CHRYSLER CORP. CAPITALIZED SPECIAL TOOLING-AUTOMOTIVE TOTAL TOOLING EXPENDITURES, 1964-69

1 Increased in-house volume necessitated by strikes in supplier industry.

Mr. KERIGAN. Naturally, although the percentage of tooling activity done in-house has remained constant, the volume of this activity has increased in proportion to our increase in vehicle production. It is also true that the die portion of this in-house tooling activity has increased at a slightly higher rate than in-house tooling generally.

Our experience has proved that it is essential for us to maintain in-house die operations sufficient to meet essential tryout and maintenance requirements, to satisfy the demand for new-product security, and to insure that our needs will be adequately met.

We are somewhere near 50 percent in-house die activity at present. We believe that this level will prove sufficient, and we do not anticipate a need for any increase in this percentage.

Since 1964, Chrysler has placed new tooling facilities in operation at only two locations. On March 9, 1965, the Warren Tool & Die plant was acquired in order to assure that it would continue as a source of necessary requirements. This plant, under independent ownership and management, was facing temporary difficulties and its owner was seeking to dispose of his interests for his personal reasons. The Sterling stamping plant is a new production facility built by Chrysler as part of our normal overall expansion program. It is equipped with the necessary tool and die support operations.

Located in the Detroit area, this plant commenced operations in January 1965. Neither of these facilities has had any effect in reducing the percentage of tool and die business placed outside the corporation. At the Sterling plant, which is a production facility, a support group of machining personnel is required to meet the intense pressures of new model launch. The launch itself occupies about half the total manhours worked by these personnel, and the remaining man-hours are devoted to maintenance operations.

Since we understand that the question of imported tools and dies was raised earlier in the course of these hearings, I believe we should make it clear that no tools or dies are imported into the United States by Chrysler Corp. from either Europe or Japan.

To keep pace with our increased production, Chrysler Corp. has increased the number of new numerical control machines and devices for in-house use. These machines are preferred over less automatic machines because of their accuracy and ability to reduce leadtime for new model introduction. In addition, they offer a greater degree of flexibility essential to our operations. The introduction of a machine of this type can result in the retirement of less efficient equipment. Upgrading tool and die manufacturing operations within our company is

a process of evolution caused by and essential to competition. The same process, of course, is taking place in the plants of our outside suppliers, who also must respond to the demands of competition.

In view of the excellent relations between Chrysler Corp. and our many suppliers of tools and dies, we foresee no need for Government allocation of private tool and die capacity, except possibly for defense purposes. We believe the needs of small business can adequately be served by the Government through proper financial assistance and regulatory processes relating to manpower development.

The existence of a broad, healthy, and versatile tool and die industry is as essential to the automobile industry today as it has been in the past. While competition has been severe, the tool and die industry's freedom to innovate, to independently price its products, and to expand its capacity has been typical of the manufacturing industry.

All the indicators known to us point to a continuing growth in the demand for automobiles in the United States during the next decade, and for as far ahead as measurements can be determined. With this promise of growth, with the ability to meet the disciplines of competition and technological advance that the tool and die industry has already begun to develop, and given a continuation of our present partnership in the manufacture of dies, we believe that the tool and die industry will continue to make a substantial contribution to the national economy.

Thank you.

Mr. SMITH. Thank you, Mr. Kerigan, for your statement. It also was short and to the point.

Now, you were here during the questioning of Mr. Bogart.

Mr. KERIGAN. Yes, sir.

Mr. SMITH. In an effort to save time, though we will take as much time as you want to answer the questions, with regard to the central issue which you accurately described on page 1 in these hearings, would you answer any of those questions differently than he did?

Mr. KERIGAN. No, I do not believe so. I believe Mr. Bogart made a very accurate statement.

Mr. SMITH. With regard to your company and your intentions with regard to in-house capacity, as far as you know, in the foreseeable future, you will keep roughly the same percentage you have now? Mr. KERIGAN. Exactly. We have no plans to expand our in-house capacity.

Mr. SMITH. You are making your measurement in dollar volume, also, are you?

Mr. KERIGAN. That is correct. As Mr. Bogart reported, we tool up for much greater capacity, toolingwise, than is actually required. A set of dies, we will say, produce 5,000 units, but we have to have a complete set of dies to produce, we will say, 2,500. So, it is just a matter of working more hours.

Mr. SMITH. At the bottom of page 2, you said:

Our expenditures for tools and dies vary from one year to the next. However, principally as a result of the scope of our new model programs and not as a result of changing our own in-house capacity.

Now, does that mean that you do not change your in-house capacity in order to make a change in the scope of new model programs?

Mr. KERIGAN. No, we do not. We are talking about machine capacity now. If we have an exceedingly large program, we, of course, can add overtime, but we try to hold the relationship about the same. In the report that I gave you, you can see our total expenditures have actually increased during this 6-year period, however.

Mr. SMITH. But if you were to have an increase in this scope of your new model programs, would you not increase in-house capacity to meet part of that, or not?

Mr. KERIGAN. Not at the present time; no.

Mr. SMITH. Well, then, your percentage of in-house capacity would drop compared to a dollar-volume basis.

Mr. KERIGAN. It possibly could. You see, we have to examine the inhouse capacity in terms of exactly what it is. Our in-house capacity is broken down in terms of the ability to manufacture certain tools; in other words, we have this set up as sort of a pyramid. At the top of the pyramid, we have a group of machines that can, say, manufacture roofs and quarter panels and so forth. But that is limited capacity. We only can take so much in and the rest of it all automatically goes to the outside.

Mr. SMITH. So the percentage, then, if there were to be a substantial change in the number and scope of new model programs, could vary.

Mr. KERIGAN. Well, it has varied from year to year. Of course, as I indicated in my presentation to you, economics are a factor here, increased cost of wages and materials, and so forth. But we do not see this change in the near future.

Mr. SMITH. Now, the one remaining question I want specifically answered is this one about if you were to decide or if the company were to decide as a matter of policy whether it is going to increase the inhouse capacity 10 or 15 percent, how much time would be required to do that?

Mr. KERIGAN. Well, I would have to agree with Mr. Bogart that it would run 3 to 5 years. Now, I would like to talk, first of all, in terms of facilities and equipment. First, we would have to acquire buildings and order machine tools. Delivery of some of these machine tools at the present time will run 2 to 212 years. Secondly, we have the problem of skilled help, and there is a shortage of skilled help in the tool and die organizations. Long before we would ever think about making the capital expenditure, we would have to be sure that skilled help would be available to operate this equipment. Skilled help is out in the die shops. The capital equipment is out there and it is being depreciated every year. For us to train people and to buy this equipment at the going market price and then hope to come up with costs that would be comparable to the outside costs would be next to impossible until we could amortize this equipment and train our people. So this is something that I do not see that the tool and die industry should have any great concern about.

Mr. SMITH. Now, there have been times, I think last July, as I understand it, when there has been considerable layoff in the independent tool and die industry. When that occurred, did you pick up the skilled tool and die mechanics?

Mr. KERIGAN. This is a way of life in our business. It is a two-way street. If we are on strike, our diemakers move over to the independent

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die shops. But the independent die shops and Chrysler Corp. all have rather extensive pension programs. So, we might pick them up for a short period of time, but just as soon as their shop is open, they will move back. Primarily, at that period of time, we would pick these people up to work on tryout, not actually on construction of dies, knowing that this was short term and the short-term bind in the industry at that moment was tryout.

Mr. SMITH. Mr. Addabbo?

Mr. ADDABBO. Mr. Chairman, thank you.

Mr. Kerigan, on page 3, you provide your principal supplies in the tool and die industry 3-year forecasts. Is this usual to the business or just usual to Chrysler?

Mr. KERIGAN. I do not know whether it is usual for the business, but it is a practice that we have started. As I stated in the last page of my statement, we feel we have a partnership with the industry. It will benefit the industry and their long-range cash forecast and manpower requirements and facility requirements, and so forth.

Mr. ADDABBO. Very commendable.

Also on page 3, you say you provide a continuing flow of essential advance information to your principal sources. When you say principal sources, that means the independents, or

Mr. KERIGAN. Oh, to the independents, definitely.

Mr. ADDABBO. And you have a new production facility at the Sterling stamping plant and that is part of your normal overall expansion program.

Mr. KERICAN. Yes.

Mr. ADDABBO. Is there anything in the future as far as future stamping plants are concerned?

Mr. KERIGAN. We have no present plans, but, of course, that is tied into the marketplace. If there is a requirement in the marketplace for additional facilities, well, of course, we will provide the additional facilities, not only in stamping but in the other automotive parts that are needed.

Mr. ADDABBO. On page 5, you say no tools or dies are imported into the United States by Chrysler from either Europe or Japan. Mr. KERIGAN. Yes.

Mr. ADDABBO. We have had testimony here in reply to this that one of your offices had stated that they are not going out of the United States to buy material and suddenly they came up with a large milliondollar purchase contract from Canada. What would be your purchases from Canada?

Mr. KERIGAN. Our purchases from Canada-maybe the preposition is wrong our purchases in Canada are for Canadian production. In other words, we are not buying dies and tools in Canada to be moved to the United States. The Canadian operation, of course, is an independent corporation and a profit center. They want to do the best job they can in the area of profit.

Mr. ADDABBO. It is in no way in direct competition with private U.S. industry?

Mr. KERIGAN. No. In fact, there is a possibility that a large number of these dies are actually manufactured in the United States and shipped to Canada.

Mr. ADDABBO. The new numerical control machines that you speak of on page 5, will they also be available to the independents? When they are available?

Mr. KERIGAN. The machines themselves?

Mr. ADDABBO. Yes.

Mr. KERIGAN. Oh, very definitely. These are standard machines. Mr. ADDABBO. In your machine tool dies, are you using any Government-owned or Government-leased equipment?

Mr. KERIGAN. No, sir.

Mr. SMITH. Mr. Burton?

Mr. BURTON. Thank you.

You mentioned on page 6 of your statement, sir, that you believe the needs of small business can adequately be served by the Government through proper financial assistance and regulatory processes relating to manpower development. Well, as one of the corporate giants in the Nation, I wonder if you could tell the committee what, if anything, Chrysler specifically is doing to try to help small business yourself, or do you have such a program?

Mr. KERIGAN. Oh, we very definitely have a program. It is Chrysler's policy to support small business. In many cases, it is the best and probably the only source that we have for the product.

Mr. BURTON. If it is the best source-are you telling us, then, as our former witness did, that, in many areas, small business can perform and produce products better and cheaper than you can?

Mr. KERIGAN. Yes. Where we are dealing in automotive parts now, we have 18,000 suppliers to Chrysler Corp. Using the criterion of small business of under 500 employees, if you were to look at the recent edition of Fortune Magazine, you would find that the 500th company, smallest company, had 661 employees. So actually you could almost say that 17,000 plus of our suppliers are small businessmen and qualified small businesses.

Mr. BURTON. That is a remarkable statistic and very interesting. These 17,000 businesses, small businesses that you vend with, probably rely pretty heavily upon your needs. Do you have enough business to keep them going full time or do they work for other suppliers, other manufacturers? Are they mostly dependent upon Chrysler?

Mr. KERIGAN. I think that it is a good business practice for a small business not to put all their eggs in one basket and I believe that you will find that the vast majority of these companies may supply all four of the automotive manufacturers; in most cases, at least two.

Mr. BURTON. Of course, the main concern of the hearing, as you know, sir, is to determine what the major automotive industries are doing in increasing in-house requirements as far as tool-and-die operations are concerned. What would you say, if you just picked a figure out of the air, would be the minimum in-house requirement that Chrysler would need to be effective and competitive?

Mr. KERIGAN. Well

Mr. BURTON. Ten percent, 15 percent?

Mr. KERIGAN. Well, we have to really break this down in terms of what are these outsiders going to supply. Now, in terms of our die work, we feel that somewhere in the area of 50 percent of our die work. Now, when we get into the area of fixtures and so forth, we are up in the area of 75 to 85 percent.