not want to. I saw molds being built in Israel, but they were not for the automotive industry, they were primarily for the appliance industry.

Mr. HUNGATE. How long has American Motors been experimenting

with this?

Professor SMITH. I do not know. I think they let the order last year, but I am not sure.

Mr. SMITH. Have you made any studies of cost per unit of foreign competition compared to this country? Labor cost per hour is no measure, really.

Professor SMITH. The tool and diemaker in Europe when I was over there was making about $1.25 an hour. At that time it compared to our roughly $4 to $4.25 an hour.

Mr. SMITH. But as I say, cost per hour of labor is not a measure of total cost of labor in a unit. For example, I do not know the situation today, but only a few years ago, while wages were cheaper in Germany, labor cost per ton of steel was greater. They have a lifetime guarantee of a job and certain other things that come into the cost picture. Have you made any study of this cost comparison?

Professor SMITH. I tried to make a comparison in some respect between Israel and the United States. That is an unfair comparison, because they are relatively underdeveloped.

I think it is important here not to compare the tool and die industry to the steel industry. The steel industry is highly mechanized. If you look at an American tool and diemaker, he works primarily with his hands. He does not really have very many aids available to him that will allow him to be more competitive, for example, than a German tool and diemaker. Unless we can give the American tool and diemaker more productive aids to make him more productive, in my judgment, you will not pick up the differentials in labor costs that are there. I think numerical control and electrical discharge machining, which the tool and die industry has been very, very progressive in picking up, will help them to do that. But previous to that time, as we pointed out in our report, the low volume and the cyclical demands just discouraged the refinement of toolmaking equipment. So you have a man working with his hands in the United States competing with the man in Germany working with his hands. How much of a difference can there be there?

So, to answer your question, I have not looked into it, but that is my conclusion without studying it in detail.

Mr. SMITH. If there are no further questions, we thank you very much, gentlemen, for your testimony.

We will recess until 10 a.m. tomorrow morning. We will look into the question of Government owned and leased machines.

(Whereupon, at 4 p.m., June 3, 1969, the subcommittee recessed, to reconvene at 10 a.m., Wednesday, June 4.)

PROBLEMS FACING THE TOOL AND DIE INDUSTRY

WEDNESDAY, JUNE 4, 1969

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON SPECIAL SMALL BUSINESS PROBLEMS
OF THE SELECT COMMITTEE ON SMALL BUSINESS,

Washington, D.C.

The subcommittee met, pursuant to recess, at 10:05 a.m., in room 2359, Rayburn House Office Building, Hon. Neal Smith (chairman of the subcommittee) presiding.

Present: Representatives Smith, Addabbo, Hungate, and Burton. Also present: Representative Corman of the full committee; Gregg Potvin, general counsel; T. J. Oden, subcommittee counsel; Henry Robinson, counsel; Myrtle Ruth Foutch, clerk; and Fred Wertheimer, minority counsel.

Mr. SMITH. The meeting will come to order.

In this phase of the recent tool-and-die hearings, we will explore three problem areas. One is the practice of major Government prime contractors in subcontracting tool, die, and precision machine work among themselves rather than dealing with independently owned tooland-die shops. Another is the leasing of Government-owned machine tools to large prime contractors. There we are specifically interested, of course, in whether or not the Government is getting what they should for a machine and also its effect upon competition in the general tool-and-die industry. We are also interested in the Department of Defense procurement of spare parts. This has to do with the Government going back to sole source and whether or not the dies that the Government paid for are available to others who want to bid for the spare parts business.

So this morning we have with us the Department of Defense wit

nesses.

Major General Stanwix-Hay, I assume you have a group of people with you for backup.

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TESTIMONY OF MAJ. GEN. ALLEN T. STANWIX-HAY, DEPUTY ASSISTANT SECRETARY OF DEFENSE (INSTALLATIONS AND LOGISTICS) FOR MATERIEL; ACCOMPANIED BY RICHARD A. CARR, DIRECTOR OF PRODUCTION SERVICES, OFFICE OF THE ASSISTANT SECRETARY OF DEFENSE (INSTALLATIONS AND LOGISTICS); ROBERT OWENS, ACTING DIRECTOR OF SMALL BUSINESS AND ECONOMIC UTILIZATION OF POLICY; WILLIAM J. ROGERS, DIRECTORATE OF PROCUREMENT AND PRODUCTION, U.S. ARMY MATERIEL COMMAND; HARLAND G. LEWIS, ASSISTANT DIRECTOR, PROGRAMS AND RESOURCES DIVISION, U.S. NAVY AIR SYSTEMS COMMAND; JOSEPH E. JOERS, ASSISTANT DEPUTY FOR SYSTEMS AND PRODUCTION, OFFICE OF THE ASSISTANT SECRETARY OF THE AIR FORCE; ROBERT E. HARRISS, CHIEF, DATA SYSTEMS BRANCH, DEFENSE INDUSTRIAL PLANT EQUIPMENT CENTER; MARTIN P. BERGAN, CHIEF, INDUSTRIAL MOBILIZATION PLANNING BRANCH, HEADQUARTERS, DEFENSE SUPPLY AGENCY; ROBERT R. SWEENEY, CHIEF, INDUSTRIAL PLANT EQUIPMENT BRANCH, HEADQUARTERS, DEFENSE SUPPLY AGENCY; AND CHARLES M. SCOTT, STAFF ASSISTANT, OFFICE OF DEPUTY ASSISTANT SECRETARY OF DEFENSE (PROCUREMENT) General STANWIX-HAY. I do, sir.

Mr. SMITH. How do you wish to proceed?

General STANWIX-HAY. I have a statement if you wish me to give it to you. It has been submitted beforehand. If you wish, we are prepared to read it or we are prepared to answer questions, whichever you wish.

Mr. SMITH. It is not very long. I think it is important enough that you should read it.

General STANWIX-HAY Yes, sir.

Mr. Chairman and members of the subcommittee, we are pleased to be here today in response to the request contained in the chairman's letter of April 25, 1969, to the Secretary of Defense concerning certain problems of small businesses in the tool and die industry. My statement will endeavor to respond to the various questions asked in that letter and will cover those questions in the order in which they were presented.

I have with me on my right, Mr. Carr, who is our Director of Production Services, and on my left, Mr. Owens, who is Acting Director of Small Business and Economic Utilization Policy of the Office of Secretary of Defense. Also here with me, sir, are members of the Army, Navy, and Air Force, who would be capable of responding to questions which you might wish to ask them directly, sir.

Selected points of a general nature should be covered, however, before addressing your specific questions. First, the questions asked are in regard to machine tools. This term, as used within the Department of Defense and the Government generally, applies only to the classes of metal cutting and metal forming equipment as enumerated in appendix 1 to this statement. Certain prior congressional inquiries, on the other hand, covered a broader category called industrial plant

equipment. That term includes not only machine tools, but many other types of equipment as well, such as industrial furnaces and welding equipment.

The second selected point is that over the past 2 years we have endeavored not only to obtain better data regarding all the equipment we have in the hands of contractors, but also to reduce this total through more restrictive policies concerning the furnishing of such equipment.

The third selected point is that all the data we will present here represent active equipment in the hands of our contractors, whether in a contractor-owned facility or in a Government-owned facility which is simply operated for us by a contractor on a fee basis.

Question I relates to DOD-owned machine tools in use by our contractors. Its various parts deal with different aspects of the general question.

In response to question I-A-1, I refer you to appendix 1 attached to this statement. In appendix 1, we have attached to this statement the list of tools. This is a compilation of the DOD-owned tools in use by our contractors as of March 31, 1969. It shows a total of 73,937 tools, having a combined acquisition value of approximately $1,531 million. These are subdivided by the various Federal supply classes which collectively constitute machine tools. We have made this subdivision because it is felt that the tool and die industry may be more concerned with certain types of tools than others.

Questions I-A-2 and I-A-3 relate to the tools in the hands of each of the 25 largest DOD prime contractors. The most recent compilation of major contractors is based on the value of procurement contracts awarded during fiscal year 1968 and appendix 2 lists the 25 largest prime contractors so determined. For each of these contractors, appendix 2 shows (1) the net number of DOD-owned machine tools furnished during fiscal year 1966, fiscal year 1967, fiscal year 1968 and the first 9 months of fiscal year 1969 and (2) the total number of such tools in each contractor's possession as of March 31, 1969. Detailed records of specific numbers and types of tools held by each contractor prior to June 30, 1965 are no longer available. Therefore, it is not possible in this time to provide the detailed information for 1964 and the first half of 1965 as requested.

Question I-A-4 is similar to the above, but relates specifically to landing gear manufacturers rather than the 25 largest contractors. The desired information is detailed in appendix 3 hereto, in the same format as appendix 2.

Question I-A-5 relates to pending contractor requests for DODowned tools. All contractor requests are required by our regulations to be processed through the Defense Industrial Plant Equipment Center (DIPEC) for screening against records of available idle tools which might be utilized. Our source of information as to the number of requests pending, therefore, is the DIPEC record. This shows that as of March 31, 1969 there were contractor requests pending which involved 178 machine tools with a total estimated value of $4,696,000.

Question I-A-6, and its subparts, relates to the use of DOD-owned machine tools by our contractors for performing commercial work. Individual contracting officers may authorize "incidental commercial use" of our tools by contractors, not to exceed 25 percent of the total use of the tools. Commercial use in excess of 25 percent of total use