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C 0 Congress of the United states House of .Representatives Washington, u. C. P Member of Education and Labor Committee Ray J. Madden 1st district Indiana January k/+, 1949. Mr. M, S. Board of Governors Federal Reserve iioard Washington o , D. C. Dear Mr. Eccies: I received i&umerous. protests front automobile dealers in regard to h.egulation w. Unless something is done to relieve tnis rigid control, a great number of retail automobile dealers in my district and thousands in tne country will close their doors. Please advise me if there cannot be a change in tnis rigid regulation. Very truly yours, Kay J. madden, At. G. (Signed^ CJPY February 16, 1949 < Honorable Eay J. Madden, Hou^e of Representatives, Washington, D. C. Dear Mr. jkladden: This will acknowledge receipt of your letter of January *.U> 19-49> i-11 v*hich you suggest relaxation of the provisions of Regulation «, as they apply to the instalment sale of automobiles. although the Board has received a number of requests for relaxation of the regulation from tnose in the industry or those financing its retail sales, there is also evidence of a different point of view in those quarters. The attached sheets contain excerpts from unsolicited letters we have received expressing views that the regulation should not be relaxed at this time. Regulation fc is a flexible measure and trietfoardis particularly concerned that it be properly adapted to current economic and credit conditions, iith this in wind, the Board is constantly Studying conditions in the economy generally as well as conditions in businesses which are affected directly by the provisions of the regulation, including trends in the production and marketing of automobiles and other consumers' durable goods. On several occasions since the end of tne war it has appeared that inflationary pressures v«ere waning and that there was a prospect of general price weakness and rising unemployment. Each of these occasions was ended, however, by a renewal of the inflationary spiral. While currently there are some renewed signs of weakness in tne business situation, other factors continue to exert inflationary pressures. It is difficult to measure the specific effect of Regulation ft on the current rend in automobile Dales since tiiere are other factors also influencing these sales, A sales decline is normal at this time of the year on a purely seasonal basis, particularly in tne used car field. Seasonal influences normally Honorable Ray J. madden bring increases in sales and in u^ed car prices in trie Spring. It is clear from the evidence available to tne Board that declines in sales volume of some of the articles covered by Regulation •» began before the regulation wa^ restored on September 20, 1948. Tne recent softening of the automobile market nab been primarily in the medium and higher priced lines, but there continues to be a considerable excess of demand over tne sup iy of automobiles in the aggregate. This is indicated bj the fact that some used ears are stiii priced above the corresponding models of new cars, and only in rare cases have the normal depreciation rates been re-established. Prices of new cars are stiii being increased in the case of recently introduced models, kany people are being priced out of the market while manufacturers' and defers 1 margins remain high. Relaxation of Regulation « under tnese circuiustances, with an attendant increase in demand, wouid tend to support current nigh prices for both new and used cars, in this connection ^e believe trie following statement of tne Senate Committee on Banking and currency recommending enactment of this legislation is of interest: "Only harm could resiIt from inducing millions of American families to go heavily into debt on too easy terms for goods at the present nigh ievei of prices. The excessive credit built up in that nay wouid not only increase present inflationary pressures; it would have to be liquidated Later out of current income should a down swing occur, thus necessarily diverting that income from the channels of consumer expenditures in trie ensuing period.... "...excesses in the field ... ( of consumer credit) can be harmful not only to tne people directly involved, but also to millions of others who are penalized by the inflationary effects of such excesses. The person of small income is trie one nit hardest when inflation pushes rrices beyond his reach and the one who suffers most when the resulting deflation throws him out of a job. The legislation should tend to result in directing competition along the Line of decreasing prices rather than extending excessive credit terms* By making some contribution toward preventing further inflation at this time, and thus toward moderating any ensuing deflation, consumer instalment credit controls can especially serve tne interests oi tne person of low income inaddition to serving tne interests of all other consumers affected by our national economy." Honorable Ray «*. kiadden Oil the oasis of current study, therefore, the Board has not considered that the time has yet come to relax the pro— visi.ns of Regulation H with respect to autor.obii.es. The cituation is somewhat different in other fields covered by the Regulation* There are reports of increasing supplies, price cuts, and other sales concessions in connection with some articles, such as appliances and radios, instalment sales of which are subject to the regulation* These developments are being observed closely, and the Board is prepared to act promptly in relaxing Regulation 1 in either the automobile or appliance field when conditions call for such action. Sincerely yours, .*>, Eccles.
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