PRICES: Phase II Sale Season

U.S. consumers are about to be treated to a Phase II sale. Because some big corporations have exceeded the Price Commission’s guidelines on profits, they are in the process of rolling back prices and may even be forced to make some cash refunds to their customers. Last week a number of firms either were ordered to cut some prices or voluntarily announced reductions. The companies ranged in size from Ford Motor Co., which lowered the price tag on 31 car models by $16 to $50, and F.W. Woolworth Co., which was ordered to reinstate last summer’s prices at its lunch counters, down to a little-known Texas garbage-disposal concern.

Easy Profits. Eventually, said Commission Chairman C. Jackson Grayson, the rollbacks and refunds will save consumers “hundreds of millions of dollars.” It developed that he had fallen victim to the Nixon Administration’s seeming compulsion to overstatement: he later confessed to TIME Correspondent Lawrence Malkin that the vaunted millions included more than price reductions. Besides these, said Grayson, savings to consumers might come in the form of future price increases that companies either will be scared out of requesting or that the commission will not grant. At week’s end, the commission rescinded car price increases of about 4% that it had previously granted, pending a restudy.

The commission is enforcing a rule aimed at preventing easy profits. In effect, it forbids companies that have been granted price increases to raise their margin of profit—that is, profit as a percentage of sales—above that of a pre-freeze base period. Like most other Phase II guidelines, the profit margin rule is enforced most rigidly against companies with annual sales of $50 million or more. Their officials are currently supplying the commission with report cards on the first full-business quarter after Phase II became effective last Nov. 14. Either through miscalculation or otherwise, quite a few have reported profit margins that were not permissible.

Grayson plans to compel big-product firms—manufacturers of automobiles or steel, for example—literally to refund any overcharges discovered in their records by paying back individual customers. Only one company so far has been dealt that fate on the basis of its profit margin: Houston’s Browning Ferris Industries was ordered to pay back $40,000 to its customers within 90 days, as well as to reduce future prices by a total of $120,000. But Ford’s decision to lower prices on its high-volume models, including its LTD, Maverick and Mustang, may well have been taken in an effort to avoid the enormous paperwork that would be required to make a refund to all first-quarter Ford buyers.

Though the company refused to make public its figures for U.S. operations only—the ones that will be used by the Price Commission—Ford’s worldwide after-tax profit margin of 5.3% was its highest since 1968. Worldwide earnings for the first quarter of 1972 leaped 49%, to $252 million, over those in the same period last year.*

Firms whose customers are difficult to identify—department stores and gas stations, for example—will be required to make restitution of a more theoretical sort. Instead of actually paying out refunds, says Grayson, they will be forced to “disgorge” excess profits in the form of lower prices—low enough to balance out the original overcharges. Grayson’s choice of metaphor was unhappy, since the first products to which it applied were the sandwiches, French fries and other short-order items served up at F.W. Woolworth lunch counters. Their managers had violated the rules by raising prices without obtaining advance approval, and as a result had to lower the tab for a hamburger in midtown Manhattan, for example, from 70¢ to 65¢. Four other large but lesser-known merchandisers were also ordered to roll back prices.

Second Line. The ultimate penalty for “willfully” jacking up prices in violation of commission standards, according to the Phase II legislation passed by Congress, is treble damages. Price Commission staff members are conferring with the Justice Department about ways of getting such damages repaid to consumers without forcing them to sue. Last week, for the first time, the commission ordered a company to lower its prices by an amount triple the sum of its “excess” profits. The accused profiteer was Godfrey Co., a food distributor headquartered in Waukesha, Wis., with annual sales of $126 million. Godfrey’s troubles stemmed partly from the fact that its fiscal year ended in March: the commission figures that only a full-year profit margin can provide evidence that a company’s excess earnings were not merely accidental and thus justify treble damages.

Grayson has described the complex test on profit margins, which was not widely publicized or understood at the beginning of Phase II, as “a second line of defense.” He meant that it was designed to bring down some prices that had already been raised—something that most American consumers have ceased believing is possible. Thus the rollbacks and refunds should inspire some badly needed popular faith in the equity of Phase II.

* G.M. also reported higher earnings—up 6.6%, to $651 million, from the first quarter in 1971. Though the company’s worldwide profit margin rose to its highest point since 1965, G.M. officials said that the domestic margin was within Price Commission guidelines. As a result, they said, no, price reductions on G.M. cars are planned.