consumer-list prices for the same items that were in effect in September 1939, at the outbreak of the war in Europe. This is shown in the table below, using as an example a first-line 6.00-16 black passenger tire:

However, the consumer list prices offer only a rough guide to the actual prices charged for tires and tubes, since at the retail level tires and tubes have customarily been sold at varying discounts from list prices.

B. Earnings of tire companies.-Analysis of earnings data of the 22 principal companies manufacturing automobile tires and tubes reveals a sharp distinction between the 4 biggest companies in the industry and the remaining 18 companies. In November 1939 one of the Big Four companies initiated a cut in tire prices that was met by the other companies in the industry. The effect of this price cut is shown below. The combined net profits on all operations of the Big Four for 1939 and 1940 were as follows:

The combined net profits on all operations of the other 18 companies were as follows:

The difference between the so-called Big Four companies and the smaller companies lies in the fact that the Big Four companies engage to a greater extent in lines of manufacture other than tires and tubes for the replacement market. The Big Four companies used less than 50 percent of their crude rubber for tires sold on the replacement market, while for almost all of the other comapnies, replacement tires took from 75 to 100 percent of the total amount of crude rubber consumed by each. Furthermore, the Big Four companies engage in lines of manufacture not requiring the use of crude rubber.

On the basis of figures prepared by the companies, the earnings of the companies segregated for tires and tubes sold in the replacement market show the following: For the year 1940, of the 18 smaller companies, 10 showed substantial losses, 4 showed negligible profit, and 4 had profits ranging from 1.14 to 7.23 percent of net sales. The Big Four companies reported profit margins ranging from 0.41 to 5.80 percent of net sales. For the first 6 months of 1941, one of the Big Four companies reported a net loss on its own brand of replacement tires, while the other 3 reported profits amounting to from 4.50 to 8.40 percent of net sales. Of the 15 smaller companies for which data is available, 6 showed deficits, 2 showed profit margins of less than 1 percent of net sales, and the other 7 had profit margins amounting to from 1.16 to 7.30 percent of net sales.

The direct cost increases allowed for, as described in section IV, were calculated on a per unit basis. It is not to be expected that the tire companies will continue to enjoy the level of total net profits on replacement tire business earned during the first 6 months of 1941, even with the increased prices, because the substantial reduction in allowable crude rubber consumption has resulted in a curtailment of production volume.

The earnings positions of the smaller companies were taken into consideration in not objecting to the increase in consumer list prices. Furthermore, since the smaller companies maintain a longer discount schedule than the Fig Four, they will obtain a greater increase in net realization from the increase in consumer list prices.

In view of the substantial curtailment of sales volume for the period since June 1941, and in view of the earnings positions shown by the medium-sized and smaller tire companies on replacement business even prior to the restriction of crude rubber consumption, it was the carefully considered judgment of the Office of Price Administration that no objection should be interposed to an advance in tire prices to cover increases in direct costs of manufacture. APPENDIX A. CHRONOLOGY OF ACTION TAKEN ON TIRE AND TUBE PRICES BY THE OFFICE OF PRICE ADMINISTRATION

On June 22, 1941, the Office of Price Administration issued a civilian allocation program for rubber in connection with General Preference Order M-15 of the Office of Production Management which restricted consumption of crude rubber. On June 22, 1941, the Office of Price Administration announced that price ceilings on tires and tubes would soon be issued fixing prices at the June 16 levels to prevent prices rising because of this restricted consumption.

On July 3, 1941, after investigation and after conferences with members of the tire industry, the Office of Price Administration announced that ceiling prices on finished rubber products, in particular tires and tubes, would be deferred pending voluntary efforts of manufacturers to keep prices in line with June 16 levels, except for adjustments resulting from higher material costs. Each company was requested to consult with the Office in advance of any contemplated changes in tire and tube list prices or any discount from list prices.

On July 30, 1941, after repeated requests for permission to increase prices, the Office of Price Administration announced that it would not object to increases of not more than 5 percent in the wholesale prices of automobile tires and tubes. Preliminary showing had been made that direct cost advances clearly justified at least this 5-percent adjustment.

On August 1, 1941, the Office of Price Administration mailed to all tire companies a questionnaire to obtain basic cost and earnings data.

On September 29, 1941, the Office of Price Administration advised tire manufacturers that it would not object to an advance in prices of tires and tubes on October 1, 1941, by amounts not in excess of the increase in excise tax effective that date. It was urged that the tax be billed separately to avoid pyramiding in prices paid by consumers.

On October 11, 1941, the Office of Price Administration announced that no objection would be raised to advances in the consumer list prices of tires and tubes of not more than 9 percent over June 16, 1941, levels. Manufacturers were required to maintain all discounts in effect on June 16 unless changes were approved. This resulted in an increase in the maximum wholesale price, amounting to from 11 to 13 percent, depending upon the discount schedule of the manufacturer, and included the 5-percent increase in wholesale prices previously permitted.

APPENDIX B. CURTAILMENT OF CRUDE RUBBER CONSUMPTION

On June 22, 1941, the Office of Price Administration and Civilian Supply issued the civilian allocation program for rubber curtailing the consumption of crude rubber for the last 6 months of the year. This order was implemented by General Preference Order No. M-15, as amended, issued by the Priorities Division of the Office of Production Management.

The curtailment program set up quotas for processors of crude rubber, limiting their monthly consumption during the second half of the year to fixed percentages of average monthly consumption in the 12 months from April 1940 through March 1941. Manufacturers were required to accept orders for defense materials in preference to nondefense orders. The curtailment program, however, applied equally to crude rubber used for defense as well as for nondefense purposes. The increasing volume of defense orders, therefore, limits the amount of rubber available for the production of tires and tubes. Adjustments have been made by the Office of Production Management in cases of individual companies, so that the extent and effect of the curtailment program on the production of tires and tubes cannot be accurately estimated at the present time.

The curtailment of crude rubber consumption in the months since April 1941 appears in the following table:

Monthly consumption of crude rubber by all companies in the United States for

all purposes1

Long tons

71, 374

71, 187

84.912

68, 653

55, 365

1 Latest available figures as compiled by the Rubber Manufacturers' Association.

53, 655

The CHAIRMAN. We have with us this morning Dr. Isador Lubin, the Commissioner of Labor Statistics, of the Department of Labor.

STATEMENT OF DR. ISADOR LUBIN, COMMISSIONER OF LABOR

STATISTICS

The CHAIRMAN. Dr. Lubin, the committee will be glad to have you discuss this bill. You may make any preliminary statement you wish, and members will refrain from interrogating you, if you so desire, until you shall have concluded.

Dr. LUBIN. Mr. Chairman, I leave that to the discretion of the individual members. If they care to interrupt at any point, I shall certainly be glad to reply to any questions they may wish to ask.

I have been asked to testify as a representative of the Department of Labor relative to some of the problems that are involved in pricefixing, particularly as they refer to the question of wages and wage

rates.

I would like to discuss four or five aspects of some of these problems.

It is quite evident that if the question of wage rates is raised in the formulation of such a bill, such question is raised because of the fact that it is assumed that wage-rate increases are responsible for the rises in prices that have been taking place, or that might be expected to take place.

I would like to deal with that aspect of the problem first.

Both wholesale prices and the average hourly earnings of factory workers have advanced since the outbreak of the European War. However, the price increases that occurred up to August 1941 cannot