President Johnson: : Unclear from Japan, huh?
McNamara: : Yes, he did. He was out in Australia and Japan. He came back, I don't know, sometime between last Friday and today; I don't know exactly when. And he called me yesterday after we got in touch with his man here and why didn't he- well he did call me and said he understood that I was thinking about diverting metal from the stockpile into the defense production and he'd like to talk to me about it. So he set up the appointment for 2 o'clock this afternoon. I met with him and he had his vice president Hickman with him. I told him that the defense production requirements associated with our operations in Vietnam were going to increase between 150- and 200,000 tons above the level of pre-Vietnam; that at the same time I noticed that imports of aluminum were rising; that we couldn't stand continuing increases in imports with our adverse balance of payments; furthermore, that we weren't willing to see any pressure put on our private economy because of increased defense requirements, particularly when we have a huge stockpile here that we ought to draw down.
McNamara: :Therefore, I thought that we ought to transfer during the next 12 months 200,000 tons from the stockpile into defense production. And that, while I hadn't yet discussed this matter with you, I had heard it said that you were so much concerned about import and the adverse effect on our foreign exchange balances that you were thinking 400,000 tons being transferred during the next 12 months. I didn't want to speak for you, but I had understood this is what you were considering. And in any case, I was sure you felt as I did that, whether it was 200,000 tons or 400,000 tons during the next 12 months, that this had to be but the first of a series of annual transfers of substantial magnitude to get rid of a whole surplus of 1,400,000 tons in a reasonably short time. A far shorter period than they were thinking about when they talked of taking 75,000 tons a year for six years, which would only get rid of maybe a third of it and take too long to do that.
McNamara: :Well, he said that this would just bankrupt the industry. Well, I said I couldn't see that because we're only talking about the total of between 200,000 and 400,000 tons for next year, at 500 dollars a ton. And that's only, say, 200,000 tons at 500 dollars a ton's 100 million dollars and that I didn't want to tell him what his profit would be in the industry on 100 million dollars worth of ingot sales. But I was damn sure it couldn't be more than about 10 million after taxes. And I doubted it would be that much. And while the industry's profits perhaps weren't high, they were higher than they had been, and in any case 10 million dollars' reduction even if it came to that wouldn't bankrupt him.
McNamara: : Well, we argued about that for a little while and- let me digress a moment to say, Mr. President, that you may have gotten the incorrect impression from some of these papers that've been sent down to you about the profits in the industry. It's been a sick industry, there's no question about that in my mind. I learned enough about it yesterday to conclude that. Its capital structure is weak. They've got far too much debt and their profits in relation to their equity, and particularly considering the amount of debt they have, are low. But, be that as it may, I think we ought to go ahead and put the pressure on their prices and the pressure on their production that will result from these transfers.
McNamara: : So, we kept hammering away at this and I won't go into all the details other than to point out that he says that if we aren't careful when we push this 200,000 or 400,000 tons on the market that we will force a reduction in the ingot production of U.S. producers and simply allow more imports to come in. I said, "well I can't understand how that would occur." Well, he said some of the defense equipment manufacturers- such as Food Machinery Corporation, which is out in California and makes the armored personnel carriers for us- when they go to obtain the fabricated aluminum plates to put in those armored personnel carriers they go out for bids. And the French and Canadian aluminum manufacturers are underbidding the American manufacturers for that business.
McNamara: : I said, "well, your price structure must be out of line and you're just raising prices. That doesn't make any sense to me." Well, he said "We need the price increase because our profits are so low." He just couldn't answer that question. I said, "Alright. If that's the case, I think what we could do is to insert into our defense equipment procurement contracts, with Food Machinery or other corporations of that kind, a clause to say that they had to buy their fabricated aluminum from producers who use ingots from the stockpile. "Well," he said, "alright. That'd probably take care of that problem."
McNamara: : Then he went on to say "You know, we've been trying to get the government to sell us from the stockpile." He said, "as an industry, we take 75,000 tons..." I said, "yes, but that's not enough." And, furthermore, he insisted on a six year contract of 75,000 tons a year and that's completely unsatisfactory. "Well," he said, "if we could be sure that other producers would take their share, and, particularly, if you were willing to put some kind of a clause in your disposal of these- or transfer of this ingot production from the stockpile, it would ensure that the imports didn't substitute for U.S. production." And he said if we could "increase the quantity sharply..." those were his exact words.
McNamara: : I said, "well you'd better figure out how this can be done because we're going to have to do it." He said, "okay," he'd put some of his- what he called "bright boys" to work on it. So, I said, "I'm not making any kind of a deal with you. I'm not suggesting I'll defer action or anything else. I'm just saying that we've got to go ahead and do it. I understand some of your problems, you understand mine, and we're just going to have to make this transfer." So he said well he'd think about it. And we broke up on that basis.
President Johnson: : Unclear.
McNamara: : Well, there's no question in my mind about whether we ought to take 200,000 tons out of the stockpile. I think we here have got a little work to do to figure out how to do it with the least disruption in the American market. And he's going to give some thought to it.
President Johnson: : What's he going to do on his promise?
McNamara: : Well... Oh, he was very upset about the presumed relationship between the diversion from the stockpile and the price. He said we were threatening them. I said we weren't threatening a bit; I said, "price is entirely out of sight of my line." I said, "no connection whatsoever. Entirely coincidence." Then we began talking about stockpiles on Saturday and Sunday when the price increase was announced Friday.
President Johnson: : We've been talking to him about stockpiles all year.
McNamara: : Well, that's right. But he says this thing all accelerated. I said, well, I don't know, I couldn't control Olin Mathieson which announced the price increase. I said, "I've been working on the increased defense production and the stockpile related to that since July 20. And it just happens that we're getting to the point of taking some action and it got to the press. But there's no connection whatsoever between price and stockpile transfers." Well, he said he was glad to hear that. And it's perfectly obvious, Mr. President, that this transfer from the stockpile is going to have an effect on price.
McNamara: : Now, whether it will prevent this particular price increase from going through Alcoa, I don't know. I think it might. I think the chances are only one out of three that it will. But if it doesn't prevent this one it will sure as hell prevent the next one. In any case, I think we ought to go ahead with this. I am inclined to think he may call you. He said to me that he'd been trying to keep you informed of their price position through Gardner Ackley, and that he had told Gardner Ackley that the prices today are below those in 1961 and would have to be raised.
President Johnson: : He always does that. He always comes back and unclear how he used to get "forty cents a pound for cotton in Wilson's administration, forty four cents for my cans in Truman's administration. Now I get 20 for my cotton and 22 for my cans." It's just changed as much. And you can't always get what you want, Scott. But he's in front of increases for the last two years and his profits have gained considerably over what they were and he's doing wonderfully, whether he wants to compare himself to the market and let everybody come in and take away from him, I don't know what to do with him.
McNamara: : Well, we ought to keep the pressure up on him, Mr. President. For your own information, his profits are lousy. And he's got a very heavy debt, and the industry's debt structure is unbelievable. I couldn't believe it when I looked into it yesterday. But, anyhow, that's- I just didn't want you to be misinformed on how profits have been. So we- I think we ought to go ahead and transfer 200,000 tons. Now, I think we ought to do it in a way that will cause least trouble to the industry and I haven't got all those details worked out yet.
President Johnson: : I agree with this so hurry as much- as fast as you can. And I don't know who it is that can talk to him.
McNamara: : Well I don't either. I'm so new to this I just don't know very much about it. But I'll all the group together tonight or tomorrow, those in the government who might know something about it, and see if I can work out something.
President Johnson: : McNamara agrees throughout And maybe someone can find out from Herb Bercham, his lawyer, how Harper thought the meeting went. And just incidentally, without any thing, just say I assume y'all are not going along with this crazy Mathison move. See if he gives you any indication. I think we ought to feel that a little bit.
McNamara: : Alright. And we're-
President Johnson: : Anything we can do on these peel imports, boss?
McNamara: : Mr. President, I frankly don't know. Joe told me this morning of your concern on it and we're going to try to get- first get the council of economic advisors to draw together some information on it, then get Fowler and me and Saunders together and see what can be done. I just frankly don't know the answer to the question. I didn't have any idea that aluminum imports had gone up as they have. I got the council to get the data together last night and I threw it in Harper's face today and it's just unbelievable to me what's happened here.
President Johnson: : What'd he say?
McNamara: : Well, he said, " I don't agree with those figures." Well, I said, "what figures do you have?" And, hell, he didn't have any different by about 2 percent on last year. So we came to the agreement that that wasn't much of a difference. And then he said they're not going to go up as much as I said they're going to go up this year and I said "well, I got this from the department of commerce and they said they're accurate." Well, he said he didn't think so. And then we talked about next year and the figures I got together show that next year's imports will be 50 percent higher than those of last year. 1966 versus '64.
McNamara: : Well, that shook him a bit. It was then that he told me about this Food Machinery deal, in which they'd wanted the aluminum plate for the armored plating from France. I go, "well how could that be? How in the hell could they supply from France a fabrication cheaper than you can supply it here?" He'd just told me you had to have fabricating plants near your market. I said, "Well, the French fabricating plants aren't near your market. How did that happen?" Well he said that the French had a cost advantage. And I said, "well, why are you raising your price on ingots?"
McNamara: : Well we just went 'round and 'round and I don't think either one of us got much satisfaction out of that. But the fact is that the imports are going up. I'm absolutely persuaded of that. And I'm absolutely persuaded they'll go up more if we don't transfer from this stockpile. Johnson interjects, unclear And I'm sure the price will go up more if we don't transfer from the stockpile. Now, I'm not sure that transfering the stockpile will hold down this unclear increase at the present time. I just don't know about that.
President Johnson: : Okay. I don't guess there's any aluminum you could substitute for steel is there?
McNamara: : No- there is, but- We're doing every bit we can at the present time; in this armored personnel carrier, for example, we're substituting aluminum armor for steel. We like to substitute aluminum for steel wherever we can because it's a weight reduction.
President Johnson: : How is your battle going out in Vietnam?
McNamara: : Well... pretty well, Mr. President. We will have a paper for you, as I think Mack may have told you, end-week next week after Dean and Mack and I work further on it in relation to Vietnam. The current battle is going along very well. The problem is that it's not producing the conditions that will almost surely win for us. It may, but it probably won't. And, therefore, we're going to have to pose the problem to you and suggest some alternative solutions to it.
President Johnson: : Who sent Kissinger out there, Bob?
McNamara: : Christ, I don't know. But he certainly flew off in the paper this morning. I read in the Cable that Lodge had asked for him. I don't know if it's true or not.
Sustained tone interrupts audio
President Johnson: : What'd he say?
McNamara: : Well, the Washington Post has a story under the byline of the Los Angeles Times reporter which says... well, the headline on the front page is "A rule of selfishness: Saigon political views dismay LBJ envoys. Recent emissaries from the White House are returning home 'dismayed' by the almost total lack of political maturity or unselfish political motivation they found among current or potential leaders of the South Vietnamese government."
McNamara: : "Although the emissaries themselves are not talking, they are known to be the findings of Professor Henry Kissinger, the noted political scientist, and Clark Clifford, the Washington lawyer and adviser to Presidents- both of whom have been recent visitors to Saigon." Then it goes on and it talks all about Kissinger- doesn't say anything about whoever did it. "There are authoritative reports that Kissinger will tell the White House that there is not yet a cohesive national government here primarily because nowhere among the nation's leaders is there a true sense of dedication to the nation." Or, "to the nation," and so on.
President Johnson: : Who in the hell let these folks get in?
McNamara: : I don't know. I don't know. I- I-
President Johnson: : Tell Mack to find- end of recording