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74% Retail Piano Mark-up When
Manufacturers Ceiling Tops 20%
On December 28th the Office of Price
Administration announced that effec-
tive January 2, 1946—Piano and piano
parts manufacturers will calculate ceil-
ing prices on the basis of total cost of
production and sale estimated for the
three-month period following date of
filing.
When such prices are approved, they
will remain in force for four months,
after which they will be subject to re-
adjustment depending on the profit and
loss statement at that time.
The twin actions, were taken through
Amendment No. 3 to revised Order
2626 and Amendment No. 34 to Order
A2 under MPR-188 (manufacturers'
maximum prices for specified consumer
goods).
Two substantive changes are made
pertaining to further adjustments of
individual
manufacturers
maximum
prices over the uniform adjustments
permitted the entire industry and the
calculation of retail ceiling prices after
manufacturers have received adjust-
ments.
Previously, a manufacturer could
apply for further adjustment if he
believed that his maximum prices as in-
creased by the uniform percentage
granted the industry did not equal his
total October, 1941, costs adjusted for
subsequent increases in wages and ma-
terials cost.
The greatest adjustment that could
be authorized under this provision was
an amount sufficient to permit the re-
covery of total cost adjusted in the
same manner used in determining the
extent of the uniform increase granted
to the industry. This provision had
become effective with the issuance of
the original Order 2525 on Oct. 7, 1944,
in order to permit further adjustment
of the maximum prices of individual
manufacturers who had experienced in-
creases in labor and materials greater
than the average experienced by the
industry as a whole.
Need for Relief
Because of the continuous inability
of the industry to obtain a normal rate
or production, the need for another ad-
justment provision which would -give
consideration to other increased costs
became apparent.
Accordingly, Amendment 2 to revised
Order 2525 was issued, effective July
30, 1945. Under its provisions, the ad-
ministrator has authorized further ad-
justments of ceiling prices up to the
individual manufacturer's total costs
as estimated for a subsequent three
month period. However, such an ad-
justment could be granted only when
the manufacturer demonstrated that he
had produced pianos since Feb. 26,
1945, that the total operations had been
conducted at a loss for a period of at
least 90 days since that time, and that
his rate of operations had been as
great as circumstances permitted under
the amendment, the adjustment provi-
sions available to the piano industry
are brought into greater conformity
with those available to other industries.
However, although manufacturers in
other industries may qualify for ad-
justment of their maximum prices only
under one of the two principal types
of provisions, piano manufacturers, be-
cause of their greatly prolonged re-
conversion period, are permitted to
apply under the provision which affords
the greater relief.
Paragraph (D) (1) of the order is
amended by deleting its former ad-
justment provision, and substituting
a provision which authorizes relief
equivalent to that available under sup-
plementary orders Nos. 118 or 119.
Prices adjusted under Supplementary
Order 119 reflect an allowance for
profit in accordance with the recon-
version pricing policy. This is the
principal difference between adjusted
prices fixed under those orders and the
adjusted prices under the previous
provisions of paragraph (D) (1).
Since it has been convincingly dem-
onstrated that the industry although
legally free to convert since the fall of
1944, has not yet been able to obtain
more than a small fraction of its peace-
time rate of production, the provisions
of paragraph (D) (2) have been modi-
fied so that manufacturers applying
under it are no longer required to
demonstrate that they have been pro-
ducing pianos since February, 1945,
at a loss resulting from conditions be-
yond their control.
Paragraph (D) (2), as now amend-
ed, embodies provisions which are es-
sentially similar to those of Supple-
mentary Order No. 133. Adjustments
will be permitted under it when a man-
ufacturer can show that he would
otherwise be forced to operate at a
loss on the basis of present maximum
prices and the rate of production which
can be reasonably anticipated. The
permitted adjustments
will be in
amounts which are determined to be
sufficient to enable the manufacturer
to recover his total costs. Such ad-
justments will be limited to sales and
deliveries during the ensuing four-
month period, but will be renewable
upon application, to the extent nec-
essary to enable the manufacturer to
continue to recover total costs.
Scale of Adjustments
The scale of permitted adjustments
in manufacturers' prices necessarily
affects resellers' prices and margins
also. Revised Order 2525 altered the
method of fixing retail ceilings from
the freeze of individual dealer prices
for deliveries or offerings in March,
1942, imposed by the general maxi-
mum price regulation, to a requirement
that manufacturers compute retail ceil-
ings, which would average out at
March, 1942, retail levels but afford
specific uniform margins to dealers,
graduated according to the price
brackets stipulated in that order. How-
ever, when adjustments were author-
ized for individual manufacturers un-
der paragraph (D) of the order, the
dollar and cents amount of any ad-
justment beyond 20 per cent—the max-
imum absorbable industry-wide adjust-
ment under applicable standards of
the office—was added to the retail ceil-
ing prices. Most of the manufacturers
have in fact received adjustments in
excess of 20 per cent at the present
time, and applications are pending
from several of those remaining. More-
over, the announced standards of the
office for the treatment of manufac-
turers' adjustments at distributive
levels have in the meantime been
liberalized so as to allow for dealers'
margins on a percentage basis equi-
valent to the average realized margins
of 1941. Accordingly, the order, while
retaining the previous retail ceilings
in cases where the manufacturer's ad-
justment is not more than 20 per cent
over his 1941 price, allows for a dealer
markup of 74 per cent when the manu-
facturer's adjustment exceeds 20 per
cent. This is equivalent to a margin
of 42.5 per cent on the retail selling
price, and is within the experience in-
dicated by previous studies of piano
margins. The new provisions super-
sede those of the individual orders
which have fixed dealers' maximum
prices for all pianos shipped on and
after the effective date of the amend-
ment.
MRP Follow
Maximum retail prices are set forth
(Turn to page
9, column 21
THE MUSIC TRADE REVIEW, JANUARY, 1946